Introductory material (continued 62)

Faroe Islands The Faroese economy has had a strong performance since 1994, mostly as a result of increasing fish landings and high and stable export prices. Unemployment is minimal and there are signs of labor shortages in several sectors. The positive economic development has helped the Faroese Home Rule Government produce increasing budget surpluses, which in turn have helped reduce the large public debt, most of it owed to Denmark. However, the total dependence on fishing makes the Faroese economy extremely vulnerable, and the present fishing efforts appear in excess of what is a sustainable level of fishing in the long term. Oil finds close to the Faroese area give hope for deposits in the immediate Faroese area, which may eventually lay the basis for a more diversified economy and thus lessen dependence on Danish economic assistance. Aided by a substantial annual subsidy (about 15% of GDP) from Denmark, the Faroese have a standard of living not far below the Danes and other Scandinavians.

Fiji Fiji, endowed with forest, mineral, and fish resources, is one of the most developed of the Pacific island economies, though still with a large subsistence sector. Sugar exports, remittances from Fijians working abroad, and a growing tourist industry - with 300,000 to 400,000 tourists annually - are the major sources of foreign exchange. Fiji's sugar has special access to European Union markets, but will be harmed by the EU's decision to cut sugar subsidies. Sugar processing makes up one-third of industrial activity but is not efficient. Fiji's tourism industry was damaged by the 2006 coup and is facing an uncertain recovery time. Long-term problems include low investment, uncertain land ownership rights, and the government's ability to manage its budget. Overseas remittances from Fijians working in Kuwait and Iraq have increased significantly.

Finland Finland has a highly industrialized, largely free-market economy with per capita output roughly that of the UK, France, Germany, and Italy. Its key economic sector is manufacturing - principally the wood, metals, engineering, telecommunications, and electronics industries. Trade is important; exports equal two-fifths of GDP. Finland excels in high-tech exports, e.g., mobile phones. Except for timber and several minerals, Finland depends on imports of raw materials, energy, and some components for manufactured goods. Because of the climate, agricultural development is limited to maintaining self-sufficiency in basic products. Forestry, an important export earner, provides a secondary occupation for the rural population. High unemployment remains a persistent problem.

France France is in the midst of transition from a well-to-do modern economy that has featured extensive government ownership and intervention to one that relies more on market mechanisms. The government has partially or fully privatized many large companies, banks, and insurers. It retains controlling stakes in several leading firms, including Air France, France Telecom, Renault, and Thales, and is dominant in some sectors, particularly power, public transport, and defense industries. The telecommunications sector is gradually being opened to competition. France's leaders remain committed to a capitalism in which they maintain social equity by means of laws, tax policies, and social spending that reduce income disparity and the impact of free markets on public health and welfare. The government in 2006 focused on introducing measures that attempt to boost employment through increased labor market flexibility; however, the population has remained opposed to labor reforms, hampering the government's ability to revitalize the economy. The tax burden remains one of the highest in Europe (nearly 50% of GDP in 2005). The lingering economic slowdown and inflexible budget items probably pushed the budget deficit above the eurozone's 3%-of-GDP limit in 2006; unemployment hovers near 9%.

French Polynesia Since 1962, when France stationed military personnel in the region, French Polynesia has changed from a subsistence agricultural economy to one in which a high proportion of the work force is either employed by the military or supports the tourist industry. With the halt of French nuclear testing in 1996, the military contribution to the economy fell sharply. Tourism accounts for about one-fourth of GDP and is a primary source of hard currency earnings. Other sources of income are pearl farming and deep-sea commercial fishing. The small manufacturing sector primarily processes agricultural products. The territory benefits substantially from development agreements with France aimed principally at creating new businesses and strengthening social services.

French Southern and Antarctic Lands Economic activity is limited to servicing meteorological and geophysical research stations and French and other fishing fleets. The fish catches landed on Iles Kerguelen by foreign ships are exported to France and Reunion.

Gabon Gabon enjoys a per capita income four times that of most of sub-Saharan African nations. This has supported a sharp decline in extreme poverty; yet, because of high income inequality, a large proportion of the population remains poor. Gabon depended on timber and manganese until oil was discovered offshore in the early 1970s. The oil sector now accounts for 50% of GDP. Gabon continues to face fluctuating prices for its oil, timber, and manganese exports. Despite the abundance of natural wealth, poor fiscal management hobbles the economy. Devaluation of its currency by 50% in January 1994 sparked a one-time inflationary surge, to 35%; the rate dropped to 6% in 1996. The IMF provided a one-year standby arrangement in 1994-95, a three-year Enhanced Financing Facility (EFF) at near commercial rates beginning in late 1995, and stand-by credit of $119 million in October 2000. Those agreements mandated progress in privatization and fiscal discipline. France provided additional financial support in January 1997 after Gabon met IMF targets for mid-1996. In 1997, an IMF mission to Gabon criticized the government for overspending on off-budget items, overborrowing from the central bank, and slipping on its schedule for privatization and administrative reform. The rebound of oil prices in 1999-2000 helped growth, but drops in production hampered Gabon from fully realizing potential gains. In December 2000, Gabon signed a new agreement with the Paris Club to reschedule its official debt. A follow-up bilateral repayment agreement with the US was signed in December 2001. Gabon signed a 14-month Stand-By Arrangement with the IMF in May 2004, and received Paris Club debt rescheduling later that year. Short-term progress depends on an upbeat world economy and fiscal and other adjustments in line with IMF policies.

Gambia, The The Gambia has no confirmed mineral or natural resource deposits and has a limited agricultural base. About 75% of the population depends on crops and livestock for its livelihood. Small-scale manufacturing activity features the processing of peanuts, fish, and hides. Reexport trade normally constitutes a major segment of economic activity, but a 1999 government-imposed preshipment inspection plan, and instability of the Gambian dalasi (currency) have drawn some of the reexport trade away from The Gambia. The Gambia's natural beauty and proximity to Europe has made it one of the larger markets for tourism in West Africa. The government's 1998 seizure of the private peanut firm Alimenta eliminated the largest purchaser of Gambian groundnuts. Despite an announced program to begin privatizing key parastatals, no plans have been made public that would indicate that the government intends to follow through on its promises. Unemployment and underemployment rates remain extremely high; short-run economic progress depends on sustained bilateral and multilateral aid, on responsible government economic management, on continued technical assistance from the IMF and bilateral donors, and on expected growth in the construction sector.

Gaza Strip High population density, limited land access, and strict internal and external security controls have kept economic conditions in the Gaza Strip - the smaller of the two areas under the Palestinian Authority (PA)- even more degraded than in the West Bank. The beginning of the second intifadah in September 2000 sparked an economic downturn, largely the result of Israeli closure policies; these policies, which were imposed to address security concerns in Israel, disrupted labor and trade access to and from the Gaza Strip. In 2001, and even more severely in 2003, Israeli military measures in PA areas resulted in the destruction of capital, the disruption of administrative structures, and widespread business closures. The Israeli withdrawal from the Gaza Strip in September 2005 offered some medium-term opportunities for economic growth, which have not yet been realized due to Israeli military activities in the Gaza Strip in 2006, continued crossings closures, and the international community's financial embargo of the PA after HAMAS took office in March 2006.

Georgia Georgia's main economic activities include the cultivation of agricultural products such as grapes, citrus fruits, and hazelnuts; mining of manganese and copper; and output of a small industrial sector producing alcoholic and nonalcoholic beverages, metals, machinery, and chemicals. The country imports the bulk of its energy needs, including natural gas and oil products. It has sizeable but underdeveloped hydropower capacity. Despite the severe damage the economy has suffered due to civil strife, Georgia, with the help of the IMF and World Bank, has made substantial economic gains since 2000, achieving positive GDP growth and curtailing inflation. Georgia had suffered from a chronic failure to collect tax revenues; however, the new government is making progress and has reformed the tax code, improved tax administration, increased tax enforcement, and cracked down on corruption. In addition, the reinvigorated privatization process has met with success, supplementing government expenditures on infrastructure, defense, and poverty reduction. Despite customs and financial (tax) enforcement improvements, smuggling is a drain on the economy. Georgia also suffers from energy shortages due to aging and badly maintained infrastructure, as well as poor management. Due to concerted reform efforts, collection rates have improved considerably to roughly 60%, both in T'bilisi and throughout the regions. Continued reform in the management of state-owned power entities is essential to successful privatization and onward sustainability in this sector. The country is pinning its hopes for long-term growth on its role as a transit state for pipelines and trade. The construction on the Baku-T'bilisi-Ceyhan oil pipeline and the Baku-T'bilisi-Erzerum gas pipeline have brought much-needed investment and job opportunities. Nevertheless, high energy prices have compounded the pressure on the country's inefficient energy sector. Restructuring the sector and finding energy supply alternatives to Russia remain major challenges.

Germany Germany's affluent and technologically powerful economy - the fifth largest in the world - has become one of the slowest growing economies in the euro zone. A quick turnaround is not in the offing in the foreseeable future; however, stronger growth this year has improved employment considerably. Growth in 2001-03 fell short of 1%, rising to 1.7% in 2004, falling back to 0.9% in 2005, and increasing to 2.2% in 2006. Unemployment fell to 7.1% in October 2006, based on the Internation Labor Organization's measurement. The modernization and integration of the eastern German economy continues to be a costly long-term process, with annual transfers from west to east amounting to roughly $70 billion. Germany's aging population, combined with high chronic unemployment, has pushed social security outlays to a level exceeding contributions from workers. Structural rigidities in the labor market - including strict regulations on laying off workers and the setting of wages on a national basis - and a lack of competition in the sevice sectors have made slow growth a chronic problem. Corporate restructuring and growing capital markets are setting the foundations that could help Germany meet the long-term challenges of European economic integration and globalization; however, the current government has failed to pass meaningful economic reform that would improve growth prospects. Higher government revenues from the cyclical upturn in 2006 reduced Germany's budget deficit to within the EU's 3% debt limit.

