Pero Tenemos Free Gas

pagare pdvsaOmar Z., over on his increasingly invaluable blog, points us to the nub of the nub of the issue: the enormous, fast-growing debt that PDVSA has been running up with the Central Bank this year.

If you’ve been paying attention you already know that, more than anything else, it’s the uncontrolled growth in the money supply that’s driving the growing macroeconomic chaos we’re seeing in Venezuela.

The finer point, though, is less often made: more than anything else, it’s the uncontrolled growth in money-created-to-be-loaned-to-PDVSA that’s driving the growth in the money supply.

To be clear, running up debts with the Central Bank isn’t like running up debts with a normal bank. When it’s the Central Bank you’re borrowing from, the money you’re getting is hot off the printing press: money created exclusively for this purpose. That’s why this kind of “monetized debt” is a four-letter word for economists: it has inflationary impact on a scale that’s different from normal money.

Which is why it’s hard to look at that chart without a deep sense of foreboding. It’s not just that PDVSA’s tab at the Central Bank has risen 150% this year, it’s that the Central Bank has created 100+ billion bolivars out of thin air for PDVSA to spend in the last four weeks alone.

There’s a Yakov Smirnoff joke hiding in there somewhere: in Soviet Venezuela, it’s Central Bank that bankrolls state oil company!

The thing is, inflation doesn’t give a shit that 99,999 Venezuelans out of 100,000 don’t understand that what’s driving it is this obscure BCV-PDVSA financing mechanism. It gets driven all the same.

Here, a dark thought insinuates itself: even at the insane official rate, the Bs.400 billion the BCV has printed up for PDVSA to spend comes to around $63 billion. Spread over the last five years, that’s around $13 billion per year which, depending on whose sums you go by, is either a little more or a lot less than the cost to PDVSA of giving away gasoline in the internal market for what amounts, centavos más centavos menos, to free.

Take a minute to think about what that means…

It’s means this entire thing, the whole of the macroeconomic mess, all the crazy dislocations of the last few years, the raspaíto, the impossible-to-find milk, the shoving matches for perniles, the cars that suddenly jump up in price as they roll out of the showroom, all of it (and, much worse, all of what’s to come) all of it is – to a much greater extent than almost anyone realizes – just a knock-on effect from the financial chasm left in PDVSA’s finances by the gasoline subsidy!

The hundreds of thousands of ruined life plans, the destruction of any savings held in bolivars, the massive disruption in the day-to-day life of basically every household in the country, the looming threat of hyperinflation, all of that is so some asshole in an SUV can keep spewing CO2 into the atmosphere for cents-per-tankful.

We’ve barely begun to digest, as a society, the scale of the damage damage the gas subsidy has done. It brings to mind nothing so much as The Pratt Principle: Daniel Pratt’s brilliantly concise summation of the entire political economy of chavismo,

Tienes un billete de 100 y lo estás vendiendo a 5. No sólo eres un güevón, sino que tarde o temprano todo se irá a la mierda.

E. ‘Nuff. Said.

[Hat tip: Omar Z. Again.]

78 thoughts on “Pero Tenemos Free Gas

  1. It can be free gas or it can be guayana’s industries or it can be pay-in-25-years oil for petrocaribe: money is fungible. I am not a free gas advocate, but that money can really be a any wasteful economic activity the government has done in the past. Of course free gas seems to fit the number very precise.

    • It’s a question of scale. Shocking as the Guayana Industries’ wastefulness is, we’re talking maybe a few hundred million flushed down the toilet each year, not tens billion + dollars a year. The best estimate I’ve seen of the cost of the subsidized forward oil sales is $3.2 bn/year. These things are idiotic, yes, but as a matter of sheer arithmetic they’re nothing like on the scale of the gas subsidy.

      Botamos en esa mariquera el costo de un Mundial de Fútbol al año!


      • Why is it so staggering? Revenues from PDVDA are almost US$100 billion per year – plus Seniat and other revenues so why should gas prices rise? The state can afford this subsidy no problem amd with external debt at arpoud US$104 billion in the context of a US$400 billion GDP there is no problema at all.

