Venezuelan government closes retail stores in crackdown on price hikes after devaluation

Venezuela shutters stores in price-hike crackdown

CARACAS, Venezuela — Soldiers accompanied government inspectors as they temporarily 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 stored 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. 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 Jonathan 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 nonessential products such as air conditioners and electronics.

The president argues the change will discourage imports of nonessential 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 percent 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 percent this year. He told Union Radio he doesn’t expect the measure to boost exports as the government hopes.

The cost of U.S. dollars on Venezuela’s black market increased 18 percent from Friday to Monday, reaching 6.5 bolivars to the dollar.

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 Co. and Avon Products Inc., both based in New York, will be hurt by the devaluation because they have substantial sales in Venezuela.

Shares of Avon, which sells cosmetics, gift and home products, dropped 54 cents to $30.93 Monday. The stock of Colgate-Palmolive, whose products include Irish Spring soap and its namesake toothpaste, dipped 36 cents to $81.15.

Earlier in the day, Colgate-Palmolive said it expects a gain of about $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 cents to 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 wouldn’t 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. Shares of Procter & Gamble dipped 24 cents to $60.20.

Spanish telecommunications company Telefonica also saw its share price slip 3 percent to €18.50 ($26.88) in trading in Madrid. Telefonica says Venezuela provided 6.2 percent of company revenue as of the third quarter of 2009.

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 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 about how much of an impact those companies expect.

Associated Press Business Writers Dan Sewell in Cincinnati, Michelle Chapman in New York and Sarah Skidmore in Portland, Ore., AP Energy Writer Chris Kahn in New York and AP Writers Harold Heckle and Ciaran Giles in Madrid contributed to this report.