http://www.cbsnews.com/stories/2005/09/28/world/main887680.shtml

Auto salesman Leonardo Caicedo looked over the shiny Jeep, Chrysler, and Dodge vehicles crowding the showroom in central Caracas, where a gallon of gasoline now costs about the same as a large hen's egg, and a liter costs less than a single photocopy.

The SUV sales are "excellent," he said, and customers don't worry about fuel efficiency, since they can fill their 18-gallon tanks for less than $3.

"It's good for us, and it's good for the people so they can buy luxury cars with big engines," Caicedo said.

But critics say Venezuela's highly subsidized gasoline, which retails for between 10 and 15 cents per gallon, and 7 cents for a gallon of diesel, is bad for the country.

Besides feeding perpetual traffic jams and worsening air pollution, they say the subsidy is a multibillion-dollar drain on the national budget, sapping money that could help schools, hospitals, or public transit, and transferring it to the wealthier classes, who own the cars. And they wonder how long leftist President Hugo Chavez can defy economic gravity.

But few public policies here are as popular as is almost-free gasoline. Wealthy Venezuelans, who generally despise Chavez, say that if the government stopped subsidizing gas it would only waste the money on corruption. The poor fear a bus-fare hike.

Caracas pollster Luis Vicente Leon said Venezuelans consider almost-free gasoline a birthright.

"Venezuelans believe that they live in an oil field," he said. "They feel they own the oil, and therefore should not pay for it."

Politicians remember 1989, when gasoline and food price hikes helped trigger huge riots. The violence demonstrated the popular discontent that would later make Chavez a hero for leading an unsuccessful 1992 coup attempt.

"Here, when gas goes up, presidents fall," said cab driver Francisco Zambrano.

...Along Venezuela's borders the subsidy also fuels a huge smuggling industry, which multiplies government losses and finances Colombia's outlawed right-wing paramilitaries, who tax the trade. In border areas of Colombia, where gas retails for 20 times the Venezuelan price, hawkers line highways offering jugs of cheap Venezuelan gas. Venezuelan authorities have tried to staunch losses by rationing deliveries to gas stations and requiring drivers to show proof of Venezuelan residence in order to fill up.

...The government subsidizes some other products, particularly food, though not nearly as deeply as gasoline. Pollster Leon predicts Chavez will stick with the gasoline subsidy because it "gives the message that he's concerned about everybody," even though it mainly benefits the upper class.

During recent months, Chavez has extended the concept beyond Venezuela's borders, winning allies by offering below-market petroleum to South American and Caribbean nations. He has even offered cheap gasoline to poor U.S. neighborhoods.

...U.S. Sen. Connie Mack, a Florida Republican often critical of Chavez, said in a telephone interview that the largess will last only until oil prices fall again.

"Eventually, it will all come crashing down around" Chavez, Mack predicted.

...But Mark Weisbrot, an analyst with the left-leaning Center for Economic Policy Research in Washington, said he expects oil prices to stay high or even rise, enabling Venezuela to keep financing the gas and other subsidies.

"It's a big waste and it's environmentally destructive," he said of the gas subsidy. "But it's not an economic problem."

Jordan



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