CARACAS (Reuters) - Venezuelan authorities backed by soldiers temporarily closed dozens of retail outlets for price gouging after a currency devaluation that triggered a frenzy of shopping but met with market approval.
President Hugo Chavez announced the devaluation last week, cutting the exchange rate of the bolivar against the dollar by half for oil income and for goods deemed nonessential in a move to bolster state coffers.
The measure strengthens the financial balance sheet in South America’s largest oil exporter but risks angering the leftist government’s supporters ahead of an election in September if prices rise and inflation speeds up.
Chavez is a strong believer in state intervention in the economy and has nationalized many industries in the OPEC nation. He uses currency controls to prevent capital flight.
After inspecting prices, Venezuelan soldiers and authorities closed at least two supermarkets belonging to a Colombian retailer controlled by France’s Casino.
Venezuelan bonds ticked down slightly on Tuesday but were still at their highest level since September 2008 after a major rally on Monday. JPMorgan raised Venezuelan bonds to overweight from market weight.
“The FX devaluation is unambiguously positive for fiscal accounts and should limit external debt supply,” the bank said in a note on Monday, adding higher oil prices also influenced its decision.
The devaluation, which creates two fixed exchange rates on top of a semi-legal black market where the bolivar is freely floated, was less well received on the Venezuelan street and by foreign companies operating in the Caribbean nation.
The new system sets a rate of 2.6 to the dollar for essential items like food and medicine, but gives a much lower rate of 4.3 to the dollar for other goods and oil exports.
Thousands of shoppers have mobbed stores to snap up imported TVs and computers, worried their savings will lose value and prices will rise.
In a bid to calm nerves, Chavez sent troops to monitor prices in shopping districts. A total of 70 retailers have been shuttered and raids continued on Tuesday.
“Now they are trying, on top of current prices that are already elevated, to raise them much more,” said Trade Minister Eduardo Saman, who also heads a government consumer watchdog.
Saman said prices were being manipulated by critics of the government who wanted to dent Chavez’s popularity ahead of parliamentary elections in September.
The timing of the long-overdue devaluation so close to an election where Chavez risks losing a parliamentary majority, surprised many analysts.
Chavez is gambling he can underpin his 50 percent support with increased spending in the lead up to the election and offset the negative reaction price rises may bring.
U.S. companies operating in Venezuela are bracing for the impact of the devaluation, which will raise the cost of their imports and is likely to reduce the value of bolivar profits.
Oil driller Helmerich & Payne Inc said on Tuesday it expects to take a hit in its second quarter results after the devaluation, with an expected exchange loss of about $20 million.
The highly traded 2027 global bond fell 0.125 points to bid 82.875 with a yield of 11.538 percent.
Reporting by Frank Jack Daniel; additional reporting by Sujat Rao in London and Walker Simon in New York, editing by Anthony Boadle
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