Exhibit D

This description of the Bolivarian Republic of Venezuela is dated as of December 21, 2017, and appears as Exhibit D to the Bolivarian Republic of Venezuela’s Annual Report on Form 18-K to the United States Securities and Exchange Commission for the fiscal year ended December 31, 2016.

TABLE OF CONTENTS

	Page
PRINCIPAL ECONOMIC INDICATORS		3
CURRENCY OF PRESENTATION		4
INTRODUCTION AND RECENT DEVELOPMENTS		5
BOLIVARIAN REPUBLIC OF VENEZUELA		11
THE VENEZUELAN ECONOMY		42
PRINCIPAL SECTORS OF THE VENEZUELAN ECONOMY		83
THE FINANCIAL SYSTEM		117
PUBLIC FINANCE		127
PUBLIC DEBT		136
TABLES AND SUPPLEMENTARY INFORMATION		141

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DEFINED TERMS

Unless otherwise specified or the context requires otherwise, all references to the following defined terms have the meanings specified:

• “ANC” refers to the National Constituent Assembly (Asamblea Nacional Constituyente);

• “Banco Central” refers to the Venezuelan Central Bank (Banco Central de Venezuela);

• “Central Government” refers to the national and federal branches of the government of the Republic;

• “CLAPs” refers to the Local Committees of Supply and Production (Comités Locales de Abastecimiento y Producción);

• “Constitution” refers to Constitution of the Bolivarian Republic of Venezuela (Constitución de la República Bolivariana de Venezuela) as adopted on December 15, 1999 and amended on February 15, 2009;

• “decentralized state entities” refers to corporations that are majority or wholly owned by the Republic;

• “Government” refers to the consolidated public sector divided, in general terms, into three parts: the Central Government, the regional and local governments of the Republic and the decentralized state entities;

• “INE” refers to the National Institute of Statistics (Instituto Nacional de Estadística);

• “Ministry of Communications and Information” refers to the Ministry of Popular Power for Communications and Information (Ministerios del Poder Popular para la Comunicación e Información);

• “Ministry of Culture” refers to the Ministry of Popular Power for Culture (Ministerio del Poder Popular para la Cultura);

• “Ministry of Defense” refers to the Ministry of Popular Power for Defense (Ministerios del Poder Popular para la Defensa);

• “Ministry of Economy and Finance” refers to the Ministry of Popular Power of Economy and Finance (Ministerio del Poder Popular de la Economía y Finanzas), resulting from the merger in January 2017 of the Ministry of Popular Power for Banking and Finance (Ministerios del Poder Popular para la Banca y Finanzas) and the Ministry of Popular Power for Industry and Commerce (Ministerios del Poder Popular para la Industria y Comercio) – for convenience, references herein to the ‘Ministry of Economy and Finance’ also refer to the previous Ministries before their combination;

• “Ministry of Electricity” refers to the Ministry of Popular Power of Electricity (Ministerio del Poder Popular para la Energía Eléctrica);

• “Ministry of Essential, Strategic and Socialist Industries” refers to the Ministry of Popular Power for Essential, Strategic and Socialist Industries (Ministerio del Poder Popular de Industrias Básicas, Estratégicas y Socialistas);

• “Ministry of Fisheries” refers to the Ministry of Popular Power of Fisheries and Aquaculture (Ministerio del Poder Popular de la Pesca y Acuicultura);

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• “Ministry of Food” refers to the Ministry of Popular Power for Food (Ministerio del Poder Popular para la Alimentación);

• “Ministry of Foreign Trade and International Investment” refers to the Ministry of Popular Power for Foreign Trade and International Investment (Ministerio del Poder Popular para el Comercio Exterior e Inversión Internacional);

• “Ministry of Housing and Habitat” refers to the Ministry of Popular Power for Housing and Habitat (Ministerio del Poder Popular para Hábitat y Vivienda);

• “Ministry of the Interior” refers to the Ministry of Interior Affairs, Justice and Peace (Ministerio del Poder Popular para Relaciones Interiores, Justicia y Paz);

• “Ministry of Mining” refers to the Ministry of Popular Power for Ecological Mining Development (Ministerio del Poder Popular de Desarollo Minero Ecológico); in November 2011, the Ministry of Mining succeeded the Ministry of Popular Power for Mining and Essential Industries (Ministerio del Poder Popular para las Industrias Básicas y Minería) – for convenience, references herein to the ‘Ministry of Mining’ also refer to the previous Ministry before its restructure;

• “Ministry of Petroleum” refers to Ministry of Popular Power of Petroleum (Ministerio del Poder Popular de Petróleo), formerly known as Ministry of Popular Power for Oil and Mining (Ministerio del Poder Popular de Petróleo y Minería) – for convenience, references herein to the ‘Ministry of Petroleum’ also refer to the previous Ministry before its restructure;

• “Ministry of Productive Agriculture and Land” refers to the Ministry of Popular Power for Productive Agriculture and Land (Ministerio del Poder Popular para la Agricultura Productiva y Tierras);

• “Ministry of Productive Economy” refers to the Ministry of State for Productive Economy (Ministerio de Estado para la Economía Productiva);

• “Ministry of Public Works” refers to the Ministry of Popular Power of Public Works (Ministerio del Poder Popular de Obras Públicas);

• “Ministry of Transportation” refers to the Ministry of Popular Power for Transportation (Ministerio del Poder Popular para Transporte);

• “Ministry of Urban Agriculture” refers to the Ministry of Popular Power of Urban Agriculture (Ministerio de Poder Popular de Agricultura Urbana);

• “Ministry of Youth and Sports” refers to the Ministry of Popular Power for Youth and Sports (Ministerio del Poder Popular para Juventud y el Deporte);

• “National Executive” refers to the national executive branch of the Central Government;

• “PDVSA” refers to Petróleos de Venezuela, S.A, the state oil and gas company;

• “Prosecutor General” refers to the Prosecutor General of the Republic (Fiscalía General de la República);

• “Republic” or “Venezuela” refers to the Bolivarian Republic of Venezuela; and

• “Supreme Tribunal” refers to the Venezuelan Supreme Tribunal of Justice (Tribunal Supremo de Justicia).

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PRINCIPAL ECONOMIC INDICATORS

	As of or For the Year Ended December 31,
	2012(1)			2013(1)			2014(1)			2015(1)			2016(1)
	(percentage change)
Real Gross Domestic Product(2),(3)		5.6			1.3			(3.9	)		(6.2	)		(16.5	)
Petroleum sector		1.4			0.9			(4.2	)		(0.9	)		(9.9	)
Non-petroleum sector		5.8			1.8			(3.1	)		(6.2	)		(16.1	)
Consumer prices(4)
End of period		20.1			56.2			68.5			180.9			274.4
Average		21.1			40.6			62.2			121.7			254.9
Wholesale prices(5)
End of period		16.6			52.4			66.5			n.a.			n.a.
Average		15.8			37.6			62.1			n.a.			n.a.
Unemployment (in %)(6)		8.1			7.8			7.1			7.0			7.5
	(in millions of U.S. dollars, except where noted)
Balance of Payments(7)
Exports (f.o.b.)		97,877			88,753			74,714			37,236			27,403
Imports (f.o.b.)		(65,951	)		(57,183	)		(47,508	)		(33,308	)		(16,370	)
Trade balance		31,926			31,570			27,206			3,928			11,033
Current account		2,586			4,604			4,919			(16,051	)		(3,870	)
Overall balance		(996	)		(4,590	)		(718	)		(4,051	)		(6,808	)
International reserves(8)
Gross international reserves		29,887			21,478			22,077			16,367			10,992
Net international reserves		29,356			20,767			21,257			n.a.			n.a.
Liquid operating reserves		5,456			1,551			3,205			5,075			2,054
Net liquid operating reserves		4,925			840			2,385			n.a.			n.a.
Other international monetary assets(9)		0			0			0			n.a.			n.a.
Stabilization fund(10)		3			3			3			3			3
Average petroleum export price (U.S.$/barrel)		103.4			99.5			88.4			44.7			35.2
Imports coverage(11)		5.4			4.5			5.6			5.9			8.1
	(in millions of 1997 Constant Bolívares)
Central Government
Total revenues		17,181.37			19,794.28			20,795.27			19,981.02			18,518.91
Total expenditures		20,591.37			21,101.39			21,321.32			19,030.89			15,087.24
Overall balance		(3,410.00	)		(1,307.11	)		(526.05	)		950.13			3,431.67
(as percentage of real GDP)(12)		(4.7	)%		(1.8	)%		(0.9	)%		1.2	%		5.3	%
	(in millions of 1997 Constant Bolívares)
Consolidated Public Sector
Total Revenues		18,839.17			21,514.86			25,742.48			16,736.70			11,310.44
Total Expenditures		29,268.51			31,013.97			31,141.85			24,671.22			22,438.36
Overall Surplus (Deficit)		(10,939.34	)		(9,499.11	)		(5,399.37	)		(7,934.52	)		(11,127.92	)
(as percentage of real GDP)(12)		(15.1	)%		(13.2	)%		(8.8	)%		(10.3	)%		(17.0	)%
Monetary aggregates(13)
Monetary base		15.9			15.1			15.6			(9.0	)		(33.2	)
Money supply (M2)		28.5			17.3			4.9			(14.0	)		(38.6	)

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(1) Preliminary figures as of and for the year ended December 31, 2016. In addition, certain figures as of and for the years ended December 31, 2012, 2013, 2014 and 2015 have been updated from those published in Venezuela’s previous Annual Reports in order to reflect more current information.

(2) 2015 figures are preliminary and are presented as of and for the year ended December 31, 2015.

(3) Based on constant Bolívares of 1997 purchasing power (“1997 Constant Bolívares”). Calculations of real GDP growth figures include indirect taxes that are not included as components of petroleum or non-petroleum sectors.

(4) Figures correspond to the National Consumer Price Index (“NCPI”), Base: December 2007.

(5) Calculated with taxes.

(6) Average of semiannual figures. 2016 figure is the monthly average unemployment rate for the four-month period January-April 2016.

(7) Preliminary figures based on fifth edition of IMF Balance of Payment (Banco Central de Venezuela) 2015 and 2016 figures are preliminary and are presented as of and for the years ended December 31, 2015 and 2016.

(8) 2015 and 2016 figures are preliminary and are presented as of and for the years ended December 31, 2015 and 2016. The gross international reserves figure for 2015 is as of September 30, 2015.

(9) Includes PDVSA’s rotatory fund.

(10) 2015 and 2016 figures are preliminary and are presented as of and for the years ended December 31, 2015 and 2016.

(11) Calculated as gross international reserves divided by average annual level of imports.

(12) As a percentage of real GDP.

(13) Change in real terms of annual average using the Consumer Price Index (Base: 2007 = 100).

n.a. = Not available.

Sources: the National Institute of Statistics (Instituto Nacional de Estadística or “INE”) Banco Central, Ministry of Economy and Finance and INE

CURRENCY OF PRESENTATION

Unless otherwise specified or the context requires, references to “dollars,” “U.S. dollars,” “U.S.$” and “$” are to U.S. dollars; references to “Bolívares” and “Bs.” are to Venezuelan Bolívares (“Bolívares”), the currency of the Republic; references to “Euro,” “EUR” and “€” are to the lawful currency of the European Union; references to “¥” are to Japanese yen; references to “CNY” or “RMB” are to Chinese yuan renminbi; and references to “bpd” are to barrels per day. As used herein, the term “billion” means one thousand million, or 1,000,000,000, and the term “trillion” means one thousand billion, or 1,000,000,000,000. Historical amounts translated into Bolívares or U.S. dollars have been converted at historical rates of exchange, unless otherwise stated. Unless otherwise noted herein, all references to Venezuelan Bolívares refer to nominal Bolívares. Certain amounts that appear herein have been rounded for ease of presentation. Accordingly, figures shown as totals in certain tables may not represent an arithmetical aggregation of the amounts that precede them. Certain tables, as indicated, contain preliminary figures.

Since 2003, foreign currency exchange in Venezuela has been subject to exchange controls that centralize the purchase and sale of foreign currency with the Venezuelan Central Bank (Banco Central de Venezuela or “Banco Central”). The Ministry of Popular Power of Economy and Finance (Ministerio del Poder Popular de la Economía y Finanzas or “Ministry of Economy and Finance”), together with Banco Central, is in charge of setting the exchange rate with respect to the U.S. dollar and other currencies. As of December 30, 2016, there were three exchange systems, which convert currency at different rates: the protected exchange rate (operaciones de devisas con tipo de cambio protegido or “DIPRO”), the Complementary System for Foreign Currency Exchange Administration rate (Sistema Complementario de Administración de Divisas or “SICAD”) and the complementary floating market rate (operaciones de divisas con tipo de cambio complementario flotante de mercado or “DICOM”). As of December 30, 2016, the exchange rates were: DIPRO: Bs.10.00 = U.S.$1.00, SICAD: Bs.13.50 = U.S.$1.00, and DICOM: Bs.673.76 = U.S.$1.00. The exchange rate for public external debt is based on the rate set by the DIPRO rate (ask). Current exchange rates are published daily on Banco Central’s website; however, the DICOM rate is published under the name “SIMADI” and “Convenio Cambiario No. 33.” For further information concerning the exchange control regime of the Republic and applicable exchange rates during the periods of presentation, see “The Venezuelan Economy—Economic Policy and Legislation—Exchange Control Regime.”

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INTRODUCTION AND RECENT DEVELOPMENTS

Recent Social and Political Developments

Since 2015, there has been increasing political and social unrest due to shortages of basic consumer goods as a result of a drop in domestic food production; limited access to imports as a result of currency restrictions; smuggling; hoarding and other distribution problems. In addition, during the same period, Venezuela experienced a severe drought that contributed to an electricity crisis due to the country’s dependence on hydroelectric power. Throughout the first half of 2017, demonstrations throughout Venezuela intensified, resulting in increased arrests, property crimes, injuries and deaths. In response to continued food shortages, smuggling, crime, violence and gang activity, the National Executive launched a number of initiatives, including the distribution of food to low-income populations and the development of a national security plan designed to strengthen the implementation of justice and ensure peace in the country. For more information on food access and distribution, see “Bolivarian Republic of Venezuela—Social Programs—Missions” and for more information on security plan, see “Bolivarian Republic of Venezuela—Other Social Programs and Policies—Political and Social Unrest.”

In the December 2015 National Assembly elections, members of the Democratic Unity Roundtable (Mesa de la Unidad Democrática or “MUD”) won a majority of the seats in the National Assembly. Following an appeal by National Assembly members of the Partido Socialista Unido de Venezuela (“PSUV”), the Venezuelan Supreme Tribunal of Justice (Tribunal Supremo de Justicia or the “Supreme Tribunal”), agreed to review the legality of the elections of four National Assembly members from the State of Amazonas and issued a temporary injunction preventing them from taking office pending a final ruling. Despite the ruling of the Supreme Tribunal, the four National Assembly members from the State of Amazonas took office in January 2016. Subsequently, in November 2016, three of the Members from the State of Amazonas tendered their resignations, which the National Assembly did not formally accept and prompted a further ruling by the Supreme Tribunal declaring the nullity of all further acts of the National Assembly due to its improper constitution.

During the course of 2016 and 2017, political and social discontent was exacerbated by the lack of dialogue between the National Executive and the opposition and conflicts between laws passed by the National Assembly and rulings issued by Supreme Tribunal and President Maduro. Since January 2016, for example, the Supreme Tribunal declared unconstitutional a number of acts of the National Assembly, including its resolution calling for the removal of President Maduro. For more information on legal challenges to legislation of the National Assembly, see “Bolivarian Republic of Venezuela— Form of Government and Political Parties—Legal Challenges to Legislation.”

In May 2017, in order to address the Republic’s political, social and economic challenges, President Maduro called for the election of a National Constituent Assembly (Asamblea Nacional Constituyente or “ANC”) for the adoption of a new constitution and nominated members to a Presidential Commission to determine the process for the elections of ANC members. On July 30, 2017, 545 constituent members of the ANC where elected by 8,089,320 citizens, representing 42% of those eligible to vote, according to data from the National Electoral Council (Consejo Nacional Electoral or “CNE”). In August 2017, the ANC commenced its legislative session and decreed the constitutional supremacy of its position and its legislative acts within the Government and reserved all necessary powers to legislate on the competences, functioning and organization of all Government branches to preserve the peace, justice and sovereignty of the Republic. For more information on the ANC, see “Bolivarian Republic of Venezuela—Form of Government and Political Parties—National Constituent Assembly.”

In 2016 and 2017, President Maduro issued a series of emergency decrees to address various economic, social and energy crises. These emergency decrees granted a number of additional powers to President Maduro, allowing him, among other things, to dictate economic policies, approve the Republic’s annual budget and make emergency appropriations accessing funds allocated by budgets from previous years. For more information on emergency decrees, see “Bolivarian Republic of Venezuela—Form of Government and Political Parties—Emergency Decrees.”

In 2016 and 2017, President Maduro reorganized the executive cabinet and other key government institutions, appointing or replacing several ministers, including, the Vice President of the Republic, the Vice President for Economic Affairs, the Minister of Finance, the Minister of Petroleum, Minister of Communications and

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Information, the Minister of Culture and the President Banco Central. In January 2017, President Maduro merged the Ministry of Popular Power for Banking and Finance and the Ministry of Popular Power for Industry and Commerce to create the Ministry of Economy and Finance in order to unify the competencies in economics and finance and sectoral policies in the field of industry and commerce. Furthermore, President Maduro created the Ministry of Transportation and the Ministry of Public Works. For more information on the reorganization of the executive cabinet, see “Bolivarian Republic of Venezuela—Form of Government and Political Parties—Current Presidential Administration.”

On December 10, 2017, elections were held for the mayors of 335 municipalities and for the governor of the State of Zulia. According to data published by the CNE, 9,139,564 citizens voted in the elections, representing 47% of those eligible to vote.

External Affairs

United States

Since July 2014, the United States has imposed sanctions, consisting of visa restrictions, economic restrictions and asset blocking. These sanctions have been renewed and substantially increased in scope during 2017. In August 2017, the United States imposed additional sanctions prohibiting, among others, any U.S. participation in the trading or issuance of new debt instruments by the Republic and its controlled entities. For more information on sanctions and the Republic’s relations with the United States, see “Bolivarian Republic of Venezuela—External Affairs and Membership in International Organizations—Relations with the United States.”

Europe and Canada

In November 2017, the European Union implemented a sanction regime against the Republic, imposing an arms embargo and a legal framework for the EU and European countries to implement travel bans and asset freezes against certain Venezuelan individuals.

In September 2017, Canada adopted sanctions against 40 Venezuelan officials, imposing an asset freeze and prohibition on Canadian companies and individuals from certain dealings with those sanctioned.

For more information, see “Bolivarian Republic of Venezuela—External Affairs and Membership in International Organizations—Relations with Europe and Other Western Countries.”

Neighboring Countries

In August 2017, the foreign ministers of Argentina, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Honduras, Mexico, Panama, Paraguay and Peru signed a declaration condemning the constitution of the ANC and rejecting its authority, and advocated for the opening of negotiations between the National Executive and the opposition to address the ongoing constitutional crisis.    

The Republic has been part of a border dispute with Guyana that the two countries have agreed to seek to settle diplomatically. As of December 2017, the conflict has not yet been solved despite the prolonged mediation process. For more information, on Republic’s relations with neighboring countries, see “Bolivarian Republic of Venezuela—Geography and Population.”

International Organizations

In December 2016, Mercosur, a regional trading bloc and customs union, suspended the Republic’s membership in the bloc because it had not fully complied with all the conditions of membership. The Republic disputes the suspension and has filed a request for dispute resolution under Mercosur’s internal rules.

In February 2017, the United Nations General Assembly announced the suspension of voting rights of the Republic for the 2016-2017 sessions due to unpaid member dues.

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In March 2017, Venezuela joined the Asian Investment and Infrastructure Bank (“AIIB”) to strengthen its relationship with countries in Asia.

In April 2017, following repeated attempts by certain members of the Organization of American States (“OAS”) and its secretariat to suspend Venezuela from the OAS due to alleged breaches of the OAS Charter, the National Executive announced the Republic would withdraw from the OAS.

For more information on the Republic’s relations with International Organizations, see “Bolivarian Republic of Venezuela—External Affairs and Membership in International Organizations.”

Nationalization and Expropriations

In February 2017, President Maduro declared that it was in the national interest to expropriate the assets of Consorcio Industrial Venezolano de Tecnología China (“Civetchi”), a vehicle manufacturer. For more information on nationalizations and expropriations, see “Bolivarian Republic of Venezuela— Other Social Programs and Policies — Nationalizations and Expropriations of Private Companies.”

Recent Economic Developments

GDP

From 2012 to 2016, the economy contracted by an average annual rate of 3.9%. As of September 30, 2016, GDP for the first nine months of 2016 was Bs.46.9 billion in 1997 Constant Bolívares, a decrease as compared to 2015. The decrease in 2016 was primarily due to decreases in both the petroleum and non-petroleum sectors.

The 2017 Budget

In October 2016, President Maduro signed the 2017 budget, with the approval of the Supreme Tribunal. For further discussion of the approval of the 2017 budget, see “The Venezuelan Economy—Economic Policy and Legislation—The Budget and the Pluriannual Framework.” The 2017 budget, as approved by the Supreme Tribunal, projects total revenues of U.S.$831.1 billion, excluding borrowing, and total expenditures of U.S.$847.9 billion. The 2017 budget also contemplates a legal limit on borrowing by the Republic of U.S.$16.8 billion. The 2017 budget is based on certain assumptions, including an average price for the Venezuelan oil basket of U.S.$30.00 per barrel and an average exchange rate of Bs.10.00 = U.S.$1.00.

The 2017 budget estimates that 82.9% of resources is expected to come from the collection of internal taxes; 11.9% is expected to come from dividends and special contributions of the socialist companies of the state; 2% income from indebtedness; and 3.2% is expected to come from contributions from the petroleum sector.

Exchange Control Regime

During 2016 and 2017, the Ministry of Economy and Finance and Banco Central issued a number of administrative orders (Convenio Cambiario or “Currency Exchange Agreements”) that modified the exchange control regime and establish specific rules for foreign-currency denominated transactions for operators in the tourism and oil and gas sectors as well as those participating in the export of goods and services.

Beginning in May 2017, Banco Central has administered weekly foreign currency auctions, allowing both individuals and private businesses to sell and purchase limited amounts of foreign currencies. For more information on the Republic’s currency exchange regime, see “The Venezuelan Economy—Economic Policy and Legislation—Currency Exchange Agreements.”

Foreign Trade and Balance of Payments

In October 2016, Venezuela and Turkey entered into a series of bilateral agreements to increase cooperation on matters relating to energy, culture and social and economic development. These agreements also cover investments by Turkish companies in the José Antonio Anzoátegui Refinery in Venezuela and the construction by PDVSA of a Venezuelan oil storage facility in Turkey.

During 2017, Venezuela and China entered into several cooperation agreements to boost and strengthen the industrial sector in Venezuela, specifically raising the production of iron ore, bauxite and aluminum.

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In February 2017, Venezuela and Jamaica entered into an agreement under PetroCaribe, an international alliance of Caribbean nations and the Republic for the purchase of oil at preferential conditions, for the upgrade of their jointly owned Kingston, Jamaica refinery. This agreement aims to increase the refinery’s output from 36,000 barrels per day (bdp) to 50,000 bdp. The upgrade is expected to cost between U.S.$850 million and U.S.$1 billion and will be carried out by Chinese state engineering and construction company Sinohydro.

In March 2017, Venezuela and Trinidad and Tobago entered into an agreement for the construction, operation, and maintenance of a new gas pipeline connecting the two countries. The deal is valued at over U.S.$100 million and will involve the participation of PDVSA, Trinidadian company National Group Gas, and Royal Dutch Shell.

In April 2017, Venezuela and Belarus entered into a cooperation agreements to boost and strengthen the respective countries’ industrial sectors.

In June 2017, as part of efforts by the Ministry of Essential, Strategic and Socialist Industries, Venezuela’s largest steel corporation, SIDOR, entered into a production agreement with Italian company Danieli to boost production levels.

Minimum Wage

During 2016 and 2017, the minimum wage was increased four and six times, respectively, with the latest increase in November 2017, bringing the minimum wage to Bs.177,507.44 (U.S.$17,750.74). For more information on minimum wages, see “The Venezuelan Economy—Employment and Labor—Minimum Wages.”

Recent Developments in the Sectors of the Venezuela Economy

Petroleum and Natural Gas

PDVSA reorganization

Since December 2015, PDVSA and certain of its affiliates, have been subject to corruption investigations, in the United States and in Venezuela. A number of contractors and suppliers to PDVSA affiliates and a number of PDVSA’s former employees have plead guilty to violating anti-corruption and anti-money laundering laws in the United States. In February 2017, a former PDVSA manager was charged with corruption in Venezuela. In March 2017, the National Government investigated PDVSA officials for allegedly embezzling public funds and several PDVSA senior executives were arrested and charged with graft over inflated equipment sale fees. In addition, a senior PDVSA manager was arrested on suspicion of irregularities in contracts to supply fuel to the domestic market. Further investigations were carried out during November 2017 that resulted in the arrest of two former senior managers of PDVSA that served as presidents of the company between September 2014 and August 2017 and between August 2017 and November 2017, respectively. In December 2017, the Prosecutor General announced it would initiate criminal investigations against the former Minister of Petroleum and the former president of PDVSA, who served in those positions between November 2004 and September 2014.

As result, in 2017, President Maduro carried out a reorganization of PDVSA’s corporate governance, creating a vice presidency position and appointing Maribel Parra to that position (Decree No. 2,703, published in the Extraordinary Official Gazette No. 6,284, dated January 29, 2017). In November 2017, President Maduro appointed Manuel Quevedo as president of PDSVA (Decree No. 3,178, published in the Extraordinary Official Gazette No. 6,343, dated November 26, 2017).

PDVSA operations

In October 2016, PDVSA and Repsol announced an agreement to fund the Petroquiriquire joint venture, of which PDVSA owns 60% and Repsol owns the remaining 40%. Under the agreement, Repsol has committed to provide a credit line of up to U.S.$1.2 billion to the joint venture over a period of five years.

In November 2016, PDVSA entered into financing deals with ONGC Videsh Limited and DP Delta Finance, B.V. (“Videsh”), which are intended to boost production in their existing joint ventures to 40,000 bdp and 110,000 bdp, respectively. In January 2017, Videsh received the first installment of U.S.$19 million from PDVSA.

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Also in November 2016, PDVSA announced that it had entered into a series of agreements with China National Petroleum Corporation (“CNPC”), which are intended to increase crude production in Venezuela and trade in petroleum products with China. These agreements contemplate increased investments in existing Venezuelan joint ventures between PDVSA and CNPC and a new joint venture to develop a refinery in China to process Venezuelan crude oil.

In December 2016, PDVSA and Shell Venezuela entered into agreements to boost production of their joint venture company, Petroregional del Lago. These agreements contemplate an approximate U.S.$2.8 billion investment in heavy crude production facilities.

In February 2017, PDVSA signed agreements to boost domestic gas production and distribution with Gavenplast, a plastics manufacturing company. These agreements contemplate the development of several joint ventures projects in the oil sector with a number of Chinese companies.

In March 2017, PDVSA offered Rosneft, 10% stake in a joint venture with Petropiar, the national oil company of Paraguay.

For more information on PDVSA’s operations, see “The Venezuelan Economy—Petroleum and Natural Gas—Trade Agreements.”

Mining

In February 2016, President Maduro announced a program to promote the development of the mining sector, the Mining Engine. The Mining Engine consists of several key strategic components: (1) the promotion of goods and services necessary to the exploration and exploitation process of minerals such as gold, diamonds and coltan, (2) the development of potential mineral reserves in the Orinoco Oil Belt, (3) the certification of Venezuela’s mineral reserves, (4) the Law for Productive Mining Development 2016–2018, which reserves to the state strategic mineral exploration and extraction rights, (5) international agreements to conduct development and exploration activities through joint ventures, and (6) the expansion of international reserves. As part of the Mining Engine, President Maduro created the Orinoco Mining Arc, a National Strategic Development Zone comprising 111,843.70 square kilometers in the Bolívar State, to exploit the region’s mineral reserves in accordance with sustainable practices and respect for the environment. In addition, the Republic signed agreements with operators from China, Canada and the Republic of Congo to exploit concessions in the region. For more information on the Venezuelan mining industry, see “The Venezuelan Economy—Mining.”

Finance

Disputes

The Republic and its controlled entities are party to a number of disputes with foreign investors in particular in the mining and oil sectors.

Disputes in the Mining Sector

In February 2011, Canadian mining company, Crystallex International Corporation (“Crystallex”), filed a number of claims in various jurisdictions, including the U.S. and Canada and before International Centre for Settlement of Investment Disputes (“ICSID”) against the Republic, alleging breach of contract and violations of the Bilateral Investment Treaty (“BIT”) following the Republic’s nationalization of a Crystallex gold mine. The dispute was settled in November 2017.

In November 2009, Gold Reserve a mining company, initiated an ICSID arbitration against the Republic for the expropriation of certain Gold Reserve copper and gold mines. Following protracted litigation, in August 2016, the parties entered into a settlement agreement under which the Republic agreed to pay U.S.$770 million. The settlement agreement was amended in November and December 2016. Following additional litigation, in June and July 2017, the Republic paid Gold Reserve U.S.$69.5 million pursuant to the terms of the amended settlement agreement.

In August 2012, Canadian mining company, Rusoro Mining Ltd., initiated an ICSID arbitration against the Republic, alleging that the Republic unlawfully expropriated its investments in violation of the BIT between Canada and Venezuela. In August 2016, the ICSID tribunal issued an award in favor of Rusoro for U.S.$968 million plus interest. In October 2016, the Republic made an application for annulment of the arbitral award. In February 2017,

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the Republic and Rusoro signed an agreement in the amount of U.S.$5.5 million for the issuance of non-interest bearing promissory notes that will be due after 90 days from the date that Rusoro receives its first payment from the Republic under the arbitral award.

On April 10, 2014, Anglo American PLC initiated an ICSID arbitration against the Republic for the expropriation of its nickel mining concession in Venezuela. After a written pleadings phase, a hearing of jurisdiction and merits was held in Paris in December 2016. The tribunal’s decision is pending.

For more information on the Republic’s disputes in the mining sector, see “The Venezuelan Economy—Mining—Mining Sector.”

Disputes in the Oil Sector

In September 2007, Mobil Corporation, and certain of its subsidiaries commenced ICSID arbitration proceedings against the Republic. Mobil claims that the Republic breached provisions under the Netherlands-Venezuela BIT and Venezuela’s Foreign Investment Law when the Republic nationalized and expropriated Mobil’s investments. Following prolonged litigation, in October 2014, the ICSID tribunal ruled in favor of Mobil, awarding U.S.$1.0 billion. The Republic filed an application for revision of the award that was accepted in part in March 2017, where the arbitral tribunal annulled in part the previous award. In July 2017, following the appeal by the Republic with respect of the enforcement order filed by Mobil earlier that year, the U.S. Court of Appeals for the Second Circuit ruled in favor of the Republic, stating that Mobil should have tried to enforce the award under the federal Foreign Sovereign Immunities Act rather than initiating the process through the U.S. court system.

In October 2016, ConocoPhillips filed suit against PDVSA and certain of its affiliates in U.S. District Court for the District of Delaware, alleging that PDVSA shifted assets to avoid paying ConocoPhillips for the Republic’s nationalization of oil assets under President Chávez’s administration. In January 2017, ConocoPhillips filed a second suit against PDVSA and Rosneft in the U.S. District Court for the District of Delaware, in connection with a November 2016 crude oil prepayment transaction pursuant to which PDVSA granted a lien on 49.9% of its shares in CITGO Holding, Inc. to secure a U.S.$1.5 billion prepayment made by Rosneft. In March 2017, PDVSA filed a motion, claiming immunity from the ConocoPhillips suit under the Foreign Sovereign Immunities Act, which is currently being disputed by ConocoPhillips, which claims that the Foreign Sovereign Immunities Act does not cover commercial activity.

For more information on the Republic’s disputes in the oil sector, see “The Venezuelan Economy—Petroleum and Natural Gas—Disputes Concerning the Oil Industry.”

Disputes in other sectors

On July 25, 2016, Agroinsumos Ibero-Americanos, S.L., a Spanish agriculture company, initiated an ICSID arbitration against the Republic claiming that the Republic violated a BIT with Spain when it appropriated the company’s investments in two agriculture joint-ventures. The tribunal was constituted on December 22, 2016. The claimants were required to submit their briefs by July 17, 2017 this proceedings is on-going.

In January 2017, Air Canada initiated an ICSID arbitration against the Republic for the repatriation of proceeds from domestic tickets sales in connection with the losses due to currency controls imposed by the Republic, this proceeding is on-going.

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BOLIVARIAN REPUBLIC OF VENEZUELA

Geography and Population

Geography

Venezuela is situated on the northern coast of South America. To the north, it has a coastline of 2,813 kilometers on the Caribbean Sea and the Atlantic Ocean. Colombia borders it on the west, Brazil on the south and Guyana on the east. Venezuela’s national territory of 916,445 square kilometers includes 72 islands in the Caribbean. The Venezuelan territory varies from tropical to mountainous to Amazonian regions. Environmentally-protected areas comprise 40% of the Venezuela territory.

Caracas, Venezuela’s capital and largest city, is Venezuela’s political, financial, commercial, communications and cultural center. According to calculated projections based on the 2011 Census prepared by the INE, Caracas (including the Capital District) had an estimated population of 2,084,074 million in 2016. The population of Maracaibo, the nation’s second-largest city, located near Venezuela’s most important petroleum fields and richest agricultural areas, had an estimated population of 1,678,570 million in 2016, based on the same data.

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Part of the eastern border with Guyana is subject to a border dispute. Venezuela has claimed that certain territory occupied by Guyana should be considered part of Venezuela’s national territory. The area of dispute is currently under the control of Guyana. Under international accords, Venezuela and Guyana have agreed to seek a settlement of the territorial dispute. Since the signing of the accords, Venezuela and Guyana have periodically engaged in negotiations regarding the status of the territory. Nevertheless, the negotiations to date have not resulted in a final accord. In May 2015, the Republic created the Integrated Defense Zone Marine and Insular (“ZODIMAIN”), which claimed the waters off the Essequibo River region in the disputed territory. In July 2015, President Maduro requested that the United Nations mediate the dispute between Venezuela and Guyana. On July 6, 2015, Venezuela recalled its ambassador to Guyana and in early September 2015, delayed its acceptance of Guyana’s nominee for ambassador to the Republic. On September 27, 2015, the Republic and Guyana restored their respective ambassadors following a meeting between the President of the Republic, Guyana’s President and U.N. Secretary General Ban Ki-moon in New York. On December 29, 2016, the United Nations awarded Venezuela and Guyana one final year to settle the border dispute, otherwise the case will be submitted to the International Court of Justice. In March 2017, the secretary of the United Nations appointed Dag Halvor Nylander to conduct the official process and assist both countries with reaching a resolution regarding the border controversy. In May 2017, Mr. Nylander met with representatives of both countries to discuss the mediation stages. Although the conflict has not been resolved, Guyana’s government has announced it will drill for oil in the disputed border region.

Drug traffickers and guerrilla incursions from Colombia and other incidents present a continuing problem along the Venezuela/Colombia border. Venezuela has stationed armed forces on the sparsely-populated western border to control incursions and to protect Venezuelan ranchers residing in this area. In August 2014, the National Executive announced steps to close the border with Colombia during certain hours at certain times of the day in order to combat smuggling across the border. Subsidized goods available for sale under the Missions in Venezuela are hoarded and sold at higher prices in Colombia, leading to shortages in Venezuela and contributing to inflationary pressures. On August 19, 2015, President Maduro initially closed two border crossings to Colombia for 72 hours after three members of the Venezuelan military, who were conducting an anti-smuggling exercise, were shot and killed. Between August and October 2015, the National Executive issued several decrees declaring a state of emergency in most of the municipalities in the affected states of Táchira, Zulia, Apure and Amazonas in October for an initial period of 60 days, along the Colombian border, closing several border crossings and restricting the movement of goods and enabling security forces to carry out vehicle checks in efforts to combat smuggling and drug-trafficking. On September 28, 2015, the Republic and the South American Union of Nations (Unión Sudamericana de Naciones or “UNASUR,”) agreed that Colombian citizens who were required to leave Venezuela from August 19, 2015 were permitted to return. The regional state of emergency was extended for subsequent 60-day periods until it was superseded by a nationwide state of emergency instituted on January 14, 2016. Following two temporary border openings in July 2016, in which Venezuelans were permitted to cross into Colombia temporarily to buy necessities, Venezuela and Colombia agreed to gradually reopen the border starting on August 13, 2016. The reopening of the border is part of a larger framework to create a zone of peace along the border between the two countries involving five strategic objectives: combatting smuggling, strengthening bilateral trade, customs regulation, transport and health. On December 12, 2016, President Maduro ordered the closure of the border with Colombia for 72 hours to combat currency smuggling in connection with the circulation of the new Bolívares bills. This measure was extended until December 20, 2016, by which time the Colombian and Venezuelan presidents agreed to strengthen border security and open the binational boundaries. In January 2017, the National Executive opened eight exchange offices on the border with Colombia to promote transparency and legal commerce between the two countries.

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Population

Venezuela’s estimated population in 2016 was 31,519,000 million, of which 65.5% were between the ages of 15 and 64 years. According to the latest available figures from INE, as of December 31, 2015, the poor represented 33.1% of the Venezuelan population. Figures for 2016 are not currently available. The following table sets forth comparative GDP figures for Venezuela and other selected Latin American countries:

	Venezuela			Argentina			Brazil			Chile			Colombia			Mexico			Peru
GDP (billions) (2016)(4)	U.S.$	371.0	(1)	U.S.$	545.9		U.S.$	1,796.2		U.S.$	247.0		U.S.$	282.5		U.S.$	1,046.0		U.S.$	192.1
GDP per capita (2016)(5)	U.S.$	12,237.2	(1)	U.S.$	12,449		U.S.$	8,649.9		U.S.$	13,792.9		U.S.$	5,805.6		U.S.$	8,201.3		U.S.$	6,045.7
GNI per capita (2015)(6)	U.S.$	11,760	(1)	U.S.$	11,960		U.S.$	8,840		U.S.$	13,530		U.S.$	6,320		U.S.$	9,040		U.S.$	5,950
Life Expectancy at Birth (2015)(7)		74			76			75			79			74			77			75
Infant Mortality rate per 1,000 live births (2016)(8)		14			10			14			7			13			13			12
Adult literacy rate (% of ages 15 and older)(2016)(9)		97			98.1	(3)		91.7	(2)		96.3	(1)		94.2	(3)		94.5	(3)		94.2

(1) The World Bank data for 2013.

(2) The World Bank data for 2014.

(3) The World Bank data for 2015.

