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* Chavez popularity could suffer after devaluation
* Venezuelans rush to shops anticipating price hikes
* Inflation will jump this year
(Recasts with color, adds details, background)
By Frank Jack Daniel and Eyanir Chinea
CARACAS, Jan 9 Venezuelans rushed to the shops
on Saturday, fearful of price rises after a currency
devaluation that will let President Hugo Chavez boost
government spending ahead of an election but feeds opposition
charges of economic mismanagement.
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 socialist Chavez believes the state should have a
weighty role in managing the economy. During his 11 years in
office he has nationalized most heavy industry, and business
and finance are tightly regulated.
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.
BLACKOUTS, WATER SHORTAGES
Opposition parties, emboldened by public dissatisfaction at
frequent blackouts and water shortages and a 2.9 percent
economic contraction in 2009, hope to strip Chavez of his
legislative majority in September.
The devaluation is embarrassing for Chavez, who resisted
calls from economists and many government allies to make the
move last year when oil prices were at their lowest and
elections a long way off.
"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
The measure is a relief for state oil company PDVSA, which
has struggled to pay service providers and meet requirements to
fund social projects since crude prices dropped sharply last
year. It also makes Venezuelan businesses more competitive.
Holders of Venezuela's foreign debt are also pleased, since
the devaluation improves government finances and lessens the
need to issue more bonds.
However, Chavez risks taking a blow to his popularity
ratings, which are about 50 percent, as prices for many
products inevitably will rise in the country of 28 million
people, which relies on imports for much of its consumption.
Finance Minister Ali Rodriguez said the devaluation will
add 3 percent to 5 percent to inflation, already the highest in
the Americas at 25 percent last year.
"The popularity of the government is obviously going to be
sharply and negatively affected," said economist Pedro Palma.
"The inflationary impact of the measure diminishes the real
income of people. People can consume less."
The new two-tiered exchange system offers the 2.6/dollar
rate for goods deemed essential including food, medicine and
industrial machinery. Other products, including cars and
telephones, will be imported at the higher 4.3 rate.
Last month, BMO Capital Markets cut ratings on
Colgate-Palmolive Co (CL.N), Avon Products Inc (AVP.N) and
Kimberly-Clark Corp (KMB.N) to "market perform" saying a
possible devaluation in Venezuela could hurt the U.S. consumer
goods makers' profits.
Economist Pavel Gomez of the IESA economic school said the
new system will increase opportunities for graft in a country
that already is corruption-ridden.
"Multiple exchange schemes are incentives for corruption,
more so if they are applied in the Venezuela way," he said.
"Those who have good contacts can buy at 2.6 and sell at 4.3."
Chavez, whose popularity usually rises in correlation with
public spending, also said on Friday that the Central Bank had
transferred $7 billion of foreign reserves to a development
fund used to finance investment projects.
(Additional reporting by Hugh Bronstein in Bogota, editing
by Vicki Allen)