devaluation of bolivar expensive for us firms
Last Updated : GMT 16:52:45
Arab Today, arab today
Arab Today, arab today

Devaluation of bolivar expensive for US firms

Arab Today, arab today

Arab Today, arab today Devaluation of bolivar expensive for US firms

New York - AFP

The recent devaluation of the Venezuelan bolivar was a blow to some major US companies, highlighting the importance of financial ties between the two nations despite their political disagreements. Venezuela devalued the bolivar by 32 percent against the US dollar earlier this month, feeding public fears that prices would rise further amid already soaring inflation. The change in the official exchange rate from 4.3 bolivars to the dollar to 6.3, was published in the Official Gazette. Economist Jose Luis Saboin of the consultancy Econalitica said consumers\' purchasing power will likely erode by 7.2 percent this year. Devaluation will make imports more expensive in Venezuela, where inflation stands at 20.1 percent -- the highest in Latin America, based on official data. President Hugo Chavez\'s government put in place an exchange rate control mechanism in 2003 seeking to throw the brakes on capital flight. In January 2011 it set the rate at 4.3. But the hunger for dollars and euros fuels a black market with a much higher exchange rate which by law cannot be published. The United States is the main purchaser of Venezuelan oil and thus its largest trading partner. Despite political disagreements between the two countries\' governments, trade relations between the United States and Venezuela have blossomed in recent years, thanks to rising oil prices over the past 10 years. Some 500 US companies operate in the country, according to the US State Department. Win Thin, a senior economist at Brown Brothers Harriman, said Venezuela does not produce much of anything except oil -- and imports most other products. That is why, he explained, US multinationals are broadly represented in many sectors of the economy: pharmaceuticals, energy, cosmetics, etc. But they are not in a position to keep pace with inflation as prices of certain categories of products are strictly controlled. Because of that, economists say, the devaluation of the bolivar has negatively affected their earnings. This was evident in financial reports published by some of these companies in recent days. US hygiene and cosmetics products manufacturer Procter & Gamble (P&G) lowered its earnings forecast Thursday, taking into account of the devaluation of the bolivar. P&G will have to absorb in fiscal 2012-13 an exceptional after-tax loss of $200 million ro $275 million, and its competitor, Colgate-Palmolive, announced an anticipated an exceptional after-tax loss of $120 million in the first quarter. Pharmaceutical company Merck, for its part, warned Wednesday that its stock will be adversely affected by the devaluation of the bolivar in the first quarter. The anticipated loss -- five cents a share. Automakers Ford and GM have also been affected, along with cosmetics giant Avon, among others. Analysts point out that multinationals have been affected by other devaluations in history, citing those of the Russian ruble, Brazilian real and Asian currencies in the 1990s or the Argentine peso in the early 2000s. David Gilmore, an analyst at FX Analytics, said the \"devaluation hits the firms,\" and there was \"not much chance to see the bolivar reevaluate.\" \"You\'d really need a regime change,\" he argued. Meanwhile, Caracas is goes through a political crisis sparked by President Chavez\'s health. The president underwent cancer surgery in Cuba in early December and has not been seen in public since, giving rise to speculations about his ability to govern effectively. Supporters of Chavez displayed new confidence Saturday after pictures were released showing he 58-year-old leader smiling in a Havana hospital. Chavez was first diagnosed with cancer in 2011. After surgery and treatment he declared himself free of the disease and went on to win another term in elections last October. But he suffered a relapse, and after the latest surgery he was still too sick to come back to Venezuela for his scheduled inauguration on January 10. It has been postponed indefinitely, and Vice President Nicolas Maduro has essentially been running Venezuela. Thin noted that inflation remained high in Venezuela, averaging 20-25%, which bodes ill for the fate of the bolivar. \"They are going to have to devalue again at some point,\" he predicted.

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