(4) The World Bank national accounts data is based on the current U.S.$: (http://data.worldbank.org/indicator/NY.GDP.MKTP.CD).

(5) The World Bank data; GDP per capita in current U.S.$: (http://data.worldbank.org/indicator/NY.GDP.PCAP.PP.CD).

(6) (https://data.worldbank.org/indicator/NY.GNP.PCAP.CD?locations=VE)

(7) The World Bank data: (https://data.worldbank.org/indicator/SP.DYN.LE00.IN?locations=VE)

(8) The UN Interagency Group for Child Mortality estimated data:
(https://data.worldbank.org/indicator/SP.DYN.IMRT.IN?locations=VE).

(9) UNESCO Institute for Statistics data: (https://data.worldbank.org/indicator/SE.ADT.LITR.ZS?locations=VE-AR-PE-CL-CO-MX-BR&name_desc=false).

Note: Certain figures have been updated from those published in Venezuela’s previous Annual Reports in order to reflect more current information.

Form of Government and Political Parties

Venezuela is divided into 23 states, the Capital District and various federal dependencies.

Venezuela has had a democratically-elected government since 1958, following the overthrow of a military dictatorship. The current Constitution, adopted in 1999, establishes the structure of the government, including the division of powers among the executive, legislative, judicial, civic and electoral branches, as well as individual and collective rights and duties.

On December 16, 2012, the most recent gubernatorial elections were held and candidates from the PSUV, the party of President Chávez and President Maduro, won 20 of the 23 gubernatorial offices. Candidates associated with opposition parties were elected in States of Miranda, Lara and Amazonas. The subsequent gubernatorial elections were held in October of 2017, securing 18 gubernatorial offices for the PSUV. On December 10, 2017, elections were held for the mayors of 335 municipalities and for the governor of the State of Zulia. According to data published by the CNE, 9,139,564 citizens voted in the elections, representing 47% of those eligible to vote. The PSUV secured most of the seats, including the gubernatorial office of the State of Zulia.    

On March 5, 2013, then Vice President Nicolás Maduro became President of the Republic after the death of former President Hugo Chávez. On March 8, 2013, the Supreme Tribunal issued a decision confirming that under the Constitution, President Maduro could continue to serve as acting President and be a presidential candidate at the

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same time. President Maduro initially served as acting president and was elected to serve the remainder of President Chávez’s six-year term on April 14, 2013, capturing 50.6% of the vote. In January 2017, President Maduro appointed Tareck Zaidan El Aissami Maddah as Vice President of the Republic (Decree No. 2,652, published in the Official Gazette No. 41,067, dated January 4, 2017). The next scheduled Presidential elections are expected to be in 2018.

On December 6, 2015, elections were held for all 167 seats in the National Assembly, as discussed below under “—National Assembly.”

Political Parties

Prior to the mid-1990s, the two largest political parties in Venezuela had been Acción Democrática (“AD”), and Partido Social Cristiano (“COPEI”). These parties attracted support from a wide spectrum of political interests. Between 1958 and 1993, representatives of AD held the presidency five times and representatives of COPEI held the presidency twice. Commencing with the presidential election in 1993, voters became dissatisfied with AD and COPEI and several new coalition parties recorded electoral victories. In 1993, Rafael Caldera was elected President on the Convergencia party ticket. Former President Caldera had previously served as President between 1974 and 1979 as the COPEI candidate. In elections held in December 1998, Hugo Chávez Frias was elected as the candidate from the Movimiento Quinta República party, with support from other minor parties to the left of AD and COPEI. In accordance with the results of a popular referendum held in 1999, a constituent assembly was created to propose a new constitution. The constituent assembly proposed a new constitution, which was approved by the Venezuelan electorate and became effective on December 30, 1999. President Chávez was subsequently re-elected as President in elections held in 2000 following the adoption of the new Constitution and again in elections held in 2006 and 2012.

In December 2006, President Chávez proposed the creation of a unified political party, the PSUV, comprised of those political parties that supported the President. The PSUV officially registered with the National Electoral Council (Consejo Nacional Electoral) on April 17, 2008. In 2010, the PSUV joined other political parties that supported President Chávez and created the Alianza Patriótica, or Patriotic Alliance, to campaign for the September 2010 National Assembly elections. Parties that support the President are not obligated to join PSUV and can remain autonomous. The Great Patriotic Pole Simón Bolívar (El Gran Polo Patriótico Simón Bolívar) is a coalition of political parties and social movements in Venezuela on the left side of the political spectrum that was created in 2012 to support the re-election of President Chávez, which includes the PSUV. The Great Patriotic Pole Simón Bolívar obtained 5,616,639 votes in the 2015 National Assembly elections, representing 32.93% of the vote, which entitled the coalition to appoint 55 members of the National Assembly.

The MUD was created on January 23, 2008, as an alliance of various parties in opposition to President Chávez. The MUD opposition alliance was restructured on June 8, 2009. MUD held primary elections on February 12, 2012, to select a presidential candidate to run against President Chávez in the 2012 elections. The candidate elected during the primary elections was Henrique Capriles Radonski, governor of the Miranda State. On October 7, 2012, President Chávez was re-elected President for a six-year term, receiving 55% of the vote. On December 16, 2012, Mr. Capriles was elected Governor of the Miranda State. In the 2015 National Assembly elections, candidates from parties in the MUD opposition alliance obtained 7,482,252 votes, representing 65.27% of the vote, which entitled the MUD opposition alliance to appoint 109 seats.

In 2016, the Supreme Tribunal ordered the CNE to begin a renewal process of political parties through signature collection drives. The signature collection process requires the collection of signatures from 0.5 percent of registered voters (Rulings No. 1,415 and 878, 2016). The CNE launched this process on February 18, 2017. In April, 2017, the Supreme Tribunal issued a ruling modifying the renewal procedures established by the CNE to allow parties to count the votes the parties received in the previous election toward the 0.5 percent threshold, in addition to the signatures collected. As of August, 2017, this process has resulted in 22 eligible parties.

Current Presidential Administration

On March 5, 2013, President Chávez died. Pursuant to the Constitution, Vice President Nicolas Maduro became acting interim President and new elections were planned for April 2013 to elect a president to serve the remainder of

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the Presidential term. On March 8, 2013, the Supreme Tribunal issued a decision that Mr. Maduro could serve as acting President and be a presidential candidate at the same time under the Constitution. Henrique Capriles Radonski temporarily withdrew from his position as governor of Miranda State to run as the opposition candidate to Mr. Maduro. In the election held on April 14, 2013, acting President Maduro was elected President for a six-year term, obtaining 50.6% of the vote, with Mr. Capriles receiving 49.0% of the votes cast.

The Maduro administration is currently pursuing policies initiated by the Chávez administration. President Maduro presented the Plan of the Nation, first introduced by President Chávez during his 2012 presidential campaign and later implemented by President Maduro, which is a roadmap for the second stage of Venezuela’s transition to socialism. The Plan of the Nation establishes a series of macroeconomic targets and social programs and is founded on five strategic objectives: (1) the preservation of Venezuela’s independence; (2) the continued development of Bolivarian socialism for the 21st century; (3) the transformation of Venezuela into a regional social, economic and political power; (4) contribution to the development of a multipolar geopolitical order to promote peace and stability; and (5) preserving life on earth and saving the human race.

In September 2014, President Maduro initiated a reform agenda, referred to as the Five Revolutions (Cinco Revoluciones) designed to advance the transformation of the Republic to a communal State and to enhance popular power. The Five Revolutions consist of:

• the Economic Productivity Revolution (Revolución Económica Productiva), which aims to promote economic stability by developing a productive and diverse economy;

• the Knowledge, Science, Culture and Technology Revolution (Revolución del conocimiento, de la ciencia, cultura y tecnología), which aims to develop a new society founded on solidarity, community and development by promoting science, education, culture, technology;

• the Revolution of the Socialist Missions (Revolución de las misiones socialistas), which aims to improve the quality of life for all Venezuelans and create a new society that guarantees basic social rights and life by promoting the Mission system;

• the Revolution of the Political State (Revolución Política del Estado), which aims to transform the Government to create a new administrative state founded in principals of democracy and justice and to increase popular power by implementing measures, including technology, to combat smuggling, corruption and bureaucratic inefficiencies; and

• the Revolution of Territorial Socialism (Revolución del Socialismo Territorial), which aims to consolidate the communal model with environmental principles by establishing a new ecosocialism.

In April 2016, members of MUD began a referendum process to recall President Maduro from office. The Constitution provides that the office of all magistrates and other elected officials, including the President, can be revoked after the first half of such individual’s term of office has elapsed, provided that certain legal requirements are met. For more information on these requirements, see “Organization of the Venezuelan Government—The Executive Branch.” In May 2016, citizens requested that the CNE certify signatures on a petition to recall President Maduro. Between June 20 and June 24, 2016, the CNE reviewed and validated the signatures to the petition. On August 1, 2016, the CNE certified signatures on the recall petition representing more than the 1% of registered voters needed to trigger the second stage of the recall process. On September 21, 2016, the CNE announced that a referendum to recall President Maduro from office could not be held until 2017. On October 17, 2016, the Supreme Tribunal ruled that the MUD opposition alliance must collect signatures from 20% of voters in each of the Republic’s twenty-three states and the Capital District in order to proceed with a recall referendum. Subsequently, on October 21, 2016, the CNE announced that the recall process was temporarily suspended after criminal courts in several states agreed to hear claims that fraud had been committed in the gathering of the signatures needed to meet the 1% threshold to trigger the recall process.

In January 2017, President Maduro reorganized the executive cabinet, appointing more than 17 new ministers, to offices including the Vice President of the Republic, Vice President for Economic Affairs, Minister of Petroleum and Minister of Economy and Finance (Decree No. 2,652, published in the Official Gazette No. 41,067, dated January 4, 2017). Furthermore, since January 2017, the Ministry of Popular Power for Banking and Finance and the Ministry of Popular Power for Industry and Commerce merged, to create the Ministry of Economy and Finance

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(Decree No. 2,651, published in the Official Gazette No. 41,067, dated January 4, 2017) and the National Executive created eight new ministries: (1) the Ministry of Transportation; (2) the Ministry of Public Works (Decree No. 2,650, published in the Official Gazette No. 41,067, dated January 4, 2017); (3) the Ministry of Productive Economy; (4) the Ministry of Fisheries; (5) the Ministry of Urban Agriculture; (6) the Ministry of Foreign Trade and International Investment; (7) Ministry of Mining; and (8) the Ministry of Essential, Strategic and Socialist Industries. Currently, there are 32 Ministries, two State Ministries, one Council of Ministers and five sectoral Vice Presidents consisting of the Vice President for Economic Affairs, the Vice President of Planning, the Vice President for Social Development and Missions of the Revolution, the Vice President of Political Sovereignty, Security and Peace the Vice President for the Development of Territorial Socialism and the Executive Vice President.

On January 26, 2017, President Maduro granted the following powers to the Executive Vice President of the Republic: (a) decree issuance of (i) budgetary transfers between the ministries, (ii) the rectification of budgetary insufficiencies of the ministries, (iii) extension of the period of suppression and liquidation of the organs of the National Public Administration, (iv) appointment of deputy ministers and appointment of the board of directors of the decentralized entities, (v) expropriation and compulsory acquisition requested by the President, (vi) creation, modification, elimination and liquidation of decentralized entities, except those that must be issued by law, (vii) value added tax (“VAT”) exemptions on the importation of personal property, sale of goods and provision of services, and (viii) exemption from income tax with respect to the profit obtained by strategic sectors or special projects; (b) approve, defer or reject the administrative acts presented by the ministers, including the administrative act relating to the purchase of foreign currency of the public sector before Banco Central in relation to Foreign Exchange Agreement No. 11; (c) approve, defer or reject the budget of decentralized entities and state corporations; (d) approve and sign the issuance of special retirements to employees of the National Public Administration; and (e) perform the role of the President as a member or president in collegiate bodies (Decree No. 2,695, published in the Official Gazette No. 41,083, dated January 26, 2017).

In January 2017, President Maduro reorganized the board of directors of PDVSA, creating a vice president position and appointing Maribel Parra as vice president (Decree No. 2,703, published in the Extraordinary Official Gazette No. 6,284, dated January 29, 2017). The new board is comprised of the president, two vice presidents, five internal directors and three external directors. Eulogio Del Pino was removed as president of the PDVSA in August 2017 and replaced by former Minister of Petroleum, Nelson Martinez. On November 26, 2017, President Maduro removed Nelson Martinez and appointed Manuel Quevedo as the Minister of Petroleum and president of PDVSA (Decrees Nos. 3,177 and 3,178 published in the Extraordinary Gazette No. 6,343, dated November 26, 2017).

Organization of the Venezuelan Government

The Government is comprised of five branches at the national level, as well as state and local governments. The following is a description of the role of the various branches of Government:

Federal Government

The Executive Branch. Executive power is vested in the President and the Vice President, who is appointed by the President. Under the Constitution, the President is elected for a term of six years and may be re-elected for unlimited six-year terms. The Council of Ministers is also part of the executive branch. Under the Constitution, the President is the commander-in-chief of Venezuela’s armed forces. The different services within Venezuela’s armed forces report to the Minister of Defense.

The Constitution provides that the public can call for a legally-binding recall referendum at any time after the midpoint of the President’s six-year term. To initiate the recall process, 1% of registered voters must sign a petition that is submitted to the CNE. The CNE must certify these signatures and then, within three days of such certification, 20% of all registered voters must sign a second petition. After those signatures are certified, a referendum may be held. To succeed in recalling an official, the votes in favor of recall must equal or exceed the number of votes the official received in the initial election and a number of voters equal to or greater than 25% of the total number of registered voters must vote in the recall referendum. If a recall removes a sitting president from office, new elections will be held if the recall occurred during the first four years of the President’s current term. If the recall removes the President during the final two years of the term, the Vice President will serve out the term until the next election.

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On January 9, 2017, the National Assembly passed a resolution stating that President Maduro should be removed from office based on article 233 of the Bolivarian Constitution, which outlines the circumstances under which the President can be considered to have permanently vacated or abandoned his position, finding that President Maduro had failed to fulfill his duties. On January 29, 2017, the Supreme Tribunal declared that there were no constitutional grounds for the removal of President Maduro and invalidated the National Assembly’s resolution.

The Legislative Branch. National legislative power is vested in the National Assembly. National Assembly members are elected by universal suffrage for terms of five years and may be re-elected for unlimited five-year terms. The number of members of the National Assembly is determined by the National Electoral Council on the basis of proportional representation by state.

The Judicial Branch. Judicial power is vested in the Supreme Tribunal and various lower tribunals. The Supreme Tribunal is the final court of appeals. It has the power to declare null and void laws, regulations and other acts of the executive or legislative branches that conflict with the Constitution. The Constitution provides that the National Assembly will appoint the justices of the Supreme Tribunal for twelve-year terms. Initially, the Supreme Tribunal Law (Ley orgánica del Tribunal Supremo de Justicia) provided for 20 judges of the Supreme Tribunal. In May 2004, the National Assembly approved an amendment to the Supreme Tribunal Law which increased the number of judges to 32. An absolute majority of the National Assembly can fill the new positions created by the amendment.

On December 20, 2015, the National Assembly appointed 34 new judges to the Supreme Tribunal, consisting of 13 principal judges and 21 substitutes.

On January 7, 2016, the newly elected National Assembly created a special commission to review these judicial appointments made by the prior National Assembly to ensure they complied with the proper procedures. On July 7, 2016, the commission issued a final report calling for the annulment of the appointments of the 34 judges. On July 19, 2016, the Supreme Tribunal nullified the actions of the National Assembly in creating the commission and the actions of the commission, finding that the National Assembly lacked the authority to review and revoke the judicial appointments.

The Civic Branch. The civic branch is responsible for preventing, monitoring and sanctioning ethical and moral violations in connection with public administration. This branch is comprised of three entities: the Ombudsman (Defensoría del Pueblo), which promotes and monitors the protection of human rights; the Prosecutor General’s Office, which promotes the fair administration of justice and judicial processes; and the Comptroller General of the Republic (Contraloría General de la República), which monitors and controls the administration of the Republic’s assets, revenues and public debt. The heads of these entities are appointed by the National Assembly. Candidates are evaluated and qualified by a committee of the National Assembly based on various criteria, such as education level and experience. Appointments are for seven-year terms. In December 2014, the National Assembly selected new appointees for the positions of Ombudsman, Prosecutor General’s and Comptroller General of the Republic for the period of 2015–2022.

The Electoral Branch. The electoral branch, which was created under the Constitution, is responsible for promulgating rules and regulations concerning elections. The electoral branch also monitors electoral processes, campaign financing and campaign advertising. The electoral branch operates through the CNE. The head and board of directors of the CNE are appointed by a two-thirds majority vote of the National Assembly. In the absence of a two-thirds majority, the Supreme Tribunal may appoint members of the CNE. The most recent appointments to the CNE in December 2016, were made by the Supreme Tribunal.

State Government

State executive power is exercised by a Governor who is elected by universal suffrage within each state. State legislative power is vested in state assemblies whose members are also elected by universal suffrage within each state.

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Local Government

Mayors and Local Councils. Local executive power is exercised by local mayors who are elected by universal suffrage within each municipality. Local legislative power is vested in local assemblies whose members are also elected by universal suffrage within each state.

Popular Power. On December 15, 2015, the National Assembly created the first National Community Parliament (Parlamento Comunal Nacional), which brought together representatives of Venezuela’s grassroots decision-making bodies, known as communal councils and communes, to promote the expression of popular power within communities.

National Assembly

On December 6, 2015, elections were held for all 167 seats in the National Assembly. The PSUV won 55 seats, members of the MUD opposition alliance won 109 seats and indigenous parties aligned with MUD won the remaining 3 seats. In December 2015, members of the PSUV challenged the election of eight National Assembly members (five from the State of Aragua, two from the State of Amazonas and one from the State of Yaracuy). In December 2015, the challenges to the members from the State of Aragua and Yaracuy were dismissed by the Supreme Tribunal. On January 11, 2016, the Supreme Tribunal agreed to hear the remaining two challenges and expanded the scope of the inquiry to the election results from the State of Amazonas including one indigenous seat located in the State. Three of the Assembly members whose seats are under review are members of parties aligned with MUD and one is a member of a party aligned with the PSUV. The Supreme Tribunal issued a temporary injunction prohibiting these four legislators from the State of Amazonas (including two legislators whose seats were not initially challenged) from taking office until the Supreme Tribunal had ruled on the matter. On July 28, 2016, the National Assembly reinstated three of these legislators in violation of the injunction, despite the fact that the Supreme Tribunal ruled this was an unconstitutional exercise of the National Assembly’s authority. Subsequently, on November 15, 2016, the three legislators from Amazonas tendered their resignations as members of the National Assembly but the National Assembly did not formally accept the resignations. On January 9, 2017, the National Assembly removed the three legislators from Amazonas; however the Supreme Tribunal nullified this parliamentary act as it was passed by an illegitimate Board of Directors of the National Assembly. As of September 2017, although the three legislators from Amazonas stepped down, the four remaining challenges are still pending before the Supreme Tribunal. The next elections for the National Assembly are due to be held in 2021.

While a three-fifths majority is required to enact enabling laws (Leyes Habilitantes), legislation that gives the President the power to issue laws without the approval of the National Assembly, a two-thirds majority is required to pass organic laws (Leyes Orgánicas), laws related to the structure and function of the Republic. A simple majority is required to approve ordinary laws. An absolute majority of the members present is required to override a presidential veto. Currently, the MUD opposition alliance has enough seats in the National Assembly to pass ordinary laws. Most of the National Assembly Committees are led by the MUD opposition alliance. The next elections for the National Assembly are expected to be held in 2021. The following table sets forth the number and party affiliations of the National Assembly as of December 31, 2016:

Political Party(1)	No. of Seats
PSUV		52
Partido Comunista de Venezuela(2)		2
Vanguardia Bicentenaria Republicana(2)		1
Primero Justicia(3)		33
Acción Democratica(3)		26
Un Nuevo Tiempo(3)		22
Voluntad Popular(3)		15
Representación Indígena(3)		3
Others(3)		13
Total		167

(1) Four National Assembly seats from the State of Amazonas are under review by the Supreme Tribunal.

(2) Aligned with the PSUV.

(3) Aligned with the MUD opposition alliance.

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National Constituent Assembly

In May 2017, in order to address the Republic’s political, social and economic challenges, President Maduro called for the election of the ANC and nominated members to a Presidential Commission to determine the process for the elections of ANC members (Decree No. 2,830, published in the Extraordinary Official Gazette No. 6,295, dated May 1, 2017). In accordance with article 347 of the Constitution, the ANC is entrusted with the power to reorganize the Government, create a new democratic legal order and draft a new constitution. President Maduro outlined the programmatic objectives of the initiative, mandating the ANC to introduce measures to, among other things, protect the Republic’s sovereignty; re-establish justice and peace in the Republic; transition the Venezuelan economic system into a diversified, productive and sustainable for a post-oil economy; and improve the Venezuelan judicial and criminal system to better address violence, drug trafficking and corruption and protect human rights and the environment. On May 23, 2017, President Maduro adopted the election rules, establishing that the 545 members of the ANC would be constituted by 364 seats elected from geographic constituencies representing the Republic’s 23 states and the Capital District; eight seats would elected among the indigenous communities; and the remaining 173 seats from functional constituencies representing various stakeholders from the Venezuelan civil and business communities (Decree No. 2,878, published in the Official Gazette No. 41,156, dated May 23, 2017). On July 30, 2017, 537 of the 545 constituent members of the ANC where elected by 8,089,320 citizens, representing 42% of those eligible to vote, according to data from the CNE. Members for the remaining eight indigenous seats were elected on August 1, 2017 in accordance with the local customs of the indigenous people represented.

In August 2017, the ANC commenced its legislative session and decreed the constitutional supremacy of its position and its legislative acts within the Government and reserved all necessary powers to legislate on the competences, functioning and organization of all branches of government to preserve the Republic’s peace, justice and sovereignty (Constitutional Decree published in the Extraordinary Official Gazette No. 6,323, dated May 23, 2017). Since August 2017, the ANC passed a number of constitutional laws, including the Constitutional Law establishing the commission for trust, justice, peace and public tranquility (Extraordinary Official Gazette No. 6,323, dated May 23, 2017); the Constitutional Law against hatred, for the peaceful co-habitation and tolerance (Official Gazette No. 41,274, dated November 8, 2017); and the Constitutional Law establishing the principles determining fixed prices of certain goods and services (Extraordinary Official Gazette No. 6,342, dated November 22, 2017). In August 2017, the ANC also appointed Tarek William Saab as Prosecutor General, removing the sitting Prosecutor General, Linda Marvelia Ortega Diaz (Constitutional Decree, published in the Extraordinary Official Gazette No. 6,322, dated August 5, 2017).

Enabling Laws

In December 2010, the National Assembly passed the 2010 Enabling Law, granting President Chávez the power to legislate and approve laws by decree for a period of 18 months in a number of areas, including, among others, infrastructure, transportation, housing and public services. The passage of the 2010 Enabling Law resulted in part from the need for the National Executive to act quickly and decisively in response to record rains and floods that left thousands of Venezuelans without homes, jobs and access to basic services and seriously affected agricultural production. For the period during which the 2010 Enabling Law was in effect until its expiration in June 2012, President Chávez issued 54 decrees for the following purposes, among others:

• addressing the need for permanent housing for those persons who lost their homes to floods or mudslides;

• creating an emergency fund to direct resources towards large-scale housing projects. For information about the emergency fund, refer to “Bolivarian Republic of Venezuela—Housing Programs”;

• a law on fair costs and prices that, as of November 2011, created a new commission to regulate prices and profit margins;

• creating the Socialist Agricultural Development Fund (Fondo para el Desarrollo Agrario Socialista or “FONDAS”) for the reconstruction of the agricultural sector;

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• strengthening the Institutional Law of the Banking Sector (Ley de Reforma Parcial de la Ley de Instituciones del Sector Bancario);

• to increase protection against fraud;

• providing persons of limited resources in Venezuela with decent housing through an initiative called the “Great Housing Mission Venezuela” (La Gran Misión Vivienda Venezuela);

• amending the existing labor law to improve labor conditions for workers;

• nationalizing several companies in key sectors of the economy to improve productivity;

• creating the State Council to address matters of national interest; and

• reforming the Organic Law of the Financial Administration of the Public Sector (Ley Orgánica de la Administración Financiera del Sector Público or “the Public Sector Financial Administration Law”) to allow the National Executive to issue debt that exceeds the limits established by the annual Special Debt Laws in order to cover extraordinary expenses in emergency situations. For more information on the Public Sector Financial Administration Law, see “The Venezuelan Economy—Economic Policy and Legislation— Financial Administration of the Public Sector.”

In November 2013, the National Assembly passed the 2013 Enabling Law, granting President Maduro the power to legislate by decree on economic and other matters for a period of twelve months, without requiring the separate approval of the National Assembly. The 2013 Enabling Law was enacted to permit the National Executive to fight corruption and take quick, decisive action on economic matters. Through November 2014, President Maduro issued decrees covering a number of domestic security and economic areas, including, the following:

• The law establishing the National Center for Foreign Trade (Centro Nacional de Comercio Exterior or “CENCOEX”) and Venezuelan Foreign Trade Corporation (Corporación Venezolana de Comercio Exterior or “CORPOVEX”), published in the Extraordinary Official Gazette No. 6,116, Decree No. 601, dated November 29, 2013, aimed to manage all import and export activities of Venezuela. CENCOEX was created for the purpose of developing and implementing policies on foreign exchange, exports, imports and foreign investment into the country and investments abroad. CORPOVEX was created to oversee and rationalize imports, ensure that the Republic obtained the best quality and price of imported products and goods; achieve maximum efficiency in the country’s import/export process and centralize the provision of non-oil exports. For more information, see “Introduction and Recent Developments—Recent Economic Developments” and “The Venezuelan Economy—Economic Policy and Legislation—Exchange Control Regime.”

• The Organic Law of Fair Prices superseded the Law on Fair Costs and Prices, published in the Official Gazette No. 40,340, Decree No. 600, dated January 23, 2014, and aimed to reduce inflationary pressures by supplementing existing regulations on fair pricing. The law established a maximum profit of 30% for each entity in the supply chain. The law also created the Superintendency for the Defense of Socio-Economic Rights (Superintendencia Nacional para la Defensa de los Derechos Socioeconómicos or “SUNDDE”) by merging the Institute for Defense of People in the Access to Goods and Services (Instituto para la Defensa de las Personas en el Acceso a los Bienes y Servicios or “INDEPABIS”) and the Superintendency for Fair Costs and Prices (Superintendencia Nacional de Costos y Precios “SUNDECOP”), the governmental entities previously charged with verification of fair prices. SUNDDE’s objectives include: (1) determining fair prices for goods and services through cost structure analysis; (2) establishing a profit ceiling; and (3) controlling economic and commercial activity in order to protect citizens’ incomes and wages. Decree No. 1,467 amended the Organic Law of Fair Prices (published in the Extraordinary Official Gazette No. 6,156, dated November 19, 2014) to (a) increase the penalties for violations of the fair price rules; (b) create the National Intendancy for the Protection of Worker’s Salary (Intendencia Nacional para la protección del salario del Obreno y Obrera) to provide a legal platform for workers to file claims against businesses that engage in alleged hoarding or speculation and (c) provide a mechanism for the continual adjustment of fair pricing in all stages of the chain of production, distribution, importation, transportation and marketing of goods and services. The Organic Law of Fair Prices was further amended by Decree No. 2,092 Organic Law of Fair Prices (Ley Orgánica de los Precios Justos) under which (1) SUNDDE has the authority to establish or modify the prices of goods and services; (2) SUNDDE and CENCOEX are

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jointly tasked with ensuring that the cost of a good or service conforms to the established rate; (3) penalties for violations of the fair price laws were increased; and (4) additional sanctions were enacted (published in the Extraordinary Official Gazette No. 6,202, dated November 8, 2015). For more information, see “The Venezuelan Economy—Inflation.”

• The Law Regulating Real Estate Leases for Commercial Use (published in the Extraordinary Official Gazette No. 40,418, Decree No. 929, dated May 23, 2014), imposed limits on the amount of rent commercial property owners may charge. The law allows the lessor and lessee to choose among a fixed rental payment, variable rental payment based on the percentage of sales, or a mixed rental payment (including fixed and variable rental payments components). The law also provides formulas and guidelines to determine the rental amounts assessable.

• The Law of the Exchange Regime and its Crimes (published in the Extraordinary Official Gazette No. 6,150, Decree No. 1,403, dated November 18, 2014), provided that (i) any person who uses foreign currency acquired for a purpose prohibited by the Republic’s exchange rate mechanism may be punished by imprisonment for between two to six years and a fine of 0.5 taxable units per U.S. dollar or equivalent foreign currency; (ii) the falsification or forgery of financial statements may be punished by imprisonment for between one to three years and a fine of 0.5 taxable units per U.S. dollar or equivalent foreign currency; (iii) those who directly or indirectly promote or encourage the commission of illegal acts may be punished by imprisonment for between two to six years and a fine of 0.5 taxable units per dollar or equivalent currency. Decree No. 2,167 amended the Law of the Exchange Regime and its Crimes, as published in the Extraordinary Official Gazette No. 6,210, dated December 30, 2015. The new law (1) repealed the Law of the Exchange Regime and its Crimes of 2014; (2) mandated the creation of a production certificate system requiring importers to obtain production certificates to import certain supplies; and (3) criminalized the use of exchange rates other than the official exchange rates. For more information, see “The Venezuelan Economy—Economic Policy and Legislation—Exchange Control Regime—Law of the Exchange Regime and its Crimes.”

• The Organic Law of Missions, Great Missions and Micro-Missions (published in the Extraordinary Official Gazette No. 6,154, dated November 19, 2014), established social programs aimed in the areas of education, food, health and others, to improve the social welfare of poor Venezuelans. Micro-Missions focus on resolving discrete problems that confront communities from time to time. Missions focus on addressing the root causes of poverty in order to increase the social welfare of Venezuelan citizens. Great Missions focus on resolving socioeconomic problems that require collaboration between different sectors of the economy and Government agencies. For more information, see “Bolivarian Republic of Venezuela—Social Programs—Missions.”

• Regulations under the Law of Disarmament, Arms Control and Ammunition, published in the Extraordinary Official Gazette No. 6,129, Decree No. 881, dated April 8, 2014, aims to regulate and control the use, registration, manufacture, sale, supply, storage, registration, import, export, transit and transportation of all kinds of weapons, ammunition and components.

In March 2015, the National Assembly passed the Enabling Anti-Imperialist Act (Ley Habilitante Antiimperialista para la Paz) published in the Extraordinary Official Gazette No. 6,178 dated March 15, 2015, granting President Maduro the authority to pass laws by presidential decree between March 15 and December 31, 2015, on matters relating to the economy and other areas. Between December 28 and December 30, 2015, President Maduro exercised this authority to issue a number of decrees, including the following:

• Reforms to the Law of the Central Bank of Venezuela (Ley del Banco Central de Venezuela) (Decree No. 2,179, published in the Extraordinary Official Gazette No. 6,211, dated December 30, 2015), which (1) gives the President the power to appoint the president of Banco Central; (2) eliminates the need for the approval of the National Assembly in connection with appointments and removals of directors of Banco Central and (3) gives Banco Central the authority to regulate the import or export of or other trade in Venezuelan and foreign currency.

• Reforms to the Income Tax Law (Reforma Parcial de la Ley de Impuesto sobre la Renta) (Decree No. 2,163, published in the Extraordinary Official Gazette No. 6,210, dated December 30, 2015), which (1) imposes new measures to limit tax deductions; (2) modifies inflation adjustments to promote the banking, financial and insurance sectors; (3) streamlines the tax regime applicable to cooperative associations and foundations and rebates for investment; and (4) regulates the availability of revenues.

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• The Law of Taxation on Major Financial Transactions (Ley de Impuesto a las Grandes Transacciones Financieras) (Decree No. 2,169, published in the Extraordinary Official Gazette No. 6,210, dated December 30, 2015), which imposes a tax on certain financial transactions, such as withdrawals from call deposits and money market funds, certain transfers of checks, securities and negotiable financial instruments and certain inter-bank loan operations.

• Reforms to the Law of Exchange Regime and its Crimes (Ley del Régimen Cambiario y sus Ilicitos) (Decree No. 2,167, published in the Extraordinary Official Gazette No. 6,210, dated December 30, 2015), which (1) repeal the Law of the Exchange Regime and its Crimes of 2014; (2) mandate the creation of a production certificate system requiring importers to obtain production certificates to import certain supplies; (3) criminalize the use of exchange rates other than the official exchange rates; (4) simplify the process for obtaining foreign currency and (5) establish an alternative currency market.

• The Organic Law that Reserves to the State the Exploration and Exploitation of Gold and Other Strategic Minerals (Ley Orgánica que Reserva al Estado las Actividades de Exploración y Explotación del Oro y demás Minerales Estratégicos) (Decree No. 2,165, published in the Extraordinary Official Gazette No. 6,210, dated December 30, 2015) (the “Mining Law”), which aims to promote economic development and curb Venezuela’s dependence on oil through economic diversification and which vests authority for all mining operations with the Ministry of Popular Power for Ecological Mining Development (Ministerio del Poder Popular de Desarollo Minero Ecológico or “Ministry of Mining”). For further information on the Mining Law, see “Principal Sectors of the Venezuelan Economy—Mining.”

• The Organic Law for the Development of Petrochemical Activity (Ley Orgánica para el Desarrollo de las Actividades Petroquímicas) (Decree No. 2,171, published in the Extraordinary Official Gazette No. 6,210, dated December 30, 2015), which reserves to the state the right to produce basic and intermediate petrochemicals, including chemical or physical transformation of raw materials based on gaseous and liquid hydrocarbons and minerals, and grants to the Ministry of Popular Power of Petroleum (Ministerio del Poder Popular de Petroléo or “Ministry of Petroleum”) the authority to regulate petrochemical production.

• The Capital Markets Law (Ley de Mercado de Valores) (Decree No. 2,176, published in the Extraordinary Official Gazette No. 6,211, dated December 30, 2015), which redesigns the framework for regulating the securities market. Key characteristics include: (1) reinforcing the authority of the national securities regulator, the National Securities Superintendency (Superintendencia Nacional de Valores or “SUNAVAL”), to regulate the capital markets to promote the participation of new issuers, including small and medium-sized companies; (2) promoting the financing of productive companies through national public debt instruments by brokerage houses and firms; (3) promoting capital markets in accordance with international financial standards and protecting the financial resources of investors while minimizing risks through regulation; (4) contemplating demutualization; (5) allowing licensed broker-dealers, brokerage societies and brokerage houses to participate in the market for public bonds and to maintain them in their portfolios; (6) authorizes SUNAVAL to set the requirements that must be met by foreign corporations in order for them to be authorized to conduct the same activities as brokerage societies or brokerage houses; and (7) establishing procedures for the imposition of sanctions for violating the capital markets laws.

• The Law of the National Integrated Service for the Administration of Customs Duties and Taxes (Ley del Servicio Nacional Integrado de Administración Aduanera y Tributaria or “SENIAT”) (amended by Decree No. 2,177, published in the Extraordinary Official Gazette No. 6,211, dated December 30, 2015), which is intended to modernize SENIAT and prohibit speculation, counterfeiting and drug trafficking activities that impact taxation.

• The Law on Insurance (Ley de la Actividad Aseguradora) (Decree No. 2,178, published in the Extraordinary Official Gazette No. 6,211, dated December 30, 2015), which grants special powers to the Superintendency of Insurance to intervene in the insurance industry, such as the ability to order the payment of insurance claims and impose fines for wrongdoing on the part of insurance companies, and places certain restrictions on insurance and reinsurance companies.

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• The Law of Presidential Councils of the Government of Popular Power (Ley de Consejos Presidenciales de Gobierno del Poder Popular) (Decree No. 2,161, published in the Extraordinary Official Gazette 6,209, dated December 29, 2015), which creates a system of Presidential Councils to promote grass-roots decision-making and popular power.

• further reforms to the Public Sector Financial Administration Law (Ley Orgánica de la Administración Financiera del Sector Público) (Decree No. 2,174, published in the Extraordinary Official Gazette No. 6,210, dated December 30, 2015), which (1) allow the President and the Council of Ministers to modify budgetary allocations created through legislation or other administrative acts; (2) reduce the National Assembly’s control over credit operations by enabling the National Executive to execute some of the transactions contemplated by the Special Debt Laws without the need for further authorization from the National Assembly.

• reforms to the Income Tax Law (Reforma Parcial de la Ley de Impuesto sobre la Renta) (Decree No. 2,163, published in the Extraordinary Official Gazette No. 6,210, dated December 30, 2016), which (1) impose new measures to limit tax deductions; (2) modify inflation adjustments to promote the banking, financial and insurance sectors; (3) streamline the tax regime applicable to cooperative associations and foundations and rebates for investment and; (4) regulate the availability of revenues.

For more information, see “The Venezuelan Economy—Economic Plan—Introduction and Overview.”

Legal Challenges to Legislation

The newly elected National Assembly has passed several laws since assuming office in January 2016, which the National Executive sent to the Supreme Tribunal to review on constitutional grounds. These laws include:

• Amnesty and National Reconciliation Law which granted amnesty to people convicted of crimes relating to harm to people and damage to property during their participation in political protests and demonstrations.

• Law of Partial Reform of Decree No. 2,179 of the Organic Law of Partial Reform of the Venezuelan Central Bank Law, which amended Decree No. 2,179 to give the National Assembly oversight powers over Banco Central, including ratification powers over the appointment and removal of the President of Banco Central and its directors.

• Law of Partial Reform to the Organic Law of the Supreme Tribunal of Justice, which increased the number of lead judges on the Supreme Tribunal, required that the Supreme Tribunal notify the National Assembly if the President requests a constitutional review of any legislation passed by the National Assembly and provided for a public hearing on any challenged legislation.

• Food and Drug Bond Law for Retirees and Pension Holders, which granted benefits to the elderly to permit them to buy food and medicine without having to spend pension resources.

• Law Granting Property Title to Beneficiaries of the Great Housing Mission Venezuela, which granted title to beneficiaries of houses built through the Central Government’s Great Housing Mission Venezuela.

• Special Law to Address the Humanitarian Health Crisis, which would establish parameters through which Venezuelans may obtain free, high-quality medicine and acquire and distribute such medicine.

• Law of Partial Reform of Decree No. 2,165, the Organic Law that Reserves to the State the Activities of Exploration and Exploitation of Gold, which, among other things, would require the authorization of the National Assembly to conduct the exploration and exploitation activities contemplated by the law.

• Law of Reform of Organic Law of Environment, which aims to develop the principles and rules of environmental preservation based on the constitutional rights of access to a secure, healthy and balanced environment.

All of these laws were submitted to the Supreme Tribunal for constitutional review and found to be unconstitutional and therefore invalid.