Ghana Well endowed with natural resources, Ghana has roughly twice the per capita output of the poorest countries in West Africa. Even so, Ghana remains heavily dependent on international financial and technical assistance. Gold, timber, and cocoa production are major sources of foreign exchange. The domestic economy continues to revolve around subsistence agriculture, which accounts for 34% of GDP and employs 60% of the work force, mainly small landholders. Ghana opted for debt relief under the Heavily Indebted Poor Country (HIPC) program in 2002, but was included in a G-8 debt relief program decided upon at the Gleneagles Summit in July 2005. Priorities under its current $38 million Poverty Reduction and Growth Facility (PRGF) include tighter monetary and fiscal policies, accelerated privatization, and improvement of social services. Receipts from the gold sector helped sustain GDP growth in 2006 along with record high prices for Ghana's largest cocoa crop to date. Ghana received a Millennium Challenge Corporation (MCC) grant in 2006, which aims to assist in transforming Ghana's agricultural export sector.

Gibraltar Self-sufficient Gibraltar benefits from an extensive shipping trade, offshore banking, and its position as an international conference center. The British military presence has been sharply reduced and now contributes about 7% to the local economy, compared with 60% in 1984. The financial sector, tourism (almost 5 million visitors in 1998), shipping services fees, and duties on consumer goods also generate revenue. The financial sector, the shipping sector, and tourism each contribute 25%-30% of GDP. Telecommunications accounts for another 10%. In recent years, Gibraltar has seen major structural change from a public to a private sector economy, but changes in government spending still have a major impact on the level of employment.

Glorioso Islands no economic activity

Greece Greece has a capitalist economy with the public sector accounting for about 40% of GDP and with per capita GDP at least 75% of the leading euro-zone economies. Tourism provides 15% of GDP. Immigrants make up nearly one-fifth of the work force, mainly in menial jobs. Greece is a major beneficiary of EU aid, equal to about 3.3% of annual GDP. The Greek economy grew by nearly 4.0% per year between 2003 and 2006, largely because of an investment boom and infrastructure upgrades for the 2004 Athens Olympic Games. Greece has not met the EU's Growth and Stability Pact budget deficit criteria of 3% of GDP since 2000. Public debt, inflation, and unemployment are above the euro-zone average. To overcome these challenges, the Greek Government is expected to continue cutting government spending, reducing the size of the public sector, and reforming the labor and pension systems, despite vocal opposition from the country's powerful labor unions and the general public.

Greenland The economy remains critically dependent on exports of fish and substantial support from the Danish Government, which supplies about half of government revenues. The public sector, including publicly-owned enterprises and the municipalities, plays the dominant role in the economy. Despite several interesting hydrocarbon and mineral exploration activities, it will take a number of years before production can materialize. Tourism is the only sector offering any near-term potential, and even this is limited due to a short season and high costs.

Grenada Grenada relies on tourism as its main source of foreign exchange, especially since the construction of an international airport in 1985. Strong performances in construction and manufacturing, together with the development of an offshore financial industry, have also contributed to growth in national output.

Guam The economy depends largely on US military spending and tourism. Total US grants, wage payments, and procurement outlays amounted to $1.3 billion in 2004. Over the past 30 years, the tourist industry has grown to become the largest income source following national defense. The Guam economy continues to experience expansion in both its tourism and military sectors.

Guatemala Guatemala is the largest and most populous of the Central American countries with a GDP per capita roughly one-half that of Brazil, Argentina, and Chile. The agricultural sector accounts for about one-fourth of GDP, two-fifths of exports, and half of the labor force. Coffee, sugar, and bananas are the main products. The 1996 signing of peace accords, which ended 36 years of civil war, removed a major obstacle to foreign investment, and Guatemala since then has pursued important reforms and macroeconomic stabilization. The distribution of income remains highly unequal with about 75% of the population below the poverty line. Other ongoing challenges include increasing government revenues, negotiating further assistance from international donors, upgrading both government and private financial operations, curtailing drug trafficking, and narrowing the trade deficit. Remittances from a large expatriate community that moved to the United States during the war have become an important source of foreign exchange.

Guernsey Financial services - banking, fund management, insurance - account for about 23% of employment and 32% of total income in this tiny, prosperous Channel Island economy. Tourism, manufacturing, and horticulture, mainly tomatoes and cut flowers, have been declining. Financial services, construction, retail, and the public sector have been growing. Light tax and death duties make Guernsey a popular tax haven. The evolving economic integration of the EU nations is changing the environment under which Guernsey operates.

Guinea Guinea possesses major mineral, hydropower, and agricultural resources, yet remains an underdeveloped nation. The country possesses almost half of the world's bauxite reserves and is the second-largest bauxite producer. The mining sector accounts for over 70% of exports. Long-run improvements in government fiscal arrangements, literacy, and the legal framework are needed if the country is to move out of poverty. Fighting along the Sierra Leonean and Liberian borders, as well as refugee movements, have caused major economic disruptions, aggravating a loss in investor confidence. Panic buying has created food shortages and inflation and caused riots in local markets. Guinea is trying to reengage with the IMF and World Bank, which cut off most assistance in 2003. Growth rose slightly in 2006, primarily due to increases in global demand and commodity prices on world markets, but the standard of living fell. The Guinea franc depreciated sharply as the prices for basic necessities like food and fuel rose beyond the reach of most Guineans. Dissatisfaction with economic conditions prompted nationwide strikes in February and June 2006.

Guinea-Bissau One of the 10 poorest countries in the world, Guinea-Bissau depends mainly on farming and fishing. Cashew crops have increased remarkably in recent years, and the country now ranks sixth in cashew production. Guinea-Bissau exports fish and seafood along with small amounts of peanuts, palm kernels, and timber. Rice is the major crop and staple food. However, intermittent fighting between Senegalese-backed government troops and a military junta destroyed much of the country's infrastructure and caused widespread damage to the economy in 1998; the civil war led to a 28% drop in GDP that year, with partial recovery in 1999-2002. Before the war, trade reform and price liberalization were the most successful part of the country's structural adjustment program under IMF sponsorship. The tightening of monetary policy and the development of the private sector had also begun to reinvigorate the economy. Because of high costs, the development of petroleum, phosphate, and other mineral resources is not a near-term prospect. However, offshore oil prospecting has begun and could lead to much-needed revenue in the long run. The inequality of income distribution is one of the most extreme in the world. The government and international donors continue to work out plans to forward economic development from a lamentably low base. In December 2003, the World Bank, IMF, and UNDP were forced to step in to provide emergency budgetary support in the amount of $107 million for 2004, representing over 80% of the total national budget. Government drift and indecision, however, have resulted in continued low growth in 2002-06.

Guyana The Guyanese economy exhibited moderate economic growth in 2001-02, based on expansion in the agricultural and mining sectors, a more favorable atmosphere for business initiatives, a more realistic exchange rate, fairly low inflation, and the continued support of international organizations. Chronic problems include a shortage of skilled labor and a deficient infrastructure. The government is juggling a sizable external debt against the urgent need for expanded public investment. The InterAmerican Development Bank in November 2006 canceled Guyana's nearly $400 million debt with the Bank. The bauxite mining sector should benefit in the near term from restructuring and partial privatization. Export earnings from agriculture and mining have fallen sharply, while the import bill has risen, driven by higher energy prices. Guyana's entrance into the Caricom Single Market and Economy (CSME) in January 2006 will broaden the country's export market, primarily in the raw materials sector.

Haiti Haiti is the poorest country in the Western Hemisphere, with 80% of the population living under the poverty line and 54% in abject poverty. Two-thirds of all Haitians depend on the agriculture sector, mainly small-scale subsistence farming, and remain vulnerable to damage from frequent natural disasters, exacerbated by the country's widespread deforestation. A macroeconomic program developed in 2005 with the help of the International Monetary Fund helped the economy grow 1.8% in 2006, the highest growth rate since 1999. Haiti suffers from higher inflation than similar low-income countries, a lack of investment, and a severe trade deficit. In 2005, Haiti paid its arrears to the World Bank, paving the way for reengagement with the Bank. The government relies on formal international economic assistance for fiscal sustainability. In 2006, Haiti held a successful donors conference in which the total aid pledged exceeded Haiti's request. Remittances are the primary source of foreign exchange, equaling nearly a quarter of GDP.

Heard Island and McDonald Islands No indigenous economic activity, but the Australian Government allows limited fishing around the islands.

Holy See (Vatican City) This unique, noncommercial economy is supported financially by an annual contribution from Roman Catholic dioceses throughout the world (known as Peter's Pence); by the sale of postage stamps, coins, medals, and tourist mementos; by fees for admission to museums; and by the sale of publications. Investments and real estate income also account for a sizable portion of revenue. The incomes and living standards of lay workers are comparable to those of counterparts who work in the city of Rome.

Honduras Honduras, the second poorest country in Central America and one of the poorest countries in the Western Hemisphere, with an extraordinarily unequal distribution of income and massive unemployment, is banking on expanded trade under the US-Central America Free Trade Agreement (CAFTA) and on debt relief under the Heavily Indebted Poor Countries (HIPC) initiative. The country has met most of its macroeconomic targets, and began a three-year IMF Poverty Reduction and Growth Facility (PGRF) program in February 2004. The economy relies heavily on a narrow range of exports, notably bananas and coffee, making it vulnerable to natural disasters and shifts in commodity prices, but in recent years has experienced a rapid rise in exports of light manufacturers. Growth remains dependent on the economy of the US, its largest trading partner, and on reduction of the high crime rate, as a means of attracting and maintaining investment.

Hong Kong Hong Kong has a free market economy highly dependent on international trade. The territory has become more closely linked to mainland China over the past few years. Even before Hong Kong reverted to Chinese administration on 1 July 1997, it had extensive trade and investment ties with China. Hong Kong's service industry over the past decade has grown rapidly as its manufacturing industry has moved to the mainland. Hong Kong also has stepped up its efforts to gain approval to offer more mainland financial services in a bid to remain competitive with China's growing financial centers. Hong Kong's natural resources are limited, and food and raw materials must be imported. Gross imports and exports (i.e., including reexports to and from third countries) each exceed GDP in dollar value. Per capita GDP exceeds that of the four big economies of Western Europe. GDP growth averaged a strong 5% from 1989 to 2006, but Hong Kong suffered two recessions in the past eight years because of the Asian financial crisis in 1997-1998 and the global downturn in 2001-2002. Although the Severe Acute Respiratory Syndrome (SARS) outbreak in 2003 also battered Hong Kong's economy, a solid rise in exports, a boom in tourism from the mainland because of China's easing of travel restrictions, and a return of consumer confidence resulted in the resumption of strong growth from late 2003 through 2006. Moreover, several large initial public offerings of Chinese companies on the Hong Kong stock exchange since late 2005 have helped to boost Hong Kong's status as a financial hub and have contributed to the improved performance of the market in late 2006.

