Venezuela surrenders on socialist fuel subsidies

It looks like the end of the road for detested Venezuelan dictator Nicolás Maduro.

He's actually surrendering on a socialist principle, or thinks he can sufficiently corrupt it to keep it socialist without saying so.

Maduro has announced the end of subsidized gas at Venezuelan filling stations.

Venezuela's president has said its subsidised fuel prices should rise, to stop smugglers cheating the country out of billions of dollars.

"Gasoline must be sold at an international price to stop smuggling to Colombia and the Caribbean," Nicolás Maduro said in a televised address.

Like many oil producing nations, Venezuela offers its citizens heavily subsidised petrol.

Gas there has been subsidized within an inch of the country's life; it's sold at a price so low that one gringo dollar will buy you 925,000 gallons of premium at the pump.  Take a look at how bad it is from this chart.

This is why there is no gas, of course, and the whole country is breaking down and falling apart – all in the name of socialism, providing gas for "the people" instead of those dreaded corporate profits.

It's been a problem for a while.  Venezuelan blogger Miguel Octavio, writing in 2011, noted the perverse incentives in these subsidies, which, in the end, serve only the rich.  He's been writing about that for years.  You can scroll back on his site and find doozies about it such as this:

Of course, in Venezuela, much like what has happened in Iran, this subsidy has a compounding effect, as people use gasoline more and more, because it is so cheap and oil production is going down simultaneusly [sic], so that you get hit twice, as more of the lower production has to be used internally.

Of course the place is falling apart.  And Venezuelan oil production has just fallen to 1949 levels, which was reported the other day in Russ Dallen's excellent Latin American Herald Tribune.  You can see from his chart what a disaster that has been for Venezuelan oil production, which is pretty much the only source of Venezuelan government income now that the private sector has been crushed as another byproduct of socialism.

Maduro's move to end subsidies appears to be a genuine free-market concession, and quite a large and dramatic one, given that the Venezuelan government has had these subsidies since the pre-Chávez era, although they really got bad when Chávez and Maduro took the helm.  Maduro says it's due to fuel-smuggling, but in reality, it's due to empty government coffers.

If Maduro were really serious about ending Venezuela's pain, he'd end all price controls and currency controls, which were enacted for the same bad reasons price controls on gas were, and have had the same deleterious effect on the food supply and the medical supply and pretty much everything else.  Obviously, Maduro is thinking of only himself and wants his government financed, the better to repress the people who still suffer under those other price and currency controls in the name of socialism.  Maduro served himself first with this concession.

One hopes it won't be enough, given that, as the BBC notes, fuel hikes lead to big riots in Venezuela.  I suspect that Maduro knows this and his back is against the wall, so he is willing to take a chance.  He is likely hoping his "car census" will keep the subsidies he does release under control, but knowing how efficient his government is, that is a big stretch.

What will likely happen is even more chaos as his free-market surrender leads to more pushes for more surrenders of socialism or else to a revolt.  Maduro has been absolutely steadfast up until now about holding to socialism even as the country collapses around him.  That he is moving to end his first subsidy suggests a desperate recognition of economic reality and a greedy move to save himself first.

Image credit: Bob J. Galindo via Wikimedia CommonsCC BY-SA 2.0.

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