        Internal debt in Bs does not matter as we can devalue our way out of that if necessary.

        In other words it”s more bitching and whining since you are oblivious to any positives. Inflation much lower in the chavista years; poverty has fallen; more education; more universities, more food production.

        Of course there are some negatives as we all know but no one is saying that there are not any problems and Maduro is smacking dfowen the bourgeoisie that wants to destroy the economy. overthrow the government and hand our oil on a silver platter to Exxon, Chebron and other multimationals.

        You expect high inflation when prait margins were running around 500%.

  2. The fuel subsidy is different from those other money-losing projects in that it loses money multiple times. It’s a negative with a multiplier. Money given to El Salvador is only lost once. But money blown on cheap gas also increases traffic, harming the urban environment and sucking up everyone’s time, reducing education and social life. It pushes people onto motorcycles rather than the bicycles that have been proliferating elsewhere in South America. That increases trauma cases while leaving people with poor cardiovascular health. Cheap gas probably increases smog, though Venezuela doesn’t release air monitoring information so it’s hard to know. All of these cause other expenses in public health and reduced economic activity.

    And every year with cheap fuel, it becomes more an architectural, structural part of the environment, one that will take yet more effort to change. For example, people rely on cheap fuel as they buy homes ever further out into the urban sprawl (think Charallave, La Victoria, La Guaira). Interurban bus companies get used to over-air-conditioning coaches to keep smells down without proper cleaning. Rich and powerful people install inefficient home generators rather than adding to pressure on the electric company to end blackouts; they then become constituents for continued cheap fuel rather and at best apathetic about the common good of a better electricity system. Even the oil industry itself is increasingly relying on truck transport rather than much more efficient pipelines, and it can “afford” to do so because fuel is so “cheap.” The urgency of pipeline construction would be greater if not for this silly policy.

    And what’s the justification for all of this? The false history of the Caracazo. There is a myth that the Caracazo was caused by a fuel price increase, when it was really caused by a long-term organising campaign by anti-government groups and a trigger of the overall paquetazo of price increases in all aspects of life. The fuel price was low on the list, the real immediate trigger everyone mentions was that bus fares went up.

    But while fuel prices have stayed the same in nominal terms since at least 1997 (and have dropped dramatically in real terms) nominal bus fares have multiplied several fold. And there haven’t been protests. At this point, the cost structure of bus fares is probably all about spare parts and traffic; higher-priced fuel could potentially reduce traffic and make bus driving more profitable rather than less.

    The whole basis of the low fuel price is fear. Fear of a false history. It’s really sad.

    • “There is a myth that the Caracazo was caused by a fuel price increase, when it was really caused by a long-term organizing campaign by anti-government groups …”

      That’s exactly right. And, and, those very same anti-government groups, thugs and street fighters who whipping-up the masses during the 1989 Caracazo are now sitting in positions of power, some of whom have even acquired cabinet positions. Unlike the previous governments, however, these new power brokers will show no mercy to those that threaten them. The Nazi’s of 1933 understood that as well…. .

    • This is a really interesting point, following on an interesting post. Is it really true that the population would go berserk if gas prices were to rise, even a modest amount? That gas prices are the third rail of Venezuelan politics is the consensus.

      As I have thought a thousand times when I am in Venezuela, for billions less than the cost of the gas subsidy the government could expropriate all those private buses, build a national public transportation system, and get people to where they need to go very cheaply. The one damn thing that capitalist governments do almost universally, bolivarian socialism seems incapable of even thinking about doing. Instead, they are in the business of making…yoghurt….

      • It seems to me (as an outsider) that the gas price is very much in line with the “we’re a rich country” rhetoric. Raise prices and you’ll hear people say “coño, but we have the world’s largest reserves” or “why on earth did we raise prices while we’re still selling our our oil to the US/giving it to the Cubans/letting Colombians steal it etc etc”.

