Currency Chaos Reigns in Venezuela

Multiple Exchange Rates, Shortage of Dollars Keep Companies Guessing, Bracing for Write-Downs

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"Venezuela's prices on things as diverse as butter and flat-screen television sets are established without warning by the government, which also caps corporate profits at 30%. Any profits evaporate quickly, however, because inflation is almost double that.

And expanded price controls imposed by Venezuelan President Nicolas Maduro, who succeeded late leftist firebrand Hugo Chávez in April 2013, have exacerbated shortages of basic items such as corn flour and toilet paper, triggering violent street protests since February."

"At the official rate for companies that import essential goods, such as food and medicine, a U.S. dollar costs 6.3 bolivars. Companies invited by the government to participate in a middle-tier rate system can effectively buy a dollar for 10 bolivars. For companies in the next and newest tier, 50 bolivars fetch a dollar, leaving them to ponder the true value of their Venezuelan factories and inventories."

"For anyone unable to get dollars through official channels, the black-market rate is roughly 70 bolivars. The U.S. currency is vital to Venezuela, which imports as much as 80% of what it consumes; 96% of its exports are petroleum products."

"But for now, at least, companies face the quandary of which exchange rate to use when they close their books at the end of the quarter."