Two major airlines are departing Venezuela for good this month, leaving behind a crisis-wracked nation that’s becoming increasingly isolated from the rest of the world.
Lufthansa of Germany and Latam, the largest air carrier in Latin America, have both decided to stop flying to Venezuela, saying it’s unviable to continue service to the country embroiled in worsening economic difficulties.
The German airline—one of the world’s largest—cites Venezuela’s burdensome foreign exchange controls as one of the main reasons for its one-way departure. Airlines flying to Venezuela have an estimated $3.8 billion trapped in the country because the government refuses to trade their locally earned currency for U.S. dollars, which are becoming increasingly scarce in the petro-state.
“We deeply regret suspending our service,” Lufthansa said in a statement last week. “Lufthansa is currently unable to transfer its earnings in local currency to U.S. dollars to take them out of the country.”
Fewer flights to Venezuela will make travel to and from the country more difficult and expensive. But it’s just a symptom of a much larger problem: Venezuela is becoming increasingly isolated in a variety of ways. But unlike communist Cuba or Iran, which have toiled for decades under U.S. trade sanctions, Venezuela’s isolation is mostly a problem of its own creation.
The country’s finances are a mess. Venezuela has run up its debts so steeply and done so little to increase its revenues that the country has cut itself off from international lenders, which are offloading old Venezuelan bonds for half of their initial worth.
Russ Dallen, an investment banker in Caracas, says the Venezuelan government hasn’t been able to issue bonds for the past three years. To service old interest payments and avoid default, Venezuela is depleting its reserves, which went from $24 billion a year ago to just $12 billion now.
“They are living off their savings account,” Dallen told me in a phone interview from Caracas, where he’s worked since the 1980’s.
A big part of Venezuela’s problem is falling oil prices, which have depleted its revenues dramatically over the past two years. But mismanagement of the national oil company PDVSA has made things worse. Over the past decade the government has replaced technical experts at PDVSA with party loyalists. Subsequently, the country’s oil output has fallen from 3.15 million barrels per day to just 2.3 million now.
“They’re not producing enough of the one good that they’re making,” Dallen said.
The revenue problems and the stringent currency controls have also isolated Venezuelan companies from the world.
Factories, food producers and even breweries regularly struggle to import raw materials needed to make stuff for Venezuela’s people.
That’s because the government sets exchange rates and forces businesses to get permits to buy U.S. dollars for imports. The system worked to provide for cheap imports when Venezuela was flush with cash. But as oil prices fell and dollars become increasingly scarce, fewer businesses are getting the allocated greenbacks they need to operate.
“These controls must be eliminated,” Lorenzo Mendoza, the head of Venezuela’s largest food conglomerate, said in February.
Mendoza’s company was forced to shut down its brewery—the country’s largest—last month because it couldn’t access the U.S. dollars it needs to import barley. The local branch of Coca Cola also recently stopped operations in Venezuela due to a lack of dollars to import sugar.
Politically, the situation is slightly better for Venezuela, which can still count on the support of some small nations in regional forums. During the years of Hugo Chávez, Venezuela built a formidable regional bloc of nations at the UN and the Organization of American States by supplying its client states—mostly Caribbean islands—with cheap oil. It also has the backing of ideologically aligned governments in Ecuador, Nicaragua and Bolivia.
But the tide appears to be changing. The OAS’ new secretary general is now pushing for a special session to discuss the derailment of democracy in Venezuela. That session would force Venezuela to go before an international forum and answer questions about why it has refused an amnesty law for political prisoners, and why it has refused to allow its citizens to hold a recall referendum against President Maduro.
The fate of that special session is still unclear, however. On Wednesday Argentina led a group of Latin American countries in approving a resolution that calls for more time for Venezuela and the opposition to dialogue before the rest of the hemisphere gets involved. But even the fact that other countries had to get together to draft that resolution shows that Venezuela’s state of affairs is increasingly alarming other countries.
Bron: Fushion