The Consumer Price Index increase was approximately 14.4% at the end of 2005, following increases of 19.2% in 2004 and 27.1% in 2003.

As of January 23, 2003, all foreign exchange requests must be approved by the National Exchange Control Administration (CADIVI) and the Central Bank (BCV) completes all legal purchase and sale of foreign currency. The current exchange control regime rates for U.S. dollar exchange rate are: Bs. 2,144.60=U.S. $1.00 for purchase operations, and Bs. 2,150=U.S. $1.00 for sale operations. The national budget for 2006 assumes that the government will not devaluate this year. We expect a small devaluation in 2007.

Central Bank-held international reserves increased to U.S.$30.4 billion at the end of 2005. The reserves would have been higher, but the BCV transferred $6 billion to the National Development Fund (FONDEN) during the last quarter 2005, as directed by the Central Bank Law (July 2005). The level of international reserves is expected to decrease during 2006 because the Central Bank Law established that state-owned oil company PDVSA will only transfer the foreign exchange earnings needed for its domestic expenses, taxes, royalties, and dividends to the BCV, and would transfer the rest to FONDEN.

Venezuelan sovereign debt, both domestic and foreign, has been increasing. The government announced plans to prepay some of its most expensive foreign debt and to extend the debt profile of the domestic debt, reducing near-term debt service. Despite increases in domestic and foreign debt, Venezuelaís debt/GDP ratio is low by Latin American standards. Venezuelaís Emerging Markets Bond Index investment risk rating, at 213 basis points, dropped somewhat over 2005, but remained higher than all countries in the region except Argentina and Brazil.

There is considerable income inequality. The Gini coefficient was 0.514 during 2005. According to private sources, the percentages of poor and extremely poor among Venezuelan population were 67% and 35%, respectively, in 2005. These high ratios are due primarily to lower real wages earned by employees, and high rates of un- and underemployment.

The Government of Venezuela had historically opened up much of the hydrocarbon sector to foreign investment, promoting multi-billion dollar investment in heavy oil production, reactivation of old fields, and investment in several petrochemical joint ventures. Almost 60 foreign companies representing 14 different countries participate in one or more aspects of Venezuela's oil sector. On November 13, 2001, under the enabling law authorized by the National Assembly, President Chavez enacted the new Hydrocarbons Law, which came into effect in January 2002. This law replaced the Hydrocarbons Law of 1943 and the Nationalization Law of 1975. Among other things, the new law provided that all oil production and distribution activities were to be the domain of the Venezuelan state, with the exception of the joint ventures targeting extra-heavy crude oil production. Under the new law, private investors cannot own 50% or more of the capital stock in joint ventures involved in upstream activities. The new law also provides that private investors may own up to 100% of the capital stock in ventures concerning downstream activities, in addition to the 100% already allowed for private investors with respect to gas production ventures, as previously promulgated by the National Assembly.

During the December 2002-February 2003 general strike, petroleum production and refining by PDVSA, the state-owned oil company, almost ceased. Despite the strike, these activities eventually were substantially restarted. Out of a total workforce of 45,000, 19,000 PDVSA management and workers were subsequently dismissed because the government asserted they had abandoned their jobs during the strike. Current levels of production remain a subject of debate, with considerable difference between the levels cited by the Venezuelan government and those cited by private sector observers. With world oil prices high, there remains significant international interest in investing to develop Venezuelaís oil resources. However, as of late 2004 there had been no major new deals announced under the new Hydrocarbons Law. Venezuelaís Gaseous Hydrocarbons Law provides significantly more liberal terms and two large natural gas projects are in different stages of development.

In early 2005, the government informed companies with operating contracts that they must migrate the contracts to joint ventures that conform to the 2001 Hydrocarbons Law. The government threatened to seize fields operating under the services contracts on December 31, 2005 if oil companies did not sign transition agreements to migrate their contracts. All but one company signed the agreements and are currently negotiating the terms of the joint venture companies with the government. The company that did not sign the agreement was bought out by its partner.

The government of Venezuela has taken a vocal role against the proposed Free Trade Agreement of the Americas. Its stated goal is to develop a South American bloc prior to engaging in negotiations with the U.S.

Manufacturing contributed an estimated 17% of GDP in 2005, growing by 9%. The manufacturing sector continued its recovery started in 2004, but remained hindered by a marked lack of private investment. Venezuela manufactures and exports steel, aluminum, textiles, apparel, beverages, and foodstuffs. It produces cement, tires, paper, fertilizer, and assembles cars both for domestic and export markets.

Agriculture accounts for approximately 4% of GDP, 10% of the labor force, and at least one-fourth of Venezuela's land area. Venezuela exports rice, cigarettes, fish, tropical fruits, coffee, cocoa, and manufactured products. The country is not self-sufficient in most areas of agriculture. Venezuela imports about two-thirds of its food needs. In 2005, U.S. firms exported $419 million worth of agricultural products, including wheat, corn, soybeans, soybean meal, cotton, animal fats, vegetable oils, and other items to make Venezuela one of the top two U.S. markets in South America. The United States supplies roughly one-quarter of Venezuela's food imports.

Labor unions allege the government repeatedly violates International Labor Organization (ILO) agreements on freedom of association and the right to organize and bargain collectively. Specifically, the Constitution and laws permit undue influence in the internal elections of unions. The government has told the ILO it will correct the problem; draft legislation remains pending in the National Assembly.

Venezuela has an extensive road system. With the exception of air service, transportation has failed to keep pace with the country's needs. Much of the infrastructure suffers from inadequate maintenance. Caracas has a modern subway but only one functioning rail line serves the rest of the country.