Two Major Airlines Suspending Service to Caracas

Latin America’s largest airline, Latam, has joined German airline Lufthansa in suspending service to or from Caracas because of outstanding financial debts.

Venezuela’s currency controls have made it difficult for international airlines to convert earnings from the bolivar to other currencies, according to several companies, and Lufthansa claims that Venezuela owes them millions of dollars in ticket revenue.

Latam stated that flights from Sao Paulo to Caracas would cease, effective almost immediately, and routes from Lima and Santiago will end before August “temporarily and for an unspecified time.”

The news is just the latest in a long series of economic blows to the country due in large part to the plummeting price of oil. Venezuela’s economy has shrunk 8% this year, with inflation rates upward of 481%, as state debts incurred by Petroleum of Venezuela (PDVSA) continue to rise.

“I think for the rest of the year it is likely to get worse, not to get better,” Carlos de Sousa, an economist for the Latin American macro research branch at Oxford, 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,” de Sousa said. “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.”

The heavy investment in oil as the country’s main export has also caused other industries to diminish. A lack of sugar crop has led Coca-Cola to pull out several production facilities, and fewer rubber resources brought an end to a long-standing partnership with Bridgestone tires. Meanwhile, steel and aluminum production hit a 30-year low last year, even when the energy required to produce steel has decreased by 34% since the 1970s.

As the country continues to cut imports in an effort to repay national debts, store shelves remain alarmingly bare and medical supplies at a critical low.

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