OFFERING CIRCULAR

The Legal Entity Aruba U.S.$93,000,000

6.40% Notes Due 2015 __________________

The Legal Entity Aruba is offering hereby U.S.$93,000,000 aggregate principal amount of its 6.40% Notes due September 6, 2015. The Notes will constitute our direct, unsecured and unconditional obligations and will rank at least pari passu in priority of payment with all of our other present and future unsecured and unsubordinated indebtedness, save only for such of our obligations as may be preferred by mandatory provisions of applicable law. We will pay principal on the Notes in equal annual installments on September 6 of each year, commencing September 6, 2006. We will pay interest on the outstanding principal amount of the Notes semiannually in arrears on March 6 and September 6 of each year, commencing March 6, 2006. We will pay principal and interest on the Notes in U.S. dollars without deducting amounts we may be required to withhold or deduct for Aruban withholding or other taxes, subject to certain limitations. The Notes are not redeemable prior to maturity.

We have applied to list and admit the Notes for trading on the EuroMTF, the alternative market of the Luxembourg Stock Exchange.

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The Notes have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold within the United States or to, or for the account of or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Accordingly, the Notes are being offered and sold only (a) to “qualified institutional buyers” (as defined in Rule 144A of the Securities Act) and (b) in offshore transactions outside the United States to non-U.S. persons in compliance with Regulation S under the Securities Act. For details about eligible offerees, deemed representations and agreements by investors and transfer restrictions, see “Transfer Restrictions”.

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Price: 98.68% plus accrued interest, if any, from September 6, 2005. __________________

Delivery of the Notes will be made in book-entry form through the facilities of Euroclear Bank S.A./N.V., as operator of the Euroclear system, and Clearstream Banking, société anonyme, on or about September 6, 2005.

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The date of this Offering Circular is August 31, 2005.

THE CARIBBEAN BASIN*

ARUBA

* Source: www.maps.com.

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In this Offering Circular, references to “the Issuer,” “Aruba”, “the Government”, “we,” “our” and “us” (and similar expressions) are to the Legal Entity Aruba, the issuer of the Notes, and references to the “Initial Purchaser” are to RBTT Merchant Bank Limited, in each case unless the context otherwise requires.

Aruba, having made all reasonable inquiries, hereby confirms to you that, as of this date, this Offering Circular contains all information that is material in the context of the issue and offering of the Notes; that such information is true and accurate in all material respects and is not misleading in any material respect; that any opinions, predictions or intentions expressed herein on the part of Aruba are honestly held or made and are not misleading in any material respect; that all proper inquiries have been made to ascertain and to verify the foregoing; and that this Offering Circular does not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements herein, in the light of the circumstances under which they are made, not misleading. Aruba accepts responsibility accordingly.

No person has been authorized to give any information or to make any representation to you regarding Aruba, the Notes or this offering other than those contained in this Offering Circular, and, if given or made, such information or representation must not be relied on as having been authorized by Aruba. Neither the delivery of this Offering Circular nor the offering, sale or delivery of any Notes shall under any circumstances imply that there has been no change in the Aruban economy or the economic or financial results of Aruba, since the date of this Offering Circular.

The Initial Purchaser makes no representation or warranty as to the accuracy or completeness of such information and will not have any liability for any representations (expressed or implied) contained in, or for any omissions from, this Offering Circular. Nothing contained in this Offering Circular is, nor should you rely upon anything as, a promise or representation by the Initial Purchaser as to the past or the future. By accepting delivery of this Offering Circular, you agree to the foregoing.

Aruba is offering the Notes in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended, which we refer to as the “Securities Act”. These exemptions apply to offers and sales of securities that do not involve a public offering. The Notes have not been recommended by any U.S. or non-U.S. securities authorities, and these authorities have not determined that this Offering Circular is accurate or complete. Any representation to the contrary is a criminal offense.

The Notes will be subject to restrictions on resale and transfer as described under “Transfer Restrictions”. By purchasing any Notes, you will be deemed to have represented and warranted to the effect set forth in, and agreed to, all the provisions contained in that section of this Offering Circular. Noteholders may be required to bear the financial risks of their investment for an indefinite period of time. In addition, until the completion of the 40 day period commencing on the closing date of the offering of the Notes (the “Distribution Compliance Period”), an offer or sale of notes within the United States, or to, or for the account or which we refer to as benefit of, a U.S. person (within the meaning of Regulation S), by a dealer (whether or not participating in the offering) may violate the registration requirements of the Securities Act unless the dealer makes the offer or sale in compliance with Rule 144A or another exemption from registration under the Securities Act.

The distribution of this Offering Circular and the offer, sale or delivery of the Notes in certain jurisdictions may be restricted by law. Each of Aruba and the Initial Purchaser require that you and anyone who receives this Offering Circular inform themselves about and observe such restrictions. This Offering Circular does not constitute, and may not be used for or in connection with, any offer to, or solicitation by, anyone in any jurisdiction in which, or to or by any person whom, such offer or solicitation would be unlawful.

You must comply with all applicable laws and regulations in force in any jurisdiction in which you purchase, offer or sell the Notes or possess or distribute this Offering Circular. You must obtain any consent, approval or permission you require for the purchase, offer or sale of the Notes under the laws and regulations in force in any applicable jurisdiction to which you are subject or in which you make such purchases, offers or sales. Neither Aruba nor the Initial Purchaser are representing that the Notes are a legal investment for prospective purchasers of the Notes, and neither Aruba nor the Initial Purchaser shall have any responsibility therefor.

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This Offering Circular is not intended to provide the basis for any credit or other evaluation and should not be considered as a recommendation by Aruba or the Initial Purchaser that you subscribe for or purchase any Notes. You must make your own independent investigation of the financial condition and affairs of, and your own appraisal of the creditworthiness of, Aruba. The information contained in this Offering Circular is solely for use by prospective purchasers of the Notes in considering a subscription for or purchase of the Notes. This Offering Circular should not be used for business, legal or tax advice. Prospective purchasers of the Notes should consult their own advisors.

The contents of this Offering Circular are confidential and are submitted to selected prospective purchasers of the Notes described below, and may not be reproduced or used in whole or part for any other purpose, nor can they be disclosed without the written consent of the Initial Purchaser.

Statements contained in this Offering Circular describing documents and agreements are provided in summary form only and such documents are qualified in their entirety by reference to such documents and agreements.

Aruba and the Initial Purchaser reserve the right to reject any offer to purchase any of the Notes, in whole or in part, for any reason, as well as the right to sell less than the principal amount of the Notes offered by this Offering Circular or for which any prospective purchaser has subscribed. An offer may be withdrawn at any time before the closing of an issue of the Notes and will be made subject to the terms described in this Offering Circular, the Notes, the Fiscal Agency Agreement and the Purchase Agreement (referred to in this Offering Circular).

Notwithstanding any provision herein and the otherwise confidential nature of this Offering Circular and its contents, and effective from the date of commencement of discussions concerning this offering of Notes, each party hereto (and each employee, representative, or other agent of such party) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of this transaction and all materials of any kind (including opinions and other tax analyses) that are provided to it relating to such tax treatment and tax structure, except to the extent that any such disclosure could reasonably be expected to cause this offering not to be in compliance with securities laws. In addition, no person may disclose the name of or identifying information with respect to any party identified herein or other non-public business or financial information that is unrelated to the tax treatment or tax structure of this transaction without the prior consent of the Issuer. For purposes of this paragraph, the tax treatment of this transaction is the purported or claimed U.S. federal income tax treatment of this transaction and the tax structure of this transaction is any fact that may be relevant to understanding the purported or claimed U.S. federal income tax treatment of this transaction.

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NOTICE TO NEW HAMPSHIRE INVESTORS

NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER CHAPTER 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.

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PRESENTATION OF CERTAIN INFORMATION

Our fiscal year ends on December 31 of each year. The fiscal year ended December 31, 2004 is referred to in this Offering Circular as “2004”, and other years are referred to in a similar manner. Totals contained in tabular information in this Offering Circular may reflect the effect of rounding.

In this Offering Circular, all references to “Florin” or “AFL” are to Aruban Florin, the lawful currency of Aruba. Unless otherwise specified herein, amounts in Aruban currency are expressed herein in Florin. All references to “U.S. dollars,” “dollars” or “U.S.$” are to United States dollars, the lawful currency of the United States. References to “ANG” are to the Antillean Guilder, the Aruban currency prior to status aparte, references to “NLG” are to the Dutch Guilder, the official currency of the Netherlands prior to its adoption of the Euro, and references to “Euro” or “EUR” are to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the Treaty establishing the European Community, as amended. The Dutch Guilder/Euro exchange rate was fixed at 1 EUR = 2.203710 NLG.

Certain amounts stated herein in U.S. dollars have been translated, for the convenience of the reader, from Florin at the rate in effect on December 31, 2004 of 1.79 AFL = U.S.$1.00. See “Exchange Rates.” Such translations should not be construed as a representation that Florin could have been converted at such rate on such date or at any other time.

ENFORCEMENT OF CIVIL LIABILITIES

It may be difficult for investors to obtain or realize upon judgments of courts in the United States against us. We are a foreign sovereign government, generally immune from lawsuits and from the enforcement of judgments under United States law. Foreign sovereign governments, however, may waive this immunity and limited exceptions to this immunity are set forth in the US Foreign Sovereign Immunities Act of 1976, or the “Immunities Act”. In addition, substantially all of our assets are located outside of the United States, and all of the representatives of the Issuer and certain other parties named herein reside outside the United States and substantially all of the assets of such persons are located outside the United States.

Except as provided below, to the extent that we or any of our assets may have, or may hereafter become entitled to or have attributed to it (whether or not claimed), any right of immunity, on the grounds of sovereignty (including under the Immunities Act) or otherwise, from any action, suit or proceeding, from setoff or counterclaim, from the jurisdiction of any court, from service of process upon it or any agent, from attachment upon or in aid of execution of judgment or from execution of judgment or other legal process or proceeding for the giving of any relief or for the enforcement of judgments, whether in the United States, Aruba or elsewhere, we have, to the fullest extent permitted by applicable law, waived and agreed not to assert any such immunity for itself, its property, assets or revenues, wherever located with respect to its obligations, liabilities or any other matter under or arising out of or in connection with this Fiscal Agency Agreement and the Notes. However, we reserve the right to plead sovereign immunity under the Immunities Act with respect to actions brought against us under United States federal securities laws or any state securities laws. In the absence of a waiver of immunity by us with respect to such actions, it would not be possible to obtain a U.S. judgment in such an action unless a court were to determine that we are not entitled to sovereign immunity under the Immunities Act with respect to that action. Moreover, you may not be able to enforce a judgment obtained under the Immunities Act against our property located in the United States except under the limited circumstances specified in the Immunities Act. As a result, holders of the Notes may be required to pursue such claims against us in Aruba and under Aruban law. In addition, pursuant to art. 436 of the Aruban Code of Civil Procedures, the attachment of assets of Aruba that are intended for public service is prohibited.

We will, in the Fiscal Agency Agreement (as defined in “Description of the Notes”) and in the Notes, irrevocably submit to the jurisdiction of any New York State or U.S. federal court in The Borough of Manhattan, The City of New York, in respect of any claim or action arising out of or based upon the Fiscal Agency Agreement or the Notes which may be instituted by any holder of Notes, such as, for example, a claim for breach of any obligation under the Fiscal Agency Agreement or the Notes. We have appointed CT Corporation System, located at 111 Eighth Avenue, New York, New York, 10011, as our agent upon which process may be served in any claim or action arising out of or based upon the Notes or the Fiscal Agency Agreement which a holder may institute in any

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New York State or U.S. federal court in The City of New York. Any process or other legal summons in connection with any such action may be served upon us by delivery to CT Corporation Service or by any other means that may have become permissible under the laws of the State of New York and Aruba at the time of such service. However, we have not consented to service for suits made under the U.S. federal or state securities laws and, as explained above, our waiver of immunity does not extend to those actions.

We have been advised by our Aruban counsel that final and conclusive judgments against us for the payment of a sum of money rendered by a U.S. federal or New York State court or other jurisdictions outside Aruba, including in respect of civil liabilities predicated upon applicable securities laws, may be enforced in Aruba against us and our respective representatives and certain others named herein without reconsideration of the merits, provided that:

• such court has jurisdiction in conformity with internationally recognized standards,

• the procedures underlying such judgment meet the standard for due process in the foreign jurisdiction; and

• such foreign judgment is not contrary to the rules of Aruban public order.

Upon a determination by an Aruban judge that such foreign judgment has satisfied these criteria, the judgment shall be provided with an exequatur and be enforced against us.

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FORWARD-LOOKING STATEMENTS

This Offering Circular contains statements which are forward-looking within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this Offering Circular and include statements regarding our intent, belief or current expectations and those of our representatives. Although we believe that in making any such statements our respective expectations are based on reasonable assumptions, any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. When used in this Offering Circular, the words “anticipates”, “believes”, “expects”, “intends” and similar expressions, as they relate to us or Aruba, are intended to identify those forward-looking statements.

These forward-looking statements are subject to numerous risks and uncertainties. There are important factors that could cause actual results to differ materially from those in forward-looking statements, certain of which are beyond our control, including information identified in “The Legal Entity Aruba”, “The Aruban Economy”, “External Economy”, “Public Finance”, “Public Debt” and “The Monetary System”, as well as:

• adverse external factors, such as terrorist attacks in the United States, the United Kingdom or elsewhere, acts of war, any general slowdown in the U.S. or global economies, a decrease in tourism or a significant increase in oil prices; and

• adverse domestic factors, such as social and political unrest in Aruba, high domestic interest rates, developments concerning Aruba’s health care or pension systems, climatic events or the abandonment of its pegged exchange rate.

All forward-looking statements contained in this Offering Circular are qualified in their entirety by these factors. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. We disclaim any obligation or undertaking to update publicly or revise any forward-looking statement contained in this Offering Circular, whether as a result of new information, future events or otherwise. Future events or circumstances could cause actual results to differ materially from historical results or those anticipated.

EXCHANGE RATES

Since 1986, the AFL has been pegged to the U.S. dollar at a rate of 1.79 AFL to U.S.$1.00. Prior to status aparte, the prior Aruban currency, the ANG, was pegged to the U.S. dollar at the rate of 1.79 ANG to U.S.$1.00 since 1972. As a result, our currency has been pegged to the U.S. dollar for over 30 years.

ADDITIONAL INFORMATION

Each purchaser of the Notes who purchases from the Initial Purchaser will be furnished with a copy of this Offering Circular and any related amendments or supplements to this Offering Circular. While any Notes remain outstanding, we will make available, upon request, to any beneficial owner and any prospective purchaser of the Notes the information required pursuant to Rule 144A(d)(4) under the Securities Act during any period in which we are not subject to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended.

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TABLE OF CONTENTS

Page

Presentation of Certain Information ............................................................................................................................ iii

Enforcement of Civil Liabilities .................................................................................................................................. iii

Forward-Looking Statements ........................................................................................................................................v

Exchange Rates .............................................................................................................................................................v

Additional Information ..................................................................................................................................................v

Summary........................................................................................................................................................................1

Use of Proceeds .............................................................................................................................................................9

The Legal Entity Aruba ...............................................................................................................................................10

The Aruban Economy..................................................................................................................................................24

External Economy .......................................................................................................................................................41

Public Finance .............................................................................................................................................................49

Public Debt ..................................................................................................................................................................57

The Monetary System..................................................................................................................................................66

Description of the Notes ..............................................................................................................................................82

Taxation.......................................................................................................................................................................94

Plan of Distribution .....................................................................................................................................................98

Transfer Restrictions..................................................................................................................................................100

Validity of the Notes..................................................................................................................................................103

General Information ..................................................................................................................................................103

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SUMMARY

Aruba

The following is a summary of certain information contained elsewhere in this Offering Circular. Reference is made to, and this information is qualified in its entirety by, the more detailed information and financial information, including the notes thereto, contained elsewhere in this Offering Circular.

General

Aruba is an island nation situated in the Caribbean Sea and is one of the three members of the Kingdom of the Netherlands, which we refer to as the “Kingdom”, along with the Netherlands Antilles and the Netherlands itself. Aruba is an autonomous entity within the Kingdom and was granted status aparte after seceding from the Netherlands Antilles in 1986. Under status aparte, Aruba has full autonomy over internal affairs, while the Kingdom’s government in The Hague has responsibility over Kingdom affairs, including but not limited to defense and foreign affairs. Under Article 36 of the Statuut (the “Kingdom’s constitution”), the three parties within the Kingdom are required to come to each others’ assistance should they be beset by severe difficulties. Under this agreement (referred to colloquially as the “Triangle Agreement”), the Netherlands came to the aid of the Netherlands Antilles when it was affected by hurricanes and to the aid of Aruba when the closure of its oil refinery in 1985 threatened financial difficulties. In addition, the Kingdom retains the right to intercede in the administration of the Netherlands Antilles and Aruba should it be deemed necessary, by placing the respective party under supervision.

Relationship with the Kingdom

General

Aruba shares good relations with the Kingdom. The Netherlands’s support to Aruba has increasingly taken the form of technical assistance and advice on various policy issues such as the strengthening of the legal system, taxation policies and the implementation of good governance principles (administrative principles used to judge Government action and decisions and that can be enforced by the courts, including principles of legality, prudence, motivation of decisions and equality in similar circumstances). Following the terrorist attacks of September 11, 2001, the Netherlands and the United States have also assisted and trained the island’s personnel in implementing anti-terrorism measures.

Fiscal Independence

In recognition of Aruba’s objective to achieve fiscal independence from the Kingdom, we and the Netherlands formed a development fund in 2001, the Fondo Desaroyo Aruba, or “FDA”. The FDA is designed so that, as we move towards fiscal independence, our annual contribution to the FDA will increase and the Netherlands’ annual contribution will decrease until terminating in 2009.

The original agreement for the FDA negotiated in 2000 called for a 10-year schedule for annual contributions to the FDA, beginning in 2002. The FDA commenced operation in 2002, at which time the accrued annual contributions of both us and the Netherlands from 2000 to 2002 were deposited. The total contributions to the FDA by the Netherlands and us are to be NLG 220 million and AFL 180 million, respectively, and are to be used to finance Government projects in four areas (health care, sustainable economic development, education and governance and law enforcement).

Under the FDA agreement, the Netherlands also agreed to reduce our debt to the Netherlands by certain specified annual amounts, up to a maximum of NLG 120 million, subject to Aruba achieving a balanced budget. The agreement provides that, if we fail to achieve a balanced budget for any three consecutive years, the Aruban and Netherlands governments will meet to determine how to allocate an amount of funds from the Netherlands equivalent to the amount of debt that would have been forgiven had a balanced budget been achieved, while Aruba continues to pay down the bilateral debt. As Aruba has to date not achieved a balanced budget, discussions have

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been held with the Netherlands, the preliminary results of which have been that a substantial portion of the debt forgiveness provision has been allocated towards law enforcement programs. In 2007, the Netherlands and Aruba will again evaluate the current agreement.

Domestic Economy

Overview

We have a small, open economy and, like many other small economies, our economy is relatively undiversified. Prior to 1986, our economy was primarily centered around the operations of the oil refinery, then owned by Exxon. When that refinery closed in 1985, we readjusted our economy around other products and services, principally tourism. Currently, despite the reopening of the refinery by Coastal in 1991, the substantial majority of our GDP is provided by service activities, while agricultural and industrial activities (including manufacturing and construction) and public utilities (including oil refining activities) contribute a much smaller portion of our GDP. In particular, for each of the last five years, we estimate that we directly and indirectly derived over 50% of our GDP from tourism. Other principal sectors of our economy include construction, housing, utilities and public administration and education.

The Aruban economy has since 2000 been driven primarily by private sector investment and consumption and by growth in exports of goods and services (principally tourism). In particular, private consumption accounted for 52.8% of nominal GDP in 2004, compared to Government consumption of 26.4% of nominal GDP. Private investment accounted for 27.7% of nominal GDP in 2004, while Government investment, which decreased each year from 2000 through 2002, increased to 1.8% of nominal GDP in 2004, its second consecutive yearly increase.

Tourism

Tourism is the greatest contributor to the Aruban economy, contributing an amount greater than 50% of our nominal GDP and 78.8% of current account receipts (excluding the oil sector and the Free Zone). A reason overwhelmingly cited for travel to Aruba is vacation, according to 85.2% of stay-over visitors in 2004 in a survey conducted by the Central Bureau of Statistics, or “CBS”. Since 2000, tourist arrivals in Aruba have increased on average approximately 5.6% per annum, with tourism receipts increasing on average approximately 4.3% per annum. Tourism receipts in 2004 were AFL 1.9 billion (approximately U.S.$1.0 billion), an increase of 22.2% from AFL 1.5 billion (approximately U.S.$0.8 billion) in 2003.

Total tourist arrivals (stay-over visitors and cruise passengers) in 2004 increased by 9.4% to approximately 1.30 million, as compared to approximately 1.18 million tourist arrivals in 2003, according to the Aruba Tourism Authority, or “ATA”, reflecting significant increases in the number of both stay-over and cruise visitors. In 2003, total tourist arrivals decreased by 3.3% to 1.18 million, as compared to 1.22 million in 2002, reflecting a marginal decrease in stay-over visitors and a more significant decline in cruise visitors. Revenues attributable to tourism increased 22.7% in 2004 to AFL 1,872.0 million from AFL 1,526.1 million in 2003, which itself reflected a 3.3% increase from AFL 1,475.3 million in 2002. We estimate that Aruba captures 3.0% of the cruise market and 3.8% of the stay-over visitor market in the Caribbean region. During 2004, the ATA spent approximately U.S.$20 million in tourism marketing activities, including international publicity, brochures and public relations, of which approximately U.S.$12 million was spent in the United States, the primary source of tourist arrivals into Aruba. See also “—Marketing”.

Results in our tourism industry in 2003 and 2004 reflect the stabilization and subsequent reversal of declining tourism activity that started in the last quarter of 2001 that saw a downward trend in arrivals as a result of the events of September 11th of that year, and which was subsequently exacerbated by adverse shocks to the economic and business climate in the United States (our primary tourist market), including the wars in Afghanistan and subsequently in Iraq, the bursting of the stock market bubble and corporate accounting scandals. In addition, international trade was affected by the then strong U.S. dollar and much weaker recoveries in most other parts of the world economy. Under those circumstances, consumer confidence declined and people were reluctant to travel abroad. Furthermore, political and social turbulence in Aruba’s second largest tourism market, Venezuela, resulted in a significant decrease in the number of Venezuelan tourists coming to Aruba.

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Based on data compiled by the ATA, during the first quarter of 2005, total visitor arrivals increased 8.1% to 391,527, as compared to 362,259 in the corresponding quarter in 2004. Of the total visitors for the first quarter of 2005, 200,868 were stay-over visitors and 190,659 were cruise passengers, representing increases of 13.4% and 2.9%, respectively, as compared to total stay-over visitors and cruise passengers during the same period of 2004. The increase in tourist arrivals during the first quarter of 2005 was partly a result of from the promotional efforts in marketing Aruba’s tourism products abroad.

Recently, Aruba has received intense media coverage in connection with the disappearance in Aruba of American tourist Natalee Holloway on May 30, 2005. The case has yet to be resolved although the Government is working diligently, with the help of the Netherlands and the U.S. authorities, to bring the case to an expeditious completion. Due to the comprehensive attention from the U.S. press, it remains to be seen what impact, if any, the incident will have on Aruban tourism, especially with respect to visitors from the United States. However, early indicators appear to be favorable in this respect. Based on data compiled by the ATA, during the first seven months of 2005, visitor arrivals totaled 471,892, an increase of 6.9% compared to the corresponding period of 2004. Of the total visitors during this period, 316,364 came from the United States, an increase of 16.1% compared to the corresponding period in 2004. In addition, data indicates that arrivals from the United States from May 31 to July 31, 2005 increased 20.4% compared to the same period in 2004.

External Economy

Aruba’s balance of payments is dependent on international economic developments as well as domestic economic policies and programs. In 2004, the balance of payments recorded an AFL 11.2 million overall surplus, compared to an AFL 61.2 million deficit in 2003. The balance of payments surplus in 2004 resulted primarily from an increase in the current account to an AFL 17.8 million surplus from an AFL 259.1 million deficit in 2003, principally due to an increase in the goods and services balance which more than offset a decrease in the capital and financial account from an AFL 165.3 million surplus in 2003 to an AFL 9.3 million deficit in 2004, primarily due to a decrease in capital transfers.

In 2004, our total exports equaled AFL 142.6 million, or 3.7% of nominal GDP, and our total imports equaled AFL 1,568.3 million or 41.1% of nominal GDP. Because our economy is predominantly service-oriented, we historically have imported, and in the future likely will continue to import more goods than we export, and therefore have and likely will continue to have large merchandise trade deficits.

Public Finance

The Government has incurred an overall budget deficit for each of the last five years, except 2003, largely because the Government received grants in that year of AFL 201.8 million, of which approximately AFL 172 million stemmed from the SACE debt forgiveness and approximately AFL 30 million came from the Netherlands as contribution to FDA. During this period, the overall budget deficit averaged 1.5% of GDP. The Government’s overall budget deficit increased to AFL 229.6 million in 2004 from AFL 31.2 million in 2000. This deficit increase since 2000 has been mainly the result of current expenditures, particularly funding for the General Health Insurance (Algemene ZiektekostenVerzekering, or “AZV”) and the Civil Servants Pension Fund (Algemeen Pensioenfonds van Aruba, or “APFA”). For 2004, the overall budget deficit amounted to 6.0% of GDP, as compared to a surplus amounting to 4.1% of GDP for 2003.

Aruba posted a deficit of AFL 229.6 million in 2004, predominantly a reflection of the debt conversion with the APFA, as compared to an AFL 147.3 million surplus in 2003, which surplus was principally driven by the approximately AFL 172 million SACE debt forgiveness accounted for as a grant in 2003. If the debt forgiveness of SACE in 2003 as well as the APFA settlement in 2004, both transactions which had no actual cash effects, are excluded from the deficit calculations, the results would be, respectively, deficits of AFL 25.7 million or 0.7% of GDP, in 2003 and AFL 30.6 million or 0.8% of GDP, in 2004. In 2004, total expenditures increased by 30.7% to AFL 1,142.5 million from AFL 873.9 million in 2003.

The Government has historically been unable to meet all of its funding obligations in the healthcare and pension systems from its existing revenue base and accordingly has had to borrow funds on the domestic and international capital markets to fund the resulting deficits.

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In 2004, the Central Bank of Aruba, or “Central Bank”, proposed the adoption of a fiscal responsibility law to improve transparency, accountability and fiscal management, promoting fiscal discipline and execution practices and by establishing numeric fiscal rules. In January 2005, the Minister of Finance and Economic Affairs asked the IMF for technical assistance in designing and implementing such a fiscal responsibility law. This proposed legislation remains in the development stage, and no timetable has to date been set for its completion or adoption.

Public Debt

The Constitution requires that any public sector debt payable from any amount deposited into Aruba’s consolidated fund be incurred pursuant to a law. Debt obligations of the Government, including the interest and amortization payments with respect to that debt, and the cost, charges and expenses incidental to the management of that debt are charged to the consolidated fund (and payment of principal and interest on the Notes will be paid from the consolidated fund). As a general principle, we submit any public sector debt proposed to be paid from Aruba’s consolidated fund for approval by Parliament as part of our annual budget, which once approved has the status of law in Aruba. We also may seek the approval of other public sector debt that is not initially included in our annual budget by submitting a supplemental approval request to Parliament. In 2004, a supplemental approval was requested and granted to cover outstanding deficits to the AZV.

As of December 31, 2004, all of Aruba’s public sector debt was, and for each of the preceding four years has been, Government debt because, by law, only the Government can legally borrow funds. Since achieving status aparte in 1986, Aruba never defaulted on any of its external or domestic debt obligations. There is no constitutional prohibition on Government default with respect to any public sector debt.

In 2004, Aruba’s total public sector debt, the sum of domestic public sector debt and external public sector debt, rose 14.8% to AFL 1,721.0 million, or 45.1% of GDP, from AFL 1,499.6 million, or 41.6% of GDP, in 2003.

The Government domestic public sector debt consists of treasury bills, government bonds, cash certificates, supplier credits and loans as well as obligations to the AZV and APFA. There is currently no law or statute restricting the Government’s ability to undertake debt. Outstanding balances of treasury bills, treasury bonds and loans are automatically rolled over. As of December 31, 2004, Aruba’s total domestic public sector debt was AFL 881.6 million, or 23.1% of GDP, an increase of 13.7% as compared to AFL 775.5 million, or 20.3% of GDP, as of December 31, 2003, with the increase primarily due to the budget deficit, contingent liabilities coming due and deficits arising from the operation of AZV.

As of December 31, 2004, Aruba’s external public sector debt was AFL 839.4 million, or 22.0% of GDP, as compared to AFL 724.1 million, or 20.1% of GDP, as of December 31, 2003.

Monetary System

Monetary Policy

In accordance with the Central Bank Ordinance, the Central Bank conducts monetary policy to foster a stable macroeconomic environment and counteract actual or anticipated adverse changes in the economy.

Due to the large current account deficit in 2003, the Central Bank tightened monetary policy by limiting growth of aggregate commercial bank lending to 6.0%, decreased from the 7.0% ceiling introduced in 2003 and introducing a penalty (which was enacted in response to the events of 2003, in which commercial bank credit expanded by 13.1% despite the ceiling in that year, in the absence of such a penalty) fee of 6.0% (on an annual basis) levied on individual banks that exceeded the credit expansion ceiling. Consequently, growth in aggregate commercial bank lending decelerated to 6.1% in 2004, although consumer credit expanded by 10.1% in 2004, as compared to 8.7% in 2003, influenced largely by a higher demand for car loans. In 2004, the monetary cash reserve requirement remained at 8.0%, and the Central Bank has indicated its intention to continue this cash reserve requirement level in 2005, but subject to revision on a quarterly, rather than annual, basis. The Central Bank has indicated that, given Aruba’s current macroeconomic position, it will maintain the credit growth ceiling (as well as the penalty fee) at 6.0% in 2005, though this ceiling may be lowered in the event the current account trends deteriorate, the level of international reserves weakens, or inflation accelerates sharply.

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In July 2003, for the first time, the Central Bank issued certificates for commercial bank purchase to absorb part of the excess liquidity on the money market. The Central Bank intends to build a reserve of money market paper to, in due course, be able to apply more market-oriented instruments of monetary policy and influence the interest rate. The certificates have a six-month maturity and are negotiable, with the Central Bank acting as a clearing institution. A new tranche of certificates totalling a maximum of AFL 20 million is issued each month, depending on the liquidity on the money market. The market so far has been very modest, primarily because of prevailing low market interest rates. Nevertheless, the Central Bank remains committed in pursuing market-oriented instruments of monetary policy. To that end, the certificates will be evaluated and adapted to improve marketability and new indirect instruments will also be considered.

Foreign Exchange and International Reserves

Since 1986 the Aruban Florin, or the AFL, has been pegged to the U.S. dollars at a rate of 1.79 AFL to U.S.$1.00. See “Exchange Rates”.

Instead of a currency board arrangement, the Central Bank maintains a comfortable level of net foreign exchange reserves of the monetary system equivalent to five to six months of non-oil merchandise imports, to ensure credibility of the peg. About 80% of net foreign exchange reserves are held in the Central Bank.

Total official reserves held by or for the account of the Central Bank increased by 0.9% to AFL 614.4 million at December 31, 2004 from AFL 608.9 million at December 31, 2003. Net international reserves of the monetary system increased to AFL 649.0 million in 2004 from AFL 637.9 million in 2003. The increase in net international reserves in 2004 was due primarily to the favorable developments in the tourism sector, although the weakening trend in the net international reserves, which began in 2002, was not completely reversed.

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Summary Economic Information

As of and for the year ended December 31, 2000 2001 2002 2003 2004 (in millions of AFL except percentages and where otherwise noted)

DOMESTIC SECTOR Nominal GDP.......................................................................................... 3,326 3,399 3,421 3,599 3,819 Nominal GDP per Capita (in AFL per person) ..................................... 36,535 36,676 36,415 37,409 38,643 Percentage Change in Real GDP ........................................................... 3.7 (0.7) (2.6) 1.4 3.5 Inflation (percentage change in Consumer Price Index) ....................... 4.0 2.9 3.3 3.6 2.5 Unemployment Rate(1) (percentage) ...................................................... 4.8 6.5 8.1 7.9 7.6 TOURISM Tourism receipts(2) .................................................................................. 1,538.3 1,466.6 1,475.3 1,526.1 1,872.0 Tourism receipt contribution to current account(3).................................. 69.3 71.5 70.0 75.0 78.8 Total Visitor Arrivals (in thousands) ...................................................... 1,010.2 1,181.5 1,224.8 1,184.2 1,304.5 Stay-over Visitors (in thousands) ........................................................... 721.2 691.4 642.6 641.9 728.2 Cruise Visitors (in thousands)................................................................. 289.0 490.1 582.2 542.3 576.3 EXTERNAL SECTOR Average Annual Nominal Exchange Rate(4) (AFL per U.S.$1).............. 1.79 1.79 1.79 1.79 1.79 Real exchange rate index relative to the U.S.$ ...................................... 102.0 102.0 103.8 105.2 105.0 Total exports (F.O.B.) (excluding oil sector exports)(5).......................... 309.7 266.5 229.6 147.1 142.6 Total imports (F.O.B.) (excluding oil sector imports)(6) ......................... 1,495.1 1,496.9 1,508.7 1,515.4 1,568.3 Goods Balance......................................................................................... (117.9) 97.9 (949.3) (603.7) (485.2) Services Balance ..................................................................................... 656.1 676.4 696.8 567.9 793.6 Goods and Services Balance ................................................................... 538.2 774.3 (252.5) (35.8) 308.4 Current Account Balance ........................................................................ 393.7 584.5 (596.7) (259.1) 17.8 Overall Balance of Payments .................................................................. (46.8) (129.7) 39.0 (61.2) 11.2

PUBLIC FINANCE Current Revenue Tax Revenue................................................................................... 624.5 606.3 609.6 687.4 707.1 Non Tax Revenue........................................................................... 100.8 125.5 103.8 86.1 77.8 Grants ............................................................................................. 16.9 0.0 37.4 201.8 31.1

Total Current Revenue ................................................................... 742.2 731.8 750.8 975.2 816.0 Total Current Expenditure....................................................................... 719.9 727.7 826.7 873.9 1,142.5 Lending Minus Repayment ..................................................................... 16.2 32.0 (3.0) (71.1) 51.1 Current Balance....................................................................................... 6.1 (28.0) (72.9) 172.4 (377.6) Current Balance as a Percentage of GDP....................................... 0.2% 0.8% 2.1% 4.8% 9.9% Overall Surplus/(Deficit)......................................................................... 31.2 (144.9) (79.4) 147.3 (229.6) Overall Surplus/(Deficit) as a Percentage of GDP ........................ 0.9% 4.3% 2.3% 4.1% 6.0% PUBLIC DEBT AND INTERNATIONAL RESERVE POSITION Domestic Public Sector Debt(7) ............................................................... 571.5 718.3 717.4 775.5 881.6 As a Percentage of GDP................................................................. 17.2% 21.1% 21.0% 21.5% 23.0%External Public Sector Debt(7) ................................................................. 705.4 736.9 877.8 724.1 839.4 As a Percentage of GDP................................................................. 21.2% 21.7% 25.7% 20.1% 22.0%Total Public Sector Debt(7) ...................................................................... 1,280.5 1,455.2 1,595.2 1,499.6 1,721.0 As a Percentage of GDP................................................................. 38.5% 42.8% 46.6% 41.6% 45.1%Net International Reserves ...................................................................... 530.4 660.1 699.0 637.9 649.0

In Months of imports...................................................................... 5.7 6.3 7.0 6.7 6.3 (1) Includes all persons without jobs, whether actively seeking employment or not. (2) Gross receipts from stay-over and cruise tourism as well as other tourism-related income as recorded on a cash basis in the balance of

payments. (3) Tourism receipts as a percentage of current account receipts, excluding the oil and free-zone sectors. (4) Since 1986, the Florin has been pegged to the U.S. dollar at a rate of 1.79 AFL to U.S.$1.00. (5) Recorded on a “Free on Board”, or “F.O.B.”, basis as sold at the time the exported goods are shipped. (6) Recorded on a “Cost, Insurance and Freight”, or “C.I.F.”, basis. (7) Debt totals are maintained by the Ministry of Finance and Economic Affairs, or “Ministry of Finance”, and the information on outstanding

debt is provided to the Central Bank. The Central Bank, in certain circumstances, analyzes and reports data differently than the Ministry of Finance, resulting in certain immaterial differences in debt totals and/or categorizations.

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The Offering

The following is a summary of certain information contained elsewhere in this Offering Circular. Reference is made to, and this summary is qualified in its entirety by, the more detailed information contained elsewhere in this Offering Circular, particularly “Description of Notes”.

Issuer.................................................................. The Legal Entity Aruba.

Initial Purchaser ............................................... RBTT Merchant Bank Limited.

Notes .................................................................. U.S.$93,000,000 6.40% Notes due 2015.

Issue Price.......................................................... 98.68%

Issue Date .......................................................... September 6, 2005

Final Maturity Date.......................................... September 6, 2015

Interest............................................................... Interest will accrue on the Notes from and including September 6, 2005 at a rate of 6.40% per annum, payable semiannually in arrears on March 6 and September 6 of each year, commencing on March 6, 2006.

Principal Payments........................................... Principal payments will be made in equal annual installments of U.S.$9,300,000 on a pro rata basis on September 6 of each year, commencing on September 6, 2006, with a final principal payment date on September 6, 2015.

Redemption ....................................................... The Notes will not be redeemable prior to maturity.

Status of the Notes ............................................ The Notes will constitute our direct, unsecured and unconditional obligations and will rank at least pari passu in priority of payment with all of our other present and future unsecured and unsubordinated indebtedness, save only for such of our obligations as may be preferred by mandatory provisions of applicable law.

Form and Denomination .................................. The Notes will be issued in fully registered form without interest coupons in minimum denominations of U.S.$100,000 and integral multiples of U.S.$1,000 in excess thereof. See “Description of the Notes—Book Entry; Delivery and Form”.

Clearance and Settlement ................................ The Notes will be issued in book-entry form through the facilities of Euroclear Bank S.A./N.V., as the operator of the Euroclear System, and Clearstream Banking, société anonyme.

Beneficial interests in Notes held in book-entry form will not be entitled to receive physical delivery of certificated notes, except in certain limited circumstances. For a description of certain factors relating to clearance and settlement. See “Description of the Notes—Book Entry; Delivery and Form”.

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Use of Proceeds ................................................. We intend to use the net proceeds of this offering to repay certain long-term indebtedness maturing in 2005 and certain short-term financing provided to us by RBTT Aruba N.V. See “Use of Proceeds”.

Selling and Transfer Restrictions.................... There are restrictions on persons to whom the Notes can be sold, and on the distribution of this Offering Circular. The Notes have not been, and will not be, registered under the Securities Act or under any state securities laws and are subject to certain restrictions on transfer and resale. There is currently no market for the Notes and there can be no assurance as to the development or liquidity of a market for the Notes. See “Plan of Distribution” and “Transfer Restrictions.”