Howland Island no economic activity

Hungary Hungary has made the transition from a centrally planned to a market economy, with a per capita income nearly two-thirds that of the EU-25 average. Hungary continues to demonstrate strong economic growth and acceded to the EU in May 2004. The private sector accounts for over 80% of GDP. Foreign ownership of and investment in Hungarian firms are widespread, with cumulative foreign direct investment totaling more than $60 billion since 1989. Hungarian sovereign debt was upgraded in 2000 - together with the Czech Republic, Hungary holds the highest rating among the Central European transition economies. Rating agencies, however, have expressed concerns over Hungary's fiscal and current account deficits. Inflation has declined from 14% in 1998 to 3.7% in 2006. Unemployment has persisted above 6%. Hungary's labor force participation rate of 57% is one of the lowest in the Organization for Economic Cooperation and Development (OECD). Germany is by far Hungary's largest economic partner. Policy challenges include cutting the public sector deficit to 3% of GDP by 2008, from about 6.5% in 2006, and orchestrating an orderly interest rate reduction without sparking capital outflows.

Iceland Iceland's Scandinavian-type economy is basically capitalistic, yet with an extensive welfare system (including generous housing subsidies), low unemployment, and remarkably even distribution of income. In the absence of other natural resources (except for abundant geothermal power), the economy depends heavily on the fishing industry, which provides nearly 60% of export earnings and employs 6% of the work force. The economy remains sensitive to declining fish stocks as well as to fluctuations in world prices for its main exports: fish and fish products, aluminum, and ferrosilicon. Government policies include reducing the current account deficit, limiting foreign borrowing, containing inflation, revising agricultural and fishing policies, and diversifying the economy. The government remains opposed to EU membership, primarily because of Icelanders' concern about losing control over their fishing resources. Iceland's economy has been diversifying into manufacturing and service industries in the last decade, and new developments in software production, biotechnology, and financial services are taking place. The tourism sector is also expanding, with the recent trends in ecotourism and whale watching. Since 2000 growth has varied from a -1% in 2002 to 8% in 2004.

Iles Eparses no economic activity

India India's diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. Services are the major source of economic growth, accounting for more than half of India's output with less than one quarter of its labor force. About three-fifths of the work force is in agriculture, leading the UPA government to articulate an economic reform program that includes developing basic infrastructure to improve the lives of the rural poor and boost economic performance. The government has reduced controls on foreign trade and investment. Tariffs averaged 12.5% on non-agricultural items in 2006. Higher limits on foreign direct investment were permitted in a few key sectors, such as telecommunications. However, tariff spikes in sensitive categories, including agriculture, and incremental progress on economic reforms still hinder foreign access to India's vast and growing market. Privatization of government-owned industries remained stalled in 2006, and continues to generate political debate; populist pressure from within the UPA government and from its Left Front allies continues to restrain needed initiatives. The economy has posted an average growth rate of more than 7% in the decade since 1996, reducing poverty by about 10 percentage points. India achieved 8.5% GDP growth in 2006, significantly expanding manufacturing. India is capitalizing on its large numbers of well-educated people skilled in the English language to become a major exporter of software services and software workers. Economic expansion has helped New Delhi continue to make progress in reducing its federal fiscal deficit. However, strong growth - more than 8 percent growth in each of the last three years - combined with easy consumer credit and a real estate boom is fueling inflation concerns. The huge and growing population is the fundamental social, economic, and environmental problem.

Indian Ocean The Indian Ocean provides major sea routes connecting the Middle East, Africa, and East Asia with Europe and the Americas. It carries a particularly heavy traffic of petroleum and petroleum products from the oilfields of the Persian Gulf and Indonesia. Its fish are of great and growing importance to the bordering countries for domestic consumption and export. Fishing fleets from Russia, Japan, South Korea, and Taiwan also exploit the Indian Ocean, mainly for shrimp and tuna. Large reserves of hydrocarbons are being tapped in the offshore areas of Saudi Arabia, Iran, India, and western Australia. An estimated 40% of the world's offshore oil production comes from the Indian Ocean. Beach sands rich in heavy minerals and offshore placer deposits are actively exploited by bordering countries, particularly India, South Africa, Indonesia, Sri Lanka, and Thailand.

Indonesia Indonesia, a vast polyglot nation, has struggled to overcome the Asian financial crisis, and still grapples with high poverty and unemployment, inadequate infrastructure, endemic corruption, a fragile banking sector, a poor investment climate, and unequal resource distribution among regions. The country continues the slow work of rebuilding from the devastating December 2004 tsunami and from an earthquake in central Java in May 2006 that caused over $3 billion in damage and losses. Declining oil production and lack of new exploration investment turned Indonesia into a net oil importer in 2004. The cost of subsidizing domestic fuel placed increasing strain on the budget in 2005, and combined with indecisive monetary policy, contributed to a run on the currency in August, prompting the government to enact a 126% average fuel price hike in October. The resulting inflation and interest rate hikes dampened growth through mid-2006, while large increases in rice prices pushed millions more people under the national poverty line. Economic reformers introduced three policy packages in 2006 to improve the investment climate, infrastructure, and the financial sector, but translating them into reality has not been easy. Keys to future growth remain internal reform, building up the confidence of international and domestic investors, and strong global economic growth.

Iran Iran's economy is marked by a bloated, inefficient state sector, over reliance on the oil sector, and statist policies that create major distortions throughout. Most economic activity is controlled by the state. Private sector activity is typically small-scale - workshops, farming, and services. President Mahmud AHMADI-NEJAD has continued to follow the market reform plans of former President RAFSANJANI, with limited progress. Relatively high oil prices in recent years have enabled Iran to amass nearly $60 billion in foreign exchange reserves, but have not eased economic hardships such as high unemployment and inflation. The proportion of the economy devoted to the development of weapons of mass destruction remains a contentious issue with leading Western nations.

Iraq Iraq's economy is dominated by the oil sector, which has traditionally provided about 95% of foreign exchange earnings. Iraq's seizure of Kuwait in August 1990, subsequent international economic sanctions, and damage from military action by an international coalition beginning in January 1991 drastically reduced economic activity. Although government policies supporting large military and internal security forces and allocating resources to key supporters of the regime hurt the economy, implementation of the UN's oil-for-food program, which began in December 1996, helped improve conditions for the average Iraqi citizen. Iraq was allowed to export limited amounts of oil in exchange for food, medicine, and some infrastructure spare parts. In December 1999, the UN Security Council authorized Iraq to export under the program as much oil as required to meet humanitarian needs. The military victory of the US-led coalition in March-April 2003 resulted in the shutdown of much of the central economic administrative structure. Although a comparatively small amount of capital plant was damaged during the hostilities, looting, insurgent attacks, and sabotage have undermined efforts to rebuild the economy. Attacks on key economic facilities - especially oil pipelines and infrastructure - have prevented Iraq from reaching projected export volumes, but total government revenues have been higher than anticipated due to high oil prices. Despite political uncertainty, Iraq is making some progress in building the institutions needed to implement economic policy and has concluded a debt reduction agreement with the Paris Club and a Standby Arrangement with the IMF. Iraq's economic prospects will depend on the government's ability to control inflation, to implement structural reforms such as bank restructuring, and to develop the private sector.

Ireland Ireland is a small, modern, trade-dependent economy with growth averaging 6% in 1995-2006. Agriculture, once the most important sector, is now dwarfed by industry and services. Industry accounts for 46% of GDP, about 80% of exports, and 29% of the labor force. Although exports remain the primary engine for Ireland's growth, the economy has also benefited from a rise in consumer spending, construction, and business investment. Per capita GDP is 10% above that of the four big European economies and the second highest in the EU behind Luxembourg. Over the past decade, the Irish Government has implemented a series of national economic programs designed to curb price and wage inflation, reduce government spending, increase labor force skills, and promote foreign investment. Ireland joined in circulating the euro on 1 January 2002 along with 11 other EU nations.

Isle of Man Offshore banking, manufacturing, and tourism are key sectors of the economy. The government offers incentives to high-technology companies and financial institutions to locate on the island; this has paid off in expanding employment opportunities in high-income industries. As a result, agriculture and fishing, once the mainstays of the economy, have declined in their shares of GDP. The Isle of Man also attracts online gambling sites and the film industry. Trade is mostly with the UK. The Isle of Man enjoys free access to EU markets.

Israel Israel has a technologically advanced market economy with substantial, though diminishing, government participation. It depends on imports of crude oil, grains, raw materials, and military equipment. Despite limited natural resources, Israel has intensively developed its agricultural and industrial sectors over the past 20 years. Israel imports substantial quantities of grain, but is largely self-sufficient in other agricultural products. Cut diamonds, high-technology equipment, and agricultural products (fruits and vegetables) are the leading exports. Israel usually posts sizable trade deficits, which are covered by large transfer payments from abroad and by foreign loans. Roughly half of the government's external debt is owed to the US, which is its major source of economic and military aid. The bitter Israeli-Palestinian conflict; difficulties in the high-technology, construction, and tourist sectors; and fiscal austerity in the face of growing inflation led to small declines in GDP in 2001 and 2002. The economy rebounded in 2003-05, growing at a 4% rate each year, as the government tightened fiscal policy and implemented structural reforms to boost competition and efficiency in the markets. The conflict with Lebanon in summer 2006 dampened slightly GDP growth estimates for the year, but continuing strong foreign investment, tax revenue, and private consumption levels helped the economy recover quickly.

