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Venezuela shutters stores to halt price hikes after currency devaluation

Published:Wednesday | January 13, 2010 | 12:00 AM

Soldiers accompanied government inspectors as they tempora-rily shut down dozens of retail stores in Venezuela on Monday, aiming to prevent hefty price hikes after the country devalued its currency.

Inspectors from the consumer protection agency closed 70 stores, saying they had improperly raised prices, the state-run Bolivarian News Agency reported.

Three large stores of the Exito hypermarket chain, majority owned by France-based Casino Guichard Perrachon SA, where shut down for 24 hours.

Authorities began inspecting retailers a day after President Hugo Chavez threatened to temporarily close or take over businesses that raise prices, as a result of the devaluation he announced Friday.

Military intervention

Chavez said he is determined to curb inflation - even if it means deploying the military to prevent price hikes.

Venezuelans crowded into stores selling electronics and appliances for a third straight day, trying to buy items before retailers begin markups. Lines formed outside some stores in Caracas.

One shopper, 26-year-old Jona-than Heybert, walked out with a flat-screen TV, saying: "Just imagine how much this television is going to cost later."

The government had held Venezuela's currency, the bolivar, at an official rate of 2.15 to the dollar since a devaluation in March 2005.

Chavez set a new two-tiered exchange rate Friday, pegging the bolivar at 2.6 to the dollar for priority goods such as food and medicine and 4.3 per dollar for imports of non-essential products such as air conditioners and electronics.

The president argues the change will discourage imports of non-essential goods and encourage domestic production of items such as food and clothing.

Oil-rich Venezuela imports most of the products it uses, and most consumers are expecting prices to soar.

Critics have called Chavez's threats against businesses a futile attempt to prevent the devaluation from pushing up inflation, which, at 25 per cent, is already the highest in Latin America.

Domingo Maza, a former director of the central bank, predicted the devaluation could push inflation as high as 50 per cent this year. He told Union Radio he does not expect the measure to boost exports as the government hopes.

The cost of US dollars on Venezuela's black market increased 18 per cent from Friday to Monday, reaching 6.5 bolivars to the dollar.

Devaluation impact

The devaluation is also affecting some foreign companies, which saw their shares fall as investors worried about how their businesses might be hurt.

Connie Maneaty of BMO Capital Markets said in a client note that Colgate-Palmolive Company and Avon Products Inc, both based in New York, will be hurt by the devaluation because they have substantial sales in Venezuela.

Earlier in the day, Colgate-Palmolive said it expects a gain of about US$60 million in the first quarter, because it will see a lower-than-expected tax rate on money already made in Venezuela.

After that, it expects quarterly charges of 4-6 cents per share in 2010, as money it earns in Venezuela will translate back into fewer dollars.

Avon said it was monitoring the situation, but would not comment further.

Paul Fox, a spokesman for Procter & Gamble Co in Cincinnati, Ohio, whose brands include Pampers diapers and Gillette razors, was looking at the situation carefully to determine the devaluation's impact.

Patrick Esteruelas, a Latin America analyst at the New York-based Eurasia Group, predicted that multinationals involved in the consumer goods industry in Venezuela "are going to fare really badly out of this".

Esteruelas said the devaluation will strengthen Venezuela's ability and willingness to pay its foreign debt. He also said that oil companies working in Venezuela "will fare reasonably well" because their sales are in US dollars, and that oil service contractors will probably also find it easier to collect on unpaid debts owed by the government.

Spokesmen for the oil companies BP, Total and Chevron would not comment.

- AP