Car Prices Fixed in Venezuela

The Times on 4 December carried an article and an editorial on President Maduro of Venezuela’s plan to fix the price of cars.


Venezuela’s Maduro fixes car prices but he can’t keep the lights on

James Hider Latin America Correspondent

President Maduro of Venezuela has announced plans to fix the price of cars amid a deepening economic crisis — a problem illustrated by a power blackout during the middle of his four-hour televised speech.

Mr Maduro was using his address to outline the latest unorthodox plans to tackle galloping inflation using a newly acquired power to rule by decree, granted by Congress last month.

The Socialist successor to Hugo Chávez ordered that “car production be regulated and strengthened in Venezuela ….. to lower the prices of new cars made in Venezuela, and of imports and of used cars”.

The country’s car crisis comes about due to an acute shortage of supply, caused by strict controls on dollars used to bring in foreign-made vehicles. As a result, Venezuelans often have to wait months for cars and sometimes find that the price increases after they have bought a vehicle. Under Mr Maduro’s plans, resale prices are to be limited to 90 per cent of a car’s original value.

The President has taken ever-more desperate measures to control the economy, which is in trouble despite the country’s huge oil reserves, as ordinary Venezuelans struggle with shortages and inflation tops 50 per cent. Last month, he sent troops into electronics goods shops to sell off the wares at a fraction of their listed cost, and arrested about a hundred businessmen on charges of profiteering.

Mr Maduro hopes that the sell-off of cheap white goods, which coincided with an early payment of part of the annual Christmas bonus, may give him a boost in Sunday’s local elections.

Returning to the airwaves after the blackout, the President blamed it on“live sabotage of the electrical grid” by the “fascist Right”. The Opposition blamed it on run-down, mismanaged infrastructure.

“There is no reason for today’s blackout,” Mr Maduro added. “All Venezuelans are strangely surprised.”

The frequent blackouts have left residents nervous in Caracas, which also has one of the highest murder rates in the world. “We’re afraid,” said Olinda Reyes, who had to be helped from a darkened shopping centre in the capital. “There are no buses, the subway doesn’t work and we’re in complete darkness at the mercy of God.”

Adding to the tension, an opposition council candidate was shot dead as he was leaving a radio station in the western city of Zulia last week.

In the northern city of Maracay, the opposition leader, Henrique Capriles, who ran against Mr Maduro in April, was attacked as he was making a public speech from the back of a vehicle.

Motorcyclists threw fireworks and a Molotov cocktail at Mr Capriles’s vehicles then sped off. “This is a state where, sadly, the ones who are leading are allied to violence, who want to use violence to generate fear and paralyse the country,” he told the crowd.

Sunday’s elections for mayors and city councils are seen as an early referendum on Mr Maduro’s eight months in power. Despite the endorsement by Mr Chávez, who led the country for 14 years until his death from cancer in March, Mr Maduro won the elections by less than 2 per cent of the vote.


Editorial – Venezuela’s Breakdown

Price controls on cars are the latest in a long line of failed economic policies.

In economics, things have to add up. The socialist Government of Venezuela is engaged in a bitter and unavailing struggle to abolish, or at least escape from, the laws of arithmetic. Though the country is blessed with abundant natural resources, its rulers have squandered its wealth and created an economic wasteland. Their efforts represent a triumph of dogmatism and ideology over sense and judgment, the costs of which are evident in the rapidly diminishing living standards of ordinary Venezuelans.

Yet things are worse even than that. Venezuela’s rulers have not only run self-destructive policies for 14 years. They have taken the extraordinary additional step of meeting systematic failure with ever more fervent applications of precisely the measures that created the mess in the first place. The latest instance is price control of cars.

President Maduro announced this week that he would use new emergency powers to set “fair” prices for all cars sold in Venezuela. It is a bad idea that will fail to deal with the problem it is supposed to mitigate. Only in the looking-glass world of populist economics would it ever be considered. In a normal economy, where the prices of goods and inputs are set by the market, a new car loses value as soon as it is driven off the forecourt. It continues for the rest of its life to be a depreciating asset until its value amounts to only what the scrap metal is worth.

In Venezuela, things are different. Cars leap in value as soon as they leave the dealer. This topsy-turvy outcome is the unintended result of government intervention. Under President Chávez, who ruled from 1999 till his death this year, and his successor, Nicolás Maduro, Venezuela has relied on controls rather than respect the signals provided by market prices.

Because of currency controls, there is a severe shortage of imported cars and spare parts, and long waiting lists. With a shortage of imported components, car manufacturers are operating far short of capacity. When the demand for goods exceeds supply, prices rise. Bizarrely, that applies also to used and very old cars. Venezuelans are desperate to own these unlikely objects of desire because they are durable assets.

This demand is, again, the unintended outcome of government policy. With loose monetary policy and profligate public spending, Venezuela has an endemic problem of high inflation, now running at an annual rate of 58 per cent. Despite its substantial oil revenues, it runs a budget deficit of 15 per cent of GDP.

Venezuela’s rulers should have tightened monetary and fiscal policy or let the currency, the bolivar, depreciate, or done both. Instead, they have tried foreign-exchange controls and price controls, with the predictable result that there are black markets in currency and goods.

That is what will happen with cars too, as it does for goods and service where the politicians seek to control prices and rents. Instead of learning from the experience of pure economic failure, Mr Maduro and his colleagues denounce business, expropriate factories, slap on still more price and import controls and harass critics.

Venezuela’s economy is now dependent on a drip-feed of Chinese credit. It is a near-textbook case of bad policy implemented by uncomprehending mediocrities. For Venezuelans, this is not a test case for future study. The price of this revolutionary experiment is heart-rending.


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