Venezuela has more proven oil reserves than any other nation on earth — but it still has to import gasoline. Why? Because of enormous government subsidies that have made gasoline “almost free.” In January, Colombians paid $4.72 for a gallon of regular gasoline, and Brazilians paid $4.50. Venezuelans paid only 4 cents a gallon. Not surprisingly, on a per-capita basis, Venezuelans consume nearly five times as much gasoline as Brazilians, and close to seven times as much as Colombians. According to the International Energy Agency, Venezuela’s gasoline subsidies amounted to a remarkable 8.6 percent of GDP (roughly $27 billion) in 2011. By comparison, the Chávez government spent only 5.1 percent of GDP on education and only 3.25 percent on health.
From an economic perspective, the gasoline subsidies are causing huge distortions, encouraging Venezuelans to stockpile gas and smuggle it across the Colombian border, and depriving the government of much-needed revenue. Last year, the national budget deficit hit 12 percent of GDP, and one economist, Orlando Ochoa, calculates that Venezuela’s fuel-import costs reached $7.2 billion. Even Chávez, of all people, said in 2009, “One day, we have to adjust those prices. We’re practically giving away gasoline.”
Yet the subsidies have remained politically sacrosanct, and Chávez never seriously tried to shrink or eliminate them. He surely remembered what happened in 1989, when the Venezuelan government of President Carlos Andrés Pérez reduced gasoline subsidies and triggered violent protests, in which anywhere from 300 to 3,000 people were killed. As the Journal noted last week, the 1989 violence “deeply affected morale among army soldiers who had to shoot at fellow citizens. It helped propel Mr. Chávez, then a young army officer, to stage a failed coup against Mr. Pérez three years later. Years of instability ensued, at the end of which Mr. Chávez became president.”
Today, Venezuela is already suffering from tremendous instability, especially in the aftermath of a disputed election in which government mischief was apparently rampant. When you combine the justified anger and frustration of the opposition with (1) the world’s second-highest murder rate, (2) an annual inflation rate that could reach 30 percent this year, (3) chronic food, electricity, and dollar shortages, (4) endemic corruption, and (5) an autocratic government led by an inept buffoon who lacks his predecessor’s demagogic charisma, you have all the ingredients for social and economic upheaval.
Thus, even if Maduro’s dubious election victory is allowed to stand, the Chávez revolution is in big trouble.