Certain Covenants; Negative Pledge............... The terms and conditions of the Notes will contain certain covenants, including a negative pledge covenant that will limit the ability of the Issuer to create or permit to subsist any lien upon the whole or any part of its respective present or future properties, revenues or assets to secure public external indebtedness, without at the same time or prior thereto securing the Notes equally and ratably therewith. This restriction is subject to a number of important exceptions. See “Description of the Notes—Covenants”.

Withholding Tax and Additional Amounts .... We will make all payments of principal and interest on the Notes without withholding or deduction for any Aruban taxes, except in certain limited circumstances. See “Description of the Notes—Payment of Additional Amounts”.

Governing Law ................................................. The Fiscal Agency Agreement and the Notes will be governed by and interpreted in accordance with the laws of the State of New York.

Listing ................................................................ We have applied to have the Notes listed and admitted to trading on the EuroMTF, the alternative market of the Luxembourg Stock Exchange. We cannot assure you, however, that this application will be accepted.

Fiscal Agent, Principal Paying Agent, Registrar and Transfer Agent .........................

The Bank of New York

Special Luxembourg Paying Agent and Special Luxembourg Transfer Agent..............

The Bank of New York (Luxembourg) S.A.

Luxembourg Listing Agent .............................. The Bank of New York Europe Limited

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USE OF PROCEEDS

We estimate that the net proceeds from the sale of the Notes will be approximately U.S.$89.7 million after deducting the Initial Purchaser’s commission and estimated offering expenses. We intend to use U.S.$45.0 million of the net proceeds from the offering of the Notes to repay our U.S.$20.0 million 8.68% million Senior Notes and U.S.$25 million 8.2% Senior Notes, which mature in September and December 2005, respectively, and the remaining U.S.$44.7 million to repay substantially all of the principal amount outstanding under U.S.$45.2 million aggregate principal amount of short-term bridge loans provided to us by RBTT Aruba N.V., which bear interest at 6.7% per annum.

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THE LEGAL ENTITY ARUBA

Overview

Aruba is an island nation situated in the Caribbean Sea and is one of the three members of the Kingdom of the Netherlands, which we refer to as the “Kingdom”, along with the Netherlands Antilles and the Netherlands itself. Aruba is an autonomous entity within the Kingdom and was granted status aparte after seceding from the Netherlands Antilles in 1986. Under status aparte, Aruba has full autonomy over internal affairs, while the Kingdom’s government in The Hague has responsibility over Kingdom affairs, including but not limited to defense and foreign affairs. Under Article 36 of the Statuut (the Kingdom’s constitution), the three parties within the Kingdom are required to come to each others’ assistance should they be beset by severe difficulties. Under this agreement (referred to colloquially as the “Triangle Agreement”), the Netherlands came to the aid of the Netherlands Antilles when it was affected by hurricanes and to the aid of Aruba when the closure of its oil refinery in 1985 threatened financial difficulties. In addition, the Netherlands retains the right to intercede in the administration of the Netherlands Antilles and Aruba should it be deemed necessary, by placing the respective party under supervision.

History

The first inhabitants of Aruba were the Caiquetio Indians from the Arawak tribe; fragments of their earliest known settlements date back to approximately 1000 A.D. The first Europeans arrived in August 1499 when Alonso de Ojeda, a Spaniard, discovered the island. When the Spanish could not find any precious metals they declared that the island was an “isla inutil” or “useless island”. The Spanish colonized the island in 1527, however, bringing with them Christianity and to date, the majority of the population is Roman Catholic. Many of the Indians living on the island were transported by the Spanish to Santo Domingo (Dominican Republic) to work in copper mines.

In 1636, near the end of the Eighty Years’ War between Spain and Holland, the Dutch took possession of Aruba and remained in control for two centuries. The Dutch relinquished control of Aruba to the English in 1805 during the Napoleonic Wars. The English, however, returned control of the island to the Dutch in 1816. In the period from 1636 to 1951, Aruba was subordinated to Curaçao (the current seat of the capital of the Netherlands Antilles) under various governors: the Dutch West Indies Company, the English and the Dutch Crown. European colonization began in 1790 and the major town, known as Playa, was renamed by the Governor of Curaçao during a visit in 1824. In honor of the Royal House of Orange, Playa was renamed Oranjestad (orange town), the present name of Aruba’s capital.

In the 19th century, Aruba was known for aloe vera cultivation and phosphate mining. Mining ceased to be profitable in 1916, however, and operations eventually ended in 1919. In the 1920s, the LAGO Oil & Transport Company, part of the Standard Oil Company of New Jersey, commenced operations on Aruba. Two refineries were built, one of which, operated by Shell, closed in the 1950s while the Lago refinery closed in 1985, to be reopened in 1991 under new ownership.

In 1951, the Insular Territory of Aruba was formed on an autonomous basis with the Netherlands Antilles, within the Kingdom of the Netherlands. In 1954 Aruba’s colonial status came to an end. Following a long period of consultation, Aruba became an autonomous member of the Kingdom on January 1, 1986 when it seceded from the Netherlands Antilles and was granted status aparte. This provided Aruba with autonomy in its internal affairs, except that the Government of the Netherlands is responsible for Kingdom affairs, including but not limited to Aruba’s defense and foreign affairs. Movement towards full independence from the Kingdom was halted at Aruba’s request in 1990.

Currently the islands of St. Maarten and Curacao, which are part of the Netherlands Antilles, have undertaken discussions with the Kingdom in order to seek a separate status aparte identity within the Kingdom equivalent to that of Aruba. As of the date of this Offering Circular, the Kingdom has opposed giving such status to St. Maarten and Curacao, although it may consider a compromise arrangement. Recently a Kingdom commission recommended to the respective governments of the Netherlands Antilles and the Kingdom that more autonomy be given to the larger islands of the Netherlands Antilles (Curacao and St. Maarten) while placing the smaller islands

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under more direct supervision of the Netherlands. The results of these discussions regarding the constitutional future of the Netherlands Antilles will not change the nature of Aruba’s relationship with the Netherlands.

Territory and Population

Aruba is situated in the Caribbean Sea, outside of the hurricane belt, approximately 30 kilometers (18.6 miles) off the Venezuelan coast. Aruba is approximately 31 kilometers (19.2 miles) long and 6.5 kilometers (4.0 miles) across with a total surface area of 193 square kilometers (77 sq. miles), which makes it slightly larger than Washington, D.C. Aruba has a coastline of 68.5 kilometers (42.8 miles). Aruba has no rivers and its entire surface area is relatively flat land, the highest point of which is Mount Jamanota (188 meters). The island has three harbors (Oranjestad, Baracadera and San Nicolas) and a single airport (Queen Beatrix International Airport). Aruba benefits from a year-round constant temperature of approximately 83°F (27°C), which, along with the prevailing cooling trade winds, has made it a popular all-year round vacation destination. Aruba’s beaches are considered to be among the best beaches in the Caribbean.

Aruba’s population is approximately 100,000, of which approximately 40.0% are foreign residents or immigrants. Due to rapid economic growth beginning in the early 1990s, the local labor market was forced to provide workers at all skill levels to fill the growing number of vacancies. However, despite a fast-growing participation of women in the labor market and increasing employments rates, the local market was not sizable enough to fill all the open positions, which resulted in a large influx of immigrant labor. The net immigration rate (immigration less emigration) for the year ended December 31, 2004 was approximately 2.2% of the population. Since status aparte was granted in 1986 there have only been two years of net emigration (1986 and 1987). For the period from 1986 to 2004, average net immigration was approximately 1,259 persons per annum. Most Arubans speak four languages: English, Spanish, Dutch and the native Papiamento.

The population has grown on average at a rate of 3.2% per annum since 1996. Aruba’s GDP per capita was estimated at U.S.$21,878 in 2004, one of the highest in the Caribbean region. According to current estimates, the average life expectancy at birth of the Aruban population is 78.7 years. As with many countries, aging in Aruba is becoming an important issue in connection with social benefits, particularly healthcare and pensions. The Central Bank estimates that, based on current assumptions, aging will begin to affect the Aruban economy in a more significant manner in 2010. The average age of the population in 2004 was 35.2 years, an increase from 32.8 years in 1994. The following table shows demographic characteristics of Aruba’s population for the five years ended December 31, 2004:

Demographics Characteristics

Year ended December 31,

2000 2001 2002 2003 2004

Total population ...................................................................... 91,064 92,676 93,945 96,207 99,109 Mid-year population........................................................... 90,734 91,851 93,310 95,076 97,658 Mean age population .......................................................... 33.9 34.3 34.7 35.0 35.2 Mean age male population ................................................. 33.0 33.3 33.8 34.0 34.3 Mean age female population.............................................. 34.8 35.1 35.6 35.9 36.1

Functional age - groups Young child (0-4) (%) ....................................................... 7.7 7.4 7.1 6.8 6.6 Child (5-14) (%) ................................................................ 15.4 15.3 15.3 15.2 15.0 Youth (15-24) (%).............................................................. 12.4 12.4 12.2 12.3 12.5 Age group (25-64) (%) ...................................................... 57.1 57.2 57.5 57.5 57.6 Elderly (65+) (%) ............................................................... 7.4 7.7 7.9 8.1 8.3 Dependency Ratio (Total population) (%)......................... 43.8 43.6 43.3 43.3 42.6 Index of ageing (Total population) (%) ............................. 3.1 3.0 2.8 2.7 2.6 Women of Childbearing age (15-49) (in thousands) ....... 26.1 26.7 27.0 27.2 28.0

Source: CBS

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Political and Legal System

The Kingdom’s government is a constitutional monarchy headed by the Queen of the Netherlands. The Government of Aruba, as part of the Kingdom, comprises:

• the Governor, who is the Queen’s representative in Aruba and heads the Government;

• the Government, consisting of an executive council of ministers, headed by the prime minister, and the Governor;

• a 21-member Parliament, chosen in direct popular elections every four years; and

• a judiciary appointed by the Queen of the Kingdom, with the ultimate court of appeal being the Supreme Court of Justice in the Netherlands.

The legal system is based on the Dutch civil law system, with some English common law influence. The Queen appoints the Governor for a six-year term as her local representative. Aruba has one vote on the 14-member Kingdom Council of Ministers (Rijksministerraad), exercised through a minister plenipotentiary. On issues affecting Aruba directly, we have the right to utilize an appeal process in the Council of Ministers, in which the same issue is resubmitted to the Council for re-evaluation.

The current Government assumed office in October 2001. The governing party is the Social Democratic Party, Movimiento Electoral di Pueblo, or the “MEP”. With 12 seats, the MEP also holds a majority in the legislature. The Christian Democratic Arubaanse Volkspartij/Partido di Pueblo Arubano, or the “AVP”, the main opposition party, holds six seats, with the three remaining seats held by the Partido Patriotico Arubano and the Organization Liberal Arubano. Both the MEP and the AVP advocate fiscal consolidation in their respective platforms. With regard to constitutional structure, the AVP favors a more direct relationship with the European Union alongside Aruba’s existing constitutional ties with the Kingdom, while the MEP prefers to maintain the current constitutional framework within the Kingdom while extending its relationships in the Caribbean region and the Americas more generally, including with the United States. The next election is scheduled for September 23, 2005.

The following table shows the parliamentary electoral results for the past three general elections:

Electoral Results

1994 1997 2001

(number of seats) Movimiento Electoral di Pueblo ................................................................................... 9 9 12

Arubaanse Volkspartij/Partido di Pueblo Arubano ...................................................... 10 10 6

Partido Patriotico Arubano............................................................................................ 0 0 2

Organization Liberal Arubano ...................................................................................... 2 2 1

Total .............................................................................................................................. 21 21 21

Source: CBS

Relationship with the Kingdom

General

Aruba shares good relations with the Kingdom. The Netherlands’s support to Aruba has increasingly taken the form of technical assistance and advice on various policy issues such as the strengthening of the legal system, taxation policies and the implementation of good governance principles (administrative principles used to judge Government action and decisions, and that can be enforced by the courts; including principles of legality, prudence, motivation of decisions and equality in similar circumstances). Following the terrorist attacks of September 11,

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2001, the Netherlands and the United States have also assisted and trained the island’s personnel in implementing anti-terrorism measures.

Fiscal Independence

In recognition of Aruba’s objective to achieve fiscal independence from the Kingdom, we and the Netherlands formed a development fund in 2001, the Fondo Desaroyo Aruba, or “FDA”. The FDA is designed so that, as we move towards fiscal independence, our annual contribution to the FDA will increase and the Netherlands’ annual contribution will decrease until terminating in 2009.

The original agreement for the FDA negotiated in 2000 called for a 10-year schedule for annual contributions to the FDA, beginning in 2002. The FDA commenced operation in 2002, at which time the accrued annual contributions of both us and the Netherlands from 2000 to 2002 were deposited. The total contributions to the FDA by the Netherlands and us are to be NLG 220 million and AFL 180 million, respectively, and are to be used to finance Government projects in four areas (health care, sustainable economic development, education and governance and law enforcement).

Under the FDA agreement, the Netherlands also agreed to reduce our debt to the Netherlands by certain specified annual amounts, up to a maximum of NLG 120 million, subject to Aruba achieving a balanced budget. The agreement provides that, if we fail to achieve a balanced budget for any three consecutive years, the Aruban and Netherlands governments will meet to determine how to allocate an amount of funds from the Netherlands equivalent to the amount of debt that would have been forgiven had a balanced budget been achieved, while Aruba continues to pay down the bilateral debt. As Aruba has to date not achieved a balanced budget, discussions have been held with the Netherlands, the preliminary results of which have been that a substantial portion of the debt forgiveness provision has been allocated towards law enforcement programs. In 2007, the Netherlands and Aruba will again evaluate the current agreement.

The following table sets forth the annual scheduled contributions by us and the Netherlands to, and debt forgiveness by the Netherlands under, the FDA through 2009:

Schedule for Funding to the FDA and Debt Reduction

Netherlands’ Contribution

Debt Reduction if Aruba Achieves Balanced Budget Aruban Contribution

(in millions of NLG) (in millions of AFL)

2000 ...................................................................... NLG 22.0 NLG 6.0 AFL 3.0

2001 ...................................................................... 26.0 6.0 6.0

2002 ...................................................................... 28.0 6.0 9.0

2003 ...................................................................... 30.0 6.0 12.0

2004 ...................................................................... 29.0 6.0 15.0

2005 ...................................................................... 25.0 11.0 19.0

2006 ...................................................................... 21.0 16.0 23.0

2007 ...................................................................... 17.0 16.0 27.0

2008 ...................................................................... 13.0 21.0 31.0

2009 ...................................................................... 9.0 26.0 35.0

Total ..................................................................... NLG 220.0 NLG 120.0 AFL 180.0

Source: Ministry of Finance

International Relations

We are an Overseas Country and Territory, or “OCT”, under the European Union, a member of the Association of Caribbean States and a beneficiary of the Caribbean Basin Economic Recovery Act. We are eligible

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to receive preferential tariff treatment on certain of our products pursuant to, among others, the trade agreements described below. However, because Aruba has a service-oriented economy and minimal merchandise exports, the benefits provided by these trade agreements are relatively minimal.

European Union

As part of the Kingdom, we have qualified as an OCT under the European Union, or “EU”, since 1964. Based on our qualification as an OCT, products originating in Aruba enjoy duty-free import into the EU. OCTs also qualify in principle for financial aid through EU development programs, both through grants and concessional loans. However, due to our current level of development and income, we no longer qualify for concessional loans, and qualify generally for grants only under regional programs, and not on an individual basis.

Until recently, a political discussion regarding our integration into the EU was being held, culminating in our securing an option for eventual integration (if we so wish) under the draft constitution of the EU (although Dutch voters rejected that draft in a referendum, for reasons unrelated to Aruba). Since securing this option, the political discussion concerning EU integration has subsided, although our potential integration as an “ultra peripheral region” was examined by various commissions. Under an “ultra peripheral region” regime, the full member country, in this case the Kingdom, requests integration of territories with which it has a constitutional tie but which are located outside of Europe by implementing application of all European treaties on the territory in question. The request for integration is made by the full member country on behalf of the territory in question, after which the full member negotiates derogations or exceptions on a limited set of issues and policy areas on behalf of the territory. These derogations, which are not permanent, are designed to assist in the transition and to take into account the fact that the territory in question is distant from the European continent. A recent Kingdom commission concluded, however, that our interests were best served by maintaining our current status as an OCT, rather than being integrated into the EU as an “ultra peripheral region”, and the recommendations and position of this commission have become Government policy.

Association of Caribbean States

Since January 1, 2003, we have been a full member of the Association of Caribbean States, or “ACS”, after being an associated member since September 2001. The ACS was created by treaty in July 1994, and other members include the 15 signatories to the Caribbean Community and Common Market, or “CARICOM” (the regional common market established by the Treaty of Chaguaramas in 1973 to promote the integration and development of the economies of its 15 member states, including the 12 independent English-speaking Caribbean territories, Haiti, Suriname and Montserrat), other non-Commonwealth countries in the Caribbean and several Latin American nations. The ACS was established primarily to further regional economic integration and cooperation in the areas of science and technology, energy, tourism, transport, education and culture, as well as to coordinate the participation of member states in multilateral forums and to undertake concerted action to protect the environment, in particular the Caribbean Sea.

The Caribbean Basin Initiative

The Caribbean Basin Initiative, or “CBI”, which became effective on January 1, 1984, is a program of economic assistance by the United States to Caribbean countries designed to stimulate economic growth and to present new opportunities for development in the region. Under the CBI, the Caribbean Basin Economic Recovery Act provides for duty-free access of Caribbean products exported to the United States. To enjoy duty-free access, at least 35% of the appraised value of manufactured articles must be derived in Aruba. This percentage requirement can be reduced to 20% as components made in the United States may account for up to 15% of the value added. The CBI was the first means by which the United States extended preferential trade provisions to any region. The U.S. Congress subsequently passed the Caribbean Basin Recovery Expansion Act, or “CBI II”, in 1990, which improved the conditions of the original agreement by extending the life of the CBI and providing limited duty-free treatment for articles that the CBI had excluded. Because our economy is predominantly service-oriented and we have minimal merchandise exports, the benefits under the CBI II are largely not applicable to us.

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The Caribbean Financial Action Task Force

The Caribbean Financial Action Task Force against money laundering, or “CFATF”, is the Caribbean sister organization of the Financial Action Task Force, or “FATF”, which was established in Paris in 1990 as an independent international institution designed to promote cooperation in combating the laundering of funds from illicit activities and the funding of terrorism. We held the presidency of the CFATF in 2001 and have implemented most of the recommendations of both the FATF and the CFATF, most notably the establishment of a Financial Intelligence Unit to monitor unusual transactions and the reforms in the offshore regime and the Free Zone. The Government takes an active role in the CFTAF and is committed to implementing the implementation of further recommendations on an ongoing basis.

United States of America

In addition to membership in the international organizations above, we currently have a wide variety of areas of cooperation and agreements with the United States, with an emphasis on law enforcement in general, and drug interdiction and enforcement in particular. The U.S. Immigration and Naturalization Service has been present in Aruba since 1987, U.S. customs pre-inspection operations were established in Queen Beatrix International Airport in 2000, and a Forward Operating Location against drug trafficking has also recently been established.

Healthcare

General

Healthcare in Aruba is universally available. The Public Health Directorate consists of several departments, which provide physical and mental health services and curative as well as preventive care. The departments include the Department of Infectious Diseases (which registers all cases of diseases and provides counseling and preventive vaccinations), Youth Health Care, Youth Dental Care, Medicine Inspection, Pharmaceutical Affairs and Labor Health Service. There is also the Public Health Laboratory which provides services to the Public Health Directorate, which are necessary for the enforcement of public health legislation, and to a much greater extent, to provide clinical laboratory diagnostic services at the request of physicians and specialists in the general community and the hospital.

The main hospital on Aruba is the Doctor Horacio Oduber Hospital in Bushiri, which is a private, nonprofit institution with 305 total beds, and which is managed by a foundation. Services provided by the hospital include internal medicine, surgery, urology, gynecology and obstetrics, pediatrics, otorhinolaryngology, ophthalmology, neurology, psychiatry, and rehabilitation. The Dr. Rudy Engelbrecht Medical Center is located in San Nicolas to provide medical care for the city’s residents, as well as those from Savaneta, Pos Chiquito, Brasil, and Cura Cabay and the inmates of the Correctional Institute. The Center provides mainly primary care.

Universal Health Care System (AZV)

As of January 1, 2001, Aruba introduced the General Health Insurance (Algemene ZiektekostenVerzekering, or “AZV”), an obligatory universal health insurance system that provides health care to anyone who is registered as a resident in the Aruban population register. Each person entitled to receive benefits under the AZV is required to pay to the AZV a premium equal to 7.5% of his or her annual premium income (as calculated under the AZV legislation), of which the employer contributes 6.5% and the employee contributes 1.0%, provided that persons with no income are not required to contribute in order to receive benefits.

Since its inception, the AZV has experienced sizeable cost overruns, especially in the areas of medicines and specialist care, and reflects an inefficient cost structure due to low contribution rates, an inadequate definition of covered services and the absence of appropriate cost incentives, such as a user deductible or co-payment mechanism. In its first year of its operation, the cost of AZV was AFL 234.1 million, or 6.7% of GDP for that year. The Government’s contribution was 3.8% of GDP, including an AFL 43 million deficit that was financed through a Government loan. The net cost of the system included the consolidation of prior health-related programs but also reflected cost over-runs. Since 2001, the AZV’s annual expenses have continued to exceed its premiums received and other income each year, resulting in net losses of AFL 28.8 million in 2004, AFL 54.1 million in 2003 and AFL 53.3 million in 2002, deficits we must fund as a matter of law. As a percentage of GDP, our healthcare expenditures, including but not limited to our contributions to the AZV, were 9.9% in 2002 and 9.1% in 2003.

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In 2002, we began implementing certain measures to control health care expenditures under the AZV, and as of January 1, 2004, we introduced changes in the AZV legislation. These amendments increased the maximum annual premium income to AFL 75,600 from AFL 49,296, and changed the basis for the levy of AZV premiums from taxable income of an insured individual to gross income (with the effect that it is no longer possible to deduct certain costs, such as mortgage interest, in calculating premium income). In addition, we adjusted our contribution rates between the coverage schemes under the AZV (for example, the accident and sickness scheme and the general health care scheme), as previous allocations had resulted in surpluses in other areas. To tighten financial discipline, the management of the AZV was replaced and the fund management structure redesigned to give our representatives greater authority. We have also introduced stricter controls on hospital admissions and laboratory tests, introduced a list of approved medicines (including generic medications) as of May 1, 2004, and have planned a maximum reimbursement for specialists. In 2004, as a result of these measures, the AZV deficit was reduced by AFL 25.3 million to AFL 28.8 million, a decrease of 46.8%.

We are also considering additional changes to manage costs under the AZV, such as limiting coverage to a basic benefit package, introducing co-payments and managing costs for medical services and treatment provided outside Aruba. The supervisory board of the AZV has been authorized for 2005 to introduce co-payments and develop a limitation on entitlements, subject to further consultation with and approval by the Minister of Finance and the Minister of Health.

Pension System

Civil Servants Pension Fund (APFA)

The Civil Servants Pension Fund (Algemeen Pensioenfonds van Aruba, or “APFA”), the pension fund for Government employees, was established in 1938 with the passing of the civil servant’s pension ordinance of the Netherlands Antilles. With the separation of Aruba from the Netherlands Antilles, the assets of the Algemeen Pensioenfonds van de Nederlandse Antillen, or “APNA”, were divided to provide the initial assets of the APFA, which was placed under the supervision of the Minister of Finance and Economic Affairs. Like its Antillean counterpart, the APFA started out as a public legal entity established by law. Recently, the APFA has started to experience difficulties, principally due to the Government’s inability to comply with its payment obligations to the APFA under a payment scheme that has become financially unsustainable. Under this scheme, beneficiary entitlements, which the Government is required to fund, were equal to 70% of the beneficiary’s average earnings for the last two years of service in the Government. In addition, the Government was separately required to contribute to the APFA a further dearness allowance, currently amounting to AFL 30 million annually and indexed to Government wages, designed to compensate beneficiaries for loss of purchasing power after their retirement. As a consequence of this benefit scheme, the Government was increasingly unable to meet its annual funding obligations to the APFA, with aggregate outstanding payment arrears to APFA reaching AFL 214.1 million at December 31, 2002, AFL 219.7 million at December 31, 2003 and AFL 229.2 million at the time of its debt conversion in December 2004, as discussed below. APFA’s financial difficulties have been evidenced by its coverage ratio, which deteriorated from 85.0% at December 31, 2001 to 77.0% at December 31, 2003, and is far below the required minimum coverage ratio of 100.0% for company pension funds.

Recent Reforms

In recognition that the APFA’s financial position was no longer sustainable, APFA was corporatized in December 2004 upon the Parliament’s passage of the State Ordinance on the Privatization of the Civil Servants Pension Fund, or the “Pension Ordinance”. In accordance with the Pension Ordinance, the APFA was converted into a foundation as of May 1, 2005, with supervision of its activities put in the hands of a governing board in which all interested parties in the execution of the pension scheme are represented. The Pension Ordinance contemplated that the APFA will eventually come under the supervision of the Central Bank. See “The Monetary SystemCentral BankSupervisory Activities—Recent Developments”.

In addition, in accordance with the Pension Ordinance, commencing May 1, 2005, the APFA benefits scheme was changed from one in which benefits were calculated on the basis of the final salary of the civil servant at the time of retirement to one in which they are calculated based on the civil servant’s average career earnings. In addition, the new system is more flexible, and takes into account income derived from other sources (including from Aruba’s general Old Age Pension scheme, as discussed below), which the prior arrangements did not (and under

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which it was in principle possible, in certain circumstances, for a retired civil servant to earn more in retirement than while working). As currently implemented, this alteration of the benefit calculation only applies to new personnel; however, we intend to expand its application to civil servants already covered by APFA after consultations with union representatives. In addition, under the new scheme our contribution rate for new employees was reduced from 24.5% of employee salaries to 11.5% (although contribution rates for existing employees remain at 24.5%).

Regulation on the operations of APFA has also been liberalized to allow APFA to function on the same commercial basis as all other pension funds in Aruba, including the ability to offer pension products to other commercial entities both in Aruba and abroad (although in the near-term the APFA will only offer such products to Government-owned private entities). With the introduction of the new benefits scheme and other reforms discussed above, we believe we have made substantial progress in ensuring the future viability of APFA.

Debt Conversion

After passage of the Pension Ordinance, we and APFA entered into a debt conversion agreement on December 30, 2004, designed to address our historical funding arrears to APFA and to facilitate future transparency in our financial relationship. Under this agreement, AFL 281.0 million outstanding as of December 31, 2002, consisting of arrears in premiums and cost of living allowances, as well as private loans extended to us, was converted into an AFL 34.0 million 12-year bond and an AFL 220.0 million 35-year annuity loan, while AFL 2.0 million in arrears had earlier been settled between us and APFA in October 2004. The remaining AFL 25.0 million in outstanding arrears is to be paid on a monthly basis with anticipated revenue from the future wage tax on pension benefits payable by the APFA to the tax authority, to which amount outstanding wage taxes of the APFA totaling AFL 8.1 million as of December 31, 2004 have already been applied. This settlement operation is expected to last until the latter half of 2006. This debt conversion played a significant role in the deterioration as an accounting matter of Aruba’s AFL 172.0 million fiscal surplus in 2003 to an AFL 378.0 million fiscal deficit in 2004 (see “Public Finance—Revenue and Expenditure—2004 Revenue and Expenditure—Overview”), although the conversion had no net cash effect. After this conversion, AFL 37.5 million in arrears to APFA remained outstanding (representing funding arrears for 2003 and 2004), which are to be repaid through budgetary means.

Social Security or “Old Age” Pension (AOV)

Aruba’s General Old Age Pension Scheme (Algemene Ouderdoms Verzekering, or “AOV”), a pay-as-you-go system, was introduced in 1960, and provides benefits to all citizens over the age of 60 that are currently set at AFL 954 per month for single persons and AFL 1560 per month for married couples. This system is complemented by the General Widows and Orphans Insurance (Algemene Weduwen- en Wezenverzekering, or “AWW”), which is much smaller, but is governed by the same principles.

The combined contribution for the AOV and AWW is 13.5% of the annual income, of which the employee contributes 4% and the employer 9.5% (self-employed persons are responsible for contributing the full 13.5%), up to an annual maximum of AFL 6,655. Contributions under the AOV and AWW are levied by the tax authorities, while the Social Insurance Bank (Sociale Verzekeringsbank, or “SVb”) is charged with the payment of the benefits under the AOV and AWW.

Based on actuarial studies and demographic characteristics of Aruba’s population, the AOV increasingly will be confronted with the effects of the aging population. An actuarial study conducted in 2003 by the International Labor Organization indicated that reform of the AOV is necessary to ensure its long-term viability. Among the options we are considering for reform of the AOV is a gradual increase in the retirement age to 62 or 65. These proposals are being considered by a private sector commission and remain in a preliminary stage.

Company Pension Funds

At December 31, 2004, there were 11 pension funds maintained by companies in Aruba for their employees. Company pension funds are subject to supervision by the Central Bank, which sets requirements for the funds’ administration and financial health, including a minimum coverage ratio of 100%. At December 31, 2003, three company pension funds were not in compliance with the minimum coverage ratio. The Central Bank has required these pension funds to submit a financial recovery plan, and implementation of these plans is being monitored

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closely by the Central Bank. For further information on company pension funds, see “The Monetary SystemCentral BankSupervisory Activities—Company Pension Funds”.

Infrastructure and Infrastructure Investments

Government Investments

Improving Aruba’s infrastructure is of primary importance to the Government. We have focused and are continuing to focus on developing roads, housing, sewage and waste management facilities and other infrastructure. In particular, the high influx of foreign workers since the early 1990s has placed considerable pressure on our infrastructure and facilities, including roads, water supply, medical service centers, education and housing. From 1990 through 1994, total Government infrastructure investments equaled on average AFL 57 million annually (or approximately 3.3% of average annual nominal GDP). From 1998 through 2004, total Government infrastructure investment equaled on average AFL 27.6 million annually (approximately 0.8% of average annual nominal GDP during this period).

The National Development Plan 2003–2007 (which we refer to as the “National Development Plan”) presents our infrastructure investment priorities for the 2003–2007 period. Under the National Development Plan, we intend to invest an aggregate AFL 387.3 million in the 2003 through 2007 period, including approximately AFL 181.4 million through the public budget and AFL 189.9 million from the FDA (which invests in four sectors: health care, sustainable economic development, education and governance and law enforcement). Approximately AFL 109.1 million under the National Development Plan has been spent in 2003 and 2004 on health care, education, road infrastructure and sanitation. In addition to these amounts, we also created a separate fund (wegenfonds, which we refer to as the “Road Fund”) in 2002, from which we have and will continue to direct an additional AFL 13.0 million annually to the construction and renovation of Aruba’s road infrastructure (as discussed in more detail under “Roads” below). The Ministry of Finance and Economic Affairs, or “Ministry of Finance”, uses the National Development Plan as a guideline regarding investments.

Historically, we have received further funding as required through grants under EU development programs. In May 2005, we obtained an AFL 20.0 million grant from the EU under the 8th European Development Fund for the construction of a national museum and the development of side roads at Arikok National Park. This grant effectively concluded our funding under such EU programs.

Roads

In accordance with the National Development Plan 2003 – 2007, we intend to invest AFL 13.0 million annually through the Road Fund to improve the road system of Aruba, both through the construction of new roads and the maintenance of existing roads. Investment priorities for, and the administration of, the Road Fund are established by the Department of Public Works.

In each of 2002 and 2003, the AFL 13.0 million from the Road Fund was directed to the construction and renovation of 21.9 km of roads and 22.1 km of roads, respectively. In 2004, AFL 11.0 million from the Road Fund was invested in the construction and renovation of 19.1 km of roads, while AFL 2.0 million was directed to improving rainwater drainage in the Madiki, Zeewijk, Pos Abou and Pos Chiquito areas near Oranjestad. In 2005, the AFL 13.0 million from the Road Fund is planned to be invested the construction and renovation of approximately 20 km of roads.

Sewage and Waste Management

In 2002, we implemented an AFL 10 million emergency clean-up and redevelopment project at the Parkietenbos landfill, financed through the FDA, which included the construction and renovation of site infrastructure, including road access, a weighing station, waste separation units, an access ramp and a concrete basin. The second stage of this project, with an estimated total investment of approximately AFL 30 million, will entail the creation of a solid waste management plant at the landfill site, with possible future recycling or energy generation capabilities. We are currently conducting an “expression of interest” process for potential contractors on the project.

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We are also undertaking a project to enhance certain of our sewage systems. Currently, as part of this project, the Bubali sewage treatment plant is undergoing a small expansion and upgrade, and new sewage systems linking the hotels in the Palm Beach area and the residential areas outside Oranjestad to the Bubali sewage plant are being constructed. We also intend to construct a new sewage treatment plant in San Nicolas as part of this project. The costs for the systems in these areas is estimated to be an aggregate AFL 34.7 million, to be financed through the FDA.

Government Buildings

One of the priorities under the National Development Plan is the construction and restoration of several government buildings.

We intend to construct new buildings for various government departments. These departments, and the estimated cost for the relevant buildings, are: the Ministry of Finance (AFL 50 million), the Ministry of Infrastructure (AFL 17 million), the Department of Education (AFL 9.6 million), the Justice Department (AFL 6 million), the Department of Technical Inspection (AFL 4 million), the Hygiene Department (AFL 0.4 million), and the Fire Department (AFL 0.1 million). We are considering various financing possibilities for these projects.

In addition, we plan to restore various government buildings. The restoration and maintenance of existent government buildings will be based on a maintenance plan prepared by the Department of Infrastructure and Planning.

Health Care

A modern medical center in San Nicolas has been constructed and is in use as of October 2004, which was funded with AFL 7.4 million allocated from the FDA. The purpose of this medical center is to offer adequate medical care for the residents on the eastern side of Aruba.

We are currently considering whether to renovate the Dr. Horacio Oduber Hospital or to construct a new hospital at the same location, as well as examining the potential funding sources for the project. We are also planning to construct a new building for the government laboratory, with total investment estimated at AFL 10 million.

Education

A building for intermediate vocational education is being constructed in Sero Blanco, which will provide an integrated training site for employees in various economic sectors, including hotel and catering, health care and services, with a total investment of AFL 26.7 million. Various sections of the building are already in use, and the remaining sections are being finalized.

We are also undertaking the construction of an Open Learning Center, the construction of various schools at Sabana Basora and the conversion of a primary school and the existing Intermediate Technical School in Oranjestad.

Prisons and Correctional Institutions

We are undertaking an expansion of the Correctional Institute Aruba in order to ensure sufficient capacity, prison facilities and human resources, with a focus on minimizing delays in prosecution of crimes preventing premature release of prisoners due to capacity constraints. The project, which is expected to cost an aggregate AFL 25 million and to be funded through the FDA, includes the expansion and renovation of the existing prison and the creation of education facilities, coupled with procedural changes to improve both the safety of guards and prisoners (including the differentiation of different categories of prisoners) and the care that must be provided to the prisoners, all in accordance with applicable international standards. We initiated this project in the fourth quarter of 2003 and expect to complete it by the end of 2005.

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Investments by Public Sector Entities

Investments in utilities, telecommunications, housing and transportation (including the airport and ports) are separately funded through the companies responsible for these sectors. These companies are either private companies wholly owned by the Government or separate foundations or authorities established and regulated by applicable Government ministries and departments. See “The Aruban EconomyPrivatization and Corporatization”.

Utilities

Aruba’s electricity is produced by the Water-en Energiebedrijf Aruba N.V., which we refer to as the “WEB”. The WEB produces electricity principally through steam turbines having total power generating capacity of 149 megawatts (MW). The WEB also maintain a 22 MW gas turbine as a backup unit and a 6.5 MW diesel generator serves as an emergency unit. The WEB produces an average of 60 MW annually, which, together with a contracted supply from the refining company, is sufficient to comply with the average demand of 77 MW.

The WEB delivers electricity to the distribution company Electriciteit-Maatschappij Aruba N.V., which we refer to as “Elmar”. Power in Aruba is supplied at a 60-Hertz frequency, and at 127 and 220 volts. Consumption of electricity in Aruba has increased steadily since 1986, from 219,000 megawatt-hours (MWh) in 1986 to 729,790 MWh in 2004. This increase has been managed by a comprehensive power distribution network, which is continuously upgraded.

The WEB also produces all of the industrial and potable water in Aruba through the desalination of seawater at a large desalination plant in Balashi. The total installed desalination capacity of the multi-stage flash desalination units is 42,000 metric tons per day. Average daily water consumption in Aruba in 2004 was approximately 31,253 metric tons.

Both the WEB and Elmar are independently managed companies owned by the 100% Government-owned holding company, Utilities Aruba N.V.

In 2004, the WEB invested AFL 31.5 million in expansion of electricity production, replacing and expanding fuel oil lines, replacing and expanding the water distribution network, and investing in other enhancements, including information technology. Of this AFL 31.5 million, AFL 26.7 million was funded from the WEB’s internal resources, while AFL 4.8 million was obtained externally, including through commercial financing. The WEB also intends to invest AFL 74.6 million in 2005, principally for expansion of electricity production, with AFL 29.6 million funded from the WEB’s internal resources and AFL 45.2 million funded externally, including through commercial loans. For 2006 through 2008, the WEB intends to invest an estimated aggregate AFL 72.5 million, with an estimated 48.5 million funded internally and AFL 24 million funded externally.

Housing

The housing foundation, the Fundacion pa Cas pa Communidad Arubano (which we refer to as the “FCCA”), an independent foundation established by the Government and under the supervision of the Central Bank (see “The Monetary SystemBanking and Financial InstitutionsBank-Like Institutions”), focuses on the construction of houses for lower income families. In 2002 through 2004, the FCCA constructed a total of 588 houses, both for rental and sale, including 327 in 2004, for an aggregate cost of approximately AFL 40.0 million. For 2005 through 2008, the FCCA intends to invest an aggregate AFL 24.0 million in the construction of an additional 321 houses, including 171 in 2005.

Although the FCCA received concessional funding from the Government and the Government of the Netherlands upon its foundation, it currently funds the construction of these houses independently, including through the extension of mortgages to purchasers and rents on houses not sold. Government support is provided principally through the allocation of land for the development sites. In 2001, the FCCA acquired Interbank Aruba N.V., which it then sold to Aruba Bank N.V. in October 2003. See “The Monetary SystemCentral BankSupervisory Activities—Commercial Banks”.

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Airport

The Queen Beatrix International Airport (Aeropuerto Internacional Reina Beatrix, or “Queen Beatrix International”), located adjacent to Oranjestad, is the major tourist entry point for stay-over visitors to Aruba and is operated by the Aruba Airport Authority N.V, or “Airport Authority”, a 100% Government-owned limited liability company. The passenger accommodation facilities at Queen Beatrix International recently underwent major expansion and renovation to meet the requirements of the steadily increasing passenger traffic to Aruba. Further renovation and expansion, including to facilitate compliance with new safety and security requirements, is scheduled to be conducted over the course of the next four years. The total estimated cost of this additional renovation and expansion is estimated at approximately AFL 56 million, to be funded internally from the Airport Authority’s cash flow.

For further information on Queen Beatrix International, including the current expansion and renovation plans, see “The Aruban Economy—Principal Sectors of the Economy—Tourism—Tourism Infrastructure—Airport” below.

