Caribbean Markets Index Value   Change +-% USD EURO GBP CAD
Bahamas BISX All Share Index1,827.47-0.02 0.00% 1.00 1.26 1.53 1.53
Barbados BSE 1000 Index656.560.00 0.00 1.98 2.13 2.82 1.37
Jamaica JSE Market Index156,273.84-4,573.60 -2.84% 120.31 112.32 172.13 80.51
Trinidad TTSE Composite1,164.821.15 0.10% 6.40 6.90 8.96 4.45


Caribbean Trade & Economy

Venezuelans Addicted to Cheap Oil Need Price Jolt

Author: Manish Shah
Islandjournal.net
Last Update: 3:33 AM ET January 15 2015


Venezuela exports nearly $100 billion of oil in international markets, but yields only $60 billion in foreign exchange after counting all the discounts for local consumption, giveaways in the PetroCaribe initiative, and repayment of loans to China.

The government is forced to ration foreign exchange because Venezuela imports almost everything it needs at a cost of $70 billion annually for goods and services,not counting the capital flight cost.

Now that the oil price has fallen sharply to $55 a barrel, the country’s net export revenues are also expected to dip below $45 billion in 2015, a new reality that will only add to woes of the government and people.

In addition, foreign exchange controls have distorted the currency rate, as the government kept control on the economy and kept rates artificially high.

Venezuela has devalued its currency bolivar fuerteat least seven times in the last five years but the disparity between the official and black market rate shot up after the election of President Maduro.

Economy Runs on Black Market Rate

The lowest official exchange rate is 6.3 against one US dollar, compared to a black market rate above 200. The government sells most of its dollars through an auction at around 49 bolivars but majority of those dollars wind up on the black market.

Since Maduro assumed the office, the bolivar has plunged from 20 to 180 on the black market in 18 months and much of the decline has happened in the last six months, when the currency lost 65 percent.

Also, inflation has consistently increased every year from 13 percent in 2003, soaring to 53 percent in 2013 and jumping again to 65 percent in 2014.

Much of the retail sales and local consumption has begun operating at the black market rate and inflation is likely to surpass 100 percent in 2015 as oil prices weaken further.

The rationing of dollars by the government has choked off industry after industry, and now the government has fewer dollars to ration.

Rampant shortages, rolling electricity blackouts, pervasive crime in large cities and deep-rooted corruption has choked off almost all entrepreneurial spirit in the oil rich and once among the wealthiest nations on the earth.

Cheap Oil Hurts the Poor Most

The irony of the situation is that poor have access to virtually free petrol but do not have vehicles to drive. Without vehicles, cheap gasoline only helps the richest who can afford to import parts and keep cars running.

The giveaway of oil in the domestic market is the root cause of Venezuela’s entire economic malaise,compounded by the government interference in the economy and artificial exchange rates.

Free domestic oil has cost Venezuelans dearly and hurt the poorest the most, who the policy of subsidy was intended to benefit.

Venezuelans consume nearly 5 billion gallons of oil and pay less than $100 million for this expensive commodity that could yield in the international markets about $25 billion.

In addition, Venezuela gives away additional $4 billion of oil to PetroCaribe participants on long term payment plans, and there are serious doubts if Venezuela will ever collect in full from its partners.

Venezuela does not have enough foreign exchange after this giveaway and local largesse and that forces the government to ration dollars to industries and retailers leading to shortages and chaos in the economy.

Moreover, the business community has accelerated capital flight to the tune of $35 billion a year because of the persistent meddling by the government.


  1  2  3  4