Amid low oil prices, governments are being forced to lift bloated gasoline subsidies
smuggling cheap gasoline from Venezuela to Colombia was the region’s highest-margin business. The people who sold subsidized gasoline, called pimpineros for the recycled jugs they used to store the fuel, could see profit margins up to 60 times their original investment. Venezuela, which has the world’s largest oil reserves, has long subsidized its gasoline as a political sedative. At its lowest, gasoline in the country sold for as little as two cents (USD) per gallon at the pumps, compared to $1.25 per gallon in Colombia. Locals often pointed out that Venezuelan gas was “cheaper than water,” according to news reports.
But that changed in February after the country’s president Nicolás Maduro announced the first price hike in decades. The decision had been forecasted for over a year, and was finally approved alongside a currency devaluation that dramatically weakened the bolivar. Shrinking revenues from Venezuela’s embattled oil sector, which accounts for 96 percent of the country’s export revenues, blew a hole through the annual budget. The country is now poised to default beneath mounds of debt and a lack of faith that the president will follow through on his promise to make $10 billion in bond payments this year to placate investors. Some estimates suggest the country’s GDP could shrink by as much as seven percent in 2016.
Heavy gasoline subsidies are the cause of some of Venezuela’s problems, but consumption subsidies in general are a global problem. According to the International Energy Agency, the world spends US$550 billion a year subsidizing fuels that tend to weigh down economies. Most economists recommend cutting such subsidies— though such a policy would hurt the margins of Colombia’s makeshift gasoline market.
FOR MANY YEARS,