An article published yesterday in the New York Times describes an all-too-common situation: the disparity in oil prices between Venezuela and Brazil has produced a thriving smuggling trade. In Venezuela, the populist government of the oil-rich country maintains oil prices well below world prices; Venezuelans pay only 17 cents per gallon. Across the border in Brazil, a gallon of gas costs five dollars. Naturally, there is a huge incentive for people to smuggle gas from Venezuela to Brazil and make a large profit.
This has caused numerous problems, ranging from long lines at gas stations in Venezuelan border towns to the sale of contraband gasoline throughout Brazil. Criminal groups that act as intermediaries for Brazilian smugglers have sprung up now that Brazilians are banned from filling up in Venezuela.
It is highly unlikely that officials will ever be able to get the problem under control. As one Brazilian official told the New York Times:
“It’s an absolutely crazy and absurd situation,” said a Brazilian official, speaking on condition that neither he nor his agency be named, because he did not want to be seen as publicly criticizing his superiors in Brasília. “We’ve made arrest after arrest and put on all sorts of controls, but the price difference is so great that it makes the problem difficult for us to combat.”
Personally, I don’t think that the Brazilian official is leveling any criticism at his superiors – they did not create the problem. Brazil’s gasoline is sold at market prices, whereas the ridiculously low price of Venezuelan gas is artificially set by Hugo Chavez’s populist government. Government subsidies of this sort may appeal to the people in any given country, but in the long run, they create nothing but problems.
The extreme subsidies, as described by NPR, divert taxpayer dollars away from government services that really matter, such as education and healthcare. They also penalize those who do not own cars – the poorer segments of society – because while their tax dollars finance the subsidy, they do not benefit from it. Instead, a subsidy on a luxury good like gasoline benefits the upper and middle classes only. A World Bank study published last year calls this type of subsidy a “reverse Robin Hood” policy. Instead of taking from the rich and giving to the poor, the government of Venezuela is taking from the poor and giving to the rich. I think it is more than a little amusing that Venezuela’s gas subsidy is exactly the opposite of what Chavez preaches to the public.
Published Date: December 08, 2006