        It’s like you owned the world’s biggest dairy farm, everyone in your family would like you to give them free cheese, even though the price to produce it, transport it, inspect it, label it, etc. has gone up. “But you’re drowning in milk!” is all you’d hear every christmas

        • No, they wouldn’t, actually, because you’d be selling the cheese for good money and giving gifts that the people actually needed. Perhaps some might get cheese, but most would get books, socks, etc. Hmmmm could there be an analogy here?

          • The crazy thing is that you’d get your family the “normal” gifts (books, socks, sweaters…) AND your grandma would also tell you off for not putting on top of that a huge hunk of cheese for every primo, suegra, nuera and compadre in your family. “But grandma, I already got a gift for my closest relatives”. “Pero mijo, you have all the milk in the world, you can totally give away cheese to everyone!”

      • Canucklehead,

        Is it really true that the population would go berserk if gas prices were to rise, even a modest amount?

        I think even to pose the question this way is to subtly mangle the issue. The real question, for me, is:

        Is it really true that raising the price of gas would be more likely to make the population go berserk than covering the financial hole the gas subsidy causes by monetizing so much PDVSA debt that inflation hits 50% a year (and still rising), basic necessities disappear from store shelves, people’s lives are taken up more and more with interminable lines for necessities, etc. etc. etc. etc.

        The standard line, which interprets the gas subsidy as a steep but necessary price to pay for social peace is fatally undermined by Omar’s chart, which shoes the cost of the gas subsidy is now creating exactly the crazy dislocations in people’s day to day lives that were the real driving force behind the caracazo…

        • Except Maduro et al have a story about these dislocations – one that places the blame squarely with the private sector. And it’s a story that is gaining traction. As always in today’s Venezuela, it’s bad policy plus – the plus is the media hegemony.

        • if the government decided to increase the price of gasoline by 100%, this would have almost zero impact on PDVSA’s cost structure while it would have a very negative impact on the government’s image as imbeciles like Arturo still think that “the state can afford this subsidy”, so people like him would blame the increase solely on the government. However, if they continue to give away gasoline, 99,999 out of 100,000 will never connect the disastrous current state of the economy and the cataclysm that is about to happen with the subsidy to gasoline. Cheap and reckless populism. Blatant demagogy. Widespread ignorance. January 2014 will be a month to remember in the history of Venezuela.

        • I remember one time we were at the university talking about the gas subsidy between classes with a few of my classmates. As I was talking about how the price of gas in this country is ridiculous, I got a strange look on the faces of everyone, like I was a looney for being against the gas subsidy. I even sugested that I would be willing to pay Bs. 500 (peanuts…) to fill up my 97′ Chrysler Neon, and everyone went berserck at me for my suggestion, that I was out of my mind, that it was way too expensive…

          This was amongst economics, business, and law students, and I study at one of the most expensive private universities in Venezuela. If this is what the elite thinks, it is needless to say what the rest of the population thinks.

    • Sapitosetty, how do you know Caracazo was organized? Is there any evidence? Idk, it seems to me after a decade where people’s income per capita dropped by 30%, something as small as a gas increase could trigger protests / looting.

      The way I see it, estallidos sociales are very hard to organize. They are mostly a non partisan manifestation of people being pissed (the anti-partisan rhetoric came AFTER the caracazo). I even think an estallido social under maduro would not necessarily be against PSUV but rather against decaying economic conditions.

      • It was. The military top and CAP stupidly sent the recrutas to the cities so that they would play the usual cat and mouse game the police was playing until then with the trouble makers in previous years but they were very well framed by certain groups of those within lefty organisations. Nobody could know exactly how bad it would go but the extreme left has organised this kind of things before and they were planning this.

        There were several people from the extreme left who were caught in this shit urging people to riot.
        A couple of people in this forum who were then living in those slums (Moraima is one of them) also remembered very well how friends of theirs who were very much into the extreme left groups in the slums warned them beforehand something big was planned that day.
        We know these people had got training for many years from the such as KGB (I have shown before the original and translation of a KGB report on one of them, I still know where that guy votes and he belongs to the Farías clan of the KGB). Quite a few of those who used to go to the Soviet Union to “study” would get recruited or were already sent with that intention by the Partido Comunista de Venezuela.
        I was a teenager and I wasn’t a commie but I knew very well the milieu.
        They also knew the military was infiltrated with a lot of theirs.

