Seeking allies against oil taxes

In Europe, as well as in many other parts of the world, the price of gasoline is somewhere around US$ 1.25 per liter (Bs. 750 at current exchange rates). This is five times what a liter goes for at gasoline stations in the United States. This sky-high price is the simple result of applying what effectively is a commercial duty and which I have roughly calculated at about 800%. 

This duty, basically imposed by means of a gasoline tax, is the main reason oil producers today are obtaining such poor results. The 800% duty, besides naturally reducing demand for oil, also generates a totally unjust distribution of income. The producer of the very valuable and non-renewable resource of oil receives less than 10% of what the consumer pays at the pump.

It might only get worse. A European government recently announced a fiscal policy that implies raising these taxes on gasoline by 6% over annual inflation, thereby effectively duplicating them by the year 2007. There is no doubt in my mind as to the danger this implies for countries such as ours. How much more will demand be depressed if the plan is to charge US$ 2.50 per liter?

It is evident that the degree of development of a country is to a great extent a function of how they defend their own interests. As an example today we observe the United States threatening to impose duties of 100% on Europe as a result of a dispute over bananas, a fruit neither one of them cultivates. In this sense, and faced with the surprising silence both of our own oil industry as well as of the rest of the world, I will try do my part by a small campaign aimed at informing the public in general about this abusive tax-duty on gasoline.

What can be done? The answer to this question should be, before anything else, to inform. It is very probable that many of the affected parties that today are unaware of this problem could, once properly informed, become powerful allies. The following comments are aimed at exactly that.

Today’s strategy of defending prices is based on production cuts, which requires a heavy dose of sacrifice for producing nations and creates divisions and disputes across the board. On the other hand, a well-aimed protest against elevated taxes on gasoline could serve to unify all oil producers, OPEC and non-OPEC.

In the United States there are a great many individuals, owners of oil wells, who would form a pressure group with much more power than shareholders of fruit companies once they understand that the main reason for their diminished royalties is the gasoline tax.

Likewise, we must analyze how and to what degree these high gasoline prices, caused by these high taxes, are putting the brakes on the growth of the global economy. A decrease in gasoline prices could have a very positive impact, for instance creating jobs in the service sector, where Europe clearly lags USA. 

We must also put to rest the fears of environmentalists. Our joint action is aimed at obtaining a just distribution of income, not to provoke irresponsible consumption. Also if it results in more economic growth and if adequately channeled, this could avoid ecological disasters of much greater impact than those that could result from a simple increase in gasoline consumption. Let us not forget that Chernobyl and fires in the Amazon are events very closely related to poverty.

Just simply raising the issue of gasoline taxes being duties in disguise allows us to redefine the relationships with a series of international entities. For example, one could question the bases on which entities such as the World Trade Organization leans heavily on Venezuela and other countries, to reduce their trade barriers while they simultaneously keep absolutely silent about the tariffs imposed on gasoline. 

In the same sense, we could question the International Monetary Fund’s recipe calling for the increase in gasoline prices and taxes. This is totally opposed to free and open markets, and in our case certainly helps to aggravate our balance of payment problems even further.

As always, I wish to make it perfectly clear that my position on this subject is not an effort to find an excuse for the deplorable economic situation we are going through in this country. That responsibility is ours, and only ours. Nonetheless, one of the aspects we must necessarily rectify is our miserable capacity to unite the nation behind a concerted effort to defend our interests.

If we don’t defend our oil, what else is there to defend?

Of mangoes and bananas

For several reasons, the debate about the global economy has recently reminded me of fruit. The wise Henri Pitier wrote his Manual about Common Plants in Venezuela in 1926. In it he wrote the following about the mango:

"It is harvested in abundance, and there are many who, during the season in which they are ripe, dedicate all of their time to the search for this fruit which for some time then becomes their only source of nourishment, very often to the detriment of their health. One can vacillate, then, on deciding whether the introduction of this tree [from Asia] has been a blessing or a curse. The writer of these words is inclined to believe the latter since the mango leads to idleness, to the invasion of another’s property and to vagrancy; additionally, no matter how good or healthy it may be, when ingested in moderation, it sometimes provokes digestive disorders and is far from being wholesome food. It alters, then, both morality as well as public health." 

This interesting quotation shows us that, in addition to oil, the mango should be classified high on the list of culprits that have been the cause of our poor economic development. Most assuredly, in addition to the mango and oil, we must also add to this list the sun, the beaches and all those variables that undoubtedly make it easier to survive an economic recession in a tropical Caracas than in a wintry Moscow.

Since it seems evident that the simplicity of living in the tropics leads to laziness while the hardship of winter promotes the discipline and work ethics that have ultimately inspired today’s global economic development, it behooves us to view global warming with renewed preoccupation and from a totally new angle.

