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Divided Venezuelans United on Costly Policy of Cheap Gas

By Juan Forero
Washington Post Foreign Service
Thursday, November 23, 2006

CARACAS, Venezuela -- Jesús Vivas drives a 26-year-old clunker with rusted fenders, ripped upholstery and a tattered carpet. With a wheeze, a plume of smoke and a walruslike roar, the wreck he calls a taxi accelerates down congested streets. About the only thing that works well is a new radio, which blares accordion-laced folk music.

But he's not worried. Operating his four-door Malibu across Caracas, day and night, costs less than $4, thanks to gasoline that, at 17 cents a gallon, is considered the cheapest in the world. "Gasoline prices here in Venezuela are very good," said Vivas, 25, in the kind of characteristically understated comments Venezuelans make about fuel costs. "We cabbies circulate all over. Here in Caracas it's cheap, and you can go the whole day."

The credit, as every Venezuelan knows, goes to government subsidies and price controls -- part of a policy that dates back decades and has infused people here with a sense of entitlement to Venezuela's vast oil deposits. In this famously polarized country, where President Hugo Chávez's government and a strident opposition never have anything good to say about each other, there is agreement about at least one thing: gas. The country's policy is unalterable, a hip-hip-hurrah for cheap fuel that is seconded by truckers, industrialists and suburban soccer moms in their SUVs.

"As an oil country, the state has the responsibility to guarantee energy and preserve the price of gasoline as it is," said Gabriela Ramírez, a pro-Chávez lawmaker in the National Assembly. "You raise the price one bolivar and you affect the economy because the price of bus tickets goes up, everything becomes more expensive."

Everyone in Venezuela also remembers what happened when prices were dramatically increased in 1989 -- an uprising that left hundreds dead. As the government and its foes prepare for the Dec. 3 presidential election, which most opinion polls show Chávez will win handily, the themes of the day range from Venezuela's expensive aid programs overseas to skyrocketing crime to the government's popular social programs. No one -- no one -- is talking about cheap gasoline.

"Of course, cheap gas is good," said Jesús Espinoza, a truck driver, perplexed that anyone could consider low gasoline prices debilitating. "In a country with so much petroleum riches, you cannot have expensive gasoline. It would be a contradiction."

One downside to the cheap gas, though, is that it eats up about $1 billion in subsidies and another $5 billion that Venezuela fails to earn by not selling the oil on the world market, where a barrel reached a high of $78 this year. It generates the horrendous traffic jams that mark this city, where 2 million cars snake along at an average speed of 9 mph. It also has made the sale of contraband gasoline to neighboring Colombia a major criminal enterprise.

The policy, critics say, is a vicious circle that feeds on itself as Venezuelans seeking investments, ever mindful that filling up a tank costs less than a ham sandwich, buy cars at a record clip. More than 320,000 cars have been sold this year alone.

Cheap gas also symbolizes the inherent drawback of a policy that contributes to the so-called oil curse -- an unhealthy reliance on easy money that is seemingly intractable in most major oil producers. Venezuelan intellectuals and academics have long warned that the country's dependence on oil smothers efforts to diversify its economy, leaving the government banking on a commodity that, history has shown, always crashes.

"This is something that really does not benefit the public," said Eddie Ramírez, a former state oil company executive who believes poorer Venezuelans shoulder much of the burden because they do not own cars. "It helps the privileged. But it's a theme that has always been taboo."

Venezuela's populist government, which helped engineer higher oil prices by nudging fellow members of the Organization of Petroleum Exporting Countries to adhere to production quotas, seems to be as addicted to oil as any administration in the world. Private investment here is dismal. Half the workforce toils in the black market, and many make ends meet selling clothing, CDs and papayas on the street.

But with oil prices relatively strong, and the country exporting most of its crude to the United States, the money is rolling in. Venezuela's oil industry generated $48 billion from exports last year, three times as much as in Chávez's first year in office. That money has helped fund not only about $8.3 billion in health, education and nutrition programs through September of this year, but also foreign aid programs designed to counter U.S. influence in Latin America.

The government here had once talked of raising prices. And Chávez has scolded the United States and Europe for consuming so much oil, generating pollution and more dependence. At the OPEC meeting in Caracas in June, he called on big consumers to "reflect" on the consumerist model that drains a nonrenewable resource.

But an examination of Venezuela's oil policy -- not to mention its own consumer culture -- shows that this capitalist country is about as far as any country can get from being a model of conservation or thoughtful energy policy.

The streets are jammed. There is no oversight of emissions, as is increasingly common in Latin America. Parking on the street is free, and price controls on indoor parking make it dirt-cheap.

The Chávez government has invested in the Caracas Metro, where a new line was inaugurated in October, and in subways in other cities. But there have been no similar improvements for the bus system, whose aging fleet of smoke-belching vehicles clogs the roadways.

With oil dollars flooding the economy, the inflation rate rising and Venezuelans looking to invest, cars are among the best options. They retain value, unlike vehicles in the United States. And the gas, well, it's always cheap.

"The result is a huge distortion for the urban development for cities like Caracas or Valencia or Maracaibo, where you basically have to live in a traffic jam," said Michael Penfold, a newspaper columnist and economist at the Institute of Superior Administrative Studies, a business school in Caracas. "This is nothing but a result of these huge distortions we have in the economy."

At René Diaz's Super Autos, the BMWs and Mercedes-Benzes are being driven out by new owners at four times the rate they were three years ago. Some of the vehicles go for well over $100,000.

"You can buy a car, and two weeks later, you can sell it and it's still a good investment," said Miguel Carfora, moments after strolling through the showroom.

Henrique Capriles, the mayor of Baruta, the district where Super Autos is located, said he understands his countrymen's fascination with cars. But he is trying to turn as many people as will listen toward mass transit, he said.

One of his ideas is to restrict motorists from using their cars on certain days -- or during certain hours -- a plan that has dramatically eased traffic in Bogota, the capital of Colombia. But Capriles is an opposition politician, and the mayor in adjacent Caracas is a close ally of the president, so he hasn't been able to work out an agreement.

And then there's that other obstacle just down the street -- the big Texaco gas station, pumping gas day and night at a price so low that an attendant there, Miguel Tirado, calls the gasoline "a gift."

"If it is so cheap to travel with a car, because the price of the gasoline is so low, you're going to buy a car," Capriles said. "And you're never going to use the public transportation, never."

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