Published On: Tue, Dec 24th, 2013

Venezuela devalues Bolivar by 44%, wiping out Ford’s LatAm profit

BolivaresCARACAS - Venezuela devalued its currency bolivar by 44% today. Tourists can buy bolivars at 11.3 per dollar compared with the official 6.3 per dollar for most other transactions. Oil investments will also use the new exchange rate.

This move followed a 32% devaluation in February. Bolivar is losing value because of Venezuela’s dismal hard currency reserve, reports Bloomberg:

"A decade of currency controls has made dollars increasingly scarce in the South American country, with foreign reserves falling to a nine-year low this month. The restricted supply of dollars to companies has led to shortages of imports ranging from tires to beef."

This devaluation essentially wipes out Ford Motor‘s (F) profits in Latin America, says Russ Dallen at BBO Financial Services:

"Ford announced last week that it was expecting to lose $350 million because of this devaluation in Venezuela, basically wiping out all of its profits from the whole of Latin America.  In short, Ford, like many international companies, has over $700 million trapped in bolivars that they have not been able to repatriate or exchange, as the Government will not give them the dollars and it is illegal to use the black market (which would also mean an even greater loss)."

Ford won’t be the only victim. Dallen warns us to look for similar announcements from Toyota (TM), Clorox (CLX), Diageo (DEO), Mead Johnson (MJN), Revlon (REV), Mattel (MAT), and Tupperware (TUP).

By Shuli Ren

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