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Caribbean Trade & Economy

Venezuelans Addicted to Cheap Oil Need Price Jolt

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

Local business owners and middle class have put personal interests ahead of national interest and have been at the forefront of the capital flight.

Road Ahead

No one knows where Venezuela is heading next, but a few things are clear.

Venezuela is going to face another round of sharp devaluation, extreme shortages of goods and food and a total meltdown in manufacturing, along with an escalation in migration of professionals.

Not to mention several new currencies and the overthrowing of the present government.

But this cycle of price and capital control and elevated capital flight will not stop until the government has the courage to ask Venezuelans to pay market price for petrol at the pump and eliminate the artificial exchange rates.

International lenders are focused only on whetheror not Venezuela will default, and a default may turn out to be good for the people of Venezuela in the long term.

Though the oil-rich/dollar-poor nation is not expected to default at least for another six months, the willingness and ability to pay for this debt is declining rapidly as oil races to $40 a barrel in 2015.

Now that there is a new reality in the oil market, where will Venezuela find the dollars it desperately needs is the question Maduro needs to answer.

Selling petrol in Caracas at market price will be a good start, and educating Venezuelans that a fair market price of fuel will be good for them.

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