        Why do you think we don’t have an independent report of those times?
        Venezuela is not Colombia and the population distribution is quite different. You cannot “disappear” now so many people as the paras and the FARC were able to do in Colombia’s more extended rural areas with permanent political mayhem and of very difficult access.
        Most of the riots happened in major cities on the coast and a couple like Barquisimeto. Almost every Venezuelan had an ID and family. How do you think it is possible some people say there were 270 people killed and others 3000 to 5000? Where are the lists of those 4730?
        They got a myth and they didn’t want that myth revisited. It helps even most graduate Venezuelans don’t even know in what century – more or less – they got our independence or in what century – more or less- Spaniards arrived to the region but they do know every time Bolívar supposedly said anything.
        Investigative journalism? We know what it is.

        Very few of those who did not live in the slums around Caracas and Charallave etc know
        how organised the communist centres were there. They were a tiny minority, they were visited by a bunch of “losers” like the Jaua and

        • OK, I think it’s quite possible that there were agitadores. My parents,though, never mentioned anything about this (we lived in la Paz, Mun Libertador). That’s why I ask how we know these protests were organized. I guess it’s just hard to collect evidence of systematic “agitacion” by left-wing groups.

          • I would guess that you know more about it than I do. I am just repeating what I’ve picked up from articles, books, and talking to people — along with my inclination to believe that there was some organization. I have enough experience in movements to know that things that look spontaneous sometimes aren’t.

          • I wish Moraima could come here and comment. As I said: only a few knew about it there. Moraima got to hear about it because she was close to one of the organizers – because he liked her, as she said.

            I did not live in slums in Caracas but I happened to know some of those groups. I used to go to the Soviet embassy and to the Casa del Partido Comunista (not for communism but for Russian books) and I was observing them at the UCV back in late 1988 and trying to make sense of them (and very pissed off because they were creating a lot of problems for the university). They were more than just “throwing Molotov bottles to lorries at the Plaza Venezuela when the opportunity comes”.

            They would never have been able to provoke what they did if the conditions hadn’t been ready but those conditions would have never lead to such massive riots hadn’t they had an actual plan and training. As I said before,
            a few of them got specific KGB training for “insurgence” and “rioting”. The document I referred to – not the only one – describes how the KGB training started for Lenin Moreno Faría, a former professor and member of a family very much involved in the PCV/PSUV (one of them is currently a deputy). And these people would train other people in Caracas and other places.
            These people kept not just indoctrination groups but also rioting networks in the barrios. These groups were not centrally organized, but had quite light, sometimes unstable links, just like many terrorist organisations.

            You should also check the article in the link I provided. Read specially the last part. The way Carlez’s brother was killed on 28 Feb 1989 by a sniper is peculiar, to say the least.

            To PM:
            Thanks. I’ll give it a try.

        • Also, Kepler, I owed you this: . You can compare Giordani’s writing to that of the guy from Aporrea. The way I see it it could be him..

          I couldn’t find his book reflexiones sobre lo cotidiano, although I did manage to find this quote from it(

          “Por el alto costo ambiental y social que tienen las empresas básicas, y de las deudas que tiene con el ambiente y sus trabajadores, lo mejor que se puede hacer con las empresas básicas es el cierre temporal o definitivo de las mismas”

      • The caracazo wasn’t caused by left-wing quemabuses, it was detonated by them.

        Which is quite different.

        There had been little far-left grouplets organizing little confrontations with the cops every damn week from the pacificación in 1971 to 1989. Every major city in the country had at least one little group like that, often linked to the student left but also tons with commie labour movement roots. The original tupamaros were in that bunch, the old pro-Catia bunch Alfredo Maneiro and Aristobulo put together, and way too many others to count. They’d go out, burn a few tires, maybe a bus, get water-cannoned by police, a few of them roughed up and detained in the helicoide for a while and let go. This was normal.

