The World's Cheapest Gas? Not for Long

Venezuela's government is desperate for cash. It's so desperate that it's willing to question something few have dared to touch: the country's massive gasoline subsidy.

The official price of a liter of 95-octane gas is 0.097 bolivars. At the official exchange rate of 6.3 bolivars per dollar, this amounts to $0.015. At the actual market rate, the price would require scientific notation.

For all intents and purposes, vendors have been giving gas away for free. This creates an enormous burden on the Venezuelan state: Conservative estimates suggest the annual subsidy is worth $12 billion, with most of it going to the better off (those who own cars).

Not surprisingly, the distortion in the price of gas has become the butt of jokes, with Venezuelans musing over how much a tank of gas costs in comparison to other things. For example, the price of a pack of cigarettes is the same as 12 tanks of gas. A half-liter bottle of mineral water costs as much as three tanks of gas.

The price of gas has been set in stone for the last 17 years, a period that has seen double-digit inflation every year. This begs the question: Why do Venezuelan politicians find it so difficult to let the market determine the price of gas?

The answer lies in the trauma Venezuelans endured the first time they tried to free the price.

There is a long-held tradition of setting the price of gas in Venezuela. The first time the government tried to do away with price controls, thousands of people took to the streets, protesting and looting. The two days of mayhem ended in a curfew that saw the government commit serious human rights violations.

The Caracazo, as the period is known, marked a clear watershed in Venezuelan political life. Until then, Venezuela had been a somewhat functional democracy. The riots, which took place all over the country, woke Venezuelans up to the deep problems that lurked beneath a veneer of harmony, glossed over with oil money.

Ever since then, the price of gas has become the proverbial "third rail" of Venezuelan politics. The last president who attempted to raise it was Rafael Caldera, Hugo Chávez's predecessor. While Caldera did not face any riots for it, he left office with his popularity in the teens. Chávez, for all his bravado, never dared to touch it.

The consequences of the distortion are a textbook case of basic economics. Cheap gas is smuggled across the border to Colombia, where it fetches market prices. There are long lines at Venezuelan gas stations. The streets of Venezuela are clogged with gas-guzzling cars from the 1970s. (The photo above shows Venezuelan soldiers closing the border with Colombia as part of an anti-smuggling initiative.)

The government of President Nicolás Maduro has been hinting that it will tackle the problem. Officials have been talking about the heavy burden the subsidy places on public finance and about the distortions it imposes on the market. Although the government has announced plans to consult the public, it appears to have already made its decision. (The precise timing remains a mystery.)

One of the ironies of this move is that chavismo claims it was born as a movement in the aftermath of the Caracazo riots. These are the same people who, in congress and in the cabinet, have railed for years against "neoliberal" policies such as raising the price of gas.

They now appear to be learning, however, that reality is unavoidable. The government simply cannot keep financing everyone's gas tanks.

The gas hike seems to be the brainchild of oil minister and economic czar Rafael Ramírez, who has been in full Orwellian mode lately. He has railed against the gas subsidy, saying that it amounts to enormous waste, and has even started talking about how it damages the environment. He has not once acknowledged that cheap gas is his own policy.

It's not known when the government plans to raise the price. Local media is reporting that the new price could be 2.7 bolivars per liter -- which would amount to an increase of more than 3,000 percent. The government claims this is the price that would cover cost of production, but falls far short of international prices. It is not planning on liberating the price, merely "adjusting" the price control. But with inflation in the high double digits, it won't be long before this new price is perceived as ridiculously low as the current one.

Regardless, Venezuelans' hard-pressed personal finances are about to take a massive hit. One wonders if they are simply going to grin and bear it, or if this will spur them to take to the streets once again.

Juan Nagel is the Venezuela blogger for Transitions, editor of Caracas Chronicles, and author of Blogging the Revolution. Read the rest of his posts here.


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The Good News from Indonesia's Election Stalemate

We don't know who the winner is yet, but the presidential election in Indonesia, the world's third largest democracy, is already proving to be the most exciting in recent memory: messy, polarized, and full of drama. Both candidates -- Djoko Widodo (known as Jokowi) and Prabowo Subianto -- are claiming victory, each citing unofficial results produced by several private polling agencies. Indonesia's official news agencies have now withdrawn their initial vote projections in order to calm the waters before the official results are released.

The Indonesian Election Commission is expected to complete counting the votes on July 21. According to the English-language Jakarta Post, cases of foul play are spreading "like a rash during the vote tabulation phase." Most of the complaints are coming from Jokowi's supporters.

Whoever wins, his margin of victory will be small. Both candidates have already made it clear that they will not accept defeat on the basis of the vote count determined by the Indonesian Election Commission (KPU). That means that the second-place candidate will probably take matters to the Constitutional Court, which will delay the official announcement of the results by a month, complicate the country's already chaotic post-electoral politics, and test the (so far admirable) discipline of each camp's supporters. On the positive side, an appeal will further institutionalize these procedures and establish a road map for future contingencies. Indonesia has approximately three months to complete the electoral process before a new president takes the charge by mid-October 2014.

Over the past three months, the election has opened up a sharp political divide between the traditional political elite and groups that are demanding greater political change. The former camp has coalesced around Prabowo, an ex-general who played a leading role in Suharto's security apparatus. The latter, consisting mainly of civil society groups and ordinary citizens, have supported Jokowi, who has used his position as mayor of Jakarta to buttress his reputation as a reformer. These two sides of the Indonesian electorate have found themselves at odds over the question of how much democracy is good for Indonesia and how much political space is needed for Indonesian citizens.