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On April 20, 2016, the National Assembly approved a bill that would amend the Constitution to reduce the presidential term from six years to four years and impose a two-term limit. To become effective, the bill would have to be approved in a referendum called by the CNE. On April 25, 2016, the Supreme Tribunal ruled that if the bill were to be passed, it would not apply retroactively to reduce President Maduro’s term in office because doing so would violate the Constitution.

Since September 2016, the National Assembly has passed a number of laws that have been challenged by the National Executive and found to be invalid by the Supreme Tribunal on the grounds that the National Assembly lacked the capacity to legislate because it was not properly constituted due to the participation of legislators from the State of Amazonas in violation of a temporary injunction barring them from the National Assembly pending the review of the election results for their seats. These laws included legislation to grant greater autonomy to the telecommunications regulator and the imposition of regulations and penalties for actions constituting nepotism or conflicts of interest.

Emergency Decrees

In 2016, President Maduro issued a series of successive emergency decrees to combat the various economic, social and energy crises. An emergency decree can remain in effect for up to 60 days and may be extended once for an additional 60-day period. On January 14, 2016, President Maduro issued Economic Emergency Decree No. 2,184 (Decreto de Emergencia Económica), published in the Extraordinary Official Gazette No. 6,214, which imposed a 60-day state of emergency throughout Venezuela in order to ensure access to food and essential services and combat the economic crisis and high inflation. The decree gave President Maduro the power to: (1) dictate economic policies, (2) access funds allocated to the 2015 budget and make expenditures outside the appropriations made under the 2016 budget law, (3) disregard the exchange procedures established by CENCOEX and Banco Central in order to facilitate the importation of essential goods and (4) promote foreign investment and the socialist missions. The state of emergency was extended for an additional 60-day period on March 11, 2016 (Economic Emergency Decree No. 2,270, published in the Extraordinary Official Gazette No. 6,219). On May 13, 2016, President Maduro issued Exception and Economic Emergency Decree No. 2,323 (Decreto de Estado de Excepción y Emergencia Económica), published in the Extraordinary Official Gazette No. 6,227, which declared a 60-day state of emergency due to extraordinary social, economic, political and ecological events. The decree granted additional emergency powers to President Maduro to combat the economic crisis and the electricity crisis, such as the power to impose controls on the production and distribution of goods and the power to maintain public order. On July 12, 2016, President Maduro’s emergency powers under Exception and Economic Emergency Decree No. 2,323 were extended for a further 60-day period by Decree No. 2,371, published in the Official Gazette No. 40,942, dated July 12, 2016. On September 13, 2016, President Maduro issued a new Exception and Economic Emergency Decree No. 2,452 (published in the Extraordinary Official Gazette No. 6,256), which renewed President Maduro’s emergency powers, giving him the authority to promote food production and distribution, implement security plans and impose limited suspensions of sanctions against high-ranking government officials. Pursuant to his emergency powers under the Exception and Economic Emergency Decree No. 2,452, on October 14, 2016, President Maduro enacted (1) a decree that dictates the budget for the year 2017 (Decree No. 2,482, published in the Extraordinary Official Gazette No. 6,263) and (2) a decree that dictates the indebtedness for the economic and financial year 2017 (Decree No. 2,483, published in the Extraordinary Official Gazette No. 6,264), which authorizes the Republic to incur up to Bs.69.4 billion for the refinancing or restructuring of public debt. On November 13, 2016, the Exception and Economic Emergency Decree No. 2,452 was extended for an additional 60-day period (Decree No. 2,548, published in the Extraordinary Official Gazette No. 6,272).

In 2017, President Maduro continued to issue emergency decrees to combat the economic, social and political circumstances. On January 13, 2017, President Maduro issued Exception and Economic Emergency Decree No. 2,667 (Estado de Excepción y Emergencia Económica), published in the Official Gazette No. 41,074, declaring a 60-day state of emergency. The Decree gave the National Executive the authority to: (1) take necessary measures to promote the production and distribution of agricultural products; (2) access funds allocated to the 2016 budget; (3) make expenditures outside the appropriations made under the 2017 budget law; (4) avoid established exchange procedures in order to facilitate the importation of essential goods; (5) approve and sign contracts and their amendments without the approval of other Public Powers in order to obtain financial resources and technical advice; (6) issue and authorize financing transactions, as well as reschedule the authorized projects/debt in the 2017 Indebtedness Law, without the approval of other Public Authorities; (7) approve the 2017 Budget of Banco Central

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when the body that regularly does so is legally or judicially disqualified; (8) allow the Tax Administration to adjust the Taxable Unit based on technical analyses without the approval of other Public Powers; (9) decide the temporary and exceptional suspension of penalties of a political nature against the highest authorities of public power and other senior officials, when such sanctions could hinder the continuity of the implementation of economic measures for the urgent revival of the national economy, the supply of goods and services essential to the Venezuelan people, or make vulnerable the security of the nation; (10) implement policies to guarantee the supply of goods and services regarding health and food; (11) take measures to guarantee the performance of the National Electric System; and (12) appoint the Ministry of Economy and Finance and Banco Central to set the maximum ceiling for valuations of Venezuelan currency and restrict certain financial and commercial transactions that promote the electronic system use. The Exception and Economic Emergency Decree was extended for an additional 60 days on March 13, 2017 (Decree No. 2,742, published in the Official Gazette No. 41,112). In May and September 2017, President Maduro renewed the state of emergency by issuing Exception and Economic Emergency Decrees No. 2,849 (Extraordinary Official Gazette No. 6,298, dated May 13, 2017) and No. 3,074 (Official Gazette No. 41,233, dated September 11, 2017), which were extended for an additional 60 days by Decrees No. 2,987 (Official Gazette No. 41,192, dated July 13, 2017) and No. 3,157 (Official Gazette 41,276, dated November 10, 2017) respectively.

The Supreme Tribunal upheld the constitutionality of the Economic Emergency Decrees No. 2,184 and No. 2,270, the Exception and Economic Emergency Decree No. 2,323 and No. 2,371 the Exception and Economic Emergency Decree No. 2,452 and 2,548 and Exception and Economic Emergency Decree No. 2,667 and No. 2,742 through ruling No. 4 dated January 20, 2016, ruling No. 184 dated March 17, 2016, ruling No. 411 dated May 11, 2016, ruling No. 615 dated July 19, 2016, and ruling No. 810 dated September 21, 2016, ruling No. 952 dated November 21, 2016, and ruling No. 4 dated January 19, 2017, and ruling No. 113 dated March 20, 2017, ruling No. 547 dated July 25, 2017, and ruling No. 727 dated September 25, 2017, respectively, when the National Assembly failed to approve them.

The Federal Government Council

On February 22, 2010, the Organic Law of the Federal Government Council (Ley Orgánica del Consejo Federal de Gobierno) was passed, creating the Federal Government Council (Consejo Federal de Gobierno). The Federal Government Council is chaired by the Vice President of the Republic and is composed of all the Ministers and Governors, one Mayor of each state and 20 citizens of communal entities created under the Popular Power regime. It is the body responsible for planning and coordinating policies and actions in order to continue with the process of transferring authority from the national government to states and municipalities. Its executive arm is the Inter-Territorial Compensation Fund (“ICF”), which finances public investment aimed at promoting balanced regional development, cooperation and support of policies and development initiatives from the various regional public bodies, focusing on essential services and projects in the regions of the less developed communities. Pursuant to the law, the President may create special development districts to promote economic, social, scientific and technological projects within a given region. One of the priorities of the Federal Government Council is to fund, promote and monitor compliance of all planned investments and priorities including those related to the development of adequate housing throughout the country, with the support and cooperation of regional and local governments. The Federal Government Council’s budget is funded by executive branch contributions, assigned resources, other earned income, donations, and sources arising from other laws, such as those relating to the Law of Special Economic Assignments Derived from Mining and Hydrocarbons Activity (Ley de Asignaciones Económicas Especiales Derivadas de Minas e Hidrocarburos). In 2015, an additional Bs.112.7 million (U.S.$17.9 million) was transferred to the Federal Government Council, bringing the total amount transferred to the Federal Government Council since its inception to Bs.224.8 million (U.S.$35.7 million, calculated at the official exchange rate as in effect on December 31, 2015).

In 2014, the Federal Government Council approved two investment plans to fund local governments throughout Venezuela. In February 2014, the Federal Government Council allocated 70% of the annual ICF investments to local governments to finance local projects. In June 2014, the Federal Government Council approved the second investment plan to reapportion ICF funding in accordance with the needs of local projects.

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Domestic Initiatives

The Maduro administration is pursuing the policies initiated by the Chávez administration that are aimed at transforming Venezuelan society within a model that is broadly referred to as “Socialism for the 21st Century,” in which the concepts of political participation and social inclusion are cornerstones.

Given the profound economic disparities across social strata, the domestic initiatives focus on the need to redirect economic resources to the poorest segments of society, to create the proper conditions for sustainable growth and to maximize welfare for the inhabitants of Venezuela. In addition, the initiatives aim to give a greater voice to workers in business enterprises. The following are examples of initiatives that are being or have been undertaken:

• the reallocation of unproductive business assets to more productive activities to promote job creation;

• the creation of new ministries with responsibility for housing, nutrition, gender equality and financial aid;

• the creation of the Great Mission of Sovereign Supply, which gives the Minister of Defense the authority to oversee and coordinate food production and distribution;

• the creation of a plan to construct mobile structures with the ability to process, store and sell fish, which will be installed in rural and suburban areas and operated by the Local Committees of Supply and Production (Comités Locales de Abastecimiento y Producción or “CLAPs”) and the Ministry of Fisheries and Aquaculture;

• the creation of a 100-day urban agriculture scheme designed to promote farming in urban and semi-urban environments;

• the mandatory allocation of a portion of commercial banks’ credit portfolios to pivotal economic areas such as housing, agriculture, tourism and manufacturing;

• the strengthening of existing, and creation of new, national development and social funds to provide specific resources to major infrastructure projects and massive social programs;

• the introduction of diverse initiatives of co-management and self-management among workers, employers and supervisors, as options to reshape either state companies and/or abandoned manufacturing facilities, as a fast-track measure to utilize these entities and to promote stable job generation;

• the creation of government-owned entities to provide low-cost commercial services with a high level of social impact, such as airlines, telecommunications and food chain distribution;

• the formation of joint ventures for certain cement and chemical companies and foodstuff producers and retailers;

• the creation of the National Company for Public Works (Empresa Nacional de Obras Públicas) for carrying out public works;

• the creation of the Agrifood Presidential Commission to ensure food security and sovereignty through increased coordination among the various governmental agencies and enterprises and the private sector;

• the enactment of a joint resolution earmarking 20% of annual gross credit portfolio of banks to mortgages for the purchase, construction and improvement of primary residences;

• the enactment of the laws regulating fair prices, for the purpose of reducing inflation by establishing a cost structure and controlling excessive profits of companies;

• the formation of funds by public sector financial institutions to provide financing for the acquisition and repair of rental housing;

• the creation of Missions with the objective of providing social services in sectors such as health, education and employment;

• the formation of two funds: National Savings Fund for the Working Class (Fondo de Ahorro Nacional la Clase Obrera or “FANCO”) and the Popular Savings Fund (Fondo de Ahorro Popular or “FAP”), for purposes of promoting savings and alternative methods for the payment of social debts;

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• the implementation of the plan Street Government (Gobierno de Calle), which seeks to establish direct contact with workers, students and communities throughout the country;

• the purchase of all companies in the electricity sector and the National Telephone Limited Company of Venezuela (Compañía Anónima Nacional Teléfonos de Venezuela or “CANTV”), Venezuela’s largest telephone carrier, to secure stability in service rates and minimize their impact on inflation;

• the purchase of all companies in the cement sector and Siderúrgica del Orinoco, C.A., (“SIDOR”), Venezuela’s largest steelmaker, to help reduce prices in Venezuela;

• the purchase of Bank of Venezuela (Banco de Venezuela, S.A.), the largest bank in Venezuela;

• the creation of the “Tarjeta Somos” program, which provides young people access to various financial services and financial and economic activities;

• the creation of a joint venture between Venezuela and Mabe de Venezuela to increase the domestic production of household goods, such as kitchens and washing machines; and

• the execution of agreements and engagement in joint ventures between Venezuela and several automobile and automotive-related companies to assemble cars, tractors and trucks as well as automobile engines.

Since the beginning of 2013, the Government has adopted and/or implemented certain legislation and related plans to address priority areas, including the following:

• The Plan of the Nation, first introduced by President Chávez during his 2013 presidential campaign (published in the Extraordinary Official Gazette No. 6,118, dated December 4, 2013) and later implemented by President Maduro, is a roadmap for the second stage of Venezuela’s transition to socialism. The Plan of the Nation establishes a series of macroeconomic targets and social programs and is founded on five strategic objectives: (1) the preservation of Venezuela’s independence; (2) the continued development of Bolivarian socialism for the twenty-first century; (3) the transformation of Venezuela into a regional social, economic and political power; (4) contribution to the development of a multipolar geopolitical order to promote peace and stability; and (5) the preservation of life on earth and saving the human race.

• On May 13, 2013, President Maduro announced the creation of the Homeland Security Plan (Plan Patria Segura) to combat violent crime. The Ministry of Popular Power for Interior Affairs, Justice and Peace (Ministerio del Poder Popular para Relaciones Interiores, Justicia y Paz or “Ministry of the Interior”) is charged with implementing the Homeland Security Plan, which aims to decrease crime rates and enhance public safety by promoting violence prevention and social inclusion. The Homeland Security Plan also centralizes crime statistics in the Venezuelan Observatory of Public Safety (Observatorio Venezolano de Seguridad Ciudadana), an agency of the Ministry of the Interior, in order to better monitor results and improve efficiency by replicating successful strategies across agencies. The Homeland Security Plan focuses on 79 priority municipalities and has more than 37,000 employees deployed throughout the nation. Pursuant to the Homeland Security Plan, the National Executive conducted operations to dismantle 157 criminal gangs between July 2015 and July 2016. In January 2017, President Maduro relaunched the Homeland Security Plan to combat criminal mafias and promote security. The Vice President has been directed to implement this plan, which is comprised of six strategic actions: (i) promoting the Movement for Peace and Life’s cultural and sports activities in schools and neighborhoods; (ii) increasing the number of police and army personnel patrolling the streets; (iii) implementing peace groups; (iv) strengthening the Popular Intelligence System; (v) relaunching OLP; and (vi) achieving effective implementation of justice in the form of ensured continuous proximity to police services and administration of justice of common crimes.

• In April 2013, President Maduro created the Presidential Commission for Peace and Life, charged with advancing the Movement for Peace and Life (el Movimiento por la Paz y por la Vida). The Movement for Peace and Life aims to promote culture, sport, recreation and healthful living and the development of youth through engagement in productive activities. In order to further the goals of the Movement for Peace and Life, President Maduro presented the National Plan for Peace and Coexistence (Plan Nacional de Paz y Convivencia) in February 2014. The National Plan for Peace and Coexistence has ten goals: (1) improving

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the efficiency of the Republic’s protection and surveillance systems; (2) continuing the Plan for Disarmament (Plan de Desarme) and demobilization of violent gangs; (3) expanding the Movement for Peace and Life to cover the whole country; (4) conducting a national tour with sporting, cultural and artistic activities; (5) unveiling a territorial plan to ensure the delimitation of public spaces; (6) developing a new culture of communication based on the fostering of social values; (7) transforming the Republic’s prisons into centers for education and discipline; (8) building Peace Communities (Comunidades de Paz) to improve the justice system; (9) creating Peace Territories (Territorios de Paz) in communities across the country to address crime; and (10) creating a special brigade composed of policemen and soldiers to combat drug trafficking. On April 12, 2014, President Maduro announced that the Movement for Peace and Life would work in conjunction with the Republic’s Great Missions (Grandes Misiones) to further promote national development. In January 2017, the National Plan for Integration Prevention, Solidarity Coexistence and Peace was created, with initiatives focused on education, culture, recreation, sport, health and food intended to replace practices of unrest, violence and crime. In January 2017, the National Plan for Integration Prevention, Solidarity Coexistence and Peace was created, with initiatives focused on education, culture, recreation, sport, health and food with the goal of reducing unrest, violence and crime.

• On September 2, 2014, as part of the National Executive’s financial policy aimed at strengthening the country’s international accounts, President Maduro announced the creation of a strategic account at Banco Central, known as the Strategic Reserve Fund, where funds including FONDEN, the Sino-Venezuelan Joint Fund and the Large Volume and Long-Term Financing Fund could be consolidated in order to strengthen the Republic’s foreign asset account. To further strengthen the country’s international accounts, on September 5, 2014, this strategic account at Banco Central received an initial deposit of U.S.$750 million. On November 19, 2014, the Republic deposited a U.S.$4.0 billion loan from China into the Strategic Reserve Fund.

• In July 2015, the Government also launched a security plan known as Operation Liberation and Protection of the People (Operación de Liberación del Pueblo or “OLP”) to combat criminal gang activity and allocated over 20,000 National Guard officials to this effort. OLP was designed to coordinate the efforts of the Ministry of the Interior, the national armed forces and other security agencies to increase national security. OLP is comprised of the Homeland Security Plan, the Movement for Peace and Life, the Comprehensive Preventative Intelligence (Inteligencia Preventative Integral) and programs designed to strengthen the implementation of justice to ensure peace in the country.

• In January 2016, President Maduro reorganized the executive cabinet, as discussed above in “—Current Presidential Administration.”

• In January 2017, President Maduro reorganized the executive cabinet, including the appointment of Tareck Zaidan El Aissami Maddah as Vice President of the Republic, Ramón Augusto Lobo Moreno as Vice President for Economic Affairs and Ramón Augusto Lobo Moreno as Minister of Economy and Finance (Decree No. 2,652, published in the Official Gazette No. 41,067, dated January 4, 2017). Since then, President Maduro has replaced Ramón Augusto Lobo Moreno with Simon Alejandro Zerpa Delgado as Minister of Economy and Finance and appointed Wilmar Alfredo Castro Soteldo as Vice President for Economic Affairs (Decree No. 3,126, published in the Official Gazette No. 41,265, dated October 26, 2017). Furthermore, in January 2017, the Ministry of Popular Power for Banking and Finance and the Ministry of Popular Power for Industry and Commerce merged to create the Ministry of Economy and Finance (Decree No. 2,651, published in the Official Gazette No. 41,067, dated January 4, 2017) and the National Executive abolished the Ministry of Popular Power for Transport and Public Works, leading to the creation of two new ministries: the Ministry of Popular Power for Transportation and the Ministry of Popular Power of Public Works (Decree No. 2,650, published in the Official Gazette No. 41,067, dated January 4, 2017). Currently, there are 32 Ministries, two State Ministries, one Council of Ministers and five sectoral Vice Presidents consisting of the Vice President for Economic Affairs, the Vice President of Planning (Vicepresidencia Sectorial de Planificación), the Vice President for Social Development and Missions of the Revolution (Vicepresidencia Sectorial para el Desarrollo Social y Revolución de las Misiones), the Vice President of Political Sovereignty, Security and Peace (Vicepresidencia Sectorial de la Soberanía Política, Seguridad y Paz) and the Vice President for the Development of Territorial Socialism (Vicepresidencia Sectorial del Desarrollo del Socialismo Territorial) and the Executive Vice President (Vicepresidencia Ejecutiva). In October 2017, President Maduro appointed Ramón Augusto Lobo Moreno as the new president of Banco Central (Official Gazette No. 41,265, dated October 26, 2017).

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Social Programs

The National Executive’s comprehensive programs to promote social welfare have resulted in improvements in some quality of life metrics, such as:

• a decrease in the percentage of homes in structural poverty (as measured by unmet basic needs) to 4.9% in 2015 from 5.4% in 2014;

• a decrease in the percentage of households in critical overcrowding reduced from 9.1% in 2014 to 8.3% in 2015 and 7.9% in 2016; and

• an increase in the percentage of the population entitled to receive a pension from 72.6% in 2014 to 84.8% in 2015 and to 89.9% in 2016.

During 2017, the Movement for Peace and Life established by President Maduro made several efforts that benefited popular sectors of the country, such as:

• rehabilitating sports spaces and hosting sports activities;

• making grants to communities; and

• hosting Integral Prevention Forums and community coexistence workshops.

Missions

Beginning in 2002, the Government initiated social programs, called Missions, to provide social services in sectors such as health, education and employment in order to address the most pressing issues affecting those in need. The national budgets for the years 2012, 2013, 2014 and 2015 allocated Bs.8.0 billion (U.S.$1.86 billion), Bs.5.9 billion (U.S.$0.94 billion), Bs.25.4 billion (U.S.$4.03 billion), and Bs.27.2 billion (U.S.$4.32 billion), respectively, to the Missions. Preliminary figures for the year 2016 are not available.

The Complementary Special Indebtedness Annual Law for Fiscal Year 2011 incorporated three new Missions: The Great Mission Agro-Venezuela (La Gran Misión AgroVenezuela), the Great Housing Mission for Venezuela (La Gran Misión Vivienda Venezuela) and the Knowledge and Work Mission (La Gran Misión Saber y Trabajo Venezuela) (Decree No. 8,143 published in the Extraordinary Official Gazette No. 6,021, dated April 6, 2011). The Great Mission Agro-Venezuela was aimed at achieving food sovereignty by providing financing, agricultural infrastructure and equipment and agricultural machinery. The Housing Mission aimed to provide financing for the production of construction material, the proper preparation of lands for building, and the building of housing. The Knowledge and Work Mission was focused on the development and continuity of large transportation infrastructure, energy, agroindustrial, and industrial projects. The law aimed to provide Bs.45.0 billion (U.S.$10.47 billion) for social investment under these Missions in the wake of natural disasters affecting Venezuela.

In 2014, the Law for Great Missions was passed, to relaunch o the system of Missions and Great Missions. As part of this initiative, the National Executive undertook review of all Missions, merging programs with similar aims and beneficiaries, and the refinement of Mission mandates. The law also contemplates a new Mission management system. The Missions were divided and grouped into seven areas: (i) education, (ii) work, (iii) public health, (iv) social protection, (v) food, (vi) housing and habitat, and (vii) security and basic services.

Notable Missions in operation as of December 31, 2016, include:

• The Plan Barrio Nuevo, Barrio Tricolor, created in August 2009 to renovate beautify and maintain the water, waste removal and electrical infrastructure of Venezuela’s barrios (suburbs), and was redesignated a Great Mission in November 2013. The Mission has renovated 200 communities, benefitting two million families. During 2016, the Mission rehabilitated 398,064 houses, implemented waste removal plans on 556 buildings (increasing the total number of buildings modified to 1,556), deployed new waste removal systems, built new parks, and collected a total of 75,000 tons of solid waste materials.

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• Misión Barrio Adentro, created to provide preventative and primary medical care to serve citizens in their own communities. The Mission has provided 778 million consultations over the past thirteen years. During 2016, the Mission conducted 28 million consultations.

• The Gran Misión a Toda Vida Venezuela, created in July 2012 to combat crime and security threats in the country with the aim of reducing crime rates and addressing the structural and situational factors that generate violence and crime.

• Gran Misión Eficiencia o Nada, created in 2013 to improve government efficiency, combat corruption and to assess the progress of projects undertaken by the executive branch.

• Misión Negro Primero, created in May 2013 to provide social support and protection to members of the Bolivarian National Armed Force and their families through the provision of credits for housing, vehicles and the purchase of domestic appliances.

• Misión Eléctrica de Venezuela, created in September 2013 to transform the National Electricity System and to coordinate the various institutions, communities and companies involved in the program.

• Misión Jóvenes de la Patria, created in October 2014 to promote the personal development, mobilization and social inclusion of young Venezuelans by promoting their potential and fostering a new culture based on solidarity and responsible enjoyment.

• Gran Misión Hogares de la Patria, created in June 2014 to provide comprehensive care for the most vulnerable sectors and those Venezuelan households in poverty and extreme poverty.

• Misión Nevado, created in December of 2013 to rescue and protect street animals.

• Misión Transporte, created in March of 2014 to develop Venezuela’s public transportation system.

• Misión Alimentación, created in April of 2003 to promote the equal distribution of food to the Venezuelan population, especially the low income population.

In addition, in February 2017 the Misión Justicia Socialista was created in to encourage the citizen participation in the communities and social movements to guarantee social justice and free legal assistance. This Mission was redesignated as a Great Mission in March 2017.

The Missions have been credited with helping to: reduce the percentage of households in extreme poverty from 10.8% in 1998 to 8.3% in 2015; increase life expectancy from 72 years in 1998 to 75 years in 2015; lower the level of income inequality, measured through the Gini coefficient, from 0.486 in 1998 to 0.550 in 2015; increase the average number of years in schooling for those aged 25 years and above from 7.35 years in 1998 to 8.9 years in 2015; and advance the country to the high human development category in the United Nations’ Human Development Index, which is located at 0.767 in 2015. Preliminary figures for the year 2016 are not available.

Other Social Programs and Policies

In 2014 the Bases of Socialist Missions (Bases de Misiones Socialistas) were created in order to deliver health, nutrition and education services to poor communities, as part of the National Campaign for the Eradication of Extreme Poverty. The first base was inaugurated on June 7, 2014. As of December 31, 2015, a total of 750 mission bases have been built throughout the country. The goal for 2016 is to install 1,005 mission bases and 38 major mission bases for the 1,500 poorest communities in the country.

The country also provides old-age pension, which, under the Constitution, is equal to the minimum wage. As of December 31, 2015, the old-age pension was Bs.9,649 per month (U.S.$1,531.59 per month) and as of September 2016, the old age pension was Bs.22,576.13 (U.S.$2,257.61). Since September 1, 2017, the pensioners are charging Bs.136,544.18 (U.S.$13,654.42) of basic income plus the economic war bond for Bs.40,963.26 (U.S.$4.096,37) for a total of Bs.177,507 (U.S.$17.750,70) per month. The minimum wage was increased to Bs.177,507.44 (U.S.$17,750.74) on November 1, 2017 (Decree No. 3,138, published in Official Gazette No. 41,269). The number of pensioners in Venezuela has been increasing; as of 2012, 2013, 2014, 2015 and 2016, there were 2,426,493; 2,620,674; 2,722,624; 2,855,731; and 3,803,808 pensioners, respectively. Preliminary figures for the year 2016 are not available.

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The Central Government has created a number of state-owned entities to provide low-cost commercial services and to stimulate domestic production. The state-owned entities created since 2011 include:

• Conviasa, a state-owned international airline company;

• the National Company for Public Works, created in 2011 to develop highways, infrastructure and housing projects;

• Inmobioliaria Nacional S.A., created in 2011 to provide real estate services for primary residence housing;

• Venedom S.A., created in 2011 to promote the development of the coffee industry;

• Venvidrio C.A., created in 2011 to produce and commercialize glass products;

• Corposervica, created in 2012 to provide for private security services to various government institutions;

• Farmapatria, C.A., created in 2012 to a network of discount drug stores across the country;

• Fábrica de Productos para la Higiene y Mantenimiento del Hogar, Industrias e Instituciones, S.A. (Limpihogar), created in 2012 to provide cleaning and housing maintenance products;

• Venezolana de Motores (Venmotor), created in 2012 to assemble and produce engines;

• Venezolana de Envases de Aluminio (Venenvases), created in 2013 to produce products of all kinds, including packaging;

• Venezolana de Cerámicas, Forjas y Aceros (Forjacero), created in 2013 to produce and commercialize various steel products for the national industry;

• Venezolana del Cartón (Vencarton), created in 2013 to produce and commercialize cartons and laminated paper;

• Venezolana de Válvulas y Grifos (Valerisa), created in 2013 to produce and commercialize various non-ferrous metal products, including brass, copper and aluminum, for infrastructure projects;

• Venezolana de Motos (Vemoca), created in 2013 to produce and commercialize motorcycles and automotive components;

• Café Venezuela y Cacao Venezuela, a chain of sixteen stores created in 2014 to provide a forum for women’s social organizations to sell food products and to foster women’s participation in the economy generally; and

• Machinery Barinas (Maquinarias Barinas), created in 2015 to assemble and market heavy machinery for the construction industry.

Political and Social Unrest

Towards the end of 2013, street demonstrations against the policies of the National Executive began to protest rising crime, food shortages and rising inflation. In February 2014, these protests turned violent, resulting in road blocks and property crimes. The protestors’ demands extended to other rights, including political participation and freedom of expression. Opposition groups and certain international human rights groups later alleged there were human rights violations that occurred during the protests. The National Executive disputed those claims and maintained that security officials were acting under Venezuelan law and in accordance with internationally accepted policing methods that respect human rights. From the time the protests began until order was restored in mid-2014, scores of people were killed, injured and arrested. The protests and street closures experienced in some of the country’s major cities during the first five months of 2014 adversely affected the production, distribution and sale of consumer goods and services.

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In response to public discontent, President Maduro inaugurated the first National Peace Conference (Conferencia Nacional de Paz) on February 26, 2014, to promote dialogue and peace. The result of the first National Peace Conference was the National Pacification Plan (Plan de Pacificación Nacional), a key element of which involved holding forums to bring together the various political, economic, public and private stakeholders on key issues. Subsequent National Peace Conferences were held in March 2014 in different regions of the country and participants included mayors, governors, representatives from the Federation of Chambers and Associations of Commerce and Production of Venezuela (Federación de Cámaras y Asociaciones de Comercio y Producción de Venezuela), industry heads, trade unions, and indigenous and religious groups. However, the MUD opposition alliance did not attend the National Peace Conference.

President Maduro convened a separate dialogue on April 14, 2014, with members of MUD, the National Executive and observers from international organizations from UNASUR in attendance. A proposal was formulated to find a model of coexistence that would strengthen democracy in Venezuela and generate space for different political viewpoints. A roundtable was scheduled for May 15, 2014, to continue the dialogue, but members of MUD declined to participate.

Following the December 2015 elections, which proceeded without significant disruptions, and in which MUD won a majority of the seats in the National Assembly, in April 2016, MUD began a referendum process to recall President Maduro. For more information on the election and the referendum process, see “Introduction and Recent Developments—Recent Social and Political Developments.”

To address smuggling, crime, violence, and gang activity contributing to the social unrest, the Central Government launched a security plan in July 2015 known as OLP, as discussed above in “—Domestic Initiatives.”

In 2015 and 2016, political and social unrest continued due to shortages of basic consumer goods as a result of a drop in domestic food production; limited access to imports as a result of currency restrictions; smuggling; hoarding and other distribution problems. Consequently, the food distribution network has become an official target, and in some areas, long lines at food markets are not uncommon, contributing to the shortages of consumer goods. In addition, during the same period, Venezuela experienced a severe drought that contributed to an electricity crisis due to the country’s dependence on hydroelectric power, which further exacerbated these tensions. In response to the continued political turmoil, in 2016, the National Executive and UNASUR relaunched efforts to continue the dialogue with MUD; however, MUD again refused to participate. During 2016, the Vatican mediated a dialogue between representatives of the National Executive and the MUD opposition alliance in an effort to solve the country’s political conflicts.

During 2016, the National Executive continued its efforts to improve food access for the Venezuelan population and has distributed food to low-income populations in response to recent food shortages as part of its Nutrition Mission (Misión Alimentación), which was founded in 2003 to promote the equitable distribution of quality and low cost food by overseeing the wholesale and retail sale of food products. In 2016, the National Executive deployed CLAPs as part of a direct distribution model designed to improve access to food and other necessities and prevent smuggling. In July 2016, the Central Government launched the Great Mission of Sovereign Supply (Gran Misión Abastecimiento Soberano) (Decree No. 2,367, published in the Official Gazette No. 40,941, dated July 11, 2016), which created a national command, consisting of representatives of the National Executive, including the President, and headed by the Minister of Defense, with the authority to oversee and coordinate food production and distribution. The Mission aims to use the operational capacity of the Venezuelan military to improve the production and distribution of food, medicine and other essential goods. For more information on food access and distribution, see “Bolivarian Republic of Venezuela—Social Programs—Missions.”

Between 2016 and 2017, President Maduro issued a number of emergency decrees which conferred on the National Executive additional emergency powers to address the economic crisis and the emergency crises. For more information, see “—Emergency Decrees.”

In 2017, political and social discontent continued, which could be attributed to disagreement between the National Executive and the opposition, conflicts between laws passed by the National Assembly and rulings issued by the Supreme Tribunal and President Maduro’s exercise of powers based on Emergency Decrees, as well as food and medicine shortages. During 2017, there were street demonstrations in multiple cities in Venezuela that turned

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violent, resulting in road blocks, property crimes and several deaths, injuries and arrests. Opposition groups, international organizations and foreign governments have urged peaceful protests, an end to violence and that new elections be convened.

In January 2017, President Maduro launched a Presidential Commission for Peace and Life (Comisión Presidencial por la Paz y por la Vida), an initiative aimed at assisting the Movement for Peace and Life with combating social and political unrest in Venezuela (Decree 2,674, published in the Official Gazette No. 41,076, dated January 17, 2017). The Presidential Commission for Peace and Life will assist with the implementation of policies created by the Movement for Peace and Life by coordinating the efforts of multiple state bodies involved in the fight against crime. In a further effort to maintain peace, in April 2017, President Maduro launched a police and military security plan knowns as the Zamora Plan (Plan Zamora), which deployed civil-military to safeguard national security. Then, on May 1, 2017, President Maduro called for a National Constituent Assembly to draft a new Constitution (Decree No. 2,830, published in the Extraordinary Official Gazette No. 6,295, dated May 1, 2017), as an attempt to calm unrest in Venezuela. To begin this effort, President Maduro created a Presidential Commission, which will draft a proposal regarding vote processing to constitute the National Constituent Assembly and also appoint its members (Decree No. 2,831, published in the Extraordinary Official Gazette No. 6,295, dated May 1, 2017).

Housing Programs

In November 2010, in response to heavy flooding caused by two weeks of torrential rains, President Chávez created the Simón Bolívar Fund for Reconstruction (Ley Orgánica de Creación del Fondo Simón Bolívar para la Reconstrucción) (“FSB”) to provide relief aid for the construction of housing in order to help thousands of people displaced by heavy flooding.

Between 2011 and 2016, the Central Government spent Bs.571.5 billion (U.S.$57.1 billion) to build 1.4 million new homes in the western and central regions of Venezuela that were most affected by the torrential rains. In the first five months of 2017, the Central Government allocated another Bs.73.9 billion (U.S.$7.4 billion) to the program, bringing the total number of homes built through the Great Housing Mission Venezuela to more than 1.6 million.

On January 28, 2016, Decree No. 2,210, published in the Official Gazette No. 40,838, allowed the Organo Superior de Sistema Nacional de Vivienda y Habitat to assume control over the FSB. As of December 31, 2016, the FSB managed U.S.$93.5 billion.

In May 2016, the Supreme Tribunal struck down “the Law Granting Title to Property to Beneficiaries of the Great Venezuelan Housing Mission,” which the National Assembly had passed on January 28, 2016. The Supreme Tribunal found that the law was inconsistent with each family’s right to housing. It also found that the National Assembly neither allowed adequate public consideration of the law nor completed adequate studies on its economic viability.

In May 2016, the Ministry of Housing and Habitat raised the maximum credit amounts that governed loans for home purchases. The caps were raised as follows: on home purchases from Bs.500,000 to Bs.3,000,000; for self-construction from Bs.400,000 to Bs.1,000,000; for housing expansion from Bs.200,000 to Bs.700,000; and for main housing improvements from Bs.150,000 to Bs.500,000 (published in the Official Gazette No. 40,905, dated May 17, 2016).

Broadcasting Guidelines

On December 22, 2010, the Social Responsibility in Radio and Television Law (Ley de Responsabilidad Social en Radio y Televisión) (published in the Official Gazette No. 39,610, dated February 7, 2010) was reformed to strengthen national content production and incorporate within its scope the regulation of messages distributed through electronic media. The legislation prohibits the dissemination on television, radio or electronic media of messages that incite or promote hatred and intolerance based on race, religion, politics or gender as well as prohibiting racist or xenophobic messages, in accordance with the Constitution of the Bolivarian Republic of Venezuela and international treaties.

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Two Administrative Orders were enacted and subsequently published in the Official Gazette No. 40,415, dated May 20, 2014, establishing additional broadcasting guidelines:

(1) Administrative Order No. 27, establishing the Technical Standard on Domestic Audio-Visual Production Services, with the aim of regulating and promoting a socially responsible environment within the audiovisual industry, balancing the rights and interests of providers with the users of radio and television services.

(2) Administrative Order No. 28, establishing, in accordance with the Telecommunications Organic Law (published in the Official Gazette No. 39,610, dated February 7, 2011), the Conditions for the Provision of Domestic Audio-Visual Production Services, with the aim of developing the legal regime applicable to the establishment, operation, supervision, inspection, control, regulation and monitoring of domestic audio-visual production services.

In July 2013, the Government created the Integrated Media System (“SIBCI”). SIBCI was conceived as a system to integrate, socialize and carry out the Government’s communications policy, which includes areas of communication beyond the conventional media, such as billboards, flipcharts, loudspeakers, among many other forms of popular media. The SIBCI consists of two AM operators, two FM operators, 296 community broadcasting operators, seven operators in free-to-air broadcast television, and six free-to-air digital broadcasting television operators and seven operators in open digital television (TDA/ISDBT-Tb). The total number of stations managed by SIBCI is 11 AM stations, 62 FM stations, 93 free-to-air broadcast television stations, 22 free-to-air digital TV stations, and 45 free-to-air community broadcasting television stations.

Additional media administered by the Government outside of SIBCI consisted of ten AM broadcast operators, 36 FM operators, three free-to-air broadcast television operators and 22 digital TV operators.

In relation to the telecommunications sector, in July 2014, Administrative Order No. 104 was approved, which established regulations governing international long distance telephone services and the transit charges applicable to the delivery of calls to fixed and mobile telephone networks in Venezuela (published in the Extraordinary Official Gazette No. 40,469, dated August 6, 2014).

Popular Power Initiatives

In September 2005, President Chávez issued a decree creating Social Production Companies (Empresas de Producción Social or “EPSs”) to provide the Venezuelan labor force with opportunities to participate in a variety of sectors of the economy, including the petroleum and mining sectors. EPSs are community-based, socially-minded economic entities funded by the Government, dedicated to generating and providing goods and services necessary to satisfy the basic needs of the community. They are primarily operated by the Ministry of Economy and Finance through CVG and by PDVSA. As of December 31, 2015, PDVSA was operating 20,000 EPSs and contributed U.S.$8.2 billion in support of social projects developed by the Central Government.

The National Assembly approved five “popular power” organic laws in December 21, 2010. The five laws consist of: (1) the Organic Law of Popular Power (Ley Orgánica del Poder Popular); (2) the Organic Law of Popular and Public Planning (Ley Orgánica de la Planificación Pública y Popular); (3) the Organic Law of Communes (Ley Orgánica de las Comunas); (4) the Organic Law of Social Auditing (Ley Orgánica de la Contraloría Social); and (5) the Organic Law for the Communal Economic System (Ley Orgánica del Sistema Económico Comunal). These communal laws are intended to strengthen popular power and complement already existing laws such as the Communal Council Law and the Federal Government Council Law.

