Monday, January 11, 2010

Hugo Chavez doesn't "get" inflation...Colgate-Palmolive does. (CL)

In another sad move for the unfortunate citizens of Venezuela, dictator Hugo Chavez announced late last week that he would be devaluing the currency by 50%. Then yesterday in an even more pathetic move, he announced that after devaluing the currency 50%, he won't allow merchants to raise prices.


Notice, sadly, that
Reuters actually touts this as "a bid to jump-start the recession-hit economy of South America's top oil exporter..." Love the kid-gloves treatment of socialist dictators...

"In a bid to jump-start the recession-hit economy of South America's top oil exporter, Chavez on Friday announced a dual system for the fixed rate bolivar."
It devalues the currency to 4.3 and 2.6 against the dollar, from a rate of 2.15 per dollar in place since 2005, giving the better rate for basic goods in an attempt to limit the impact of the measure on consumer prices.
The opposition seized on fears that prices for imported goods will double as shoppers formed lines of more than a hundred people outside some stores in the capital Caracas.
"It was a Black Friday, tinted red," said sales executive Diana Sevillana in reference to the crimson color of Chavez's socialist party. She stood in a line of 30 people outside an electrical goods store in a middle class neighborhood.
The devaluation is politically risky but means every dollar of oil revenue puts more bolivars in government coffers. That allows Chavez to lavish cash on social projects and fund salary increases ahead of parliamentary elections in September.
Opponents were quick to criticize the socialist, who a year ago promised the global financial crisis would not touch "a hair" of Venezuela's economy. He announced the devaluation on Friday night during an important baseball game.
"By establishing the exchange rate at 4.3 bolivars per dollar, the quality of life for Venezuelans is automatically devalued since we now have half the money we had before," said Caracas Mayor Antonio Ledezma, a Chavez opponent.
"Venezuela's decision to devalue the Bolivar culminates an event that the market has been anticipating for a long time," said Walter Molano, an analyst at BCP Securities. "It helps alleviate the country's fiscal woes and puts it on a sounder macroeconomic footing."

Probably unexpected was the move announced yesterday, when Chavez threatened to seize businesses that dared to raise prices after the currency has been destroyed!

“The bourgeois are already talking about how all prices are going to double and they’re closing their businesses to raise prices,” Chavez said in comments on state television during his weekly “Alo Presidente” program. “People, don’t let them rob you, denounce it, and I’m capable of taking over that business.”
And for the final bit of hilarity, Colgate-Palmolive announced this morning that Chavez the socialist's moves will result in a one-time gain to the company of $60million or 12cents per share due to various effects on the company's operations in the South American company. Yes, the devaluation will also have a negative effect, but that will not outweigh the balance sheet gain.

the release:

"Effective January 1, 2010, Venezuela has been designated hyper-inflationary and as such all foreign currency fluctuations are recorded in income. The Company’s preliminary assessment of the impact of the devaluation is that the Company will incur a one-time gain of approximately $60 million ($0.12 per share) in the first quarter of 2010, related to lower taxes on accrued, but unpaid remittances from Venezuela and the remeasurement of the local balance sheet at the date of the devaluation. There will also be ongoing charges primarily related to the translation of the local financial statements at the new exchange rate. It is the Company’s preliminary estimate that these charges will be in the range of $.04 to $.06 per share per quarter in 2010 to the extent the Company is able to take actions in Venezuela to mitigate the effect of the devaluation. The devaluation will not have any impact on the Company’s 2009 results of operations or financial position."

Copyright 2010 AlphaNinja

1 comment:

  1. How have the actions of Hugo Chavez effected the investment environment within Latin America? Commodities expert Robert Petrucci explains