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.
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, 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." ..."