The Organic Law of Popular Power aimed to develop and consolidate popular power to foster a more participatory democracy and create communal forms of self-government. The Organic Law of Popular and Public Planning outlines the organization and functions of the National System of Public Planning, a system that aims to optimize the processes of defining, formulating, executing and evaluating public policies. The Organic Law of Popular and Public Planning was amended in November 2014, pursuant to Decree No. 1,406 (published in the Extraordinary Official Gazette No. 6,148, dated November 18, 2014) to increase the participation of Venezuela’s citizens in the decision-making process through the participation of communes and communal councils. The Organic Law of Communes relates to the establishment and organization of communes in the country as well as the creation of

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the Communal Parliament. The Organic Law of Social Auditing gives organized communities responsibility for auditing both public and private entities. This law was passed by the National Assembly in order to create a culture of social responsibility and to gain better control of public, private and community affairs that affect public welfare. The Organic Law for the Communal Economic System establishes a collective ownership regime. Under this law, people are permitted to organize in direct collective social ownership of businesses, household production units and exchange groups.

The National Assembly approved the Organic Law of Extraordinary Jurisdiction for the Adjudication of Communal Peace Issues (Ley Orgánica de la Jurisdicción Especial de la Justicia de Paz Comunal) in May 2012. The law aimed to resolve community-related issues through “peace judges” who would help facilitate the resolution of local disputes through approaches that seek value-creating solutions in contrast to traditional adversarial court systems. Peace judges are elected to four-year terms by the local area or commune in which they live and are eligible for reelection. Although the peace judges do not have formal legal training, they are required to have basic competency in rules regarding inheritance, property ownership and renting.

Nationalizations and Expropriations of Private Companies

President Chávez announced a plan in 2007 to nationalize various strategic areas of the economy in order to further state control of the development of these sectors in Venezuela, including the acquisition of majority control of joint ventures in the Orinoco Oil Belt (heavy oil projects that had been authorized in the 1990s) in connection with the development of those resources. This initiative also extended to certain electricity and telecommunications companies that had been operated and controlled by the private sector through a process of negotiated acquisitions with the controlling shareholders of those entities. For information about nationalizations or expropriations in the oil industry, see “Principal Sectors of the Venezuelan Economy—Petroleum and Natural Gas—Disputes Concerning the Oil Industry.”

In 2008, the Government nationalized companies in the steel and cement industries to provide for better control of inputs for construction and infrastructure. Although certain of the companies whose assets were nationalized initially filed claims under BITs for arbitration to determine amounts owed to them, the former owners ultimately reached mutual agreement with the Government regarding the amounts to be paid for the assets and the terms of the repayments.

During 2009 and 2010, the Government took control of certain hotels, banks, energy plants and oil rigs, insurance firms, industrial warehouses, and investment firms and supermarkets, among other entities and assets. The Government also nationalized farms, food companies, supermarkets, and other inputs for the food industry, such as glass manufacturers, in an effort to expand the supply of essential food items and control inflation in this sector of the economy. The Government consolidated the acquired assets into several state-owned banks in an effort to organize the banking sector.

In February 2017, President Maduro ordered the compulsory acquisition of movable and immovable property, equipment, installation and other materials owned by the Consorcio Industrial Venezolano de Tecnología China, Civetchi, C.A., a Venezuelan automotive supply company (Decree No. 2,732, published in the Official Gazette No. 41,102, dated February 23, 2017).

In April 2017, a Venezuelan court ordered the seizure of General Motors’ plant in Valencia, along with its bank accounts and its assets, in connection with a claim filed by two car dealers relating to General Motors’ illegal termination of its contracts with those two dealers. In response, General Motors dismissed 2,700 employees and announced it would cease all activities in Venezuela.

External Affairs and Membership in International Organizations

Venezuela is a member of the United Nations and a founding member of the Organization of American States. It is also a member of OPEC, the International Monetary Fund (“IMF”), the World Bank, the Inter-American Development Bank (“IADB”), the General Agreement on Tariffs and Trade (“GATT”), the World Trade Organization (“WTO”), Corporación Andina de Fomento, a multilateral development bank headquartered in Caracas (“CAF”), the OPEC Fund for International Development (“OFID”), the International Fund for Agricultural Development (“IFAD”), as well as other significant/ international organizations.

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Venezuela has traditionally consulted with various multilateral institutions, including the IADB, the World Bank and the IMF, on its economic programs, objectives, projections and policies. Under Article IV of the IMF’s Articles of Agreement, the IMF holds annual bilateral discussions with its members. During those consultations, the IMF reviews the overall economic developments in the country, as well as its policy measures aimed at maintaining economic stability, in order to ensure a sustainable external balance of trade and to liberalize foreign trade. Venezuela’s last annual consultation with the IMF took place in 2004 and compliance with the IMF’s Article IV consultation requirements is delayed. In January 2012, Venezuela formally withdrew from the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (“ICSID Convention”). Pursuant to the ICSID Convention, Venezuela’s withdrawal became effective on July 25, 2012, six months after the receipt of the formal notice. However, the Republic has signed and ratified a number of BITs and a number of free trade agreements, which give investors the right to use other arbitration forums. In addition, certain arbitral forums may be available to investors by contractual agreement or under Venezuelan law.

Venezuela became a member of the Andean Community, an Andean regional integration alliance, whose other members include Bolivia, Ecuador, Colombia and Peru, in 1973. On April 22, 2011, Venezuela withdrew from the Andean Community; however, trade relations with Colombia, Peru, Bolivia and Ecuador continued on a bilateral basis on similar terms to those applicable to Andean Community members. The Republic is also a member with observer status of the Caribbean Community and Common Market, known as CARICOM.

The Republic has entered into a number of bilateral and multilateral trade and development agreements with countries in the region, such as: (1) agreements with Brazil covering energy, mining, military cooperation and the development of an offshore natural-gas project; (2) an agreement among Venezuela, Bolivia and Cuba signed in April 2006, and the subsequent addition of Honduras, Nicaragua and the Caribbean nation of Dominica, covering initiatives in trade, health and energy, among other matters; and (3) agreements to construct gas pipelines from Venezuela to Colombia, Brazil, Argentina, Uruguay, Paraguay and Bolivia. In 2014, Venezuela entered into several agreements with the Republics of Uruguay and Argentina covering cooperation in the fields of energy, health, defense, rail, science, technology and agribusiness. In 2016, Venezuela entered into economic cooperation agreements with Panama, and it established a binational agenda with Cuba for 2016-2030, focusing on the tourism, mining, industrial and agriculture industries.

On March 24, 2015, the Republic announced the execution of the Partial Agreement of Economic Complementation No. 69 with Brazil (published in the Official Gazette No. 40,627). The agreement was intended to establish trade liberalization provisions to regulate trade between Venezuela and Brazil during the process of incorporating Venezuela into Mercosur (as discussed below under “—Required Initiatives”).

In March 2017, Venezuela joined the AIIB, which seeks to create a financial system to allow the establishment of an investment framework in the Asian continent, while boosting trade and economic cooperation with other countries in Europe, America and Africa.

In August 2017, foreign ministers of Argentina, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Honduras, Mexico, Panama, Paraguay and Peru met to discuss the situation of political and social unrest in Venezuela. The summit closed with the foreign ministers signing a declaration condemning the constitution of the ANC and rejecting its authority, and advocated for the opening of negotiations between the National Executive and the opposition to address the ongoing constitutional crisis

Regional Initiatives

The Maduro administration has continued to develop initiatives commenced by President Chávez designed to strengthen economic, financial and technical cooperation and promote regional integration among Latin American and Caribbean countries under the banner: “Bolivarian Alternative for the Americas,” which include:

• Mercosur. In 2004, Venezuela became an associate member of Mercosur, a trade bloc promoting free trade among its member countries. In May 2006, the Republic agreed to the protocol for admission as a full

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member, including a timetable for bringing down mutual trade barriers and a final deadline of January 1, 2014, for full liberalization of trade among all members. Under the protocol, the Republic agreed to adhere to all key Mercosur codes and adopt Mercosur’s common external tariffs before admission as a full member. Lawmakers from Argentina, Brazil and Uruguay had approved Venezuela’s entry as a full member of Mercosur. In 2012, Venezuela was accepted as a full member of Mercosur and a Presidential Commission was created to assist with the full integration of Venezuela in Mercosur. According to the protocol, the Republic has four years after becoming a full member to adopt the rules and the common tariffs of the regional bloc. In July 2013, when the Venezuelan government assumed temporary leadership of Mercosur, it developed an agenda covering various topics related to foreign trade, health, public safety, science and technology, transportation, education, consistent with the assumption of the presidency. On December 18, 2013, Paraguay ratified Venezuela’s membership in Mercosur. In August 2016, the Republic assumed the pro tem presidency of Mercosur from Uruguay. In December 2016, Mercosur notified the Republic that its membership was suspended because the Republic had not fully complied with all the conditions of membership. The Republic disputes the suspension and has filed a request for dispute resolution under Mercosur’s rules to address the disagreement over the status of the Republic’s membership. On December 30, 2016, the Republic ceded the presidency of Mercosur to Argentina. In February 2017, the legislative branch of Mercosur, PARLASUR, passed a resolution rejecting the suspension of Venezuela. As of December, 2017, Venezuela’s suspension from Mercosur remains in effect.

• ALBA. In December 2004, the Bolivarian Alternative for the Americas (“ALBA”) commenced when the Republic and Cuba signed the first ALBA exchange agreement. Since that time, ALBA has become an international cooperation organization based upon the concept of social, political and economic integration between the countries of Latin American and the Caribbean. As of September 2016, ALBA countries included Venezuela, Antigua and Barbuda, Bolivia, Ecuador, Cuba, Grenada, Haiti, Nicaragua, Saint Lucia, Saint Vincent and the Grenadines, Saint Kitts and Nevis and Dominica. In January 2008, the member nations of ALBA created the Bank of the ALBA primarily to advance industrial and agricultural production among its members and support social projects, as well as multilateral cooperation agreements among its members, particularly in the energy field. Also in 2008, the Bank of the ALBA began participating in a joint venture with PetroCaribe as part of an effort to address food shortage problems in Central American and Caribbean countries. During 2015, ALBA entered into a treaty to establish a drug distribution and regulation center. Also during 2015, ALBA member countries entered into bilateral agreements establishing reciprocal recognition of university degrees. In March 2015, ALBA pledged U.S.$200 million toward development initiatives in Caribbean countries and the financing of alternative energy sources. The Bank of the ALBA had an initial start-up capital of U.S.$1.0 billion and is headquartered in Caracas. As of December 31, 2016, the Bank of the ALBA had committed capital of U.S.$850 million and paid in capital of U.S.$127 million. The Republic is the principal contributor to the Bank of the ALBA; its contributions represent 76.0% of the bank’s capital and its paid-in contributions represent 72.9%.

• SUCRE. In October 2009, the member countries of the ALBA signed a treaty to establish the Unitary System for Regional Compensation (Sistema Unitario de Compensación Regional de Pagos or “SUCRE”). In January 2010, SUCRE officially entered into effect, creating an instrument for commercial transactions among ALBA member countries. The SUCRE system allows those ALBA member countries that buy goods from each other to pay and receive payment using their domestic currency. This enables countries to conserve foreign currency and lower transaction costs, enabling further trade developments between the member countries. During SUCRE’s initial stage, it will only be available for use by member countries. During SUCRE’s next stage, it is expected to be available for use by importers and exporters. At its final stage, SUCRE is expected to reach consolidation, which will give SUCRE value as a method of payment and value in its reserve among the member countries. As of December 31, 2016, one (1) unit of SUCRE was the equivalent of U.S.$1.242, which represents an intermediate value between the U.S. dollar and the Euro. Transactions processed by SUCRE amounted to U.S.$270.0 million in 2011, U.S.$1.1 billion in 2012, U.S.$909.0 million in 2013, U.S.$497.0 million in 2014 and U.S.$344.8 million in 2015.

• Petroamérica. The Republic has been instrumental in the creation of Petroamérica, an energy union among Latin American countries to use strategic energy resources to improve societies throughout the continent. The regional integration of state energy companies are divided into Petrosur, comprising Argentina, Brazil, Uruguay and Venezuela, PetroCaribe, comprising the Caribbean, and Petroandina, comprising Bolivia, Ecuador, Colombia, Peru and Venezuela. In addition, PDVSA has been involved with several energy

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developments in Latin America through its subsidiaries in Bolivia, Ecuador, Argentina, Brazil, Uruguay and Paraguay to develop the energy market in the region. These regional arrangements are intended to strengthen Venezuela’s presence in the international markets by eliminating trade barriers, increasing its refining infrastructure and reducing costs. In March 2015, a Petrocaribe economic zone was created to promote the diversification of energy supply based on oil, gas and alternative energy through investments in the energy sector. The Petrocaribe Council of Ministers also set a target for commerce within the zone of at least 30% by 2018.

• Banco del Sur. Venezuela is a charter member of Banco del Sur, a regional development finance institution which will serve to foster regional integration through the financing of major integration projects in South American countries. The bank was established in 2007 through a treaty signed by seven countries: Argentina, Brazil, Bolivia, Ecuador, Paraguay, Uruguay and Venezuela. In March 2009, the countries agreed to contribute a total of U.S.$7.0 billion in initial capital, and in September 2009 the seven countries signed the constitutive act officially creating Banco del Sur. In April 2012, the Banco del Sur treaty was ratified by the National Assembly. In June 2013, Banco del Sur held its first meeting of the Council of Ministers in order to address operational issues.

• UNASUR. UNASUR was officially established on May 23, 2008, when the leaders of the 12 member nations signed the Constitutive Treaty of UNASUR. The UNASUR members are: Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Guyana, Paraguay, Peru, Suriname, Uruguay and Venezuela. UNASUR was created as an intergovernmental regional body aimed at improving economic and political integration in South America. UNASUR acted as an international observer to support the April 2013 Presidential election and 2015 National Assembly elections in Venezuela. It has also acted to support negotiations between the Maduro Administration and members of the opposition aimed at addressing the recent unrest in Venezuela. On March 15, 2015, UNASUR requested the United States government lift sanctions against Venezuela. It also urged the international community to abstain from any unilateral action against Venezuela. More recently, the UNASUR countries committed to help address the shortages of food, medicine and other essential goods in the country.

• CELAC. The Community of Latin American and Caribbean States is a regional bloc of Latin American and Caribbean states that was created on December 3, 2011. CELAC’s purpose is to promote Latin American integration by creating a forum where Latin American countries can engage in political dialogue. There are 34 members: Antigua, Barbuda, Argentina, Bahamas, Barbados, Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominica, Ecuador, El Salvador, Guatemala, Grenada, Guyana, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Paraguay, Peru, Panama, Dominican Republic, Saint Kitts and Nevis, Saint Vincent and the Grenadines, Saint Lucia, Suriname, Trinidad and Tobago, Venezuela and Uruguay.

• OAS. The OAS was created in 1948 upon signing of the Charter of the OAS in Bogotá, Colombia. Today, 35 independent states belong to the OAS, including Venezuela, a founding member, and 69 states have been granted permanent observer status. The OAS was established to promote peace, justice and solidarity, strengthen collaboration and defend sovereignty, territorial integrity, and independence among member states. In May 2016, the National Assembly requested that the “OAS” apply the Inter American Democratic Charter (the “OAS Charter”) to convene a meeting of the Permanent Council to intervene in Venezuela. On May 31, 2016, Secretary General Luis Almagro requested that the Permanent Council invoke the OAS Charter against Venezuela, which could ultimately result in Venezuela’s suspension from the OAS. In June 2016, the OAS Permanent Council held an emergency meeting to discuss the request, which resulted in no action against Venezuela. On March 14, 2017, Secretary General Luis Almagro requested the suspension of Venezuela’s membership in the OAS. Subsequently, on March 23, 2017, fourteen OAS members requested an extraordinary session to discuss Venezuela’s withdrawal of Venezuela from the OAS, which failed to reach a consensus on March 28, 2017. In April 2017, the National Executive announced Venezuela would start the process of withdrawing from the OAS.

• LARF. The Latin American Reserve Fund was created in 1978 as the successor to the Andean Reserve Fund (Fondo Andino de Reservas or “FAR”) and is financed by eight Latin American countries: Bolivia, Colombia, Venezuela, Peru, Ecuador, Uruguay, Paraguay and Costa Rica. LARF’s three major objectives are: (i) to provide balance of payments support to member countries by granting loans or guaranteeing third-party loans; (ii) to improve the conditions of international reserve investments made by member countries; and (iii) to help harmonize its members’ exchange rate, monetary and financial policies. In July 2016, the Latin American Reserve Fund approved a U.S.$482.5 million, three-year loan to the Republic.

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Relations with the United States

In May 2011, the United States imposed sanctions on seven companies, including PDVSA, under the Iran Sanctions Act of 1996, as amended by the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010, for their activities in support of Iran’s energy sector. The sanctions imposed on PDVSA prohibit the company from competing for U.S. government procurement contracts, from securing financing from the Export-Import Bank of the United States and from obtaining U.S. export licenses. These sanctions do not apply to PDVSA subsidiaries and do not prohibit the export of crude oil to the United States.

In February 2013, the United States imposed sanctions on the Compañía Anónima Venezolana de Industrias Militares (“CAVIM”) a state-owned Venezuelan weapons company after it traded with Iran, North Korea and Syria. The sanctions prohibit the U.S. government from entering into contracts with these companies and individuals. In May 2013, the U.S. government expanded the list of entities found to have violated Iran sanctions, including the Iranian Venezuelan Bi-National Bank, which it accused of having helped Iran evade Western prohibitions on oil sales and financial dealings.

Since July 2014, the United States has imposed sanctions, consisting of visa restrictions and/or asset blocking, on more than fifty former and current Venezuelan officials for involvement in human rights violations. On July 31, 2014, the United States responded to reports of mass detentions and violence towards opposition protesters in Venezuela by restricting, pursuant to the U.S. Immigration and Nationality Act of 1965 (the “INA”), the issuance of U.S. visas to certain Venezuelan officials allegedly responsible for the violence. Although the names of the sanctioned individuals have been withheld, the sanctions include individuals at various levels of government, from government ministers and presidential advisors to judicial officials, law enforcement and military officials.

In February 2015, the United States announced that it had imposed additional visa restrictions against a number of former and current Venezuelan government officials on grounds they were allegedly responsible for or complicit in human rights abuses against persons in Venezuela and considered allegedly responsible for acts of public corruption. In March 2015, President Obama issued Executive Order 13692, which imposed sanctions against seven Venezuelan officials for their role in human rights violations and corruption within the Government. These sanctions were extended in March 2016. On March 4, 2016, President Obama notified the U.S. Congress that Executive Order 13692 was to continue in effect because, in his view, the emergency situation in Venezuela had not improved, citing Venezuela’s human rights record, abuses in response to anti-government protests, and government corruption, among other factors. Executive Order 13692 was extended in January 2017. On July 15, 2016, the U.S. President’s authority to impose sanctions on individuals responsible for human rights violations in Venezuela was extended for a further three years through December 31, 2019. On February 13, 2017, the U.S. government designated the Vice President, Tareck El Aissami, as a “specially designated narcotics trafficker” pursuant to the Kingpin Act and the U.S. Foreign Narcotics Kingpin Sanctions Regulations. On July 31, 2017, the U.S. government imposed sanctions against President Maduro directly, and subsequently extended the sanctions against several senior members of the Government, which freezes any of sanctioned individuals’ assets that are subject to U.S. jurisdiction and prevents anyone in the U.S. from dealing with any sanctioned individual. The U.S. government has imposed a number of other sanctions against the Government, including a U.S. arms embargo and U.S. licensing requirements on exports and re-exports of specific categories of goods, software, and technology to military end-users or for military end-uses in Venezuela.

On August 25, 2017, President Trump issued an Executive Order titled “Imposing Additional Sanctions with Respect to the Situation in Venezuela,” which targeted financial sanctions against Venezuela aimed at a broad range of debt and equity transactions involving the Government and its owned or controlled entities, including PDVSA. The August 25 Executive Order prohibits “US Persons” (i.e., entities organized under U.S. laws and their non-U.S. branches, individuals and entities physically located in the U.S., and U.S. citizens and permanent residents) from engaging (directly or indirectly) in any transactions related to, providing financing for, purchasing or selling or otherwise dealing in the following:

• New PDVSA debt with a maturity of greater than 90 days;

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• Other than with respect to PDVSA debt, new debt with a maturity of greater than 30 days or new equity of the Government (including any of its political subdivisions, agencies, or instrumentalities, such as Banco Central and PDVSA, as well as any person owned or controlled by, or acting for or on behalf of, the Government;

• Bonds issued by the Government prior to August 25, 2017); and

• Dividend payments or other distributions of profits to the Government from any entity owned or controlled, directly or indirectly, by the Government.

The U.S. government also issued four general licenses to authorize certain transactions that would otherwise be prohibited by the August 25 Executive Order:

• General License 1 provided a 30-day window period during which US Persons could engage in certain transactions necessary to wind down contracts or other agreements that had been barred by the sanctions.

• General License 2 authorizes US Persons to engage in transactions where the only Government entities involved are CITGO Holding, Inc. and any of its subsidiaries.

• General License 3 authorizes US Persons to engage in transactions related to, provide financing for, and otherwise deal in bonds that are specified in the Annex to General License 3 or were issued prior to August 25, 2017 by US Person entities owned or controlled, directly or indirectly, by the Government (e.g., CITGO Holding, Inc.).

• General License 4 authorizes US Persons to engage in certain transactions related to, provide financing for, and otherwise deal in new debt related to the export or re-export from the U.S. or by US Persons of agricultural commodities, medicine, medical devices, or replacement parts and components for medical devices to Venezuela, or to persons in third countries purchasing specifically for resale to Venezuela that are specifically licensed or otherwise permitted by applicable U.S. export sanctions regulations.

Tensions at the diplomatic level between the Republic and the United States have led to the expulsion of their respective ambassadors. On January 14, 2012, President Chávez announced the closure of the Consulate of Venezuela in Miami, Florida, after the U.S. State Department expelled the Consul General in connection with alleged cyber-attacks within U.S. territory. This friction has not resulted in a commercial disruption to date. On May 7, 2013, President Maduro designated a new chargé d’affaires for the Venezuelan Embassy in Washington, D.C. as a step to normalize diplomatic relations with the United States. In June 2013, U.S. Secretary of State John Kerry and the Republic’s Foreign Minister met in an effort to improve relations. In September 2013, however, the Republic expelled three U.S. diplomats, including the U.S. Embassy’s chargé d’affaires. The U.S. State Department in turn expelled three Venezuelan diplomats in October 2014, including the chargé d’affaires of the Venezuelan Embassy in Washington, D.C. On February 28, 2015, the Republic announced that the Central Government would limit the number of U.S. diplomats working in the country in response to the additional sanctions imposed by the United States in February 2015. President Maduro recalled the chargé d’affaires from the Venezuelan embassy in Washington, D.C. in response to the extension of sanctions against the Republic in Executive Order 13692.

Relations with Europe and Other Western Countries

On November 13, 2017, the European Union Council published the conclusions of its analysis of the democratic and human rights situation in Venezuela and passed Council Regulation (EU) 2017/2063 of November 13, 2017 Concerning Restrictive Measures in View of the Situation in Venezuela, which imposed an arms embargo on Venezuela and introduced a legal framework for the EU and European countries to implement travel bans and asset freezes against certain Venezuelan individuals and entities determined to be involved in human rights violations and non-respect for democracy or the rule of law. Under the EU asset freeze, all funds and economic resources belonging to, or controlled by, the sanctioned parties and that fall under EU jurisdiction (such as assets held by EU banks) are frozen, and no funds or economic resources may be made directly or indirectly available to or for the benefit of sanctioned persons by parties falling under EU jurisdiction. To date, no persons or entities have been listed in the EU sanctions regime. On November 21, 2017, the United Kingdom enacted the Venezuela (European Union Financial Sanctions) Regulations 2017, SI 2017/1094, which implemented the EU regulation.

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On September 22, 2017, the Canadian government adopted sanctions against 40 Venezuelan officials under the Special Economic Measures Act. The Special Economic Measures (Venezuela) Regulations passed under the Act impose an asset freeze and prohibition on Canadian companies and individuals from certain dealings with sanctioned people.

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THE VENEZUELAN ECONOMY

Overview

Venezuela has been a major petroleum exporter since the early twentieth century. According to Petroleum Intelligence Weekly 2015, Venezuela is the eleventh largest oil producer in the world. From 2012 through 2015, petroleum products accounted for an average of 95.6% of Venezuela’s total exports. During the same period, the petroleum sector and royalties revenues accounted for an average of 43.4% of Venezuela’s total Central Government revenues and petroleum sector activities accounted for an average of 11.0% of GDP. Preliminary figures for the year 2016 are not available.

Venezuela’s economy is diversified, with non-petroleum activities generating an average of 78.2% of GDP between 2012 and 2015. As of December 31, 2015, non-petroleum sector activities comprised 78.6% of GDP. Preliminary figures for the most significant components of GDP derived from non-petroleum sector activities are not available for the year 2016. The Government anticipates that petroleum will continue to be the main source of export earnings and fiscal revenues for the foreseeable future. For more information or the petroleum sector, see “Principal Sectors of the Venezuelan Economy—Petroleum and Natural Gas.”

Through PDVSA, CVG and other government-owned entities, the Government controls significant proportions of GDP in the petroleum, electricity, telecommunications and mining sectors of the economy. Moreover, PDVSA’s exports account for the bulk of Venezuela’s total exports. The Government also supplies the majority of basic public services, such as water, electricity, health and education, and is an important distributor and provider of food to the population through the Missions. The private sector owns and operates businesses with respect to most other economic activities.

Economic Performance in 2016

Between 2012 and 2015, the economy declined at an average annual rate of 0.6%. For the year ended December 31, 2015, non-petroleum sector activity declined by 5.6%, reflecting the contraction experienced by the construction, financial institutions, transportation, trade and manufacturing sectors. The petroleum sector decreased by 0.9% for the same period in 2015, driven by the drop in oil prices. Preliminary figures for the year 2016 are not available.

For the year ended December 31, 2016, the rate of inflation was 274.4%, as measured by “NCPI,” compared to 180.9%, as measured by NCPI, and 159.7%, as measured by the Consumer Price Index (“CPI”), in 2015. The increase in NCPI was primarily driven by a decline in the supply of foreign currency driven by a drastic decrease in the price of oil, resulting in a decrease in imports; overvaluation of the U.S. dollar due to distortion in exchange rates from the illegal currency market, resulting in distorted pricing; and a reduction in the supply of domestic goods and services.

To combat inflation and its effects, the Government has implemented a series of actions to increase the supply of goods and services to the public including: (1) the provision of financial assistance, machinery, intermediate goods and technical support to producers to promote agricultural activity; (2) increasing the supply of foreign currency by restructuring the currency exchange system and introduction of a floating exchange rate for some operations; (3) the creation of the SUNDDE, whose objective is to determine the fair prices for goods and services in order to reduce inflation; (4) the adoption of a biometric system in the public food distribution networks and in border areas of the country; (5) the adoption of measures to curb the smuggling of food, fuel and other goods and essential supplies out of the country; (6) programs designed to promote food production and distribution and improve food access; (7) the creation of a national command to oversee and coordinate the production and distribution of food and other essential goods and (8) increased inspections of importers and exporters to combat currency arbitrage (among the three official exchange rates) and fraud.

During 2016, short-term interest rates on commercial bank loans averaged 21.5%, compared to 20.2% in 2015. In 2016, the rate of interest on time deposits averaged 15.0%.

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In 2016, Central Government revenues totaled Bs.18.5 billion and Central Government expenditures totaled Bs.15.1 billion in 1997 Constant Bolívares as compared with Bs.20.0 billion and Bs.19.0 billion respectively in 2015. As a result, the Central Government accounts recorded a surplus of Bs.3.4 billion in 1997 Constant Bolívares, or 5.3% of real GDP, for 2016.

Gross international reserves held by Banco Central (excluding amounts deposited in the Fondo de Estabilización Macroeconómica or “Stabilization Fund”) as of December 31, 2014, totaled U.S.$22.1 billion, an increase of U.S.$599 million as compared to December 31, 2013. This increase was mainly due to a smaller decrease in foreign exchange earnings relative to the decline in expenditures. As of December 31, 2015, gross international reserves held by Banco Central totaled U.S.$16.4 billion, a decrease of U.S.$5.7 billion as compared to December 31, 2014. This decrease was due to a greater decline in foreign exchange earnings relative to expenditures as a result of the drop in the price of both oil and gold, which resulted in downward valuation adjustments. As of December 31, 2016, gross international reserves held by Banco Central totaled U.S.$11.0 billion, a decrease of U.S.$5.4 billion as compared to December 31, 2015. This decrease was due to the decline in foreign currency revenues. As of November 30, 2017, gross international reserves held by Banco Central were U.S.$9.7 billion.

For the year ended December 31, 2016, the overall balance of payments recorded a deficit of U.S.$6.8 billion, the current account had a deficit of U.S.$3.9 billion, the capital and financial account had a deficit of U.S.$0.1 billion, and the errors and omissions account recorded a deficit of U.S.$2.8 billion. The deficit in the balance of payments for this period was primarily due to the decrease in the international oil price.

In order to provide balance of payments support, the Central Government implemented the floating exchange rate mechanism now known as DICOM. The official exchange rate, now known as DIPRO, was also increased from Bs.6.30 to U.S.$1.00 to Bs.10.00 to U.S.$1.00.

On February 12, 2015, the Republic’s exchange rate system was restructured to introduce SIMADI. Under this system, the three exchange rates were the CENCOEX (official) rate, the SICAD rate (combining the old SICAD I and SICAD II tiers) and the SIMADI rate. The CENCOEX rate was used for the importation of government-authorized priority goods, until it was replaced by DIPRO in March 2016. The SICAD rate is used for non-essential goods. Use of the CENCOEX rate and the SICAD rate require government authorization. SIMADI was administered by Banco Central in conjunction with the Ministry of Economy and Finance, under the rules of the Currency Exchange Agreement No. 33, which allowed both individuals and companies to buy and sell foreign currency in cash and bonds. The SIMADI rate was set by the market, pursuant to a platform supervised by Banco Central, and operated until March 2016 when it was replaced by DICOM.

In March 2016, the exchange control regime was further restructured as discussed below under “Economic Policy and Legislation—Exchange Control Regime.”

PDVSA is the single largest contributor to Venezuela’s GDP, exports and fiscal reserves, and as a result, it has a significant influence on the Venezuelan economy. PDVSA’s profit during 2016 decreased by U.S.$6.5 billion, or 89%, to U.S.$828 million from U.S.$7.3 billion in 2015. The reason for this decrease was principally due to a significant decrease in sales of crude oil, products and related products, mainly due to the decline in the average price of the Venezuelan export basket; PDVSA’s production of crude oil and liquid petroleum gas averaged 2.6 million bpd in 2016 compared to an average of 2.8 million bpd in 2015. PDVSA’s exports averaged 2.2 million bpd in 2016, which decreased from 2.4 bpd in 2014. For more information, see “Principal Sectors of the Venezuelan Economy—Petroleum and Natural Gas—Petróleos de Venezuela, S.A.” and “—Petróleos de Venezuela, S.A.—PDVSA and the Venezuelan Economy.”

Economic Plan

Introduction and Overview

In 2012, the Central Government released an outline of the Plan for the Socialist and Bolivarian Administration 2013–2019, referred to as the “Plan of the Nation,” which is a roadmap for the second stage of Venezuela’s transition to socialism. In this declaration, the Central Government set forth its commitment to continue the transition to a

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socialist economic system and as a means to achieve a system of social and productive relations founded on the principles of knowledge and effort. The Plan of the Nation is intended to achieve a new socialist model, based on the development of the productive forces of the economy. The general objectives of the Plan of the Nation contain a number of guidelines for the design and implementation of economic policy, including:

• development of the oil-production capacity of the country to align with its vast oil reserves and consolidate the role of the Republic as a world energy power;

• strengthening of the existing tax regime relating to the hydrocarbons sector to develop more effective mechanisms of capturing the income generated by oil exploitation;

• increasing food production independence and security by developing the agricultural and agroindustrial potential of the country; and

• development of scientific and technological capacities directly linked to the national productive structure.

Pursuant to his legislative powers under the enabling laws and emergency decrees, President Maduro has issued a set of decrees addressing economic matters, including the following:

• Decree No. 1,405 establishing the Integrated National Agrifood System Law (Ley del Sistema Nacional Integral Agroalimentario) (published in the Extraordinary Official Gazette No. 6,150, dated November 18, 2014), which establishes and integrates a national agrifood system that monitors the dispatch, traffic, transportation and receipt of food products and raw materials within Venezuela.

• Decree No. 1,408, amending the Law on Fisheries and Aquaculture (Ley de Pesca y Acuicultura) (published in the Extraordinary Official Gazette No. 6,150, dated November 18, 2014), which requires prior authorization from the Socialist Institute of Fishing and Aquaculture to engage in fishing, aquaculture and related activities.

• Decree No. 1,415, establishing the Antitrust Law (Ley Antimonopolio) (published in the Extraordinary Official Gazette No. 6,151, dated November 18, 2014), which promotes, protects and regulates competition in various industries.

• Decree No. 1,416, amending the Organic Customs Law of 2008 (Ley Orgánica de Aduanas) (published in the Extraordinary Official Gazette No. 6,155, dated November 19, 2014), which modernizes the regulatory framework for governing the import, export and transport of goods and the associated tariff and customs valuation policy on the recommendations of the World Customs Organization and the Mercosur agreements.

• Decree No. 1,434, amending the Organic Tax Code (Ley del Código Orgánico Tributario) (published in the Extraordinary Official Gazette No. 6,152, dated November 18, 2014), which eliminates the statute of limitations for the tax authorities to pursue claims of tax fraud and fraudulent bankruptcy for tax purposes.

• Decree No. 1,435, amending the Law on Reform of the Income Tax Law (Ley de Reforma de la Ley de Impuesto Sobre la Renta) (published in the Extraordinary Official Gazette No. 6,152, dated November 18, 2014), which excludes companies performing banking, financial, insurance and reinsurance services from the inflation adjustments set forth in the Income Tax Law (Ley de Impuesto Sobre la Renta).

• Decree No. 1,436, amending the Value Added Tax Law (Ley de Reforma que Establece el Impuesto al Valor Agregado) (published in the Extraordinary Official Gazette No. 6,152, dated November 18, 2014), which grants the National Executive the power to modify the general tax rates, outside passage of the Annual Budget Law.

• Decree No. 1,438, establishing the Foreign Investment Law (Ley de Inversiones Extranjeras) (published in the Extraordinary Official Gazette No. 6,152, dated November 18, 2014), which requires that any foreign investment must remain in Venezuela for a minimum period of five years from the date of investment.

• Decree No. 1,400, establishing the Agricultural Bank of Venezuela, C.A., Universal Bank (Ley del Banco Agrícola de Venezuela C.A. Banco Universal) (published in the Extraordinary Official Gazette No. 6,154, dated November 19, 2014). The bank is authorized to provide loans with terms of up to twenty years to agricultural producers, grant or execute direct subsidy programs and provide other incentives to the agricultural sector.

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• Decree No. 2,167, amending the Law of Exchange Regime and its Crimes (Ley del Régimen Cambiario y sus Ilicitos) (published in the Extraordinary Official Gazette No. 6,210, dated December 30, 2015), which (1) repeals the Law of the Exchange Regime and its Crimes of 2014, (2) mandates the creation of a production certificate system requiring importers to obtain production certificates to import certain supplies, (3) criminalizes the use of exchange rates other than the official exchange rates, (4) simplifies the process for obtaining foreign currency and (5) establishes an alternative currency market.

• Decree No. 2,169, establishing the Law of Taxation on Major Financial Transactions (Ley de Impuesto a las Grandes Transacciones Financieras) (published in the Extraordinary Official Gazette No. 6,210, dated December 30, 2015), which imposes a tax on certain financial transactions, such as withdrawals from call deposits and money market funds, certain transfers of checks, securities and negotiable financial instruments and certain inter-bank loan operations.

• Decree No. 2,165, establishing the Organic Law that Reserves to the State the Exploration and Exploitation of Gold and Other Strategic Minerals (Ley Orgánica que Reserva al Estado las Actividades de Exploración y Explotación del Oro y demás Minerales Estratégicos) (published in the Extraordinary Official Gazette No. 6,210, dated December 30, 2015), which aims to promote economic development and curb Venezuela’s dependence on oil through economic diversification and which vests authority for all mining operations with the Ministry of Mining.

• Decree No. 2,171, establishing the Organic Law for the Development of Petrochemical Activity (Ley Orgánica para el Desarrollo de las Actividades Petroquímicas) (published in the Extraordinary Official Gazette No. 6,210, dated December 30, 2015), which reserves to the state the right to produce basic and intermediate petrochemicals, including chemical or physical transformation of raw materials based on gaseous and liquid hydrocarbons and minerals, and grants to the Ministry of Petroleum the authority to regulate petrochemical production.

• Decree No. 2,176, establishing the Capital Markets Law (Ley de Mercado de Valores) (published in the Extraordinary Official Gazette No. 6,211, dated December 30, 2015), which redesigns the framework for regulating the securities market. Key characteristics include: (1) reinforcing the authority of the national securities regulator, the National Securities Superintendency (Superintendencia Nacional de Valores), to regulate the capital markets to promote the participation of new issuers, including small and medium-sized companies, (2) promoting the financing of productive companies through national public debt instruments by brokerage houses and firms, (3) promoting capital markets in accordance with international financial standards and protecting the financial resources of investors while minimizing risks through regulation, (4) contemplating demutualization, (5) allowing licensed broker-dealers, brokerage societies and brokerage houses to participate in the market for public bonds and to maintain them in their portfolios, (6) authorizing SUNAVAL to set the requirements that must be met by foreign corporations in order to be authorized to conduct the same activities as brokerage societies or brokerage houses, and (7) establishing procedures for the imposition of sanctions for violating the capital markets laws.

• Decree No. 2,177, establishing the Law of the National Integrated Service for the Administration of Customs Duties and Taxes (Ley del Servicio Nacional Integrado de Administración Aduanera y Tributaria) (published in the Extraordinary Official Gazette No. 6,211, dated December 30, 2015), which is intended to modernize SENIAT and prohibit speculation, counterfeiting and drug trafficking activities that impact taxation.

• Decree No. 2,178, establishing the Law on Insurance (Ley de la Actividad Aseguradora) (published in the Extraordinary Official Gazette No. 6,211, dated December 30, 2015), which grants special powers to the Superintendency of Insurance to intervene in the insurance industry, such as the ability to order the payment of insurance claims and impose fines for wrongdoing on the part of insurance companies, and places certain restrictions on insurance and reinsurance companies.