Ports

Aruba has three seaports. The port of Oranjestad, Aruba’s container port and cruise ship terminal, is accessible to all types of vessels. It has a depth of 38 feet and 4,070 feet of docking space. The container terminal has a 50-ton gantry crane with a maximum capacity of 60,000 twenty-foot equivalent units (a unit of cargo capacity equal to that of a standard container approximately 20 feet long, 8 feet wide, and 8 feet high) per year, and a 140-ton mobile crane. There are also two roll-on roll-off ramps, and facilities for 36 reefer connections are available. Aruba’s industrial port is located at Barcadera. The Barcadera port has a depth of 36 feet and 1,148 feet of docking space. Finally, the port for the oil refinery is located at San Nicolas, and houses the oil terminals and two reef berths. The Aruba Ports Authority N.V., or “Ports Authority”, a company wholly-owned by the Government that was corporatized in 1981, administers the Oranjestad and Barcadera ports, while Valero Aruba Refining Co. N.V. (which we refer to as “Valero”), an indirect wholly-owned subsidiary of U.S. oil company Valero Energy Corporation, now maintains the San Nicolas port following its purchase of the refinery from Coastal Aruba Refining Co. N.V. (which we refer to as “Coastal”) in March 2004. Harbor calls at these three ports totaled approximately 2,807 in 2004.

We intend to relocate all ship borne freight activity to the port facilities at Barcadera, thus reserving the facilities in Oranjestad solely for cruise travel. Once this relocation has taken place, the Ports Authority intends to substantially enhance the existing harbor facilities. See “The Aruban Economy—Principal Sectors of the Economy—Tourism—Tourism Infrastructure—Ports”.

Direct shipping connections are available from Aruba to European and Latin American countries through major shipping lines, and regional shipping connections are available, either direct or via transshipment.

Telecommunications

Before we obtained status aparte within the Kingdom in 1986, all international telecommunications went through Curacao. Upon Aruba obtaining status aparte, the Aruban landsradiodienst (international and telegram service) and telefoondienst (local telephone service) were merged into Servicio di Telecomunicacion di Aruba N.V., or “SETAR”. In 2002, the Government corporatized SETAR, which since that point has operated as a separate entity, wholly-owned by the Government. See “The Aruban EconomyPrivatization and Corporatization”.

Our current telecommunication infrastructure is advanced and sophisticated, consisting of 5ESS digital exchanges. These exchanges have a high capacity, which can be expanded easily because of modular architecture, and the ability to provide a wide variety of advanced telecommunications services. They are interconnected by means of a fiber optic and digital microwave network, guaranteeing route diversity, high availability and reliability.

For international telecommunications, SETAR has a network consisting of a 5ESS exchange, Standard A and Standard B earth stations, an international telex exchange and a digital microwave system. With the available infrastructure, SETAR can provide its customers with IDR and IBS satellite services. The earth stations are equipped for video up and down linking. SETAR is a landing point of the Pan American Submarine Cable System,

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and is connected with the world fiber optic network. International direct calls can be made to all countries in the world and SETAR also can complete all calls via international operator service.

SETAR also offers a mobile communication infrastructure and a new city-paging system for tone, voice (mail), numeric and alphanumeric options. A cellular telephone and trunking system (public mobile radio system) is available, as is Internet service. In 2003, New Millennium Telecommunication Services, or “NMTS”, an Aruban company, received an Aruban court decision in its favor in its claim against SETAR’s monopoly position in our cellular telecommunications market. Following that decision, NMTS and a second operator, DTH Television & Telecom N.V., or “DTH”, were awarded licenses and frequency allocations to offer cellular phone service in Aruba. NMTS partnered with Digicell, began offering service in 2003, while DTH’s parent company, Curacao Telecom, was recently taken over by Digicell, which prompted the Government to retract the license issued to DTH due to antitrust concerns. The license retraction resulted in DTH commencing procedures against the Government to recover its license.

Litigation

In November 2002 Colorado Hills N.V. initiated a court case against the Government of Aruba demanding the court rule that the Government committed a tort against the company or is in default against the company and ordering the Government to pay for the losses incurred as a result thereof. In October 2003 the Government responded with a counterclaim against Colorado Hills N.V. and or its managing director personally for the losses the Government incurred with the Sanchez Racetrack project. Judgement in this case has been postponed several times since October 2004.

In March 2002, a number of Dutch court decisions held the Government immediately liable for U.S.$120 million on construction guarantees for two hotels granted to the Italian export credit insurer, SACE, by the previous administration, with an amount relating to a construction guarantee for a third hotel then still in litigation. The amount outstanding under these guarantees was fixed at U.S.$205.9 million in April 2002. In March 2003, we entered into a settlement with SACE in an aggregate amount of U.S.$110 million, of which U.S.$55 million was paid immediately to SACE and the remainder was converted into a long-term loan maturing in 2018 and bearing interest at 4.5% per annum. We recognized the remaining U.S.$85.9 million (approximately AFL 172 million) under the claim as debt forgiveness in March 2003. No amounts in respect of this claim remain outstanding.

In August 2002, a Miami court judgment held Aruba liable for U.S.$20.5 million in damages under a claim brought by Motorsports Americas Inc. and Sanchez Motorsports Group, Inc., arising in relation to the Sanches racetrack. In April 2003 we entered into a settlement with Motorsports Americas Inc. and Sanchez Motorsports Group, Inc. in the aggregate amount of U.S.$10 million (equivalent to AFL 17.9 million). We paid the entire amount due in relation to this settlement in May 2003. No amounts in respect of this claim remain outstanding.

In October 1995, Enrique L. Fuentes and Rogans Corporation N.V. initiated a claim against the Government for alleged damages arising from the development of hotel that has since been abandoned. Following numerous court proceedings, the Common Court of the Netherlands Antilles and Aruba decided that a contract exists between the Government and Enrique L. Fuentes and Rogans Corporation N.V. regarding the purchase and development of this proposes hotel and found that the Government was to pay possible damages for loss of profits, subject to proof of such damages. In June 2004, these plaintiffs commenced a suit for damages against the Government in the amount of U.S.$24.4 million. Proceedings in this case are still continuing, during the course of which the plaintiffs have lowered their claim to U.S.$23.4 million.

In January 1991, Trias Resorts N.V. and Mr. J.S. Lopez initiated a claim against the Government for alleged damages arising from the Government deciding not to issue a “committed” guarantee for the development of a hotel project in 1991. In June 2004, experts appointed by the Common Court of the Netherlands Antilles and Aruba issued a report in which the total damages suffered by the plaintiffs was calculated at U.S.$20.2 million. On April 27, 2005, the Court in First Instance of Aruba found the Government immediately liable for U.S.$10.0 million, which amount the Government has since paid or offset against previous advances. At the end of June 2005, the plaintiffs appealed the Aruban court’s decision, demanding the additional U.S.$10.2 million calculated under the June 2004 report. The Government also appealed the Aruban court’s decision, demanding the entire judgment be reversed. These appeals are still pending.

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Narcotics

Aruba is not a source of illegal narcotics. However, the proximity of Aruba to South America makes it an attractive transshipment point for narcotics destined for the United States. Circumstantial evidence indicates that traffickers of drugs and chemicals used in narcotics processing have exploited the Free Zone facilities to transit the area. However, we substantially enhanced regulatory scrutiny of companies seeking to operate in the Free Zone, which we believe, when combined with the implementation of several international standards against money-laundering, has significantly reduced exploitation of the Free Zone by narcotics traffickers.

At present, most narcotics transshipments affecting Aruba occur in or through its coastal waters. The Aruba Organized Crime Unit, an investigative team of the Aruba Police, has responsibility for investigating large-scale drug trafficking crimes. The governments of the Netherlands Antilles and Aruba have agreed to work more closely with the other coast guards operating in the region in order to combat drug trafficking on a coordinated basis.

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THE ARUBAN ECONOMY

Overview

We have a small, open economy and, like many other small economies, our economy is relatively undiversified. Prior to 1986, our economy was primarily centered around the operations of the oil refinery, then owned by Exxon. When that refinery closed in 1985, we readjusted our economy around other products and services, principally tourism. Currently, despite the reopening of the refinery by Coastal in 1991, the substantial majority of our GDP is provided by service activities, while agricultural and industrial activities (including manufacturing and construction) and public utilities (including oil refining activities) contribute a much smaller portion of our GDP. In particular, for each of the last five years, we estimate that we directly and indirectly derived over 50% of our GDP from tourism. Other principal sectors of our economy include construction, housing, utilities and public administration and education.

Since 2000, the Aruban economy has been driven primarily by private sector investment and consumption and by growth in exports of goods and services (principally tourism). In particular, private consumption accounted for 52.8% of nominal GDP in 2004, compared to Government consumption of 26.4% of nominal GDP. Private investment accounted for 27.7% of nominal GDP in 2004, while Government investment, which decreased each year from 2000 through 2002, increased to 1.8% of nominal GDP in 2004, its second consecutive yearly increase.

The table below shows principal indicators of the Aruban economy for the five years ended December 31, 2004:

Principal Economic Indicators (1)

Year ended December 31,

2000 2001 2002 2003 2004 2004

(in millions of AFL, except percentages) (in millions of U.S.$, except

percentages) Final Consumption Expenditure ........................................ 2,396 2,517 2,698 2,847 3,024 1,689

Real % Change .................................................................. 1.1 2.1 3.8 1.8 3.6 3.6 Private Sector Final Consumption Expenditure ........... 1,664 1,712 1,800 1,908 2,015 1,126

Real % Change ......................................................... (0.2) 0.0 1.8 2.3 3.0 3.0 Government Final Consumption Expenditure .............. 731 805 899 939 1,009 564

Real % Change ......................................................... 4.3 7.0 8.1 0.8 4.9 4.9 Gross Investment.................................................................. 818 763 798 985 1,129 631

Real % Change .................................................................. (17.4) (9.3) 1.3 19.0 11.9 11.9 Private Gross Investment .............................................. 790 735 776 935 1,059 592

Real % Change ......................................................... (16.7) (9.6) 2.2 16.2 10.5 10.5 Public Gross Investment ............................................... 28 28 22 50 70 39.1

Real % Change ......................................................... (34.4) (2.8) (23.9) 118.8 36.6 36.6 Exports of Goods and Services ........................................... 2,476 2,467 2,370 2,346 2,454 1,371

Real % Change .................................................................. (3.5) (3.1) (7.0) (4.5) 2.1 2.1 Of Which: Tourism Exports of Goods and Services .... 1,443 1,459 1,327 1,332 1,489 832

Real % Change ......................................................... 7.3 (1.7) (11.9) (3.2) 9.0 9.0 Less: Imports of Goods and Services ................................ 2,363 2,348 2,445 2,578 2,788 1,558

Real % Change .................................................................. (13.0) (3.4) 0.8 1.7 5.5 5.5 Nominal GDP ........................................................................ 3,327 3,399 3,421 3,599 3,819 2,134

Real % Change .................................................................. 3.7 (0.7) (2.6) 1.4 3.5 3.5 CPI (% Change)................................................................... 4.1 2.9 3.3 3.7 2.5 2.5

(1) Real percentage changes in this table exclude the effects of inflation. Percentage changes in nominal terms may be obtained by adding the percentage change in CPI to the relevant real percentage change.

Source: Central Bank

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Gross Domestic Product

The recovery of the world economy had a positive influence on Aruban economic performance in both 2003 and 2004, as the growth that began in 2003 continued in 2004. Our GDP in 2004 grew by 6.0% in nominal terms and 3.5% in real terms. The principal factors behind the economic growth in 2004 were buoyant tourist activities, an 11.9% increase in real terms in total public and private sector investments, particularly in the private sector where large hotel projects were nearing completion, and 3.0% and 4.9% increases in real terms in consumption by private households and the Government, respectively. According to the Partial Economic Activity Index, as explained below, all sectors of the economy, with the exception of the construction sector, recorded increases in 2004 as compared to 2003. The hotels and restaurants and transport, storage and communication sectors increased by 10.2% and 9.1% in real terms, respectively, driven principally by increases in tourism. In addition, the trade sector grew by 3.4% in real terms, while the utilities, housing and public administration and education sectors grew by 0.5%, 2.6% and 1.8% in real terms, respectively. Increases in housing reflect primarily the effects of economic growth and resulting growth in immigrant labor to fill employment vacancies, and increases in utilities correlate with increases in housing and construction. Increases in public administration reflect growing demand for public services, which also correlate with increasing immigration and business activity. In contrast, the construction sector contracted by 6.3% in real terms in 2004 as activity slowed on several large hotel projects that were nearing completion.

The economy, following two successive years of recession, started to rebound in 2003, recording a nominal growth rate of 5.1% and a real growth rate of 1.4%, driven mainly by a 19.0% increase in real terms in gross investments (public and private) as a number of new projects commenced. In addition, consumption by private households and the Government increased by 2.3% and 0.8%, respectively, due in the latter case to a strong expansion in bank credit. In 2003, in real terms, activities in the construction sector increased by 8.0%, the hotels and restaurants sector grew by 4.1%, the housing sector increased by 2.5%, the utilities sector increased by 1.9% and the public administration and education sector grew marginally by 0.1%. However, both the trade and transport, and the storage and communication sectors each contracted in real terms by 4.4% and 2.2% in real terms, respectively. Tourism activity reflected moderate increases across most indicators.

The table below shows Aruba’s nominal GDP, as well as annual changes in real GDP, for the five years ending December 31, 2004:

Year ended December 31,

2000 2001 2002 2003 2004 2004

(in AFL, except percentages) (in U.S.$, except

percentages)

Nominal GDP (in millions) .................................. 3,327 3,399 3,421 3,599 3,819 2,134

Change in Nominal GDP (%) ..................... 7.8 2.2 0.7 5.1 6.0 6.0

Change in Real GDP (%) ............................ 3.7 (0.7) (2.6) 1.4 3.5 3.5

Nominal GDP per Capita ..................................... 36,721 36,995 36,665 37,856 39,162 21,878

Change in Nominal GDP (%) ..................... 6.8 0.4 (0.7) 2.7 3.4 3.4

Source: Central Bank

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The following table shows real GDP as gross value added by industry sector at basic prices for the three years ended December 31, 2002, as derived from the National Accounts prepared by the Central Bureau of Statistics, or “CBS”.

GDP as Gross Value Added by Industry Sector at Basic Prices(1)

Year ended December 31,

2000 2001 2002

Amount % of Total Amount

% of Total Amount

% of Total

Sector (in millions of AFL, except percentages)

Agriculture, hunting, forestry; fishing; mining and quarrying .............. 13.3 0.4% 11.9 0.4% 11.6 0.4%

Manufacturing ........................................................................................ 124.0 4.0 108.9 3.5 110.7 3.5

Electricity, gas and water supply; manufacture of refined petroleum products........................................... 199.5 6.5 229.5 7.3 230.5 7.3

Construction ........................................................................................... 193.0 6.3 180.2 5.8 157.8 5.0

Wholesale and retail trade; repair of motor vehicles and household goods ...................................... 430.3 14.0 432.0 13.8 428.4 13.5

Hotels...................................................................................................... 239.6 7.8 242.7 7.8 215.5 6.8

Restaurants ............................................................................................. 116.9 3.8 106.5 3.4 102.7 3.2

Transport, storage and communications ................................................ 290.8 9.5 308.0 9.8 306.8 9.7

Financial intermediation......................................................................... 224.9 7.3 253.2 8.1 237.7 7.5

Real estate activities ............................................................................... 404.7 13.2 439.3 14.0 476.9 15.0

Other business activities......................................................................... 225.4 7.3 215.8 6.9 227.8 7.2

Public administration; compulsory social security; education .............. 434.7 14.2 425.9 13.6 456.8 14.4

Health and social work........................................................................... 112.2 3.7 147.0 4.7 157.9 5.0

Other community, social and personal service activities....................... 222.4 7.2 207.3 6.6 211.7 6.7

Total before FISIM Adjustment.................................................. 3,231.4 105.3% 3,308.2 105.8% 3332.8 105.1%

Adjustment for FISIM(2) ......................................................................... (162.7) (5.3) (180.5) (5.8) (162.9) (5.1)

Total GDP as Gross Value Added ...................................................... 3,068.7 100.0% 3,127.6 100.0% 3,169.8 100.0%

(1) Gross value added represents the current value of goods and services produced minus the costs associated with that production. The goods and services produced in the economy are measured at basic prices. The basic price is the amount receivable by the producer from the purchaser for a unit of merchandise or service produced as output minus any tax payable, and plus any subsidy receivable, on that unit as a consequence of its production or sale. It excludes any transport charges invoiced separately by the producer.

(2) FISIM refers to “Financial Intermediation Services Indirectly Measured”. A large proportion of the income of banks and financial institutions consists of an excess of interest and other property income over payments rather than from direct charges for services. This income is recorded in the allocation of primary income accounts rather than as an item of gross output in the production account, operating surplus would be negative. To overcome this a service charge is imputed, equal to net interest and other property income. Conceptual problems of how to allocate the charge to the users of services provided by financial institutions, (such as whether to allocate on the basis of the number or value of loan transactions), are overcome by creating a nominal industry which pays the total charge. The nominal industry has no gross output and makes a negative contribution to GDP. Its negative operating surplus counteracts the increased operating surplus of all other industries, which are not recorded as paying any of the imputed bank service charges.

Source: CBS

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The following diagram illustrates the sectoral composition of our real GDP for the year ended December 31, 2002:

GDP as Gross Value Added by Industry Sector at Basic Prices in 2002

Health and social work5%

Other community, social and personal service activities

6%

Adjustment for FISIM*5%

Public administration, compulsory social security,

education12%

Real estate activities13%

Other business activities7%

Manufacturing3%

Agriculture, hunting, forestry, fishing, mining and quarrying

0%

Construction5%

Electricity, gas and water supply, manufacture of

refined petroleum products7%

Wholesale and retail trade, repair of motor vehicles and

household goods12%

Hotels6%

Restaurants3%

Transport, storage and communications

9%Financial intermediation7%

* FISIM: “Financial Intermediation Services Indirectly Measured”.

Source: CBS

No National Accounts have been prepared by the CBS since 2002 due to personnel changes and the implementation of new systems for the calculation and preparation of GDP. National Accounts through December 31, 2004 are expected to be available within the next twelve months. In addition, we are currently working on systems outside of those used by the CBS to enable us to produce our own projections with regard to economic developments for the short and midterm. However, given the delay in the production of the National Accounts, we use the Partial Economic Activity Index, or “PEAI”, prepared by the CBS to analyze short-term developments in our most important economic sectors.

The PEAI is a compilation of sectoral GDP volume developments, which are based on a limited number of statistics which are thought to be representative of the volume growth of the respective industry, which volume developments are then weighted based on the relevant industry sector’s respective share of GDP. The PEAI does not present volume developments of all sectors of the Aruban economy, but rather only seven of our most important economic sectors, which together accounted for 71.3% of our real GDP at basic prices based on our 1998 National Accounts, which is used by the CBS as the base year. The seven sectors covered by the PEAI, which differ in certain respects from similar sectors included in the National Accounts, are as follows:

• Utilities, which includes electricity, gas and water supply, but does not include “manufacture of refined petroleum products” as included in the similar sector under the National Accounts;

• Construction;

• Wholesale and retail trade, including repair of motor vehicles and household goods;

• Hotels and Restaurants (combining two sectors covered separately under the National Accounts);

• Transport, storage and communication;

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• Housing, which includes mortgages and rental values with respect to residential dwellings only, is an imputed figure deducted from the amounts of mortgages and calculated rental values by real estate appraisers (as constructed from the real estate values assessed on persons offering property for sale), commercial real estate activities not related to housing e.g. business-related real estate activities; and

• Public administration, compulsory social security and education.

The following table shows the PEAI for the two years ended December 31, 2004:

Partial Economic Activity Index

Year ended December 31,

1998 (1) 2003 2004

Percentage Share of Real GDP

at Market Prices

Percentage Change in Turnover (period average) (2)

Utilities (3) ................................................................................................. 4.1% 1.9% 0.5% Construction ............................................................................................. 8.6 8.0 (6.3) Wholesale and retail trade; repair of motor vehicles and household goods ........................................ 14.2 (4.4) 3.4 Hotels and restaurants .............................................................................. 10.5 4.1 10.2 Transport, storage and communication.................................................... 8.2 (2.2) 9.1 Housing .................................................................................................... 12.6 2.5 2.6

Public administration; compulsory social security; education ................ 13.1 0.1 1.8

Total Index .............................................................................................. 71.3% 1.0% 3.5%

(1) The sectoral composition of GDP in 1998 is used as the base year for the PEAI.

(2) As compared to the corresponding prior period.

(3) Excludes manufacture of refined petroleum products.

Source: CBS

For the first quarter of 2005, the PEAI increased by 9.9% percent compared to the corresponding quarter of 2004. This 9.9% growth was primarily the result of a 28.0% increase in the construction sector resulting from an increase in the import of construction materials by local enterprises. This growth in the construction sector reversed a protracted slump in this sector, and reflects corresponding increases in tourism sector activity, as construction activity has traditionally shown a high correlation with growth in tourism. The hotels and restaurants sector in the first quarter of 2005 increased 9.1% compared to the first quarter of 2004, principally due to an increase in the number of visitor nights and the occupancy rate in the hotels. This industry’s quarterly growth rate over this period was 10.3%. The public administration and education sector also contributed substantially to the growth of the PEAI compared to the first quarter of 2004, registering growth of 26.4% compared to the first quarter of 2004.

Principal Sectors of the Economy

Tourism

Tourism is the greatest contributor to the Aruban economy, contributing an amount greater than 50% of our nominal GDP and 78.8% of current account receipts (excluding the oil sector and the Free Zone). A reason overwhelmingly cited for travel to Aruba is vacation, according to 85.2% of stay-over visitors in 2004, in a survey conducted by the CBS. Since 2000, tourist arrivals in Aruba have increased on average approximately 5.6% per annum, with tourism receipts increasing on average approximately 4.3% per annum. Tourism receipts in 2004 were AFL 1.9 billion (approximately U.S.$1.0 billion), an increase of 22.2% from AFL 1.5 billion (approximately U.S.$0.8 billion) in 2003.

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Total tourist arrivals (stay-over visitors and cruise passengers) in 2004 increased by 9.4% to approximately 1.30 million, as compared to approximately 1.18 million tourist arrivals in 2003, according to the Aruba Tourism Authority, or “ATA”, reflecting significant increases in the number of both stay-over and cruise visitors. In 2003, total tourist arrivals decreased by 3.3% to 1.18 million, as compared to 1.22 million in 2002, reflecting a marginal decrease in stay-over visitors and a more significant decline in cruise visitors. Revenues attributable to tourism increased 22.7% in 2004 to AFL 1,872.0 million from AFL 1,526.1 million in 2003, which itself reflected a 3.3% increase from AFL 1,475.3 million in 2002. We estimate that Aruba captures 3.0% of the cruise market and 3.8% of the stay-over visitor market in the Caribbean region. During 2004, the ATA spent approximately U.S.$20 million in tourism marketing activities, including international publicity, brochures and public relations, of which approximately U.S.$12 million was spent in the United States, the primary source of tourist arrivals into Aruba. See also “—Marketing”.

Results in our tourism industry in 2003 and 2004 reflect the stabilization and subsequent reversal of declining tourism activity that started in the last quarter of 2001 that saw a downward trend in arrivals as a result of the events of September 11th of that year, and which was subsequently exacerbated by adverse shocks to the economic and business climate in the United States (our primary tourist market), including the wars in Afghanistan and subsequently in Iraq, the bursting of the stock market bubble and corporate accounting scandals. In addition, international trade was affected by the then strong U.S. dollar and much weaker recoveries in most other parts of the world economy. Under those circumstances, consumer confidence declined and people were reluctant to travel abroad. Furthermore, political and social turbulence in Aruba’s second largest tourism market, Venezuela, resulted in a significant decrease in the number of Venezuelan tourists coming to Aruba.

The downward trend in the number of stay-over visitors to Aruba beginning the last four months of 2001 appears to have reversed in 2004. The number of stay-over visitors increased by 13.0% to 728,157 in 2004, from 641,906 in 2003. The number of stay-over visitors in 2004 is the highest number ever recorded in Aruba, and the increase from 2004 to 2003 was the highest growth rate recorded annual growth rate since 1991. The increase in stay-over visitors in 2004 was driven mainly by the recovery of the U.S. economy, an improved travel confidence and an increase in the number of flights to Aruba. In 2003, the number of stay-over visitors contracted marginally to 641,906 from 642,627 in 2002, reflecting the bottoming out of the negative growth trends resulting from the factors discussed above.

With respect to cruise tourism, we experienced a 6.0% increase to 576,300 cruise passengers visiting Aruba in 2004, as compared to 542,327 cruise visitors in 2003. The number of cruise visitors in 2004 was still below the 582,195 cruise visitors in 2002, which perhaps reflected a preference for sea travel among tourists visiting Aruba in 2002, possibly reflecting safety concerns regarding air travel.

The steady increase in number of nights tourists spent on the island, or visitor nights, since 2002 also reflects the tourist industry’s recovery from the September 11, 2001 terrorist attacks. Visitor nights rose 10.6% to 5,639,900 in 2004 from 5,097,600 in 2003. Relatedly, average occupancy rates rose further to 80.7%, up from 74% in 2003. Visitor nights in 2003 of 5,639,900 reflected a 15.9% increase from 4,862,548 in 2002, while average room occupancy in 2003 of 74.0% was up from 71.7% in 2002. At December 31, 2004, Aruba had a total of 7,226 hotel rooms.

Based on data compiled by the ATA, during the first quarter of 2005, total visitor arrivals increased 8.1% to 391,527, as compared to 362,259 in the corresponding quarter in 2004. Of the total visitors for the first quarter of 2005, 200,868 were stay-over visitors and 190,659 were cruise passengers, representing increases of 13.4% and 2.9%, respectively, as compared to total stay-over visitors and cruise passengers during the same period of 2004. The increase in tourist arrivals during the first quarter of 2005 was primarily a result of from the promotional efforts in marketing Aruba’s tourism products abroad.

Recently, Aruba has received intense media coverage in connection with the disappearance in Aruba of American tourist Natalee Holloway on May 30, 2005. The case has yet to be resolved although the Government is working diligently, with the help of the Netherlands and the U.S. authorities, to bring the case to an expeditious completion. Due to the comprehensive attention from the U.S. press, it remains to be seen what impact, if any, the incident will have on Aruban tourism, especially with respect to visitors from the United States. However, early indicators appear to be favorable in this respect. Based on data compiled by the ATA, during the first seven months of 2005, visitor arrivals totaled 471,892, an increase of 6.9% compared to the corresponding period of 2004. Of the

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total visitors during this period, 316,364 came from the United States, an increase of 16.1% compared to the corresponding period in 2004. In addition, data indicates that arrivals from the United States from May 31 to July 31, 2005 increased 20.4% compared to the same period in 2004.

The following table sets forth key indicators relating to the tourism sector for the five years ended December 31, 2004:

Key Tourism Indicators

Year ended December 31,

2000 2001 2002 2003 2004

Tourism receipts (in AFL million) (1) ...................................... 1,538.3 1,466.6 1,475.3 1,526.1 1,872.0

Growth (%).............................................................................. 9.0 4.3 (8.0) 3.4 22.2

Tourism receipt contribution to current account (2)................. 69.3 71.5 70.0 75.0 78.8

Tourist expenditures (3) ............................................................ 1,319.3 1,323.3 1,170.8 1,159.5 1,454.2

Stay-over visitors (in thousands) ........................................... 721.2 691.4 642.6 641.9 728.2

Visitor nights (in thousands) .................................................. 5,247.8 5,144.6 4,862.5 5,097.6 5,639.9

Average nights stayed ............................................................. 7.3 7.4 7.6 7.9 7.7

Receipts per visitor night (in AFL) ......................................... 293 312 304 299 332

Average daily expenditure (in AFL) (4) ................................... 204 211 207 186 207

Average hotel occupancy rate (5) ........................................... 75.9 75.5 71.7 74.4 80.7

Average daily rate hotels (US$) .............................................. 129 136 138 134 145

Revenue per available room (US$) ......................................... 72 75 69 69 82

Cruise visitors (in thousands) ................................................ 289.0 490.1 582.2 542.3 576.3

Number of cruise ship calls..................................................... 331 298 337 315 318

Aruba’s market share in the Caribbean (%)

Stay-over visitors ................................................................ 3.5 3.5 3.8 3.5 3.8

Cruise tourists ..................................................................... 3.4 3.3 3.7 3.1 3.0

(1) Gross receipts from stay-over and cruise tourism as well as other tourism-related income as recorded on a cash basis in the balance of payments.

(2) Tourism receipts as a percentage of current account receipts, excluding the oil sector and Free Zone.

(3) Travel-related expenditures by stay-over visitors, before (e.g., prepaid packages), during, and immediately after a trip as estimated by the CBS from the results of a special survey.

(4) Expenditure in Aruba only (thus, excluding e.g. payments for prepaid packages), as calculated by the CBS.

(5) Including time-share.

Source: Central Bank; CBS; ATA

The Aruban tourist market is heavily oriented toward the U.S. market. In 2004, visitors from the U.S. constituted approximately 73.5% of the total stay-over arrivals, while the Latin American market, the second largest source of visitors, constituted 11.0%, with Venezuela being the largest individual contributor. Following Latin America were Europe with approximately 8.3% and Canada with 2.8%. U.S. stay-over visitors increased 15.2% in 2004 as compared to 2003, while visitors from the Netherlands increased 4.6% in the same period. These increases, however, were partially offset by declines in arrivals from Colombia, Trinidad and Tobago and the other Caribbean markets (except the Netherlands Antilles), which on a combined basis decreased 13.6% in 2004 as compared with 2003. In 2003, the decline in stay-over visitors was spread generally among our principal non-European markets, which declines more than offset a 36.7% increase in stay-over arrivals from our European markets (particularly an increase of 30% in arrivals from the Netherlands and 40% in arrivals from the United Kingdom as compared to 2002).

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The table below outlines the composition of stay-over visitors to Aruba by region of origin for the five years, ended December 31, 2004:

Stay-Over Visitors by Region of Origin

Year ended December 31,

2000 2001 2002 2003 2004

(visitors) (% of total) (visitors)

(% of total) (visitors)

(% of total) (visitors)

(% of total) (visitors)

(% of total)

United States .............................. 452,211 63.5% 443,262 64.9% 432,906 67.9% 464,466 72.4% 535,133 73.5%

Europe........................................ 47,063 6.5 44,961 6.5 40,004 6.2 54,711 8.5 60,404 8.3

of which Netherlands ............ 30,575 4.2 28,457 4.1 27,992 4.4 36,415 5.7 38,122 5.2

Latin America ............................ 162,474 22.5 150,659 21.8 113,865 17.7 77,219 12.0 80,263 11.1

of which Venezuela............... 112,018 15.5 109,338 15.8 81,665 12.7 54,554 8.5 59,218 8.1

of which Colombia................ 31,367 4.3 23,948 3.5 23,362 3.6 11,397 1.8 10,648 1.5

Canada ....................................... 20,594 2.9 18,926 2.7 17,601 2.7 17,218 2.7 20,560 2.8

Others......................................... 38,882 5.4 33,611 4.9 38,251 6.0 28,292 4.4 31,797 4.4

Total Visitors ............................ 721,224 100.0% 691,419 100.0% 642,627 100.0% 641,906 100.0% 728,157 100.0%

Source: Central Bank; CBS; ATA

Tourism Development

The Aruba tourism product is focused on attracting visitors all year round, to take advantage of Aruba’s consistent average annual temperature of 83°F (27°C), and its location outside of the hurricane belt. Aruba markets itself as a high-end resort, in competition with the likes of Barbados, The Bahamas and the Cayman Islands, rather than the mass-market destinations of Mexico, the Dominican Republic and Cuba. Its target clientele are couples and families in the 34 to 54 year age range, in the high household income category (annual income in excess of U.S.$100,000), with emphasis given to U.S. tourists from the northeast corridor. In 2004, 18.4% of our total stay-over visitors were from households having an annual household income between U.S.$75,000 and U.S.$100,000 and 19.0% were from households having an annual household income over U.S.$100,000, showing increases in both categories as compared to 2003 (16.5% and 10.8%, respectively) and 2002 (15.1% and 14.1%, respectively).

The table below shows the composition of Aruba’s stay-over visitor arrivals by household income level for the four years ended December 31, 2004:

Stay-Over Visitors by Annual Household Income

Year ended December 31,

2001 2002 2003 2004

(as a percentage of total stay-over visitors)

Less than U.S.$20,000 ...................................................................................... 9.5% 8.9% 7.8% 4.9%

U.S.$20,001 – U.S.$30,000 .............................................................................. 11.8 9.4 7.6 4.3

U.S.$30,001 – U.S.$50,000 .............................................................................. 19.6 17.8 16.4 12.7

U.S.$50,001 – U.S.$75,000 .............................................................................. 18.0 21.5 28.1 25.1

U.S.$75,001 – U.S.$100,000 ............................................................................ 13.9 15.1 16.5 18.4

Over U.S.$100,000............................................................................................ 13.0 14.1 12.8 19.0

Unknown ........................................................................................................... 14.3 13.3 10.8 15.6

Total Visitors ................................................................................................... 100.0% 100.0% 100.0% 100.0%

Source: CBS

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We continue to work to improve the tourism product we offer our visitors and to expand our tourist industry. Our policy towards hotel development is to promote private investment in additional room capacity, with an emphasis on high quality accommodations to attract higher income visitors. We are also working with private developers for the construction of golf courses to better compete with other destinations. In particular, we have engaged in efforts to expand hotel and tourism development outside the Palm Beach, Eagle Beach and Oranjestad areas, and in particular in the San Nicolas and Seroe Colorado area. We are in the advanced stages of discussions with Divi Resorts and Divi Village for the construction of three additional hotels in the San Nicolas area, each having more than 200 rooms, as well as a 9-hole golf course, which could be expanded to become an 18-hole golf course in 5 to 10 years.

Other significant projects completed since 2002 include:

• the Divi Village 9-hole golf course in Punta Brabo, between Oranjestad and Palm Beach, which opened in October 2004; and

• the sale of the Grant Hotel to the Ríu Group of Spain and the upgrading of that hotel to a five-star resort.

Other significant projects currently being undertaken or considered include:

• construction of the third wing of the Marriot Hotel, which is scheduled to be completed during 2006;

• the addition of rooms by the Amsterdam Manor Hotel and Manchebo Beach Hotel;

• planned construction of a new hotel in Hadicurari by Ritz Carlton;

• renovation of the Holiday Inn Hotel in Palm Beach and upgrading of an existing wing of that hotel into an “Indigo” boutique-type resort, as well as the construction of a shopping center near the Holiday Inn;

• construction of a condominium development at Eagle Beach; and

• the construction of an 80-to 90-room luxury resort on the north coast near Andicuri Bay.

Aruba’s natural habitat lends itself to the water sports traveler (especially windsurfing and diving), but we are also aiming to diversify our visitor population through various efforts, including:

• partnering with the private sector Aruba Hotel and Tourism Association and Aruba Convention Bureau in efforts to promote Aruba as a preferred location for conference and incentive travel by businesses and other organizations;

• continuing to target honeymooners while also working to increase our attractiveness as a wedding destination following the amendment of Aruban legislation in 2003 to permit nonresidents to obtain wedding licenses for civil ceremonies; and

• targeting visitors who use scheduled rather than charter flights, as typically the per person expenditure is higher for visitors who use scheduled airlines.

In addition, we are consulting with the governments of other southern Caribbean countries as well as Brazil, Argentina and Colombia, about the potential development of a southern Caribbean cruise route, as Aruba and these other destinations are too far south to be reached by the seven-day cruises from Miami. In particular, we are in consultation with the Government of Barbados about the development of a one-week land/one-week sea cruise benefiting both islands.

Tourism Infrastructure

Airport. Queen Beatrix International, located adjacent to Oranjestad, is the major tourist entry point for stay-over visitors. The airport is served by a variety of scheduled airlines, including five U.S. carriers (American

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Airlines, Continental Airlines, Delta Air Lines, United Airlines and U.S. Airways), six South American carriers (Santa Barbara, Aeropostal, Aserca and Servivensa of Venezuela, Avianca of Colombia and SLM of Surinam) and one European carrier (KLM, of the Netherlands). Queen Beatrix International is also serviced by an increasing number of charter flights, particularly from the United Kingdom. Queen Beatrix International is operated by the Airport Authority, which has a strategic agreement with Schiphol Airports of the Netherlands, which provides management, commercial and technical support to the Airport Authority.

The following is a table reflecting aircraft and passenger traffic at Queen Beatrix International for the five years ended December 31, 2004:

Air Traffic and Passenger Transport Year ended December 31, Aircraft Landings

Arriving Passengers

Departing Passengers

Passengers in Transit

2000 .................................................... 18,254 907,340 874,648 203,751

2001 .................................................... 17,283 821,454 804,331 174,952

2002 .................................................... 16,874 759,085 751,106 153,662

2003 .................................................... 15,642 761,085 764,101 33,348

2004 .................................................... 17,866 875,021 818,826 41,879

Source: CBS

The passenger accommodation facilities at Queen Beatrix International underwent a significant expansion and renovation in the late 1990’s, financed through a bond issuance by the Airport Authority, to meet the requirements for the airport’s steadily increasing passenger traffic. As part of this project, U.S. customs and immigration services were added and two integrated structures located at either side of the arrivals terminal building were completed, one for U.S. bound passengers and the other for non-U.S. bound passengers. The U.S. bound terminal provides complete U.S. immigration and customs clearance for departing passengers. A new linear concourse running parallel with the existing runway and taxiway unites the three terminals. In addition, a separate facility, constructed to handle private airplanes and their passengers, is intended to attract more business travel to the airport. The Airport Authority financed the total cost of this project through commercial sources independent from the Government, including through three bond issuances in the international capital markets, two in 1997 and one in 1999, totaling U.S.$82.3 million.

The Airport Authority is currently implementing a second series of projects, divided into three areas: a master plan relating to strategic long term developments; a safety and security plan to implement new International Civil Aviation Organization (ICAO) and U.S. Transportation Security Administration (TSA) standards and requirements; and operational plans related to the alleviation of bottlenecks, realization of cost savings and the addition of new commercial and revenue generating activities. Recently on the landside, a new covered walkway/garden has been developed to link the new passenger facilities with the former one. This area, open both to the public and to passengers, is intended to be further developed to house additional retail stores that reflect Aruban architecture, landscape and culture. The signage as well as parking facilities have also been upgraded. The total cost of these plans is estimated at approximately AFL 56 million, to be funded by the Airport Authority from its own resources, with approximately AFL 11.3 million to be expended in 2005 and AFL 13.7 million to be expended in 2006.

The combined completed and current expansion and renovation projects of the Airport Authority are designed to allow Queen Beatrix International to handle the projected passenger demand for the year 2010, projected at 2.6 million passengers per year, equivalent to 1,470 departing and 1,260 arriving passengers in a peak hour.

Ports. Cruise ships currently dock at the terminal located in Oranjestad. We intend to relocate all ship-borne freight activity to the port facilities at Barcadera, thus reserving the facilities in Oranjestad solely for cruise travel. The Aruba Ports Authorities N.V. has recently developed a plan for this relocation project; funding is currently being arranged and may involve a joint venture with a reputable international port operating company. Once this relocation has taken place, we intend to expand the cruise terminal facilities and to dedicate the remainder

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of the available land adjacent to the cruise ship terminal to the construction of a combined marina and high-end residential development, as well as a mega-yacht marina.

