News Summary #2: "Maduro: Universal Welfare Aim of Venezuela's Socio-Economic Model"
Article By: Ewan Robertson
Published: May 1st, 2014
Article Link: http://venezuelanalysis.com/news/10657

In this article, Robertson discusses President Maduro's plans to turn around the dismal economic situation in Venezuela.  Maduro illicit's that his policymaking is focused around guaranteeing universal welfare. Robertson defines Venezuela's main economic problems as "overvalued currency, shortages of some basic foodstuffs, and annual inflation of 57%."  He notes that Maduro's opponents blame the government for the black market saying that it is causing basic items such as food to have high  prices and shortages.  Robertson says "that insufficient dollars have been granted to companies through currency-exchange controls for imports and production."  One new initiative Maduro has put in place is called PDVAL Obrero.  This is a food store with regulated prices set for Caracas metro workers and their families.  The Maduro administration has also put in place policies to reform currency control, prevent contraband, and combat hoarding and price speculation.  Overall, the administration is hoping to turn around the economic situation by implementing policies to control the prices of basic and necessary items such as food.

While reading this article, my mind shifts back to a class period when we talked about arbitrage and international markets.  We said that arbitrage occurs when there is a price opportunity because of price differences in different areas or countries.  The impact of arbitrage is the law of one price which states that because of international trade, we will eliminate price inequality.  However, this law of one price doesn't work for everything and therefore doesn't completely eliminate price inequality which could be a major reason as to why Venezuela is seeing shortages and high prices in basic goods.  While it may seem obvious that Venezuela should trade for food items that are cheaper in other countries, it becomes obvious as to why they don't when we look at costs such as transportation costs, restrictions on imports/exports and subsidies.

It is difficult to pinpoint the exact reason as to why basic goods in Venezuela are in shortages and have high pries.  One theory I have is the countries focus on their main source of GDP which is the oil industry.  Too much focus on one sector of the economy can not only lead to monopolies and unequal distribution of wealth but also to a lack of support and government help in other sectors such as manufacturing and food production.  To resolve the problem the government needs to continue to implement strategies to eliminate price inequalities and good shortages.