Italy Italy has a diversified industrial economy with roughly the same total and per capita output as France and the UK. This capitalistic economy remains divided into a developed industrial north, dominated by private companies, and a less-developed, welfare-dependent, agricultural south, with 20% unemployment. Most raw materials needed by industry and more than 75% of energy requirements are imported. Over the past decade, Italy has pursued a tight fiscal policy in order to meet the requirements of the Economic and Monetary Unions and has benefited from lower interest and inflation rates. The current government has enacted numerous short-term reforms aimed at improving competitiveness and long-term growth. Italy has moved slowly, however, on implementing needed structural reforms, such as lightening the high tax burden and overhauling Italy's rigid labor market and over-generous pension system, because of the current economic slowdown and opposition from labor unions. But the leadership faces a severe economic constraint: the budget deficit has breached the 3% EU ceiling. The economy experienced low growth in 2006, and unemployment remained at a high level.

Jamaica The Jamaican economy is heavily dependent on services, which now account for 60% of GDP. The country continues to derive most of its foreign exchange from remittances, tourism, and bauxite/alumina. Jamaica's economy, already saddled with a record of relatively low growth, was hit hard by Hurricane Ivan in late 2004, and is making a gradual recovery. But the economy faces serious long-term problems: high interest rates, increased foreign competition, exchange rate instability, a sizable merchandise trade deficit, large-scale unemployment and underemployment, and a high debt burden - the result of government bailouts to ailing sectors of the economy, most notably the financial sector in the mid-1990s. Following a strategy begun in 2004, Jamaica has reduced its public debt to 130% of GDP. Inflation has declined to 9%. Uncertain economic conditions have led to increased civil unrest, including gang violence fueled by the drug trade. The government faces the difficult prospect of having to achieve fiscal discipline in order to maintain debt payments while simultaneously attacking a serious and growing crime problem that is hampering economic growth.

Jan Mayen Jan Mayen is a volcanic island with no exploitable natural resources. Economic activity is limited to providing services for employees of Norway's radio and meteorological stations on the island.

Japan Government-industry cooperation, a strong work ethic, mastery of high technology, and a comparatively small defense allocation (1% of GDP) helped Japan advance with extraordinary rapidity to the rank of second most technologically powerful economy in the world after the US and the third-largest economy in the world after the US and China, measured on a purchasing power parity (PPP) basis. One notable characteristic of the economy is how manufacturers, suppliers, and distributors work together in closely-knit groups called keiretsu. A second basic feature has been the guarantee of lifetime employment for a substantial portion of the urban labor force. Both features are now eroding. Japan's industrial sector is heavily dependent on imported raw materials and fuels. The tiny agricultural sector is highly subsidized and protected, with crop yields among the highest in the world. Usually self sufficient in rice, Japan must import about 60% of its food on a caloric basis. Japan maintains one of the world's largest fishing fleets and accounts for nearly 15% of the global catch. For three decades, overall real economic growth had been spectacular - a 10% average in the 1960s, a 5% average in the 1970s, and a 4% average in the 1980s. Growth slowed markedly in the 1990s, averaging just 1.7%, largely because of the after effects of overinvestment during the late 1980s and contractionary domestic policies intended to wring speculative excesses from the stock and real estate markets and to force a restructuring of the economy. From 2000 to 2003, government efforts to revive economic growth met with little success and were further hampered by the slowing of the US, European, and Asian economies. In 2004-06, growth improved and the lingering fears of deflation in prices and economic activity lessened. Japan's huge government debt, which totals 175% of GDP, and the aging of the population are two major long-run problems. Some fear that a rise in taxes could endanger the current economic recovery. Internal conflict over the proper way to reform the financial system will continue as Japan Post's banking, insurance, and delivery services undergo privatization between 2007 and 2017.

Jarvis Island no economic activity

Jersey Jersey's economy is based on international financial services, agriculture, and tourism. In 2005 the finance sector accounted for about 50% of the island's output. Potatoes, cauliflower, tomatoes, and especially flowers are important export crops, shipped mostly to the UK. The Jersey breed of dairy cattle is known worldwide and represents an important export income earner. Milk products go to the UK and other EU countries. Tourism accounts for one-quarter of GDP. In recent years, the government has encouraged light industry to locate in Jersey, with the result that an electronics industry has developed alongside the traditional manufacturing of knitwear. All raw material and energy requirements are imported, as well as a large share of Jersey's food needs. Light taxes and death duties make the island a popular tax haven. Living standards come close to those of the UK.

Johnston Atoll no economic activity

Jordan Jordan is a small Arab country with insufficient supplies of water, oil, and other natural resources. Debt, poverty, and unemployment are fundamental problems, but King ABDALLAH, since assuming the throne in 1999, has undertaken some broad economic reforms in a long-term effort to improve living standards. Since Jordan's graduation from its most recent IMF program in 2002, Amman has continued to follow IMF guidelines, practicing careful monetary policy, and making substantial headway with privatization. The government also has liberalized the trade regime sufficiently to secure Jordan's membership in the WTO (2000), a free trade accord with the US (2001), and an association agreement with the EU (2001). These measures have helped improve productivity and have put Jordan on the foreign investment map. Jordan imported most of its oil from Iraq, but the US-led war in Iraq in 2003 made Jordan more dependent on oil from other Gulf nations, and has forced the Jordanian Government to raise retail petroleum product prices and the sales tax base. Jordan's export market, which is heavily dependent on exports to Iraq, was also affected by the war but recovered quickly while contributing to the Iraq recovery effort. The main challenges facing Jordan are reducing dependence on foreign grants, reducing the budget deficit, and creating investment incentives to promote job creation.

Juan de Nova Island Up to 12,000 tons of guano are mined per year.

Kazakhstan Kazakhstan, the largest of the former Soviet republics in territory, excluding Russia, possesses enormous fossil fuel reserves and plentiful supplies of other minerals and metals. It also has a large agricultural sector featuring livestock and grain. Kazakhstan's industrial sector rests on the extraction and processing of these natural resources and also on a growing machine-building sector specializing in construction equipment, tractors, agricultural machinery, and some defense items. The breakup of the USSR in December 1991 and the collapse in demand for Kazakhstan's traditional heavy industry products resulted in a short-term contraction of the economy, with the steepest annual decline occurring in 1994. In 1995-97, the pace of the government program of economic reform and privatization quickened, resulting in a substantial shifting of assets into the private sector. Kazakhstan enjoyed double-digit growth in 2000-01 - 8% or more per year in 2002-06 - thanks largely to its booming energy sector, but also to economic reform, good harvests, and foreign investment. The opening of the Caspian Consortium pipeline in 2001, from western Kazakhstan's Tengiz oilfield to the Black Sea, substantially raised export capacity. Kazakhstan in 2006 completed the Atasu-Alashankou portion of an oil pipeline to China that is planned to extend from the country's Caspian coast eastward to the Chinese border in future construction. The country has embarked upon an industrial policy designed to diversify the economy away from overdependence on the oil sector by developing light industry. The policy aims to reduce the influence of foreign investment and foreign personnel. The government has engaged in several disputes with foreign oil companies over the terms of production agreements; tensions continue. Upward pressure on the local currency continued in 2006 due to massive oil-related foreign-exchange inflows.

Kenya The regional hub for trade and finance in East Africa, Kenya has been hampered by corruption and by reliance upon several primary goods whose prices have remained low. In 1997, the IMF suspended Kenya's Enhanced Structural Adjustment Program due to the government's failure to maintain reforms and curb corruption. A severe drought from 1999 to 2000 compounded Kenya's problems, causing water and energy rationing and reducing agricultural output. As a result, GDP contracted by 0.2% in 2000. The IMF, which had resumed loans in 2000 to help Kenya through the drought, again halted lending in 2001 when the government failed to institute several anticorruption measures. Despite the return of strong rains in 2001, weak commodity prices, endemic corruption, and low investment limited Kenya's economic growth to 1.2%. Growth lagged at 1.1% in 2002 because of erratic rains, low investor confidence, meager donor support, and political infighting up to the elections. In the key December 2002 elections, Daniel Arap MOI's 24-year-old reign ended, and a new opposition government took on the formidable economic problems facing the nation. In 2003, progress was made in rooting out corruption and encouraging donor support. Since then, however, the KIBAKI government has been rocked by high-level graft scandals. The World Bank suspended aid for most of 2006, and the IMF has delayed loans pending further action by the government on corruption. The scandals have not seemed to affect growth, with GDP growing more than 5% in 2006.

Kingman Reef no economic activity

Kiribati A remote country of 33 scattered coral atolls, Kiribati has few natural resources. Commercially viable phosphate deposits were exhausted at the time of independence from the UK in 1979. Copra and fish now represent the bulk of production and exports. The economy has fluctuated widely in recent years. Economic development is constrained by a shortage of skilled workers, weak infrastructure, and remoteness from international markets. Tourism provides more than one-fifth of GDP. The financial sector is at an early stage of development as is the expansion of private sector initiatives. Foreign financial aid from UK, Japan, Australia, New Zealand, and China equals more than 10% of GDP. Remittances from seamen on merchant ships abroad account for more than $5 million each year. Kiribati receives around $15 million annually for the government budget from an Australian trust fund.

Korea, North North Korea, one of the world's most centrally planned and isolated economies, faces desperate economic conditions. Industrial capital stock is nearly beyond repair as a result of years of underinvestment and shortages of spare parts. Industrial and power output have declined in parallel. Due in part to severe summer flooding followed by dry weather conditions in the fall of 2006, the nation has suffered its 12th year of food shortages because of on-going systemic problems, including a lack of arable land, collective farming practices, and chronic shortages of tractors and fuel. Massive international food aid deliveries have allowed the people of North Korea to escape mass starvation since famine threatened in 1995, but the population continues to suffer from prolonged malnutrition and poor living conditions. Large-scale military spending eats up resources needed for investment and civilian consumption. In 2004, the regime formalized an arrangement whereby private "farmers markets" were allowed to begin selling a wider range of goods. It also permitted some private farming on an experimental basis in an effort to boost agricultural output. In October 2005, the regime reversed some of these policies by forbidding private sales of grains and reinstituting a centralized food rationing system. By December 2005, the regime terminated most international humanitarian assistance operations in the DPRK (calling instead for developmental assistance only) and restricted the activities of remaining international and non-governmental aid organizations such as the World Food Program. Firm political control remains the Communist government's overriding concern, which will likely inhibit the loosening of economic regulations.

