Economic Offensive to Reduce Price Jacking

Implementing Profit Limits in Venezuela
By Ewan Robertson

Mérida, November 2013 – The Venezuelan government is planning to implement profit limits across the economy as part of a crackdown on overpricing.

The plan responds to the revelation of mass price speculation by retailers earlier this month, where some companies were found to be taking advantage of cheap imports at the government’s official exchange rate to then mark up prices and make profits of over 1000%.

Vice President Jorge Arreaza said that a deadline will be announced by which retailers must adjust their prices “in line with reality and fairness”.

President Nicolas Maduro has suggested that such profit limits will be around 15% - 30%, which he said would make profit margins similar to other Latin American countries such as Argentina and Chile.
A new register of small and medium companies is also being designed in order to monitor these companies’ supply costs and maintain “fair costs” along the production chain. A national fund will support companies which respect the new price limits.

A crackdown against overpricing has been underway for the past week and a half, with consumer agency officials and the National Guard forcing electronics and other retailers to lower prices judged as speculative and sell their stock to the public.



Due to inspections and agreements reached with industry sectors, since the beginning of this “economic offensive” retailers of electronic appliances, auto parts, toys, clothes and hardware have reportedly lowered prices from between 30 – 70%.

Maduro reported that over 100 businesspersons had been arrested for usury and price speculation, and 1,400 shops had been inspected.

Inspections continued in big name stores like Traki, EPA and General Import on Sunday.

“The discount margins are a protection measure so that a fair price exists for the consumer and a fair profit for the retailer,” said Luis Dominguez, a government development minister, during an inspection yesterday.

The crackdown is part of the government’s response to what it argues as an “economic war” being waged against it by business federations aligned with the conservative opposition. Officials say that such groups hoard products and speculate on prices to create shortages and drive inflation.

The country is currently experiencing a tenfold gap between the official and black market dollar price, annual inflation of 54%, and shortages of some food and household products.



Critics disagree that current problems are politically motivated and argue that government regulatory policies such as currency and price controls are to blame. They say that fiscal and monetary measures are required to address the situation, and the crackdown on overpricing will only exacerbate existing problems.

“The hangover that we’re going to have after this consumer binge, imposed by the government, will last much longer than the joy of buying electronic appliances in the party that is now ending,” said head of business federation Fedecamaras, Jorge Roig, to conservative paper El Universal yesterday.

Meanwhile Maduro vowed to continue course against the “economic war”.

“I congratulate everyone; vice president, ministers, high military command and the entire people, for the success of the economic offensive. Down go prices,” he wrote on twitter.
www.venezuelanalysis.com

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