–Proving that Government’s are the same everywhere, the Chavez administration published yesterday the official increase in the price meat, rice, cheese, sugar, black beans, coffee and corn flour. This had been rumored since the regional elections were over, but was emphatically denied by the Minister of Industry and Commerce five days ago. Nothing new here, this is typical behavior of any Government in the last forty years, save the tough measures for when elections are over.
The increases are somewhat strange in that rice was increases 13.6% on average, corn flower 13.7%, first class meats 5.1%, second class meats 26% and third class meats 64.8%. White cheese went up 19%, black beans 31.9% and sugar by 4.8%
The Government regulated basic food staples in early 2003 and periodically adjusts some of them. Unfortunately, price controls have this problem in that politics becomes involved in the decisions and when increases are allowed they have to be large in order to compensate distortions and shortages. This should push November’s inflation and the year end CPI to levels above what was expected and unfortunately it hurts the poor the most.
Corn flour is used in a variety of local dishes that are part of the basic diet of Venezuelans, including arepas, empanadas and hallacas, for those that have not been in Venezuela.
–Lots of fuzz over nothing on the issue of removing three zeroes from Venezuela’s currency. The Superintendent of Banks announced the measure which somehow created paranoia that it somehow involved some form of trick on the part of the Government. It did not make the Government look very good that the Central Bank denied this was even being considered while other Government agencies were talking about the new bills being ready for the measure.
–The CANTV purchase of Digitel continued to be in the news as investors were disappointed by the lower dividend since the company has to spend some of its cash on purchasing Digitel, punishing the stock (buy!). The price to be paid is US$ 450 million, including debt, for 1.2 million subscribers, which means CANTV will have to use only around US$ 250 of its cash in the purchase. This shows the company wants to grow and is looking forward into the future.
The company has yet to say much about whether one of the two technologies CDMA (Movilnet) or GSM (Digitel) will be discarded. If you think of this as a growth strategy it makes a lot of sense as CANTV acquires 1.2 million new wireless subscribers who spend and average of US$ 14 per subscriber a month for US$ 375 per line. However, technical issues remain unclear.
Regulatory issues are also a big problem as not only is one of the three wireless concessions removed, but the Digitel concession was issued to make attractive for telecom investors to provide rural telecom service sin those areas where CANTV had no coverage (Mostly towns under 5,000 inhabitants). Thus, it would seem strange to have CANTV buy the rural provider now. There are two Government agencies that have to approve the purchase, the telecom regulator, CONATEL and the anti-monopoly office Procompetencia.
There continue to be rumors that this only one part of other transactions, including sales to foreign groups as well as rumors that it is tied to a transaction with the recently created Government Telecom company CVG telecom.