Tourism Marketing

Aruba finds itself increasingly in greater competition with other Caribbean vacation destinations. Although Aruba has maintained a high level of occupancy rates for its hotels (an average of 73.4% in the period from 2000 to 2004) and benefits from a high percentage of repeat stay-over visitors, Aruba must substantially invest in marketing efforts to maintain its visitor numbers and achieve its objectives of increasing arrivals 1% per annum, foreign exchange receipts from tourism 2% per annum and maintaining minimum occupancy rates.

Given the competitiveness of the tourism environment, the Government and the ATA, which manages the marketing of Aruba, are committed to effectively marketing Aruba and insuring sufficient funds are both available and employed. The ATA employs various methods of marketing the Aruba tourism product, including (i) direct marketing, (ii) overseas offices, (iii) internet-based marketing through aruba.com, (iv) travel agent programs and (v) media visits. In particular, the ATA utilizes sophisticated database technology to analyze visitor demographics and target marketing efforts on attracting repeat visitors from the desired demographic classes (including higher-income visitors). During 2004, the ATA spent approximately U.S.$20 million in tourism marketing activities, including international publicity, brochures and public relations, of which approximately U.S.$12 million was spent in the United States, the primary source of tourist arrivals into Aruba. Aruba’s marketing budget per arrival in 2004 was just under U.S.$13 per arrival, and Aruba brought in 18,373 arrivals per employee. At December 31, 2004, the ATA employed 71 local and international personnel.

Construction

According to the PEAI, the construction sector decreased 6.3% in 2004 as compared to 2003, as activity slowed on several large hotel projects that were nearing completion. According to data from the Department of Public Works, while the number of building permits granted (an indicator of construction activity in the economy) rose by 16.2% in 2004 compared to 2003, this increase was primarily related to an increase in permits granted for housing construction. In contrast, the aggregate corresponding construction value of the permits granted decreased 15.1% in 2004, predominantly because of a decline in permits granted for the construction of nonresidential buildings, including large hotel projects. Other indicators of construction activity similarly declined in 2004 as compared to 2003, with the amount of cement imported falling by 7.5% and electrical installations approved by the Department of Technical Inspection decreasing 15.9%, both reflecting primarily the completion of several large construction projects at the end of 2003.

In 2003, activities in the construction sector increased by 8.0% as compared to 2002, according to the PEAI, primarily reflecting construction of several large hotel projects and a large increase in housing construction following the Government’s clearing a backlog of applications for housing land grants. Secondary indicators of construction activity showed corresponding increases in 2003 as compared to 2002, with the number of building permits granted increasing by 7.1%, the construction value of issued permits increasing by 6.3%, the amount of cement imported increasing by 35.4% and the number of electrical installations approved increasing by 15.0%.

Housing

The housing sector includes income from rental properties and increases in property values, based on developments in the Aruban property “cadastral” registers, including movements in replacement value of property as and estimates of market value by real estate assessors.

According to the PEAI, the housing sector increased 2.6% in 2004 as compared to 2003, and by 2.5% in 2003 as compared to 2002, primarily as a result of rising prices and construction development.

Utilities

According to the PEAI, the utilities sector increased marginally by 0.5% in 2004 as compared to 2003, due primarily to increases in gas and electricity consumption, which more than offset a decrease in water consumption.

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Electricity consumption increased 4.0% in 2004 as compared to 2003, according to WEB and Elmar, reflecting increases in both connections and the number of electricity consumers, while gas consumption increased by 3.7% as compared to 2003, according to Arugas N.V., due to an expansion in commercial use in contrast to household use. Water consumption declined by 2.4% in 2004 as compared to 2003, according to WEB, despite a 2.6% percent increase in the number of connected premises, due to increased construction and to lower water use for outdoor purposes in the fourth quarter of 2004 as a result of the rainfall in that quarter. As a result of the above, the weighted utilities consumption index, as reported by the CBS, rose by 1.9% in 2004 to 133.4, from 130.9 in 2003.

In 2003, the utilities sector increased by 1.9% as compared to 2002, due primarily to a 3.0% increase increases in water consumption resulting from a 2.6% increase in the number of connected premises in 2003, a 1.3% increase in electricity consumption resulting from increases in both household and the commercial consumption, and a 2.4% increase in gas consumption resulting primarily from a 4% increase in commercial use. Consequently, the weighted utilities consumption index increased by 1.9% in 2003 to 130.9, from 128.4 in 2002.

Public Administration and Education

The public administration and education sector comprises all public entities, agencies and not-for-profit entities subsidized by the Government for the execution of public tasks, such as foundations engaged in education or culture (provided that subsidized entities in the heath care field are classified under the “health” sector). Because the activities of this sector are principally nonmarket by nature, wages and salaries are used as a proxy for production.

According to the PEAI, the public administration and education sector increased 1.8% in 2004 as compared to 2003, and marginally by 0.1% in 2003 as compared to 2002, principally due to increases in employment in this sector as well as wage increases, which are generally a function of seniority.

Free Zone

The Aruban Government set up the Free Zone of Aruba, or the “Free Zone”, in order to stimulate further development of international trade and increase foreign exchange earnings. Although the Free Zone’s contribution to GDP is relatively minimal, it is a significant contributor to Aruba’s external economy and source of foreign exchange.

Aruba’s geographic location makes the Free Zone a convenient location for export business for transit trade to and from South America and the EU. In the Free Zone, goods can be brought in duty free and subsequently stored, assembled, packed or manufactured for reexport. These goods, insofar as import duties and taxes are concerned, are not subject to the usual customs control. The Free Zone is managed exclusively by Free Zone Aruba N.V., or the “FZA”, a 100% Government-owned, limited liability company. The FZA provides assistance to companies that wish to establish their business within the Free Zone.

Currently, Aruba has three Free Zone facilities. The first is situated next to the harbor on 3.8 hectares in the capital Oranjestad. The second is near the Bushiri harbor and covers an area of 9.2 hectares. The third, and largest, is located adjacent to the freight harbor in Barcadera, two miles from Queen Beatrix International, covering an area of approximately 90 hectares. We intend to relocate all Free Zone activity to the Barcadera, which would be developed as an exclusive state-of-the-art export area, and are currently considering proposals and plans for this relocation and development. We consider the move to Barcadera as a critical element in the development of the Free Zone, as the larger space available at Barcadera would allow logistical optimization (such as separating various types of business activities) and the implementation of enhanced security and control systems.

Originally, only companies involved in commercial or industrial activities, including activities which involved the service, repair and maintenance of goods traveling to a foreign destination, could be licensed to operate within the Free Zone. However, the State Ordinance Free Zones Act of 2000 permitted service-oriented companies (excluding those who provide financial services) to operate within the Free Zone. At present, the companies operating within the Free Zone generally specialize in the distribution of brand name products, excise goods and other merchandise to South America, the Caribbean and the EU.

To encourage investment in specific industries, the Government offers a limited number of tax incentives to certain types of businesses operating in the Free Zone. These fiscal incentives are intended to broaden the economic

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base and to stimulate exports. Manufacturing industries operate in the Free Zone without incurring any import duties on packing materials, raw materials, semi-manufactured products and components to be used in the production process. Drop shipments, whereby the goods do not physically pass through the Free Zone, are also considered an export activity, and are therefore eligible for the fiscal incentives of the Free Zone. Other fiscal incentives include a corporate income tax rate of 2% on profits generated from all export sales from the Free Zone (as opposed to the 35% tax on profits for non-Free Zone activity), an exemption from payment of the foreign currency commission, minimal official documentation for reexport, and a waiver of import duties on all goods imported into Aruba for use in a manufacturing process that will result in a finished product for export. Although a company operating within the Free Zone can sell a maximum of 25% of its goods in Aruba, goods sold locally are subject to normal corporate income tax rates, as well as import duty.

Privatization and Corporatization

The Government has holdings in a range of commercial activities. Government institutions also provide education, social and pension services and banking and investment services. To date, Aruba has not undertaken a significant program of privatization in the sense of asset divesture to private ownership. A majority interest in Air Aruba, which is no longer in operation, and Queen Beatrix International was completed in 1998-99, and the Government divested (and continues to divest) certain minority interests in hotel sector assets, including the recent sale of the Government’s participation in the Hyatt and Marriot properties. The attempted privatization of SETAR (the state telecommunications company) in 2000 was opposed by SETAR’s employees and therefore aborted (although the Government was able to complete the corporatization of SETAR as a Government-owned limited liability company in 2002).

Although formal privatization has not taken place on a significant scale, various successive Governments have engaged in a process of corporatizing many state enterprises in order to provide them the necessary legal, fiscal and financial framework to function in a more commercial manner. Corporatized entities have been created both as public agencies and as private limited liability companies, the shares of which are wholly owned by the Government. In addition, the Government has also separated the conduct of certain specific public services into separate entities, frequently in the form of agencies or foundations (which we refer to as “public service institutions”), which operate at arm’s length to the Government and are responsible for financing their own operations (including from internal cash flow or through grants or concessional loans from the Netherlands). The current Government believes that, in the absence of economies of scale and properly functioning markets, as well as the fact that many of these enterprises are operating in strategically sensitive areas in which no alternative local owners can be found, it is in the best interest of the Aruban population that the Government maintain ownership of these assets. Accordingly, no large-scale asset divestiture is currently contemplated.

Although the Government retains ownership of corporatized entities, its policy is to let management of these entities function independent of Government involvement so long as the entity remains profitable. These entities are also responsible for obtaining external commercial funding when and as required; the Government does not generally provide loans or funds to, or provide guarantees of loans incurred by, corporatized entities. At December 31, 2004, the Government had no outstanding guarantees of debt obligations of corporatized or other state-owned entities. Recently, a report commissioned and approved by the Council of Ministers recommended certain corporate governance changes in recognition of the Government’s different stakeholder roles in corporatized entities, including that the Government’s role as shareholder be assigned to the Minister of Finance and its role as regulator of the activities of the entity be assigned to the Minister in charge of the relevant policy area.

We did not effect any significant corporatizations or create any new public service institutions in 2003 or 2004. In 2005, we corporatized the Post Office as a limited liability company and created three public service institutions, the Ambulance Service as an agency, SERLIMAR as an agency responsible for waste management, and the APFA as a foundation.

The following diagram illustrates the current structure of Government-owned corporatized utilities, public service institutions and utilities presently slated for corporatization:

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Inflation

Historically, our inflation has been relatively stable, averaging 3.8% during the 1990’s and 3.3% over the five years ended December 31, 2004. The annual average increase in the rate of inflation in 2004 decelerated to 2.5%, down from 3.6% in 2003 and 3.3% in 2002. This deceleration occurred primarily because WEB did not to pass on completely to consumers through increased rates for water and electricity, the increases in oil prices on the international markets principally due to the effect of oil price hedging activities by WEB. The effect of increased oil costs being adsorbed by WEB is reflected most directly in the decreased rate of inflation in the housing and transport and communication categories as compared to 2003, and indirectly in reduced rates of increase in other sectors. In addition, the rate of inflation in the beverage and tobacco category decreased from 4.4% in 2003 to 0.6% in 2004, largely reflecting the normalization of alcohol and cigarette prices after a substantial increase in 2003 after the imposition of new excise taxes. The Central Bank estimates that 2.2% of the annual average inflation in 2004 was attributable to higher import prices, while the remainder was induced by local factors (generally, personnel cost increases over productivity increases). Adjusted for energy-related components (i.e., water, electricity, and gasoline), the Central Bank estimates that the inflation rate in 2004 was 2.0%.

The Central Bank as a policy matter seeks to maintain Aruba’s inflation at no higher than 1.0% above the inflation rate of the United States, Aruba’s major trading partner. In 2004, Aruba’s inflation rate was 0.2% lower than that of the United States, as compared to 1.3% higher than the United States in 2003 and 1.7% higher than the United States in 2002. As a result, the real exchange rate index of the Florin as compared to the U.S. dollar decreased slightly in 2004 to 105.0 from 105.2 in 2003. The lower inflation in Aruba as compared to in the United States in 2004 principally reflected the effect of WEB’s absorption of the higher oil costs, as discussed above. As a general matter, Aruba’s inflation will be higher than that of the United States due to the disproportionate contribution of services to our economy and a high dependence on imports.

For the first six months of 2005, the average annual inflation rate had increased to 3.0%, as compared to an average annual rate of 2.4% for the corresponding period in 2004, primarily due to the expiration of WEB’s oil price hedging arrangements and the consequent increasing of electricity and water rates. Our inflation rate for the first six months of 2005 was equal to the average inflation rate for the United States for the same period.

Aruba

• Aruba Airport Authority N.V. • Aruba Ports Authority N.V. • Arubus N.V. • Free Zone Aruba N.V. • Post Aruba N.V. • Tele Aruba N.V. • SETAR N.V. • Utilities N.V.

• APFA • AZV • Ambulance Service • Central Bank • FCCA • Social Insurance Bank (SVb) • Stichting Aruba Hospitality Trade

& Training Center • Stichting Ziekenverpleging Aruba• Universiteit van Aruba • Volkskredietbank • SERLIMAR

• Laboratory Service

100% Ownership Public Service Institutions Planned Corporatizations

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The following table shows the average annual change in the consumer price index for the five years ended December 31, 2004:

Consumer Price Index

Year ended December 31,

2000 2001 2002 2003 2004

(percentage change over prior period average)

Food.......................................................................................................... 1.8% 3.3% 3.3% 3.1% 3.9%

Beverage and tobacco............................................................................... 1.5 (0.3) 2.4 4.4 0.6

Clothing and footwear.............................................................................. 5.6 8.8 6.8 4.5 3.8

Housing costs (including utilities) ........................................................... 8.1 0.8 4.1 5.7 2.1

Housekeeping and furnishing................................................................... 3.5 4.2 4.1 2.7 2.0

Health ....................................................................................................... 0.4 0.1 0.0 0.0 0.0

Transport and communication ................................................................. 3.0 0.4 0.8 2.8 2.4

Recreation and education ......................................................................... 3.9 2.0 2.7 2.4 2.5

Other ......................................................................................................... 3.0 2.9 2.5 2.6 1.5

Total index............................................................................................... 4.0% 2.9% 3.3% 3.6% 2.5%

Real exchange rate index relative to the U.S.$ (1) .................................... 102.0 102.0 103.8 105.2 105.0

(1) 1995 = 100.

Source: Central Bank

Employment and Labor

General

No definitive statistics regarding labor force participation and employment levels have been produced since 2000, the date of the last labor force survey conducted by the CBS. However, based on Central Bank estimates, the labor force increased by 3.2% in 2004 to 49,401 from 47,886 in 2003 and 46,874 in 2002. The unemployment rate in 2004 decreased for the second successive year to 7.6%, as compared to 7.9% in 2003 and 8.1% in 2002. However, the labor force participation rate declined marginally in 2004, also for the second successive year, to 63.6%, as compared to 63.9% in 2003 and 64.2% in 2002. In 2004, the Aruban economy continued to demonstrate a significant demand for workers in the construction and hotel sectors.

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The table below shows employment figures for the population of 15 years and older for the years indicated:

Employment

As of December 31,

1991 1994 1997 2000

(in number of persons)

Employed

Male.................................................................................. 16,828 29,896 21,736 22,496

Female .............................................................................. 12,384 15,032 17,480 19,418

Total.................................................................................. 29,213 35,928 39,216 41,914

Unemployed

Male.................................................................................. 1,057 1,175 1,553 1,563

Female .............................................................................. 832 1,293 1,582 1,555

Total.................................................................................. 1,889 2,468 3,135 3,118

Labor force

Male.................................................................................. 17,885 22,071 23,289 24,060

Female .............................................................................. 13,216 16,325 19,062 20,973

Total.................................................................................. 31,101 38,396 42,351 45,032

Non-active

Male.................................................................................. 6,394 7,110 9,263 8,444

Female .............................................................................. 12,733 14,485 15,924 15,396

Total.................................................................................. 19,127 21,595 25,187 23,840

Population of 15 years and over

Male.................................................................................. 24,370 29,222 32,552 32,865

Female .............................................................................. 26,053 30,839 34,986 36,754

Total.................................................................................. 50,423 60,061 67,538 69,619

Total population

Male.................................................................................. 32,821 38,663 42,811 43,434

Female .............................................................................. 33,866 39,786 44,909 47,072

Total.................................................................................. 66,687 78,450 87,720 90,506

Source: CBS

Over the past 15 years, the growth of our economy and the expansion of the tourism industry have contributed to a rapid increase in the number jobs in Aruba. The 49,401 people employed in Aruba at December 31, 2004 represented a 69.1% increase over the 29,213 people employed at December 31, 1991.

Because of rapid economic growth beginning in the early 1990s, the local labor market was forced to provide workers at all skill levels to fill the growing number of vacancies, which the local Aruban labor market was not sizable enough to fill, resulting in a large influx of immigrant labor. Accordingly, given this substantial immigration and the relatively low natural rate of growth of the population, the large increase in our labor population has been largely comprised of immigrants. The labor intensive nature of the economy, as a result of its orientation of the towards services, means that growth in employment terms is extensive. We are actively seeking out other areas of economic activity that require less labor as to direct growth in a more intensive way and to improve productivity.

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Government Employment

Along with the tourism sector, the Government is also a significant employer in Aruba. The following table sets forth Government employment by economic function for the five years ending December 31, 2004:

Central Government Employment By Economic Function (1) At December 31,

2000 2001 2002 2003 2004

(in number of employees, except percentages)

General public services ................................................................... 1,143 1,103 1,109 1,078 1,100

Defense............................................................................................ 82 96 101 100 121

Public order and safety.................................................................... 1,093 1,105 1,193 1,441 1,420

Economic affairs ............................................................................. 622 626 640 617 636

Environmental protection................................................................ 121 115 138 139 140

Housing and community amenities................................................. 53 53 54 56 56

Health .............................................................................................. 367 318 307 325 348

Recreation, culture and religion ...................................................... 171 168 170 171 262

Education......................................................................................... 185 193 186 209 221

Social protection.............................................................................. 91 90 97 109 130

Total ................................................................................................ 3,928 3,867 3,995 4,245 4,434

Percentage Growth (over prior period) .......................................... 5.8 (1.6) 3.3 6.3 4.5

Civil Servants as a Percentage of Population ................................. 4.3 4.2 4.3 4.4 4.5

(1) Excluding public works service, all subsidized entities (such as foundations), Central Bank and other autonomous public agencies, such as the SVb and the AZV.

Source: CBS

Since 2000, Government employment has exhibited substantial growth, increasing to 4,434 total employees at December 31, 2004, from 3,928 employees at December 31, 2000, an increase of 12.9%. However, within the context of Aruba’s general population growth, the level of Government employment as a percentage of total population has remained relatively consistent at between 4.2% and 4.5% of total population during 2000 through 2004. The largest Government employment growth has been in the area of law enforcement, due both to domestic and international factors. Domestically, the Government concluded that staffing levels of the Police Department were not sufficient and commenced a recruitment drive that is still ongoing, and the growth of illegal immigration to Aruba led to the creation of a coastal patrol unit to complement the Netherlands Antilles and Aruba Coast Guard (a joint Netherlands, Netherlands Antilles and Aruba entity established on the initiative of Aruba to combat illicit activities in territorial waters). International factors, including developments related to drug trafficking and international terrorism, have also resulted in increased law enforcement personnel, particularly in the intelligence field.

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EXTERNAL ECONOMY

Balance of Payments

Balance of payments data reflect the value of the transactions carried out between a country’s residents and the rest of the world. The balance of payments is composed of two accounts:

• the current account, which comprises:

- net exports of goods and services (the difference in value of exports minus imports);

- net income payments; and

- net current transfers; and

• the capital and financial account, which is the difference between capital and financial inflows and capital and financial outflows.

The following table summarizes Aruba’s balance of payments for the five years ended December 31, 2004:

Balance of Payments

Year ended December 31, 2000 2001 2002 2003 2004 2004

(in millions of AFL) (in millions of U.S.)

Current Account Goods Balance

Exports f.o.b. (1) (2) ................................... AFL 4,593.0 AFL 4,338.7 AFL 2,663.2 AFL 3,668.8 AFL 4,860.2 US$ 2,715.2 Imports f.o.b. (1) (2) (3) ............................... 4,710.9 4,240.8 3,612.5 4,272.5 5,345.4 2,986.3

Total ............................................... (117.9) 97.9 (949.3) (603.7) (485.2) (271.1) Services Balance

Transport ................................................ (364.1) (380.8) (327.5) (406.3) (506.6) (283.0) Travel ...................................................... 1,201.4 1,232.4 1,198.5 1,201.5 1,474.0 823.5 Government Services n.i.e.(4) .................. (10.1) (18.0) (24.6) (39.2) (29.8) (16.6) Other Services......................................... (171.1) (157.2) (149.6) (188.1) (144.0) (80.4)

Total ............................................... 656.1 676.4 696.8 567.9 793.6 443.4 Goods and Services Balance ....................... 538.2 774.3 (252.5) (35.8) 308.4 172.2 Income

Compensation of Employees .................. (0.2) (0.3) (0.3) (0.6) (0.7) (0.4) Investment Income.................................. (15.8) (87.1) (221.4) (71.1) (102.8) (57.4)

Total ............................................... (16.0) (87.4) (221.7) (71.7) (103.5) (57.8) Transfers

General government................................ (3.2) 7.6 (9.8) (3.5) 0.4 0.2 Other Sectors........................................... (125.3) (110.0) (112.7) (148.1) (187.5) (104.7)

Total ............................................... (128.5) (102.4) (122.5) (151.6) (187.1) (125.6) Total Current Account ............................ 393.7 584.5 (596.7) (259.1) 17.8 9.9 Capital and Financial Account Capital Transfers ......................................... 17.9 (2.7) 38.1 180.5 32.8 18.3 Financial Account

Foreign Direct Investment ...................... (221.9) (499.2) 543.5 303.3 235.2 131.4 Portfolio Investment ............................... (75.8) 72.8 133.2 89.9 81.7 45.6 Financial Derivatives .............................. 0.0 0.0 (0.1) 0.0 0.0 0.0 Other Investment (5)................................. (207.1) (4.5) (110.4) (408.3)(6) (359.0)(7) (200.6)

Total ............................................... (504.8) (430.9) 566.3 (15.2) (42.1) (23.5) Total Capital And Financial Account ..... (486.9) (433.6) 604.4 165.3 (9.3) (5.2) Items Not Yet Classified ............................. 46.4 (21.3) 31.4 32.2 2.6 1.5 Overall Balance of Payments ................... AFL (46.8) AFL 129.7 AFL 39.0 AFL (61.2) AFL 11.2 US$ 6.3

Increase/(Decrease) in Reserves............. 46.8 129.7 38.9 (61.1) 11.1 6.2 Net International Reserves...................... 530.4 660.1 699.0 637.9 649.0 362.6

(footnotes on next page)

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(1) For purposes of the Balance of Payments table, based on the methodology in the IMF’s Balance of Payments Manual, exported goods are not recorded as sold until the funds for an export are received by Aruba. For all other purposes, exported goods are recorded as sold at the time the exported goods are shipped.

(2) For purposes of the balance of payments, imports include payments on oil exports settled through Aruba.

(3) For Balance of Payment purposes, imports and exports are recorded Free on Board, or “F.O.B.”, whereas for other purposes, imports are recorded Cost, Insurance and Freight, or “C.I.F.”.

(4) Payments by the Netherlands in connection with its representative office in Aruba are included as inflows, while payments by the Government related to its representative office in the Netherlands and its tourism offices abroad are, among others, recorded as outflows.

(5) Other Investment reflects changes in deposits held abroad by residents, loans issued to individual residents or businesses and residual items. The sum does not include interest payments, which are calculated under the Current Account.

(6) Includes the SACE settlement of AFL 172 million.

(7) Includes the repatriation of AFL 250 million by the Valero oil refinery.

Source: Central Bank

Aruba’s balance of payments is dependent on international economic developments as well as domestic economic policies and programs. In 2004, the balance of payments recorded an AFL 11.2 million overall surplus, compared to an AFL 61.2 million deficit in 2003. The balance of payments surplus in 2004 resulted primarily from an increase in the current account to an AFL 17.8 million surplus from an AFL 259.1 million deficit in 2004, principally due to an increase in the goods and services balance which more than offset a decrease in the capital and financial account from an AFL 165.3 million surplus in 2003 to an AFL 9.3 million deficit in 2004, primarily due to a decrease in capital transfers.

Net international reserves of the monetary system increased to AFL 649.0 million in 2004, as compared to AFL 637.9 million in 2003, while the 12-month merchandise import coverage ratio fell slightly to 6.3 months in 2004, down from 6.7 months a year earlier. The weakening trend in the net international reserves, which began in 2002, was not completely reversed in 2004 despite the favorable tourism performance in 2004. For further information on international reserves, see “International Reserves”.

Current Account

The chief components of the current account within the balance of payments consist of the goods balance, the services balance, the income account and current transfers. The AFL 259.1 million deficit on the current account in 2003 became an AFL 17.8 million surplus in 2004, largely due to the external transactions of the oil sector and the increase in tourism, increases in which are reflected in the services balance. Exports of refined oil products outpaced the imports of goods for processing, resulting in a notable improvement in the merchandise trade balance of this sector while tourism in Aruba enjoyed its most successful year. See “The Aruban Economy—Principal Sectors of the Economy—Tourism” and “—Foreign Trade—Oil Sector”.

Aruba historically has had a deficit in its goods balance, which has been offset in part by surpluses in its services balance. The deficit in the goods balance decreased by 19.6% to AFL 485.2 million in 2004 from AFL 603.7 million in 2003, reflecting a higher percentage increase in the value of exports than that of imports. The value of imports rose by 25.1% to AFL 5,345.4 million in 2004 from AFL 4,272.5 million in 2003, principally as a result of increased private consumption of imported goods and a substantial increase in the value of crude oil imported for refining, while the value of exports rose by 32.5% to AFL 4,860.2 million in 2004 from AFL 3,668.8 million in 2003, primarily due to increases in the value of refined oil product exports.

The surplus in the services balance increased by 39.7% to AFL 793.6 million in 2004 from AFL 567.9 million in 2003. The primary reason for this increase was due to a double-digit growth in stay-over tourist visitors and a modest growth in cruise tourism. See “The Aruban Economy—Principal Sectors of the Economy—Tourism”. The gains made from the growth in tourism, however, were partially eroded by payments for other services such as transport and government. Net outflows in other services rose by 7.4% to AFL 680.4 million in 2004 from a net outflow of AFL 633.6 million in 2001.

The income account measures income flows into and out of Aruba, including the payment of interest on external indebtedness. The net outflow on the income account in 2004 expanded to AFL 103.5 million in 2004 from

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AFL 71.7 million in 2003, primarily because of a substantial increase in outflows for investment income. Net outflows from investment income rose by 44.6% to AFL 102.8 million in 2004 from AFL 71.1 million in 2003 due mainly to an increase in dividend and other income payments to non-residents. Outflows from compensation of employees increased by 16.7% to AFL 0.7 million in 2004 from AFL 0.6 million in 2003 due to increased payments abroad to individuals who worked in Aruba.

Transfers are real resources or financial items provided at no cost, and they include money sent to people in Aruba by Arubans working abroad (which are commonly known as remittances) and grants made to the Government (both in cash and in kind). There was a net outflow of transfers in 2004 of AFL 187.1 million, an increase of 23.4%, as compared to net outflow of transfers of AFL 151.6 million in 2003, reflected primarily in the rise of “Other Sectors” to AFL 187.5 million in 2004 from AFL 148.1 million in 2003 due to increased remittances by foreign workers in Aruba to families and dependants abroad. The increase in the “Other Sectors” balance in 2004 also reflects the growth of insurance premium payments related to increased imports.

Capital and Financial Account

The chief components of the capital and financial account within the balance of payments consist of capital transfers (which reflects primarily debt relief and assets transferred to or from the country by persons migrating to or from Aruba) and foreign direct investment, which includes portfolio investment (primarily capital markets issuances), financial derivatives and other investment (primarily commercial bank loans and holdings of foreign currency). Aruba’s significant inflows from financial transactions and direct foreign investment in 2002 slowed in 2003 and 2004, resulting in a decreasing surplus in 2003 and a deficit in 2004.

The year 2004 yielded an AFL 9.3 million deficit, as compared to an AFL 165.3 million surplus in 2003 primarily because of a decrease in capital transfers reflecting a capital transfer related to debt forgiveness, explained below, and a decrease in foreign direct investment reflecting the repatriation of equity capital to nonresidents and a decline in other direct investments in Aruba. Capital transfers fell to AFL 32.8 million in 2004 from AFL 180.5 million in 2003 while foreign direct investment decreased to AFL 235.2 million in 2004 from AFL 303.3 million in 2003. The narrowing deficit on the other investment account to AFL 359.0 million in 2004 from AFL 408.3 million in 2003 was driven primarily by a decrease in residents’ foreign account balances and secondarily by the settlement reached with the Italian export credit insurer, SACE, relating to a hotel guarantee. See “Aruba—Litigation”.

Foreign Trade

Oil Sector

Aruba’s oil sector is comprised entirely of the operations of the Valero refinery, which produces refined oil products almost entirely for export and imports crude oil solely for refining purposes. Consequently, very little of the refinery’s production enters into free circulation in Aruba. In 2004, the volume of oil refined by the refinery increased 22.7% to 77.5 million barrels, as compared to 63.2 million barrels in 2003, with growth coming particularly after the refinery was acquired by Valero in March 2004. The value of refined oil product exports increased 65.0% to AFL 5,284 million from AFL 3,202 million in 2003, while the value of crude oil imports increased 59.3% to AFL 4,369 million from AFL 2,743 million in 2003. According to the annual report of Valero Energy Corporation, the refinery in Aruba contributed approximately U.S.$290 million to Valero’s operating income for 2004. At December 31, 2004, the refinery had 765 employees, 103 more than at December 31, 2003.

In 2003, the volume of oil refined by the refinery increased 20.6% to 63.2 million barrels, as compared to 52.4 million barrels in 2002 (reversing an 18.6% decrease in 2002 as compared to 2001). Export revenues from refined oil products increased 60.9% in 2003 to AFL 3,202 million from AFL 1,990 million in 2002, and the amount of crude oil imports increased 53.3% to AFL 2,743 million from AFL 1,789 million in 2002.

The following table shows the value of oil sector imports and exports for the five years ended December 31, 2004:

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Oil Sector Imports and Exports(1)

Year ended December 31,

2000 2001 2002 2003 2004

(in millions of AFL)

Export of refined oil products .................................... AFL 2,331 AFL 2,980 AFL 1,990 AFL 3,202 AFL 5,284

Import of crude oil...................................................... 1,922 2,030 1,789 2,743 4,369

Oil sector surplus...................................................... AFL 409 AFL 950 AFL 101 AFL 459 AFL 915

(1) For purposes of this table, oil exports and imports are recorded on an F.O.B. basis.

Source: Coastal Aruba Refining Co. N.V. and Valero Aruba Refining Co. N.V.

Merchandise Trade

In 2004, our total exports equaled AFL 142.6 million, or 3.7% of nominal GDP, and our total imports equaled AFL 1,568.3 million or 41.1% of nominal GDP. Because our economy is predominantly service-oriented (see “The Aruban Economy”), we historically have imported, and in the future likely will continue to import, more goods than we export, and therefore have had and likely will continue to have large merchandise trade deficits.

The following table show the performance of merchandise trade for the five years ended December 31, 2004:

Merchandise Trade(1) (2)

Year ended December 31, Imports % Change Export % Change

Trade Surplus (Deficit)

(in millions of AFL)

2000 .................................................. AFL 1,495.1 6.7 % AFL 309.7 (41.1)% AFL (1,185.4)

2001 .................................................. 1,496.9 0.1 266.5 (14.0) (1,230.4)

2002 .................................................. 1,508.7 0.8 229.6 (13.8) (1,279.1)

2003 .................................................. 1,515.4 0.4 147.1 (35.9) (1,368.3)

2004 .................................................. 1,568.3 3.5 142.6 (3.1) (1,425.7)

(1) Exported goods include gross sales in the Free Zone and from free circulation in Aruba.

(2) For the purposes of this table, exports are recorded on an F.O.B. basis as sold at the time the exported goods are shipped, and imports are recorded on a C.I.F. basis, which is different than the presentation in the Balance of Payments table.

Source: CBS

Total merchandise trade (imports plus exports) between Aruba and its foreign trade partners in 2004 increased by 2.6% to AFL 1,710.9 million, as compared to AFL 1,662.5 million in 2003. The merchandise trade deficit expanded by 4.2% in 2004, due largely to a 3.5% increase in the value of imports. Due to a reduction of exports out of the Free Zone, exports fell modestly by 3.1% from AFL 147.1 million in 2003 to AFL 142.6 million in 2004.

The Aruban Government set up the Free Zone in order to stimulate further development of international trade and increase foreign exchange earnings. Currently, the Free Zone is not a significant contributor to GDP, but is a significant contributor to exports and source of foreign exchange. See “The Aruban Economy—Free Zone”.

Imports

In 2004, major imports into Aruba consisted primarily of:

• machinery and electro-technical equipment;

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• food products and other agricultural and agro-manufacturing products;

• chemical products;

• transport equipment; and

• base metals and derivative works.

The following table shows the value of Aruba’s gross imports by sector for the five years ended December 31, 2004:

Value of Imports(1)(2)

Year Ended December 31,

2000 2001 2002 2003 2004

(in millions of AFL)

Agriculture/Agro Manufacturing

Live animals and other animal products..................... AFL 114.0 AFL 113.7 AFL 91.3 AFL 86.7 AFL 94.9

Vegetable products...................................................... 53.2 61.7 61.6 56.4 58.9

Fats and oils ................................................................ 6.5 5.5 5.1 6.1 6.5

Food products.............................................................. 297.6 290.4 273.6 244.3 252.2

Total........................................................................ 471.3 471.3 431.6 393.5 412.5

Mineral products.............................................................. 15.4 12.7 12.4 17.6 17.4

Chemical products ........................................................... 178.8 159.4 165.3 147.3 159.5

Artificial plastic elements................................................ 44.8 41.4 41.6 45.4 47.9

Skins, hides, leather and peltry........................................ 8.9 9.5 10.1 9.8 10.8

Wood, charcoal and woodwork ...................................... 24.0 19.8 19.3 21.1 24.2

Materials for the manufacture of paper, paperwork........ 42.0 40.9 40.5 42.7 43.9

Textile fibers and articles ................................................ 81.4 79.9 74.6 79.5 87.3

Footwear, headgear and umbrellas.................................. 16.7 16.5 16.1 15.8 19.8

Works of stone, gypsum, cement, asbestos..................... 34.7 29.3 29.1 32.6 34.3

Real pearls (natural) and other precious stones .............. 61.4 61.6 75.2 69.6 80.1

Base metals and derivative works ................................... 91.9 108.1 104.0 122.1 104.7

Machinery and electrotechnical equipment .................... 190.1 233.4 250.3 266.7 234.6

Transport equipment........................................................ 117.9 102.9 119.2 120.1 134.8

Optical instruments, apparatus and equipment ............... 55.8 53.8 57.4 66.2 72.4

Arms and ammunition ..................................................... 0.2 0.2 0.3 0.2 0.2

Various goods and products n.e.c.(3)................................ 49.3 47.2 51.9 56.1 70.2

Art objects and collectors items ...................................... 10.5 9.0 9.9 9.1 13.5

Total Gross Imports ...................................................... AFL 1,495.1 AFL 1,496.9 AFL 1,508.7 AFL 1,515.4 AFL 1,568.3

(1) For the purposes of this table, imports are recorded on a C.I.F. basis, which is different from the presentation in the Balance of Payments table.

(2) Represents both imports to free circulation in Aruba and to the Free Zone.

(3) n.e.c. means not elsewhere classified.

Source: CBS

Total imports increased by 3.5% to AFL 1,568.3 million in 2004 from AFL 1,515.4 million in 2003. The rise in goods imports during 2004 was prompted primarily by the increased imports of agriculture and agro manufacturing products, which increased by 4.8% to AFL 412.5 million in 2004 compared to AFL 393.5 million in 2003. Imports of chemical products and textiles also contributed to the expansion, increasing by 8.3% and 9.8%,

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respectively, with chemical products rising to AFL 159.5 million in 2004, as compared to AFL 147.3 million in 2003 and textiles increasing to AFL 87.3 million in 2004 from AFL 79.5 million in 2003.

Exports

In 2004, major imports into Aruba consisted primarily of:

• food products and other agricultural and agro-manufacturing products, and;

• chemical products.

The following table shows the value of Aruba’s exports by sector for the five years ended December 31, 2004:

Value of Exports (1)(2)

Year Ended December 31,

2000 2001 2002 2003 2004

(in millions of AFL)

Agriculture/Agro Manufacturing

Food products .............................................................. AFL 221.1 AFL 183.9 AFL 148.5 AFL 103.4 AFL 99.3

Vegetable products ...................................................... 9.5 15.8 13.4 7.1 4.5

Live animals and other animal products...................... 28.1 28.5 21.6 4.0 2.7

Fats and oils ................................................................. 0.6 0.2 0.0 0.0 0.0

Total......................................................................... 259.3 228.4 183.5 114.5 106.5

Mineral products .............................................................. 0.0 0.0 0.0 0.0 0.0

Chemical products............................................................ 18.5 4.4 3.8 3.4 2.9

Artificial plastic elements ................................................ 1.0 .9 1.2 1.0 1.0

Skins, hides, leather and peltry ........................................ 0.1 0.2 0.3 0.2 0.1

Wood, charcoal and woodwork ...................................... 0.4 0.2 0.3 0.3 0.3

Materials for the manufacture of paper, paperwork ........ 0.2 0.7 0.6 0.6 1.0

Textile fibers and articles ................................................. 1.6 1.3 1.6 0.5 1.0

Footwear, headgear and Umbrellas.................................. 2.1 1.7 1.3 0.5 0.4

Works of stone, gypsum, cement, asbestos ..................... 0.3 0.6 0.6 0.7 0.8

Real pearls (natural) and other precious stones ............... 3.3 6.2 3.2 2.5 3.0

Base metals and derivated works ..................................... 5.1 2.0 6.9 3.1 6.2

Machinery and electrotechnical equipment ..................... 4.7 4.3 11.1 7.0 5.4

Transport equipment ........................................................ 2.9 3.1 3.2 3.0 3.6

Optical instruments, apparatus and equipment ................ 1.0 2.1 2.9 1.1 2.4

Various goods and products n.e.c. ................................... 1.0 0.7 0.6 0.7 0.5

Art objects and collectors items ....................................... 8.2 9.5 8.4 8.0 7.6

Total Exports .................................................................. AFL 309.7 AFL 266.5 AFL 229.6 AFL 147.1 AFL 142.6

(1) For the purposes of this table, exports are recorded on an F.O.B. basis as sold at the time the exported goods are shipped, which is different than the presentation in the Balance of Payments table.

(2) Represents both exports to free circulation in Aruba and to the Free Zone.

Source: CBS

Total exports decreased by 3.1% to AFL 142.6 million in 2004 from AFL 147.1 million in 2003. The decrease in goods exported during 2004 was prompted primarily by the continuing decline of Free Zone exports, which fell by 8.1% to AFL 101.8 million in 2004 compared to AFL 110.8 million in 2003. Specifically, exports of

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food products and vegetable products also contributed to the contraction, decreasing by 4.0% and 36.6%, respectively, with food products contracting to AFL 99.3 million in 2004, as compared to AFL 103.4 million in 2003 and vegetable products decreasing to AFL 4.5 million in 2004 from AFL 7.1 million in 2003.

