Lufthansa Cancels flights to Caracas Indicating Venezuela’s Growing Isolation

In the latest sign of Venezuela’s growing isolation and economic, social and political turmoil, the German airline Lufthansa cancelled its flights between Germany and the South American socialist country over the weekend.

According to the International Monetary Fund, with hyperinflation averaging 481.5 percent, Venezuela’s economy is seen shrinking 8 percent this year.

The Financial Times newspaper reported on Sunday that Lufthansa will halt the only remaining flight between Germany and Caracas from next month. The difficulty of repatriating money from Venezuela due to currency controls and the country’s declining economy were reflected in its decision, the carrier said.

The overthrow of Venezuelan President Nicolas Maduro is viewed as increasingly likely amid shortages of basic goods including food, energy and medications. Given Venezuela’s proximity and oil wealth, the potential consequences of this development are being feared by the US. According to media reports warning of the possibility of a “palace coup,” led by Maduro’s associates, or a military uprising were issued earlier this month by U.S. intelligence officials.

“Serious and/or widespread social unrest remains the key variable that could alter the outlook and hasten a government collapse,” Nicholas Watson, senior vice president at Teneo Intelligence, said in a report on Thursday.

In what would be the equivalent of a popular non-confidence vote, Venezuela is set to hold a “recall” referendum to remove Maduro. Rather than fresh elections being held, the government is said to prefer the vice-president taking Maduro’s place and hence it is expected that the government will try to delay the referendum until after January 10, 2017.

“I very much hope the recall referendum will go through, but I’m not 100 percent sure about it,” Carlos de Sousa, economist for Latin American macro research at Oxford Economics, told CNBC on Monday.

“I think the government is betting it can delay it enough so that if it takes place after January 10, the president resigns if they lose the referendum, which is the most likely outcome and the vice president takes power. That is the government’s bet,” Carlos de Sousa said.

“I think it is going to be very difficult for the government to play that out but it is still a possibility and I don’t give it a zero percent chance that the government will not be able to cling to power,” he added.

In the meantime, with the state-owned oil company, PDVSA, heavily indebted, the country is struggling to avoid a default. To enable it to continue paying its foreign debt, the imports would be cut further to $20 billion this year from $37 billion in 2015, Venezuela has said.

“I think for the rest of the year it is likely to get worse, not to get better,” de Sousa told CNBC.

“One reason for that is that the government has taken a decision to repay PDVSA’s debt and to do that they have to cut on imports. So I think the population is bearing all the cost of paying this debt and they are going to pay this debt because they have no better choice, because the costs outweigh the benefits in the case of a default,” he said.

To help Venezuela fight its Zika virus outbreak, China was donating 96 tons of medication. The delivery was part of the deepening trade relationship between China and his country, said the Venezuelan health minister.

“Maduro’s allies in the region are rather weak and financially unable to assist him and other forms of intervention I see as unlikely,” Jimena Blanco, head of Americas at political risk consultancy Verisk Maplecroft, told CNBC on Monday in London.

(Adapted from CNBC)


Categories: Economy & Finance

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