        Then, one day, in the morning of 27F1989, the umpteenth thousands such little protest suddenly caught fire across the country. This isn’t something that the Bandera Roja kids out raising hell that morning in Guarenas could imaginably have predicted.

        What caused the caracazo was the sense of dislocation in people’s expectations for a better life that the chronic underperformance of the Venezuelan economy over a decade and a half of failed macroeconomic policies had been building up. What caused the caracazo was rage over the collapse of a process of middle class formation that had been going forward from the mid 1930s to the mid 1970s and then suddenly shifted into reverse.

        Forget about Bandera Roja, and double-forget about the price of gas. What caused the caracazo was a process of macroeconomic decay marked by high deficits, unsustainable use of reserves, opaque parastatal debt accounting and lack of accountability very much like the one we see today.

        • Obviously, the grass was very dry, they just set the matches on the best places, they, even if they were as divided as the Judea Liberation Front and all its splitters.

          Do you think the people who are ready to riot will react to this government the way they reacted to that one?
          That the government will be so clumsy as to do what the CAP government did back then? I don’t think so.
          José Vicente Rangel has talked for years about the oppo wanting to promote guarimbas and the whole government propaganda has been more than ready to point at any act of chaos or violence as sponsored by us.
          I think the grass is very dry – not quite as dry as back then for the poorest, though- and yet even if it gets as dry as back in 1989, I am not sure how the situation can evolve.

          If someone else than the Chavista top were to take power in the next couple of years I would only imagine something like Colombia’s La Violencia on a smaller scale. But that is another process, long term and possibly more violent.

        • “Forget about Bandera Roja, and double-forget about the price of gas. What caused the caracazo was a process of macroeconomic decay marked by high deficits, unsustainable use of reserves, opaque parastatal debt accounting and lack of accountability very much like the one we see today.”

          quico, you have just described the current situation and yet it doesnt seem were even close to something like the caracazo (and the cadakazo no cuenta). Es el mismo pueblo, so, I have to agree with kepler on the fact that “the grass was very dry, but they set matches on the best places”. Algo tiene que romper la inercia,

        • Quico, the leftist groups of the day played a key role for they incited the barrios because there was NO police protection. Lots of things came together that day to produce the perfect storm. The looting took place because they could, there was no one to stop them. Looting will take place anywhere in the world even today in the USA…just remove the cops and presto.

        • This regime, majestically took over the Caracazo for PR purposes little was done to stop them. For years the regime has been unabashed and unfettered peddling its version of the Caracazo with thousands buried in unmarked graves. Neoliberalism caused all of this and nobody challenged the regime. The international press ran with the regime’s version of events for years and they still do albeit a little better. Today the veteran journalists covering Venezuela may have learned otherwise about el Caracazo but its still a powerful propaganda piece for the regime.

        • Correct. He was one of the leaders who was killed chasing someone into a house. His killer got away. The military was furious over his killing and raided a nearby hospital and took away three injured civilians believing one of them might be his killer. I have a friend who was responsible for protecting the president that day…jefe de escolta presidencial. What a day it was.

    • Correct on el caracazo. Key was the cops where on strike that day. Many sectors where left without police protection. The president was out of the country and the leftist groups of the day started inciting the cerros. Take the cops out of anyplace and you will have looting and rioting even in the USA (granted it has to be poor neighborhoods). The army was out of control and it was the leaders of MBR-200 who led the massacre (one of them was shot and killed prompting a fury of revenge).

  3. For a while I’ve been playing around with numbers to try and make sense of the price of gas in Venezuela. Today is a “good” day since the voldemort dollar is pretty much 10 times the official one so I know Google’s answer is off by a factor of 10 which is easy to compute. Nonetheless, approximating the cost of gas in Venezuela as free! works pretty damn well, which is very telling in is own sense. In any case, I came up with this thought experiment.