Aruba, as part of the Kingdom, has qualified as an OCT under the EU since 1964. Based on its qualification as an OCT, products originating in Aruba enjoy duty-free import into the EU. The maintenance of this trade status is important to Aruba, as the Netherlands is the primary destination for Aruban exports. Aruba is also a participant in other organizations and multi-lateral arrangements that offer preferential tariff treatment. See “The Legal Entity Aruba—International Relations”.

Trading Partners

Total merchandise trade between Aruba and its foreign trade partners in 2004 increased by 2.9% to AFL 1,710.9 million, as compared to AFL 1,662.5 million in 2003. The merchandise trade deficit expanded by 4.2% in 2004, due largely to a 3.5% increase in the value of imports. Due to a reduction of exports out of the Free Zone, exports fell modestly by 3.1% from AFL 147.1 million in 2003 to AFL 142.6 million in 2004.

The following table shows the origin of Aruba’s imports for the five years ended December 31, 2004:

Imports by Origin(1)

Year Ended December 31,

2000 2001 2002 2003 2004

Amount % of Total Amount % of Total Amount % of Total Amount % of Total Amount % of Total

(in millions of AFL, except percentages)

United States............. AFL 798.3 53.4% AFL 823.0 55.0% AFL 826.8 54.8% AFL 837.3 55.3% AFL 870.4 55.5%

Netherlands............... 174.8 11.7 174.0 11.6 190.7 12.6 196.6 13.0 221.9 14.1

Neth. Antilles............ 54.6 3.7 49.3 3.3 47.0 3.1 47.2 3.1 44.8 2.9

Venezuela ................. 52.2 3.5 42.5 2.8 43.5 2.9 46.9 3.1 51.8 3.3

Other Countries ........ 415.2 27.8 408.1 27.3 400.7 26.6 387.4 25.6 379.6 24.2

Total ......................... AFL 1,495.1 100.0% AFL 1,496.9 100.0% AFL 1,508.7 100.0% AFL 1,515.4 100.0% AFL 1,568.3 100.0%

(1) For the purposes of this table, imports are recorded on a C.I.F. basis, which is different than the presentation in the Balance of Payments table.

Source: CBS

The United States and the Netherlands are Aruba’s main trading partners. The United States has been the primary source of all Aruban imports for each of the past five years and was the source of 55.5% of Aruba’s imports in 2004, as compared with 55.3% in 2003. As a result, any rise or fall in the U.S. export price index could result in an increase or decrease in prices in Aruba.

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The following table shows the destinations of Aruban exports for the five years ended December 31, 2004:

Exports by Destination(1) (2)

Year Ended December 31,

2000 2001 2002 2003 2004

Amount % of Total Amount

% of Total Amount

% of Total Amount

% of Total Amount

% of Total

(in millions of AFL, except percentages)

United States ..................... AFL 17.9 5.8% AFL 14.3 5.4% AFL 28.0 12.2% AFL 13.5 9.2% AFL 14.8 10.4%

Netherlands........................ 85.3 27.5 67.4 25.3 65.6 28.6 50.7 34.5 40.7 28.5

Panama .............................. 53.5 17.3 54.4 20.4 38.7 16.9 18.8 12.8 24.9 17.5

Colombia ........................... 96.1 31.0 76.6 28.7 49.9 21.7 17.8 12.1 15.3 10.7

Venezuela .......................... 22.3 7.2 23.3 8.7 17.6 7.7 16.0 10.9 21.0 14.7

Neth. Antilles .................... 13.9 4.5 21.7 8.1 19.0 8.3 17.5 11.9 16.0 11.2

Other Countries ................. 20.7 6.7 8.8 3.3 10.8 4.7 12.8 8.7 9.9 6.9

Total.................................. AFL 309.7 100.0% AFL 266.5 100.0% AFL 229.6 100.0% AFL 147.1 100.0% AFL 142.6 100.0%

(1) Exported goods include gross sales in the Free Zone and from free circulation in Aruba.

(2) For the purposes of this table, exports are recorded on an F.O.B. basis as sold at the time the exported goods are shipped, which is different than the presentation in the Balance of Payments table.

Source: CBS

The Netherlands has been the largest consumer of Aruban exports over the past five years and in 2004 purchased 28.5% of all Aruban exports, as compared with 34.5% in 2003. Accordingly, any downturn in the Dutch economy could have a negative impact on Aruban export values.

International Reserves

Net international reserves of the monetary system increased to AFL 649.0 million at December 31, 2004, equivalent to 6.3 months of import coverage, as compared to AFL 637.9 million at December 31, 2003, equivalent to 6.7 months at December 31, 2003. Total official reserves of the Central Bank were AFL 614.0 million at December 31, 2004, an increase of 1.0% from 608.0 at December 31, 2003. Official gold reserves of the Central bank were AFL 87.1 million at December 31. 2004, as compared to AFL 83.1 million at December 31, 2003. The increase in net international reserves in 2004 was due primarily to the favorable developments in the tourism sector, although the weakening trend in the net international reserves, which began in 2002, was not completely reversed. See also “The Monetary System—Foreign Exchange and International Reserves”.

In addition to tourism revenues, foreign receipts are also generated by the oil refinery, owned and operated by Valero as of March 2004, and the Free Zone, an offshore export sector that consists primarily of nonfinancial corporate entities. See “—Foreign Trade—Oil Sector” and “The Aruban Economy—Free Zone”.

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PUBLIC FINANCE

Public Sector Budget

The Government of Aruba includes all ministries, departments and agencies whose activities form part of the budgetary operation of the central administration. The operation of state-owned enterprise, including corporatized entities (see “The Aruban Economy—Privatization and Corporatization”) are therefore excluded from the Government budget.

Overview

Aruba’s fiscal year runs from January 1 of each year to December 31 of the same year. Pursuant to the Ordinance on Accountability of 1989, in April of each year, each Ministry submits its budget proposal for the following year to the Minister of Finance for review and discussion. The Constitution mandates that the yearly budgets of the Government be approved by means of an Ordinance or Law by Parliament. For each Ministry (and each semi-autonomous service, or Landsbedrijven, within the Government, such as the Public Works Service), a separate bill is drafted and submitted to the Governor, who in turn, after receiving advice from the Advisory Council, submits all the bills to Parliament by September 1 of each year, as prescribed by the Constitution. Parliament approves (or votes down) the bills usually by December 31 of each year.

Budget Policy

In 2000, the Netherlands and Aruba signed a protocol outlining their future financial relationship. The protocol called for the institution of the FDA, to be jointly funded as well as a debt forgiveness program conditioned on the achievement of a balanced budget within a given timeframe. See “The Legal Entity Aruba—Relationship with the Kingdom—Fiscal Independence”. The budget policy in macro terms aims to reduce the deficit until a balanced budget is achieved in 2007. In order to reach this goal, target deficits have been formulated in percentages of the projected GDP for the relevant year. The target deficit is added on to the projected revenue of the Government for the same year, resulting in an expenditure ceiling for the budget. For the 2005 budget, the target deficit was set at 2.0% of the projected GDP, or AFL 3,964.1 million, resulting in a projected budget deficit of approximately AFL 81.0 million. Unforeseen circumstances, such as the coming due of contingent liabilities, deficits in the operation of AZV and shortfalls in projected tax revenues, have resulted in missing budget deficit forecasts for the last three years.

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Revenue and Expenditure

The following table summarizes Aruba’s revenue and expenditure for the five years ending December 31, 2004 and budgeted for the year ending December 31, 2005:

Government Revenue and Expenditure(1)

Year ended December 31,

2000 2001 2002 2003 2004 Budgeted

2005(2) (in millions of AFL) Revenue

Tax Revenue Income and profit............................... AFL 309.6 AFL 302.8 AFL 301.3 AFL 339.9 AFL 321.9 AFL 400.0 Commodities ...................................... 212.6 202.6 213.5 234.4 255.4 282.9 Properties ........................................... 34.3 27.8 33.7 51.0 43.0 47.2 Services .............................................. 44.4 48.3 46.7 48.0 60.7 59.5 Foreign exchange tax......................... 23.6 24.8 14.4 14.0 26.2 27.0

Total Tax Revenue ........................ 624.5 606.3 609.6 687.4 707.1 815.3 Non Tax Revenue................................... 100.8 125.5 103.8 86.1 77.8 131.7 Grants ..................................................... 16.9 0.0 37.4 201.8 31.1 25.5

Total Current Revenue................................ 742.2 731.8 750.8 975.2 816.0 972.5 Expenditure

Wages ..................................................... 246.3 255.2 261.7 265.6 286.2 279.9 Employer’s contribution......................... 38.9 24.2 66.0 66.3 184.3 67.6 Wage subsidies ....................................... 89.7 91.5 103.7 105.9 122.7 117.2 Goods and services................................. 192.7 135.9 149.4 153.5 191.1 177.8 Interest .................................................... 30.2 46.5 48.9 44.9 85.2 80.8 Development fund spending .................. 0.0 0.0 3.7 16.2 32.9 44.5 Investment .............................................. 28.3 18.4 13.3 26.4 34.2 36.3 Items n.i.e.(3) ........................................... 93.9 156.0 180.1 195.2 205.8 246.5

Total Current Expenditure .......................... 719.9 727.7 826.7 873.9 1,142.5 1,050.6 Lending minus repayment (4)

Lending................................................... 19.9 36.1 50.9 51.1 51.1 22.0 Repayments ............................................ (3.7) (4.1) (53.9) (122.2) 0.0 (25.3)

Net Lending ................................................ 16.2 32.0 (3.0) (71.1) 51.1 (2.7) Current Balance ........................................ 6.1 (28.0) (72.9) 172.4 (377.6) (75.4)

Financing

Foreign financing Loans received........................................ 73.4 49.3 136.0 293.6 123.5 167.0 Repayments on loans.............................. (49.3) (47.5) (66.1) (126.1) (22.9) 104.5 Other financial transactions.................... 0.0 36.8 36.8 (368.2) 0.0 0.0

Net Foreign Capital..................................... 24.1 38.6 106.7 (200.6) 100.6 62.5 Domestic financing

Loans received........................................ 33.5 24.6 33.0 49.2 325.7 109.0 Repayments on loans.............................. (50.3) (10.4) (30.5) (30.3) (74.9) (106.6) Other financial transactions.................... 0.0 0.0 0.0 (10.0) 5.0 0.0

Net Domestic Capital.................................. (16.8) 14.2 2.5 9.0 255.7 2.4 Recourse to the monetary system

Loans received........................................ 8.4 (0.3) (3.1) (1.8) (7.2) 0.0 Drawings on deposits .............................

Earmarked .......................................... (8.4) 4.4 12.2 (50.5) (0.3) 0.0 Free..................................................... 11.7 32.1 27.8 34.0 (13.0) 0.0

Total............................................... 3.3 36.6 40.1 (16.6) (13.3) 0.0 Other ....................................................... 1.7 (11.5) (8.0) (0.9) (0.8) 0.0

Net Recourse to Monetary System ............. 13.4 24.7 36.2 (19.3) (21.3) 0.0

Change in Unmet Financing Requirements from Prior Year (5) ........... 37.3 116.9 6.4 25.1 (148.0) 10.5

Overall Surplus/(Deficit) (6) ...................... (31.2) (144.9) (79.4) 147.3 (229.6) (85.9) Aggregate Unmet Financing Requirements at December 31, (5)............... 152.5 269.4 275.8 300.0 152.9 163.4

(footnotes on next page)

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(1) For the years 2000 to 2004, Government revenue and expenditure calculations by the Central Bank include the FDA, while the FDA is excluded by the Ministry of Finance for purposes of the budgeted figures for 2005.

(2) The 2005 figures for Financing are based on Ministry of Finance calculations of actual cash payments of principal and interest based on firm payment commitments and do not include certain adjustments (including for non-cash items) or allocations of domestic Government financing as net recourse to the monetary system, as made by the Central Bank for historical periods.

(3) Items n.i.e. (not included elsewhere) includes disbursements to the AZV, subsidies (excluding wage subsidies), transfers and errors and omissions.

(4) Lending minus repayment reflect lending by the Government to third parties, minus repayments by such third parties on loans previously extended by the Government.

(5) Unmet Financing Requirements comprises supplier’s credit (amounts due to suppliers for goods and services provided to the Government, which are incurred on a rolling basis each year and paid as incurred, generally within one year) and arrears of the Government, including arrears to the AZV and APFA. See “—Unmet Financing Requirements”. Unmet Financing Requirements is an overall balance indicating the aggregate amount of such unmet financing at December 31st of each year (and includes amounts carried over from prior years).

(6) The Overall Surplus/(Deficit) is calculated by subtracting the change in Unmet Financing Requirements for a given year from the Current Balance for that year.

Source: Central Bank; Ministry of Finance

Revenue

The budget consists of tax revenue and nontax revenue. The Government derives revenues from a mix of direct and indirect taxes, including levies and taxes on incomes and profits, property, goods and services and imports. Total tax revenue in 2004 equaled AFL 707.1 million in 2004. Nontax revenues are a less significant source of current revenue and include revenues from licenses, rents, royalties and fees. Total nontax revenue in 2004 yielded AFL 77.8 million.

We receive grants principally from the Netherlands in connection with its fund contribution to the FDA, which we use to finance infrastructure and other projects. See “The Legal Entity Aruba—Relationship with the Kingdom—Fiscal Independence”. Aruba received AFL 31.1 million in grants in 2004, as compared with AFL 201.8 million in 2003, primarily a result of the approximately AFL 171.7 million SACE debt forgiveness that was accounted for as a grant in 2003. See “The Legal Entity Aruba—Litigation”. We are, in principle, eligible for development grants and concessional loans from the EU based on our qualification as an OCT. However, due to our current level of development and income, we no longer qualify for concessional loans, and qualify generally for grants only under regional programs, and not on an individual basis. See “The Legal Entity Aruba—International Relations—European Union”.

Additionally, in May 2005, we obtained an AFL 20.0 million grant from the EU under the 8th European Development Fund for the construction of a national museum and the development of side roads at Arikok National Park. See “The Legal Entity Aruba—Infrastructure and Infrastructure Investments—Government Investments”. This grant effectively concluded our funding under such EU programs.

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The table below summarizes a breakdown of Aruba’s revenue for the five years ending December 31, 2004:

Government Revenue

Year ended December 31,

2000 2001 2002 2003 2004

(in millions of AFL)

Taxes on Income and Profit Wages......................................................................... AFL 202.3 AFL 209.7 AFL 220.1 AFL 234.9 AFL 247.2

Income........................................................................ 25.8 3.1 3.0 0.6 0.3

Profit .......................................................................... 81.4 90.0 78.3 105.6 74.4

Total .................................................................. 309.6 302.8 301.3 339.9 321.9

Taxes on commodities Gasoline ..................................................................... 62.6 62.2 65.2 68.7 70.0

Tobacco...................................................................... 11.4 9.8 10.4 12.6 12.0

Beer ............................................................................ 20.3 19.4 20.3 24.3 25.1

Liquor......................................................................... 12.2 13.2 13.1 13.9 15.8

Import duties .............................................................. 106.1 98.0 104.5 114.9 132.5

Total .................................................................. 212.6 202.6 213.5 234.4 255.4

Taxes on property Motor vehicles ........................................................... 12.8 13.3 15.2 14.7 15.1

Succession.................................................................. 0.9 0.6 0.3 1.2 1.0

Land ........................................................................... 11.6 9.7 12.3 27.5 19.0

Transfer ...................................................................... 9.0 4.2 5.9 7.5 7.9

Total .................................................................. 34.3 27.8 33.7 51.0 43.0

Taxes on services Gambling licenses...................................................... 15.2 16.1 17.1 17.2 23.7

Hotel room ................................................................. 21.9 26.6 24.8 25.1 30.5

Stamp duties............................................................... 3.0 1.9 2.1 3.6 3.3

Other .......................................................................... 4.4 3.7 2.7 2.3 3.1

Total .................................................................. 44.4 48.3 46.7 48.0 60.7

Foreign Exchange Tax....................................................... 23.6 24.8 14.4 14.0 26.2

Total Tax Revenue ............................................................. 624.5 606.3 609.6 687.4 707.1

Total Nontax Revenue ......................................................... 100.8 125.5 103.8 86.1 77.8

Grants ................................................................................... 16.9 0.0 37.4 201.8 31.1

Total Revenue..................................................................... AFL 742.2 AFL 731.8 AFL 750.8 AFL 975.2 AFL 816.0

(1) SACE debt forgiveness of AFL 171.7 million (U.S.$95.9 million) in 2003 is reflected as a grant for monetary purposes, and as such is added to the total revenue and grants.

Source: Central Bank

Expenditure

Current expenditures include, principally, wages and salaries (including wage subsidies), goods and services and development fund spending. Aruba’s expenditures on wages and salaries tend to be relatively high in relation to GDP due to the increasing number of Government employees (see “The Aruban Economy—Employment and Labor—Government Employment”) and the significant annual contributions to the APFA (see “The Legal Entity Aruba—Pension System—Civil Servants Pension Fund (APFA)”). Items n.i.e. (not included elsewhere) are also a significant component of current expenditures, comprising our contributions to the AZV, as well as, subsidies to various public service entities (but excluding wage subsidies), transfers and errors and omissions. In 2004, total

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expenditure amount to AFL 1,142.5 million, or 29.9% of GDP. The major criteria used in deciding allocation levels for capital expenditure (reflected under development and spending, investment and items n.i.e., a portion of which is made up by capital expenditures) are current year projections for public investment, multilateral/bilateral programs and the implementation status of projects. The major criteria used in determining allocation levels for current expenditure are expenditure ceilings based on Aruba’s economic policy, Aruba’s priorities for the fiscal year and commitments arising from the continuation of programs, projects and policies previously authorized by the cabinet. Such commitments include interest and amortization on public debt as well as salaries and pensions, and expenditures on goods and services, which includes public utilities.

The Government has historically been unable to meet all of its funding obligations in the healthcare and pension systems from its existing revenue base and accordingly has had to borrow funds on the domestic and international capital markets to fund the resulting deficits. Remaining unfinanced arrears are reflected under “Unmet Financing Requirements”.

Unmet Financing Requirements

Unmet Financing Requirements comprises supplier’s credit (amounts due to suppliers for goods and services provided to the Government, which are incurred on a rolling basis each year and paid as incurred, generally within one year) and arrears of the Government, including arrears to the AZV and APFA. Unmet Financing Requirements is an overall balance indicating the aggregate amount of such unmet financing at December 31 of each year and includes amounts remaining carried over from prior years. Unmet Financing Requirements increased significantly in 2001 to AFL 269.4 million from AFL 152.5 million, primarily due to funding requirements for the AZV, which was established in 2001, as well as arrears incurred to APFA, and increased in each of 2002 and 2003 as further arrears to the AZV and the APFA were incurred. Unmet Financing Requirements decreased 49.2% to AFL 152.9 million in 2004 from AFL 300.9 million in 2003, primarily due to the APFA debt conversion. See “The Legal Entity Aruba—Pension System—Civil Servants Pension Fund (APFA) —Debt Conversion”.

Deficits and Surpluses

The Government has incurred an overall budget deficit for each of the last five years, except 2003, largely because the Government received grants in that year of AFL 201.8 million primarily due to the AFL 171.7 million debt forgiveness that was part of the SACE settlement in 2003 (see “The Legal Entity Aruba—Litigation”), which was reflected as a grant in that year. During this period, the overall budget deficit averaged 1.5% of GDP. The Government’s overall budget deficit increased to AFL 229.6 million in 2004 from AFL 31.2 million in 2000. This deficit increase since 2000 has been mainly the result of current expenditures, particularly funding for the AZV and APFA. See “The Legal Entity Aruba—Healthcare—Universal Healthcare (AZV)” and “The Legal Entity Aruba—Pension System—Civil Servants Pension Fund (APFA)”. For 2004, the overall budget deficit amounted to 6.0% of GDP, as compared to a surplus amounting to 4.1% of GDP for 2003.

Consolidated Fund

The Accountability Ordinance of 1989 stipulates that, with the exception of specific dedicated funds to be instituted by law, all revenues are to be paid into a consolidated fund to meet the Government’s expenditures and obligations. Debt obligations of the Government, including the interest and amortization payments with respect to that debt, and the cost, charges and expenses incidental to the management of that debt are charged to the consolidated fund. Payment of principal interest on the Notes will be paid from the consolidated fund.

Audit and Review

The Constitution mandates that by law rules be set on the proper execution and accountability of public finances. As a result, the Accountability Ordinance of 1989 was enacted, which stipulates the procedures for submission of budgets and annual accounts each year before the first of September to Parliament. The annual accounts are audited (before submission to Parliament) by the Court of Audit, an independent institution working on behalf of Parliament.

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2004 Revenue and Expenditure

Overview

Aruba posted a deficit of AFL 229.6 million in 2004, predominantly a reflection of the debt conversion with the APFA, as compared to an AFL 147.3 million surplus in 2003, driven by the approximately AFL 171.7 million SACE debt forgiveness accounted for as a grant in 2003. See “The Legal Entity Aruba—Litigation”. If the debt forgiveness of SACE in 2003 as well as the APFA settlement in 2004, both transactions which had no actual cash effects, are excluded from the deficit calculations, the results would be, respectively, deficits of AFL 25.7 million, or 0.7% of GDP, in 2003 and AFL 30.6 million or 0.8% of GDP, in 2004. In 2004, total expenditures increased by 30.7% to AFL 1,142.5 million from AFL 873.9 million in 2003. In 2004, total expenditures increased by 30.7% to AFL 1,142.5 million from AFL 873.9 million in 2003.

The overall deficit of AFL 229.6 million in 2004 was financed primarily from domestic sources, as domestic loans received in 2004 increased to AFL 325.7 million in 2004, as compared to AFL 49.2 million in 2003, principally a reflection of the APFA loan conversion. “See “The Legal Entity Aruba—Pension System—Civil Servants Pension Fund (APFA)”. Financing from the external market, a less significant source, totaled AFL 100.6 million, principally a result of the U.S.$67.0 million bond issue in April 2004. See “Public Debt—External Public Sector Debt—General”.

Revenue

Total revenue and grants for 2004 totaled AFL 816.0 million, or 21.4% of GDP, a 16.3% decrease from total revenue and grants of AFL 975.2 million in 2003. The decrease in total revenues was primarily attributable to AFL 171.7 million in debt forgiveness by SACE that was accounted for as a grant in 2003. Excluding the 2003 effect of the SACE settlement in 2003, total revenue in 2004 showed an increase of 1.6% in 2004.

Tax revenue increased by AFL 19.7 million, or 2.9%, to AFL 707.1 million in 2004 from AFL 687.4 million in 2003. The increase in tax revenue was primarily due both to increases in import duties to AFL 132.5 million in 2004 from AFL 114.9 million in 2003 and foreign exchange tax, which increased to AFL 26.2 million in 2004 from AFL 14.0 million in 2003.

Contributing to the higher tax revenues were taxes on services, which increased to AFL 60.7 million in 2004 from AFL 48.0 million in 2003. In contrast, taxes on income and profit fell by AFL 18.0 million because an increase in revenues from the wage tax was completely offset by a decrease in revenues from the profit tax. The latter reflected higher earnings in 2003 following the implementation in 2003 of a new policy of early assessment of profit taxes, which resulted in a simultaneous collection of these taxes for 2002 and prospectively for 2003.

Expenditures

Total current expenditure for 2004 was AFL 1,142.5 million, or 29.9% of GDP, a 30.7% increase from AFL 873.9 million in 2003, primarily a result of the rise in employer’s contribution from AFL 66.3 million in 2003 to AFL 184.3 million in 2004, associated with the APFA debt conversion and higher outlays on wages and salaries, which totaled AFL 286.2 million, and interest payments, which totaled AFL 85.2 million. Items n.i.e. also rose 5.4% in 2004 to AFL 205.8 million from AFL 195.2 million, principally a reflection of payments to the AZV. Though all other major categories of current expenditures increased in 2004 when compared to the previous year, the largest component of current expenditure was wages and salaries, which represented 25.1% of Aruba’s total expenditures in 2004, compared to 30.4% in 2003. Excluding the effect of the APFA debt conversion, total expenditure in 2004 was AFL 943.5 million, which reflected a 8.0% increase in total expenditure from 2003.

Goods and services expenditure increased to AFL 191.1 million, or 16.7% of total expenditure, in 2004 compared to AFL 153.5 million, or 17.6% of total expenditures, in 2003. The increase in goods and services expenditure in 2004 reflects increases in housing costs for the government.

Net lending was AFL 51.1 million in 2003 and 2004, resulting primarily from the transfer by the Government to the AZV to cover operational deficits incurred during the 2001 to 2003 period. Net lending consists

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of the Government’s transfers to the AZV insofar as they concern advances to cover deficits and the issuance of student loans by the Government.

Tax Reform

Our tax system closely mirrors what was, until recently, common in most industrialized nations, and is in part a result of historical developments in the region. During Aruba’s colonial period, as part of what later became the Netherlands Antilles our tax system was mostly geared towards indirect taxation in the form of duties, levies and fees, some of which, like the land tax (introduced in the early 1900’s), are still in use today. In due course the tax system saw a shift to more direct forms of taxation with the introduction of the wage and income taxes on the personal level as well as the profit tax on the corporate level. Recently, we have aimed to shift the tax burden back to indirect forms of taxation in conformity with international trends and due to the perceived ineffectiveness of the current system. The process of implementing an indirect consumption or value-added tax has been underway in recent years. Before the tax can be implemented, however, legislative and procedural prerequisites must first be established. In 2004, the General Tax Ordinance, which contained most of the legislative and procedural prerequisites, was implemented. Remaining is the introduction of the General Ordinance on Customs and Excises. The implementation of both of these measures will standardize and simplify the entire procedural framework of the tax system and, once this process is finished (currently expected in 2006), the introduction of the indirect tax can be prepared.

In broad terms the tax system of Aruba consists of the following items:

• Personal Income Tax: based on earned income with certain deductions, with a maximum marginal rate of 56%;

• Wage Tax: an advance levy on the Personal Income Tax, based on wage income;

• Profit Tax: flat rate of 35% levied on the profit of legal entities;

• Dividend Tax: flat rate of 10% levied on dividend payments;

• Inheritance Tax: maximum rate of 24% of value of inheritance;

• Property Transfer Tax: flat rate of 3% of transfer value;

• Land Tax: levied on value of land with a flat rate of 0.4%;

• Lodging Tax: flat rate of 6% levied on the revenue received from the rental of hotel rooms or other lodging rented on a daily basis;

• Motor Vehicle Tax: rates based on vehicle type and weight;

• Various excises on liquor and tobacco; and

• Import duties.

Tax reforms fall within the framework of our efforts to diversify the economy by stimulating the development of a sound international financial sector by means of modernized tax legislation. The New Fiscal Regime, or “NFR”, was enacted in 2003 and constitutes the first stage of our tax reform program. The NFR phased out the offshore regime which had previously provided tax exemptions for profits from holding companies, finance companies and royalty companies, and prohibits the provision of new tax holidays while existing tax holidays for hotels and oil refining will continue until their original expiration. The NFR is meant to modernize corporate taxation and address the concerns of the Organization for Economic Cooperation and Development, or “OECD”, and EU regarding harmful tax competition. The Government believes the NFR will likely broaden the tax base while providing attractive direct tax incentives.

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Along with the removal of the offshore tax regime, the NFR also introduced a regular dividend withholding tax as well and an imputation regime, which we refer to as the “IPC regime”. The IPC regime was introduced after consultation with the OECD and has been extensively reviewed and approved by the EU’s Code of Conduct Group and the Ecofin Council. The IPC regime was introduced in 2003 to stimulate domestic enterprises as well as to attract foreign investment. A company that qualifies for the IPC regime pays the standard corporate income tax rate of 35%, but its shareholders are entitled to an imputation payment if the company distributes its earnings. The imputation payment is equal to 33/65 of the dividend distribution. Qualifying activities are hotel business (upper segment), airline and shipping operations, holding activities, research and development, exploitation of intellectual property, passive investment, captive insurance, and finance activities.

Further, in 2004, a General Tax Ordinance was enacted that allows the Aruban tax authorities to obtain information, such as banking information, about taxpayers from third parties. The introduction of this legislation was one of the necessities prompted by the enactment of the Tax Information Exchange Agreement between Aruba and the United States, which agreement was concluded on November 21, 2003 and became effective as of September 13, 2004.

The next phase of our tax reform program is the implementation of reforms prompted by commitments with the EU concluded in 2003. Among other items, we have committed to implementing the EU’s Savings Directive, which provides for an automatic exchange of information about interest income of individuals resident in EU member states. To that effect end, we recently amended the General Tax Ordinance mentioned above to allow for this automatic exchange of banking information with the 25 EU member states, and have also concluded bilateral agreements with 24 EU member states to provide a legal basis for the international exchange of information about savings income (we already have such a legal basis for exchanging information with the Netherlands). The Savings Directive became effective as of July 1, 2005, while Aruba will exchange information about savings with retroactive effect from January 1, 2005.

Legislative Developments

In 2004, the Central Bank proposed the adoption of a fiscal responsibility law to improve transparency, accountability and fiscal management, promoting fiscal discipline and execution practices and by establishing numeric fiscal rules. In January 2005, the Minister of Finance and Economic Affairs asked the IMF for technical assistance in designing and implementing such a fiscal responsibility law. This proposed legislation remains in the development stage, and no timetable has to date been set for its completion or adoption.

The Ordinance Governing Civil Service Material Rights, which encompasses revised guidelines and procedures for civil service terminations, is in its final stages before being sent to the Advisory Council and Parliament.

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PUBLIC DEBT

General

The Constitution requires that any public sector debt payable from any amount deposited into Aruba’s consolidated fund be incurred pursuant to a law. Debt obligations of the Government, including the interest and amortization payments with respect to that debt, and the cost, charges and expenses incidental to the management of that debt are charged to the consolidated fund (and payment of principal and interest on the Notes will be paid from the consolidated fund). As a general principle, we submit any public sector debt proposed to be paid from Aruba’s consolidated fund for approval by Parliament as part of our annual budget, which once approved has the status of law in Aruba. We also may seek the approval of other public sector debt that is not initially included in our annual budget by submitting a supplemental approval request to Parliament. In 2004, a supplemental approval was requested and granted to cover outstanding deficits to the AZV.

As of December 31, 2004, all of Aruba’s public sector debt was, and for each of the preceding four years has been, Government debt because, by law, only the Government can legally borrow funds.

Since achieving status aparte in 1986, Aruba has never defaulted on any of its external or domestic debt obligations. There is no constitutional prohibition on government default with respect to any public sector debt.

Domestic Public Sector Debt

General

The Government’s domestic public sector debt consists of three-month and six-month treasury bills, government bonds, cash certificates, supplier credits and loans, as well as obligations to the AZV and APFA. There is currently no law or statute restricting the Government’s ability to undertake debt, however the Government only incurs domestic debt if it is contemplated in the budget. Outstanding balances of treasury bills, treasury bonds and loans are rolled over. The Government is authorized to issue on an annual basis six-month treasury bills for up to AFL 8 million and two tranches of three-month treasury bills for, respectively, AFL 17 million and AFL 23 million. These are variable interest rate debts, with the interest rates negotiated and administered by the Central Bank. Outstanding treasury bills roll over automatically at maturity without further constitutional action by the Government. Long term funds are raised by state decree and can take the form of treasury bonds or commercial loans, either foreign or domestic. These liabilities may not be rolled over without consultation with Parliament.

Domestic debt totals are maintained by the Ministry of Finance, and the information on outstanding debt is given to the Central Bank. The Central Bank in certain circumstances analyzes and reports data differently than the Ministry of Finance, resulting in certain immaterial differences in debt totals and/or categorizations.

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The following table shows our domestic public sector debt for the five years ended December 31, 2004:

Government Domestic Public Sector Debt

As of December 31,

2000 2001 2002 2003 2004

(in millions of AFL) Government Entities.......................................................... AFL 288.8 AFL 369.0 AFL 400.1 AFL 411.9 AFL 402.8 Commercial Bank / Bonds ................................................ 241.6 256.6 255.8 282.4 375.8 Suppliers’ Credit(1) ............................................................ 44.7 92.7 61.5 81.2 103.0

Total Domestic Public Sector ......................................... AFL 571.1 AFL 718.3 AFL 717.4 AFL 775.5 AFL 881.6

Difference with Central Bank(2) ........................................ 3.6 7.80 (0.1) 5.9 5.9

(1) The total amount of suppliers’ credit due from the Government is accounted for in domestic debt, including suppliers' credit amounts properly considered as external because owned to non-Aruban suppliers. Suppliers’ credit includes amounts due to suppliers for goods and services provided to the Government, which are incurred on a rolling basis each year and paid as incurred, generally within one year. At December 31, 2004, AFL 74.9 million was owed to Aruban suppliers, including amounts owed to Government entities and the AZV. Of this amount, AFL 15.4 million had a maturity of greater than one year. Amounts owed to suppliers for greater than one year generally reflect claims being disputed by the Government, including unsubstantiated claims, disputed amounts or failures by the creditor to deliver as contracted. At December 31, 2004, the aggregate amount of such claims had been reduced to AFL 1.3 million. At December 31, 2004, AFL 28.1 million was owed to external (non-Aruban) suppliers, of which AFL 13.7 million had a maturity of greater than one year. Amounts owed to external suppliers for greater than one year principally comprise amounts owed to other partners in the Kingdom and are settled by means of political agreements between the partners.

(2) Debt totals are maintained by the Ministry of Finance, and the information on outstanding debt is given to the Central Bank. The Central Bank, in certain circumstances, analyzes and reports data differently than the Ministry of Finance, resulting in certain immaterial differences in debt totals and/or categorizations.

Source: Ministry of Finance

As of July 31, 2005, our total domestic public sector debt was AFL 950.4 million, as compared to AFL 881.6 million at December 31, 2004. The overall increase was primarily a result of increases of AFL 136 million from two domestic bond issuances and the provision of two bridge loans from RBTT Aruba N.V, which more than offset AFL 67.2 million in decreases resulting from the repayment of a domestic bond and a domestic commercial loan, as well as one administrative adjustment to the debt schedule. The first 2005 local bond issue was issued in February 2005, at 6.0% per annum and raised AFL 40 million, while the second issue at 6.5% per annum was issued in April 2005, and raised AFL 40 million. The bridge loans from RBTT Aruba N.V. totaled AFL 56 million and bear interest at 6.7% per annum, with AFL 36 million disbursed in June 2005 and AFL 20 million disbursed in July 2005. These total disbursements more than offset the repayment of an AFL 22 million 8.0% commercial loan in March 2005, the repayment of an AFL 30 million 8.25% domestic bond in April 2005 and the removal from the debt schedule of an AFL 15 million loan to SETAR N.V., which debt was cancelled in 2003. In addition to the above, in August 2005 we entered into a third bridge loan with RBTT Aruba N.V. for AFL 24.9 million, also bearing interest at 6.7% per annum, and in September 2005 we intend to enter into a 12-year AFL 29 million domestic commercial loan to fund our 2004 deficit to the AZV, pursuant to our obligation to fund AZV deficits when formally called upon to do so by the AZV. We intend to repay substantially all of the AFL 80.9 million (U.S.$45.2 million) in bridge loans provided by RBTT Aruba N.V. with the net proceeds of the offering of the Notes (see “Use of Proceeds”).

Our six-month AFL 8 million treasury bills rolled over on schedule in June 2005 and are scheduled to mature in December 2005, although the outstanding amount will automatically roll over at that time. Both three-month treasury bills, totalling AFL 40 million in aggregate principal amount, will be rolled over on their scheduled maturity dates.

As of December 31, 2004, our total domestic public sector debt was AFL 881.6 million, or 23.1% of GDP, an increase of 13.7% as compared to AFL 775.5 million, or 20.3% of GDP, as of December 31, 2003, with the increase primarily due to the budget deficit, contingent liabilities coming due and deficits arising from the operation of the AZV.

Our total domestic public sector debt of AFL 775.5 million as of December 31, 2003, reflected an increase of 8.1% as compared to AFL 717.4 million, or 18.8% of GDP, as of December 31, 2002. Similar to 2004, the

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increase in 2003 was primarily due to the budget deficit, contingent liabilities coming due and deficits arising from the operation of AZV.

Domestic Public Sector Debt Amortization

Principal and interest payments on domestic public sector debt in 2004 totaled AFL 36.4 million. The debt service ratio, that is, the ratio of domestic principal and interest payments to GDP, was 1.0% in 2004, as compared to 2.2% in 2003.

During 2004, the aggregate amount of principal payments made by the Government on its domestic public sector debt was AFL 19.8 million, excluding amounts paid to the APFA.

The following table shows the amortization schedule for domestic public sector debt outstanding as of December 31, 2004, for the five years ending December 31, 2009:

Domestic Public Sector Debt Amortization Schedule (1)

As of and for the year ending December 31,

2005 2006 2007 2008 2009

(in millions of AFL)

Government Entities................................................................... 3.2 3.3 3.5 3.7 4.0

Commercial Banks / Bonds(2)..................................................... 55.4 18.9 2.0 35.0 78.0

Total Domestic Public Sector(3) ............................................... AFL 58.6 AFL 22.2 AFL 5.5 AFL 38.7 AFL 82.0

(1) Does not include suppliers’ credit.

(2) These amounts do not include AFL 48.0 million aggregate principal amount of treasury bills and government bonds, which are automatically rolled over at maturity.

(3) The projected amortization of 2005 through 2009 is based on formalized agreements with the respective creditors. Of the domestic debt maturing in 2005, AFL 52.2 million is expected to be refinanced and of the domestic debt maturing in 2006, AFL 15.4 million is expected to be refinanced.

Source: Ministry of Finance

For 2005, the aggregate amount of the Government’s scheduled principal payments on domestic debt to Government entities is AFL 3.2 million. The aggregate amount of scheduled principal payments on domestic commercial bank and bonds in 2005 is AFL 55.4 million. However, AFL 52.2 million of this amount scheduled to mature in 2005 is expected to be refinanced. This amount consists of AFL 30.0 million principal amount of 8.25% bonds and an AFL 22.2 million 8.0% commercial loan.

For 2006, the aggregate amount of the Government’s scheduled principal payments on domestic debt to Government entities is AFL 3.3 million. The aggregate amount of scheduled principal payments on domestic commercial bank and bonds in 2006 is AFL 18.9 million. However, AFL 15.4 million of this amount scheduled to mature in 2006, consisting of an 8.125% commercial loan, is expected to be refinanced.

Treasury bills and cash certificates mature within three-months and six-months, respectively. Our remaining domestic public sector debt, other than treasury bills, government bonds and cash certificates, will mature within 35 years, including the APFA loan of AFL 220 million, which matures in 2039 and amortizes annually. Outstanding balances of treasury bills and government bonds, equal to AFL 48.0 million in aggregate principal amount, are automatically rolled over at maturity.

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Domestic Public Sector Debt Interest

Our outstanding domestic public sector debt carries fixed interest rates ranging from 6.00% to 9.500%. The AFL 48 million in treasury bills and cash certificates are the only domestic debts subject to variable interest rates.

