Venezuela's Business Sector Awaits Word On New Price Caps

Date : 02/03/2012 @ 1:17PM
Source : Dow Jones News
Stock : Colgate-Palmolive Company (CL)
Quote : 76.9  -0.48 (-0.62%) @ 12:05AM

Venezuela's Business Sector Awaits Word On New Price Caps

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The repeatedly delayed release of new limits on prices for many consumer items in Venezuela has stirred uncertainty in the country's business sector as producers, importers and shopkeepers wait to assess the impact of recently expanded government controls.

Authorities promised but failed to unveil by Dec. 15 the first wave of adjustments linked to Venezuela's Law of Fair Prices and Costs, passed in 2011. The list was slated to include 19 items, mostly personal-hygiene and household-cleaning products, which have been under a price freeze since November pending the announcement.

The first deadline came and went, as did rescheduled release dates in January and earlier this week. Meanwhile, with approaching elections amplifying Venezuela's deeply polarized politics, President Hugo Chavez has signaled to his support base among the nation's poor that he will sharply cut prices across a wide swath of the economy.

"Businesses are faced with a huge unknown," said Robert Bottome, editor of the Caracas-based business journal VenEconomy and a vocal Chavez critic.

Late Thursday, Chavez said during a televised address that officials had analyzed production costs and average retail prices of the targeted goods. Among the products named last year were soap, detergents, paper towels, toilet paper, diapers and bleach. "So we are going to make this announcement," Chavez said. "But not yet. We are still studying."

The socialist leader, seeking re-election in October, did assure his gathered supporters that he was going to slash their shopping bills and punish greedy businesses. "The prices are going to go lower," he said to cheers. And if met by resistance from any individual firms, "we will nationalize the company. I have no problem with that," Chavez said.

As part of the new law, officials created a national agency, known as Sundecop, to examine the cost structures of companies and determine what the government deems as reasonable profit. Chavez has fixed prices on several basic goods and services--including food staples and gas--for some time now.

But the leftist leader has said that additional, far-reaching restrictions were needed to combat the price-gouging and product- hoarding of his enemies in the private sector, whom he accuses of seeking to destabilize Venezuela under orders from Washington. Chavez blames these "little Yankees," as he calls them, and past administrations for Venezuela's chronic shortages of goods and notoriously high inflation rate, which approached 28% at the end of 2011.

"To the best of our knowledge, this price-setting mechanism is unprecedented," analysts at Bank of America Merrill Lynch said in a recent research note. "The delays are not surprising given the highly complex nature of the task, which involves price structure revisions of more than 16,000 firms."

Companies that faced audits in connection with the first installment of revised prices include local units of multinationals like Colgate-Palmolive Co. (CL), PepsiCo Inc. (PEP), H.J. Heinz Co. (HNZ), Coca-Cola (KO), Johnson & Johnson (JNJ), Unilever PLC (UN, UL) and Nestle (NSRGY, NESN.VX), as well as local food distributor and packager Alimentos Polar.

The wait has unsettled Venezuela's business leaders, who have long complained that existing price controls force them to operate at a loss and contribute to the economic imbalances. The president's statist policies and his expropriation of more than 2,000 companies, properties or other private sector assets, critics say, have led to the flight of private investment and the decline of food production and manufacturing. Venezuela imports more than 70% of its food.

The Law of Fair Prices and Costs will only magnify the distortions, said Mauricio Tancredi, a vice president for Consecomercio, one of Venezuela's main business associations. "If they are looking to battle inflation and shortages, what they are going to achieve is the opposite," he said.

Some analysts believe that Chavez will approve a mild set of initial price ceilings and not risk any possible adverse effects of the law as he seeks re-election. "The law is politics more than any other thing," said economist Angel Garcia Banchs, director of the local research house, Econometrica. "It's meant to blame the private sector for inflation."

With a new term in hand, however, Chavez will seek to deepen socialist changes in Venezuela, Garcia Banchs said.

"If Chavez wins, we do believe that the Law of Prices and Costs will really be applied," he said.

   -By Ezequiel Minaya, Dow Jones Newswires; 58-414-120-5738; 

--Kejal Vyas contributed to this article

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