Profits Vanish in Venezuela After Currency Devaluation - NYTimes.com - 0 views
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Profits Vanish in Venezuela After Currency Devaluation
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The country’s high inflation — currently around 60 percent a year — has also meant that the prices in bolívares that companies charge for many goods and services have risen sharply.
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Now companies are feeling the pain from a series of currency devaluations over the last year and a half. Photo
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But the rosy outlook changed in late March, when Brink’s started calculating its sales using the recently created exchange rate of about 50 bolívares to the dollar
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Further complicating the picture, the Venezuelan government has not allowed companies to repatriate profits for the last five years.
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Companies have ways of chipping away at the locked-up profits, including charging higher fees to Venezuelan subsidiaries for goods and services provided by the parent corporation. But many foreign companies are stuck holding vast troves of bolívares that shrink in value each time there is a devaluation.
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Procter & Gamble said in April that it had the equivalent of about $900 million in cash in this country and that it was taking a $275 million write-down as a result of applying the government’s intermediate exchange rate to its Venezuelan balance sheet. Colgate-Palmolive wrote down $174 million, while Ford wrote down about $316 million.
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“All the companies knew there would be a loss because everyone knew there wouldn’t be dollars” available at the fixed exchange rate, said an executive with an American company in Venezuela who spoke on the condition of anonymity. “We were trapped because the law here did not give you a way out.”
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The government has also failed to pay companies the hard currency it had promised them for imports bought on credit from suppliers, and in many cases suppliers are now refusing to ship more goods to Venezuela until they receive payment.
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Stores are often out of basic products such as dish soap or corn flour. DirecTV has stopped taking on new customers because it cannot get the dollars to import more dish antennas.
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Without dollars, car companies cannot import the parts needed to assemble vehicles; Ford and Toyota were forced to temporarily close their factories.
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In yet another reflection of the currency restrictions, the government has refused to let airlines operating in Venezuela trade the bolívares they receive for ticket sales and other services here for dollars. The International Air Transport Association says that the airlines have more than $4 billion in revenues held up in the country, based on the government’s base exchange rate at the time the tickets were sold.
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American Airlines says that it is owed $750 million by the country’s government.