Venezuela price of gas is 10 cents a gallon, CARACAS, Venezuela—In this dilapidated tropical capital, most prices go up monthly, and essentials like milk and flour are hard to find. But one item is ubiquitous, and practically free: gasoline.
Premium gasoline in Venezuela costs 5.8 U.S. cents a gallon, using the official exchange rate. At an informal currency exchange rate that prevails for most transactions, it is even cheaper: 1.5 cents a gallon.
Premium gasoline in Venezuela costs 5.8 U.S. cents a gallon, using the official exchange rate. At an informal currency exchange rate that prevails for most transactions, it is even cheaper: 1.5 cents a gallon.
Octavio Fernández fills his Nissan Sentra taxi for less than half the cost of a marroncito, or tiny cup of coffee. Sometimes he leaves more in tips to pump attendants than he pays for fuel. "It's the only cheap thing we have here," the 77-year-old immigrant from Spain says.
Under 14 years of rule by the late President Hugo Chávez, Venezuela kept gasoline prices frozen even as rising government spending spurred robust overall inflation. Gasoline went from being cheap to seeming almost free.
The subsidy is emblematic of Mr. Chávez's economic policy of populism. Through policies that included virtually giving away gasoline and diesel fuel, he made himself enormously popular but damaged long-term prospects for Venezuela's economy and set it up for troubled times in years to come.
Now Venezuela is about to elect a new president. Economic distortions caused by giveaway gas loom large among the crises the winner of an election on Sunday will face.
The fuel subsidy helps explain why Venezuela finds itself in an unusual situation: A major oil exporter that is chronically short of cash. Venezuela's budget deficit reached 12% of gross domestic product last year, according to Moody's Investors Service, MCO -0.68% worse than in troubled euro-zone economies. A lack of dollars on the street—because the government hoards them—has led to shortages of imported goods, even as price controls discourage Venezuelans from producing many items locally.
The cash crunch means state oil giant Petróleos de Venezuela SA invests too little to fully develop its potential. Crude-oil output is down by a quarter from 1998, the year before Mr. Chávez came to power.
At the same time, Venezuelans' use of gasoline and other refined products rose 65% in 2011 from 1998, according to the U.S. Energy Information Administration. Compared with next-door Colombia, where market prices prevail, Venezuelans used nearly seven times as much gasoline per capita.
That plus Venezuela's crumbling refinery network leaves the country with the largest crude oil reserves in the world needing to import gasoline.
Its energy subsidies, the International Energy Agency calculates, cost Venezuela $27 billion in 2011, a figure that reflects cash left on the table by not selling fuel at market prices. That was equivalent to 8.6% of gross domestic product. Government spending on health was 3.25% of GDP that year, and on education, 5.1%.
The gasoline subsidy limits spending on basic services like infrastructure repair and crime control, says Michael Shifter, president of The Inter-American Dialogue, a Washington think tank. To him, the policy "is completely contrary to state building projects, which is what Venezuela desperately needs."
That doesn't mean it is likely to change. Many ordinary Venezuelans see cheap fuel, which has been government policy in one form or another since long before the Chávez years, as their fair share of their country's prodigious oil wealth.
It is a rare perk amid surging inflation, shortages of some goods and one of the world's worst crime levels.
Though some government officials are critical of the policy, neither of the candidates in the election to succeed Mr. Chávez—acting president Nicolás Maduro and opponent Henrique Capriles—is talking about tampering with the fuel giveaway.
Read more
Under 14 years of rule by the late President Hugo Chávez, Venezuela kept gasoline prices frozen even as rising government spending spurred robust overall inflation. Gasoline went from being cheap to seeming almost free.
The subsidy is emblematic of Mr. Chávez's economic policy of populism. Through policies that included virtually giving away gasoline and diesel fuel, he made himself enormously popular but damaged long-term prospects for Venezuela's economy and set it up for troubled times in years to come.
Now Venezuela is about to elect a new president. Economic distortions caused by giveaway gas loom large among the crises the winner of an election on Sunday will face.
The fuel subsidy helps explain why Venezuela finds itself in an unusual situation: A major oil exporter that is chronically short of cash. Venezuela's budget deficit reached 12% of gross domestic product last year, according to Moody's Investors Service, MCO -0.68% worse than in troubled euro-zone economies. A lack of dollars on the street—because the government hoards them—has led to shortages of imported goods, even as price controls discourage Venezuelans from producing many items locally.
The cash crunch means state oil giant Petróleos de Venezuela SA invests too little to fully develop its potential. Crude-oil output is down by a quarter from 1998, the year before Mr. Chávez came to power.
At the same time, Venezuelans' use of gasoline and other refined products rose 65% in 2011 from 1998, according to the U.S. Energy Information Administration. Compared with next-door Colombia, where market prices prevail, Venezuelans used nearly seven times as much gasoline per capita.
That plus Venezuela's crumbling refinery network leaves the country with the largest crude oil reserves in the world needing to import gasoline.
Its energy subsidies, the International Energy Agency calculates, cost Venezuela $27 billion in 2011, a figure that reflects cash left on the table by not selling fuel at market prices. That was equivalent to 8.6% of gross domestic product. Government spending on health was 3.25% of GDP that year, and on education, 5.1%.
The gasoline subsidy limits spending on basic services like infrastructure repair and crime control, says Michael Shifter, president of The Inter-American Dialogue, a Washington think tank. To him, the policy "is completely contrary to state building projects, which is what Venezuela desperately needs."
That doesn't mean it is likely to change. Many ordinary Venezuelans see cheap fuel, which has been government policy in one form or another since long before the Chávez years, as their fair share of their country's prodigious oil wealth.
It is a rare perk amid surging inflation, shortages of some goods and one of the world's worst crime levels.
Though some government officials are critical of the policy, neither of the candidates in the election to succeed Mr. Chávez—acting president Nicolás Maduro and opponent Henrique Capriles—is talking about tampering with the fuel giveaway.
Read more
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