The following table shows the interest schedule for domestic public sector debt outstanding as of December 31, 2004 for the five years ending December 31, 2009:

Domestic Public Sector Debt Interest Schedule

As of and for the year ending December 31,

2005 2006 2007 2008 2009

(in millions of AFL)

Government Entities..................................................................... AFL 15.9 AFL 15.7 AFL 15.5 AFL 15.3 AFL 15.0

Commercial Banks / Bonds.......................................................... 35.3 30.7 28.9 28.5 26.6

Total Domestic Public Sector .................................................... AFL 51.2 AFL 46.4 AFL 44.4 AFL 43.8 AFL 41.6

(1) Does not include suppliers’ credit.

Source: Ministry of Finance

During 2004, the Government made aggregate interest payments of AFL 16.6 million on its domestic public sector debt, including AFL 1.1 million on cash certificates and treasury bills, AFL 10.0 million on government bonds, and an aggregate of approximately AFL 5.5 million on several commercial loans.

External Public Sector Debt

General

As of December 31, 2004, our external public sector debt was AFL 839.4 million, or 22.0% of GDP, as compared to AFL 724.1 million, or 20.1% of GDP, as of December 31, 2003. The following table shows our external public sector debt by creditor for the five years ended December 31, 2004:

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Government External Public Sector Debt by Creditor(1)

As of December 31,

2000 2001 2002 2003 2004 (in millions of AFL) Multilateral

2.500% NIO 77—06 ................................................................ 4.5 3.5 3.3 3.0 2.2 2.500% NIO 77—06(2) ............................................................. 3.9 3.1 3.0 2.7 2.0 2.500% NIO 78—07 ................................................................ 5.8 4.8 4.9 4.7 3.9 2.500% NIO 79—08 ................................................................ 3.4 0.4 3.0 3.0 2.7 2.500% NIO 80—09 ................................................................ 5.9 5.0 5.3 5.5 5.0 2.500% NIO 81—10 ................................................................ 7.8 6.7 7.2 7.7 7.2 2.500% NIO 82—11 ................................................................ 4.4 3.9 4.2 4.5 4.3 2.500% NIO 83—12 ................................................................ 1.5 1.3 1.5 1.6 1.6 2.500% NIO 86—15 ................................................................ 5.8 5.2 5.8 6.5 6.5 2.500% NIO 87—16 ................................................................ 8.9 8.0 9.0 10.1 10.2 2.500% NIO 88—17 ................................................................ 9.3 8.4 9.5 10.8 10.9 2.500% NIO 90—19 ................................................................ 5.9 5.4 6.1 7.0 7.1 2.500% NIO 89—18 ................................................................ 9.7 8.8 10.0 11.4 11.6 1% EIB 88-28 ......................................................................... 8.2 7.5 8.7 10.0 10.4 1% EIB 94-34 ......................................................................... 2.6 2.5 3.0 3.6 3.9

Total Multilateral ...................................................... 87.6 74.5 84.5 92.1 89.5 Bilateral

2.500% Ned 76—06 (MJP)...................................................... 7.0 5.6 5.4 5.0 3.6 2.500% Ned 91—21................................................................. 10.7 9.8 11.2 12.9 13.3 2.500% Ned 92—22................................................................. 12.3 11.3 12.9 15.0 15.5 2.500% Ned 93—23................................................................. 7.1 6.7 7.5 9.0 9.3 2.500% Ned 94—24................................................................. 2.7 2.6 3.0 3.6 3.7 2.500% Ned 95—24................................................................. 0.4 0.4 0.5 0.6 0.6 2.500% Ned 85—18 Begrotingshulp...................................... 54.6 48.9 54.8 61.9 62.2

Total Bilateral............................................................ 94.8 85.3 95.3 108.0 108.2 Commercial Banks/Bonds

4.17 Govt bonds 2001—2008 / 7,125...................................... 0.0 5.8 5.8 5.8 5.8 4.26 6.800% Obligatie 04—16 (AFL 57,5) ............................. 0.0 0.0 0.0 0.0 0.0 4.22 2004—2010 / 6.800% Private Placement........................ 0.0 0.0 0.0 0.0 118.2 4.7 8.200% US 98—05 Private placement .............................. 45.0 45.0 45.0 45.0 45.0 4.10 8.090% US 99—06 .......................................................... 27.0 27.0 27.0 27.0 27.0 4.11 8.680% US 00—05 .......................................................... 36.0 36.0 36.0 36.0 36.0 4.12 8.780% US 00—07 .......................................................... 36.0 36.0 36.0 36.0 36.0 4.15 7.870% US 01—08 .......................................................... 0.0 37.8 37.8 37.8 37.8 4.18 7.375% RMB 02—12 ...................................................... 0.0 0.0 46.8 46.8 46.8 4.19 6.190% US 02—12 .......................................................... 0.0 0.0 63.0 63.0 63.0 4.20 4.500% SACE 03—18 ..................................................... 349.1 359.8 370.6 99.0 94.2 4.21 6.710% US 03—13 / Bear ............................................... 0.0 0.0 0.0 97.2 97.2 6.700% US 05—15 .................................................................. 0.0 0.0 0.0 0.0 0.0 Bank Loan 99-09 Staalbankiers(2) ................................................................... 1.9 1.7 2.0 2.4 2.3 Loan ifo WEB per 2026 ......................................................... 28.0 28.0 28.0 28.0 26.3

Total Commercial Bank/Bond .................................. 523.0 577.1 698.0 524.0 641.7

Total External Public Sector .................................................... AFL 705.4 AFL 736.9 AFL 877.8 AFL 724.1 AFL 839.4 Difference with Central Bank(3) .................................................. (19.4) (16.0) (15.9) (6.1) (3.2)

(1) Does not include amounts due to suppliers for goods and services provided to the Government, which are incurred on a rolling basis each year and paid as incurred, generally within one year. All suppliers’ credit (domestic and external) is accounted for as domestic debt. See Note (1) to the “Government Domestic Public Sector Debt” table.

(2) The balance of this loan at December 31, 2004 was AFL 2.3 million, although it was originally reported as AFL 5.5 million. (3) Debt totals are maintained by the Ministry of Finance, and the information on outstanding debt is given to the Central Bank. The Central

Bank, in certain circumstances, analyzes and reports data differently than the Ministry of Finance, resulting in certain immaterial differences in debt totals and/or categorizations.

Source: Ministry of Finance

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The amount of Government external public sector debt outstanding as of July 31, 2005 remained AFL 839.4 million, unchanged from the total external debt outstanding at December 31, 2004, as no additional external debt was incurred and no principal payments made, through July 31, 2005.

The amount of Government external public sector debt outstanding as of December 31, 2004 was AFL 839.4 million, an increase of 16.0% from AFL 724.1 million outstanding as of December 31, 2003, primarily due to an AFL 117.7 million increase in aggregate principal amount of loans from commercial creditors. During 2004, external public sector debt disbursements totaled approximately AFL 118.2 million, while external public sector debt principal payments totalled AFL 22.9 million. All of the total disbursements in 2004 were made to the Government, and comprised the issuance in April by the Government on the regional capital markets of U.S.$67 million (AFL 118.2 million) aggregate principal amount of its 6.80% notes due 2014.

The amount of external public sector debt financed by commercial banks and bond issuances increased to 76.4% in 2004 from 72.4% in 2003. The amount of external public sector debt financed by multilateral agencies decreased slightly to 10.7% in 2004 from 12.7% in 2003, while the amount of external public sector debt financed by bilateral sources increased to 12.9% in 2004 from 14.9% in 2003.

The AFL 724.1 million in Government external public sector debt outstanding as of December 31, 2003 reflected a 17.5% decrease from the AFL 877.8 million outstanding as of December 31, 2002. During 2003, external public sector debt disbursements totaled AFL 97.2 million, while external public sector debt principal payments totaled AFL 139.9 million. The decrease in outstanding external public sector debt in 2003 was primarily due to a decrease in commercial bank loans reflected by the SACE debt forgiveness, which reduced the Government’s liability in 2003 to AFL 99.0 million from AFL 370.6 million in 2002. See “The Legal Entity Aruba—Litigation”.

External Public Sector Debt Amortization

Principal and interest payments on domestic public sector debt in 2004 totaled AFL 64.4 million. The debt service ratio, that is, the ratio of domestic principal and interest payments to GDP, was 1.69% in 2004, as compared to 4.5% in 2003.

During 2004, the Government’s principal payments on external public sector debt totaled AFL 22.8 million, including AFL 4.8 million to the commercial creditor SACE and AFL 18.0 million to multilateral agencies, of which AFL 17.7 million was paid to the Kingdom and the balance to the European Investment Bank.

The following table shows the amortization schedule for external public sector debt outstanding as of December 31, 2004, for the five years ending December 31, 2009:

External Public Sector Debt Principal Amortization Schedule (1)

As of and for the year ending December 31,

2005 2006 2007 2008 2009

(in millions of AFL)

Multilateral .............................................................................................. AFL 10.4 AFL 10.6 AFL 8.7 AFL 7.6 AFL 7.1

Bilateral ................................................................................................... 8.1 8.2 6.4 6.5 6.6

Commercial Banks/Bonds....................................................................... 86.0 32.3 41.5 43.5 6.0

Total ........................................................................................................ AFL 104.5 AFL 51.1 AFL 56.6 AFL 57.6 AFL 19.7

(1) Does not include suppliers’ credit.

Source: Ministry of Finance

For 2005, the aggregate amount of the Government’s scheduled principal payments on multilateral external public sector debt is AFL 10.4 million. The aggregate amount of the Government’s scheduled principal payments on bilateral scheduled external public sector debt is AFL 8.1 million. The aggregate amount of scheduled principal payments on external commercial bank and bonds is AFL 86.0 million principally reflecting the fact that AFL 81

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million (U.S.$45.0 million) of our U.S. dollar loans mature in September and December 2005. We intend to repay the entire U.S.$45.0 million due under these loans with the net proceeds from the offering of the Notes. See “Use of Proceeds”.

The following table shows the maturity structure for external public sector debt outstanding as of December 31, 2004:

Total External Public Sector Debt Maturity Structure (1)

Less than

1 year 1-5 years 5-10 years 10 years & over Total

(in millions of AFL)

Multilateral ............................................................................................ AFL 10.4 AFL 39.0 AFL 21.9 AFL 10.2 AFL 81.5

Bilateral ................................................................................................. 8.1 34.3 33.8 23.6 99.8

Commercial Banks/Bonds..................................................................... 86.0 129.6 229.6 25.8 471.1

Total ...................................................................................................... AFL 104.6 AFL 202.9 AFL 285.3 AFL 59.6 AFL 652.4

(1) Does not include suppliers’ credit.

Source: Ministry of Finance

External Public Sector Debt Interest

External public sector debt interest payments by the Government increased to AFL 41.6 million in 2004 from AFL 31.9 million in 2003. During 2004, AFL 34 million of the Government’s interest payments were made to bondholders, consisting of AFL 8 million paid to regional bondholders and AFL 26 million paid to US bondholders. AFL 5 million was paid under bilateral assistance programs and 4.5 million in interest was paid to SACE 2004.

The following table shows the interest schedule for external public sector debt outstanding as of December 31, 2004, for the five years ending December 31, 2009:

External Public Sector Debt Interest Schedule (1)

As of and for the year ending December 31,

2005 2006 2007 2008 2009

(in millions of AFL)

Multilateral .............................................................................................. AFL 2.0 AFL 1.8 AFL 1.5 AFL 1.3 AFL 6.6

Bilateral ................................................................................................... 2.7 2.5 2.3 2.1 9.6

Commercial Banks/Bonds....................................................................... 33.6 325.4 24.1 20.7 17.5

Total ........................................................................................................ AFL 38.3 AFL 29.7 AFL 27.9 AFL 24.1 AFL 20.6

(1) Does not include suppliers’ credit.

Source: Ministry of Finance

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Currency of External Public Sector Debt

The following table shows the Government’s external public sector debt by currency of denomination for the five years ended December 31, 2004:

Currency Composition of External Public Sector Debt

As of December 31,

2000 2001 2002 2003 2004

(as percent of total external public sector debt)

U.S. Dollars ............................................................................................. 70.0% 74.0% 76.0% 68.0% 73.0%

Euro (1) ..................................................................................................... 30.0 26.0 24.0 32.0 27.0

Total......................................................................................................... 100.0% 100.0 100.0 100.0 100.0

(1) Includes amounts originally denominated in Dutch guilders. The exchange rate for 1 NLG was fixed at 1 EUR = 2.203710 NLG.

Source: Ministry of Finance

At December 31, 2004, 73.0% of external public sector debt was denominated in U.S. dollars and 27.0% was denominated in Euro. While the U.S.$/AFL exchange rate is fixed (see “Exchange Rates”), payments on EUR-denominated loans may increase or decrease in AFL terms based on the prevailing EUR/AFL exchange rate at the time the payment is made.

Debt Service Indicators and Payments

The following table shows public sector debt indicators for the five years ended December 31, 2004:

Debt Indicators

As of the year ended December 31,

2000 2001 2002 2003 2004 (in millions of AFL, except percentages) External Public Sector Debt ................................................... AFL 705.4 AFL 736.9 AFL 877.8 AFL 724.1 AFL 839.4

External Public Sector Debt/GDP ..................................... 21.2% 21.7% 25.7% 20.1% 22.0% Domestic Public Sector Debt ................................................. 571.5 718.3 717.4 775.5 881.6

Domestic Public Sector Debt/GDP ................................... 17.2% 21.1% 21.0% 21.5% 23.0% Total Public Sector Debt ........................................................ 1280.5 1455.2 1595.2 1499.6 1721.0

Total Public Sector Debt/GDP .......................................... 38.5% 42.8% 46.6% 41.6% 45.1% External Public Sector Debt Service

Principal............................................................................. 12.3 16.9 13.5 139.9 22.8 Interest ............................................................................... 12.8 12.6 22.2 31.9 41.6

Total............................................................................... 25.1 29.5 35.7 171.8 64.4

Domestic Public Sector Debt Service Principal............................................................................. 53.4 18.2 33.6 70.0 19.8 Interest ............................................................................... 17.3 12.7 15.9 13.0 16.6

Total............................................................................... 70.7 30.9 59.5 83.0 36.4

Exports of Goods and Services (1) .......................................... 1,980.2 1,958.5 1,921.8 1,971.9 2,307.7

External Public Sector Debt Interest as a Percentage of Exports of Goods and Services (%) (1) .......................... 0.6% 0.6% 1.2% 1.6% 1.8%

(1) Excluding oil.

Source: Ministry of Finance

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Total public sector debt as a percentage as of GDP rose to 45.1% as of December 31, 2004, from 41.6% as of December 31, 2003, as increases in both domestic and external public sector debt outpaced growth in GDP. Domestic public sector debt as a percent of GDP rose to 22.0% as of December 31, 2004, from 20.1% as of December 31, 2003, principally as a result of the budget deficit, contingent liabilities coming due and deficits arising from the operation of AZV.

External public sector debt as a percent of GDP rose to 23.0% at December 31, 2004 from 21.5% at December 31, 2003, reflecting an AFL 117.7 million increase in aggregate principal amount of loans from commercial creditors. External public sector debt interest payments as a percent of exports of goods and services increased to 1.8% at December 31, 2004 from 1.6% at December 31, 2003.

Payment History

Since obtaining status aparte in 1986, Aruba has never defaulted on, or restructured the repayment of, any of its external or domestic public sector debt obligations.

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THE MONETARY SYSTEM

Central Bank

Overview

The Centrale Bank van Aruba was established through the Central Bank Ordinance as an autonomous legal entity within Aruba’s public sector. Its operations commenced on January 1, 1986 when Aruba obtained its status aparte and replaced the Bank van de Nederlandse Antillen as Aruba’s central bank. The Central Bank is charged with the following responsibilities and related activities:

Responsibilities Related Activities

Issue bank notes, as well as coins on behalf of the Government. Bring safe and secure bank notes and coins into circulation to meet the needs of businesses and the general public.

Promote efficiency in settling domestic payments. Operate an automated clearing system between the commercial banks and a number of government-related institutions.

Act as the banker for the Government. Execute payment orders and intermediate in the issuance of Government debt paper. No credit is granted to the Government.

Regulate the flow of international payments. Facilitate and regulate payments between the residents and nonresidents and collect foreign exchange tax.

Manage Aruba’s official reserve, consisting of gold and foreign exchange holdings.

Invest the Central Bank’s foreign exchange holdings in accordance with cautious guidelines aimed at achieving its policy goals.

Advise the Minister of Finance on financial matters. Produce relevant information and give expert advice.

Monitor economic and financial developments. Collect and analyze financial and economic data, published in monthly, quarterly and annual reports.

Conduct monetary policy. Formulate and implement measures to, inter alia, regulate bank credit and liquidity, and to contribute to financial stability for the well-being of the people of Aruba.

Supervise the financial system. Monitor developments in the risk profile of a number of financial institutions to protect the interests of their clients and to contribute to the maintenance of financial system stability and integrity.

Monetary Policy

In accordance with the Central Bank Ordinance, the Central Bank conducts monetary policy to foster a stable macroeconomic environment and counteract actual or anticipated adverse changes in the economy. Although the Central Bank does not have direct control over the pace of economic growth or over other economic factors, such as price levels, the Central Bank Ordinance empowers the Central Bank to implement certain monetary policy tools, including devising and implementing measures to regulate bank credit and liquidity, adjusting the reserve requirements of the commercial banks and offering Central Bank certificates for commercial bank purchase.

Due to the large current account deficit in 2003, the Central Bank tightened monetary policy in 2004 by limiting growth of aggregate commercial bank lending to 6.0%, decreased from the 7.0% ceiling introduced in 2003 and introducing a penalty fee (which was enacted in response to the events of 2003, in which commercial bank credit expanded by 13.1% despite the ceiling in that year, in the absence of such a penalty) of 6.0% (on an annual basis) levied on individual banks that exceeded the credit expansion ceiling. Consequently, growth in aggregate commercial bank lending decelerated to 6.1% in 2004, although consumer credit expanded by 10.1% in 2004, as compared to 8.7% in 2003, influenced largely by a higher demand for car loans. In 2004, the monetary cash reserve requirement remained at 8.0%, and the Central Bank has indicated its intention to continue this cash reserve requirement level in 2005, but subject to revision on a quarterly, rather than annual, basis. The Central Bank has

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also indicated that, given Aruba’s current macroeconomic position, it will maintain the credit growth ceiling (as well as the penalty fee) at 6.0% in 2005, though this ceiling may be lowered in the event the current account trends deteriorate, the level of international reserves weakens, or inflation accelerates sharply.

In July 2003, for the first time, the Central Bank issued certificates for commercial bank purchase to absorb part of the excess liquidity in the money market. The Central Banks intends to build a reserve of money market paper to, in due course, be able to apply more market-oriented instruments of monetary policy and influence the interest rate. The certificates have a six-month maturity and are negotiable, with the Central Bank acting as a clearing institution. A new tranche of certificates, up to a maximum of AFL 20 million in principal amount, may be issued each month, with the actual amount issued depending on the level of liquidity in the money market. The market so far has been very modest, primarily because of prevailing low market interest rates. In 2004, there were 11 issues of Central Bank Certificates, of which only AFL 10 million and AFL 20 million were subscribed for, at average prices of, respectively, AFL 99.32 and AFL 99.25 or yields of, respectively, 1.35% per annum and 1.50% per annum. Of the six issues in 2003, only one issue of AFL 20 million was sold, at an average price of AFL 98.96 or a yield of 2.31% per annum. An aggregate principal amount of AFL 20 million in certificates was outstanding at each of December 31, 2004 and at December 31, 2003. Nevertheless, the Central Bank remains committed in pursuing market-oriented instruments of monetary policy. To that end, the certificates will be evaluated and adapted to improve marketability and new indirect instruments will also be considered.

Supervisory Activities

The Central Bank is entrusted with the prudential supervision of the banking and insurance sectors, as well as company pension funds, on the basis of, respectively, the State Ordinance on the Supervision of the Credit System, the State Ordinance on the Supervision of the Insurance Business and the State Ordinance on the Supervision of the Company Pension Funds. The aim of these ordinances is to prevent financial institutions from taking excessive risks that could harm the interests of depositors and policyholders and endanger the soundness and stability of the financial system. Continuous off-site surveillance, as well as periodic, risk-oriented on-site examinations are conducted. Furthermore, bilateral meetings are held regularly with the institutions concerned, and with their representative organizations.

The Central Bank’s supervisory activities are focused on assessing key risk areas, such as financial condition, asset quality, anti-money-laundering procedures, administrative organization, and management. Detailed reporting forms should be submitted on a weekly, monthly, quarterly and/or annual basis depending on the type of financial institution. Furthermore, the annual audited financial statements and the management letter issued by the external auditor must be filed. The Central Bank analyzes these documents and discusses its findings with senior management of the institution.

The Central Bank also conducts regular on-site examinations. The frequency of the examinations varies with the risk profile of each individual institution. Depending on the Central Bank’s findings, corrective measures may be required. During 2004, all four commercial banks, two bank-like financial institutions, one money transfer company, three insurance companies, and one company pension fund were examined on-site.

In the second half of 2002, Aruba commenced the implementation of the recommendations issued by an IMF mission as formulated in the Offshore Financial Center Assessment Report on Aruba issued in June 2002. This mission assessed Aruba’s regulatory and anti-money-laundering framework. The Core Principles for Effective Banking Supervision issued by the Basel Committee on Banking Supervision, the Insurance Core Principles issued by the International Association of Insurance Supervisors, or “IAIS”, as well as the recommendations of the FATF on anti-money-laundering, served as benchmarks for this assessment. The mission concluded that, in general, substantial progress has been made in recent years and that Aruba is largely compliant with the aforementioned principles and recommendations.

Commercial Banks

The Central Bank’s regulation of the commercial banking sector includes the issuance of directives and policy papers in the areas of solvency, liquidity, administrative organization, corporate governance and anti-money-laundering. The Central Bank tests for compliance both through offsite surveillance and regular on-site examinations. Currently, all banks are in compliance with the solvency and liquidity guidelines issued by the

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Central Bank. In October 2003, Aruba Bank N.V. acquired Interbank Aruba N.V. from the FCCA, significantly strengthening the banking sector, as this fledgling bank with solvency issues was removed from the financial sector.

In accordance with the directive on the publication of audited financial statements issued by the Central Bank in June 2003, all commercial banks are required as of the reporting year 2005 to file their audited financial statements or an acceptable extract thereof at the Chamber of Commerce. Branches are allowed to file audited statements of the group of which they are a part. In October 2004, the Dutch Central Bank, or “DNB”, provided technical assistance on the implementation of a Risk Analysis Supervision Tool, or “RAST”, which is used by the DNB for conducting risk assessments at credit institutions. This tool will assist the Central Bank in standardizing its risk assessments at the supervised banks and also in prioritizing the risk areas that need to be examined more frequently or in more detail. Implementation of the RAST is expected to be completed by mid-2006.

At present, all banks are required to maintain a capital adequacy ratio of 10%, with the exception of the two offshore banks, which are allowed to maintain a capital adequacy ratio of 8%. In June 2004, the Basel Committee on Banking Supervision adopted the Basel II framework on capital adequacy requirements. The revised framework is more risk sensitive than the 1988 Capital Accord and provides a range of options for determining the capital requirements for credit risk and operational risk. Depending on the approach used, the new capital adequacy requirements are expected to be introduced at the end of 2006 (standardized approach) or the end of 2007 (advanced approach). Most likely, only the large international banks will be able to opt immediately for the advanced approach, which may allow them to maintain a lower regulatory capital amount that is more aligned to their economic capital. The non-G10 supervisory authorities also are encouraged to adopt this revised framework in the near future. However, each national supervisor is advised to evaluate carefully the benefits of the revised capital adequacy framework in the context of its domestic banking system when developing a timetable and approach to implementation. The Central Bank will monitor closely the international and regional developments in this area.

Money Transfer Companies

The State Ordinance on the Supervision of Money Transfer Companies, or “SOSMTC”, became effective on August 8, 2003. Pursuant to the SOSMTC, a money transfer company must be registered at the Central Bank before it can conduct money transfer activities. Those money transfer companies already active were granted a grace period of 180 days to comply with the registration requirements.

Some of the main registration requirements under the SOSMTC are that shareholders and management must be fit and proper and that administrative organization and internal controls are satisfactory. As of the reporting year 2004, all registered money transfer companies also are required to provide the Central Bank periodically with certified reports on their operations and financial position. In 2004, six registered money transfer companies qualified for registration, while two internationally active money transfer companies, Western Union and Money Gram, were granted an exemption under Section 10 of the SOSMTC. The number of money transfer companies registered decreased from six to five in 2005 as a result of Unigiros N.V.’s decision to terminate its money transfer activities as of January 1, 2005.

Company Pension Funds

In March 2005, the Central Bank issued draft “Pension Fund Governance” guidelines for consultation. They contain minimum requirements for company pension funds in the areas of board oversight, administrative organization and internal controls, and disclosure of financial information. The subject guidelines are based mainly on the pension fund governance guidelines issued by the Organization for Economic Cooperation and Development, or “OECD” in July 2002. These guidelines will come into effect on January 1, 2006.

The financial position of the company pension funds remains unstable. As of December 31, 2003, three company pension funds did not comply with the minimum coverage in 2004 ratio requirement of 100.0%. The Central Bank required each of these pension funds to submit a financial recovery plan and is closely monitoring the implementation of these plans.

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Insurance Sector

When the Central Bank granted two insurance companies, Atradius Credit Insurance N.V. and National General Insurance Corporation N.V., non-life insurance licenses in 2004, the total number of insurance institutions supervised increased from 33 to 35 (including company pension funds). In October 2003, the IAIS revised and expanded its Insurance Core Principles and Methodology, offering guidance for the effective operation of supervisory systems around the world. The 28 principles cover all aspects of insurance industry regulation and supervision. Principles addressing such issues as transparency of the supervisory process, assessment and management of risk, consumer protection, and anti-money-laundering were added. All IAIS members, including Aruba, are encouraged to conduct a self-assessment to determine whether the revised Insurance Core Principles are being observed. The Central Bank is in the process of conducting a self-assessment in light of these revised principles and expects to complete it by the end of September 2005.

Money Laundering and Illicit Activities

At present, banks, life insurance companies, casinos, the Free Zone, money transfer companies and the post office are obliged to report unusual transactions to the Reporting Center for Unusual Transactions, or the “RCUT”. The RCUT is entrusted with the execution of the State Ordinances on the Reporting of Unusual Transactions, or the “SORUT”, and on the State Ordinance on Identification for Rendering Financial Services, or the “SOIRFS”. The recently revised FATF guidelines, which have not been implemented at present, recommended extending the unusual transactions reporting obligation to other financial service providers, including trust offices, auditors, lawyers and notaries, as well as traders in high value products, including car dealers, real estate brokers and jewelers.

The Central Bank has issued anti-money laundering guidelines for banks, insurance companies and money transfer companies. The Central Bank also is entrusted with executing the SOIRFS insofar as it concerns the financial institutions under its supervision. Compliance with these guidelines and ordinance is tested during the on-site examinations. In October 2004, the IAIS issued a guidance paper on anti-money-laundering and combating the financing of terrorism. This guidance paper aims at tailoring the existing standards in this area to the specific practices and features in the insurance sector. The Central Bank intends in 2005 to revise its current guidelines for banks and insurance companies in the area of combating money laundering and terrorist financing, to align them to prevailing international standards. Similarly, in view of the significant risks money transfer companies face in being used for illicit practices, the Central Bank strengthened its guidelines for money transfer companies in the area of combating money laundering and terrorist financing. Pursuant to these revised guidelines, all money transfer companies will be required, as of September 2005, to appoint a separate compliance officer responsible for overseeing compliance with the laws and regulations governing money transfer companies.

In the second half of 2002, Aruba implemented the recommendations of an IMF mission, which assessed Aruba’s regulatory and anti-money-laundering framework. The Core Principles for Effective Banking Supervision issued by the Basel Committee on Banking Supervision, the Insurance Core Principles promulgated by the IAIS, as well as the 40 recommendations of the FATF on anti-money laundering, served as benchmarks for this assessment. The mission concluded that, in general, substantial progress had been made.

The United States has acknowledged Aruba’s cooperation in fighting drug trafficking and money laundering, as reflected also in granting it the sovereign qualified intermediary tax status. Aruba is in compliance with 26 of 28 recommendations for action regarding money laundering of the FATF. In 2001, Aruba agreed with the OECD to complete legislation in order to improve the transparency of offshore finances and reforming offshore tax exemptions. The NFR eliminated tax preferences in 2003, thus making Aruba compliant since the NFR’s implementation. See “Public Finance—Tax Reform”.

Recent Developments

In December 2004, the Pension Ordinance was enacted. According to this Ordinance, the APFA will fall eventually under the Bank’s supervision. For the time being the APFA has been placed under the supervision of a governing board on which all concerned constituencies are represented. See “The Legal Entity Aruba—Pension System—Civil Servants Pension Fund (APFA)”.

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In addition, the Central Bank intends to begin drafting legislative proposals in early 2006 aimed at expanding its regulatory scope to insurance brokers and also strengthening the banking and insurance state ordinances.

Banking and Financial Institutions

As of December 31, 2004, the Aruban financial system was composed of 47 supervised financial institutions (excluding the money transfer sector), with total assets of AFL 5,532.7 million, including:

• four domestic commercial banks;

• two offshore banks;

• two mortgage banks;

• one finance company;

• one investment bank;

• two credit unions;

• twenty-four insurance companies; and

• eleven company pension funds.

The following table shows the total assets of the financial system held by various categories of financial institutions as of December 31, 2004:

Number of Financial Institutions in Operations and Total Assets

At December 31, 2004

Number of Institutions Total Assets

(in millions of AFL)

Commercial Banks ............................................................................... 4 AFL 3,111.7

Offshore Banks..................................................................................... 2 1,012.1

Bank-like Institutions ........................................................................... 4 630.2

Credit Unions ....................................................................................... 2 4.4

Insurance Companies ........................................................................... 24 580.0

Non-Life Insurance ..................................................................... 14 173.1

Life Insurance.............................................................................. 8 402.0

Captive Insurance........................................................................ 2 4.9

Company Pension Funds............................................................. 11 194.3

Total...................................................................................................... 47 AFL 5,532.7

Source: Central Bank

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The following table identifies the amount of loans and deposits and percent of total loans and deposits for the classes of financial institutions indicated as of December 31, 2004:

Loans and Deposits of Financial Institutions (1)

At December 31, 2004

Loans Deposits

(in millions of AFL) ( % of total) (in millions of AFL) ( % of total)

Commercial Banks ........................................... AFL 2076.1 70.3% AFL 2652.1 76.2%

Offshore Banks................................................. 427.7 14.5 805.3 23.1%

Bank-like Institutions ....................................... 445.4 15.1 24.5 0.7%

Credit Unions ................................................... 3.3 0.1 N/A N/A

Total ................................................................. AFL 2,952.5 100.0% AFL 3,481.9 100.0% (2)

(1) Excludes pension funds and insurance companies.

(2) Excluding credit unions.

Source: Central Bank

Commercial Banks

The major functions of commercial banks are to accept deposits from and make loans to their customers. Apart from customer deposits, commercial banks source funds from shareholder capital and from their head offices or affiliates abroad. Besides the personal loans category, funds are traditionally loaned primarily to the distribution, agriculture and construction subsectors.

The following table sets forth the total gross assets of commercial banks for the five years ended December 31, 2004:

Total Gross Assets of Aruban Commercial Banks

At December 31,

2000 2001 2002 2003 2004(1)

(in millions of AFL)

Domestic Assets

Notes and Coins ........................... AFL 29.7 AFL 30.7 AFL 35.1 AFL 40.5 AFL 31.9

Central Bank Deposits ................. 154.4 215.2 278.7 253.8 275.0

Investments................................... 55.0 68.1 72.5 99.0 99.2

Government Securities ............ 43.1 62.1 65.7 63.6 64.8

Nongovernment Securities ...... 11.9 6.0 6.8 35.4 34.4

Loans and Advances .................... 1,482.2 1,545.1 1,730.5 1,903.7 2,012.5

Other Domestic Assets................. 91.9 119.4 140.8 174.0 145.3

Total Domestic Assets ................. 1,813.3 1,978.5 2,257.7 2,471.0 2,563.9

Foreign Assets ...................................... 530.8 524.0 530.2 664.3 582.9

Total Assets .......................................... AFL 2,344.1 AFL 2,502.5 AFL 2,787.9 AFL 3,135.3 AFL 3,146.8

(1) Preliminary Figures

Source: Central Bank

The aggregated balance sheet total of the four commercial banks increased by 0.6% to AFL 3,112 million at December 31, 2004, equivalent to 81.5% of nominal GDP. During 2004, the aggregate principal amount of loans from commercial banks increased by 4.9% to 2,076.1 million. On the liability side, deposits rose in 2004 by 1.2% to

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AFL 2,652.5 million from AFL 2604.1 million in 2003. Consequently, the loans-to-deposits ratio increased by 1.5 percentage points to 81.4%.

With the takeover of Interbank Aruba N.V. in October 2003, the number of commercial banks in Aruba decreased to four. Even so, further concentration and/or alliances in the banking sector may be necessary in coming years to carry the increasing costs that banks face with respect to the upgrading and expansion of their automated systems. Continuous investments in this area are necessary to meet, among other things, consumer demand for state-of-the-art payment and electronic transactional facilities including internet banking and ATM services. Also, in view of the continuous raising and expansion of the international standards governing financial institutions, commercial banks will have to continue to invest in upgrading and improving their information and reporting systems, governance structure and internal controls to prevent money laundering and terrorist financing practices.

The following table sets forth the balance sheet of the Aruban commercial banks for the five years ended December 31, 2004:

Balance Sheet of Aruban Commercial Banks

At December 31,

2000 2001 2002 2003 2004(1)

(in millions of AFL)

Assets

Cash & due from banks................ AFL 494.9 AFL 596.4 AFL 655.2 AFL 778.4 AFL 699.3

Investments................................... 88.3 74.9 100.1 138.2 150.0

Loans ............................................ 1,642.5 1,687.7 1,850.8 2,080.0 2,137.6

Other Assets ................................. 118.3 143.5 181.8 180.7 159.9

Total Assets .......................................... 2,344.1 2,502.5 2,787.9 3,135.3 3,146.8

Capital and Liabilities

Deposits ........................................ 1,975.1 2,092.3 2,311.1 2,604.1 2,625.5

Demand........................... 581.0 648.2 796.9 949.8 983.4

Time................................ 947.9 991.4 1,043.5 1,094.3 1,026.6

Savings............................ 446.2 452.7 470.7 560.0 615.5

Other Liabilities ........................... 257.4 262.8 335.1 334.0 286.3

Capital and reserves(2) .................. 111.7 147.3 141.7 197.2 235.0

Total Capital and Liabilities .............. AFL 2,344.1 AFL 2,502.5 AFL 2,787.9 AFL 3,135.3 AFL 3,146.8

(1) Preliminary figures

(2) Including general (unallocated) reserves

Source: Central Bank

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The following table sets forth information regarding the allocation of commercial bank loans to each sector of the economy as a percentage of total loans as of the five years ended December 31, 2004:

Commercial Bank Loans by Sector

Year ended December 31,

2000 2001 2002 2003 2004(1)

(as a percentage of total loans)

Private Sector:

Individual Loans.......................... 51.5% 52.9% 52.4% 51.6% 53.3%

Agriculture, Hunting, Forestry & Fishing ....... 0.4 0.4 0.3 0.3 0.0

Mining & Manufacturing ................................. 1.2 1.2 1.4 2.0 2.0

Electricity, Gas and Water ............................... 2.4 1.8 2.0 1.9 1.5

Construction ..................................................... 1.4 1.2 1.2 1.1 1.5

Wholesale & Retail Trade; Repair of Motor Vehicles, Motorcycles, Personal & Household Goods .............................................

19.2 20.7 22.0 22.0 19.0

Hotels & Restaurants........................................ 5.0 4.2 4.3 5.6 4.8

Transport, Storage & Communications ........... 3.0 2.1 1.7 2.6 2.3

Financial Intermediation .................................. 4.2 2.4 1.7 3.4 5.4

Real Estate, Renting & Business Activities..... 7.5 8.3 7.3 6.1 6.4

Other Enterprises.............................................. 4.2 4.7 5.7 3.3 3.7

Total Private Sector Loans ........................................ 100.0 100.0 100.0 100.0 100.0

Public Sector: ............................................................ 0.0 0.0 0.0 0.0 0.0

Total Loans .............................................................. 100.0% 100.0% 100.0% 100.0% 100.0%

(1) Preliminary Figures

Source: Central Bank

The banks’ return on equity decreased to 26.2% in 2004, due mainly to the increase in shareholders’ equity. Their liquidity ratio declined to 27.0%.

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The following table sets forth certain macroprudential indicators of the commercial banks for the five years ended December 31, 2004:

Macroprudential Indicators of Commercial Banks

At December 31,

2000 2001 2002 2003 2004(1)

Capital Adequacy (in percentages)

Risk-Weighted Capital Ratio (= Regulatory Capital Ratio) .............. 8.2% 10.5% 9.4% 11.4% 12.1%

Tier I Capital Ratio ............................................................................. 3.8 4.0 5.5 5.3 6.6

Asset Quality Nonperforming Loans (Net of Provisions) to Gross Loans ............... 2.6 3.4 2.7 4.1 2.3

Nonperforming Loans (Net of Provisions) to Regulatory Capital..... 33.7 34.0 30.3 38.4 19.5

Large Loans to Regulatory Capital .................................................... 2.8 1.5 195.1 104.1 98.8

Earnings And Profitability Return on Assets ................................................................................. 1.2 1.6 1.1 2.0 1.8

Return on Equity................................................................................. 30.1 32.9 22.0 31.9 26.2

Interest Margin to Gross Income........................................................ 65.9 65.7 62.8 62.2 67.1

Noninterest Expenses to Gross Income.............................................. 85.1 78.7 83.6 71.9 74.5

Liquidity Loans to Deposits Ratio...................................................................... 75.6 73.1 71.7 72.8 75.5

Prudential Liquidity Ratio .................................................................. 24.5 27.5 28.2 27.9 27.0

Liquid Assets to Short-Term Liabilities............................................. 78.5 85.4 77.6 77.6 74.1

Sensitivity to Market Risk Interest Rate Margin ........................................................................... 5.8 6.2 7.3 6.1 7.0

Net Foreign Assets to Regulatory Capital.......................................... 111.0 71.3 53.7 35.9 35.9

(1) Preliminary Figures

Source: Central Bank

The macroprudential indicators above reflect that the commercial banking sector is sound and profitable. The commercial banks’ aggregated risk-weighted capital asset ration increased to 12.1% in 2004 from 11.4% in 2003, above the required minimum of 10.0%. As a result of the restructuring of some nonperforming loans and an improvement of the overall quality of the loan portfolio during 2004, the percentage of nonperforming loans (net of provision) among gross loans declined to 2.3% in 2004 from 4.1% in 2003, while the percentage of nonperforming loans (net of provision) among regulatory capital decreased to 19.5% in 2004, as compared to 38.4% in 2003. Mainly due to the increase in shareholders’ equity, return on equity dropped to 26.2% in 2004 from 31.9% in 2003. Despite a marginal decrease to 27.0% in 2004 from 27.9% in 2003, the liquidity ratio remained above the minimum prudential requirement of 20.0%. The loans-to-deposits ratio was 75.5% in 2004, up from 72.8%, in 2003 as the increase in loans exceeded the increase in deposits by AFL 65 million.