The Prabowo-led coalition of forces from the established political elite has been dueling with a Jokowi-led movement that is demanding more democratic reforms, clean government, and greater political accountability. While Jokowi is widely viewed as a champion of good governance, Prabowo has been linked with large-scale human rights violations during the riots of May 1998, when the businesses and homes of Indonesians of ethnic Chinese origin were attacked around the country.

Jokowi, the man of the masses, represents the Indonesian Party of Struggle (PDI-P), the largest political party in the Indonesian parliament. Prabowo, a former military general and son-in-law of Indonesia's former dictator, Suharto, is the leader of the Great Indonesia Movement Party (Gerindra), the third-largest political party in parliament.

You might think that Jokowi would have the edge simply because of his populist reputation as a man who represents the aspirations of ordinary Indonesians -- and you wouldn't be far off, since he has indeed been the national favorite ever since the campaign first got under way. Yet Prabowo has gone from single-digit approval ratings at the beginning of this year to his current status as a challenger on almost equal terms with the front-runner. Why has his candidacy taken off so dramatically? What is the source of his appeal?

Above all, Prabowo has tapped into growing popular frustration with what many see as Indonesia's chaotic democratic process. His vote-winning strategy has relied on a highly effective media campaign organized around themes of economic nationalism and xenophobia. He has built a strong electoral alliance, mobilized lucrative support from business elites, embraced religious hardliners, and cast himself as a strong leader who will vigorously defend the country's national interests and natural resources. It was the government of Megawati Sukarnoputri, the leader of the PDI-P, that allowed international companies to start mining in protected forests in 2004. Prabowo's economic nationalism has proven so popular during the campaign that Jokowi was forced to include similar planks in his agenda several months ago.

In order to win over the support of Indonesia's majority Muslims, Prabowo has openly embraced the Islamic Defenders Front (FPI), a religious militia that has launched several attacks not only on religious minorities but also on non-Sunni Muslims.

Prabowo has also proven to be a skilled coalition-builder, ultimately putting together a broad alliance of seven conservative parties. The coalition's members, who include four Islamist groups as well as Suharto's own Golkar party, potentially command more than two-thirds of total votes as well as a parliamentary majority. The coalition not only drew in supporters and sympathizers but also extended Prabowo's political and social appeal.

Shortly after the election, Prabowo announced plans to transform this electoral alliance into a five-year permanent coalition -- one that will stand for unapologetically majoritarian rule, policies closely tied to moneyed interests, and resistance to further democratic reforms. (In reality, Prabowo's "permanent" coalition may not last very long if he loses; Golkar, in particular, has a long history of opportunism, switching sides whenever it sees fit.)

Prabowo's most effective (and polarizing) campaign tactic, however, has been his smear campaign against Jokowi. In a significant departure from past presidential campaigns in the democratic era, Prabowo launched a frontal attack on his rival, charging him with insufficient Islamic piety, Chinese origins, and communist sympathies. This is, essentially, a reprise of the approach favored by Suharto, who used the same three accusations as the basis for eliminating a large number of Indonesian citizens during his three decades of authoritarian rule. Prabowo's apparent success at reviving the old formula has raised uncomfortable questions about the extent to which the legacy of Suharto-style authoritarianism remains alive and well. Indonesia's dark past, as Australian journalist Hamish Macdonald noted, "is proving uncomfortably persistent."

Yet there is actually quite a lot of good news amid the darkness. The same very ingredients that Prabowo has used to his advantage -- the politics of exclusion, fear, and intimidation -- have mobilized common citizens and civil society against his candidacy. Indonesians began to worry that his victory could mean an end to democracy. On July 4, The Jakarta Post, one of Indonesia's most influential daily papers, broke a 30-year policy of neutrality and officially endorsed Jokowi as a presidential candidate. The paper's editorial staff defended their decision by arguing that the stakes were too high in this election, and that the fate of Jokowi's candidacy would also decide the fate of Indonesian democracy.

Even though this contest has sorely tested Indonesian democracy, it has also demonstrated once again the strength of popular participation and of respect for democratic norms. Turnout in this election has broken all previous records, proving that Indonesians are determined to see that their votes count.

Equally importantly, this election has been almost completely free of violence. Indonesians have adhered to the democratic norm of expressing their political differences by peaceful means. The Indonesian security forces have remained neutral, successfully maintaining law and order throughout the country. Meanwhile, electoral authorities, civil activists, and party volunteers have been keeping a close watch on ballot boxes and vote tabulation processes in order to prevent tampering.

In this respect, Indonesia's presidential election is reinforcing the broader positive trend among Asian democracies. As in many other countries, the burgeoning Indonesian middle class is pushing for corruption-free, reform-oriented, distributive politics. This class, which now includes around 75 million people, and which is growing by some 10 percent per year, is demanding transparency and accountability.

The likelihood of Jokowi's victory (in the absence of mass-scale electoral fraud) implies that the majority of Indonesians reject Prabowo's revival of Suharto-style authoritarianism. For now, the idea of inclusive, progressive, and good governance-driven democracy seems to have trumped the exclusivist, conservative, and elite-driven politics of the few.

Vibhanshu Shekhar is a Scholar-in-Residence at ASEAN Studies Center, American University. He is also a Visiting Fellow at New Delhi-based Institute of Peace and Conflict Studies. He can be reached at

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