    Imagine there was a straight highway between Bogotá and Caracas, with gas prices at their current values at each end, and the price of gas changing at a constant rate. The prices are approximated to 5 USD/gal in BOG, a slight overshoot for regular gas, and *just* below the right price for “premium”, and at 0 in CCS, with a distance of 1000 km (a slight overshoot). (Sorry for the imperial/metric mix, we Colombians are under the imperial yoke of the yankees and measure gas by the gallon)

    Imagine you started driving from Caracas to Bogotá to have an ajiaco, get the view from Monserrate and get annoyed at traffic in a different country. The price of gas would go up by 1 US cent/gallon every *two* kilometres!

    If you travelled 200 km away from Caracas and stopped for gas, it would cost you 1 USD/gallon, 25 cents/liter. At the voldy rate, that’s 15.5 BsF/litre!! (or 1.5 BsF/litre at the official rate).

    Halfway through, the price of gas would have gone to 2.5 USD/gal, 62 USD/litre. Which is 39 BsF/litre (parallel) or 3.9 BsF/litre (official)!

    Gas at 2.5 USD is a distant memory for me (more than 10 years ago), but it’s outrageous from a Venezuelan point of view. That’s how crazy this is. And let’s remember that the prices don’t go down like this, there’s a *huuuuge* drop/rise at the border, fuelling (hehe) the pimpinero business.

    • How good is my approximation that gas is free? In my model (under the parallel rate), you’d have to drive just 540 m from the starting point to arrive at the actual price in Venezuela!

      • PDVSA gives gasoline free to the filling stations, which in turn charge .097 bolivars per liter. That means that for US$1 at 60 bsf/$ you can buy almost 6,200 liters of fuel, or almost 40 barrels of gasoline (market value about US$6,000).

      • There is actually a real representation of your highway. It just sits between the border close to San Antonio and Cucuta. There you will find people selling the Gas in pimpinas the closer you get to Cucuta the more expensive the price gets. Go take some pictures !

    • What troubles of the most is not that oppo leaders foot get it. I mean, it is important that they get it but they have zero power today on these fiscal and monetary issues.

      What really freak me out is that people in power seems to have to f*ing clue of the damage they are doing and what the root cause is. I imagine central bank people reading Omar’s blog and going oh crap! Maduro is definitely not getting it. There is no plan to correct this either.

      Ramirez will take the award as the most toxic Venezuelan of the modern times.

  4. I always thought El Caracazo was triggered by the reaction from the early morning public transport users to the disproportionate increase in the bus fares. That the initial reaction/spark was indignation at finding yourself at 5 in the morning suddenly realizing your bus fare is now ridiculously expensive and you can’t go to work today, and all that with the banal excuse of the gas price increase, as if the cost of the bus fare was almost all gas price. Of course, due to the built-up anger/exasperation/humiliation/frustration, that initial reaction quickly became a desmadre. Because after all, for many years following El Caracazo gas prices increased steadily. I remember as a kid, at the beginning of the price increases, people would line up for hours the night before to get the last “cheap” gas before the scheduled price increase. After a few years, people barely budged. It became expected and routine, and dare I say, understood.

  5. The driver of BCV’s practice of massively printing money to cover Pdvsa’s huge and growing deficits is not just the gasoline subsidy, Pdvsa also subsidises domestic natural gas supplies, the price of LPG,canisters the price of petrochemical products and by products ,. Also contributing to the deficit are Pdvsa’s blunders and negligence at planning and running its operations in any rational manner, the inmmense waste in the use of resources, the paying of huge overprices to chinese and other ‘regime friendly’ providers of goods and services or to any one willing to brive the favours of big and small pdvsa officials . The selling of oil to different regimes and countries at subsidised prices and give away terms . Pdvsa’s mismanagement and corruption and its underwriting of many huge and crazy and disorganized govt programs is at the root of Pdvsa’s monstrous deficit , It is this deficit that it causing the BCV to print the money thats causing such havoc to the govt finances and to peoples lives .
    Pdvsa is too important a business to let demagogic politicians (bent on a ruthless plan to gain absolute power by buying votes through irresponsible clientelar and populist policies) control it. Control of Pdvsa must be wrested from the political partisan establishment and given a measure of autonomy that allows a professional technochracy to run it with efficiency and some degree of rationality . This is at the root of our national woes, the political class cannot be allowed to decide everything because all they care about is winning elections and maximizing their popularity by sacrificing the countries interests . A technochratic structure has to be given an institutionally protected autonomy that allows it to do its job without political interference . Demolatry by attributing to politicians capable of seducing the ignorant and resented support of a mayority of voters a sacred claim to absolute power , is the root vice of our government systems malfunction . Lets start by recognizing that there are limits to what democracy can do well and to the many instances where it works to favour abuses and errors.