Korea, South Since the 1960s, South Korea has achieved an incredible record of growth and integration into the high-tech modern world economy. Four decades ago, GDP per capita was comparable with levels in the poorer countries of Africa and Asia. In 2004, South Korea joined the trillion dollar club of world economies. Today its GDP per capita is equal to the lesser economies of the EU. This success was achieved by a system of close government/business ties, including directed credit, import restrictions, sponsorship of specific industries, and a strong labor effort. The government promoted the import of raw materials and technology at the expense of consumer goods and encouraged savings and investment over consumption. The Asian financial crisis of 1997-99 exposed longstanding weaknesses in South Korea's development model, including high debt/equity ratios, massive foreign borrowing, and an undisciplined financial sector. GDP plunged by 6.9% in 1998, then recovered 9.5% in 1999 and 8.5% in 2000. Growth fell back to 3.3% in 2001 because of the slowing global economy, falling exports, and the perception that much-needed corporate and financial reforms had stalled. Led by consumer spending and exports, growth in 2002 was an impressive 7%, despite anemic global growth. Between 2003 and 2006, growth moderated to about 4-5%. A downturn in consumer spending was offset by rapid export growth. Moderate inflation, low unemployment, an export surplus, and fairly equal distribution of income characterize this solid economy.

Kuwait Kuwait is a small, rich, relatively open economy with self-reported crude oil reserves of about 96 billion barrels - 10% of world reserves. Petroleum accounts for nearly half of GDP, 95% of export revenues, and 80% of government income. Kuwait's climate limits agricultural development. Consequently, with the exception of fish, it depends almost wholly on food imports. About 75% of potable water must be distilled or imported. Kuwait continues its discussions with foreign oil companies to develop fields in the northern part of the country. High oil prices in recent years have helped build Kuwait's budget and trade surpluses and foreign reserves. As a result of this positive fiscal situation, the need for economic reforms is less urgent and the government has not earnestly pushed through new initiatives.

Kyrgyzstan Kyrgyzstan is a poor, mountainous country with a predominantly agricultural economy. Cotton, tobacco, wool, and meat are the main agricultural products, although only tobacco and cotton are exported in any quantity. Industrial exports include gold, mercury, uranium, natural gas, and electricity. Following independence Kyrgyzstan was progressive in carrying out market reforms, such as an improved regulatory system and land reform, but political instability during 2005-06 has undercut the investment climate. Kyrgyzstan was the first CIS country to be accepted into the World Trade Organization. Much of the government's stock in enterprises has been sold. Drops in production had been severe after the breakup of the Soviet Union in December 1991, but by mid-1995, production began to recover and exports began to increase. The economy is heavily weighted toward gold export and a drop in output at the main Kumtor gold mine sparked a 0.5% decline in GDP in 2002, but GDP growth bounced back the following year. In 2005 Kyrgyzstan again experienced a decline in GDP, this time 0.6%. The government has made steady strides in controlling its substantial fiscal deficit, virtually balancing revenues and expenditures in 2006. The government and international financial institutions have been engaged in a comprehensive medium-term poverty reduction and economic growth strategy; in 2005 Bishkek agreed to pursue much-needed tax reform and in 2006 became eligible for the heavily indebted poor countries (HIPC) initiative. Progress fighting corruption, further restructuring of domestic industry, and success in attracting foreign investment are keys to future growth.

Laos The government of Laos, one of the few remaining official Communist states, began decentralizing control and encouraging private enterprise in 1986. The results, starting from an extremely low base, were striking - growth averaged 6% per year in 1988-2006 except during the short-lived drop caused by the Asian financial crisis beginning in 1997. Despite this high growth rate, Laos remains a country with a primitive infrastructure. It has no railroads, a rudimentary road system, and limited external and internal telecommunications, though the government is sponsoring major improvements in the road system with possible support from Japan. Electricity is available in only a few urban areas. Subsistence agriculture, dominated by rice, accounts for about half of GDP and provides 80% of total employment. The economy will continue to benefit from aid by the IMF and other international sources and from new foreign investment in hydropower and mining. Construction will be another strong economic driver, especially as hydroelectric dam and road projects gain steam. Several policy changes since 2004 may help spur growth. In late 2004, Laos gained Normal Trade Relations status with the US, allowing Laos-based producers to benefit from lower tariffs on exports. Laos is taking steps to join the World Trade Organization in the next few years; the resulting trade policy reforms will improve the business environment. On the fiscal side, a value-added tax (VAT) regime, slated to begin in 2008, will streamline the government's inefficient tax system.

Latvia Latvia's transitional economy recovered from the 1998 Russian financial crisis, largely due to the government's budget stringency and a gradual reorientation of exports toward EU countries, lessening Latvia's trade dependency on Russia. The majority of companies, banks, and real estate have been privatized, although the state still holds sizable stakes in a few large enterprises. Latvia officially joined the World Trade Organization in February 1999. EU membership, a top foreign policy goal, came in May 2004. The current account deficit - 15.7% of GDP in 2006 - remains a major concern. The perception that many of Latvia's banks facilitate illicit activity could damage the country's vibrant financial sector.

Lebanon The 1975-91 civil war seriously damaged Lebanon's economic infrastructure, cut national output by half, and all but ended Lebanon's position as a Middle Eastern entrepot and banking hub. In the years since, Lebanon has rebuilt much of its war-torn physical and financial infrastructure by borrowing heavily - mostly from domestic banks. In an attempt to reduce the ballooning national debt, the Rafiq HARIRI government began an austerity program, reining in government expenditures, increasing revenue collection, and privatizing state enterprises, but economic and financial reform initiatives stalled and public debt continued to grow despite receipt of more than $2 billion in bilateral assistance at the Paris II Donors Conference. The Israeli-Hizballah conflict caused an estimated $3.6 billion in infrastructure damage in July and August 2006, and internal Lebanese political tension continues to hamper economic activity.

Lesotho Small, landlocked, and mountainous, Lesotho relies on remittances from miners employed in South Africa and customs duties from the Southern Africa Customs Union for the majority of government revenue. However, the government has recently strengthened its tax system to reduce dependency on customs duties. Completion of a major hydropower facility in January 1998 now permits the sale of water to South Africa, also generating royalties for Lesotho. As the number of mineworkers has declined steadily over the past several years, a small manufacturing base has developed based on farm products that support the milling, canning, leather, and jute industries, as well as a rapidly expanding apparel-assembly sector. The latter has grown significantly, mainly due to Lesotho qualifying for the trade benefits contained in the Africa Growth and Opportunity Act. The economy is still primarily based on subsistence agriculture, especially livestock, although drought has decreased agricultural activity. The extreme inequality in the distribution of income remains a major drawback. Lesotho has signed an Interim Poverty Reduction and Growth Facility with the IMF.

Liberia Civil war and government mismanagement have destroyed much of Liberia's economy, especially the infrastructure in and around Monrovia. Many businessmen have fled the country, taking capital and expertise with them. Some have returned, but many will not. Richly endowed with water, mineral resources, forests, and a climate favorable to agriculture, Liberia had been a producer and exporter of basic products - primarily raw timber and rubber. Local manufacturing, mainly foreign owned, had been small in scope. President JOHNSON SIRLEAF, a Harvard-trained economist, has taken steps to reduce corruption, build support from international donors, and encourage private investment. An embargo on timber exports has been lifted, opening a source of revenue for the government, but diamonds remain under UN sanctions. The reconstruction of infrastructure and the raising of incomes in this ravaged economy will largely depend on generous financial support and technical assistance from donor countries.

Libya The Libyan economy depends primarily upon revenues from the oil sector, which contribute about 95% of export earnings, about one-quarter of GDP, and 60% of public sector wages. Substantial revenues from the energy sector coupled with a small population give Libya one of the highest per capita GDPs in Africa, but little of this income flows down to the lower orders of society. Libyan officials in the past four years have made progress on economic reforms as part of a broader campaign to reintegrate the country into the international fold. This effort picked up steam after UN sanctions were lifted in September 2003 and as Libya announced in December 2003 that it would abandon programs to build weapons of mass destruction. Almost all US unilateral sanctions against Libya were removed in April 2004, helping Libya attract more foreign direct investment, mostly in the energy sector. Libyan oil and gas licensing rounds continue to draw high international interest. Libya faces a long road ahead in liberalizing the socialist-oriented economy, but initial steps - including applying for WTO membership, reducing some subsidies, and announcing plans for privatization - are laying the groundwork for a transition to a more market-based economy. The non-oil manufacturing and construction sectors, which account for more than 20% of GDP, have expanded from processing mostly agricultural products to include the production of petrochemicals, iron, steel, and aluminum. Climatic conditions and poor soils severely limit agricultural output, and Libya imports about 75% of its food.

Liechtenstein Despite its small size and limited natural resources, Liechtenstein has developed into a prosperous, highly industrialized, free-enterprise economy with a vital financial service sector and living standards on a par with its large European neighbors. The Liechtenstein economy is widely diversified with a large number of small businesses. Low business taxes - the maximum tax rate is 20% - and easy incorporation rules have induced many holding or so-called letter box companies to establish nominal offices in Liechtenstein, providing 30% of state revenues. The country participates in a customs union with Switzerland and uses the Swiss franc as its national currency. It imports more than 90% of its energy requirements. Liechtenstein has been a member of the European Economic Area (an organization serving as a bridge between the European Free Trade Association (EFTA) and the EU) since May 1995. The government is working to harmonize its economic policies with those of an integrated Europe.

Lithuania Lithuania, the Baltic state that has conducted the most trade with Russia, has slowly rebounded from the 1998 Russian financial crisis. Unemployment dropped from 11% in 2003 to 4.5% in 2006. Growing domestic consumption and increased investment have furthered recovery. Trade has been increasingly oriented toward the West. Lithuania has gained membership in the World Trade Organization and joined the EU in May 2004. Privatization of the large, state-owned utilities, particularly in the energy sector, is nearing completion. Overall, more than 80% of enterprises have been privatized. Foreign government and business support have helped in the transition from the old command economy to a market economy.