• Decree No. 2,163, amending the Income Tax Law (Reforma Parcial de la Ley de Impuesto sobre la Renta) (published in the Extraordinary Official Gazette No. 6,210, dated December 30, 2015), which (1) imposes new measures to limit tax deductions, (2) modifies inflation adjustments to promote the banking, financial and insurance sectors, (3) streamlines the tax regime applicable to cooperative associations and foundations and rebates for investment and (4) regulates the availability of revenues.

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• Decree No. 2,647 (published in the Extraordinary Official Gazette No. 6,281, dated December 30, 2016), which establishes the tariff classification list for goods subject to international trade, the applicable ad valorem rates, and the authorizations, certificates and applicable import licenses. The ad valorem rates are based on the Mercosur common external tariff.

• Decree No. 2,777, establishing the foreign currency bank account of National Public Companies shall only be opened in Banco Central and/or the Bank of the Economic and Social Development of Venezuela (Banco de Desarrollo Económico y Social de Venezuela or “BANDES”) and creating the Foreign Currency Productive Fund (Fondo Productivo de Divisas) which will be considered as foreign currency resources to guarantee the control and transparency of the execution of its transactions (published in the Official Gazette No. 41,119, dated March 22, 2017). For more information, see “Bolivarian Republic of Venezuela—Enabling Laws” and “—Emergency Decrees.”

Special Economic Zones

In 2014, the Government created Special Economic Zones (“SEZ”) with policy incentives to attract foreign and domestic investment with the aim of promoting the industrial, commercial and economic development of selected regions and reducing Venezuela’s dependence on oil exports. These zones will benefit from sovereign international agreements and exemption from VAT, among other incentives. In December 2014, President Maduro established the two SEZs in Paraguaná (located in Falcón state) to promote wind power generation and in Ureña (located on the western border of Táchira state) to promote textile and shoe production. In 2015, a medical equipment company was founded within the SEZ in Paraguaná in order to supply the national health sector. During the fourth quarter of 2016 and the first quarter of 2017, a series of meetings were held to discuss urgent actions and economic measures to be taken on the Colombia-Venezuelan border, especially measures related to the Special Border Economic Zone Ureña-San Antonio (Zona Económica Especial Fronteriza Ureña-San Antonio or “ZEEFUSA”), in order to comply with the main objective of strengthening the national currency.

Economic Policy and Legislation

Fiscal Policies

The Government’s fiscal policies have combined a macroeconomic stabilization program with structural reforms that are intended to strengthen public finances for the future and reduce volatility in the fiscal accounts.

On September 2, 2014, as part of the National Executive’s financial policy aimed at strengthening the country’s international accounts, President Maduro announced the creation of a strategic account at Banco Central, known as the Strategic Reserve Fund, where funds including FONDEN, the Sino-Venezuelan Joint Fund and the Large Volume and Long-Term Financing Fund could be consolidated in order to strengthen the Republic’s foreign asset account.

Throughout 2015, the Central Government’s fiscal policies focused on maximizing projects through FONDEN and developing new funding schemes to reallocate resources to high-impact projects in strategic sectors such as manufacturing. In 2015, the Central Government granted a total of Bs.6.6 billion (U.S.$1.1 billion) in credit applications consisting of both long-term and short-term loans. In addition, a Presidential Commission was created in 2015 to reduce excess public spending and rationalize public administrative expenditures with a view to reallocating savings from these initiatives towards food production and efforts to combat inflation.

By December 31, 2016, FONDEN had financed 913 projects valued at U.S.$253.2 billion. 465 of those projects, valued at U.S.$130.9 billion, had already been completed, while the remaining 448 projects, valued at U.S.$122.4 billion, were still in progress. These projects have prioritized:

• expanding the electric grid;

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• strengthening the Venezuelan people’s quality of life;

• improving food chain production to reduce speculation and hoarding;

• supporting the national tourism industry;

• improving infrastructure;

• supporting housing and construction projects;

• supporting industrial development through the Patria Guayana Plan; and

• strengthening the pharmaceutical system with international acquisitions.

Financial Administration of the Public Sector

The administration of public sector finances in Venezuela is governed by the Public Sector Financial Administration Law, a law enacted in 2000 that consists of a set of systems, administrative bodies and procedures relating to the collection of public revenues and their application to implement the Central Government’s objectives. The Public Sector Financial Administration Law addresses the creation and the administration of the budget as well as the administration of public credit and the treasury, accounting systems, taxes and Government assets.

The National Treasury manages the Central Government’s finances, supervises and records the payment of expenditures authorized in the annual budget, retains custody of the funds and securities belonging to the Republic, records all Treasury revenues and evaluates opportunities for the issuance of Treasury bonds. The Public Sector Financial Administration Law provides that public monies must be maintained in a single account, known as the Single Account (Cuenta Única), in order to centralize the collection of revenues and the making of payments. The Single Account is administered by the Ministry of Economy and Finance through Banco Central and domestic and foreign commercial banks. The Public Sector Financial Administration Law permits the establishment of subaccounts under the Single Account.

The Public Sector Financial Administration Law seeks to increase the integrity of the treasury in the management of public monies. To that end, the Public Sector Financial Administration Law prohibits civil servants responsible for determining and recording the amount of revenues owed to the Central Government, such as taxes and royalties, from participating in the collection and custody of such revenues. In addition, it requires that civil servants held liable for mismanagement of public monies must indemnify the Central Government for such losses in addition to any other criminal or administrative actions that may be taken against such persons. The Public Sector Financial Administration Law created the National Office of Public Accounts as the office responsible for the establishment of public sector accounting standards. The National Office of Public Accounts is also responsible for the preparation of the General Report of the Treasury, which the Ministry of Economy and Finance must present to the National Assembly every year. In addition, the Public Sector Financial Administration Law sets forth guidelines with respect to the accounting treatment given to expenditures and revenues. Under the Public Sector Financial Administration Law, expenditures may not be accounted for until they are actually incurred, although they may have been approved in a prior year and revenues are to be recorded only after they have been collected. All accounts close on December 31 of each year.

The Public Sector Financial Administration Law requires the President to submit an annual borrowing law, referred to as a “Special Debt Law,” to the National Assembly for approval each year. The annual Special Debt Law must set forth the maximum amount of public credit that the Republic may contract and the maximum amount of net indebtedness that the Republic may incur for that fiscal year. As originally drafted, the Public Sector Financial Administration Law had provided that, after the annual borrowing law had been approved by the National Assembly, the President would have the ability to enter into public credit operations when he was able to obtain favorable financial conditions for the Republic and thereafter to periodically inform the National Assembly of such transactions. As amended, the Public Sector Financial Administration Law required the President to obtain approval from the Permanent Finance Committee of the National Assembly (La Comisión Permanente de Finanzas de la

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Asamblea Nacional) prior to undertaking each public credit operation. Additionally, each such request for approval must be accompanied by an opinion from Banco Central. Approval is granted if the National Assembly does not deny such request within ten days.

In March 2007, President Chávez amended the Public Sector Financial Administration Law by decree within the legislative power conferred by the 2007 Enabling Law. Although the first Pluriannual Framework (Marco Plurianual) legally approved by the National Assembly corresponded to the period from 2011 through 2013, the Public Sector Financial Administration Law contained transitory provisions that were applicable from 2005 through 2010. For more information about the Pluriannual Framework, see “The Budget and the Pluriannual Framework.” Beginning with the period 2011 through 2013, the Pluriannual Framework had to be approved by the National Assembly covering three-year periods in the manner contemplated by the Public Sector Financial Administration Law. Previously, during the transition period, the National Assembly submitted the Pluriannual Framework to the National Assembly for the periods of 2005 through 2007 and 2008 through 2010; however, they were for informational purposes only and were not formally approved. On July 14, 2010, the Public Sector Financial Administration Law was again amended. Pursuant to the amendment, the National Assembly was required to submit the Pluriannual Framework to the National Assembly for the period 2011 through 2013, for informational purposes, when presenting the budget for 2011 for approval. The Pluriannual Framework was presented to the National Assembly on October 14, 2010, covering a three-year period in the manner contemplated by the Public Sector Financial Administration Law. The objective of the Pluriannual Framework was to generate confidence in the economy by implementing a series of economic policies that could be sustained over time without resorting to devaluation, high inflation or adjustment programs.

In March 2012, a reform of the Public Sector Financial Administration Law became effective. The reform allows the executive branch to issue debt that exceeds the limits established by a Special Debt Law. These modifications allow additional liabilities to be incurred under unexpected or unforeseen circumstances, with such amounts to be applied against the maximum indebtedness of the following fiscal year. The modifications also allow the National Executive to directly approve operations and additional credits and to spend such resources in accordance with the law. As a result, the National Executive is no longer required to obtain the authorization of the National Assembly or the opinion of Banco Central in approving such credits.

On December 9, 2013, Article No. 178 of the Public Sector Financial Administration Law was amended to require that the National Executive submit the Pluriannual Framework comprising the years 2014 through 2016 to the National Assembly for informational purposes. Additionally, the amendment clarifies that for fiscal years 2017 through 2019, the Pluriannual Framework will be made and published according to the provisions of the Public Sector Financial Administration Law.

On November 19, 2014, the Government amended and restated the Public Sector Financial Administration Law pursuant to Decree No. 1,401 (published in the Extraordinary Official Gazette No. 6,154, dated November 19, 2014). Material provisions of the amended law include Article 90, which provides that the Government can issue debt that exceeds the limits established by the annual Special Debt Law to cover any shortfalls in the Republic’s revenues as compared to expected targets that cannot be covered with funds from the Stabilization Fund.

On December 30, 2015, President Maduro issued a decree amending the Public Sector Financial Administration Law to (1) allow the President and the Council of Ministers to modify budgetary allocations created through legislation or other administrative acts and (2) reduce the National Assembly’s control over credit operations by enabling the National Executive to execute some of the transactions contemplated by the Special Debt Laws without the need for further authorization from the National Assembly.

The Budget and the Pluriannual Framework

The Public Sector Financial Administration Law establishes two budgetary documents, the Pluriannual Framework and the Annual Budget (Presupuesto Anual).

The Pluriannual Framework, which serves as the basis for the Annual Budget and is prepared every three years, projects the expected fiscal results and establishes maximum limits on the amount of public expenditures and debt that may be authorized over a three-year period. It also contains the economic policy objectives for the three fiscal years which it covers. The last Pluriannual Framework projected expected macroeconomic results and economic policy objectives for the period from 2014 to 2016.

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The Annual Budget (Presupuesto Anual) projects revenues and expenditures for the coming fiscal year. Before the National Assembly approves the Annual Budget, the Ministry of Economy and Finance must submit to the National Assembly a draft budget and financial information related to estimated pension expenditures and other contingent liabilities. The Public Sector Financial Administration Law provides that the Minister of Finance, with the approval of the President, must submit a report to the National Assembly by July 15 of each year evaluating the execution of the Annual Budget during the previous year. If the National Assembly does not approve the Annual Budget for the forthcoming year by December 15, the then-current Annual Budget will continue to apply, with the necessary adjustments, according to the provisions of the Public Sector Financial Administration Law.

Pursuant to the Emergency Decree and the Exception and Emergency Decree, President Maduro was authorized to approve expenditures charged to the National Treasury and other sources of funding not provided for in the Annual Budget, in order to optimize the use of resources under exceptional circumstances. In 2016, these additional resources accounted for 73.0% of the Annual Budget.

In December 2015, the National Assembly approved the budget for 2016. The 2016 budget, as approved, projected total revenues of U.S.$226.1 billion, excluding borrowing, and total expenditures of U.S.$245.8 billion. The 2016 budget also contemplated a legal limit on borrowing by the Republic of U.S.$19.8 billion. The 2016 budget was based on certain assumptions, including an average price for the Venezuelan oil basket of U.S.$40.00 per barrel, an average exchange rate of Bs.6.30 = U.S.$1.00 and average annual inflation rate of 60%. Actual figures have materially differed from some of these assumptions. For example, as of the end of 2016, the average price of the Venezuelan oil basket was U.S.$35.15 and the official exchange rate was increased to Bs.10.00 = U.S.$1.00.

In December 2016, the 2016 budget ended with total revenues of U.S.$715.9 billion, excluding borrowing, and total expenditures of U.S.$623.8 billion. The 2016 budget also included a legal limit on borrowing by the Republic of U.S.$11.2 billion. By the end of 2016, the average price of the Venezuelan oil basket was U.S.$35.15 per barrel, with an average exchange rate of Bs.9.32 = U.S.$1.00.

According to the information prepared by the National Budget Office (“ONAPRE”), pursuant to the authority granted under the Emergency Decrees, President Maduro authorized the allocation of additional resources during the period from January to December 2016 in the amount of U.S.$245.7 billion to the education, social security, energy, mining and petroleum sectors.

From January to May 2017, the National Executive authorized the allocation of additional resources in the amount of U.S.$1,594.5 billion to the education, social security, energy, mining and petroleum sectors.

On October 11, 2016, the Supreme Tribunal ruled that the National Assembly lacked the authority to approve the national budget and instructed the National Executive to submit the national budget for the year 2017 to the Supreme Tribunal for approval. The Supreme Tribunal found that the National Assembly lacked the capacity to legislate, including with respect to approval of the national budget, because it was not properly constituted due to the participation of legislators from the State of Amazonas in violation of a temporary injunction barring them from the National Assembly pending the review of the election results for their seats. On October 14, 2016, President Maduro signed the 2017 annual budget with the approval of the Supreme Tribunal.

Macroeconomic Coordination

The Public Sector Financial Administration Law requires that the Minister of Economy and Finance and the President of Banco Central execute an Annual Coordination Agreement. The Annual Coordination Agreement is designed to harmonize the fiscal, monetary and financing policies of Banco Central and the Central Government in order to achieve macroeconomic stability and must specify the economic objectives of Banco Central and the Ministry of Economy and Finance and the actions to be taken in order to achieve those objectives. The Public Sector Financial Administration Law expressly prohibits the inclusion of provisions that may be interpreted as infringing upon Banco Central’s independence from the Central Government. Both the Minister of Economy and Finance and the President of Banco Central are accountable to the National Assembly with respect to performance under the Annual Coordination Agreement.

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In addition, the Council of the Productive Economy (El Consejo de la Economía Productiva), the Vice President for the Productive Economy (Vicepresidencia de Economía Productiva) and the Great Mission of Sovereign Supply work together to coordinate the policy response to the economic crisis. Their policies are designed to stabilize the economy by promoting productive activity, increasing supply, rationalizing the allocation of resources, reducing trade balances, reducing the deficit and stabilizing prices.

Stabilization Fund

Commencing with the enactment of a law in 1998 providing for the Stabilization Fund, the Government sought to provide fiscal stability to the Venezuelan economy through the savings of unanticipated revenues from petroleum sales. Since its original enactment, the law governing the Stabilization Fund has been amended several times. The operational management of the funds is carried out by the Treasury Bank (Banco del Tesoro), created by decree on August 17, 2005. These funds do not constitute part of the Republic’s international reserves or part of Treasury Bank’s assets. Following the 2005 amendment of the Banco Central Law (Ley del Banco Central de Venezuela or the “BCV Law”), which was enacted by the National Assembly on October 3, 2001 (published in the Official Gazette No. 37,296, dated December 3, 2001), which mandated that excess oil revenues be contributed to FONDEN, the law governing the Stabilization Fund was amended and the Republic is no longer required to deposit excess oil revenues in the Stabilization Fund.

The balance in the Stabilization Fund was U.S.$832 million as of December 31, 2010. In February 2011, PDVSA withdrew U.S.$829 million from the Stabilization Fund in order to build houses and refurbish shelters for people made homeless by heavy rains. As a result of the withdrawal, the balance of the Stabilization Fund was reduced to U.S.$3 million. As of December 31, 2016, the balance in the Stabilization Fund remains at U.S.$3 million.

Financing Policy

The Government’s primary financing efforts have been directed at tapping local investor funds in order to use the national savings generated by individuals and corporations. This enables the Government to minimize foreign exchange risk and reduce the cost of debt by increasing domestic debt in comparison to external debt.

The current financing policy contemplates access to the domestic and international capital markets to extend the Republic’s debt repayment profile, as well as strengthening medium and long-term benchmarks in the domestic and international capital markets.

The Central Government has taken actions focused on improving its debt repayment profile, with the goal of reducing concentration through the extension of maturities combined with strategies aimed at reducing interest rates and loan costs. In this regard, the Central Government has emphasized its strategy with debt instruments that allow it to increase the average life of the debt and maintain relatively constant levels of interest rates in order to keep debt service payments within tolerable ranges.

Moreover, the Central Government has focused on sustaining a positive correlation between the amount of debt and the country’s GDP, evaluating the sustainability and maintaining controlled levels of this ratio. The debt strategy implemented has enabled the Central Government to pay its domestic and external debt obligations, reducing its volume of outstanding labor liabilities and ensuring resources for investment projects.

Exchange Control Regime

A general work stoppage that began in December 2002 resulted in a significant decrease in the availability of foreign currency generated from the sale of oil. This decrease was coupled with an extraordinary increase in the demand for foreign currency, resulting in a significant decline in the level of the Republic’s international reserves and a substantial depreciation of the Bolívar against the U.S. dollar during the first few weeks of 2003. The substantial reduction of oil exports resulting from the work stoppage also damaged the country’s trade balance.

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These problems disrupted Venezuela’s economy and threatened to negatively affect the Republic’s ability to service its external debt. In response to those developments and in an attempt to achieve monetary stability as well as to ensure the Republic’s future ability to continue to meet its external debt obligations, the Republic suspended foreign exchange trading on January 21, 2003. On February 5, 2003, the Central Government adopted a series of exchange agreements, decrees and regulations establishing a new exchange control regime. The exchange control regime centralized the purchase and sale of foreign currencies in Banco Central. The Ministry of Economy and Finance, together with Banco Central, is in charge of setting the exchange rate with respect to the U.S. dollar and other currencies.

The Commission of Foreign Currency Administration (Comisión de Administración de Divisas or “CADIVI”) was created in February 2003 for the administration, control and establishment of the new exchange control regime. CADIVI was composed of five members who were appointed by the President.

In an effort to promote and encourage the development of the Republic’s national economy and stimulate exports, President Chávez announced on January 8, 2010, the implementation of Currency Exchange Agreement No. 14 (Convenio Cambiario No. 14) (published in the Official Gazette No. 39,342, dated January 8, 2010), which established a new exchange rate system that included two official prices for the U.S. dollar. The first exchange rate was set at Bs.2.60 = U.S.$1.00, which was the official exchange rate for essential goods, including food, health, imports of machinery and equipment, science and technology, as well as all non-petroleum public sector transactions and other special cases. The second exchange rate, which was used for all other transactions, was set at Bs.4.30 = U.S.$1.00 for sale operations, with the exception of the provisions of Article 5 of Currency Exchange Agreement No. 14, which covers, among others, transactions within the automotive sector, the telecommunications sector, the steel sector and the construction sector.

On December 30, 2010, the Central Government eliminated the dual-exchange rate regime and established a single-exchange rate. Pursuant to amended Currency Exchange Agreement No. 14 (published in the Official Gazette No. 39,584, dated December 30, 2010), the Ministry of Economy and Finance, together with Banco Central, established an exchange rate of Bs.4.30 = U.S.$1.00 for all transactions. Effective January 1, 2011, the U.S. dollar exchange rate was set at Bs.4.2893 = U.S.$1.00 for purchase operations and Bs.4.30 = U.S.$1.00 for sale operations.

In May 2010, the Central Government implemented the Exchange Crimes Law (Ley de Ilícitos Cambiarios) which was published in the Extraordinary Official Gazette No. 5,975, dated May 17, 2010. Pursuant to the law, all firms or individuals who imported or exported an amount exceeding U.S.$10,000, had to declare their transactions to CADIVI. This law excluded securities issued by the Republic and foreign currency of non-resident individuals in Venezuela for a limited period. The Central Government instituted a partial reform of the Exchange Crimes Law to prevent the local market from circumventing the CADIVI system through trading securities denominated in foreign currency. To prevent these types of trading activities, Banco Central was designated as the sole entity to manage the system. The reform extended the foreign exchange control regime to include securities that were denominated, or could be settled, in foreign currency. Prior to this reform, these types of activities were typically made through authorized exchange operators, including banks and brokerage firms.

In June 2010, Currency Exchange Agreement No. 18 (Convenio Cambiario No. 18) was enacted in an effort to curtail inflationary pressures due in part to local currency trading. The new regulation gave Banco Central control over local currency trading of all international bonds issued by the Republic, its decentralized entities or any other issuer denominated in foreign currency. In addition, the Transaction System for Foreign Currency Denominated Securities (Sistema de Transacciones con Títulos en Moneda Extranjera or “SITME”) came into operation. SITME was an electronic system which regulated the purchase and sale operations in Bolívares of foreign currency denominated securities, in which only financial institutions could participate. Under SITME, Banco Central determined which securities were to be traded and the price parameters for such trades in Venezuela and also determined the qualifications of the buyers and sellers that could participate in SITME. SITME allowed private entities and individuals to obtain U.S. dollars in exchange for Bolívares by paying Bolívares in exchange for foreign currency denominated securities issued by the Republic or entities directly or indirectly owned by the Republic that were ultimately sold in exchange for U.S. dollars. Private entities could only use SITME to purchase U.S. dollars to pay for imported goods, capital goods and services which were not eligible to be paid through CADIVI, or, if they were eligible to be paid through CADIVI, the importer could not have purchased U.S. dollars through CADIVI for 90 days prior to submitting the request to SITME. Private entities could acquire up to U.S.$50,000 per day, up to a U.S.$350,000 non-cumulative limit per month.

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Also in June 2010, the System for the Initial Placement of Bonds denominated in Foreign Currency (Sistema de Colocación Primaria de Títulos en Moneda Extranjera or “SICOTME”) came into operation. SICOTME is an electronic system which regulates the initial placement of the Republic’s securities denominated in foreign currency and sold in Bolívares, in which only financial institutions authorized by Banco Central may participate, either on their own behalf or on behalf of their clients.

Trading on the foreign exchange has decreased since the Central Government intervened in trading companies and has been stagnant since securities regulators shut down and took over management of 47 brokerage companies in 2010. The Central Government has defended its takeover of 47 private brokerage businesses during 2010, relying on the fact that those firms had arbitrarily undervalued Venezuela’s currency in a bond market that was widely used for currency trading and that the practices of the brokerage firms that were shut down contributed to capital flight. During 2011, the Central Government intervened and took over management of an additional 35 brokerage businesses.

On July 12, 2012, Currency Exchange Agreement No. 20 (Convenio Cambiario No. 20) was enacted in order to allow companies and individuals to open Venezuelan bank accounts in U.S. dollars. These accounts could only contain U.S. dollars obtained through SITME or SICOTME. This new regulation permitted public sector exporting companies to maintain in their Venezuelan bank accounts up to 5% of their monthly revenues in U.S. dollars in order to purchase public debt bonds from the international markets and sell them on SITME. The regulation allowed accounts to be fully or partially withdrawn at the then-existing official exchange rate. The withdrawals could be made in several ways, including through wire transfers, bank checks and debit cards. Each bank maintaining these accounts was required to provide a monthly report to Banco Central with detailed information on the funds that are held in U.S. dollars.

On February 9, 2013, pursuant to Currency Exchange Agreement No. 14, SITME was terminated. Also in February 2013, the Central Government created the High Body for Optimizing the Exchange System (Órgano Superior para la Optimización del Sistema Cambiario), to oversee foreign exchange policy, which was composed of three institutions: the Ministry of Economy and Finance, Banco Central and the Ministry of Petroleum and its main functions consisted of establishing priorities in the assignment of foreign currency, determining the quality and quantity of imports needed to achieve macroeconomic goals, and coordinating the inflow of foreign currency from oil and other sources until it was abolished in November 2013.

In March 2013, the Central Government created Complementary System for Foreign Currency Exchange Administration (Sistema Complementario de Administración de Divisas I or “SICAD I”) to replace SITME in the Currency Exchange Agreement No. 21 (Convenio Cambiario No. 21). SICAD I was a complementary mechanism to distribute foreign currency among economic agents, through special auctions whose terms and conditions were determined by the High Body for Optimizing the Exchange System.

CENCOEX was established in November 2013 as a decentralized entity, attached to the ministerial office of the Deputy Chairman of the Council of Revolutionary Ministers for the Economic Sector (Despacho Ministerial del Vicepresidente del Consejo de Ministros Revolucionarios para el Área Económica), under the auspices of the Ministry of Economy and Finance (Decree No. 601, published in the Extraordinary Official Gazette No. 6,116, dated November 29, 2013). CENCOEX replaced the High Authority for Foreign Exchange System Optimization. CENCOEX is managed by five directors appointed by the President of the Republic and it develops and implements policies on foreign exchange administration, exports, imports, foreign investment into the country, and investment abroad. The CENCOEX official exchange rate superseded the CADIVI system, which was wound down on December 31, 2015 (Decree No. 1,710, published in the Official Gazette No. 40,638, dated April 13, 2015). The law establishing CENCOEX also established CORPOVEX. CORPOVEX was created to oversee and rationalize imports, ensure that the Republic obtained the best quality and price of imported products and goods, achieve maximum efficiency in the country’s import/export process, and centralize the provision of non-oil exports.

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According to data provided by CENCOEX, from November 1, 2013 to December 31, 2016, CENCOEX made total currency awards of U.S.$24.0 billion, calculated at the then-current exchange rates, including allocations of U.S.$18.8 billion to priority sectors such as food, health and chemicals.

In 2014, CADIVI approved U.S.$20.3 billion in foreign currency, compared with U.S.$29.7 billion and U.S.$33.2 billion in currency approved in 2013 and 2012, respectively. During the five years prior to the introduction of the exchange control regime, Venezuela spent an average of about U.S.$1.3 billion per month on imports. In March 2014 the Central Government created the Complementary System for Foreign Currency Exchange Administration II (Sistema Complementario de Administración de Divisas II or “SICAD II”), pursuant to Currency Exchange Agreement No. 27 (Convenio Cambiario No. 27), published in the Official Gazette No. 40,368, dated March 10, 2014, as a new system for currency exchange to operate in parallel with SICAD I. Together, SICAD I and SICAD II determined exchange rates and allocated foreign currency for imports, supplementing CADIVI’s allocation of foreign currency. The new SICAD II system created a new legal variable exchange rate, which, unlike SICAD I, operated via auctions that were held on a daily basis by Banco Central and were open to the general public in Venezuela for the exchange of U.S. dollars and Bolívares. Also in contrast to SICAD I, the proceeds from SICAD II transactions were not restricted to a specific list of uses; however, SICAD II was not available for use by PDVSA directly. The SICAD II exchange rate could not be lower than the exchange rate established in Currency Exchange Agreement No. 14, dated February 8, 2013, which was published in the Official Gazette No. 40,108, dated February 8, 2013 (Bs.6.30 = U.S.$1.00 for the sale of foreign currency and Bs.6.2842 = U.S.$1.00 for the purchase of foreign currency).

On April 3, 2014, the Ministry of Economy and Finance and Banco Central enacted Currency Exchange Agreement No. 28 (Convenio Cambiario No. 28), published in the Official Gazette No. 40,387, dated April 4, 2014. Pursuant to this Currency Exchange Agreement, foreign currency originating from activities and transactions other than from sales and/or exports of hydrocarbons by PDVSA, its affiliates and joint ventures created under the Hydrocarbons Law (Ley Orgánica de Hidrocarburos), published in the Extraordinary Official Gazette No. 37,323, dated November 13, 2001, could only be sold at an exchange rate based on the most recent foreign currency auction granted through SICAD II, as published by Banco Central, less 0.25%. Pursuant to Currency Exchange Agreement No. 14, the sale of foreign currency originating from oil exports by PDVSA, its affiliates and joint ventures were made at the exchange rate of Bs.6.2842 = U.S.$1.00 and, foreign currency originating from activities carried out by service companies that are part of the Petroleum Industrial National Conglomerate (Conglomerado Nacional Industrial Petrolero), a group of organizations and individuals that provide services to the oil industry in Venezuela, could only be sold at an exchange rate equivalent to the most recent foreign currency auction granted through SICAD II, as published by Banco Central.

On February 12, 2015, the Central Government combined SICAD I and SICAD II and renamed the combined exchange rate systems SICAD. On June, 2015, SICAD held its first sale of 2015 and auctioned U.S.$350 million directed towards auto parts companies, vehicle assembly equipment, machinery for construction and maintenance supplies for public roads at an exchange rate of Bs.12.80 = U.S.$1.00. On August 31, 2015, SICAD auctioned U.S.$150 million directed towards machinery, spare parts and supplies to increase domestic agricultural production at an exchange rate of Bs.13.50 = U.S.$1.00.

On February 10, 2015, the Ministry of Economy and Finance and Banco Central enacted Currency Exchange Agreement No. 33 (Convenio Cambiario No. 33), published in the Extraordinary Official Gazette No. 6,171, dated February 10, 2015, which largely repealed Currency Exchange Agreement No. 28 and revamped the exchange rate mechanism through the introduction of SIMADI, intended to liberalize the exchange controls by establishing a market rate system of exchange the use of which does not require government authorization.

On April 9, 2015, the Central Government imposed restrictions on the ability of Venezuelan residents to acquire foreign currency for the payment of goods and services outside the country. Under Ruling No. 011 dated April 9, 2015, as published in the Official Gazette 40,636, dated April 9, 2015, Venezuelans can purchase a maximum of U.S.$3,000 per year or its equivalent in another currency through the DICOM exchange rate (prior to the enactment of Currency Exchange Agreement No. 35, the SICAD rate applied) and withdraw a maximum of U.S.$200 from ATMs outside Venezuela in any single trip. Amounts charged to credit cards for foreign transactions are deducted from the aforementioned limits. Any requests for foreign currency above the prescribed limits must be made through Banco Central. Ruling No. 011 also forbids making a foreign currency request above the established limits.

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On May 28, 2015, pursuant to Resolution No. 038, published in the Official Gazette No. 40,670, the Central Government granted CENCOEX the exclusive authority to enforce the Republic’s exchange rate mechanism and the power to apply punitive measures against those who violate the exchange controls. CENCOEX is required to submit reports to the Ministry of Economy and Finance on all procedures and actions taken.

On December 30, 2015, President Maduro issued a decree amending the Law of the Exchange Regime and its Crimes to combat currency arbitrage and fraud, which requires that importers obtain a production certificate in connection with the importation of certain supplies and provides for criminal penalties for the use of foreign currency in contravention of the established exchange control regime. For more information, see “—Law of the Exchange Regime and Its Crimes.”

On March 9, 2016, the Ministry of Economy and Finance and Banco Central enacted Currency Exchange Agreement No. 35, which replaced the existing CENCOEX rate with the DIPRO rate and the SIMADI rate with the DICOM rate. For more information, see “—Currency Exchange Agreements.” As of December 31, 2016, the DIPRO rate was Bs.10.00 = U.S.$1.00, DICOM rate was Bs.673.76 = U.S.$1.00 and the SICAD rate was Bs.13.50 = U.S.$1.00.

The current exchange control regime consists of three exchange rates: (1) the official DIPRO rate used for the payment of public debt, priority imports, pension payments to Venezuelans living abroad, sale operations generated by exports and the sale of hydrocarbons and payments in certain priority sectors such as health, sports, culture and scientific research; (2) the SICAD rate, used for certain special currency auctions; and (3) the DICOM rate, which is set by the market, pursuant to a platform supervised by Banco Central, and which is used for all other transactions, including sale operations to embassies and consular offices, sale operations generated by exports and the sale of hydrocarbons, sale operations to essential industries and other entities in the non-petroleum sector and sale operations for foreign travel.

Private sector individuals or entities acquiring foreign currency must be registered and authorized by the Central Government to use the DIPRO rate or the SICAD rate; however, the DICOM rate requires no such governmental authorization. As of September 15, 2016, the DIPRO rate was Bs.10.00 = U.S.$1.00, the SICAD rate was Bs.13.50 = U.S.$1.00 and the DICOM rate was Bs.652.66 = U.S.$1.00. All foreign currency that enters the country must be registered through banks and financial institutions authorized by CENCOEX for the administration, control and establishment of the exchange control regime. CENCOEX is only responsible for approving private sector imports. Public and oil imports are not handled by CENCOEX.

All foreign currency income generated through public or private sector operations must be sold to Banco Central at the exchange rate established at the current exchange control regime. However, there are six exceptions: First, pursuant to Currency Exchange Agreement No. 9 (Convenio Cambiario No. 9), PDVSA can retain foreign currency (which it is otherwise required to sell to Banco Central, to cover operational expenditures and tax payments denominated in local currency) in order to fulfill its operational and capital expenses abroad, with the authorization of Banco Central. Second, under Currency Exchange Agreement No. 35, PDVSA, its affiliates and certain public-private companies (which are identified in the Hydrocarbons Law), the Organic Law on Hydrocarbon Gases (Ley Orgánica de Hidrocarburos Gaseosos) and the Organic Law for the Development of Petrochemical Activities, may sell foreign currency generated from export activities and the sale of hydrocarbons to Banco Central at any of the existing exchange rates discounted by 0.25%. Third, pursuant to Currency Exchange Agreement No. 34 (Convenio Cambiario No. 34) (published in the Official Gazette No. 40,985, dated September 9, 2016, amended on January 26, 2017, as published in the Official Gazette No. 41,102, dated February 23, 2017), individuals and private companies participating in the export of goods and services may retain and manage up to 80% of their foreign currency denominated income received from exporting activities. Fourth, pursuant to Currency Exchange Agreement No. 9, joint ventures that have production agreements with PDVSA may maintain foreign currency denominated reserves with no pre-set limits but which vary depending on the amount of the joint venture’s obligations with PDVSA. Fifth, pursuant to Currency Exchange Agreement No. 11, public sector entities may retain foreign currency with the permission of Banco Central. Finally, pursuant to Currency Exchange Agreement No. 35, essential industries and for-profit public entities in sectors other than the petroleum sector may sell currency to Banco Central obtained from their productive activity, at the floating complementary market exchange rate, DICOM, reduced by 0.25%, in accordance with those specific authorizations issued by the Vice President for Economic Affairs, the Ministry of Economy and Finance and Banco Central.

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Unless otherwise expressly authorized, the obligation of the public sector to sell foreign currency to Banco Central includes any foreign currency: (1) introduced into Venezuela through BANDES, the Social Protection Fund of Banking Deposits (Fondo de Protección Social de los Depósitos Bancarios or “FOGADE”), and other public financial institutions; (2) obtained by the Republic through public credit operations or otherwise; or (3) obtained by other public sector entities by any other means. In turn, the private sector must sell to Banco Central any foreign currency that is generated from the export of goods and services; introduced into Venezuela for investment purposes; generated by companies incorporated to develop the activities regulated by the Hydrocarbons Law; or generated from transportation services, travel and tourism operations, bank transfers, investment, lease agreements and other commercial, industrial, professional or personal services or activities.

The exchange control regime requires Banco Central to approve the Republic’s foreign currency budget with respect to purchases of foreign currency. This budget is subject to adjustment in accordance with the level of international reserves and the flow of foreign currency. Banco Central only sells foreign currency if it determines that there are sufficient international reserves.

Pursuant to Articles 4 and 5 of Currency Exchange Agreement No. 11 (Convenio Cambiario No. 11) published in the Official Gazette No. 40,565, dated December 18, 2014, public bodies and public sector entities have to request foreign currency directly from Banco Central for the following: (1) payments of external public debt; (2) transfers required for the Republic’s foreign service representatives abroad or delegations of the executive, legislative, judicial, civic or electoral branches participating in special missions abroad; (3) international commitments of the Republic; (4) payments related to national security; (5) foreign travel expenses of public officials; and (6) the currency required by the Republic for the administration and management of the National Treasury through accounts held at Banco Central. Pursuant to Articles 2 and 3 of Currency Exchange Agreement No. 11, Banco Central will settle the following foreign currency denominated obligations with authorization from CENCOEX: (a) payments for urgent health and food provisions; (b) foreign currency expenditures related to the productive activity of the body or organ of the public sector, and/or which the National Executive determines are important; (c) the provision of foreign currency to BANDES and Banco de Comercio Exterior; and (d) payments resulting from imports occurring prior to February 5, 2003. The acquisition of currency required by public entities in accordance with Currency Exchange Agreement No. 11 is calculated at the sale exchange rate provided for in Article 1 of the Currency Exchange Agreement No. 35. The exchange control regime contains provisions that are specific to PDVSA, effectively allowing PDVSA and its affiliates to maintain offshore accounts up to a specified U.S. dollar amount approved by Banco Central.

Private sector individuals or entities have to obtain approval from CENCOEX for the following purposes: (1) the purchase of foreign currency for transfers of money abroad, payments of certain imported goods and services and payments of interest or principal on external indebtedness; (2) the purchase of foreign currency for the payment of dividends, capital gains and interest that are the product of foreign investment in Venezuela, as well as for payments of service contracts, technology contracts or royalties; (3) the acquisition of foreign currency for payments under American Depositary Shares, American Depositary Receipts, Global Depositary Shares and Global Depositary Receipts programs implemented prior to February 5, 2003; and (4) in the case of individuals, to utilize the allocations for traveling outside of Venezuela.

As of May 19, 2017, Currency Exchange Agreement No. 38 (Convenio Cambiario No. 38) entered into force, which establishes the scheme of operation for the auction system with the exchange rate DICOM. The new auction regime corresponds to a managed flotation system between monitored mobile bands, where the value paid by each applicant for foreign exchange will be equivalent to the proposal that has been made to acquire them, regardless of the resulting exchange rate. Currency auctions will consist of an ordinary auction and a contingency auction.

Law of the Exchange Regime and its Crimes

On February 19, 2014, the Law of the Exchange Regime and its Crimes was enacted and published in the Extraordinary Official Gazette No. 6,126, dated February 19, 2014. This law abrogated the former Law against Exchange Crimes (Ley Contra Los Ilicitos Cambiarios). Pursuant to the new law, any individual, Banco Central or PDVSA may sell foreign currency or securities denominated in foreign currency to any person in Venezuela through the systems established by the Currency Exchange Agreements set forth below and pursuant to the regulations of Banco Central. Additionally, any state-owned entity (other than PDVSA or Banco Central) must obtain prior approval from the Ministry of Economy and Finance in order to sell foreign currency.

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The 2014 Law of the Exchange Regime and its Crimes required that transactions in foreign currency or securities denominated in foreign currency must be consummated through authorized brokers, such as universal and microfinance banks, as well as through stock brokers duly authorized by the Venezuelan Securities Superintendency pursuant to the Venezuelan Securities Law. In addition, it relaxed certain exchange controls.