  6. Quico you mention Daniel Pratt. Here’s the rest of your quote:

    “Any person who has studied economics or search Wikipedia knows, knows that if you impose price controls while you flood the market with money, it is impossible that there is no shortage. Needless to put rationing systems have limited stops.

    Also, anyone understands that if you buy something for 100 and sell it for 5, you’re not just a Birdbrain, but sooner or later everything will go to hell.

    I do not think Maduro economic advisers do not know and for me the only possible conclusion is that the same people who advised him and applauding, are traitors planning a regime change by force.”

    I know this reeks of conspiracy theory but I don’t think it can be fully discounted.

  7. The monetary trends are starting to look very worrisome. Last night I was trying to figure out what’s going on without any luck. One thing is fore sure, the problem is not PDVSA. PDVSA, of course is a mess ans the free gas policy is a big part of that mess. But in this case PDVSA is only the channel trough which BCV is financing the Central Govt. I do not see a frontier separating the finances of one from each other, this money is for Giordani, not for Ramirez. It could be Pdvsa paying the bill for i dunno, the last increase of salaries, it could be real taxes procedures of the government are starting to fall. I really dont know whats going on, but the approval of this increase of 150 mil millones de BsF in the credit line is really an insane-shocking number. Staggering indeed.

    • A propos of the above, hear from the grapevine that there is the stirring of a fight inside the govt which rose when the chinese responded to the regimes request for more loans by telling it “you are broke , hence we can only give you more loans if you secure the future repayment of those loans by mortgaging the income from future oil deliveries’ . Some people in govt were willing to accept that condition , but people in Pdvsa said that you couldnt put in hock more money from Venezuelas future oil exports without courting a disaster , that best if the loan was postponed until Venezuela finished paying one of the trenches of the current Chinese loans next year and then used the freed up oil deliveries to leverage a new loan to replace the old one. I hear that the statement ‘you are broke’ by one top level chinese official was literal . Dont know whether the fight has been resolved or is still simmering . . .there are several loans soon coming into stream tied to the prosecution of specific oil projects from the Russians and Koreans.

  8. Don’t hide the sun with your finger, “near free” gas has nothing to do with the Venezuelan economy, only with the political environment.
    Look at the foreign debt, where are those dollars going, look at the international reserves and the repatriated gold, where are they going ?. BTW, etc…. as there are many other issues at hand.

    Economically speaking, Venezuela could certainly afford “near free gas”, it is the least of the problems:
    - near 0 production, what is the PIB trend in the last 20-25 years
    - near 0 non oil related growth
    - add the etc here…

    But enough talking about economic matters, at the end, there is no positive outlook for the country, there is no economic theory that can help. Venezuela needs a deep political change before anything else can start to matter. So, for those who have not realized it yet, Venezuela will be part of Cuba and the next 100+ years will be really bleak.


    • Sorry but you just don’t grasp the scale of it. $15-24 BILLION every year. That’s the cost of a Mundial de Futbol EVERY YEAR. It’s about TWICE the total health-and-education budget. It’s *friggin’*massive!*

      • Sorry Francisco, compared with the other problems that Venezuela has (read Kepler below), you have to agree that, “near free gas” and its cost of USD 24 Billions is just peanuts. And please, do not compare Venezuelan issues with non-important things like a “Mundial de Futbol”.

        BTW, no need to upper case anything.


        • Jam,
          You don’t get it. I was trying to support Francisco here. Imagine we could use those billions not in producing all those stadiums but in increasing the salary of teachers considerably so that they can actually pay the rent for a flat AND on top of that we could build 1000 centres for family planning, preservative distribution and on top of that we could build get 10000 top teachers from abroad to teach our farmers or mechanic people or whatever how to be more effective and more.