Luxembourg This stable, high-income economy - benefitting from its proximity to France, Belgium, and Germany - features solid growth, low inflation, and low unemployment. The industrial sector, initially dominated by steel, has become increasingly diversified to include chemicals, rubber, and other products. Growth in the financial sector, which now accounts for about 28% of GDP, has more than compensated for the decline in steel. Most banks are foreign-owned and have extensive foreign dealings. Agriculture is based on small family-owned farms. The economy depends on foreign and cross-border workers for about 60% of its labor force. Although Luxembourg, like all EU members, has suffered from the global economic slump, the country enjoys an extraordinarily high standard of living - GDP per capita ranks first in the world.

Macau Macau's well-to-do economy has remained one of the most open in the world since its reversion to China in 1999. Apparel exports and tourism are mainstays of the economy. Although the territory was hit hard by the 1997-98 Asian financial crisis and the global downturn in 2001, its economy grew 10.1% in 2002, 14.2% in 2003, and 28.6% in 2004 before slowing to 6.7% in 2005. The economic boom was powered by gambling, tourism, and the construction necessary to support such endeavours. China's decision to ease travel restrictions led to a rapid rise in the number of mainland visitors. The opening of Macau's gaming industry to foreign access in 2001 spurred an increase in public works expenditures. The budget also returned to surplus in 2002 because of the surge in visitors from China and a hike in taxes on gambling profits, which generated about 70% of government revenue. Much of Macau's textile industry may move to the mainland due to the termination in 2005 of the Multi-Fiber Agreement, which provided a near guarantee of export markets, leaving the territory more dependant on gambling and trade-related services to generate growth. The Closer Economic Partnership Agreement (CEPA) between Macau and mainland China that came into effect on 1 January 2004 offers many Macau-made products tariff-free access to the mainland. The range of products covered by CEPA was expanded on 1 January 2005.

Macedonia At independence in September 1991, Macedonia was the least developed of the Yugoslav republics, producing a mere 5% of the total federal output of goods and services. The collapse of Yugoslavia ended transfer payments from the central government and eliminated advantages from inclusion in a de facto free trade area. An absence of infrastructure, UN sanctions on the downsized Yugoslavia, and a Greek economic embargo over a dispute about the country's constitutional name and flag hindered economic growth until 1996. GDP subsequently rose each year through 2000. However, the leadership's commitment to economic reform, free trade, and regional integration was undermined by the ethnic Albanian insurgency of 2001. The economy shrank 4.5% because of decreased trade, intermittent border closures, increased deficit spending on security needs, and investor uncertainty. Growth barely recovered in 2002 to 0.9%, then averaged 4% per year during 2003-06. Macedonia has maintained macroeconomic stability with low inflation, but it has lagged the region in attracting foreign investment and job growth has been anemic. Macedonia has an extensive grey market, estimated to be more than 20 percent of GDP, that falls outside official statistics.

Madagascar Having discarded past socialist economic policies, Madagascar has since the mid 1990s followed a World Bank- and IMF-led policy of privatization and liberalization. This strategy placed the country on a slow and steady growth path from an extremely low level. Agriculture, including fishing and forestry, is a mainstay of the economy, accounting for more than one-fourth of GDP and employing 80% of the population. Exports of apparel have boomed in recent years primarily due to duty-free access to the United States. Deforestation and erosion, aggravated by the use of firewood as the primary source of fuel, are serious concerns. President RAVALOMANANA has worked aggressively to revive the economy following the 2002 political crisis, which triggered a 12% drop in GDP that year. Poverty reduction and combating corruption will be the centerpieces of economic policy for the next few years.

Malawi Landlocked Malawi ranks among the world's least developed countries. The economy is predominately agricultural, with about 90% of the population living in rural areas. Agriculture accounted for nearly 36% of GDP and 80% of export revenues in 2005. The performance of the tobacco sector is key to short-term growth as tobacco accounts for over 60% of exports. The economy depends on substantial inflows of economic assistance from the IMF, the World Bank, and individual donor nations. In late 2000, Malawi was approved for relief under the Heavily Indebted Poor Countries (HIPC) program. The government faces strong challenges, including developing a market economy, improving educational facilities, facing up to environmental problems, dealing with the rapidly growing problem of HIV/AIDS, and satisfying foreign donors that fiscal discipline is being tightened. In 2005, President MUTHARIKA championed an anticorruption campaign. Malawi's recent fiscal policy performance has been very strong, but a serious drought in 2005 and 2006 heightened pressure on the government to increase spending.

Malaysia Malaysia, a middle-income country, transformed itself from 1971 through the late 1990s from a producer of raw materials into an emerging multi-sector economy. Growth was almost exclusively driven by exports - particularly of electronics. As a result, Malaysia was hard hit by the global economic downturn and the slump in the information technology (IT) sector in 2001 and 2002. GDP in 2001 grew only 0.5% because of an estimated 11% contraction in exports, but a substantial fiscal stimulus package equal to US $1.9 billion mitigated the worst of the recession, and the economy rebounded in 2002 with a 4.1% increase. The economy grew 4.9% in 2003, notwithstanding a difficult first half, when external pressures from Severe Acute Respiratory Syndrome (SARS) and the Iraq War led to caution in the business community. Growth topped 7% in 2004 and 5% per year in 2005-06. As an oil and gas exporter, Malaysia has profited from higher world energy prices, although the rising cost of domestic gasoline and diesel fuel forced Kuala Lumpur to reduce government subsidies, contributing to higher inflation. Malaysia "unpegged" the ringgit from the US dollar in 2005 and the currency appreciated 6% against the dollar in 2006. Healthy foreign exchange reserves and a small external debt greatly reduce the risk that Malaysia will experience a financial crisis over the near term similar to the one in 1997. The economy remains dependent on continued growth in the US, China, and Japan - top export destinations and key sources of foreign investment.

Maldives Tourism, Maldives' largest industry, accounts for 28% of GDP and more than 60% of the Maldives' foreign exchange receipts. Over 90% of government tax revenue comes from import duties and tourism-related taxes. Fishing is the second leading sector. Agriculture and manufacturing continue to play a lesser role in the economy, constrained by the limited availability of cultivable land and the shortage of domestic labor. Most staple foods must be imported. Industry, which consists mainly of garment production, boat building, and handicrafts, accounts for about 7% of GDP. The Maldivian Government began an economic reform program in 1989 initially by lifting import quotas and opening some exports to the private sector. Subsequently, it has liberalized regulations to allow more foreign investment. Real GDP growth averaged over 7.5% per year for more than a decade. In late December 2004, a major tsunami left more than 100 dead, 12,000 displaced, and property damage exceeding $300 million. As a result of the tsunami, the GDP contracted by about 3.6% in 2005. A rebound in tourism, post-tsunami reconstruction, and development of new resorts helped boost GDP by nearly 18 percent in 2006. The trade deficit has expanded sharply as a result of high oil prices and imports of construction material. Diversifying beyond tourism and fishing is the major challenge facing the government. Over the longer term Maldivian authorities worry about the impact of erosion and possible global warming on their low-lying country; 80% of the area is one meter or less above sea level.

Mali Mali is among the poorest countries in the world, with 65% of its land area desert or semidesert and with a highly unequal distribution of income. Economic activity is largely confined to the riverine area irrigated by the Niger. About 10% of the population is nomadic and some 80% of the labor force is engaged in farming and fishing. Industrial activity is concentrated on processing farm commodities. Mali is heavily dependent on foreign aid and vulnerable to fluctuations in world prices for cotton, its main export, along with gold. The government has continued its successful implementation of an IMF-recommended structural adjustment program that is helping the economy grow, diversify, and attract foreign investment. Mali's adherence to economic reform and the 50% devaluation of the CFA franc in January 1994 have pushed up economic growth to a sturdy 5% average in 1996-2006. Worker remittances and external trade routes for the landlocked country have been jeopardized by continued unrest in neighboring Cote d'Ivoire.

Malta Major resources are limestone, a favorable geographic location, and a productive labor force. Malta produces only about 20% of its food needs, has limited fresh water supplies, and has few domestic energy sources. The economy is dependent on foreign trade, manufacturing (especially electronics and textiles), and tourism. Continued sluggishness in the European economy is holding back exports, tourism, and overall growth.

Marshall Islands US Government assistance is the mainstay of this tiny island economy. Agricultural production, primarily subsistence, is concentrated on small farms; the most important commercial crops are coconuts and breadfruit. Small-scale industry is limited to handicrafts, tuna processing, and copra. The tourist industry, now a small source of foreign exchange employing less than 10% of the labor force, remains the best hope for future added income. The islands have few natural resources, and imports far exceed exports. Under the terms of the Amended Compact of Free Association, the US will provide millions of dollars per year to the Marshall Islands (RMI) through 2023, at which time a Trust Fund made up of US and RMI contributions will begin perpetual annual payouts. Government downsizing, drought, a drop in construction, the decline in tourism, and less income from the renewal of fishing vessel licenses have held GDP growth to an average of 1% over the past decade.

Mauritania Half the population still depends on agriculture and livestock for a livelihood, even though many of the nomads and subsistence farmers were forced into the cities by recurrent droughts in the 1970s and 1980s. Mauritania has extensive deposits of iron ore, which account for nearly 40% of total exports. The nation's coastal waters are among the richest fishing areas in the world, but overexploitation by foreigners threatens this key source of revenue. The country's first deepwater port opened near Nouakchott in 1986. In the past, drought and economic mismanagement resulted in a buildup of foreign debt which now stands at more than three times the level of annual exports. In February 2000, Mauritania qualified for debt relief under the Heavily Indebted Poor Countries (HIPC) initiative and in December 2001 received strong support from donor and lending countries at a triennial Consultative Group review. A new investment code approved in December 2001 improved the opportunities for direct foreign investment. Ongoing negotiations with the IMF involve problems of economic reforms and fiscal discipline. In 2001, exploratory oil wells in tracts 80 km offshore indicated potential extraction at current world oil prices. Mauritania has an estimated 1 billion barrels of proved reserves. Substantial oil production and exports began in early 2006 and averaged 75,000 barrels per day for the year. Meantime the government emphasizes reduction of poverty, improvement of health and education, and promoting privatization of the economy.

