CARACAS, (Reuters) – Venezuela’s Hugo Chavez ordered soldiers to seek out businesses that raise prices after a sharp devaluation of the bolivar currency last week, saying he will expropriate firms that engage in price gouging.
Chavez also created a $1 billion fund to jump-start the recession-hit, oil-reliant economy before elections in September when the opposition hopes to strip him of a parliamentary majority.
“Right now, there is absolutely no reason for anybody to be raising prices of absolutely anything,” Chavez said on his weekly TV show, two days after announcing a dual exchange system for the weakened currency, which had been on a fixed exchange rate.
“I want the National Guard on the streets with the people to fight against speculation,” Chavez said. “Publicly denounce the speculator and we will intervene in any business of any size.”
The socialist Chavez has given the state a hefty role in managing the economy. During his 11 years in office he has nationalized most heavy industries and expropriated large farms. Business and finance are tightly regulated.
He says the devaluation will help make Venezuelan companies more competitive but warned that the government will take over shops and give them to workers if price rises are uncovered.
Chavez gave out phone numbers during the broadcast to report price gouging and asked his defense minister to prepare an “offensive” against the practice.
After browbeating firms that might raise prices, he announced $1 billion of credits and subsidies to try to diversify the economy and get industry back on its feet. He also invited businessmen to talks with the government.
Venezuela’s economy is largely dependent on oil revenue and slipped into recession last year as crude prices fell and manufacturing and industry output crashed.
South America’s leading oil exporter, Venezuela imports most consumer products. Under the new system, food and medicines will be imported at an exchange rate of 2.6 bolivars to the U.S. dollar while nonessential goods will be bought at a rate of 4.3 per dollar.
Since 2005 the bolivar had been fixed at 2.15 to the dollar.
Venezuelans packed electrical goods stores yesterday, fearing prices will double as the cost of imports rise.
Venezuelans are already struggling with electrical power and water shortages caused by drought, a high murder rate, inflation and recession. But many still support the government because of its focus on easing the economic plight of the poor.
Some analysts say the price impact of the devaluation will not be severe, pointing out that much of Venezuela’s imports are already paid for with dollars bought on a semi-legal black market, where the bolivar is worth about a third of its official rate.
The currency closed at 6.15 to the dollar on Friday.
Others have predicted that Venezuela’s inflation, already the highest in the Americas at 25 percent last year, will be pushed up by the devaluation.
However, the measures would give Chavez more cash to spend this year before the September elections.
He said subsidies introduced by his government, along with the stronger exchange rate for food and medicine, would protect the poor from a jump in inflation.
“This government protects and will continue to protect the weakest with investment and with special attention,” he said.
The devaluation is a relief for the state oil company, PDVSA, which has struggled to pay service providers and meet social spending requirements since crude prices dropped last year.
Foreign debt-holders will also be pleased, since the devaluation improves Venezuela’s finances.
Last month, BMO Capital Markets cut ratings on Colgate-Palmolive Co, Avon Products Inc and Kimberly-Clark Corp to “market perform” saying a possible currency devaluation in Venezuela could hurt the U.S. consumer goods makers’ profits.