The 2014 Law of the Exchange Regime and its Crimes was further reformed on November 18, 2014. These amendments provided that (i) any person who uses foreign currency acquired for a purpose not in line with the Republic’s exchange rate mechanism may be punished by imprisonment for between two to six years and a fine of 0.5 taxable units per U.S. dollar or equivalent foreign currency; (ii) the falsification or forgery of financial statements may be punished by imprisonment for between one to three years and a fine of 0.5 taxable units per U.S. dollar or equivalent foreign currency; (iii) those who directly or indirectly promote or encourage the commission of illegal acts may be punished by imprisonment for between two to six years and a fine of 0.5 taxable units per U.S. dollar or equivalent currency. As of January 2017, one taxable unit equaled Bs.300 or U.S.$30 (published in the Extraordinary Official Gazette No. 6,287, dated January 24, 2017).

On December 30, 2015, the National Executive passed a new Law of the Exchange Regime and its Crimes (published in the Extraordinary Official Gazette No. 6,210, dated December 30, 2015), which (1) repealed the 2014 Law of the Exchange Regime and its Crimes; (2) mandated the creation of a production certificate system requiring importers to obtain production certificates to import certain supplies; (3) criminalized the use of exchange rates other than the official exchange rates; (4) simplified the process for obtaining foreign currency and (5) established an alternative currency market.

Currency Exchange Agreements

In March 2013, the Central Government created SICAD I to replace SITME in the Currency Exchange Agreement No. 21. SICAD I was a complementary mechanism to distribute foreign currency among economic agents, through special auctions whose terms and conditions were determined by the High Body for Optimizing the Exchange System.

On March 10, 2014, the Ministry of Economy and Finance and Banco Central enacted Currency Exchange Agreement No. 27 published in the Official Gazette No. 40,368 (Convenio Cambiario No. 27), effective as of March 10, 2014, which established SICAD II. SICAD II created a new legal variable exchange rate, and unlike SICAD I, SICAD II operated via auctions that were held on a daily basis by Banco Central and were open to the general public in Venezuela for the exchange of U.S. dollars and Bolívares. Unlike SICAD I, the proceeds from SICAD II transactions were not restricted to a specific list of uses, however SICAD II was not available for use by PDVSA directly. The SICAD II exchange rate could not be lower than the exchange rate established in Currency Exchange Agreement No. 14 (Bs.6.30 = U.S.$1.00 for the sale of foreign currency, and Bs.6.2842 = U.S.$1.00 for the purchase of foreign currency). Banco Central published a reference exchange rate for SICAD II operations on a daily basis on its official website.

On April 3, 2014, the Ministry of Economy and Finance and Banco Central enacted Currency Exchange Agreement No. 28 published in the Official Gazette No. 40,387, effective as of April 4, 2014. Pursuant to this Currency Exchange Agreement, foreign currency originating from activities and transactions other than from sales and/or exports of hydrocarbons by PDVSA, its affiliates and joint ventures created under the Hydrocarbons Law, could only be sold at an exchange rate based on the most recent foreign currency auction granted through SICAD II, as published by Banco Central, less 0.25%. Pursuant to Currency Exchange Agreement No. 14, the sale of foreign currency originating from oil exports by PDVSA, its affiliates and joint ventures were made at the exchange rate of Bs.6.2842 = U.S.$1.00 and, foreign currency originating from activities carried out by service companies that are part of the Petroleum Industrial National Conglomerate, a group of organizations and individuals that provide services to the oil industry in Venezuela, may only be sold at an exchange rate equivalent to the most recent foreign currency auction granted through SICAD II, as published by Banco Central. On February 10, 2015, the Ministry of Economy and Finance and Banco Central enacted Currency Exchange Agreement No. 33 (published in the Extraordinary Official Gazette No. 6,171, dated February 10, 2015), which largely repealed Currency Exchange Agreement No. 28 and revamped the exchange rate mechanism through the introduction of SIMADI. For more information, see “Exchange Control Regime.”

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On December 30, 2014, the Ministry of Economy and Finance and Banco Central enacted Currency Exchange Agreement No. 32 (Convenio Cambiario No. 32), published in the Extraordinary Official Gazette No. 6,167, which provided that the settlement of foreign currency sales transactions made by PDVSA to the Banco Central from financing, financial instruments and the collection of debts, export and/or hydrocarbons sales activities or transactions conducted within the framework of energy cooperation agreements could be made at any of the official exchange rates agreed to under the exchange agreements in effect.

On February 10, 2015, the Ministry of Economy and Finance and Banco Central enacted Currency Exchange Agreement No. 33, published in the Extraordinary Official Gazette No. 6,171, which largely repealed Currency Exchange Agreement No. 28 and revamped the exchange rate mechanism through the introduction of SIMADI, intended to liberalize the exchange controls by establishing a market rate system of exchange the use of which does not require government authorization.

On September 9, 2016, the Ministry of Economy and Finance and Banco Central enacted Currency Exchange Agreement No. 34, published in the Official Gazette No. 40,985, which allowed individuals and private entities participating in the export of goods and services to retain and manage up to 60% of the income obtained in foreign currency in order to cover expenses derived from their export activities and to use said currency freely, for the purpose of covering expenses, making payments or any other outlay needed to carry out export activities.

On March 9, 2016, the Ministry of Economy and Finance and Banco Central enacted Currency Exchange Agreement No. 35, published in the Official Gazette No. 40,865, which is effective as of March 10, 2016. Currency Exchange Agreement No. 35 modified the exchange control regime by replacing the CENCOEX rate with a protected exchange rate, DIPRO, used for the payment of public debt, priority imports, pension payments to Venezuelans living abroad, and payments in certain priority government sectors such as health, sports, culture and scientific research and was initially set at Bs.10.00 = U.S.$1.00. Currency Exchange Agreement No. 35 also replaced the SIMADI rate with a complementary floating market rate, DICOM. The new DICOM rate is intended to promote national production and non-oil exports and was initially set at a rate of Bs.206.92 = U.S.$1.00. Under Currency Exchange Agreement No. 35, foreign currency sale transactions generated through the export and sale of hydrocarbons by PDVSA and certain joint ventures in the petroleum sector can be effected at any lawful exchange rate discounted by 0.25%.

On April 7, 2016, Currency Exchange Agreement No. 36 (Convenio Cambiario No. 36) was enacted to establish rules for foreign-currency denominated transactions conducted by inbound tourism operators and payment of duty-free products for sale to passengers. Under this currency exchange agreement, certain inbound tourism operators are allowed to collect foreign currency and resell at least 60% of such foreign currency to Banco Central at the floating complementary market exchange rate, DICOM, reduced by 0.25%. The operators are permitted to retain up to 40% of the amounts they collect.

On May 27, 2016, Currency Exchange Agreement No. 37 (Convenio Cambiario No. 37) was enacted to establish the regime applicable to currencies received or administered by private individuals, national or foreign, who have obtained a license to carry out the activities referred to in Chapter V of the Organic Law of Gaseous Hydrocarbons.

On January 26, 2017, the Ministry of Economy and Finance and Banco Central amended article 1 of Currency Exchange Agreement No. 34 (published in the Official Gazette No. 41,102, dated February 23, 2017), which allows individuals and private entities participating in the export of goods and services to retain and manage up to 80% of the income obtained in foreign currency in order to cover expenses derived from their export activities. Such persons are allowed to use such currency freely for the purpose of covering expenses, making payments or any other outlay necessary to carry out export activities. The remainder of such income obtained in foreign currency must be sold to Banco Central at the DICOM exchange rate less 0.25%.

On May 19, 2017, Currency Exchange Agreement No. 38 (Convenio Cambiario No. 38) was enacted to establish the scheme of operation of the auction system with the exchange rate DICOM. Foreign currency auctions carried out through DICOM will be designed and monitored by a committee attached to Banco Central, which will be responsible for the administration, regulation and direction of the entire process from the call, to the exchange rate generation, to the authorization of foreign exchange.

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The following table sets out the average Bolívar/U.S. dollar official exchange rates for the periods indicated:

	Exchange
Year and Quarter	(Bolívar / United States dollar)
2012
First Quarter	Bs.4.30
Second Quarter	4.30
Third Quarter	4.30
Fourth Quarter	4.30
2013
First Quarter(1)	Bs.4.30 / Bs.6.30
Second Quarter	6.30
Third Quarter	6.30
Fourth Quarter	6.30
2014
First Quarter	Bs.6.30
Second Quarter	6.30
Third Quarter	6.30
Fourth Quarter	6.30
2015
First Quarter	Bs.6.30
Second Quarter	6.30
Third Quarter	6.30
Fourth Quarter	6.30
2016
First Quarter(1)(2)	Bs.6.30 / Bs.10.00 / 211.61
Second Quarter	10.00 / 456.19
Third Quarter	10.00 / 646.26
Fourth Quarter	10.00 / 663.98
2017
First Quarter	Bs.10.00 / 693.59
Second Quarter(3)(4)	10.00 / 1,331.95
Third Quarter	10.00 / 3,044.26

(1) Pursuant to Currency Exchange Agreement No. 14, the U.S. dollar exchange rate was set at Bs.6.2842 = U.S.$1.00 for purchase operations and Bs.6.30 = U.S.$1.00 for sale operations and for payments of public external debt.

(2) Pursuant to Currency Exchange Agreement No. 35, the U.S. dollar exchange rate was set at Bs.9.975 = U.S.$1.00 for purchase operations and Bs.10.00 = U.S.$1.00 for sale operations and for payments of public external debt, effective as of March 10, 2016.

(3) On May 19, 2017, Currency Exchange Agreement No. 38 (Convenio Cambiarui No. 38) was enacted to establish the scheme of operation of the auction system with the exchange rate DICOM.

(4) Average exchange rate between SIMADI and DICOM.

Source: Banco Central.

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Gross Domestic Product

Between 2012 and 2015, the economy declined at an average annual rate of 0.7%.

In 2012, GDP totaled Bs.61.4 billion in 1997 Constant Bolívares, representing growth of 5.6% as compared to 2011. GDP growth in 2012 was primarily due to an increase of 5.8% in the non-petroleum sector. The petroleum sector increased by 1.4% in 2012 as compared to 2011. The growth of the economy in 2012 was positively influenced by an increase in government investment in construction, a larger supply of foreign exchange, and a substantial expansion of the flow of credit towards productive activities.

In 2013, GDP totaled Bs.62.2 billion in 1997 Constant Bolívares, representing growth of 1.3% as compared to 2012. GDP growth in 2013 was primarily due to an increase of 1.8% in the non-petroleum sector, in particular with regard to financial institutions, commerce, communications, and enterprise storage services. The petroleum sector increased by 0.9% in 2013.

In 2014, GDP totaled Bs.59.8 billion in 1997 Constant Bolívares, a decrease of 3.9%, as compared to 2013. The petroleum sector decreased by 4.2% in 2014, driven by the rise in extraction of oil and natural gas, which was partially offset by a decline in refining. The petroleum sector accounted for 10.8% of GDP and accounted for the same percentage of GDP as the petroleum sector in 2013. In 2014, non-oil activity declined by 3.1%, reflecting the contraction experienced by manufacturing, trade and construction.

In 2015, GDP totaled Bs.56.1 billion in 1997 Constant Bolívares, a decrease of 6.2%, as compared to 2014, due to decreases in both the petroleum and non-petroleum sectors. The decrease in the non-petroleum sector was due to contraction experienced by manufacturing, trade, construction and financial institutions. The petroleum sector accounted for 11.4% of GDP and increased its proportion of total GDP by 0.6% in 2015, notwithstanding the contraction observed in both the refinery industry and the production of crude oil and natural gas.

The following tables set forth the Republic’s GDP in 1997 Constant Bolívares for each of the periods indicated:

	As of or For the Year Ended, Millions of Bolívares December 31,
	2012				2013				2014				2015				2016(1)
	Value Bs.		Share %		Value Bs.		Share %		Value Bs.		Share %		Value Bs.		Share %		Value Bs.			Share %
Aggregate Global Demand(2)		92,057.2		100.0		89,913.0		100.0		82,359.9		100.0		73,429.4		100.0		55,519.4			100.0
Aggregate Internal Demand		83,735.8		91.0		82,105.0		91.3		74,915.5		91.0		66,049.3		89.9		49,004.9			88.3
Gross Capital Formation(3)		21,783.0		23.7		19,815.2		22.0		16,463.8		20.0		13,107.4		17.9		8,069.9			14.5
Consumption		54,656.6		59.4		57,082.4		63.5		55,629.2		67.5		51,339.4		69.9		41,793.8			75.3
Public		11,266.7		12.2		11,643.3		12.9		11,717.9		14.2		11,338.0		15.4		9,675.4			17.4
Private		43,389.9		47.1		45,439.1		50.5		43,911.4		53.3		40,001.5		54.5		32,118.4			57.9
Inventories		7,296.2		7.9		5,207.3		5.8		2,822.5		3.4		1,602.5		2.2		(858.9	)		(1.5	)
External Demand		8,321.4		9.0		7,808.0		8.7		7,444.3		9.0		7,380.1		10.1		6,514.5			11.7
Gross Domestic Product		61,409.1		100.0		62,233.9		100.0		59,810.3		100.0		56,089.2		100.0		46,859.9			100.0
Petroleum activities		6,682.7		10.9		6,741.5		10.8		6,456.7		10.8		6,397.2		11.4		5,765.1			12.3
Non-petroleum activities		47,648.4		77.6		48,515.2		78.0		46,997.5		78.6		44,084.3		78.6		36,981.6			78.9
Mining		261.2		0.4		206.1		0.3		191.6		0.3		179.8		0.3		119.2			0.3
Manufacturing		8,555.5		13.9		8,530.1		13.7		7,913.8		13.2		7,273.9		13.0		5,303.7			11.3
Electricity and water		1,372.6		2.2		1,417.7		2.3		1,403.1		2.3		1,359.2		2.4		1,271.2			2.7
Construction		4,907.1		8.0		4,793.2		7.7		4,456.2		7.5		3,456.5		6.2		2,365.2			5.0
Trade		6,096.1		9.9		6,301.6		10.1		5,614.6		9.4		4,904.6		8.7		3,393.4			7.2
Transportation		2,187.8		3.6		2,115.3		3.4		1,962.3		3.3		1,778.8		3.2		1,366.8			2.9
Communications		4,086.5		6.7		4,350.8		7.0		4,548.0		7.6		4,674.9		8.3		4,621.3			9.9

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	As of or For the Year Ended, Millions of Bolívares December 31,
	2012					2013					2014					2015					2016(1)
	Value Bs.		Share %			Value Bs.		Share %			Value Bs.		Share %			Value Bs.		Share %			Value Bs.		Share %
Financial institutions		3,392.8		5.5			4,127.3		6.6			4,653.4		7.8			4,284.5		7.6			2,796.7		6.0
Professional, real estate, rental services		5,917.7		9.6			6,062.9		9.7			5,965.7		10.0			5,761.1		10.3			5,047.2		10.8
Community, social, personal services		3,684.3		6.0			3,852.6		6.2			3,868.3		6.5			3,650.1		6.5			3,086.4		6.6
General government		7,543.4		12.3			7,777.8		12.5			7,895.0		13.2			7,975.8		14.2			7,733.7		16.5
Other(4)		3,517.3		5.7			3,533.4		5.7			3,365.9		5.6			2,864.4		5.1			2,137.7		4.6
Minus: Sifmi(5)		3,873.9		(6.3	)		4,553.6		(7.3	)		4,840.3		(8.1	)		4,079.4		(7.3	)		2,261.0		(4.8	)
Net indirect taxes		7,078.0		11.5			6,977.2		11.2			6,356.1		10.6			5,607.7		10.0			4,113.2		8.8

(1) Preliminary figures for the nine-month period ended September 30, 2016.

(2) Based on 1997 Constant Bolívares.

(3) Includes: acquisitions less disposal of valuables.

(4) Includes: agriculture, hotels and restaurants, and diverse public activities.

(5) Financial intermediation services measured indirectly.

Source: Banco Central.

	2012			2013			2014			2015(1)			2016
	% change from previous year
Aggregate Global Demand		11.2			(2.3	)		(8.4	)		(10.8	)		(24.4	)
Aggregate Internal Demand		12.3			(1.9	)		(8.8	)		(11.8	)		(25.8	)
Gross Capital Formation		23.3			(9.0	)		(16.9	)		(20.4	)		(38.4	)
Consumption		6.9			4.4			(2.5	)		(7.7	)		(18.6	)
Public		6.3			3.3			0.6			(3.2	)		(14.7	)
Private		7.0			4.7			(3.4	)		(8.9	)		(19.7	)
Inventories		26.4			(28.6	)		(45.8	)		(43.2	)		(153.6	)
External Demand		1.6			(6.2	)		(4.7	)		(0.9	)		(11.7	)
Gross Domestic Product		5.6			1.3			(3.9	)		(6.2	)		(16.5	)
Petroleum activities		1.4			0.9			(4.2	)		(0.9	)		(9.9	)
Non-petroleum activities		5.8			1.8			(3.1	)		(6.2	)		(16.1	)
Mining		(6.2	)		(21.1	)		(7.0	)		(6.2	)		(33.7	)
Manufacturing		1.8			(0.3	)		(7.2	)		(8.1	)		(27.1	)
Electricity and water		3.8			3.3			(1.0	)		(3.1	)		(6.5	)
Construction		16.6			(2.3	)		(7.0	)		(22.4	)		(31.6	)
Trade		9.1			3.4			(10.9	)		(12.6	)		(30.8	)
Transportation		6.6			(3.3	)		(7.2	)		(9.4	)		(23.2	)
Communications		7.0			6.5			4.5			2.8			(1.1	)
Financial institutions		33.5			21.6			12.7			(7.9	)		(34.7	)
Professional, real estate, rental services		4.2			2.5			(1.6	)		(3.4	)		(12.4	)
Community, social, personal services		7.4			4.6			0.4			(5.6	)		(15.4	)
General government		5.2			3.1			1.5			1.0			(3.0	)
Other(2)		3.1			0.5			(4.7	)		(14.9	)		(25.4	)
Minus: Sifmi(3)		35.9			17.5			6.3			(15.7	)		(44.6	)
Net indirect taxes		9.1			(1.4	)		(8.9	)		(11.8	)		(26.7	)

(1) Certain figures as of and for the year ended December 31, 2015 have been updated from those published in Venezuela’s previous Annual Reports in order to reflect more current information.

(2) Includes: agriculture, hotels and restaurants, and diverse public activities.

(3) Financial intermediation services measured indirectly.

n.a. = Not available.

Source: Banco Central.

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Inflation

In April 2008, INE, in affiliation with the Ministry of Economy and Finance and Banco Central, issued Resolution No. 08-04-01 regulating the NCPI effective as of January 1, 2008. NCPI covers the same items as the CPI, but with a national geographic scope. The previous system only covered the Caracas and Maracaibo metropolitan areas. Inflation figures from January 1, 2008, have been calculated using NCPI. Figures prior to January 1, 2008 will not be re-calculated. NCPI has December 2007 as its base period.

Venezuela has historically experienced high and volatile inflation rates. For the year ended December 31, 2012, the rate of inflation was 20.1%, as measured by NCPI, and 19.5%, as measured by the CPI. For the year ended December 31, 2013, the rate of inflation was 56.2%, as measured by NCPI, and 52.7%, as measured by the CPI. For the year ended December 31, 2014, the rate of inflation was 68.5%, as measured by NCPI and 64.7%, as measured by the CPI. For the year ended December 31, 2015, the rate of inflation was 180.9%, as measured by NCPI and 159.7%, as measured by the CPI. For the year ended December 31, 2016, the rate of inflation was 274.4%, as measured by NCPI. The increase in the NCPI in 2016 was primarily driven by a reduction in the domestic and foreign supply of goods and services, a significant decline in the price of oil, which drove a foreign currency shortage, and a significant depreciation in the non-official exchange rate.

The Central Government has implemented programs and policies aimed at combatting inflation and its effects, such as programs designed to promote food production and distribution and improve food access and the creation of a national command to oversee and coordinate the production and distribution of food and other essential goods. For more information on these programs, see “Recent Social and Political Developments.” In addition, the Central Government has reformed the exchange control regime, most recently through Currency Exchange Agreement No. 38 (discussed further under “The Venezuelan Economy—Exchange Control Regime—Currency Exchange Agreements.”

To combat inflation and its effects, the Government has implemented a series of actions to increase the supply of goods and services to the public, including: (1) providing financial assistance, machinery, intermediate goods and technical support to producers to promote agricultural activity; (2) increasing the supply of foreign currency by restructuring the currency exchange system and the introduction of a floating exchange rate for some operations; (3) creating the SUNDDE, whose objective is to determine the fair prices for goods and services in order to reduce inflation; (4) adopting a biometric system in the public food distribution networks and in border areas of the country; (5) adopting measures to curb the smuggling of food, fuel and other essential goods and supplies out of the country; (6) introducing programs designed to promote food production and distribution and improve food access; (7) the creation of a national command to oversee and coordinate the production and distribution of food and other essential goods; and (8) implementing increased inspections of importers and exporters to combat currency arbitrage (among the three official exchange rates) and fraud.

The Law on Fair Cost and Prices became effective as of November 22, 2011, and was implemented in order to address the high inflation rate, guarantee access to goods and stabilize prices. The law provided a mechanism for setting maximum retail prices of goods across various economic sectors and included the creation of a special committee called SUNDECOP, which monitored and regulated the cost structures of the companies involved in importing and selling goods, established the standards for the National Registry of Prices of Goods and Services and set maximum retail prices or the price range for goods and services. SUNDECOP was also empowered to sanction any company or person that established excessive prices on goods and services. In addition to SUNDECOP, INDEPABIS was also charged with verification of fair prices. INDEPABIS was formed on May 27, 2008, pursuant to Decree No. 6,092, as the Republic’s consumer protection agency.

The 2011 Law on Fair Cost and Prices was superseded by the Organic Law of Fair Prices (Ley Orgánica de los Precios Justos) in January 2014. The 2014 Organic Law of Fair Prices was aimed at reducing inflationary pressures by supplementing existing regulations regarding fair pricing. The law established a maximum profit of 30% for each entity in the supply chain. The law also created SUNDDE by merging INDEPABIS and SUNDECOP. SUNDDE’s objectives include determining fair prices for goods and services by analyzing cost structure and establishing a maximum profit percentage and effective control of economic and commercial activity in order to protect citizens’

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incomes and wages. On February 7, 2014, SUNDDE approved the criteria to be used for the determination of fair prices. Decree No. 1,467 amended the Organic Law of Fair Prices (published in the Official Gazette No. 6,156, dated November 19, 2014) to grant SUNDDE new powers including the ability to impose sanctions. In addition, a mechanism was introduced for the continuous adjustment of fair pricing in all steps of the chain of production, distribution, importation, transportation and marketing of goods and services.

From February 7, 2014, until June 1, 2015, 19 administrative rulings were approved for the adjustment of fair prices for food and personal care products, including the adjustment of the fair prices of chicken, beef, sugar, rice, corn and coffee, milk, soap, shampoo, detergent and toothpaste.

In November 2015, the Organic Law of Fair Prices was further amended pursuant to Decree No. 2,092 (published in the Extraordinary Official Gazette No. 6,202, dated November 8, 2015) to (1) grant SUNDDE the authority to establish or modify the prices of goods and services; (2) grant SUNDDE and CENCOEX joint responsibility for ensuring that they conform to the established rate; (3) increase penalties for violations of the fair price laws; and (4) establish additional sanctions for violations of established consumer prices.

In April 2016, President Maduro announced the creation of CLAPs at the national level as part of a direct distribution model designed to improve access to food and other necessities and prevent smuggling. CLAPs are responsible for guaranteeing, including through the intervention of the Bolivarian National Armed Forces and the citizen security forces, for the proper distribution of food and other essential goods and supplies. In February 2017, the Government began evaluating a reform of the national system of prices to reduce the inflation indexes. The Minister of Economy and Finance stated his intention to modify SUNDDE and expand CLAPs to fight inflationary pressures and manage inflation.

On September 7, 2017, during his speech before the ANC, President Maduro presented eight new laws and announced a number of measures, all aimed at addressing economic issues and sanctions in the Republic, including the creation of a new system for setting the maximum retail prices of 50 fundamental products and services; establishing prosecutors from CLAPs and Communal Councils to monitor those prices; a 40% wage increase, which includes food bonuses (“cestatickets”), pensions and monthly income under Homeland Cards (government identification cards that consolidate access to social programs); the implementation of a new international payment system based on currencies other than the U.S. dollar; the establishment of exchange houses throughout the country; and a five-point reduction in VAT for those who pay with a debit or electronic payment card. Among the laws presented to the ANC was the Law of Sovereign Supply and Agreed Prices, also called the “Plan 50 Act,” which will establish a new system for fixing the maximum prices for the sale of the 50 specified basic products and services in an effort to address the high prices of goods and services and seek a solution to inflation. The Plan 50 Act is currently under discussion by the ANC.

On November 12, 2017, President Maduro announced additional measures to protect the country’s economy. The new measures will target price speculation by auditing the operations of at least 11,980 commercial establishments throughout the country. Enforcement of the new measures will be supported by the Bolivarian National Armed Forces, the police and public institutions.

Over the past six years, SUNDDE’s actions to promote fair prices and business practices have included:

• Fixing the prices for a 19-item basic basket of goods and setting a maximum retail price, which affects the entire supply chain, from importers to producers, wholesalers, retailers and the final consumer.

• Monitoring registration with the Single Registry for Persons who Engage in Economic Activities (Registro Único de Personas que Desarrollan Actividades Económicas or “RUPDAE”). Registration with RUPDAE is a prerequisite for all companies that import, distribute or trade in goods and services in Venezuela in accordance with Article 22 of the Organic Law of Fair Prices.

• Implementing Plan “Eficiencia Mata Cola,” which imposed penalties of up to 10,000 tax units for food vending establishments whose cash registers did not operate efficiently and caused delays to consumers who were paying for their purchases.

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• Implementing a biometric system to capture fingerprints, in order to obtain a purchasing profile for every citizen and thus identify internal smugglers, and implementing a plan against smuggling.

• Implementing a strong price matching system, with access to companies’ accounting records by category, to establish costs and subsequent profits.

• Deploying leading SUNDDE authorities to supervise major bus terminals during peak travel times to ensure that all Venezuelans purchase tickets at a fair price.

The following table sets forth five price indices for the periods indicated:

	2014										2015										2016
	I		II		III		IV		Year		I		II		III		IV		Year		I		II		III		IV		Year
Consumer prices(1)
Average		9.6		15.2		13.8		15.1		62.2		19.0		21.7		35.9		37.2		121.7		30.8		50.3		38.4		32.6		254.9
End of period		10.1		16.7		13.4		15.7		68.5		19.1		26.1		38.9		34.6		180.9		31.3		61.5		27.2		38.7		274.4
Producer prices index
Manufacturing goods
Average		7.8		10.4		10.1		16.0		47.8		19.2		31.0		46.1		38.9		144.5		50.9		61.9		68.0		37.5		432.9
End of period		9.5		9.2		11.5		16.0		54.7		22.9		35.3		48.8		35.2		234.6		49.3		76.9		55.1		39.0		469.2
Raw materials (construction)
Average		8.0		6.7		8.5		12.6		54.7		18.9		32.1		64.3		38.4		156.6		n.a.		n.a.		n.a.		n.a.		n.a.
End of period		7.2		7.0		8.9		11.6		39.5		27.4		34.7		65.2		35.2		283.5		n.a.		n.a.		n.a.		n.a.		n.a.
Wholesale prices
Domestic goods
Average		8.1		18.8		13.9		12.8		62.1		17.4		26.3		55.6		39.1		146.2		n.a.		n.a.		n.a.		n.a.		n.a.
End of period		8.9		21.6		12.1		12.2		66.5		19.5		34.1		58.2		38.8		251.9		n.a.		n.a.		n.a.		n.a.		n.a.
Imported goods
Average		3.4		8.9		9.7		9.5		38.0		14.4		49.2		48.9		25.8		144.9		n.a.		n.a.		n.a.		n.a.		n.a.
End of period		5.9		9.1		8.9		10.3		38.8		23.8		42.3		51.8		23.4		230.0		n.a.		n.a.		n.a.		n.a.		n.a.

(1) National Consumer Price Index.

Note: Manufacturing, raw materials and wholesale prices were calculated with tax.

Source: Banco Central.

The following table sets forth the NCPI for the periods indicated:

National Consumer Price Index

(Base: December 2007 = 100)

Year and Month	NCPI
2012
January		269.6
February		272.6
March		275.0
April		277.2
May		281.5
June		285.5
July		288.4
August		291.5

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Year and Month	NCPI
September		296.1
October		301.2
November		308.1
December		318.9
2013
January		329.4
February		334.8
March		334.1
April		358.8
May		380.7
June		398.6
July		411.3
August		423.7
September		442.3
October		464.9
November		487.3
December		498.1
2014
January		514.7
February		526.8
March		548.3
April		579.4
May		612.6
June		639.7
July		666.2
August		692.4
September		725.4
October		761.8
November		797.3
December		839.5
2015
January		904.8
February		949.1
March		1,000.2
April		1,063.8
May		1,148.8
June		1,261.6
July		1,397.5
August		1,570.8
September		1,752.1
October		1,951.3
November		2,168.5
December		2,357.9
2016
January		2,576.5
February		2,801.1
March		3,096.2
April		3,541.6
May		4,195.9
June		5,001.5
July		5,437.1

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Year and Month	NCPI
August		5,825.7
September		6,364.4
October		6,873.9
November		7,668.9
December		8,826.9

Source: Banco Central.

Foreign Trade and Balance of Payments

Foreign Trade

Foreign trade plays a vital role in the Venezuelan economy. Until recently, the Republic traditionally had a favorable balance of trade. Average annual exports between 2012 and 2016 were U.S.$50.6 billion. During the same period, average annual imports were U.S.$35.5 billion. Venezuela’s exports totaled U.S.$37.2 billion in 2015 and U.S.$27.4 billion for the year ended December 31, 2016. Imports totaled U.S.$33.3 billion in 2015 and U.S.$16.4 billion for the year ended December 31, 2016.

Petroleum products represent the largest component of total exports, totaling U.S.$25.9 billion for the year ended December 31, 2016. In 2015, exports of petroleum products totaled U.S.$35.1 billion.

As of December 31, 2015, imports of goods totaled U.S.$33.3 billion, while in 2016 total imports decreased to U.S.$16.3 billion.

In order to provide balance of payments support, the Central Government implemented the floating exchange rate mechanism, now known as the DICOM. The official exchange rate, now known as DIPRO, was also increased from Bs.6.30 to U.S.$1.00 to Bs.10.00 to U.S.$1.00.

Trade Policy

The basic goals of the Republic’s trade policy are to generate sustainable growth and macroeconomic stability by diversifying production and promoting Venezuelan products in the international market. The policy contemplates reinforcing current trade alliances and developing new trade alliances with an emphasis on South American and Caribbean countries.

The Republic is a member of the GATT and the WTO. The Republic has entered into a number of bilateral, regional and multilateral agreements, including with countries in South America and the Caribbean basin, as well as countries in the European Union, Africa, the Middle East and Asia, regarding the promotion of bilateral trade and economic and technological development, as well as the facilitation of purchases of petroleum and refined petroleum products. In 2005, President Chávez launched PetroCaribe, an energy initiative designed to supply Venezuelan crude oil to countries in the Caribbean region at discounted prices. Under the PetroCaribe program, the member countries that purchase oil from Venezuela pay for a certain percentage of the oil (depending on world oil prices) within 90 days, and the remainder is paid over a period of 25 years with an interest rate of one to two percent annually. Part of the cost also may be offset by the provision of goods or services. Within the PetroCaribe framework, the Republic entered into several agreements with the Caribbean countries to supply oil and products under preferential financing conditions similar to those established by other agreements between the Republic and Central American and South American states, such as Argentina, Bolivia, Ecuador and Uruguay, under which the Republic supplies crude oil and oil by-products to state-owned oil companies of the PetroCaribe countries. Venezuela provided oil to state-owned oil companies of PetroCaribe members in the amounts of, 121.0 thousand bpd in 2012, 118.0 thousand bpd in 2013, 75.0 thousand bpd in 2014, 61.0 thousand bpd in 2015 and 114.0 thousand bpd in 2016. In exchange, these countries supplied the Republic with goods and services in several areas as well as technical assistance, including agricultural consulting and medical personnel. For more information on PetroCaribe, see “Principal Sectors of the Venezuelan Economy—Petroleum and Natural Gas—Regional Developments.”

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CORPOVEX was created in 2013 as one of several initiatives to strengthen domestic production and export capacities and improve economic conditions. For more information, see “—Economic Policy and Legislation—Exchange Control Regime.”

On December 2, 2014, President Maduro announced the creation of a national office for exports. This special export authority works in collaboration with the Bank for Foreign Trade (Banco de Comercio Exterior or “BANCOEX”) CENCOEX and CORPOVEX, as well as a selection of exporting companies to centrally manage all procedures related to the export of products.

Venezuela Exports (Venezuela Exporta), an export promotion program established in 2013 and led by BANCOEX, has toured 23 countries including Brazil, China, Colombia, France, Japan, Russia and the United Kingdom, exhibiting hundreds of products of export quality including flagship products such as rum, cocoa and granite, and garnering U.S.$370.0 million in export commitments for Venezuelan products in 2015.

On August 22, 2014, the Central Government banned the exportation of products including various food items, basic supplies, medicines and other locally-consumed products, pursuant to Presidential Decree No. 1,190.

The Central Government is also pursuing a variety of regional initiatives, including ALBA, UNASUR, Mercosur and Petrosur. For more information, see “Bolivarian Republic of Venezuela—External Affairs and Membership in International Organizations.” On November 5, 2014, the National Assembly authorized an additional loan of Bs.3.0 billion to the ALBA-Mercosur Bicentennial Fund (Fondo Bicentenario ALBA-Mercosur), which is aimed at boosting domestic production and increasing exports to Latin America and the Caribbean. The ALBA-Mercosur Bicentennial Fund was established in January 2010 with an initial capital contribution of Bs.2.6 billion (U.S.$1.0 billion at the then-current exchange rate).

Trading Partners

United States

The United States is Venezuela’s most important trading partner. In 2016, Venezuela was the third largest exporter of petroleum products to the United States. In addition to the United States, Venezuela’s significant trading partners include various Latin American, European and Asian countries.

In 2012, the United States accounted for 26.7% of Venezuela’s total imports, China accounted for 13.8% of Venezuela’s total imports, Brazil accounted for 7.7% of Venezuela’s total imports and Colombia accounted for 3.8% of Venezuela’s total imports. In the same year, the United States accounted for 40.3% of Venezuela’s total oil exports, China accounted for 14.7% of Venezuela’s total oil exports and India accounted for 12.2% of Venezuela’s total oil exports. Also in the same year, the United States accounted for 20.8% of Venezuela’s total non-petroleum exports, China accounted for 9.9% of Venezuela’s total non-petroleum exports, Colombia accounted for 8.6% of Venezuela’s total non-petroleum exports and Brazil accounted for 4.9% of Venezuela’s total non-petroleum exports.

In 2013, the United States accounted for 24.1% of Venezuela’s total imports, China accounted for 13.6% of Venezuela’s total imports, Brazil accounted for 6.8% of Venezuela’s total imports and Colombia accounted for 3.7% of Venezuela’s total imports. In the same year, the United States accounted for 20.7% of Venezuela’s total non-petroleum exports, China accounted for 8.1% of Venezuela’s total non-petroleum exports, Colombia accounted for 10.2% of Venezuela’s total non-petroleum exports and Brazil accounted for 5.6% of Venezuela’s total non-petroleum exports.

In 2014, the United States accounted for 25.4% of Venezuela’s total imports, China accounted for 13.3% of Venezuela’s total imports, Brazil accounted for 10.2% of Venezuela’s total imports and Colombia accounted for 4.9% of Venezuela’s total imports. In the same period, the United States accounted for 25.8% of Venezuela’s total non-petroleum exports, China accounted for 5.1% of Venezuela’s total non-petroleum exports, Colombia accounted for 9.2% of Venezuela’s total non-petroleum exports and Brazil accounted for 5.8% of Venezuela’s total non-petroleum exports.

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In 2015, the United States accounted for 26.1% of Venezuela’s total imports, China accounted for 16.8% of Venezuela’s total imports, Brazil accounted for 10.7% of Venezuela’s total imports and Colombia accounted for 6.5% of Venezuela’s total imports. In the same year, the United States accounted for 22.5% of Venezuela’s total non-petroleum exports, China accounted for 3.1% of Venezuela’s total non-petroleum exports, Colombia accounted for 9.0% of Venezuela’s non-petroleum exports and Brazil accounted for 7.3% of Venezuela’s total non-petroleum exports.

In 2016, the United States accounted for 33.9% of Venezuela’s total imports, China accounted for 12.1% of Venezuela’s total imports, Brazil accounted for 7.7% of Venezuela’s total imports and Colombia accounted for 2.5% of Venezuela’s total imports. During this period, the United States accounted for 15.5% of Venezuela’s total non-petroleum exports, China accounted for 3.3% of Venezuela’s total non-oil exports, Colombia accounted for 7.0% of Venezuela’s total non-petroleum exports and Brazil accounted for 7.5% of Venezuela’s total non-oil exports.

China

In 2007, Venezuela and China signed several agreements which provided for the construction of three refineries in China to process Venezuelan crude oil and also explored building a refinery to upgrade heavy crude oil to lighter quality using Chinese technology and to process crude oil from the Orinoco Oil Belt. Venezuela’s joint ventures with China include: Petrolera Sinovenezolana (established on October 2006), Petrozumano (established in November 2007), Sinovensa (established in January 2008) and Petrourica (established in October 2010). For the year ended December 31, 2016, Petrolera Sinovenezolana, Petrozumano, Sinovensa and Petrourica produced an average of 1.3 million bpd, 2.6 million bpd, 153.2 million bpd and 800 thousand bpd, respectively.

In November 2007, the governments of Venezuela and China, through BANDES and the China Development Bank (“CDB”), respectively, created a joint investment fund to finance socio-economic projects in the areas of health, housing, welfare, infrastructure, mining and oil related projects in Venezuela, referred to as the Sino-Venezuelan Joint Fund (Fondo Financiamiento Conjunto Chino-Venezolano) by entering into a credit facility in the aggregate amount of U.S.$4.0 billion. The credit facility had a term of three years, extendible for a total of 15 years. In connection with the credit facility, PDVSA entered into a supply agreement for crude oil and refined products with CNPC. The proceeds of sales under the supply agreement were applied to pay amounts due under the BANDES loan with the CDB. The Sino-Venezuelan Joint Fund is financed by contributions from FONDEN and the CDB and the funds are administered by BANDES. The Sino-Venezuelan Joint Fund is divided into four Funds:

1. Heavy Fund I (Fondo Pesado I), “Tranche A,” was signed in November 2007 with contributions of U.S.$4.0 billion from CDB and U.S.$2.0 billion from FONDEN. Tranche A was repaid in full in November 2010 to CDB and FONDEN. The first rollover of Tranche A was signed in June 2011 and was repaid in full by May 2014. A second rollover of Tranche A was signed in July 2014 with contributions of U.S.$4.0 billion from CDB and the equivalent of U.S.$2.0 billion in Bolívares from FONDEN. The disbursement of the second rollover was made in November 2014.