          We could do that with the money we are giving away now in PETROL.
          On top of that, consider the items Setty mentioned above.
          (and really: it’s about millions of hours wasted in jams, it’s about many thousands of bikers getting MAIMED for life etc)

    • My cousin is a teacher at a public school in a poor sector.
      She is one of the minority with an indefinite contract and lots of years of experience. She can buy two pairs of shoes with her salary.

      Her crowded classroom has a “library” which consists of about half a dozen textbooks.

      Valencia, my city, hasn’t got a new general public hospital since before I was born (I was born in that hospital).

      You don’t increase production while every year so many under-aged mothers stopped attending our crappy schools and become mothers-dependent-on-some-social-program…that at a higher percentage than in most of the Americas.

  9. i talked to an employee in a gas station who told me that a 50,000 liter gas truck of 95 octane was sold by pdvsa at 350,000 bs (55,555$ @ 6.3 bs/$ or 10 times less at rate) and the 50,000 liter gas truck is given FREE… years ago pdvsa charged 2,500,000 bs for the 95 octane truck… the employee who has 20 years working in the gas station told me that he makes more money with tips than basic salary and thats why he keeps working there

    • The free truck is the 91 octane truck, sorry for the omission. The conversation started when I asked why was there only 95 octane and no 91 octane ? 95 octane is harder on fuell systems of old cars (pre 2000) due to extra ethanol and / or other
      aditives as MTBE.

      • Another issue, gas may be almost free, but motor oil is almost intetnational prices (50 to 100 bs per quart) an oil change can cost 750 to 1000 bs and maybe one reason why 2 cycle motorcycles are very few. If you think that gas for a car is cheap, imagine the costs of filling a motorbyke tank….

  10. It is sad that everyone in Venezueala ignores the fact that simply inflation-adjusting ALL monetary items DAILY as well as measuring ALL constant real value non-monetary items (i.e., salaries, wages, rents, transport costs, taxes, trade debtors, trade creditors, etc.) DAILY in units of constant purchasing power would remove the cost of hyperinflation – not actual excessive monetary expansion hyperinflation (oh, I´m such an imbecile: you are NOT in hyperinflation yet, according to the great, most honorable and highly respected Professor Steve Hanke: only 50% MONTHLY inflation indicates hyperinflation [ and you are ONLY at 5% monthly inflation: FAAAAAAR away from hyperinflation]) and would stabilize Venezuela´s monetary and constant item economy.

    This blog reminds me DAILY what a silly person I am, suggesting DAILY indexation of all monetary and constant real value non-monetary items. NO-ONE (besides Extorres) is interested in this extremely silly idea. Very, very, very,very strange that 150 million Brazillions regarded it as the best practice in March 1994 and used it as the basis for stopping hyperinflation overnight at no cost. Very, very, very, strange. Those 150 million Brazilions must have been very, very, very, very, dumb. Thus like I am: very, very, very, very dumb suggesting DAILY INDEXATION in Venezuela.

  11. Let me explain why a two cycle motorcycle is Vergara expensive in Venezuela due to gas costs:

    Cost of filling typical 2 gallon or 7 liter (aprox):

    4 cycle: 7 lit x 0.097 bs = 0.40 bs
    2 cycle: same + 2 stroke oil

    ccost of two stroke oil pet 7 litet tank:
    assuming 30:1 ratio gas: oil, and 70 bs / lt 2 stroke oil, 70 bs / lt x 7 lt x 1 lt oil/ 30 lt gas =16 bs

  12. Quico, just to add to your rant. It’s not just that selling gas for free is a mind blowing fiscal subsidy that according to your calculations is similar in size to the central bank’s financing of PDVSA. it’s also that it’s taking a toll on the country’s external sustainability. Those are 500 thousand barrels of oil per day that are not being exported, and an increasing amount of that is being imported from the US as per the post above. Of course, domestic consumption cannot be zero, but even so we are talking about billions of extra dollars every year that would come in handy right now.

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