Venezuelans brace for slump in oil prices

Staff Writer
Columbus CEO

CARACAS, Venezuela (AP) — The falling oil prices that are providing relief to drivers around the world threaten to bring more misery to the life of Milagro Alvarez and millions of other Venezuelans, whose country depends almost exclusively on oil revenue.

The math teacher has been getting up before dawn each day and rushing out to hunt for disposable diapers, one of scores of products that have been in short supply due to price restrictions and currency controls put in place by the socialist government long before the slide in petroleum prices.

"The government says we're a rich country, so why do we have to stand in line and beg to buy diapers?" said Alvarez, standing under a pink umbrella to protect herself and her 5-month-old daughter Annabeth from the blazing sun after three hours queued up in front of a Farmatodo store.

Now Venezuela is suddenly a lot less rich, and many fear those lines will just get longer.

The country with the world's largest oil reserves was struggling to keep shelves filled even when crude was selling for $100 a barrel or more. Now prices for benchmark Brent crude have fallen $28 in the past four months, to $86, the result of too much supply and weaker global demand.

In Venezuela, where 95 percent of exports are oil, the decline represents a huge loss of income to pay for everything from imported milk to foreign debt, from social programs to billions in subsidized oil for allies in the Caribbean and Central America.

Bank of America estimates that for every dollar that oil prices drop, the state loses $770 million in net revenue over a year. That puts revenue $12 billion a year below peak levels if current prices hold. Venezuela already has one of the world's biggest fiscal deficits, estimated at 15 percent of GDP, and even before the latest slide was considering selling its American subsidiary Citgo Petroleum Corp. to raise cash.

The government has called for an emergency summit of the Organization of Petroleum Exporting Countries to discuss cutting production to raise prices — a position that could face opposition by other cartel members.

But it has given no hint of how it will make up for the revenue loss in the meantime. President Nicolas Maduro has assured Wall Street that the country won't default on its debt and has told poor Venezuelans that their social benefits are safe.

"There'll be no catastrophe or collapse," Maduro said last week. "Venezuela has guaranteed all the resources it needs to keep prospering."

None of those reassurances seem to resonate in the block-long line outside the Farmatodo pharmacy in downtown Caracas, where consumers elbow one another and trade insults with armed guards placed at the door to avoid a stampede.

To restrict hoarding and purchases by resellers, the nation's biggest drugstore chain this week began requiring customers to present their government-issued ID card, which clerks enter in a database to track purchases of price-capped goods that are frequently in short supply. For diapers, the limit is two small packages per week.

The government itself is rolling out a sort-of rationing system using fingerprint scanners in western states where smugglers do a brisk business buying price-controlled goods in Venezuela and selling them at a huge profit in Colombia — actions the government blames for the shortages.

The oil crisis is partly of the government's making, economists say.

Unlike neighboring Colombia, which took advantage of the past decade's petroleum windfall to boost production and savings, the late former President Hugo Chavez and now Maduro have relied almost exclusively on the price of oil to fund government spending.

In 2005, state-run petroleum company PDVSA projected it would be pumping almost 6 million barrels of oil per day by now. Instead, production has steadily declined to around 2.4 million barrels — about the same level as it was in the 1960s.

Even as production stalls, more shipments are being sent to China to repay billions of dollars in loans that have become costlier to service because of the current slump.

"It's amazing that despite the highest oil prices in the industry's history, and the hemisphere's biggest reserves, production in Venezuela has declined from its peak in 1997," said Francisco Monaldi, a Harvard University professor who specializes in energy. "It really takes some talent to get into this mess."

Although the situation is dire, the government still has room to maneuver, Monaldi said. He said Maduro will likely pursue an array of policies — including a stealth currency devaluation, printing more bolivars and cutting spending — without embracing a pro-market stance.

The government could also raise gas prices that are the world's cheapest, about 5 cents per gallon at the official exchange rate and practically free at the widely used black market rate.

Each choice, however, entails political risks at a time when the opposition is emboldened by polls showing 80 percent of Venezuelans believe the country is on the wrong track. Support for Maduro stood at 30 percent in a poll this month by Caracas-based Datanalisis, a record low in his 18-month administration. The survey of 1,300 people nationwide was taken from Sept. 25 to Oct. 7 and had a margin of error of plus or minus 2.7 percentage points.

Alvarez said she's too busy looking after her family to worry about politics. She's down to her last four packs of diapers and worries that if oil prices keep falling, the shortages will become more severe.

"I bought three dozen cloth diapers but I couldn't find any detergent to wash them so I gave up," said Alvarez, whose salary is worth barely $120 a month on the black market. "The situation is so chaotic I can't imagine what things will be like if oil keeps falling."


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