Mauritius Since independence in 1968, Mauritius has developed from a low-income, agriculturally based economy to a middle-income diversified economy with growing industrial, financial, and tourist sectors. For most of the period, annual growth has been in the order of 5% to 6%. This remarkable achievement has been reflected in more equitable income distribution, increased life expectancy, lowered infant mortality, and a much-improved infrastructure. Sugarcane is grown on about 90% of the cultivated land area and accounts for 25% of export earnings. The government's development strategy centers on expanding local financial institutions and building a domestic information telecommunications industry. Mauritius has attracted more than 9,000 offshore entities, many aimed at commerce in India and South Africa, and investment in the banking sector alone has reached over $1 billion. Mauritius, with its strong textile sector, has been well poised to take advantage of the Africa Growth and Opportunity Act (AGOA).

Mayotte Economic activity is based primarily on the agricultural sector, including fishing and livestock raising. Mayotte is not self-sufficient and must import a large portion of its food requirements, mainly from France. The economy and future development of the island are heavily dependent on French financial assistance, an important supplement to GDP. Mayotte's remote location is an obstacle to the development of tourism.

Mexico Mexico has a free market economy that recently entered the trillion dollar class. It contains a mixture of modern and outmoded industry and agriculture, increasingly dominated by the private sector. Recent administrations have expanded competition in seaports, railroads, telecommunications, electricity generation, natural gas distribution, and airports. Per capita income is one-fourth that of the US; income distribution remains highly unequal. Trade with the US and Canada has tripled since the implementation of NAFTA in 1994. Mexico has 12 free trade agreements with over 40 countries including, Guatemala, Honduras, El Salvador, the European Free Trade Area, and Japan, putting more than 90% of trade under free trade agreements. The new Felipe CALDERON administration that took office in December 2006 faces many of the same challenges that former President FOX tried to tackle, including the need to upgrade infrastructure, modernize the tax system and labor laws, and allow private investment in the energy sector. CALDERON has stated that his top priorities include reducing poverty and creating jobs. The success of his economic agenda will depend on his ability to garner support from the opposition.

Micronesia, Federated States of Economic activity consists primarily of subsistence farming and fishing. The islands have few mineral deposits worth exploiting, except for high-grade phosphate. The potential for a tourist industry exists, but the remote location, a lack of adequate facilities, and limited air connections hinder development. The Amended Compact of Free Association with the US guarantees the Federated States of Micronesia (FSM) millions of dollars in annual aid through 2023, and establishes a Trust Fund into which the US and the FSM make annual contributions in order to provide annual payouts to the FSM in perpetuity after 2023. The country's medium-term economic outlook appears fragile due not only to the reduction in US assistance but also to the slow growth of the private sector.

Midway Islands The economy is based on providing support services for the national wildlife refuge activities located on the islands. All food and manufactured goods must be imported.

Moldova Moldova remains one of the poorest countries in Europe despite recent progress from its small economic base. It enjoys a favorable climate and good farmland but has no major mineral deposits. As a result, the economy depends heavily on agriculture, featuring fruits, vegetables, wine, and tobacco. Moldova must import almost all of its energy supplies. Moldova's dependence on Russian energy was underscored at the end of 2005, when a Russian-owned electrical station in Moldova's separatist Transnistria region cut off power to Moldova and Russia's Gazprom cut off natural gas to Moldova in disputes over pricing. The economy achieved six percent or more GDP growth every year from 2000-2005, though this was based largely on consumption fueled by remittances received from Moldovans working abroad. Russia's decision to ban Moldovan wine and agricultural products, coupled with its decision to double the price Moldova paid for Russian natural gas, slowed GDP growth in 2006 and greatly exacerbated Moldova's economic troubles. Economic reforms have been slow because of corruption and strong political forces backing government controls; nevertheless, the government's primary goal of EU integration has resulted in some market-oriented progress. The economy remains vulnerable to higher fuel prices, poor agricultural weather, and the skepticism of foreign investors. Also, the presence of an illegal separatist regime in Moldova's Transnistria region continues to be a drag on the Moldovan economy.

Monaco Monaco, bordering France on the Mediterranean coast, is a popular resort, attracting tourists to its casino and pleasant climate. In 2001, a major construction project extended the pier used by cruise ships in the main harbor. The principality has successfully sought to diversify into services and small, high-value-added, nonpolluting industries. The state has no income tax and low business taxes and thrives as a tax haven both for individuals who have established residence and for foreign companies that have set up businesses and offices. The state retains monopolies in a number of sectors, including tobacco, the telephone network, and the postal service. Living standards are high, roughly comparable to those in prosperous French metropolitan areas.

Mongolia Economic activity in Mongolia has traditionally been based on herding and agriculture. Mongolia has extensive mineral deposits. Copper, coal, molybdenum, tin, tungsten and gold account for a large part of industrial production. Soviet assistance, at its height one-third of GDP, disappeared almost overnight in 1990 and 1991 at the time of the dismantlement of the USSR. The following decade saw Mongolia endure both deep recession due to political inaction and natural disasters, as well as economic growth because of reform-embracing, free-market economics and extensive privatization of the formerly state-run economy. Severe winters and summer droughts in 2000-2002 resulted in massive livestock die-off and zero or negative GDP growth. This was compounded by falling prices for Mongolia's primary sector exports and widespread opposition to privatization. Growth was 10.6% in 2004, 5.5% in 2005, and 7.5% in 2006, largely because of high copper prices and new gold production. Mongolia's economy continues to be heavily influenced by its neighbors. For example, Mongolia purchases 80% of its petroleum products and a substantial amount of electric power from Russia, leaving it vulnerable to price increases. China is Mongolia's chief export partner and a main source of the "shadow" or "grey" economy. The World Bank and other international financial institutions estimate the grey economy to be at least equal to that of the official economy, but the former's actual size is difficult to calculate since the money does not pass through the hands of tax authorities or the banking sector. Remittances from Mongolians working abroad both legally and illegally are sizeable, and money laundering is a growing concern. Mongolia settled its $11 billion debt with Russia at the end of 2003 on favorable terms. Mongolia, which joined the World Trade Organization in 1997, seeks to expand its participation and integration into Asian regional economic and trade regimes.

Montenegro The republic of Montenegro severed its economy from federal control and from Serbia during the MILOSEVIC era and continues to maintain its own central bank, uses the euro instead of the Yugoslav dinar as official currency, collects customs tariffs, and manages its own budget. The dissolution of the loose political union between Serbia and Montenegro in 2006 led to separate membership in several international financial institutions, such as the European Bank for Reconstruction and Development. On January 18, 2007, Montenegro joined the World Bank and IMF. Montenegro is pursuing its own membership in the World Trade Organization as well as negotiating a Stabilization and Association agreement with the European Union in anticipation of eventual membership. Severe unemployment remains a key political and economic problem for this entire region. Montenegro has privatized its large aluminum complex - the dominant industry - as well as most of its financial sector, and has begun to attract foreign direct investment in the tourism sector.

Montserrat Severe volcanic activity, which began in July 1995, has put a damper on this small, open economy. A catastrophic eruption in June 1997 closed the airports and seaports, causing further economic and social dislocation. Two-thirds of the 12,000 inhabitants fled the island. Some began to return in 1998, but lack of housing limited the number. The agriculture sector continued to be affected by the lack of suitable land for farming and the destruction of crops. Prospects for the economy depend largely on developments in relation to the volcanic activity and on public sector construction activity. The UK has launched a three-year $122.8 million aid program to help reconstruct the economy. Half of the island is expected to remain uninhabitable for another decade.

Morocco Moroccan economic policies brought macroeconomic stability to the country in the early 1990s but have not spurred growth sufficient to reduce unemployment that nears 20% in urban areas. Poverty has increased due to the volatile nature of GDP, Morocco's continued dependence on foreign energy, and its inability to promote the growth of small and medium size enterprises. However, GDP growth rebounded to 6.7% in 2006 due to high rainfall, which resulted in a strong second harvest. Despite structural adjustment programs supported by the IMF, the World Bank, and the Paris Club, the dirham is only fully convertible for current account transactions and Morocco's financial sector is rudimentary. Moroccan authorities understand that reducing poverty and providing jobs is key to domestic security and development. In 2004, Moroccan authorities instituted measures to boost foreign direct investment and trade by signing a free trade agreement with the US, which entered into force in January 2006, and sold government shares in the state telecommunications company and in the largest state-owned bank. Long-term challenges include preparing the economy for freer trade with the US and European Union, improving education and job prospects for Morocco's youth, and raising living standards, which the government hopes to achieve by increasing tourist arrivals and boosting competitiveness in textiles.

Mozambique At independence in 1975, Mozambique was one of the world's poorest countries. Socialist mismanagement and a brutal civil war from 1977-92 exacerbated the situation. In 1987, the government embarked on a series of macroeconomic reforms designed to stabilize the economy. These steps, combined with donor assistance and with political stability since the multi-party elections in 1994, have led to dramatic improvements in the country's growth rate. Inflation was reduced to single digits during the late 1990s although it returned to double digits in 2000-06. Fiscal reforms, including the introduction of a value-added tax and reform of the customs service, have improved the government's revenue collection abilities. In spite of these gains, Mozambique remains dependent upon foreign assistance for much of its annual budget, and the majority of the population remains below the poverty line. Subsistence agriculture continues to employ the vast majority of the country's work force. A substantial trade imbalance persists although the opening of the Mozal aluminum smelter, the country's largest foreign investment project to date, has increased export earnings. In late 2005, and after years of negotiations, the government signed an agreement to gain Portugal's majority share of the Cahora Bassa Hydroelectricity (HCB) company, a dam that was not transferred to Mozambique at independence because of the ensuing civil war and unpaid debts. More power is needed for additional investment projects in titanium extraction and processing and garment manufacturing that could further close the import/export gap. Mozambique's once substantial foreign debt has been reduced through forgiveness and rescheduling under the IMF's Heavily Indebted Poor Countries (HIPC) and Enhanced HIPC initiatives, and is now at a manageable level.