2. Heavy Fund II (Fondo Pesado II), “Tranche B,” was signed in February 2009 with contributions of U.S.$4.0 billion from CDB and U.S.$2.0 billion from FONDEN and was repaid in full by February 2012. The first rollover of Heavy Fund II was signed in February 2012 and was repaid in February 2015. The second rollover of “Tranche B” was signed in April 2015 with contributions of U.S.$5.0 billion from CDB and Bs.6.3 billion (U.S.$1.0 billion) from FONDEN.

3. Heavy Fund III (Fondo Pesado III), “Tranche C,” was signed in November 2013 with contributions of U.S.$5.0 billion from CDB and U.S.$1.0 billion from FONDEN.

4. Long Term Facility (Gran Volumen) was signed in September 2010 with contributions of U.S.$20.0 billion from CDB, with payment obligations until September 2020, in which U.S.$10.0 billion was settled for the equivalent amount in renminbi.

In addition to the contributions of CDB and FONDEN to these funds, in December 2009, BANDES and PDVSA entered into a credit facility with CDB in an aggregate amount of U.S.$500 million. In May 2010, PDVSA entered into a credit facility with CDB and Portugal’s Banco Espírito Santo in the aggregate amount of U.S.$1.5 billion. In March 2011, PDVSA entered into a credit facility with the Industrial and Commercial Bank of China in the aggregate amount of U.S.$4.0 billion. In November 2011, PDVSA entered into a credit facility with CDB in the

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aggregate amount of U.S.$1.5 billion. In February 2012, PDVSA entered into a credit facility with CDB in the aggregate amount of U.S.$500 million. In May 2012, the National Assembly approved an amendment to the Sino-Venezuelan Joint Fund. This amendment allows the governments of Venezuela and China to renew the U.S.$12.0 billion credit facility between CDB and BANDES indefinitely. On August 10, 2012, the Republic announced that CDB would contribute an additional U.S.$4.0 billion to the Sino-Venezuelan Joint Fund and FONDEN would contribute an additional U.S.$2.0 billion. On September 18, 2013, BANDES and PDVSA entered into a credit facility with CDB in the aggregate amount of U.S.$5.0 billion.

On February 18, 2009, the Republic and China entered into 12 cooperation agreements in the areas of oil, agriculture and telecommunications and increased the Sino-Venezuelan Joint Fund, in which PDVSA participates as a crude oil supplier, by selling 230.0 thousand bpd to the CNPC. Collection on the volumes delivered by PDVSA was received by BANDES to secure compliance with the commitments undertaken by the Republic with respect to that agreement. During 2016, 2015, 2014, 2013, and 2012, BANDES transferred to PDVSA U.S.$4.0 billion (including CNY 4.8 billion), U.S.$3.0 billion (including CNY 2.6 billion), U.S.$8.1 billion, U.S.$9.6 billion, and U.S.$11.7, respectively, corresponding to collections received. The volumes delivered in 2009 through 2014, on behalf of the Republic, according to Article 45 of the Hydrocarbons Law, were considered part of the fulfillment of PDVSA’s obligations for production taxes.

In November 2011, the Republic and China Aluminum International Engineering Company (“Chalieco”) agreed to a U.S.$403 million loan to improve the performance of the Republic’s primary aluminum smelters operated by CVG Aluminio del Caroni S.A. (“CVG Alcasa”). The funds came from the Sino-Venezuela Joint Fund. In addition to the Chalieco funds, President Chávez approved U.S.$90.4 million to be provided by FONDEN to support CVG Alcasa’s operations.

In March 2015, the Republic agreed to a U.S.$10.0 billion loan from China for general economic support, and in September 2015, the Republic agreed to a further U.S.$5.0 billion loan from China to finance oil projects. Under the terms of the agreement, the Republic may repay the loans through deliveries of oil and fuel by PDVSA. In May 2016, China and the Republic agreed to new commercial conditions for their oil-for-loans program that improve the terms for the Republic. Since 2007, China has loaned the Republic more than U.S.$55.0 billion through this program.

In June 2015, the Republic and China executed an amendment to the Agreement on Joint Financing (published in the Extraordinary Official Gazette No. 40,692, dated 30 June 2015). In September 2015, the Republic and China executed a Framework Agreement for Cooperation on Special Economic Zones in the Bolivarian Republic of Venezuela.

In September 2015, the Republic and China signed a Joint Development Plan for 2015–2025 accompanied by a Chinese undertaking to lend U.S.$5 billion to Venezuela during that period. The Joint Development Plan aims to finance projects in Venezuela with resources from CDB and FONDEN in key sectors, such as education, industry, infrastructure, agriculture, energy, mining and technology, to promote the economic and social development of Venezuela. Additionally, the Republic and China agreed to new projects, such as the construction of a factory for medium and heavy trucks, a factory in Anzoátegui State to support the Great Housing Mission, a factory for tire manufacturing, and the expansion of the Orinoquia joint venture between Telecom Venezuela and Huawei, which manufactures mobile devices.

Russia

On June 2, 2009, the Republic ratified a BIT with the Russian Federation. The BIT provides for, among other things, an arbitration framework that Venezuela and Russia can use to settle any investment differences or disputes between the two countries. On the same date, the Republic ratified a separate treaty between Russia and Venezuela for cooperation in the areas of oil, gas and electrical energy (Ley Aprobatoria del Convenio entre el Gobierno de la República Bolivariana de Venezuela y el Gobierno de la Federación de Rusia sobre Cooperación en el Área Energética).

In March 2010, the National Assembly approved the establishment of the joint venture Empresa Mixta PetroMiranda, S.A., formed between PDVSA and the National Oil Consortium of Russia, to operate in the Junin-6

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block deposit in the Orinoco Oil Belt (published in the Official Gazette No. 39,393, dated March, 24, 2010). In April 2010, the National Oil Consortium of Russia paid the Republic a U.S.$600 million bonus for participation in the development of the Junin-6 block deposit. According to PDVSA, the project is expected to produce an estimated 116 thousand bpd of extra heavy crude oil. In January 2013, the Empresa Mixta PetroMiranda, S.A., began oil production. As of December 31, 2016, the joint venture reported production of 13.77 thousand bpd. The investment for this project is estimated to be U.S.$204.1 billion and the National Oil Consortium of Russia owns a 40% stake in the joint venture and PDVSA owns the remaining 60%. The joint venture will have a duration of 25 years.

In September 2009, President Chávez announced that Russia would finance arms purchases valued at U.S.$2.2 billion. The arms purchase would increase the Republic’s defensive capacity with more tanks, missiles and anti-aerial defense systems. In 2011, Russia and the Republic signed an agreement for an additional U.S.$4.0 billion loan to be used towards additional Russian weaponry.

In April 2013, PDVSA signed three cooperation agreements with the Russian state oil company, Rosneft, to create a joint venture called Petrovictoria in order to develop the Orinoco Oil Belt. In May 2013, PDVSA and Rosneft signed a U.S.$1.5 billion loan agreement in order to develop several oil projects. Petrovictoria has carried out crude oil and associated natural gas exploration and production activities in the Carabobo area of the Orinoco Oil Belt. The expected production of Petrovictoria is 400 million bpd when fully operative and 163 million bpd by 2025.

In May 2015, the Republic and Rosneft agreed to investments of over U.S.$14 billion to increase oil production, particularly through three joint ventures between PDVSA and Rosneft within the Orinoco Oil Belt: Petromonagas, Petromiranda and Petrovictoria. In June 2015, PDVSA and Rosneft entered into a memorandum of understanding for a joint investment on production and refining projects. In February 2016, Rosneft agreed to pay U.S.$500 million to PDVSA to increase its stake in Petromonagas. The deal will increase Rosneft’s ownership percentage to 40% with PDVSA owning the remaining 60%. The Republic and Rosneft also evaluated new investment opportunities in respect of non-associated gas resources in offshore areas of Venezuela.

In May 2015, the Republic and Russia established a work program within the framework of the Memorandum of Understanding on Scientific and Technical Cooperation in the field of Metrology between the National Autonomous Service for Standardization, Quality, Metrology and Technical Regulations (SENCAMER) and the Federal Agency of Technical Regulations and Metrology of the Russian Federation.

Other Countries

In June 2015, the Republic signed an agreement with Iran for a U.S.$500 million credit line to fund joint investments and improve supplies of goods.

In September 2015, the Republic and Saudi Arabia created the First High Level Joint Commission, the mission of which is to strengthen relations between the two nations, covering a broad spectrum including petrochemical, industrial, agricultural, cultural, educational, diplomatic and financial areas.

In November 2015, the Republic and Qatar signed a memorandum of understanding between the Chamber of Commerce and Industry of Qatar and the Federation of Chambers and Associations of Artisans, Micro, Small and Medium Industries and Enterprises of Venezuela (FEDEINDUSTRIA). Also in November 2015, the Republic and Qatar signed a memorandum of understanding between the Central Bank of Qatar and Banco Central.

In 2016, the Republic entered into a series of agreements with Trinidad and Tobago governing the supply and exploitation of gas shared between the two countries.

In October 2016, Venezuela and Turkey entered into a series of bilateral agreements to increase cooperation on matters relating to energy, culture and social and economic development. The agreements also cover investments in the José Antonio Anzoátegui Refinery in Venezuela and the construction of an oil storage facility in Turkey.

In February 2017, Venezuela and Jamaica entered into an agreement under PetroCaribe to upgrade Kingston refinery and boost its production from 36,000 bpd to 50,000 bpd.

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In March 2017, Venezuela and Trinidad and Tobago entered into an agreement for the construction, operation, and maintenance of a new gas pipeline connecting the two countries. The deal will involve PDVSA, Trinidadian company National Group Gas, and Royal Dutch Shell. In April 2017, the Republic and Belarus entered into a cooperation agreement to boost and strengthen the respective countries’ industrial sectors.

The following tables set out the geographical distribution of Venezuela’s imports and non-petroleum exports for the periods indicated:

	Imports
	Year Ended December 31,
	2012(1)			2013(1)			2014(1)			2015(1)			2016(1)
	(as a percentage of total)
Brazil		7.7	%		6.8	%		10.2	%		10.7	%		7.7	%
Colombia		3.8	%		3.7	%		4.9	%		6.5	%		2.5	%
China		13.8	%		13.6	%		13.3	%		16.8	%		12.1	%
Germany		2.0	%		2.2	%		2.2	%		2.5	%		1.7	%
Italy		1.8	%		1.8	%		1.8	%		1.8	%		1.5	%
United States		26.7	%		24.1	%		25.4	%		26.1	%		33.9	%
Others		44.2	%		47.8	%		42.2	%		35.6	%		40.6	%
Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

(1) Preliminary figures as of and for the year ended December 31, 2016. In addition, certain figures as of and for the years ended December 31, 2012, 2013, 2014 and 2015 have been updated from those published in Venezuela’s previous Annual Reports in order to reflect more current information.

Source: Banco Central.

	Non-Petroleum Exports
	Year Ended December 31,
	2012(1)			2013(1)			2014(1)			2015(1)			2016(1)
	(as a percentage of total)
Brazil		4.9	%		5.6	%		5.8	%		7.3	%		7.5	%
Colombia		8.6	%		10.2	%		9.2	%		9.0	%		7.0	%
China		9.9	%		8.1	%		5.1	%		3.1	%		3.3	%
Germany		4.0	%		0.6	%		0.2	%		0.2	%		0.1	%
Italy		2.3	%		1.1	%		0.6	%		2.4	%		2.5	%
United States		20.8	%		20.7	%		25.8	%		22.5	%		15.5	%
Others		49.5	%		53.7	%		53.3	%		55.5	%		64.1	%
Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

(1) Preliminary figures as of and for the year ended December 31, 2016. In addition, certain figures as of and for the year ended December 31, 2015 have been updated from those published in Venezuela’s previous Annual Reports in order to reflect more current information.

Source: Banco Central.

Non-Petroleum Exports

Venezuela’s principal non-petroleum exports include steel, iron ore, chemical products, aluminum, fish and shellfish, cement, paper products, ceramics and tropical fruits. In 2012, non-petroleum exports totaled U.S.$4.3 billion, or 4.4% of Venezuela’s total exports during that period. In 2013, non-petroleum exports totaled U.S.$3.2 billion, representing 3.6% of Venezuela’s total exports during that period. In 2014, non-petroleum exports totaled U.S.$3.0 billion, representing 4.0% of Venezuela’s total exports during that period. In 2015, non-petroleum exports totaled U.S.$2.1 billion, representing 5.6% of Venezuela’s total exports during that period. For the year ended December 31, 2016, non-petroleum exports totaled U.S.$1.5 billion, representing 5.5% of Venezuela’s total exports during that period.

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Balance of Payments

In 2012, the overall balance of payments recorded a deficit of U.S.$1.0 billion and the current account recorded a surplus of U.S.$2.6 billion. In 2013, the overall balance of payments recorded a deficit of U.S.$4.6 billion and the current account had a total surplus of U.S.$4.6 billion. In 2014, the overall balance of payments recorded a deficit of U.S.$718 million and the current account had a total surplus of U.S.$4.9 billion. In 2015, the overall balance of payments recorded a deficit of U.S.$4.0 billion and the current account recorded a deficit of U.S.$16.1 billion. In 2016, the overall balance of payments recorded a deficit of U.S.$6.8 billion and the current account recorded a deficit of U.S.$3.9 billion.

During 2012, the capital and financial account recorded a deficit of U.S.$1.5 billion. During 2013, the capital and financial account recorded a deficit of U.S.$5.8 billion. During 2014, the capital and financial account recorded a deficit of U.S.$2.4 billion. During 2015, the capital and financial account recorded a surplus of U.S.$14.3 billion. As of December 31, 2016, the capital and financial account recorded a deficit of U.S.$144 million.

In 2012, gross direct investment inflows totaled U.S.$8.1 billion. In 2013, gross direct investment inflows totaled U.S.$5.5 billion. In 2014, gross direct investment inflows totaled U.S.$6.2 billion. In 2015, gross direct investment inflows totaled U.S.$7.8 billion. In 2016, gross direct investment inflows totaled U.S.$4.0 billion.

The following table sets forth Venezuela’s balance of payments for the periods indicated:

	Year Ended December 31,
	2012(1)(2)			2013(1)(2)			2014(1)(2)			2015(1)(2)			2016(1)
	(in millions of U.S. dollars)
Current Account	U.S.$	2,586		U.S.$	4,604		U.S.$	4,919			(16,051	)		(3,870	)
Trade Balance		31,926			31,570			27,421			3,928			11,033
Oil Exports f.o.b.		93,569			85,603			71,732			35,136			25,942
Non-oil Exports f.o.b.		4,308			3,150			2,944			2,100			1,461
Imports f.o.b.		(65,951	)		(57,183	)		(47,255	)		(33,308	)		(16,370	)
Services		(17,238	)		(17,041	)		(14,870	)		(12,163	)		(8,159	)
Transportation		(6,478	)		(5,493	)		(4,429	)		(3,203	)		(2,083	)
Travel		(1,793	)		(2,372	)		(1,592	)		(1,526	)		(1,339	)
Communications		(261	)		(279	)		(239	)		(162	)		(127	)
Insurance		(897	)		(1,268	)		(707	)		(503	)		(267	)
Government		(734	)		(324	)		(285	)		(411	)		(361	)
Other		(7,075	)		(7,305	)		(7,618	)		(6,358	)		(3,982	)
Investment Income		(11,099	)		(8,707	)		(7,425	)		(7,661	)		(6,918	)
Inflows		1,777			2,223			1,818			851			607
Public Sector Interest		735			747			410			149			99
Private Sector Interest		123			99			70			79			63
Public Sector Dividends		378			871			901			366			235
Private Sector Dividends		18			6			10			18			8
Public Sector Reinvested Earnings		415			391			320			133			93
Private Sector Reinvested Earnings		85			85			85			85			88
Other		23			24			22			21			21
Outflows		(12,876	)		(10,930	)		(9,243	)		(8,512	)		(7,525	)
Public Sector Interest		(6,492	)		(6,753	)		(6,240	)		(6,172	)		(5,924	)
Private Sector Interest		(30	)		(35	)		(31	)		(30	)		(36	)

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	Year Ended December 31,
	2012(1)(2)			2013(1)(2)			2014(1)(2)			2015(1)(2)			2016(1)
	(in millions of U.S. dollars)
Public Sector Dividends		(1,558	)		(1,813	)		(1,832	)		(1,643	)		(991	)
Private Sector Dividends		(1,765	)		(1,306	)		(581	)		(1,024	)		(99	)
Public Sector Reinvested Earnings		(716	)		(228	)		(165	)		607			(32	)
Private Sector Reinvested Earnings		(2,272	)		(747	)		(345	)		(202	)		(393	)
Other		(43	)		(48	)		(49	)		(48	)		(50	)
Current Transfers		(1,003	)		(1,218	)		(207	)		(155	)		174
Capital and Financial Account		(1,460	)		(5,776	)		(2,418	)		14,252			(144	)
Inflows		50,849			36,404			47,985			58,504			24,267
Direct Investment		8,092			5,547			6,162			7,802			3,956
Abroad		66			1,439			305			2,617			381
In reporting economy		8,026			4,108			5,857			5,185			3,575
Public Debt (long-term)		9,095			7,596			8,440			11,587			6,238
Bonds		0			0			0			0			1,997
Loans		9,095			7,596			8,440			11,587			4,241
Private Debt (long-term)		0			0			1			0			0
Bonds		0			0			0			0			0
Loans		0			0			1			0			0
Imports Financing		3,008			4,093			7,002			2,881			2,208
Other		30,654			19,168			26,380			36,234			11,865
Outflows		(52,309	)		(42,180	)		(50,403	)		(44,252	)		(24,411	)
Direct Investment		(6,413	)		(3,619	)		(9,563	)		(7,432	)		(3,929	)
Abroad		(4,360	)		(2,191	)		(2,678	)		(3,016	)		(1,422	)
In reporting economy		(2,053	)		(1,428	)		(6,885	)		(4,416	)		(2,507	)
Public Debt (long-term)		(6,469	)		(8,907	)		(10,655	)		(10,753	)		(9,346	)
Bonds		(2	)		(1,972	)		(2,405	)		(3,011	)		(3,888	)
Loans		(6,467	)		(6,935	)		(8,250	)		(7,742	)		(5,458	)
Private Debt (long-term)		(34	)		(52	)		(12	)		(25	)		(43	)
Bonds		0			0			0			0			0
Loans		(34	)		(52	)		(12	)		(25	)		(43	)
Imports Financing		(2,406	)		(5,525	)		(1,272	)		(503	)		(3,122	)
Other		(36,987	)		(24,077	)		(28,901	)		(25,539	)		(7,971	)
Net Errors and Omissions		(2,122	)		(3,418	)		(3,219	)		(2,252	)		(2,794	)
Overall Balance		(996	)		(4,590	)		(718	)		(4,051	)		(6,808	)
Change in Reserves (Increase)(1)		996			4,590			718			4,051			6,808
Assets		846			4,410			609			4,457			6,346
Banco Central(3)		846			4,410			609			4,457			6,346
BANDES		0			0			0			0			0
Stabilization Fund		0			0			0			0			0
Obligations		150			180			109			(406	)		462
Banco Central(3)		150			180			109			(406	)		462

(1) Preliminary figures based on sixth edition of IMF Balance of Payment.

(2) Certain figures as of and for the years ended December 31, 2012, 2013, 2014 and 2015 have been updated from those published in Venezuela’s previous Annual Reports in order to reflect more current information.

(3) Excludes changes in valuation.

Source: Banco Central.

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International Reserves

Levels of international reserves held by Banco Central are highly dependent on oil prices and gold prices. In August 2012, Banco Central changed the method for appraising Venezuelan gold in an effort to curtail the fluctuations of the market. Previously, the appraisal was based on the average recorded by the London gold market in a two month term basis. Under the new appraisal method, the appraisal is based on the average recorded by the London gold market on a six month term basis.

Banco Central’s gross international reserves as of December 31, 2012, totaled U.S.$29.9 billion. In addition, liquid operating reserves at Banco Central totaled U.S.$5.5 billion and net international reserves (excluding funds in the Stabilization Fund) at Banco Central totaled U.S.$29.4 billion.

Banco Central’s gross international reserves as of December 31, 2013, totaled U.S.$21.5 billion. In addition, liquid operating reserves at Banco Central totaled U.S.$1.6 billion and net international reserves (excluding funds in the Stabilization Fund) at Banco Central totaled U.S.$20.8 billion.

Banco Central’s gross international reserves as of December 31, 2014, totaled U.S.$22.1 billion. In addition, liquid operating reserves at Banco Central totaled U.S.$3.2 billion and net international reserves (excluding funds in the Stabilization Fund) at Banco Central totaled U.S.$21.3 billion.

Banco Central’s gross international reserves as of December 31, 2015, totaled U.S.$16.4 billion. In addition, liquid operating reserves at Banco Central totaled U.S.$5.1 billion and net international reserves as of September 30, 2015 (excluding funds in the Stabilization Fund) at Banco Central totaled U.S.$16.3 billion.

Banco Central’s gross international reserves as of December 31, 2016, totaled U.S.$10.9 billion. As of December 31, 2016, liquid operating reserves at Banco Central totaled U.S.$2.1 billion. This decrease was attributable to the decline in currency sales that PDVSA makes to Banco Central as a result of falling oil prices.

Between January 1, 2012 and December 31, 2016, the balance of the Stabilization Fund remained constant at U.S.$3.0 million.

The following table sets out a breakdown of the international monetary assets of Venezuela for the periods indicated:

	Year Ended December 31,
	2012			2013			2014			2015(1)		2016
	(in millions of U.S. dollars)
Gross International Reserves at Banco Central (U.S.$)		29,887			21,478			22,077			16,367		10,992
Gold(2)		19,987			15,440			14,621			10,042		7,727
Special Drawing Rights		3,441			3,478			3,271			804		421
IMF Position(3)		495			496			466			446		790
Other(4)		508			513			514			n.a.		n.a.
Liquid Operating Reserves at Banco Central		5,456			1,551			3,205			5,075		2,054
Reserves Liabilities of Banco Central		(531	)		(711	)		(820	)		n.a.		n.a.
Net Liquid Operating Reserves at Banco Central		4,925			840			2,385			n.a.		n.a.
Net International Reserves at Banco Central		29,356			20,767			21,257			n.a.		n.a.
Stabilization Fund(5)		3			3			3			3		3
Other International Monetary Assets(6)		0			0			0			n.a.		n.a.
International Monetary Assets(7)		29,890			21,481			22,080			16,370		10,995

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(1) The gross international reserves figure is as of September 30, 2015. Certain figures as of and for the year ended December 31, 2015 have been updated from those published in Venezuela’s previous Annual Report in order to reflect more current information.

(2) Figures are valued at the market price for gold at the relevant dates and reflect methodological arrangements in the accounting treatment for gold-swap operations.

(3) Includes net IMF Position.

(4) Includes the Latin American Reserve Fund and Caribbean Development Bank.

(5) Includes the Stabilization Fund portfolio managed by Banco Central.

(6) Includes PDVSA rotatory fund.

(7) Includes all monetary or similar assets denominated in units of exchange other than Bolívares owned or controlled by the Republic, Banco Central and other public sector entities.

n.a. = Not available.

Source: Banco Central.

Employment and Labor

Labor Policies

The composition of the labor force in Venezuela has undergone substantial changes during the last 50 years. The most significant change has been a shift in employment from the primary sector, principally consisting of agricultural activities and petroleum and mining exploration and extraction, to the tertiary sector, principally consisting of services, finance, transportation, communications and Government employment.

According to INE, the monthly average percentage of the labor force engaged in the informal sector of the economy in the second half of 2016 was 38.6%, as compared with 40.1% in 2014. The informal sector is comprised of domestic workers, self-employed owners, laborers and non-paid family laborers.

Under the Plan of the Nation, the National Executive has promoted the integration of the informal sector into the economy. Government policies have advanced socio-productive programs in the agricultural sector, the formation of cooperatives and other popular power organizations by reducing administrative formalities and initiatives to promote artisans, indigenous crafts and local producers. The Government intends to make technological and financial assistance available to informal sector participants on terms equivalent to those being offered to small-and medium-sized companies in the formal sectors of the economy. The Plan of the Nation also contemplates the implementation of programs to improve the skill level of the Venezuelan labor force and to promote an efficient labor market that would allow optimal mobility for Venezuelan workers. The Government also promotes the improvement of wages while minimizing any inflation that may occur as a result of such wage increases.

In 2010, the Government implemented a new management model in the companies controlled by CVG and other companies in the essential industries sector, such as the state-owned steel company SIDOR. This management model is referred to as “workers’ control” (“control obrero”), in which all workers can express their opinions and vote in order to make decisions.

Private companies in Venezuela have been asked to introduce “co-management” among workers and boards of directors as the preferred model of corporate governance, as part of the worker control initiative. Under this initiative, companies are invited to adopt the model and have a minimum of 20% worker representation on their governing boards in order to receive new loans from state banks.

In May 2012, a reform to the Labor Law was enacted in an effort to provide job stability and increase worker benefits. The reform established a retroactive calculation of severance compensation for current workers who have remained active since June 19, 1997. Under the reform, all unjust dismissals of workers are prohibited. If employers wish to dismiss an employee, they must first seek a judicial determination that there is a legal basis for that dismissal. The reform also establishes that all workers in Venezuela are entitled to a pension after retirement, generally age 55 for women and 60 for men, regardless of whether they were engaged in formal or informal employment. The reform mandates reduced working hours, eliminating outsourcing and increasing compensation

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for working on holidays. The number of working hours during the week was reduced from 44 to 40 and employees are now entitled to a mandatory 48-hour rest period each week. This reduction in working hours contributes to inflationary pressure on consumer prices and a reduction in labor productivity as a result of higher unit labor costs. In November 2014, President Maduro enacted the Law for the Productive Youth (Ley para la Juventud Productiva) (Decree No. 1,392, published in the Official Gazette No. 40,540, dated November 13, 2014) by decree, which aims to improve access to and participation in the job market among young Venezuelans under the age of 30. President Maduro also authorized Bs.500 billion (U.S.$79.4 billion) to fund projects under the program including job training programs for 10,000 youths under the Homeland Youths Mission (Misión Jóvenes de la Patria). As of December 31, 2016, about 5,674 Venezuelan youth have benefitted from this effort.

In December 2014, both private and public sector workers received additional job protections as a result of Decree No. 1,583, published in the Extraordinary Official Gazette No. 6,168, dated December 30, 2014. According to this decree, workers could not be dismissed, transferred or penalized without just cause during the period between January 1, 2015 and December 31, 2015. On December 30, 2015, President Maduro passed the Law of Labor Immobility (Ley de Inamovilidad Laboral) (published in the Official Gazette No. 6,207, dated December 28, 2015) which extended for three additional years (until December 31, 2018) this prohibition on dismissals without just cause.

According to Article 91 of the Constitution, “[T]he State guarantees workers in both the public and the private sector a vital minimum salary which shall be adjusted each year, taking as one of the references the cost of a basic market basket.” This provision guarantees annual adjustments to minimum salaries and since 1998, several wage increases have been carried out, including four increases in 2015. On May 21, 2015, the minimum wage was set at Bs.7,422 a month (U.S.$1,178.10), which was a 57.0% increase as compared to the minimum wage of Bs.4,251 (U.S.$674.76) a month on May 1, 2014. On March 1, 2016, the minimum wage was increased to Bs.11,568.00 (U.S.$1,156.80). On May 1, 2016, the minimum wage was set at Bs.15,051.15 (U.S.$1,505.12), a 103% year- on year increase. On September 1, 2016, the minimum wage was further increased to Bs.22,576.13 (U.S.$2,257.61) per month. On November 1, 2016, the minimum wage was increased to Bs.27,092.10 (U.S.$2,709.21), and on January 1, 2017, it was subsequently increased to Bs.40,638,15 (U.S.$4,063.82), representing a 50% increase. On May 1, 2017, the minimum wage increased to Bs.65,021.04 (U.S.$6,502.10), which represents an increase of 60%. On July 1, 2017, the minimum wage increased to Bs.97,531.0 (U.S.$9,753.10) and on September 1, 2017, the minimum wage increased to Bs.134,544.18 (U.S.$13,454.42) and to Bs.177,507.44 (U.S.$17,750.74) on November 1 (Decree No. 3,138, published in Official Gazette No. 41,269).⁽¹⁾

⁽¹⁾ With respect of the figures contained in this paragraph, the official exchange rates for the conversion of Bs. to U.S.$ were applied, for 2014 and 2015, Bs.6.30 per U.S.$ and for 2016 and 2017, Bs.10.00 per U.S.$.

In May 2015, President Maduro announced two decrees related to the compensation of National Public Administration employees (published in the Extraordinary Official Gazette No. 40,660, dated May 14, 2015). These decrees established the General Salary Schedule and Certification System Charges, as well as the wage scale.

In May 2017, as part of a joint coordinated effort by the Ministry of Youth and Sports, the Movement for Life and Peace, and the Róbert Serra Mission, President Maduro activated the Chamba Juvenil Employment Plan, with the objective of providing employment and study opportunities for young Venezuelans between the ages of 15 and 35 with access to employment and training. The program focuses on helping unemployed university students, out-of-school youths, single mothers and other disadvantaged youth. The President approved over Bs.3 billion to form the brigades of the Chamba Juvenil Employment Plan and the training programs during 2017, but the program is expected to be extended beyond 2017.

Labor Force

As the labor force of Venezuela has grown in recent years, there have been numerous efforts to absorb the increasing number of workers in Venezuela, particularly migrants from rural to urban areas. Beginning in 2003, social Missions have significantly improved training and education of manufacturing and agricultural workers.

As of December 31, 2012, the labor force totaled 13.6 million. The annual average unemployment rate decreased to 7.4% for the year ended December 31, 2012, primarily due to the growth of the national economy. As of

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December 31, 2013, the labor force totaled 14.0 million. The annual average unemployment rate increased to 7.5% for the year ended December 31, 2013. This modest increase is primarily attributable to a slight increase in the unemployment rate of women. As of December 31, 2014, the labor force totaled 14.3 million. The annual average unemployment rate decreased to 6.7% for the year ended December 31, 2014, driven by an increase in labor force participation, primarily among women and youth, in response to inflation and price volatility. As of December 31, 2015, the labor force totaled 14.1 million. The average annual unemployment rate remained at 6.7%. As of December 31, 2016, the labor force totaled 14.8 million. The average annual unemployment rate increased to 7.1%, due to economic conditions.

A preliminary average monthly unemployment rate for the year 2017 is not available.

The following table sets forth employment activity by sector for the periods indicated:

	Year Ended December 31,
	2012				2013				2014				2015				2016
Labor Force:
Employed		12,570,783	92.6	%		12,948,068	92.5	%		13,346,297	93.3	%		13,191,175	93.3	%		13,749,677	92.9	%
Unemployed(1)		1,006,400	7.4	%		1,046,663	7.5	%		962,483	6.7	%		945,174	6.7	%		1,056,744	7.1	%
Total		13,577,183	100.0	%		13,994,731	100.0	%		14,308,780	100.0	%		14,136,349	100.0	%		14,806,421	100.0	%
By Sector:
Petroleum and Mining		159,770	1.3	%		167,615	1.3	%		183,389	1.4	%		172,221	1.3	%		193,022	1.4	%
Agriculture, Fishing and Hunting		962,909	7.7	%		961,749	7.4	%		1,060,221	7.9	%		964,632	7.3	%		1,011,424	7.4	%
Manufacturing		1,355,083	10.8	%		1,461,933	11.3	%		1,561,996	11.7	%		1,597,738	12.1	%		1,583,131	11.5	%
Water, Electricity and Gas		60,427	0.5	%		56,125	0.4	%		54,103	0.4	%		60,742	0.5	%		81,224	0.6	%
Construction		1,085,504	8.6	%		1,068,963	8.3	%		1,061,574	8.0	%		1,136,081	8.6	%		989,741	7.2	%
Commerce, Restaurant and Hotels		3,080,127	24.5	%		3,171,831	24.5	%		3,221,375	24.1	%		3,046,629	23.1	%		3,264,001	23.7	%
Transportation, Storage and Communications		1,135,457	9.0	%		1,201,705	9.3	%		1,199,886	9.0	%		1,127,343	8.5	%		1,129,398	8.2	%
Financial Institutions, Insurance and Real Estate		697,278	5.5	%		756,012	5.8	%		755,476	5.7	%		773,040	5.9	%		894,587	6.5	%
Community, Social and Personal Services		3,992,559	31.8	%		4,070,904	31.4	%		4,216,944	31.6	%		4,274,110	32.4	%		4,526,270	32.9	%
Others		41,669	0.3	%		31,231	0.2	%		31,333	0.2	%		38,639	0.3	%		76,879	0.6	%
Total		12,570,783	100.0	%		1,294,806	100.0	%		13,346,297	100	%		13,191,175	100	%		13,749,677	100	%

(1) Figures for 2015 and 2016 represent data generated in the second half of each year (July-December).

Source: INE.

Labor Regulations and Labor Liabilities

The Organic Labor and Workers Law (Ley Orgánica del Trabajo, los Trabajadores y Trabajadoras), sets forth minimum standards for employee benefits and working conditions, such as a minimum wage, a maximum number of working hours, mandatory holidays and vacations, minimum retirement, severance compensation and health and safety regulations. The Organic Labor and Workers Law applies to private sector workers and to most public sector employees. Public sector wages are set by decree, in accordance with the Organic Labor and Workers Law and the Collective Agreement of the Public Sector (Contrato Colectivo del Sector Público). Subject to minimum wage limitations set by the Central Government, private sector wages are competitive or set through collective bargaining contracts.

In June 1997, the Central Government reformed the Organic Labor and Workers Law. The reform implemented a tripartite agreement reached among the Republic, employees represented by unions and their employers. The most significant reform was the elimination of the retroactive calculation of mandatory severance compensation for years of service. Previously, employers had been required to pay severance compensation for years of service calculated retroactively, based on an employee’s salary at the time of termination of the labor relationship, regardless of any changes in the salary over the course of the employment. The law required that severance pay accumulated through December 1996, referred to as the “Labor Liabilities,” be paid out within five years to both public and private

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employees. After December 1996, employers have been required to calculate severance compensation monthly, based on wages earned at that time, and deposit the amount in an account of the employee. The amounts deposited earn interest tax-free, which interest may be withdrawn by employees on a yearly basis. The account must accumulate during the entire period of employment and at the end of employment the employee can withdraw the entire amount. Under certain circumstances, the employee may withdraw portions of the principal in the account before the end of employment.

Since 1998, the Government has maintained a continuous effort to honor past Labor Liabilities. As of August 31, 2012, the estimated total amount of the Central Government’s Labor Liabilities was Bs.77.4 billion (U.S.$18.0 billion). As of August 31, 2013, the estimated total amount of the Central Government’s Labor Liabilities was Bs.40.9 billion (U.S.$6.5 billion). As of December 31, 2014, the estimated total amount of the Central Government Labor Liabilities was Bs.59.0 billion (U.S.$9.4 billion). As of December 31, 2015, the estimated total amount of the Central Government Labor Liabilities was Bs.11.8 billion (U.S.$606 million). At December 31, 2016, the total estimated amount of Labor Liabilities of the Central Administration was Bs.74.48 billion (U.S.$7.45 billion).

The 1997 labor law was amended to provide for the payment of Labor Liabilities owed to public sector employees over a period of five years, together with interest, at a prescribed rate commencing in 1998. The Central Government created a presidential commission to quantify and oversee the processing of the Labor Liabilities with respect to employees of the Government.

On March 31, 2012, the Republic, through a decree having the effect of an organic law, created FANCO and FAP. The obligations of the funds are fully guaranteed by the Republic. The Funds were created as state enterprises under the Ministry of Economy and Finance.

FANCO was created in order to issue and service financial and investment instruments as well as to manage other resources to assist in the payment of Labor Liabilities. The decree creating FANCO states that FANCO may issue securities known as Petro-Orinoco bonds as well as real estate securities (títulos inmobiliarios) to serve as payment instruments for Labor Liabilities. The conditions of FANCO’s payments during 2012 were as follows: (i) the individual nominal amount of the Petro-Orinoco corresponded to the debt and social labor liabilities of each of the benefited workers; (ii) the interest rate of the instrument is variable and reviewable every 180 days; and (iii) the reference rate to determine the interest rate is the social security interest rate published by Banco Central the month prior to the beginning of the period of the coupon payment plus a spread of 260 basis points.

The income of FANCO consists of:

• allocations under the Republic’s annual budget;

• dividends derived from the shares of PDVSA Social, S.A., which was created under the same decree to support and contribute to FANCO. PDVSA Social, S.A. is entitled to a 4% participation in the ownership interests of PDVSA and its affiliate companies in the Mixed Companies created under the Hydrocarbons Law;

• amounts derived from an additional 2.22% royalty from the joint ventures pursuant to the Hydrocarbons Law;

• amounts derived from the 3.33% of the value of liquid hydrocarbons extracted in any oil field, to be paid by the joint venture under the extraction tax pursuant to the Hydrocarbons Law;

• investment income from the management of the assets of FANCO;

• inflows from public credit operations; and

• other income as determined by the executive branch.

In August 2012, the first U.S.$206.0 million (Bs.886.0 million) of Petro-Orinoco bonds were issued to five thousand current and former employees. Each such Petro-Orinoco bond is denominated in Bolívares and equivalent to Bs.1,000 and has an interest rate of 18% that will be paid on a quarterly basis. Government workers receiving the bonds have the option of collecting the interest on a quarterly basis, selling them to the Bank of Venezuela at any time after August 23, 2012, or trading them on the Bicentennial Stock Exchange at any time after the first

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anniversary of their issuance. FANCO contributed to a trust managed by the Bank of Venezuela an amount equal to the face value of the first issuance of the Petro-Orinoco bonds which can be collected by the bondholders. As of December 31, 2012, the estimated total amount of Labor Liabilities satisfied during the year through FANCO was U.S.$1.1 billion (Bs.4,746.8 million), to 18,578 people. As of December 31, 2013, Labor Liabilities satisfied during the year through FANCO was U.S.$455.0 million (Bs.2.9 billion) to 15,247 people. As of December 31, 2014, the estimated total amount of the Labor Liabilities satisfied during the year through FANCO was U.S.$466.8 billion (Bs.2.9 billion), to 9,238 people. As of December 31, 2015, the estimated total amount of the Labor Liabilities satisfied during the year through FANCO was U.S.$477.6 million (Bs.3.0 billion) to 7,584 people. As of December 31, 2016, the estimated total amount of the Labor Liabilities satisfied during the year through FANCO was U.S.$13.8 billion (Bs.1,382.7 billion) to 4,369 people.

The FAP was created in order to promote national savings through investment mechanisms. The fund will include the participation of various workers’ saving funds, companies and of the general public. The FAP is also allowed to issue securities and to invest in projects related to the national productive sector.