I belong to a group that is identified in Venezuela as Contemporary Adults (sounds better than middle-aged). This implies being up-to-date with current issues such as the environment. I have, with certain frequency made own individual observations about the evolution of global warming. Every Carnival weekend, for example, I stroll out to the beach in Margarita, the tropical Venezuelan island in the Caribbean Sea, in my most casual, monarchic pace, and with all seriousness and responsibility, take note of the width of the shore from the water line to the roadway. Even when I had terrible difficulty in finding a spot in which to anchor my garishly multicolored beach umbrella, I never really worried about it. I simply attributed this difficulty to the increased popularity of the island and not to an invasion by the oceans.

Today, however, I harbor serious doubts as to the validity of my method of measurement. Wherever I look I find evidence of the advanced state of warming in the world.

How else, other than by assuming a certain displacement toward the north of the geographical boundary of the Banana Republics, can we explain the opposite positions sustained by superpowers like Europe and the United States on the issue of bananas, as if they were some modern versions of Lilliput and Blefuscu.[i]

How else, other that by assuming the creation of climatic conditions conducive to the cultivation of mangos, can we understand why Japan has not been able to combat idleness and stimulate the reactivation of its economy? We have all read that Japan has reduced interest rates to an annual rate of one per one thousand. Can you imagine how impressed a botanist like Henri Pitier would be upon observing this unique specimen of a mango?

[i]PS. The current enormous fiscal and commercial deficits of the North might also lend further credibility to the thesis of the displacement of the parallel of the Banana Republics. 

From The Daily Journal, Caracas, March 12, 1999

What the world needs now… is growth sweet growth

The United States of America is the only economic engine that keeps today’s low world growth rates from degenerating into a horrible global depression. It is no wonder, then, that all eyes are on this country’s economic performance. Actual consensus, based on a fiscal surplus, a very low unemployment rate and a basically non-existent inflation rate, implies that this performance is nothing short of spectacular. For those who still doubt, it should be enough to simply analyze the incredibly high acceptance rating garnered by President Clinton in spite of events which in other times, due to their nature, would most probably have resulted in his impeachment.

I would classify all other nations in two broad groups. The first group consists of those countries that have lost the international market’s confidence and who reluctantly or not must accept traditional Monetary Fund style recipes such as the reduction of fiscal deficits and increases in interest rates. The second group includes those that still can count on basic strengths. Japan, for example, is one of these. Apart from lowering interest rates to their minimum expression, they dabble (albeit sometimes timidly) with Keynesian measures such as the issue of consumer coupons.

Confusion basically exists only in Europe. There is still much discussion between the European Central Bank, wishing to prove its orthodoxy in the face of the birth of the Euro, and the individual governments, anxious to get their economies back on the road of growth.

You may ask why, as a local columnist, I am writing about the world economy. There are two basic reasons. The first is that Venezuela is a living example that helps us to remember what happened during those times when each country tried to put its house in order individualistically. The accumulated global result was worldwide economic contraction.

By striving to adopt measures gleaned from the manual of good economic behavior, our country slowly managed to go from a state of obesity to one of severe economic anorexia, a condition which makes it impossible for companies to pay adequate salaries and for those who receive this meager pay to purchase goods or services from those same companies. The world should pay attention so it can avoid going the same route.

The second reason is simply the need to alert anyone who will listen as to the fact that it is absolutely necessary for Venezuela and the world in general to get back on the track of international growth. In Venezuela’s case, the situation is obvious. Either we grow or we disappear. Simple as that! It is slightly more difficult to perceive the urgency of the situation globally, except for those countries that, like Venezuela, have had serious problems with their debt load.

I am under the impression that due to the abundance of bad news generated by the world today, which in turn promotes belief in wonderful saintly Superman-like saviors, markets have blithely been ignoring the increasingly nettlesome problem of the United States’ commercial deficit. Please do not confuse the message with the messenger. I don’t wish to stoke the fire, but I do wish to remind everyone that this country’s commercial deficit boils down to a whopping US$ 1 billion per day.

Since the United States’ public sector maintains that it’s budget is in the black, the only economic counterbalance to the above mentioned commercial deficit is the private sector’s indebtedness. In other words, the fuel that today’s economic engine has been using to continue on its most opportune buying binge, in the best “its cheap, give me two” tradition, is the funding that the rest of the world pumps into its tank. In Venezuela, we can safely testify to the fact that this source of energy does not last forever.

There is only one way that the world will survive this problem relatively unscathed. It must simply begin to grow again before the problem begins to cause strong increases in dollar interest rates, driven either by the United States’ need to curb its growth rate, contain internal inflationary pressures and control its commercial deficits, or by an international market that will slowly but surely loose its confidence in the dollar’s future.

To grow! So easy to say, but so difficult to actually do. Above all else, however, I believe it is the result of mental attitude. Amongst friends I have often said that when citizens of the United States decide to buy goods and services from one another and go out for dinner every evening, the consequence is growth. When Europeans, in a steadfast show of responsibility in the face of hardship decide to stay home, the result is contraction.

Simply put, what Venezuela and world urgently needs, is leadership that knows how to stimulate growth sweet growth.