Panama has pulled its ambassador from Venezuela, retaliating after the South American nation banned key Panamanian businesses from operating within its borders.
Tension between the two countries began escalating in recent days when Panama put President Nicolas Maduro on a list of Venezuelan officials as being at "high risk" for laundering money.
Venezuela yesterday announced a temporary ban for a group of Panamanian businesses and leaders. That included President Juan Carlos Varela and Copa, one of the few airlines still operating within Venezuela.
In announcing the withdrawal of its envoy, Panama's government described the Venezuelan move as being "a political reaction lacking substance." Panama also asked Venezuela to call home its ambassador from Panama, officials said.
The dispute comes as Venezuela is mired in economic and political crisis and finds itself increasingly isolated from the global community.
The 90-day ban restricts commercial activities within Venezuela by 22 business leaders and 46 companies in Panama.
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Caracas justified the suspension by saying it adds a "measure of protection of the financial, economic and commercial system." Panama has named 16 Venezuelan companies and 55 individuals suspected of money laundering.
The list also includes Venezuela's vice president, socialist party leader Diosdado Cabello and Attorney General Tarek William Saab.
The United States has sanctioned Maduro and dozens of top officials, accusing the country of human rights abuses and sliding into a dictatorship.
The European Union has also imposed economic and travel sanctions on seven senior Venezuelan officials accused of breaching the rule of law.