The income of the FAP consists of:

• allocations under the Central Government’s annual budget;

• dividends derived from PDVSA’s joint ventures pursuant to the Hydrocarbons Law;

• dividends derived from the FAP’s participation in hydrocarbon companies;

• investment income from the management of the assets of the FAP;

• inflows from public credit operations; and

• other income as determined by the executive branch.

The FAP bonds are issuable in Bolívares or foreign currency and can be sold after two years. The FAP was deferred in 2015 by decision of Banco Central until oil market conditions improve. To date, the FAP has not issued any securities.

In April 2007, the Government extended a firing freeze for private and public sector workers governed by the Organic Labor and Workers Law, effective through December 31, 2007. Under the decree, workers may not be fired, demoted or transferred without just cause. The firing freeze has been successively extended and the current firing freeze for all public and private sector workers runs through December 31, 2018, pursuant to Decree No. 2,158, as published in the Extraordinary Official Gazette No. 6,207, dated December 28, 2015.

Minimum Wages

The Central Government sets the minimum salary for all public and private sector employees, which it adjusts as necessary to take into account changes in inflation and costs of living. The minimum wage has gradually increased over the years. In setting and adjusting minimum wages, the Central Government has attempted to address losses of purchasing power by the poorer segments of the Venezuelan labor force without creating an inflationary cycle. The minimum wage was increased in 2014 in three installments. First, in January 6, 2014, the minimum wage was increased by 10% to Bs.3,270.00 (U.S.$519.05). Then, on May 1, 2014, the Government increased the minimum wage to Bs.4,251.40 (U.S.$674.83). On December 1, 2014, the minimum wage was further increased to Bs.4,889.11 (U.S.$776.05). In 2015, the monthly minimum wage was increased four times: to Bs.5,622.47 (U.S.$892.46) on February 1, Bs.6,746.96 (U.S.$1,070.95) on May 1, in response to inflationary pressures, to Bs.7,421.66 (U.S.$1,178.04) on July 1 and to Bs.9,648.16 (U.S.$1,531.45) on November 1. In 2016, the minimum wage was increased four times: to Bs.11,578 (U.S.$1,157.80) on March 1, to Bs.15,051.15 (U.S.$1,505.12) on May 1, to Bs.22,576.73 (U.S.$2,257.67) on September 1, and to Bs.27,092.10 (U.S.$2,709.21) on November 1. In 2017, the minimum wage has increased by fifty percent (50%) over the course of five incremental increases: first to Bs.40, 638.15 (U.S.$4,063.82) on January 1 (Decree No. 2,660, published in the Official Gazette No. 1,070, dated January 9, 2017), then to Bs.65,021.04 (U.S.$6,502.10) on May 1 (Decree No. 2,832, published in the Official Extraordinary Gazette No. 6,296, dated May 2, 2017), then to Bs.97,531.0 (U.S.$9,753.1) on July 1 (Decree No. 2,996, published in the Official Gazette No. 41,185, dated July 3, 2017), then to Bs.134,544.18 (U.S.$13,454.42) on September 1 (Decree No. 3,068, published in the Official Gazette No. 41,231, dated September 7, 2017), and finally to Bs.177,507.44 (U.S.$17,750.74) on November 1 (Decree No. 3,138, published in Official Gazette No. 41,269).

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Reforms to the Social Security Laws

The Organic Law of Social Security (Ley Orgánica del Sistema de Seguridad Social) took effect on December 30, 2002. This law sets forth substantial reforms to the national social security system. The services covered by the social security system are divided among three types of services: Health Services, Social Services and Housing Services. The responsibility of managing and administrating these services is shared among the National Health System, the National Housing Bank, the National Geriatric and Gerontology Institute, the National Pension Institute, the National Employment Institute, the National Labor Health Institute and the Worker’s Training and Recreation Institute, which will each be in charge of their respective social services.

Under the terms of the Organic Law of Social Security, both workers and employers contribute to a collective social security system managed by the Central Government. Under the social security system, workers in the informal sector of the economy are able voluntarily to join the social security system and make the contributions necessary to enable them to receive a future retirement pension, with a subsidy from the Central Government of a certain percentage of their contributions. Along with contributions from employees, employers and the Central Government, the social security system is also financed by several other sources, including income from investments made with social security funds. The law created a Social Security System treasury with its own assets, distinct and independent from the National Treasury. The National Treasury’s main responsibilities include collecting, investing and distributing social security funds (which are exempt from all taxes).

On April 30, 2010, President Chávez issued a temporary Executive Decree No. 7,401, published in the Official Gazette No. 39,414, dated April 30, 2010, that was in force until December 31, 2010. Under the Decree, all women 55 and older and men 60 and older who were not working and who previously made contributions to the social security system, but not enough to enable them to receive a retirement pension under the terms of the Organic Law of Social Security, could apply to receive a retirement pension. Participants that were previously qualified were still required to make the payments to become eligible, but were able to do so in installments until May 1, 2012. In the meantime, the Republic assumed the responsibility of making these contributions.

On April 30, 2012, President Chávez issued a reform of the Social Security Law and its regulatory framework. Under the reform, self-employed citizens were given the ability to contribute to the social security system in order to become eligible to receive social security benefits.

Labor Unions

Venezuela has numerous labor unions. Unión Nacional de Trabajadores de Venezuela (“UNT”) and Confederación de Trabajadores de Venezuela (“CTV”) are among the largest labor unions in Venezuela. From 2007 to 2009, there was an increase in the number of labor unions, due in part to the nationalizations of the various sectors of the Venezuelan economy. In 2009, there were 6,000 registered labor unions as compared to 1,200 in 1998. Between 1986 and 1999 Venezuela had an increase of 4,198 labor unions, in contrast with Venezuela’s increase of 6,086 labor unions during the previous 13 years, reflecting the Government’s commitment to freedom of association. As of December 31, 2013, there were 6,086 registered labor unions. As of December 31, 2014, there were 6,183 registered labor unions, representing an increase of 97 labor unions since December 31, 2013. Information on the number of labor unions in 2015 and 2016 is not currently available.

Unions engage in collective bargaining primarily involving the negotiation of contracts on an industry-wide basis. Strikes and lockouts are permitted, but conciliation procedures must be observed prior to calling a strike or lockout.

Pursuant to the 2012 reform of the Labor Law, labor unions must be registered with the National Registry of Union Organizations (Registro Nacional de Organizaciones Sindicales).

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Poverty and Income Distribution; Education

Poverty and Income Distribution

The Central Government differentiates between extremely poor, non-extremely poor and non-poor households based on census survey examinations with respect to qualitative factors such as access to electricity and potable water and the number of persons per dwelling unit. INE defines “extremely poor” as individuals who lack sufficient resources to obtain a subsistence-level basket of foodstuffs and “non-extremely poor” as individuals who have resources sufficient to obtain two times a subsistence-level basket of foodstuffs.

The following table provides statistics comparing the number and percentage of extremely poor, non-extremely poor and non-poor households in Venezuela for the years indicated:

	2012					2013					2014					2015(1)				2016(2)
	Total		%			Total		%			Total		%			Total		%		Total		%
Households:
Non-Poor		5,512,180		78.8	%		5,049,392		72.7	%		4,930,640		67.4	%		4,930,666		66.9		n.a.		n.a.
Poor
Extremely Poor		442,965		6.0	%		612,051		8.8	%		692,023		9.5	%		683,370		9.3		n.a.		n.a.
Non-Extremely Poor		1,060,299		15.2	%		1,287,539		18.5	%		1,688,258		23.1	%		1,750,665		23.8		n.a.		n.a.
Total		1,483,264		21.2	%		1,899,590		27.3	%		2,380,281		32.6	%		2,434,035		33.1		n.a.		n.a.
All Households		6,995,444		100.0	%		6,948,982		100.0	%		7,310,921		100	%		7,634,701		100		n.a.		n.a.
Population:
Non-Poor		21,649,296		74.6	%		19,415,005		67.9	%		18,264,324		61.8	%		n.a.		n.a.		n.a.		n.a.
Poor																	n.a.		n.a.		n.a.		n.a.
Extremely Poor		2,053,928		7.1	%		2,791,292		9.8	%		3,340,343		11.3	%		n.a.		n.a.		n.a.		n.a.
Non-Extremely Poor		5,324,330		18.3	%		6,382,850		22.3	%		7,956,415		26.9	%		n.a.		n.a.		n.a.		n.a.
Total		7,378,258		25.4	%		9,174,142		32.1	%		11,296,758		38.2	%		n.a.		n.a.		n.a.		n.a.
Total Population		29,027,554		100.0	%		28,589,147		100.0	%		29,561,082		100	%		n.a.		n.a.		n.a.		n.a.

(1) 2015 figures represent the first six months of the year 2015. In addition certain figures for the first six months of the year 2015 have been updated from those published in Venezuela’s previous Annual Report in order to reflect more current information.

(2) Preliminary figures for the year 2016 are not available.

n.a. = Not available.

Source: INE, Household Sample Survey, income poverty line.

The percentage of the poor among the Venezuelan population has remained relatively stable, increasing from 31.9% in 2011 to 33.1% by mid-2015. In addition to stimulating real growth in the economy and increasing job opportunities, the Central Government has taken measures to improve access to education and reduce truancy with the goal of improving literacy and technological skills among the future Venezuelan workforce, decentralize health and education support systems, reform social security and pension systems, and promote various Missions to target specific community problems and underserved groups of the population. For more information, see “Bolivarian Republic of Venezuela—Social Programs—Missions.”

The following table compares statistics for the distribution of income or consumption in Venezuela and other Latin American countries:

	Venezuela(1)		Brazil		Chile		Colombia		Mexico		Peru
Survey Year(2)		2014		2015		2015		2015		2014		2015
National Gini Index(3)(4)		38.0		51.3		45.7		51.1		48.2		44.3

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Sources: See footnotes below.

(1) Data published by INE, Venezuela.

(2) Data refers to the most recent year available.

(3) The “Gini index” is a World Bank estimate of the statistical dispersion of wealth within a country. Higher values represent more unequal distributions. A link to the latest World Bank estimates can be found here: (https://data.worldbank.org/indicator/SI.POV.GINI).

(4) Venezuela’s 2013 Gini coefficient can be found here, on the UNDP website: (http://hdr.undp.org/en/content/income-gini-coefficient).

Education and Other Sustainable Development Factors

According to the Human Development Index, referred to as the HDI, a measure used by the United Nations Development Program, or UNDP, Venezuela ranks 71^st among the 188 countries in the world in the UNDP’s Human Development Report for 2016.

The HDI provides a composite measure of three dimensions of human development: living a long and healthy life (measured by life expectancy), being educated (measured by adult literacy and enrollment at the primary, secondary and tertiary level) and having a decent standard of living (measured by purchasing power parity, or PPP, and income). The HDI provides a broad prism for viewing human progress and the complex relationship between income and well-being. According to the UNDP’s Human Development Report, Venezuela’s HDI was 0.770 for 2012, 0.771 for 2013, 0.769 for 2014 and 0.767 for 2015.

The following table summarizes the statistics for social factors related to the HDI in Venezuela and the other six largest economies in Latin America:

	HDI and Selected Components		Education and Health		Multidimensional Poverty Index(1)
HDI Rank	Life Expectancy at birth, 2015(2)		Adult literacy rate(3)		Percent of population living below national poverty line(4)		Percent of population living below international poverty line(5)
38 Chile		82.0		97.3		n.a.		n.a.
45 Argentina		76.5		98.1		n.a.		1.7
71 Venezuela		74.4		94.5		n.a.		n.a.
77 Mexico		77.0		94.4		53.2		3.0
79 Brazil		74.7		92.6		7.4		3.7
87 Peru		74.8		94.5		21.8		3.1
95 Colombia		74.2		94.7		27.8		5.7

(1) Data refers to the most recent year available during the period specified. If no data is available, “n.a.” is indicated.

(2) Data from the World Bank: (https://data.worldbank.org/indicator/SP.DYN.LE00.IN?locations=VE).

(3) Data from UNESCO Institute for Statistics: (https://data.worldbank.org/indicator/SE.ADT.LITR.ZS?locations=VE-AR-PE-CL-CO-MX-BR&name_desc=false). Chile’s rate is from 2013; Brazil’s rate is from 2014; Argentina, Colombia, and Mexico show rates from 2015, and Venezuela and Peru’s rates are from 2016.

(4) Data refers to the most recent year available between 2005 and 2014, as published in the UNDP Human Development Report 2016, Table 6 The national poverty line for each country is the line deemed appropriate by its national authorities. National estimates are based on population-weighted subgroup estimates from household surveys.

(5) Data refers to the most recent year available between 2005 and 2014, as published in the UNDP Human Development Report 2016, Table 6. The international poverty line is U.S.$1.90 per day in purchasing power parity.

While Venezuela’s poor population face challenges due to a lack of access to basic necessities, some positive signs of sustainable development are present. The adult literacy rate was 95.5% between 2005 and 2013. Venezuela is

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ranked in the category of “high human development” in the following HDI statistical categories: overall profile and HDI trends, inequality-adjusted HDI, gender inequality index, gender development index, health for children and youth, adult health and health expenditures, education, command over and allocation of resources, social competencies, personal insecurity, international integration, environment, population trends and perceptions of well-being.

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PRINCIPAL SECTORS OF THE VENEZUELAN ECONOMY

Petroleum and Natural Gas

General

The petroleum sector has been the cornerstone of the Venezuelan economy for the past 50 years. It represents the principal source of revenues, foreign exchange earnings and stimulus for economic, industrial and social change. The Republic is a member of OPEC and is the world’s ninth-largest oil producer according to OPEC data. Venezuela has the largest proven crude oil reserves in the world, the eighth-largest proven natural gas reserves in the world and the largest proven reserves of both oil and natural gas in Latin America, according to PDVSA’s 2016 Annual Management Report and the BP Statistical Review of World Energy of June 2015. Venezuela is the third-largest oil exporter to the United States, according to the U.S. Energy Information Industry.

Between 2012 and 2016, petroleum crude and products accounted for an average of 28.0% of Venezuela’s total exports. During the same period, petroleum sector and royalties revenues accounted for an average of 18.1% of Venezuela’s total Central Government revenues and petroleum sector activities accounted for an average of 11.1% of Venezuela’s annual GDP measured in 1997 Constant Bolívares. For the nine-month period ended September 30, 2015, petroleum activities accounted for 11.3% of GDP, compared to 10.8% in 2014. As of December 31, 2016, oil revenues represented 43.5% of the Central Government’s revenues, and accounted for 10.2% of Venezuela’s 2016 estimated GDP.

On February 10, 2016, the National Executive authorized the creation of the Military Company of the Mining, Oil and Gas Industries (Compañía Anónima Militar de Industrials Mineras, Petrolíferas, y de Gas or “CAMIMPEG”) (Decree No. 2,231, published in the Official Gazette No. 40,845). CAMIMPEG was established to provide services to the petroleum and mining sectors, such as the maintenance and repair of oil wells and rigs, the distribution and sale of chemical products and construction and transportation services. CAMIMPEG assists PDVSA at every stage of the hydrocarbon value chain, from exploring to drilling, production, and treatment.

Laws Affecting the Petroleum Sector

In Venezuela under the Hydrocarbons Law, all hydrocarbon reserves are owned by the Republic. In addition, the right to conduct all exploration, production and distribution activities related to hydrocarbons and their derivative products are reserved to the Republic under the Hydrocarbons Law. The Hydrocarbons Law was enacted in November 2001 by President Chávez pursuant to his authority under the applicable enabling law and came into effect in January 2002. It replaced the Hydrocarbons Law of 1943 and the Nationalization Law of 1975. Under the Hydrocarbons Law, the Government may undertake exploration, production and distribution activity directly or through instrumentalities which are controlled by the Republic through an equity participation of more than 50%.

Under the Hydrocarbons Law of 2001, the Government is responsible for performing industrial and commercial activities reserved for the Republic, such as the separation, purification and transformation of natural hydrocarbons and byproducts. In certain instances, the Government may perform the reserved activities through companies owned exclusively by the Republic or through related joint ventures in which the Republic owns a high percentage of shares.

The Hydrocarbons Law of 2001 decreased the income tax rate for oil exploration and production activities from 67.7% to 50% and to 34% for downstream activities. It increased the extraction royalty rate from 16.7% to 30%, though these royalties are deductible for purposes of calculating income tax.

The Hydrocarbons Law of 2001 also modified other hydrocarbon taxes. Under the surface area tax, every square kilometer or fraction thereof which has been licensed for exploration but which has not been used for that purpose will be taxed at 100 tributary units per year. This tax was increased by 2% every year through 2007 and then 5% annually thereafter. The Hydrocarbons Law of 2001 provides for a tax on developer consumption of 10% of the retail price on each cubic meter of petroleum products produced and used by the developer to fuel its own operations. The law also imposes a tax of 30% to 50% of the retail price on each liter of petroleum product sold in the Venezuelan domestic market. This tax on retail purchases is levied annually by the National Assembly in the Budget Law and is to be paid monthly to the National Treasury.

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On May 24, 2006, the Hydrocarbons Law was amended to: (1) create an extraction tax imposed at a fixed rate of one-third the value of all liquid hydrocarbons extracted from any well, calculated on the same basis as the Hydrocarbons Law provides for calculating royalties; (2) create an export registration tax of 1/1,000 of the value of all hydrocarbons exported from any port in Venezuela, calculated on the sales price of such hydrocarbons; and (3) include the extraction of gaseous hydrocarbons associated with petroleum within the scope of the law in Article 2 (published in the Official Gazette No. 38,443, dated May 24, 2006). Joint ventures are subject to a special advantage tax that consists of (a) a 3.33% royalty payment on the volumes of hydrocarbons extracted in areas designated by PDVSA and (b) the difference, if any, between (i) 50% of the value of hydrocarbons extracted in those areas, and (ii) the taxes already paid to the Republic for those hydrocarbons extracted. Approximately two thirds of the proceeds of this tax go to a national fund for the working class, managed by the National Executive, which is dedicated to financing endogenous development projects consistent with the National Development Plan.

In February 2007, President Chávez issued a decree pursuant to which existing Orinoco Oil Belt projects, namely Petrozuata, Sincor, Cerro Negro and Hamaca, were required to be converted into joint ventures in which Corporación Venezolana de Petróleo (“CVP”) or another PDVSA subsidiary holds an equity interest of at least 60% in accordance with the Hydrocarbons Law. Pursuant to this decree, operators of the Orinoco Oil Belt project became joint ventures, with PDVSA the majority owner of the operations.

As a result of the implementation of this decree, certain of the prior partners of the Orinoco Oil Belt projects commenced several litigation and arbitration proceedings against the Republic and PDVSA. For more information regarding developments and awards regarding these disputes, see “Disputes Concerning the Oil Industry” below.

On February 18, 2016, the Ministry of Petroleum issued Resolution No. 015, effective as of February 18, 2016, which established the increase of fuel prices to: (1) Bs.6 per liter for 95 octane gasoline and (2) Bs.1 per liter for 91 octane gasoline. This modification represented a price increase of more than 6,000% with respect to 95 octane gasoline and of 1,282% with respect to 91 octane gasoline from the prices established by Resolution No. 301 of August 15, 2005 and published in the Official Gazette No. 38,251, dated August 16, 2005.

Petróleos de Venezuela, S.A.

To manage the assets acquired by the nationalization of the domestic oil industry, PDVSA was formed in 1975 as a state-owned enterprise. PDVSA’s charter documents provide that the President of the Republic designates the members of PDVSA’s board of directors by executive decree. PDVSA is the holding company for a group of oil and gas companies. PDVSA holds the world’s largest proven crude oil reserves with 302.250 billion barrels and daily crude oil production of 2.57 thousand bpd as of December 31, 2016, as measured by a combination of operational data, including volume of reserves, production, refining and sales. PDVSA carries out the exploration, development and production (“upstream”) operations in Venezuela and the sales, marketing, refining, transportation, infrastructure, storage and shipping (“downstream”) operations in Venezuela, the Caribbean, North America, South America, Europe and Asia. Through PDV Holding, a wholly owned subsidiary, PDVSA indirectly owns 100% of Citgo Petroleum Corporation (“CITGO”), a refiner and marketer of transportation fuels, petrochemicals and other industrial oil-based products in the United States. PDVSA plans to invest intensively in upstream and downstream projects in Venezuela and abroad in order to satisfy the current and expected global increase in energy demands.

All hydrocarbon reserves in Venezuela are owned by the Republic and not by PDVSA. Under the Hydrocarbons Law, every activity relating to the exploration and exploitation of hydrocarbons and their derivatives is reserved to the Republic, which may undertake such activities directly or through entities controlled by the Republic through an equity participation of more than 50%. At the current production rate of crude oil and gas, Venezuela has proven hydrocarbon reserves of crude oil for the next 335 years for oil and 100 years for gas.

PDVSA mainly sells crude oil to the United States, Canada, the Caribbean, South America, Africa, Europe and Asia. In addition, PDVSA refines crude oil, with a refining capacity of 2.8 million bpd and other feedstock in Venezuela and abroad into a number of products, including gasoline, diesel, fuel oil and jet fuel, petrochemicals and industrial products, lubricants and waxes, and asphalt. PDVSA is also engaged in the exploration and production of gas from off-shore sources with a production of 913 thousand barrel-of-oil equivalent, or “mboe,” per day as of December 31, 2015.

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Since its inception in 1975, PDVSA has been operating as a state-owned commercial entity vested with commercial and financial autonomy. PDVSA is regulated by the Ministry of Petroleum and is entitled to retain an amount in foreign currency denomination in order to meet its foreign currency-denominated investments and expenses. From 2005 to April 2011, the remaining balance of such proceeds, net of all applicable corporate income taxes, dividends and royalties, was required to be transferred to FONDEN to be used for social, educational, health care, liability management and special and strategic purposes.

In December 2014, Currency Exchange Agreement No. 32 was enacted to allow PDVSA and its subsidiaries to sell to Banco Central its foreign currencies from its operations at any official exchange rate in accordance with the Currency Exchange Agreements in force, and outside of the exchange control regime. For further information concerning the exchange control regime of Venezuela and applicable exchange rates during the periods of presentation, see “The Venezuelan Economy—Economic Policy and Legislation—Exchange Control Regime.”

PDVSA, the most important contributor to Venezuela’s GDP, exports and fiscal revenues, is responsible for coordinating most aspects of the petroleum industry, including administration, planning, operations, domestic and foreign marketing and capital investment. From 1978 through January 2006, PDVSA was responsible for the petrochemical sector, but this is now the responsibility of the Ministry of Petroleum. Since 1985, PDVSA has also been responsible for the development of coal resources located in western Venezuela, although in 2004 substantial responsibilities in this regard were transferred to Carbozulia, a fund for both regional development and for the development of Venezuela’s bitumen resources. Through its subsidiaries, PDVSA supervises, controls and develops the petroleum, gas and coal industries in Venezuela.

The Ministry of Petroleum oversees all activities with respect to hydrocarbons and determines overall policies concerning rates of production, new investments and resource conservation. In addition, the Minister of Petroleum is the chair of PDVSA’s General Shareholders’ Assembly, which sets PDVSA’s general policy.

In March 2004, PDVSA modified its organizational structure in order to (1) enhance internal control of its operations, (2) improve its corporate governance, (3) align its operating structure with the long-term strategies of its shareholder and (4) adhere to the Hydrocarbons Law with respect to the separation of different national oil industry activities. In May 2011, the National Executive appointed a new board of directors of PDVSA, which replaced the one designated in 2008. On September 2, 2014, President Maduro appointed Eulogio Del Pino as the president of PDVSA and a new board of directors was appointed.

PDVSA is structured into vertically-integrated geographic divisions to manage its upstream operations, including exploration, production and upgrading, which are located only in Venezuela. These divisions are referred to as the Eastern Division, the Western Division and the Orinoco Oil Belt Division and are managed by the Vice President of Exploration and Production. PDVSA’s downstream operations are located in certain regions in Venezuela, the Caribbean, North America, South America, Europe and Asia.

PDVSA’s Strategic Socialist Plan (Plan Estratégico Socialista) includes PDVSA’s business plan. This plan outlines the development of production and refining projects totaling U.S.$132 billion in Venezuela, the Caribbean, Latin America and Asia during its initial stage between 2016 and 2025. Such expenditures are subject to the availability of cash from its operations, obtaining financing on reasonable terms and the favorable pricing of crude oil and gas. During the three-year period ended December 31, 2015, PDVSA invested U.S.$66.7 million in development projects in such regions through cash on-hand and issuance of debt. During the year ended December 31, 2015, PDVSA invested U.S.$18.1 billion in such projects.

PDVSA is required to foster socio-economic development in Venezuela and promote the welfare of Venezuelan citizens. To that effect, PDVSA makes significant financial contributions to social programs, including transfers to FONDEN and other programs, which are included in its annual budget together with other expenses aimed to fund specific social projects, as determined by the PDVSA board of directors. PDVSA has promoted and participated in Venezuela’s social and economic development by contributing significant funding to agricultural developments, development of infrastructure and roads, programs related to the provision of food, health and education to the poor, as well as several other programs.

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In December 2015, charges were filed in the U.S. District Court for the Southern District of Texas against representatives of certain contractors and suppliers to PDVSA affiliates for the violation of anti-corruption and anti-money laundering laws, among other charges, in connection with international supply contracts and service contracts with a PDVSA affiliate between 2009 and 2014. Two more vendors of the PDVSA affiliate pleaded guilty on January 4, 2017. In all, eight defendants pleaded guilty, and four remained unnamed. Sentencing for all eight defendants was scheduled for August 30, 2017.

PDVSA also started its internal investigations with technical international support. Between February and May in 2017, the Prosecutor General charged a former manager of PDVSA with embezzlement and criminal association. The Prosecutor also started investigating an alleged embezzlement scheme, in which officials allegedly paid inflated fees to lease an oil rig from PetroSaudi International Ltd. The investigation resulted in charges against five current and former PDVSA executives.

In a similar scheme, the presidents of Castle Max Oil were arrested and charged with embezzlement and criminal association by inflating fees related to equipment sales in the eastern oil-producing state of Anzoátegui, and a senior manager of PDVSA and senior manager of Petropiar were arrested on suspicion of irregularities in contracts. The processes and investigations are still ongoing. During the second half of 2017, the Government arrested and detained more than 50 people in the oil industry accused of charges related to corruption and sabotage, including the president and five board members of CITGO. In December 2017, the Government arrested two former senior managers of PDVSA who served as president of the company between September 2014 and August 2017 and between August 2017 and November 2017, respectively. In addition, in December 2017, the Prosecutor General announced it would initiate criminal investigations against the former Minister of Petroleum and the former president of PDVSA who served in those positions between November 2004 and September 2014.

PDVSA and the Venezuelan Economy

PDVSA is the largest corporation in Venezuela. As of December 31, 2016, PDVSA’s total assets were U.S.$189.7 billion, compared to U.S.$198.5 billion on December 31, 2015. As of December 31, 2016, PDVSA’s total liabilities were U.S.$102.5 billion, compared to U.S.$117.7 billion on December 31, 2015. As of December 31, 2016, PDVSA’s non-current financial debt totaled U.S.$33.9 billion, compared to U.S.$36.9 billion on December 31, 2015, and PDVSA’s current financial debt totaled U.S.$7.1 billion at December 31, 2016, compared to U.S.$6.8 billion at December 31, 2015. Also as of December 31, 2016, PDVSA’s non-current liabilities totaled U.S.$53.6 billion, compared to U.S.$54.9 billion on December 31, 2015, and its current liabilities totaled U.S.$48.9 billion, compared to U.S.$52.7 billion on December 31, 2015.

For the year ended December 31, 2016, PDVSA’s revenues were U.S.$47.7 billion and its expenses were U.S.$45.8 billion.

PDVSA’s net cash provided by operating activities in 2016 was U.S.$21.6 billion, representing U.S.$828 billion of net income, U.S.$9.4 billion of depreciation and depletion, U.S.$3.9 billion in provisions for employee termination, pension and other post-retirement benefits, equity in earnings of non-consolidated investees of U.S.$23.0 million, U.S.$1.1 billion of asset impairment, less U.S.$94 million of deferred income taxes. PDVSA’s social development expenditures in 2016 totaled U.S.$977 million. For the year ended December 31, 2016, consolidated net cash provided in financing activities totaled U.S.$2.5 billion and net cash used in PDVSA’s investment activities totaled U.S.$12.1 billion.

For the year ended December 31, 2016, the average crude oil export price was U.S.$35.15 per barrel. PDVSA’s capital expenditures in Venezuela for exploration and production totaled U.S.$124 million for the year ended December 31, 2016, and its capital expenditures in Venezuela for refining and marketing totaled U.S.$1.78 billion.

The principal factors that affect PDVSA’s consolidated results are the volume of crude oil exported and variations in the general price levels of hydrocarbons. PDVSA’s production of crude oil and liquid petroleum gas averaged 2.6 million bpd in 2016 compared to 2.8 million bpd in 2015 and 2.9 million bpd in each of 2014, 2013 and 2012. PDVSA’s exports in 2016 amounted to 2.2 million bpd and 2.4 million bpd in each of 2015, 2014 and 2013.

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Because PDVSA is the single largest contributor to Venezuela’s GDP, exports and fiscal reserves, it has a significant influence on the Venezuelan economy. PDVSA is responsible for, among other things, making substantial royalty, dividend and tax payments to the Government and supporting Venezuela’s social development. For more information, see “Principal Sectors of the Venezuelan Economy—Petroleum and Natural Gas—Petróleos de Venezuela, S.A.”

Hydrocarbon Reserves and Exploration

PDVSA uses geological and engineering data to estimate its proven crude oil and natural gas reserves, including proven developed and undeveloped reserves. Such data is capable of demonstrating with reasonable certainty whether such reserves are recoverable in future years from known reservoirs under existing economic and operating conditions. PDVSA expects to recover proven developed crude oil and natural gas reserves principally from new wells and acreage that has not been drilled using its currently available equipment and operating methods. PDVSA reviews its crude oil and natural gas reserves annually to take into account, among other things, production levels, field reviews, new reserves from discoveries, year-end prices and economic and other factors. Proven reserve estimates may be materially different from the quantities of crude oil and natural gas that are ultimately recovered.

In 2009, one of the largest natural gas reservoirs in the Gulf of Venezuela was discovered. Referred to as Perla-1X, the natural gas reservoir is part of the Rafael Urdaneta project and is expected to take several years to develop fully. According to reports from PDVSA, the field could contain between 7–8 trillion cubic feet of natural gas.

As of December 31, 2016, Venezuela had estimated proven crude oil reserves totaling 302.25 billion barrels (including an estimated 261.3 billion barrels of heavy and extra-heavy crude oil in the Orinoco Oil Belt). Based on 2016 production levels, Venezuela’s estimated proven reserves of crude oil have a remaining life of 323 years.

As of December 31, 2016, Venezuela had proven reserves of natural gas amounting to 202.7 tcf. Virtually all of Venezuela’s natural gas reserves are composed of natural gas incidental to the development of crude oil reserves. During 2016, 20% of the natural gas produced was re-injected for purposes of maintaining pressure in reservoirs.

As of December 31, 2016, proven developed reserves of crude oil and natural gas represented 4.3% and 19.4%, respectively, of Venezuela’s total estimated proven crude oil and natural gas reserves on an oil equivalent basis. PDVSA maintains an active exploration and development program designed to increase its proven crude oil reserves and production capacity. PDVSA currently conducts its exploration and development activities in the Western Zulia Basin, the Central Southern Barinas-Apure Basin, the Eastern Basin in the Monagas and Anzoátegui states, and the Orinoco Oil Belt.

In 2015, ten additional distribution networks for liquefied petroleum gas were commissioned and built. These new distribution networks provided gas service to 29,000 additional families and covered an additional 141 km. In 2016, the Committee for the Control and Monitoring of the Petrochemical Sector was created, which aims to optimize resources and increase efficiency through control of the industrialization chain for petrochemical products.

PDVSA continuously conducts exploratory activity throughout Venezuela and conducts such activities in other countries. In 2012, PDVSA’s exploration expenses totaled U.S.$492.0 million. The increase in exploration expenses was primarily due to the Orinoco Oil Belt projects. In 2013, PDVSA’s exploration expenses totaled U.S.$140.0 million. The decrease of U.S.$352.0 million in exploration expenses was primarily due to the decrease in geophysical-related expenses of PDVSA’s subsidiary PDVSA Petróleo. In 2014, PDVSA’s exploration expenses totaled U.S.$76.0 million and in 2015 they totaled U.S.$50.0 million. The decrease of U.S.$26.0 million in exploration expenses between 2014 and 2015 was primarily attributable to PDVSA America’s discontinuation of operations. In 2016, PDVSA’s exploration expenses totaled U.S.$124.0 million, as compared to U.S.$50.0 million in 2015. This increase was primarily due to increased employment expenses, including an increase in the cost of benefits for former employees.

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The following table shows proven crude oil and natural gas reserves and proven developed crude oil and natural gas reserves, all located in Venezuela. Proven reserve quantities exclude natural gas liquids.

December 31, 2016
(million barrels, except where noted)
Proven Reserves(1)
Condensate, light and medium crude oil (API gravity of 21° or more)	22,780
Heavy and extra heavy crude oil (API gravity of less than 21°)(2)	279,470
Total crude oil	302,250
Natural gas (bcf)	202,698
Remaining reserve life of crude oil (years)(3)	335
Proven Developed Reserves
Condensate, light and medium crude oil (API gravity of 21° or more)	4,158
Heavy and extra heavy crude oil (API gravity of less than 21°)(2)	8,786
Total crude oil	12,944
Percentage of proven crude oil reserves(4)	4	%
Natural gas (bcf)	39,341

(1) Proven reserves include both proven developed reserves and proven undeveloped reserves.

(2) Includes reserves in the Orinoco Oil Belt.

(3) Based on crude oil production and total proven crude oil reserves.

(4) Proven developed crude oil reserves divided by total proven crude oil reserves.

Source: PDVSA.

Refining

PDVSA has invested in its National and International Refining Systems (Sistema de Refinación Nacional e Internacional) to increase refining capacity and complexity and improve installations to satisfy global quality standards. Deep conversion capabilities in PDVSA’s Venezuelan refineries have enabled it to improve yields by allowing a greater percentage of higher value products to be produced. The following table sets forth the refineries where PDVSA holds an interest, the rated crude oil refining capacity and PDVSA net interest at December 31, 2016.

					Refining Capacity(1)
Location	Owner		PDVSA’s Interest		Total Rated Crude Oil		PDVSA’s Net Interest
			(%)		(million bpd)		(million bpd)
Venezuela:
CRP, Falcón		PDVSA		100		955		955
Puerto La Cruz, Anzoátegui		PDVSA		100		187		187
El Palito, Carabobo		PDVSA		100		140		140
Bajo Grande, Zulia		PDVSA		100		16		16
San Roque, Anzoátegui		PDVSA		100		5		5
Total Venezuela						1,303		1,303
Caribbean:
Isla(2)		PDVSA		100		335		335
Camilo Cienfuegos		Cuvenpetrol(3)		49		65		32
Jamaica		Petrojam(4)		49		35		17
Haina, Dominican Republic		Refidomsa PDVSA(5)		49		34		17
Total Caribbean						469		401
United States:
Lake Charles, Louisiana		CITGO		100		425		425
Corpus Christi, Texas		CITGO		100		157		157
Lemont, Illinois		CITGO		100		167		167
Total United States						749		749

88

					Refining Capacity(1)
Location	Owner		PDVSA’s Interest		Total Rated Crude Oil		PDVSA’s Net Interest
			(%)		(million bpd)		(million bpd)
Europe:
Nynäshamn, Sweden		Nynäs(8)		50		29		15
Gothenburg, Sweden		Nynäs(8)		50		11		5
Dundee, Scotland		Nynäs(8)		50		27		13
Eastham, England		Nynäs(8)		25		18		5
Total Europe						85		38
Worldwide Total						2,606		2,491

(1) Does not include Chalmette Refining, LLC, which was sold in October 2015.

(2) Leased in 1994. The lease expires in 2019.

(3) A joint venture with Commercial Cupet S.A.

(4) A joint venture with Petroleum Corporation of Jamaica (PCJ).

(5) A joint venture with Refidomsa.

(6) A joint venture with Hess Co.

(8) A joint venture with Neste Oil AB.

To maintain PDVSA’s competitiveness in international markets, PDVSA has adopted a rigorous and comprehensive business plan, which involves large investments in Venezuela and overseas. These investments are targeted at improving PDVSA’s refining systems and adapting them to meet environmental regulations and domestic and international product quality requirements. The business refining plan includes projects aimed at manufacturing gasoline and diesel through deep conversion. All investment efforts will support PDVSA’s commercial strategy of market diversification.

The following table sets forth PDVSA’s aggregate refinery capacity, input supplied by PDVSA (out of PDVSA’s own production or bought in the open market), utilization rate and product yield for years ended December 31, 2012, 2013, 2014 and 2015.

Refining Production	At or for the year ended December 31,
	2013					2014					2015					2016
	(million bpd)					(million bpd)					(million bpd)					(million bpd)
Total Refining Capacity(1)		3,267					3,267					3,236					2,606
PDVSA’s net interest in refining capacity(1)		2,822					2,822					2,807					2,491
Refinery input(2)
Crude Oil-Sourced by PDVSA
Light		312		14	%		332		15	%		284		13	%		206		11	%
Medium		649		29	%		639		29	%		596		27	%		450		25	%
Heavy		454		21	%		417		19	%		473		21	%		374		21	%
Sub-total		1,415		64	%		1,388		63	%		1,353		61	%		1,030		57	%
Crude Oil-Sourced by Others
Light		241		11	%		283		13	%		374		17	%		368		20	%
Medium		96		4	%		58		3	%		15		1	%		5		0	%
Heavy		191		9	%		209		10	%		210		9	%		153		9	%
Sub-total		528		24	%		550		26	%		599		27	%		526		29	%
Other Feedstock
Sourced by PDVSA		185		8	%		155		7	%		155		7	%		165		9	%
Sourced by Others		107		5	%		129		6	%		147		7	%		116		6	%
Total Transfers(6)		(28	)				(38	)				(40	)	—			(37	)	(2	%)
Gasoline / Naphtha		(20	)	—			(34	)	—			(32	)	—			(28	)	(2	%)
Distillate		(8	)	—			(4	)	—			(8	)	—			(8	)	0	%
Others		—		—			—		—			—		—			(1	)	0	%

89

Refining Production	At or for the year ended December 31,
	2013					2014					2015					2016
	(million bpd)					(million bpd)					(million bpd)					(million bpd)
Sub-total		264		12	%		246		11	%		262		12	%		244		14	%
Total Refining Input
Sourced by PDVSA(3)		1,600		71	%		1,543		70	%		1,508		68	%		1,195		66	%
Sourced by Others		635		29	%		679		32	%		746		34	%		642		36	%
Transfers		(28	)	—			(38	)	(2	%)		(40	)	—			(37	)	(2	%)
Total refinery input		2,207		100	%		2,184		100	%		2,214		100	%		1,800		100	%