Interest Rates

The products and services offered by the commercial banks are mainly in the traditional retail banking area. Interest income remains their dominant source of revenue. As a result of the oligopolistic market structure, as well as the absence of economies of scale, interest rates generally are high and inflexible compared to those of industrialized countries. In connection with the slowdown of the economy in 2001, the Government had requested the commercial banks to lower their interest rates on commercial loans and mortgages, and these rates have through 2004 remained below the levels of those in 2000 and 2001.

The commercial banks’ interest margin, measured as the difference between the weighted average lending rates and saving and time deposit rates on new transactions, increased to 7.0% in 2004 from 6.1% in 2003. As

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illustrated in the tables below, the weighted average lending rate in 2004 was 11.4% while the savings and time deposit rate was 4.4%.

The following table sets forth information regarding weighted interest rates on loans by commercial banks for the five years ended December 31, 2004:

Weighted Average Interest Rates on Commercial Bank Loans

Year ended December 31,

2000 2001 2002 2003 2004

(in percentages)

Weighted Lending Rates

Individual Loans:

Consumer Credit .................................................. 17.2% 17.2% 16.7% 16.3% 16.5%

Housing Mortgages .............................................. 10.7 10.9 10.3 9.5 9.8

Commercial Loans:

Mortgages............................................................. 10.8 10.7 10.0 9.5 8.8

Other Loans .......................................................... 10.4 10.1 10.6 8.9 8.9

Weighted Average Rate of Interest on Loans .......... 12.0% 12.1% 12.8% 11.4% 11.4%

Source: Central Bank

The following table sets forth information regarding interest rates applicable to deposits for the five years ended December 31, 2004:

Weighted Average Interest Rates Paid on Commercial Banks Deposits

Year ended December 31,

2000 2001 2002 2003 2004

(in percentages)

Time Deposits:

12 months or less ...................................................... 6.0% 5.3% 5.2% 5.2% 3.6%

Longer than 12 months ............................................. 7.7 7.7 7.1 6.4 6.0

Savings Deposits....................................................... 3.9 3.8 3.7 3.8 3.9

Weighted Average Rate of Interest on Deposits ...... 6.2% 5.8% 5.5% 5.3% 4.4%

Source: Central Bank

The deposit rate declined by 0.4 percentage points to 3.8%, reflecting mainly a decrease in the interest rate on short-term time deposits of 0.7 percentage point. In addition, the weighted average lending rate remained stable in 2004 at 11.4%.

Offshore Banks

Aruba’s offshore banking sector is very small by international standards, with only two institutions being registered, and has decreased substantially since 2002 due to the implementation of the NFR, which reduced incentives for offshore investment and made this sector comparatively unattractive to other jurisdictions. See “Public Finance—Tax Reform”. These banks had an aggregated balance sheet total of AFL 1,012.1 million in 2004, or 26.5% of GDP, as compared to AFL 1,334.9 million at the end of 2003 or 37.1% of GDP. This total was AFL 853 million lower than in 2002. Profitability rose to AFL 45 million in 2004 from a loss of AFL 45 million in 2003, due to higher revenue from foreign exchange transactions and a release of an addition to the loan loss provisions. Mainly due to a significant improvement of these two banks’ net income, their aggregated risk-weighted capital ratio increased to 37.0% in 2004 from 16.0% in 2003, substantially above the generally accepted minimum of 8.0%.

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The following table sets forth the balance sheet of the offshore banks for the five years ended December 31, 2004:

Balance Sheet of Offshore Banks

At December 31,

2000 2001 2002 2003 2004(1)

(in millions of AFL, except percentages)

Assets Cash & due from banks........................................ AFL 745.0 AFL 707.0 AFL 894.3 AFL 651.3 AFL 566.8

Investments........................................................... 277.2 49.3 45.1 7.8 0.0

Loans .................................................................... 1,083.5 1,090.6 924.0 659.2 427.7

Other Assets ......................................................... 28.3 14.8 10.3 16.6 17.6

Total Assets .................................................................. AFL 2,134.0 AFL 1,861.7 AFL 1,873.7 AFL 1,334.9 AFL 1,012.1

Capital and Liabilities

Deposits ................................................................ AFL 1,849.4 AFL 1,658.5 AFL 1,631.7 AFL 1,118.6 AFL 805.3

Demand ....................................................... 218.3 114.5 29.7 161.9 323.9

Time ............................................................ 1,631.1 1,544.0 1,602.0 956.7 481.4

Other Liabilities ................................................... 133.5 37.3 24.4 89.3 39.1

Capital and Reserves(2)................................................................. 151.1 165.9 217.6 127.0 167.7

Total Capital and Liabilities ...................................... AFL 2,134.0 AFL 1,861.7 AFL 1,873.7 AFL 1,334.9 AFL 1,012.1

Risk-weighted capital ratio (percentage) ...................... 10.0 13.5 20.6 15.8 37.1

(1) Preliminary figures

(2) Including general (unallocated) reserves

Source: Central Bank

Insurance Companies

In 2004, Atradius Credit Insurance N.V. and National General Insurance Corporation N.V. were granted licenses by the Central Bank. Consequently there was an increase in the total number of supervised insurance institutions from 33 to 35, including 14 non-life insurance companies and eight life insurance companies (as well as two captive insurance companies and 11 company pension funds). At December 31, 2004, total assets of the 14 non-life insurance companies and the eight life insurance companies amounted to AFL 575.1 million, or 15.1% of GDP.

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Non-life Insurance Companies

In 2003, total assets of the 14 non-life insurance companies amounted to AFL 173.1 million, or 4.8% of GDP, as compared to AFL 139.5 million in 2002 or 4.1% of GDP.

Further aggregated information for 2004 regarding the 14 non-life insurance companies is not yet available. The following table sets forth the balance sheet of the 12 non-life insurance companies for the four years ended December 31, 2003 (excluding the two non-life insurance companies granted licenses in 2004):

Balance Sheet of Non-life Insurance Companies

At December 31,

2000(1) 2001 2002 2003

Assets

Investments........................................................ AFL 24.0 AFL 77.3 AFL 76.5 AFL 81.7

Fixed Assets....................................................... 0.5 0.6 0.5 0.4

Due from Affiliated Companies........................ 68.9 19.6 22.8 26.8

Current Assets ................................................... 19.6 28.2 39.7 64.2

Total Assets ............................................................... AFL 112.9 AFL 125.7 AFL 139.5 AFL 173.1

Capital and Liabilities

Technical Provisions ......................................... AFL 52.3 AFL 47.2 AFL 50.1 AFL 54.2

Long-term Liabilities......................................... 0.0 0.0 0.0 0.0

Due to Affiliated Companies............................. 0.0 17.6 20.4 39.3

Current Liabilities.............................................. 18.5 9.9 12.7 12.2

Capital and Reserves ......................................... 42.1 51.0 56.3 67.4

Total Capital and Liabilities.................................... AFL 112.9 AFL 125.7 AFL 139.5 AFL 173.1

(1) Unaudited figures

Source: Central Bank

At the end of 2003, the aggregated balance sheet total of the 12 non-life insurance companies rose 24.1% to AFL 173.1 million, or 4.8% of GDP, from AFL 139.5 million in 2002 or 3.9% of GDP, principally reflecting an increase in current assets by AFL 24.5. Investments increased by AFL 5.2 million to AFL 81.7 million, approximately 4% of which were foreign assets. On the liability side, the amounts due to affiliated companies nearly doubled to AFL 39.3 million in 2003 from AFL 20.4 million in 2002, while technical provisions rose to AFL 54.2 million, as compared to AFL 50.1 million in 2002. Capital and reserves rose by AFL 11.1 million to AFL 67.4 million. As per the end of 2003, the coverage ratio was 303%, far exceeding the minimum of 100%, an indication of a stable non-life insurance sector.

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Life Insurance Companies

In 2003, total assets of the eight life insurance companies were AFL 402.0 million, or 11.2% of GDP, as compared to AFL 364.8 million in 2003 or 10.6% of GDP.

Further aggregated information for 2004 for the life insurance companies is not yet available. The following table sets forth the balance sheet of the eight life insurance companies for the four years ended December 31, 2003:

Balance Sheet of Life Insurance Companies

At December 31,

2000(1) 2001 2002 2003

Assets

Investments.......................................................................... AFL 287.0 247.1 243.4 296.7

Fixed Assets......................................................................... 0.1 0.2 0.3 0.5

Due from Affiliated Companies.......................................... 118.4 222.4 77.4 67.6

Current Assets ..................................................................... 35.1 42.7 43.7 37.2

Total Assets ................................................................................. AFL 440.6 AFL 512.4 AFL 364.8 AFL 402.0

Capital and Liabilities

Technical Provisions ........................................................... AFL 232.6 AFL 255.0 AFL 267.4 AFL 294.5

Long-term Liabilities........................................................... 0.5 0.5 0.4 0.4

Due to Affiliated Companies............................................... 0.0 182.2 19.7 26.3

Current Liabilities................................................................ ... 150.2 17.7 19.1 20.0

Capital and Reserves ........................................................... 57.3 57.0 58.2 60.8

Total Capital and Liabilities...................................................... AFL 440.6 AFL 512.4 AFL 364.8 AFL 402.0

(1) Unaudited figures

Source: Central Bank

In 2003, the aggregated balance sheet total for the eight life insurance companies increased 10.2% to AFL 402.0 million, or 10.5% of GDP, as compared to AFL 364.8 million in 2003 or 10.1% of GDP, principally reflecting a rise in investments by 21.9% to AFL 296.7 million, approximately 13% of which were foreign assets. Technical provisions rose by 10.1% while the coverage ratio decreased slightly by 1% to 130%. All eight life insurance companies complied with the minimum solvency requirement of 100 percent.

Bank-like Institutions

There are four bank-like institutions in Aruba, including the FCCA, engaged mainly in mortgage lending to individuals, financing of social housing projects, long-term project financing, and/or granting of personal loans for consumptive and home improvement purposes. These activities are financed predominantly by attracting funds from their parent companies, other financial institutions and/or institutional investors.

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The following table sets forth the balance sheet of the four bank-like institutions for the five years ended December 31, 2004:

Balance Sheet of Bank-like Institutions

At December 31,

2000 2001 2002 2003 2004(1)

(in millions of AFL, except percentages)

Assets

Cash & due from Banks .................................... AFL 63.5 AFL 41.8 AFL 68.2 AFL 78.8 AFL 75.9

Investments........................................................ 4.0 5.2 4.6 9.1 12.6

Loans ................................................................. 430.9 429.9 425.9 435.4 445.4

Commercial(2) ........................................... 95.9 83.0 78.5 101.2 94.4

Individuals(3) ............................................. 335.0 344.1 347.4 334.2 351.0

Government.............................................. 0.0 2.8 0.0 0.0 0.0

Current Assets ................................................... 52.1 57.3 63.2 94.8 96.3

Total Assets ............................................................... AFL 550.5 AFL 534.2 AFL 561.9 AFL 618.1 AFL 630.2

Capital and Liabilities

Deposits ............................................................. AFL 13.6 AFL 15.3 AFL 17.9 AFL 21.9 AFL 24.5

Borrowings ........................................................ 270.3 249.1 250.7 322.5 332.4

Commercial(2) ........................................... 232.0 212.5 214.1 285.9 295.8

Individuals(3) ............................................. 1.7 0.0 0.0 0.0 0.0

Government.............................................. 36.6 36.6 36.6 36.6 36.6

Other Liabilities................................................. 45.4 65.0 93.5 66.2 55.1

Capital and reserves(4) ....................................... 221.2 204.8 199.8 207.5 218.2

Due to Affiliated Companies ............................

Total Capital and Liabilities ................................... AFL 550.5 AFL 534.2 AFL 561.9 AFL 618.1 AFL 630.2

Risk-weighted capital ratio (percentage)(5) ................ N/A 57.9% 44.5% 50.1% 51.0%

(1) Preliminary figures

(2) Corrected for allocated reserves.

(3) Corrected for unearned income.

(4) Including general (unallocated) reserves.

(5) The calculation of the risk-weighted capital ratio cannot be derived from this table.

Source: Central Bank

In 2004, the aggregated balance sheet total for the four bank-like institutions increased 2.0% to AFL 630.2 million, or 16.5% of GDP, as compared to AFL 618.1 million in 2003 or 17.2% of GDP, principally reflecting an increase in the combined loan portfolio of bank-like institutions in 2004 to AFL 445.4 million from AFL 435.4 million in 2003. Loans to individuals increased by 5.0%, while commercial loans declined by 7.0%. On the liabilities side, capital and reserves amounted to AFL 218.2 million at December 31, 2004, increasing from AFL 207.5 million at December 31, 2003. The aggregated risk-weighted capital ratio of the bank-like institutions increased to 51.0% at December 31, 2004 from 50.1% at December 31, 2003, well above the minimum requirement of 10%.

Credit Unions

Credit unions in Aruba operate under the State Ordinance on the supervision of the credit system and are regulated by the Central Bank. There are two small but active credit unions in Aruba whose total assets were AFL

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4.4 million at December 31, 2004. The main functions of the credit unions are to promote savings and grant loans to their members on favorable terms.

Money Supply

The money supply includes narrowly defined money plus “quasi money”. Narrowly defined money consists of bank notes, coins and demand deposits of the private sector. Quasi money, comprising time and savings deposits as well as treasury bills held by the public sector, increased by AFL 43.5 million, or 3.4% in 2004. The money supply expanded by 3.2% in 2004, as compared to an increase of 8.9% in 2003. This lower growth was brought about mainly by a contraction in banking sector credit growth following the takeover of Interbank Aruba N.V. by Aruba Bank N.V.

In 2004, the money supply increased by AFL 71.3 million, or 3.2%, following an expansion in banking sector credit granted to the private sector. This increase was induced partly by the excess liquidity of the banking sector. Narrowly defined money increased by 3.0%, while demand deposits in AFL declined by 0.1%. Currency in circulation increased by 4.6% in 2004, as compared to a decline of 2.1% in 2003.

Despite an increase in economic activities, the inflation rate decelerated in 2004 to 2.5%, down from 3.6% in 2003, attributable mainly to smaller increases in the energy-related components of inflation, although the inflation rate for the first six months of 2005 had increased to 3.0%, as compared to 2.4% for the corresponding period in 2004. See “The Aruban Economy—Inflation”. Against the background of decreases in the rate of inflation, the weighted average loan rate of the commercial banks held steady at 11.4% in 2003 and 2004 before increasing to 12.2% in the first quarter of 2005. See “—Banking and Financial Institutions—Commercial Banks—Interest Rates”.

The following table shows liquidity and credit aggregates for the five years ended December 31, 2004:

Liquidity and Credit

At December 31,

2000 2001 2002 2003 2004

(in millions of AFL)

Broad Money

Money................................................................ AFL 596.3 AFL 701.0 AFL 844.5 AFL 933.2 AFL 961.0

Currency in Circulation ..................................... 121.3 125.9 127.8 125.1 130.8

Quasi-money...................................................... 1,142.0 1,139.6 1,189.1 1,280.9 1,324.5

Total ........................................................................... AFL 1,738.3 AFL 1,840.6 AFL 2,033.6 AFL 2,214.1 AFL 2,285.4

Credit by Sector

Public Sector...................................................... AFL (1.1) AFL (25.7) AFL (61.9) AFL (42.6) AFL (21.3)

Private Sector..................................................... 1,513.2 1,569.6 1,764.8 1,964.0 2,061.5

Total Credits ............................................................. AFL 1,512.1 AFL 1,543.9 AFL 1,702.9 AFL 1,921.4 AFL 2,040.1

Deposits

Local Currency .................................................. .. AFL 1,427.8 AFL 1,557.1 AFL 1,728.4 AFL 1,926.7 AFL 1,971.6

Foreign Currency............................................... 180.7 157.1 177.4 158.3 173.1

Total Deposits............................................................ AFL 1,608.5 AFL 1,714.2 AFL 1,905.8 AFL 2,085.0 AFL 2,144.7

Source: Central Bank

Net domestic money creation amounted to AFL 60.1 million in 2004. As of December 31, 2004, deposits of the domestic private sector with money-creating institutions amounted to AFL 2,144.7 million. Banking sector credit to the private sector grew at an average annual rate of 9.1% to AFL 2,061.5 million in 2004 from AFL 1,513.2 million in 2000. Foreign currency deposits of the private sector at the commercial banks decreased to AFL 173.1 million at December 31, 2004 from AFL 180.7 million at December 31, 2000.

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Foreign Exchange and International Reserves

Since 1986 the Aruban Florin, or the AFL, has been pegged to the U.S. dollars at a rate of 1.79 AFL to U.S.$1.00. See “Exchange Rates”.

Instead of a currency board arrangement, the Central Bank maintains a comfortable level of net foreign exchange reserves of the monetary system equivalent to five to six months of non-oil merchandise imports, to ensure credibility of the peg. About 80% of net foreign exchange reserves are held in the Central Bank.

The following table shows net international reserves for the five years ended December 31, 2004:

Year ended December 31,

2000 2001 2002 2003 2004

in millions of AFL

Official Reserves of the Central Bank

Foreign Exchange Assets ................................................... AFL 422.2 AFL 580.7 AFL 676.3 AFL 611.5 AFL 615.9

Foreign Exchange Liabilities ............................................. 2.3 2.6 8.5 2.6 1.5

Total Official Reserves ...................................................... 419.8 578.2 667.9 608.9 614.4

Reserves of the Commercial Banks

Assets.................................................................................. 530.8 524.0 530.2 664.3 582.9

Liabilities............................................................................ 391.8 403.5 442.6 572.9 483.0

Total.................................................................................... 139.0 120.5 87.6 91.4 99.8

Total International Reserves ....................................................... 558.9 698.7 755.5 700.3 714.2

Revaluation Differences.............................................................. 28.5 38.7 56.5 62.5 65.2

Net International Reserves ....................................................... AFL 530.4 AFL 660.1 AFL 699.0 AFL 637.9 AFL 649.0

Net International Reserves (in months of imports) ..................... 5.7 6.3 7.0 6.7 6.3

Source: Central Bank

Total official reserves held by or for the account of the Central Bank increased by 0.9% to AFL 614.4 million at December 31, 2004 from AFL 608.9 million at December 31, 2003. Official gold reserves of the Central bank were AFL 87.1 million at December 31. 2004, as compared to AFL 83.1 million at December 31, 2003. Net international reserves, overall, increased to AFL 649.0 million in 2004 from AFL 637.9 million in 2003. The increase in net international reserves in 2004 was due primarily to the favorable developments in the tourism sector, although the weakening trend in the net international reserves, which began in 2002, was not completely reversed. See “External Economy—International Reserves”.

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DESCRIPTION OF THE NOTES

The Notes will be issued under a fiscal agency agreement, to be dated September 6, 2005 (the “Fiscal Agency Agreement”), among us, The Bank of New York, as Fiscal Agent, Registrar, Transfer Agent and Principal Paying Agent (the “Fiscal Agent,” which term includes any successor as Fiscal Agent under the Fiscal Agency Agreement) and The Bank of New York (Luxembourg) S.A., as special Luxembourg paying agent and special Luxembourg transfer agent. A copy of the Fiscal Agency Agreement is available for inspection during normal business hours at the office of the Fiscal Agent and any paying agent (each, a “Paying Agent”) with respect to the Notes.

The following summaries of certain provisions of the Notes and the Fiscal Agency Agreement do not purport to be complete and are subject to, and are qualified in their entirety by reference to, the terms and conditions of the Notes and the Fiscal Agency Agreement, including the definitions therein of certain terms. Capitalized terms not otherwise defined herein shall have the meanings given to them in the Fiscal Agency Agreement (including the Notes).

General

The Notes will:

• be issued in an aggregate principal amount of U.S.$93 million;

• bear interest from September 6, 2005 at a rate of 6.40% per annum on the then-outstanding principal amount until all required amounts due in respect of the Notes have been paid;

• pay principal in equal annual installments of U.S.$9.3 million on a pro rata basis on September 6 of each year (each such date, a “Principal Payment Date”), commencing on September 6, 2006, with a final Principal Payment Date of September 6, 2015, to the persons in whose names Notes then outstanding are registered at the close of business on the fifteenth day (whether or not a business day) preceding each Principal Payment Date;

• pay interest semiannually in arrears on March 6 and September 6 of each year (each such date, an “Interest Payment Date”), commencing on March 6, 2006, to the persons in whose names Notes then outstanding are registered at the close of business on the fifteenth day (whether or not a business day) preceding each Payment Date. If interest is required to be computed for a period of other than a full year, such interest shall be computed on the basis of a 360-day year consisting of 12 months of 30 days each and, in the case of an incomplete month, the number of days elapsed but not more than 30 days in a month;

• will be issued in fully registered form, without interest coupons, in minimum denominations of U.S.$100,000 and integral multiples of U.S.$1,000 in excess thereof; and

• will not be redeemable prior to maturity.

For a description of our obligations to pay Additional Amounts (as defined below), if any, with respect to the Notes, see “—Payment of Additional Amounts” below. All payments under the Notes will be made in U.S. dollars.

Nature of Obligations

The Notes will constitute our direct, unsecured and unconditional obligations and will rank at least pari passu in priority of payment with all of our other present and future unsecured and unsubordinated indebtedness, save only for such of our obligations as may be preferred by mandatory provisions of applicable law.

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Covenants

Negative Pledge

So long as any Note remains outstanding, we will not create or permit to subsist any Lien upon the whole or any part of our respective present or future properties, revenues or assets to secure (i) any of our respective Public External Indebtedness; (ii) any of our respective Guarantees in respect of Public External Indebtedness; or (iii) the Public External Indebtedness or Guarantees in respect of the Public External Indebtedness of any other Person, without at the same time or prior thereto securing the Notes equally and ratably therewith or providing such other security for the Notes as shall be approved by an Extraordinary Resolution.

Notwithstanding the above, we may create or permit the creation of:

• any Lien on or with respect to assets or property (including capital stock of any Person) acquired or constructed after the date of the Fiscal Agency Agreement created solely for the purpose of securing the payment of all or a part of the purchase price of such assets or property or securing Indebtedness incurred solely for the purpose of financing the acquisition of such assets or property;

• any Lien securing Public External Indebtedness incurred by Aruba in connection with a Project Financing, provided that the property over which such Lien is granted consists solely of assets or revenues of the project for which the Project Financing was incurred;

• any Lien existing on the date hereof and any Lien created in accordance with the provisions of the negative pledge covenant;

• any Lien on property existing prior to the acquisition of such property by Aruba, provided that no such Lien was created in connection with or in contemplation of such acquisition;

• any Lien created or maintained in the ordinary course of business or arising by operation of law; or

• any Lien securing an extension, renewal or refinancing of Public External Indebtedness secured by the Liens described in the third or fourth bullet points above secured by a Lien in a principal amount not greater than the original principal amount thereof.

For purposes of the above, the following terms have the following meanings:

• “Extraordinary Resolution” means a resolution approved by holders representing more than 50% of the aggregate principal amount of all Notes Outstanding at a duly convened meeting held in accordance with Section 10 of the Fiscal Agency Agreement;

• “Public External Indebtedness” means Indebtedness which is (i) payable in a currency or by reference to a currency other than the official currency of Aruba or to a Person resident or having its principal place of business outside Aruba or (ii) not issued under an agreement or instrument that is governed by the laws of Aruba or submits the resolution of all disputes arising thereunder to the exclusive jurisdiction of the courts of Aruba;

• “Guarantee” means any obligation of a Person to pay the Indebtedness of another Person, including without limitation:

- an obligation to pay or purchase such Indebtedness;

- an obligation to lend money or to purchase or subscribe shares or other securities or to purchase assets or services in order to provide funds for the payment of such Indebtedness;

- an indemnity against the consequences of a default in the payment of such Indebtedness; or

- any other agreement to be responsible for such Indebtedness;

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• “Indebtedness” means any obligation (whether present or future, actual or contingent) for the payment or repayment of money which has been borrowed or raised (including money raised by acceptances and leasing);

• “Lien” means any mortgage, pledge, lien, hypothecation, security interest or other charge or encumbrance including, without limitation, any equivalent created or arising under the laws of Aruba;

• “Person” means any individual, company, corporation, firm, partnership, joint venture, association, organization, state or agency of a state or other entity, whether or not having a separate legal personality;

• “Project Financing” means any financing of all or part of the costs of acquisition, construction or development of any project so long as the Person or Persons providing such financing expressly agree to limit their recourse in whole or in part to the project financed and the revenues derived from such project as the source of repayment of the monies advanced.

Financial and Other Reports

So long as any Note remains outstanding, we will furnish the Fiscal Agent (who will furnish to any noteholder upon its written request) copies of the following reports and notices:

• as soon as available and in any event no later than March 31 of each year, the Annual Report of the Central Bank for the preceding year;

• as soon as available and in any event within 30 days following the expiration of each fiscal quarter, the Quarterly Bulletin of the Central Bank for such fiscal quarter;

• concurrently with the delivery of the information above, a compliance certificate executed by an authorized representative of Aruba, stating that no default under the Notes has occurred and is continuing (or, if a default has occurred or is continuing, specifying the details of such default and the action that we have taken or propose to take with respect thereto); and

• as soon as practicable and in any event within three business days after we become aware of the occurrence of a default under the Notes, if such default is then continuing, a statement of an authorized representative of Aruba setting forth details of such default and the action which we have taken or propose to take with respect thereto.

Governing Law

The Fiscal Agency Agreement and the Notes will be governed by and interpreted in accordance with the laws of the State of New York without regard to any conflicts of laws principles thereof that would require the application of the laws of a jurisdiction other than the State of New York, provided, however, that all matters governing the authorization, execution and delivery of the Notes and the Fiscal Agency Agreement by us are governed by the laws of Aruba.

Jurisdiction, Consent to Service and Enforceability

It may be difficult for investors to obtain or realize upon judgments of courts in the United States against Aruba. The Government of Aruba is a foreign sovereign government, which are generally immune from lawsuits and from the enforcement of judgments under United States law. Foreign sovereign governments, however, may waive this immunity and limited exceptions to this immunity are set forth in the US Foreign Sovereign Immunities Act of 1976, or the “Immunities Act”. In addition, substantially all of Aruba’s assets are located outside of the United States, and all of the representatives of the Issuer and certain other parties named herein reside outside the United States and substantially all of the assets of such persons are located outside the United States.

Except as provided below, to the extent that Aruba or any of its assets may have, or may hereafter become entitled to or have attributed to it (whether or not claimed), any right of immunity, on the grounds of sovereignty

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(including under the Immunities Act) or otherwise, from any action, suit or proceeding, from setoff or counterclaim, from the jurisdiction of any court, from service of process upon it or any agent, from attachment upon or in aid of execution of judgment or from execution of judgment or other legal process or proceeding for the giving of any relief or for the enforcement of judgments, whether in the United States, Aruba or elsewhere, Aruba has, to the fullest extent permitted by applicable law, waived and agreed not to assert any such immunity for itself, its property, assets or revenues, wherever located with respect to its obligations, liabilities or any other matter under or arising out of or in connection with this Fiscal Agency Agreement and the Notes. However, Aruba reserves the right to plead sovereign immunity under the Immunities Act with respect to actions brought against it under United States federal securities laws or any state securities laws. In the absence of a waiver of immunity by Aruba with respect to such actions, it would not be possible to obtain a U.S. judgment in such action unless a court were to determine that Aruba is not entitled to sovereign immunity under the Immunities Act with respect to that action. Moreover, you may not be able to enforce a judgment obtained under the Immunities Act against Aruba’s property located in the United States except under the limited circumstances specified in the Immunities Act. As a result, holders of the Notes may be required to pursue such claims against Aruba in Aruba and under Aruban law. In addition, pursuant to art. 436 of the Aruban Code of Civil Procedures, the attachment of assets of Aruba that are intended for public service is prohibited.

Aruba will, in the Fiscal Agency Agreement and in the Notes, irrevocably submit to the jurisdiction of any New York State or U.S. federal court in The Borough of Manhattan, The City of New York, in respect of any claim or action arising out of or based upon the Fiscal Agency Agreement or the Notes which may be instituted by any holder of Notes, such as, for example, a claim for breach of any obligation under the Fiscal Agency Agreement or the Notes. Aruba has appointed CT Corporation System, located at 111 Eighth Avenue, New York, New York, 10011, as its agent upon which process may be served in any claim or action arising out of or based upon the Notes or the Fiscal Agency Agreement which a holder may institute in any New York State or U.S. federal court in The City of New York. Any process or other legal summons in connection with any such action may be served upon Aruba by delivery to CT Corporation Service or by any other means that may have become permissible under the laws of the State of New York and Aruba at the time of such service. However, Aruba has not consented to service for suits made under the U.S. federal or state securities laws and, as explained above, Aruba’s waiver of immunity does not extend to those actions.

The Issuer has been advised by its Aruban counsel that final and conclusive judgments against Aruba for the payment of a sum of money rendered by a U.S. federal or New York State court or other jurisdictions outside Aruba, including in respect of civil liabilities predicated upon applicable securities laws, may be enforced in Aruba against the Government and its respective representatives and certain others named herein without reconsideration of the merits provided certain conditions are met.

See also “Enforcement of Civil Liabilities” in this Offering Circular.

Fiscal Agent

We may replace the Fiscal Agent at any time, subject to the appointment of a replacement Fiscal Agent. The duties of the Fiscal Agent will be governed by the Fiscal Agency Agreement. The Fiscal Agent is our agent and is not a trustee for the holders of the Notes and does not have the same responsibilities or duties to act for such holders as would a trustee. We may maintain deposit accounts and conduct other banking transactions in the ordinary course of business with the Fiscal Agent.

Further Issues

We may, without the consent of the holders of the Notes, create and issue additional securities with the same terms and conditions as the Notes (or that are the same in all respects except for the amount of the first interest payment and for the interest paid on the Notes prior to the issuance of the additional securities). We may consolidate such additional securities with the Notes then outstanding to form a single series. Any further securities forming a single series with Notes then outstanding shall be constituted by an agreement supplemental to the Fiscal Agency Agreement.

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Default; Acceleration of Maturity

The occurrence and continuation of any of the following events will constitute an event of default (an “Event of Default”) under the Notes:

• a default in any payment of the principal of or interest on any of the Notes as and when the same shall become due and payable (whether on any Principal Payment Date, on any Interest Payment Date, at maturity or otherwise) and, in the event of a default in payment of interest, such default shall not be cured by payment thereof within five business days;

• we default in the performance of or breach any other covenant in the Notes or the Fiscal Agency Agreement, and, if such default or breach is capable of remedy, such default continues for a period of 30 consecutive days after the date on which written notice of such failure requiring the Issuer to remedy the same shall have been given to the Issuer by any Noteholder or the Fiscal Agent;

• we default under any instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness of Aruba, whether such indebtedness now exists or shall be created hereafter, resulting in the acceleration of such indebtedness, or any default occurs in the payment of such indebtedness (and after the expiration of any applicable grace period or waiver), if the total of all such indebtedness which has been so accelerated or with respect to which there has been such a default in payment shall exceed U.S.$5,000,000 (or the equivalent thereof in another currency);

• a final judgment or final judgments for the payment of money shall have been entered by a court or courts of competent jurisdiction against us and remains undischarged for a period (during which execution shall not be effectively stayed) of 60 days, provided that the aggregate amount of all such judgments at any time outstanding (to the extent not paid or to be paid by insurance) exceeds U.S.$5,000,000 (or the equivalent thereof in another currency);

• the Fiscal Agency Agreement or any Note shall fail to be in full force and effect (except as contemplated by the terms thereof), or we deny or repudiate any of our obligations under the Fiscal Agency Agreement or any Note, or do or cause to be done any act or thing evidencing an intention to deny or repudiate such obligations, and such default continues for 10 consecutive days;

• any execution or distress is levied against, or an encumbrancer takes possession of, the whole or any part of, our property or assets resulting in a material adverse effect on (i) our condition (financial, political, economic or other) or properties or (ii) our ability to duly and punctually perform our obligations under the Fiscal Agency Agreement or the Notes;

• at any time any act, condition or thing required to be done, fulfilled or performed in order (i) to enable us lawfully to enter into, exercise our rights under and perform the obligations expressed to be assumed by us under and in respect of the Notes or the Fiscal Agency Agreement, (ii) to ensure that those obligations are legal, valid, binding and enforceable or (iii) to make the Notes admissible in evidence in Aruba, in each case is not done, fulfilled or performed; or

• at any time it is or becomes unlawful for us to perform or comply with any or all of our respective obligations under or in respect of the Notes or the Fiscal Agency Agreement.

If an Event of Default shall occur and be continuing, then (i) any holder of any Note may declare the principal of such of Note and the interest accrued thereon to be due and payable immediately by written notice to us and to the Fiscal Agent and, unless we shall have cured all such defaults prior to receipt of such written notice, the principal of such of Note and the interest thereon shall become and be immediately due and payable upon such notice, and (ii) the holders of not less than 25% of the aggregate principal amount of the Notes then Outstanding acting in concert for that purpose may declare the principal of all of the Notes then Outstanding and the interest accrued thereon to be due and payable immediately by written notice to us and to the Fiscal Agent and, unless we shall have cured all such defaults prior to receipt of such written notice, the principal of all the Notes then Outstanding and the interest accrued thereon shall become and be immediately due and payable.

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If an Event of Default with respect to the Notes occurs and is continuing and the Fiscal Agent has actual knowledge thereof, the Fiscal Agent shall (i) give telephonic notice as soon as practicable (confirmed in writing within one day, such written confirmation not to affect the validity of any telephonic notice given) to us and (ii) notify the holders of Notes of the occurrence of the Event of Default within 30 days after it occurs in the manner provided under “—Notices” below.

Modification

The Fiscal Agency Agreement contains certain provisions relating to amendments, supplements and waivers in respect of the Notes. Subject to certain exceptions, the Fiscal Agency Agreement and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then Outstanding. However, without the consent of Holders representing at least 85% of the principal amount of the Notes then Outstanding, no amendment may:

• change the stated amount or Payment Dates of the principal of or any installment of interest on any Note;

• reduce the principal amount of any Note;

• change the obligation of the Issuer to pay Additional Amounts with respect to any Note;

• change the currency of payment of principal of or interest on any Note;

• reduce the percentage of the principal amount of the Notes then Outstanding necessary to modify or amend the Notes, or to waive any future compliance or past default by the Issuer with respect to the Notes or reduce the percentage of Notes required for the taking of action or the quorum required at any meeting of holders of Notes at which a resolution is adopted; or

• modify our obligation to maintain the Fiscal Agent or Paying Agents in accordance with the Fiscal Agency Agreement.

This Fiscal Agency Agreement and the Notes may be modified or amended without the consent of the holder of any Note for the purposes of curing any ambiguity or of curing, correcting or supplementing any defective or inconsistent provisions contained herein or therein, or in any other manner which the parties thereto and the Issuer deems necessary or desirable and that will not adversely affect the interests of the Agent s or the holders of the Notes.

Any such modifications, amendments or waivers will be conclusive and binding on all holders of Notes, whether or not they have given such consent or were present at any meeting relating thereto, and on all future holders of the Notes, whether or not notation of such modifications, amendments or waivers is made upon such Notes. Any instrument given by or on behalf of any holder of a Note in connection with any consent to any such modification, amendment or waiver will be irrevocable once given and will be conclusive and binding on all subsequent holders of such Note.

Payment of Additional Amounts

All payments of principal and interest in respect of the Notes shall be made free and clear of, and without withholding and deduction for, or on account of, any present or future tax, assessment or other governmental charge imposed by Aruba or any political subdivision or taxing authority thereof or therein upon or as a result of such payment (“Aruban Withholding Taxes”), unless such withholding or deduction is required by law or by the administrative interpretation thereof. See “Taxation—Aruban Tax Considerations”. In the event Aruba Withholding Taxes are deducted or withheld from any of the aforementioned payments, we will pay to the holder of any Note such additional amounts (“Additional Amounts”) as may be necessary in order that every net payment made by us on such Note, after deduction or withholding for or on account of any Aruban Withholding Taxes, will not be less than the amount then due and payable on such Notes.

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Our obligation to pay Additional Amounts, however, will not apply to:

• any Aruban Withholding Taxes that would not have been imposed or levied on a holder of Notes but for the existence of any present or former connection between the holder of such Notes and Aruba or any political subdivision or territory or possession thereof or area subject to its jurisdiction, including, without limitation, such holder of Notes

- being or having been a citizen or resident of Aruba,

- maintaining or having maintained an office, permanent establishment, fixed base or branch in Aruba, or

- being or having been present or engaged in trade or business in Aruba, except for a connection solely arising from the mere ownership of, or receipt of any payment in respect of, such Notes;

• except as otherwise provided, any estate, inheritance, gift, sales, transfer, or personal property or similar tax, assessment or other governmental charge;

• any Aruban Withholding Taxes that are imposed or levied by reason of the failure by the holder of Notes to comply with any certification, identification, information, documentation, declaration or other reporting requirement that is required or imposed by a statute, treaty, regulation, general rule or administrative practice as a precondition to exemption from, or reduction in the rate of, the imposition, withholding or deduction of any Aruban Withholding Taxes; provided that at least 60 days prior to

- the first payment date with respect to which the Issuer shall apply this paragraph and

- in the event of a change in such certification, identification, information, documentation, declaration or other reporting requirement, the first payment date subsequent to such change, the Issuer shall have notified the Fiscal Agent, in writing, that the holders of Notes will be required to provide such certification, identification, information or documentation, declaration or other reporting;

• any Aruban Withholding Taxes that would not have been so imposed but for the presentation by the holder of such Note for payment on a date more than 45 days after the date on which such payment became due and payable or the date on which payment thereof is duly provided for, whichever occurs later; or

• any payment on such Note to any holder who is a fiduciary or partnership or other than the sole beneficial owner of any such payment, to the extent that a beneficiary or settlor with respect to such fiduciary, a member of such a partnership or the beneficial owner of such payment would not have been entitled to the Additional Amounts had such beneficiary, settlor, member or beneficial owner been the holder of such Note.

References in this Offering Circular to payments of “principal” or “interest” in respect of Notes shall be deemed to include any Additional Amounts payable pursuant to the Notes.

The Issuer will, upon written request, provide the Fiscal Agent, note holders and the Paying Agents with a duly certified or authenticated copy of an original receipt of the payment of Aruban Withholding Taxes which the Issuer has withheld or deducted in respect of any payments made under or with respect to the Notes. In the event that Additional Amounts actually paid with respect to any Notes pursuant to the above are based on rates of deduction or withholding of Aruban Withholding Taxes in excess of the appropriate rate applicable to the holder of such Notes, and, as a result thereof, such holder is entitled to make a claim for a refund or credit of such excess, then such holder shall, by accepting such Notes, be deemed to have assigned and transferred all right, title and interest to any such claim for a refund or credit of such excess to us. However, by making such assignment, the holder makes no representation or warranty that we will be entitled to receive such claim for a refund or credit and incurs no other obligation with respect thereto.

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Prescription

Claims against Aruba for the payment of principal or interest and Additional Amounts in respect of the Notes will be prescribed unless made within six years of the respective due date for payment of such principal or interest and Additional Amounts; provided, however, that any valid claims in respect of any payment commenced within six years of the respective due date for such payment shall have full force and effect in accordance with applicable law.

