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Gas Prices to Jump 6,000 Percent in Venezuela and Still Remain the Cheapest in the World

President Nicolás Maduro announced the first hike in 18 years during a five hour televised address to the nation, but the price rise still means Venezuelans can fill their tanks for the price of a light breakfast.

by Alicia Hernández
Feb 18 2016, 9:32pm

Photo de Marco Bello/Reuters

Taxi drivers around the world are not usually known for their nonchalance in the face of gas price rises, but the group of taxistas chatting next to a pump in the Venezuelan capital of Caracas this Thursday were notably relaxed about a looming 6,086 percent hike.

"They should have increased it before now because now we are right in the middle of a crisis," said one, as he ate a corn muffin-like local snack known as an arepa. "No, chico," interrupted his friend, "What they should have done is increase it more. It's still a bargain."

Over 6,000 percent may be a big increase, but the hike — effective Friday — would have to be a lot more dramatic before Venezuelan gas stopped being the cheapest in the world.

President Nicolás Maduro announced the measure during a five hour TV broadcast to the nation on Wednesday.

Related: A Contraband Crackdown Is Rattling the Border Between Colombia and Venezuela

Once the changes come into effect, high-octane gas will cost 6 bolivars a liter (a rise of 6,085 percent), and low-octane gasoline will cost 1 bolivar (a rise 1,329 percent). Filling the 38-liter tank of a small car with the cheaper gas will still cost around about the same as a typical Venezuelan breakfast of an empanada and a coffee.

Such comparisons make particular sense in Venezuela as the decision about which exchange rate to use can be complicated.

At the moment there are four options.

The so-called "preferential rate" is usually used to pay for the import of basic goods such as food and medicines. A second fixed rate, known as the Sicad, is typically employed to sell dollars to individuals planning a foreign trip. There is also an official "floating rate." And then there is the black market.

Alongside the announcement of the gasoline hike, President Maduro also revealed an imminent simplification of the exchange rate system so that only the preferential rate and the floating rate remain. He also announced a moderate devaluation of the preferential rate from 6.3 to 10 bolivars per dollar, and said the floating rate will start at 202 bolivars per dollar.

Maduro did not mention the black market, where the rate at the time of writing was 1,045 bolivars per dollar.

All this means that the cost of a small tank of the cheaper gasoline — once the exchange rate changes are implemented on March 1 — could be said to be worth $3 dollars (if the preferential rate is used), $0.1 dollars (if the floating rate is used), or $0.036 dollars (if the black market rate remains similar to its current level).

Most assume President Maduro did not decree a sharper rise for the same reason that there has not been an increase in gas prices in Venezuela for the last 18 years. This is the fear that a major hike could prompt a social explosion like the one back in 1989 when President Carlos Andrés Pérez doubled the gas price to $0.07 dollars per liter.

That hike was the most visible part of a series of measures reining back government controls and subsidies that fueled an uprising known as the Caracazo, that lasted several days, and left almost one hundred dead or disappeared.

President Pérez was also weakened by the Caracazo. In 1992 his government almost fell in two coups. One of these was led by then lieutenant colonel Hugo Chávez who would go on to win elections in 1999 and, before dying of cancer in 2013, hand pick Nicolás Maduro as his successor.

Watch: Last Days of Chavez's Legacy: The Fall of Chavismo in Venezuela

Although there was a 550 percent gas price hike over a three year period beginning in 1996 that did not prompt social upheaval, the idea that the population will not tolerate more expensive gasoline remains etched into Venezuelan political consciousness.

This is, in part, because the early Chavista governments rammed home the idea that increasing the cost of gasoline would be pandering to neoliberal economics. The only time that the late President Chávez publicly mentioned the possibility was in 2007 when he said "it is an insult how cheap we sell gas."

Voices within the government arguing that there would have to be a major increase at some point began to get louder at the end of 2013.

Nearly a year passed until Maduro himself said, in November 2014, there was a need to open the issue to debate "without complexes."

In his annual address to the national congress two months later, the president also called for the definition of a table of "fair and balanced costs." Around this time the government launched TV campaigns preparing public opinion for the possibility. Nothing was actually done .

It wasn't until his speech to congress this year that President Maduro said a gas price hike was "inevitable." In yesterday's speech he said it had been postponed for so long because the government had information that opposition groups were planning a violent uprising.

Most Venezuelans, however, know how to do their sums which means that reaction to the looming hike has been muted, aside from some drivers lining up to fill their tanks and, perhaps, buy themselves an extra breakfast.

"There have been more cars than normal," said Milagros, who works at a gas station in Caracas. "I don't understand it because what they will save is hardly worth anything."

Related: Venezuela Declares an Economic Emergency and Releases Data Showing How Bad It Is

Follow Alicia Hernandez on Twitter @por_puesto

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