Notices

All notices to holders will be published in an English language daily newspaper of general circulation in the City of New York. It is expected that such publication will be made in the Wall Street Journal. Any notice published in the Wall Street Journal shall be deemed to have been given on the date of such publication, or if published more than once, on the date of the first such publication. If the Notes are listed and admitted for trading on the EuroMTF, the alternative market of the Luxembourg Stock Exchange, and the rules of that exchange so require, all notices to Holders will be published in a daily newspaper of general circulation in Luxembourg. It is expected that such publication will be made in the d’Wort. If publication as aforesaid is not practicable, notice will be validly given if made in accordance with the rules of the Luxembourg Stock Exchange or, if the Notes are not admitted for trading on the EuroMTF, as determined by the Fiscal Agent in its sole discretion, including by publication on the website of the Luxembourg Stock Exchange (www.bourse.lu).

Notwithstanding the foregoing, so long as a Global Note representing any Notes is held on behalf of Euroclear and Clearstream, there may be substituted for such publication in such newspapers the delivery of the relevant notice to Euroclear and Clearstream for communication by them to the holders of interests in the relevant Global Note. Neither the failure to give notice nor any defect in any notice given to any particular holder of a Note shall affect the sufficiency of any notice with respect to other Notes.

Noteholder Meetings

The Fiscal Agency Agreement contains certain provisions relating to meetings of Noteholders. Aruba and the holders of Notes representing at least 25% in aggregate principal amount of the Notes then Outstanding, or the Fiscal Agent at the direction of such holders, may call a meeting of holders of the Notes or of all the Notes, as the case may be, such meeting to be held at such time and at such place (which must be reasonably acceptable to the Fiscal Agent) as those calling the meeting shall determine for the purpose of taking any action authorized to be taken by Aruba or Noteholders pursuant to the Fiscal Agency Agreement and the Notes.

Book Entry; Delivery and Form

The Notes are being offered and sold in connection with the initial offering thereof solely to “qualified institutional buyers,” as defined in Rule 144A under the Securities Act (“QIBs”), pursuant to Rule 144A and in offshore transactions to persons other than “U.S. persons,” as defined in Regulation S under the Securities Act (“Non-U.S. Persons”), in reliance on Regulation S. Following the initial offering of the Notes, the Notes may be sold to QIBs pursuant to Rule 144A and Non-U.S. Persons in reliance on Regulation S.

The Global Notes

Rule 144A Global Note.

Notes offered and sold to QIBs pursuant to Rule 144A will be issued in the form of one or more registered notes in global form, without interest coupons (collectively, the “Rule 144A Global Note”). The Rule 144A Global Note will be deposited upon issuance with, and registered in the name of The Bank of New York, London Branch, as common depositary (in that capacity, the “Common Depositary”) for Euroclear Bank S.A./N.V., as operator of the Euroclear system (“Euroclear”) and Clearstream Banking, société anonyme (“Clearstream”) for credit to the respective accounts of the purchasers (or to such other accounts as they may direct). Interests in the Rule 144A Global Note will be available for purchase only by QIBs.

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Investors may hold their interests in the Rule 144A Global Note directly through Euroclear or Clearstream, if they are participants in such systems, or indirectly through organizations which are participants in such systems.

Regulation S Global Note.

Notes offered and sold in offshore transactions to Non-U.S. Persons in reliance on Regulation S will initially be issued in the form of one or more registered notes in global form, without interest coupons (collectively, the “Regulation S Global Note” and together with the Rule 144A Global Notes, the “Global Notes”). The Regulation S Global Note will be deposited upon issuance with, and registered in the name of, the Common Depositary in the manner described in the preceding paragraph for credit to the respective accounts of the purchasers (or to such other accounts as they may direct).

Prior to the 40th day after the later of the commencement of the offering of the Notes and the Issue Date (such period through and including such 40th day, the “Distribution Compliance Period”), interests in the Regulation S Global Note may only be held through Euroclear or Clearstream unless exchanged for interests in the Rule 144A Global Note (as defined below) in accordance with the transfer and certification requirements described herein.

Investors may hold their interests in the Regulation S Global Note directly through Euroclear or Clearstream, if they are participants in such systems, or indirectly through organizations which are participants in such systems. After the expiration of the Distribution Compliance Period (but not earlier), investors may hold interests in the Regulation S Global Note through organizations other than Euroclear or Clearstream.

Transfer and Exchange

The Notes will be subject to certain restrictions on transfer and will bear a restrictive legend as set forth under “Transfer Restrictions”.

Except as set forth below, transfers of a Global Note shall be limited to transfers of such Global Note in whole, but not in part, to nominees of Euroclear and Clearstream or to a successor of Euroclear or Clearstream or such successor’s nominee. Beneficial interests in the Global Notes may not be exchanged for notes in physical, certificated form (“Definitive Notes”) except in the limited circumstances described below. Transfers of interests in the Global Notes may be subject to the procedures and requirements of Euroclear or Clearstream.

Transfers by an owner of a beneficial interest in the Regulation S Global Note to a transferee who takes delivery of such interest through the Rule 144A Global Note before the expiration of the Distribution Compliance Period will be made only in accordance with applicable procedures and upon receipt by the Fiscal Agent of a written certification from the transferor of the beneficial interest in the form provided in the Fiscal Agency Agreement to the effect that such transfer is being made to a person whom the transferor reasonably believes is a QIB within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A. After the expiration of the Distribution Compliance Period, this certification requirement will no longer apply.

Transfers by an owner of a beneficial interest in the Rule 144A Global Note to a transferee who takes delivery of such interest through the Regulation S Global Note, whether before or after the expiration of the Distribution Compliance Period, will be made only upon receipt by the Fiscal Agent of a certification from the transferor to the effect that such transfer is being made in accordance with Regulation S or (if available) Rule 144 under the Securities Act and that, if such transfer is being made prior to the expiration of the Distribution Compliance Period, the interest transferred will be held immediately thereafter through Euroclear or Clearstream.

Any beneficial interest in one of the Global Notes that is transferred to a person who takes delivery in the form of an interest in another Global Note will, upon transfer, cease to be an interest in such Global Note and become an interest in the other Global Note and, accordingly, will thereafter be subject to all transfer restrictions, if any, and other procedures applicable to beneficial interests in such other Global Note for as long as it remains such an interest.

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Certain Book Entry Procedures for the Global Notes

The following description of the operations and procedures of Euroclear and Clearstream is provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to changes by them from time to time. Aruba takes no responsibility for these operations and procedures and urges investors to contact the clearing systems to discuss these matters.

Euroclear and Clearstream

Euroclear and Clearstream each hold securities for their account holders and facilitate the clearance and settlement of securities transactions by electronic book entry transfer between their respective account holders, thereby eliminating the need for physical movements of certificates and any risk from lack of simultaneous transfers of securities. Euroclear and Clearstream each provide various services including safekeeping, administration, clearance and settlement of internationally traded securities, and securities lending and borrowing. The respective systems of Euroclear and Clearstream have established an electronic bridge between their two systems across which their respective account holders may settle trades with each other. Account holders in both Euroclear and Clearstream are world-wide financial institutions including underwriters, securities brokers and dealers, banks, trust companies and clearing corporations. Indirect access to both Euroclear and Clearstream is available to other institutions that clear through or maintain a custodial relationship with an account holder in either system. An account holders’ overall contractual relations with either Euroclear or Clearstream are governed by the respective rules and operating procedures of Euroclear or Clearstream and any applicable laws. Both Euroclear and Clearstream act under those rules and operating procedures only on behalf of their respective account holders and have no record of or relationship with any person who is not a direct account holder.

Initial Settlement

Aruba will issue the Notes in the form of fully registered book-entry securities, registered in the name of a nominee of the Common Depositary. Financial institutions, acting as direct and indirect account holders in Euroclear and Clearstream, will represent your beneficial interests in the book-entry securities. These financial institutions will record the ownership and transfer of your beneficial interests through book-entry accounts. You may hold your beneficial interests in the book-entry security through Euroclear or Clearstream, if you are an account holder in such systems, or indirectly through organizations that are participants in such systems

Notes to be acquired through an account with Euroclear or Clearstream will be credited to that account as of the issue date against payment for value as of the issue date. Investors electing to acquire, hold or transfer Notes through an account with Euroclear, Clearstream or some other securities intermediary other than in connection with the initial distribution of the Notes must follow the settlement procedures of their securities intermediary with respect to the settlement of secondary market transactions in securities.

Ownership of Notes through Euroclear and Clearstream

Except as described below, owners of interests in the Global Notes will not have Notes registered in their names, will not receive physical delivery of Notes in certificated form and will not be considered the registered owners or holders of the Notes. So long as the Common Depositary is the registered owner or holder of the Global Notes, the Common Depositary will be considered the sole owner or holder of the Notes represented by the Global Notes for all purposes under the Fiscal Agency Agreement and the Notes. Accordingly, each person owning a beneficial interest in the Global Notes must rely on the procedures of Euroclear or Clearstream, as the case, may be, and their account holders to exercise any rights and remedies of a holder of Notes under the Fiscal Agency Agreement or the Notes. Payments of principal and interest on the Global Notes will be made to the Common Depositary on behalf of Euroclear or Clearstream, as the case may be, as the registered owners of the Global Notes.

The laws of some countries and some states in the United States require that certain persons take physical delivery in definitive form of securities which they own. Accordingly, the ability to transfer beneficial interests in the Global Note to those persons may be limited to that extent. Because Euroclear and Clearstream can act only on behalf of their respective account holders, the ability of a person having beneficial interests in the Global Notes to pledge those interests to persons or entities that do not participate in the relevant clearing system, or otherwise take actions in respect of those interests, may be affected by the lack of a physical certificate evidencing those interests.

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Aruba understands that, under existing industry practices, if Aruba requests any action of holders, or if an owner of a beneficial interest in the Global Notes desires to give instructions or take an action that a holder is entitled to give or take under the Fiscal Agency Agreement or the Notes, Euroclear or Clearstream, as the case may be, would authorize their respective account holders owning the relevant beneficial interest to give instructions to take that action, and those account holders would authorize intermediaries to give instructions or take that action, or would otherwise act on the instructions of the intermediaries.

Payments on the Global Notes

Payments in respect of the principal of, premium, if any, and interest on the Global Notes will be made through one or more payment agents appointed under the Fiscal Agency Agreement including, for so long as the Notes are listed and admitted to trading on the EuroMTF, the alternative market of the Luxembourg Stock Exchange, a paying agent in Luxembourg, and will be payable to the Common Depositary on behalf of Euroclear and Clearstream, each in its capacity as the registered holder of the Global Notes under the Fiscal Agency Agreement. Under the terms of the Fiscal Agency Agreement, Aruba and the Fiscal Agent will treat the persons in whose names the Notes, including the Global Notes, are registered as the owners of the Notes for the purpose of receiving those payments and for any and all other purposes whatsoever. Consequently, neither Aruba, the Initial Purchaser, the Fiscal Agent nor any agent thereof has or will have any responsibility or liability for (1) any aspect or accuracy of the records of the relevant clearing system or their respective account holders relating to payments made on account of beneficial ownership interests in the Global Notes, or for maintaining, supervising or reviewing any records of any clearing system or account holder relating to beneficial interests in the Global Notes or (2) any other matter relating to the actions and practices of the relevant clearing system or their respective account holders.

Upon receipt of any payment in respect of securities such as the Notes (including principal and interest), Euroclear or Clearstream will immediately credit the accounts of the relevant account holders with the payment on the payment date, in amounts proportionate to their respective holdings in the principal amount of beneficial interests in the Global Notes as shown on the records of Euroclear or Clearstream. Aruba expects that payments by the account holders to the beneficial owners of the Global Notes will be governed by standing instructions and customary practices and will be the responsibility of the account holders and will not be the responsibility of Euroclear, Clearstream, the Fiscal Agent or Aruba. Neither Aruba, the Fiscal Agent, nor any paying and transfer agent, Luxembourg, nor any of their respective agents will have any responsibility for the performance by Euroclear or Clearstream or their respective account holders of their obligations under the rules and procedures governing their operations or otherwise.

Transfers of Global Notes and Interests in Notes

Unless Definitive Notes are issued, the Global Notes may be transferred in whole, but not in part, to nominees of Euroclear and Clearstream or to a successor of Euroclear or Clearstream or such successor’s nominee. Transfers of beneficial interests in the Global Notes will be subject to the applicable rules and procedures of Euroclear and Clearstream and their respective account holders and intermediaries, and to the further restrictions set forth under “Transfer and Exchange” above and “Transfer Restrictions”. Any secondary market trading activity in beneficial interests in the Global Notes is expected to occur through the account holders and intermediaries of Euroclear and Clearstream, and the securities custody accounts of investors will be credited with their holdings against payment in same-day funds on the settlement date.

Although Euroclear and Clearstream have agreed to certain procedures to facilitate transfers of interests in the Global Notes among their account holders, they are under no obligation to perform or to continue to perform those procedures, and the procedures may be discontinued at any time. None of Aruba, the Initial Purchaser, the Fiscal Agent, nor any agent thereof has or will have any responsibility for the nonperformance or misperformance (as a result of insolvency, mistake, misconduct or otherwise) by Euroclear or Clearstream or their respective account holders or intermediaries of their obligations under the rules and procedures governing their operations.

Certificated Notes

If Euroclear or Clearstream, as applicable, has been closed for a continuous 30-day period or announced an intention to permanently cease business, then, upon surrender by the Common Depositary of the Global Notes,

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Definitive Notes in fully registered form, without coupons, in minimum denominations of U.S.$100,000 or any amount in excess thereof which is an integral multiple of U.S.$1,000, will be issued to each person that the Common Depositary identifies as the beneficial owner of the Notes represented by the Global Notes. Upon any such issuance, the Fiscal Agent is required to register such Definitive Notes in the name of such person or persons (or the nominee of any thereof) and cause the same to be delivered thereto. The Fiscal Agent shall have at least 30 days from the date of its receipt of Definitive Notes to authenticate and deliver such Definitive Notes.

Replacement, Exchange and Transfer

We will replace any mutilated, destroyed, stolen or lost certificated Notes at your expense, upon delivery to the Fiscal Agent or the transfer agent of the Note or evidence of its destruction, loss or theft satisfactory to us and the Fiscal Agent, who may also require an indemnity at your expense or payment of any sums sufficient to cover any applicable tax or expenses related to the replacement.

If any Note that has matured or will mature within 30 days or has become due and payable or will become due and payable within 30 days shall become mutilated or defaced or be apparently destroyed, lost or stolen, the Issuer may pay or authorize payment of the same without issuing a substitute Note.

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TAXATION

United States Federal Income Taxation Considerations

Any U.S. federal tax discussion in this Offering Circular was not written and is not intended to be used and cannot be used by any taxpayer for purposes of avoiding United States federal income tax penalties that may be imposed on the taxpayer. Any such tax discussion was written to support the promotion or marketing of the Notes to be issued pursuant to this Offering Circular. Each taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax adviser.

The following is a general summary of certain material U.S. federal income tax consequences that may be relevant with respect to the ownership and disposition of the Notes. This summary addresses only the U.S. federal income tax considerations of holders that acquire the Notes at their original issuance from the Initial Purchaser and that will hold the Notes as capital assets.

This summary does not purport to address all U.S. federal income tax matters that may be relevant to a particular holder of the Notes. This summary does not address tax considerations applicable to holders of the Notes that may be subject to special tax rules including, without limitation, the following: (i) financial institutions; (ii) insurance companies; (iii) dealers or traders in securities, currencies or notional principal contracts; (iv) tax-exempt entities; (v) regulated investment companies; (vi) real estate investment trusts; (vii) persons that will hold the Notes as part of a “hedging” or “conversion” transaction or as a position in a “straddle” or as part of a “synthetic security” or other integrated transaction for U.S. federal income tax purposes; (viii) persons that have a “functional currency” other than the U.S. dollar; and (ix) partnerships, pass-through entities, or persons who will hold the Notes through partnerships or other pass-through entities. Further, this summary does not address alternative minimum tax consequences or the indirect effects on the holders of equity interests of a holder of Notes.

This summary is based on the U.S. Internal Revenue Code of 1986, as amended, or the “Code”, U.S. Treasury Regulations and judicial and administrative interpretations thereof, in each case as in effect and available on the date of this Offering Circular. All of the foregoing are subject to change, which change could apply retroactively and could affect the tax consequences described below.

Prospective investors should consult their own tax advisors with respect to the U.S. federal, state, local and foreign tax consequences of acquiring, owning or disposing of the Notes with respect to their particular circumstances.

For the purposes of this summary, a “U.S. Holder” is a beneficial owner of the Notes that is, for U.S. federal income tax purposes: (i) a citizen or resident of the United States; (ii) corporation (or an entity treated as a corporation) created or organized in or under the laws of the United States or any state thereof (including the District of Columbia); (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source; or (iv) a trust if (x) a court within the United States is able to exercise primary supervision over its administration and (y) one or more U.S. persons have the authority to control all of the substantial decisions of such trust. As provided in U.S. Treasury Regulations, certain trusts in existence on August 20, 1996, and treated as United States persons prior to that date that maintain a valid election to continue to be treated as United States persons also are U.S. Holders. A “Non-U.S. Holder” is a beneficial owner of the Notes that is not a U.S. Holder. If a partnership holds a Note, the U.S. federal income tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. A partner of a partnership holding any Notes should consult its tax advisors regarding the U.S. federal income tax considerations of owning and disposing the Notes in its particular situation.

Taxation of U.S. Holders

Payments of Interest

Interest paid on a Note will be taxable to a U.S. Holder as ordinary interest income at the time it is received or accrued, depending on the U.S. Holder’s method of accounting for U.S. federal income tax purposes. In the event that any Additional Amounts are paid on the Notes, a U.S. Holder will be required to include such Additional Amounts and any tax withheld from interest payments in income in the same manner as described above

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notwithstanding that such withheld tax is not in fact received by such U.S. Holder. Interest income (including Additional Amounts and any tax withheld) on the Notes will be treated as foreign source income for U.S. federal income tax purposes. A U.S. Holder may be entitled to deduct or credit any tax withheld against its U.S. federal income tax liability, subject to applicable limitations. The limitation on foreign taxes eligible for the U.S. foreign tax credit is calculated separately with respect to specific classes of income. The rules relating to the foreign tax credits are complex. Prospective investors are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.

Sale, Exchange, Redemption, or other Disposition of Notes

A U.S. Holder will generally recognize gain or loss on the sale, exchange, redemption or other disposition of the Notes equal to the difference between the amount realized on the sale, exchange, redemption or other disposition (except to the extent the amount realize is attributable accrued but unpaid interest) and such holder’s tax basis of the Notes. A U.S. Holder’s tax basis in a Note will generally equal its cost. Any gain or loss recognized by a U.S. Holder on the sale, exchange or retirement of a Note would generally be U.S. source capital gain or loss (except to the extent attributable to accrued but unpaid interest) which will be taxable as such. Prospective investors should consult their own tax advisors with respect to the treatment of capital gains (which may be taxed at lower rates than ordinary income for taxpayers who are individuals, trusts or estates that held the Notes for more than one year) and capital losses (the deductibility of which is subject to limitations).

Taxation of Non-U.S. Holders

Subject to the backup withholding tax discussion below, a Non-U.S. Holder generally should not be subject to U.S. federal income or withholding tax on any payments on the Notes and gain from the sale, exchange, redemption or other disposition of the Notes unless: (i) that payment and/or gain is effectively connected with the conduct by that Non-U.S. Holder of a trade or business in the United States; (ii) in the case of any gain realized on the sale or exchange of a Note by an individual Non U.S. Holder, that holder is present in the United States for 183 days or more in the taxable year of the sale, exchange or retirement and certain other conditions are met; or (iii) the Non-U.S. Holder is subject to tax pursuant to provisions of the Code applicable to certain expatriates. Non-U.S. Holders should consult their own tax advisors regarding the U.S. federal income and other tax consequences of owning Notes.

Backup Withholding and Information Reporting

Backup withholding and information reporting requirements may apply to certain payments on the Notes and proceeds of the sale, exchange or redemption of the Notes to U.S. Holders made within the United States. The Issuer, its agent, a broker, or any paying agent, as the case may be, may be required to withhold tax from any payment that is subject to backup withholding if the U.S. Holder fails to furnish the U.S. Holder’s taxpayer identification number, to certify that such U.S. Holder is not subject to backup withholding, or to otherwise comply with the applicable requirements of the backup withholding rules.

Payment of the proceeds from the sale of a Note effected at a foreign office of a broker generally will not be subject to information reporting or backup withholding. However, a sale of a Note that is effected at a foreign office of a broker will be subject to information reporting and backup withholding if (i) the proceeds are transferred to an account maintained by the holder in the United States, (ii) the payment of proceeds or the confirmation of the sale is mailed to the holder at a United States address, or (iii) the sale has some other specified connection with the United States as provided in U.S. Treasury regulations, unless the holder establishes an exemption.

In addition, a sale of a Note effected at a foreign office of a broker will be subject to information reporting if the broker is (i) a United States person, (ii) a controlled foreign corporation for U.S. tax purposes, (iii) a foreign person 50% or more of whose gross income is effectively connected with the conduct of a United States trade or business for a specified three-year period, (iv) a U.S. branch of a foreign bank or a foreign insurance company, or (v) a foreign partnership, if at any time during its tax year (A) one or more of its partners are “U.S. persons”, as defined in U.S. Treasury regulations, who in the aggregate hold more than 50% of the income or capital interest in the partnership, or (B) such foreign partnership is engaged in the conduct of a U.S. trade or business, unless the holder

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establishes an exemption. Backup withholding will apply if the sale is subject to information reporting and the broker has actual knowledge that the Holder is a U.S. person.

Certain U.S. Holders (including, among others, corporations) are not subject to the backup withholding and information reporting requirements. Non-U.S. Holders may be required to comply with applicable certification procedures to establish that they are not U.S. Holders in order to avoid the application of such information reporting requirements and backup withholding. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a U.S. Holder generally may be claimed as a credit against such U.S. Holder’s U.S. federal income tax liability provided that the required information is furnished to the IRS. Prospective investors should consult their tax advisors as to their qualification for exemption from backup withholding and the procedure for obtaining an exemption.

IRS Disclosure Reporting Requirements

Recently promulgated U.S. Treasury Regulations, or the Disclosure Regulations, meant to require the reporting of certain tax shelter transactions, or Reportable Transactions, could be interpreted to cover transactions generally not regarded as tax shelters. Under the Disclosure Regulations, it may be possible that certain transactions with respect to the Notes may be characterized as Reporting Transactions requiring a holder of Notes to disclose such transaction, such as a sale, exchange, retirement or other taxable disposition of a Note that results in a loss that exceeds certain thresholds and other specified conditions are met. Prospective investors in the Notes should consult their own tax advisors to determine the tax return obligations, if any, with respect to an investment in the Notes, including any requirement to file IRS Form 8886 (Reportable Transaction Statement).

THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER’S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.

Aruban Tax Considerations

The following summary of certain Aruban income tax considerations is based on the advice of Kloes & de Cuba Advocaten, our Aruban counsel, with respect to Aruba taxes. The summary contains a description of the principal Aruba tax consequences of the purchase, ownership and disposition of the Notes. This summary does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase Notes and does not address all tax considerations that may be relevant to all categories of prospective purchasers of the Notes, some of whom may be subject to special rule. This summary does not describe any tax consequences arising under the laws of any state, locality or taxing jurisdiction other than Aruba. The information set forth below is a summary only, and Aruba tax laws may change from time to time.

This summary is based on the tax laws of Aruba as in effect on the date of this Offering Circular, as well as regulations, rulings and decisions of Aruba available on or before such date and now in effect. All of the foregoing is subject to change, which change could apply retroactively and could affect the continued validity of the summary.

Prospective purchasers of the Notes should consult their own tax advisors as to Aruba or other tax consequences of the purchase, ownership and disposition of the Notes, including, in particular, the application to their particular situation of the tax considerations discussed below, as well as the application of state, local, foreign or other tax laws.

Capital Duty / Stamp Duty

Aruba does not levy a capital duty. Consequently, no capital duty will be due with the issuance of the Notes. Furthermore, based on the Stamp Tax Ordinance no stamp tax will be due with respect to the issuance of the Notes.

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Withholding Tax

Aruba does not levy withholding tax on interest payments. Consequently, interest payments on the Notes should not be subject to Aruban withholding taxes.

Income Tax

Based on the Income Tax Ordinance, a nonresident individual holder of the Notes will not be subject to Aruban income tax for interest income or for capital gains realized on the disposition of the Notes.

A resident individual holder of the Notes will be subject to Aruban income tax for interest income but not for capital gains realized on the deposition of the Notes.

Corporate Profit Tax

A nonresident corporate holder of the Notes will not be subject to Aruban corporate profit tax for interest income or for capital gains realized on the disposition of the Notes, provided that it has not been engaged in trade or business through a permanent establishment in Aruba.

A resident corporate holder of the Notes will be subject to Aruban corporate profit tax for interest income and capital gains realized on the disposition of the Notes.

European Union Savings Directive

Under EC Council Directive 2003/48/EC on the taxation of savings income, Member States of the European Union are required, from July 1, 2005, to provide to the tax authorities of another Member State details of payments of interest (or similar income) paid by a person within its jurisdiction to an individual resident in that other Member State. However, for a transitional period, Belgium, Luxembourg and Austria are instead required (unless during that period they elect otherwise) to operate a withholding system in relation to such payments (the ending of such transitional period being dependent upon the conclusion of certain other agreements relating to information exchange with certain other countries). A number of non-EU countries and territories, including Aruba and Switzerland, have agreed to adopt similar measures (a withholding system in the case of Switzerland) with effect from the same date.

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PLAN OF DISTRIBUTION

Aruba and the Initial Purchaser have entered into a purchase agreement, dated August 31, 2005, relating to the offering and sale of the Notes. In the purchase agreement, subject to certain conditions, Aruba has agreed to sell to the Initial Purchaser, and the Initial Purchaser has agreed to purchase from Aruba, the Notes.

The obligations of the Initial Purchaser under the purchase agreement, including its agreement to purchase the Notes from Aruba, are subject to the satisfaction of certain conditions in the purchase agreement. If the conditions are met, the Initial Purchaser has agreed to purchase all of the Notes.

The Initial Purchaser has advised Aruba that it proposes to purchase and offer the Notes at the issue price that appears on the cover page of this Offering Circular. As compensation to the Initial Purchaser, Aruba will pay to the Initial Purchaser a selling commission in the amount of U.S.$1,767,000. After the initial offering, the Initial Purchaser may change the selling price and any other selling terms.

In the purchase agreement, Aruba has agreed to indemnify the Initial Purchaser against certain liabilities, including liabilities under the Securities Act, or contribute to payments which the Initial Purchaser may be required to make in respect of any of those liabilities.

In order to facilitate the offering of the Notes, the Initial Purchaser may engage in transactions that stabilize, maintain or affect the price of the Notes. In particular, the Initial Purchaser may:

• over-allot in connection with the offering (i.e., offer and apportion more of the Notes than the Initial Purchaser has) creating a short position in the Notes for the Initial Purchaser’s own account; and

• bid for and purchase Notes in the open market to cover over-allotments or to stabilize the price of the Notes.

Any of these activities may cause the price of the Notes to be higher than it would otherwise be in the absence of these transactions. The Initial Purchaser is not required to engage in these activities, and, if it does, it may discontinue them at any time in its sole discretion.

The Notes have not been and will not be registered under the Securities Act or any state securities laws and, unless so registered, may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in certain transactions exempt from, or not subject to, the registration requirements of the Securities Act and applicable state securities law. See “Transfer Restrictions”.

In the purchase agreement, the Manager has agreed that the Notes may not be offered or sold within the United States or to U.S. persons except pursuant to an exemption from the registration requirements of the Securities Act or in transactions not subject to those registration requirements; and during the initial distribution of the Notes, it will offer or sell notes in the United States only to qualified institutional buyers in compliance with Rule 144A and in offshore transaction to non-U.S. persons outside the United States in compliance with Regulation S. In addition, until the completion of the Distribution Compliance Period, an offer or sale of notes within the United States, or to, or for the account or benefit of, a U.S. person (within the meaning of Regulation S), by a dealer (whether or not participating in the offering) may violate the registration requirements of the Securities Act unless the dealer makes the offer or sale in compliance with Rule 144A or another exemption from registration under the Securities Act. The Initial Purchaser has agreed that it will have sent to each dealer to which it sells Notes during the Distribution Compliance Period a confirmation or other notice setting forth the restriction on offers and sales of the Notes within the United States or to, or for the account or benefit of, U.S. persons.

The Manager has also agreed that it has complied and will comply with all applicable provisions of the Financial Services and Markets Act 2000 with respect to anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom.

Prior to the offering, there has been no active market for the Notes. The Issuer has been advised by the Initial Purchaser that it intends to make a market in the Notes as permitted by applicable laws and regulations. The

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Initial Purchaser is not obligated, however, to make a market in the Notes and any such market making may be discontinued at any time at the sole discretion of the Initial Purchaser. We have applied to have the Notes listed and admitted to trading on the EuroMTF, the alternative market of the Luxembourg Stock Exchange. We cannot assure you, however, that this application will be accepted. No assurance can be given as to the liquidity of, or the development or continuation of trading markets for, the Notes.

The Initial Purchaser, directly or through affiliated entities, has from time to time in the past provided, and may in the future provide, investment banking, financial advisory or other services in the ordinary course of its business to Aruba and its affiliates, for which it has received or would expect to receive customary fees. In particular, RBTT Aruba N.V. in 2005 provided to Aruba U.S.$45.2 million in short-term bridge financing bearing interest at 6.7% per annum, substantially all of which bridge financing we intend to repay with the net proceeds of the offering of the Notes. See “Use of Proceeds”.

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TRANSFER RESTRICTIONS

United States

The Notes are subject to restrictions on transfer as summarized below. By purchasing Notes, you will be deemed to have made the following acknowledgements and representations to and agreements with us and the Initial Purchaser:

• You acknowledge that:

− the Notes have not been registered under the Securities Act or any other securities laws and are being offered for resale in transactions that do not require registration under the Securities Act or any other securities laws;

− unless so registered, the Notes may not be offered, sold or otherwise transferred except under an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of any other applicable securities laws, and in each case in compliance with the conditions for transfer set forth below.

• You represent that you are not an affiliate (as defined in Rule 144 under the Securities Act) of ours, that you are not acting on our behalf and that either:

− you are a qualified institutional buyer (as defined in Rule 144A under the Securities Act) and are purchasing the Notes for your own account or for the account of another qualified institutional buyer, and you are aware that the Initial Purchaser is selling the Notes to you in the reliance on Rule 144A; or

− you are not a U.S. person (as defined in Regulation S under the Securities Act) or purchasing the Notes for the account or benefit of a U.S. person, other than a distributor, and you are purchasing Notes in an offshore transaction in accordance with Regulation S.

• You acknowledge that neither we nor the Initial Purchaser nor any person representing us or the Initial Purchaser has made any representation to you with respect to us or the offering of the Notes, other than the information contained in this Offering Circular.

• You represent that you are purchasing Notes for your own account, or for one or more investor accounts for which you are acting as a fiduciary or agent, in each case not with a view to, or for offer or sale in connection with, any distribution of the Notes in violation of the Securities Act, subject to any requirement of law that the disposition of your property or the property of that investor account or accounts be at all times within your or their control and subject to your or their ability to resell the Notes pursuant to Rule 144A or any other available exemption from registration under the Securities Act. You agree, and each subsequent holder of the Notes by its acceptance of the Notes will agree, that the Notes may be offered, sold or otherwise transferred only:

− to a person whom the seller reasonably believes is a qualified institutional buyer within the meaning of Rule 144A under the Securities Act purchasing for its own account or for the account of a qualified institutional buyer or buyers in a transaction meeting the requirements of Rule 144A;

− in an offshore transaction complying with Rule 903 or Rule 904 of Regulation S under the Securities Act and, prior to the expiration of the “Distribution Compliance Period”, to a person the seller reasonably believes is not a U.S. person (as defined in Regulation S under the Securities Act);

− pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available), provided that as a condition to any sale of Notes pursuant to Rule 144, we may require delivery of any documents or other evidence that we, in our absolute discretion, deem necessary or appropriate to evidence compliance with such exemption; or

− pursuant to an effective registration statement under the Securities Act;

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and, in each case, in accordance with all applicable securities laws of the states of the United States and other jurisdictions.

• You acknowledge that the Notes offered and sold to “qualified institutional buyers” in reliance on Rule 144A will be represented by the Restricted Global Note, which will bear a legend to the following effect unless Aruba determines otherwise in compliance with applicable law:

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (B) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT OR (C) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER JURISDICTION.

Before any interest in the Restricted Global Note may be offered, sold, pledged or otherwise transferred to a person who takes delivery in the form of an interest in the Regulation S Global Note, you will be required to provide the fiscal agent with a written certification (in the form provided in the fiscal agency agreement) as to compliance with the transfer restrictions referred to above.

For further discussion of the requirements (including the presentation of transfer certificates) under the fiscal agency agreement to effect exchanges or transfer of interests in global notes, see “Description of the Notes—Book Entry; Delivery and Form—Transfer and Exchange”.

• You acknowledge that the Notes offered and sold to non-U.S. persons in offshore transactions in reliance on Regulation S will be represented by the Regulations S Global Note, which will bear a legend to the following effect unless Aruba determines otherwise in compliance with applicable law:

THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR WITH ANY SECURITIES REGULATORY AUTHORITY IN ANY JURISDICTION. PRIOR TO THE DATE THAT IS 40 DAYS AFTER THE CLOSING OF THE OFFERING OF THE NOTES, NEITHER THIS NOTE NOR ANY BENEFICIAL INTEREST HEREIN MAY BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT IN ACCORDANCE WITH THE FISCAL AGENCY AGREEMENT AND PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT.

Prior to the expiration of the Distribution Compliance Period, before any interest in the Regulation S Global Note may be offered, sold, pledged or otherwise transferred to a person who takes delivery in the form of an interest in the Restricted Global Note, you will be required to provide the fiscal agent with a written certification (in the form provided in the fiscal agency agreement) as to compliance with the transfer restrictions referred to above.

For further discussion of the requirements (including the presentation of transfer certificates) under the fiscal agency agreement to effect exchanges or transfer of interests in global notes, see “Description of the Notes—Book Entry; Delivery and Form—Transfer and Exchange”.

• You acknowledge that we, the Initial Purchaser and others will rely upon the truth and accuracy of the above acknowledgements, representations and agreements. You agree that if any of the acknowledgements, representations and agreements you are deemed to have made by your purchase of Notes is no longer accurate, you will promptly notify us and the Initial Purchaser. If you are

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purchasing any Notes as a fiduciary or agent for one or more investor accounts, you represent that you have sole investment discretion with respect to each of those accounts and that you have full power to make the above acknowledgements, representations and agreements on behalf of each account.

United Kingdom

The Initial Purchaser has represented and agreed that:

• it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000, or “FSMA”) in connection with the issue or sale of the Notes in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer; and

• it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom.

Aruba

The Notes are subject to certain restrictions on transfer and resale for both residents and nonresidents of Aruba, including a requirement that any participation in the offering of the Notes be financed or paid using foreign funds. Foreign funds used by Aruban residents for such purposes must be such residents’ own foreign funds. The Central Bank, however, pursuant to the Ordinance on Exchange (AB 1990 GT 6), is entitled to impose certain restrictions on payments to nonresidents upon a determination by the Central Bank that the exchange reserve position of Aruba is or is likely to be seriously affected.

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VALIDITY OF THE NOTES

The validity of the Notes with respect to New York law will be passed upon for Aruba and the Initial Purchaser by Allen & Overy LLP, United States counsel to Aruba and the Initial Purchaser, and the validity of the Notes with respect to Aruban law by Kloes & de Cuba Advocaten, Aruban counsel to Aruba and the Initial Purchaser.

As to all matters of Aruban law, Allen & Overy LLP may rely on the opinion of Kloes & de Cuba Advocaten. As to all matters of New York law, Kloes & de Cuba Advocaten may rely on the opinion of Allen & Overy LLP.

GENERAL INFORMATION

1. The Notes have been accepted for clearance through Euroclear and Clearstream. With respect to the Notes represented by the Rule 144A Global Note, the Common Code number is 22914294 and the International Securities Identification Number (ISIN) is XS0229142947. With respect to the Notes represented by the Regulation S Global Note, the Common Code number is 22914251 and the ISIN is XS0229142517.

2. The issuance of the Notes was authorized by the Issuer as part of its 2005 budget on December 28, 2004, by the Kingdom Council of Ministers on May 27, 2005, and by decree of the Minister of Finance and Economic Affairs on August 31, 2005, which we refer to as the “Government authorizations”.

3. To the best of its knowledge, except as disclosed in this Offering Circular, the Issuer is not involved in any litigation, arbitration, or administrative proceedings relating to the claims or amounts which are material in the context of the issuance of Notes nor, so far as it is aware, having made reasonable inquiries, is any such material litigation or arbitration or administrative proceeding involving it pending or threatened.

4. Except as disclosed in this Offering Circular, there has been no material adverse change in the fiscal, economic or political condition or affairs of the Issuer since December 31, 2004, which is material in the context of the issue of the Notes.

5. Application has been made to list and to admit the Notes for trading on the EuroMTF, the alternative market of the Luxembourg Stock Exchange. Copies of the following documents will, so long as any Notes are admitted to trading on the EuroMTF, be available for inspection during usual business hours at the specified office of The Bank of New York (Luxembourg) S.A. in Luxembourg:

• the Fiscal Agency Agreement (which includes the form of Note as an exhibit thereto); and

• the Government authorizations.

In addition, so long as any of the Notes are outstanding or admitted to trading on the EuroMTF, copies of the Central Bank’s fourth quarter reports for each year (which contains the latest economic information available for the Issuer for that year), as and when available, will be available at the offices of the listing agent in Luxembourg during normal business hours on any weekday. The purchase agreement shall also be available for inspection free of charge at the office of the listing agent and any paying and transfer agent in Luxembourg.

6. The Bank of New York (Luxembourg) S.A. has been appointed as the special Luxembourg paying agent and special Luxembourg transfer agent. For so long as any of the Notes are admitted to listing and trading on the EuroMTF and the rules of the Luxembourg Stock Exchange so require, the Issuer will maintain a paying agent and transfer agent in Luxembourg.

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ISSUER

The Legal Entity Aruba c/o Directie Financiën

Wayaca 31-C Oranjestad

Aruba

FISCAL AGENT, PRINCIPAL PAYING AGENT, TRANSFER AGENT AND REGISTRAR

The Bank of New York 101 Barclay Street

New York, NY 10286 United States

SPECIAL LUXEMBOURG PAYING AGENT AND SPECIAL LUXEMBOURG TRANSFER AGENT

The Bank of New York (Luxembourg) S.A. Aerogolf Center 1A, Hoehenhof

L-1736 Senningerberg Luxembourg

LUXEMBOURG LISTING AGENT

The Bank of New York Europe Limited One Canada Square London E14 5AL

England

LEGAL ADVISORS

U.S. counsel to the Issuer and the Initial Purchaser

Allen & Overy LLP 1221 Avenue of the Americas New York, New York 10020

United States

Aruban Counsel to the Issuer and the Initial Purchaser

Kloes & de Cuba Advocaten L.G. Smith Blvd 22

P.O. Box 125 Oranjestad

Aruba

The Legal Entity Aruba U.S.$93,000,000

6.40% Notes Due 2015

OFFERING CIRCULAR

August 31, 2005