Namibia The economy is heavily dependent on the extraction and processing of minerals for export. Mining accounts for 20% of GDP. Rich alluvial diamond deposits make Namibia a primary source for gem-quality diamonds. Namibia is the fourth-largest exporter of nonfuel minerals in Africa, the world's fifth-largest producer of uranium, and the producer of large quantities of lead, zinc, tin, silver, and tungsten. The mining sector employs only about 3% of the population while about half of the population depends on subsistence agriculture for its livelihood. Namibia normally imports about 50% of its cereal requirements; in drought years food shortages are a major problem in rural areas. A high per capita GDP, relative to the region, hides the world's worst inequality of income distribution. The Namibian economy is closely linked to South Africa with the Namibian dollar pegged one-to-one to the South African rand. Privatization of several enterprises in coming years may stimulate long-run foreign investment. Increased fish production and mining of zinc, copper, uranium, and silver spurred growth in 2003-06.

Nauru Revenues of this tiny island have traditionally come from exports of phosphates, now significantly depleted. An Australian company in 2005 entered into an agreement intended to exploit remaining supplies. Few other resources exist with most necessities being imported, mainly from Australia, its former occupier and later major source of support. The rehabilitation of mined land and the replacement of income from phosphates are serious long-term problems. In anticipation of the exhaustion of Nauru's phosphate deposits, substantial amounts of phosphate income were invested in trust funds to help cushion the transition and provide for Nauru's economic future. As a result of heavy spending from the trust funds, the government faces virtual bankruptcy. To cut costs the government has frozen wages and reduced overstaffed public service departments. In 2005, the deterioration in housing, hospitals, and other capital plant continued, and the cost to Australia of keeping the government and economy afloat continued to climb. Few comprehensive statistics on the Nauru economy exist, with estimates of Nauru's GDP varying widely.

Navassa Island Subsistence fishing and commercial trawling occur within refuge waters.

Nepal Nepal is among the poorest and least developed countries in the world with almost one-third of its population living below the poverty line. Agriculture is the mainstay of the economy, providing a livelihood for three-fourths of the population and accounting for 38% of GDP. Industrial activity mainly involves the processing of agricultural produce including jute, sugarcane, tobacco, and grain. Security concerns relating to the Maoist conflict have led to a decrease in tourism, a key source of foreign exchange. Nepal has considerable scope for exploiting its potential in hydropower and tourism, areas of recent foreign investment interest. Prospects for foreign trade or investment in other sectors will remain poor, however, because of the small size of the economy, its technological backwardness, its remoteness, its landlocked geographic location, its civil strife, and its susceptibility to natural disaster.

Netherlands The Netherlands has a prosperous and open economy, which depends heavily on foreign trade. The economy is noted for stable industrial relations, moderate unemployment and inflation, a sizable current account surplus, and an important role as a European transportation hub. Industrial activity is predominantly in food processing, chemicals, petroleum refining, and electrical machinery. A highly mechanized agricultural sector employs no more than 2% of the labor force but provides large surpluses for the food-processing industry and for exports. The Netherlands, along with 11 of its EU partners, began circulating the euro currency on 1 January 2002. The country continues to be one of the leading European nations for attracting foreign direct investment. Economic growth slowed considerably in 2001-06, as part of the global economic slowdown, but for the four years before that, annual growth averaged nearly 4%, well above the EU average.

Netherlands Antilles Tourism, petroleum refining, and offshore finance are the mainstays of this small economy, which is closely tied to the outside world. Although GDP has declined or grown slightly in each of the past eight years, the islands enjoy a high per capita income and a well-developed infrastructure compared with other countries in the region. Almost all consumer and capital goods are imported, the US and Mexico being the major suppliers. Poor soils and inadequate water supplies hamper the development of agriculture. Budgetary problems hamper reform of the health and pension systems of an aging population.

New Caledonia New Caledonia has about 25% of the world's known nickel resources. Only a small amount of the land is suitable for cultivation, and food accounts for about 20% of imports. In addition to nickel, substantial financial support from France - equal to more than 15% of GDP - and tourism are keys to the health of the economy. Substantial new investment in the nickel industry, combined with the recovery of global nickel prices, brightens the economic outlook for the next several years.

New Zealand Over the past 20 years the government has transformed New Zealand from an agrarian economy dependent on concessionary British market access to a more industrialized, free market economy that can compete globally. This dynamic growth has boosted real incomes (but left behind many at the bottom of the ladder), broadened and deepened the technological capabilities of the industrial sector, and contained inflationary pressures. Per capita income has risen for eight consecutive years and was more than $25,500 in 2006 in purchasing power parity terms. Consumer and government spending have driven growth in recent years, and exports picked up in 2006 after struggling for several years. Exports are equal to about 28% of GDP, down from 33 percent of GDP in 2001. Thus far the economy has been resilient, and the Labor Government promises that expenditures on health, education, and pensions will increase proportionately to output.

Nicaragua Nicaragua, the second poorest country in the Western Hemisphere, has low per capita income and widespread underemployment. Distribution of income is one of the most unequal on the globe. While the country has progressed toward macroeconomic stability in the past few years, GDP annual growth has been far too low to meet the country's needs, forcing the country to rely on international economic assistance to meet fiscal and debt financing obligations. Nicaragua qualified in early 2004 for some $4.5 billion in foreign debt reduction under the Heavily Indebted Poor Countries (HIPC) initiative and in November 2006 obtained over $800 million in debt relief from the Inter-American Development Bank. In October 2005, Nicaragua ratified the US-Central America Free Trade Agreement (CAFTA), which will provide an opportunity for Nicaragua to attract investment, create jobs, and deepen economic development. Energy shortages, however, are a serious bottleneck to growth.

Niger Niger is one of the poorest countries in the world, ranking last on the United Nations Development Fund index of human development. It is a landlocked, Sub-Saharan nation, whose economy centers on subsistence crops, livestock, and some of the world's largest uranium deposits. Drought cycles, desertification, and a 2.9% population growth rate, have undercut the economy. Niger shares a common currency, the CFA franc, and a common central bank, the Central Bank of West African States (BCEAO), with seven other members of the West African Monetary Union. In December 2000, Niger qualified for enhanced debt relief under the International Monetary Fund program for Highly Indebted Poor Countries (HIPC) and concluded an agreement with the Fund on a Poverty Reduction and Growth Facility (PRGF). Debt relief provided under the enhanced HIPC initiative significantly reduces Niger's annual debt service obligations, freeing funds for expenditures on basic health care, primary education, HIV/AIDS prevention, rural infrastructure, and other programs geared at poverty reduction. In December 2005, Niger received 100% multilateral debt relief from the IMF, which translates into the forgiveness of approximately $86 million USD in debts to the IMF, excluding the remaining assistance under HIPC. Nearly half of the government's budget is derived from foreign donor resources. Future growth may be sustained by exploitation of oil, gold, coal, and other mineral resources. Uranium prices have increased sharply in the last few years. A drought and locust infestation in 2005 led to food shortages for as many as 2.5 million Nigeriens.

Nigeria Oil-rich Nigeria, long hobbled by political instability, corruption, inadequate infrastructure, and poor macroeconomic management, is undertaking some reforms under a new reform-minded administration. Nigeria's former military rulers failed to diversify the economy away from its overdependence on the capital-intensive oil sector, which provides 20% of GDP, 95% of foreign exchange earnings, and about 65% of budgetary revenues. The largely subsistence agricultural sector has failed to keep up with rapid population growth - Nigeria is Africa's most populous country - and the country, once a large net exporter of food, now must import food. Following the signing of an IMF stand-by agreement in August 2000, Nigeria received a debt-restructuring deal from the Paris Club and a $1 billion credit from the IMF, both contingent on economic reforms. Nigeria pulled out of its IMF program in April 2002, after failing to meet spending and exchange rate targets, making it ineligible for additional debt forgiveness from the Paris Club. In the last year the government has begun showing the political will to implement the market-oriented reforms urged by the IMF, such as to modernize the banking system, to curb inflation by blocking excessive wage demands, and to resolve regional disputes over the distribution of earnings from the oil industry. In 2003, the government began deregulating fuel prices, announced the privatization of the country's four oil refineries, and instituted the National Economic Empowerment Development Strategy, a domestically designed and run program modeled on the IMF's Poverty Reduction and Growth Facility for fiscal and monetary management. In November 2005, Abuja won Paris Club approval for a debt-relief deal that eliminated $18 billion of debt in exchange for $12 billion in payments-a total package worth $30 billion of Nigeria's total $37 billion external debt. The deal requires Nigeria to be subject to stringent IMF reviews. GDP rose strongly in 2006, based largely on increased oil exports and high global crude prices.

Niue The economy suffers from the typical Pacific island problems of geographic isolation, few resources, and a small population. Government expenditures regularly exceed revenues, and the shortfall is made up by critically needed grants from New Zealand that are used to pay wages to public employees. Niue has cut government expenditures by reducing the public service by almost half. The agricultural sector consists mainly of subsistence gardening, although some cash crops are grown for export. Industry consists primarily of small factories to process passion fruit, lime oil, honey, and coconut cream. The sale of postage stamps to foreign collectors is an important source of revenue. The island in recent years has suffered a serious loss of population because of emigration to New Zealand. Efforts to increase GDP include the promotion of tourism and a financial services industry, although the International Banking Repeal Act of 2002 resulted in the termination of all offshore banking licenses. Economic aid from New Zealand in 2002 was about US$2 million. Niue suffered a devastating typhoon in January 2004, which decimated nascent economic programs. While in the process of rebuilding, Niue has been dependent on foreign aid.

Norfolk Island Tourism, the primary economic activity, has steadily increased over the years and has brought a level of prosperity unusual among inhabitants of the Pacific islands. The agricultural sector has become self-sufficient in the production of beef, poultry, and eggs.

Northern Mariana Islands The economy benefits substantially from financial assistance from the US. The rate of funding has declined as locally generated government revenues have grown. The key tourist industry employs about 50% of the work force and accounts for roughly one-fourth of GDP. Japanese tourists predominate. Annual tourist entries have exceeded one-half million in recent years, but financial difficulties in Japan have caused a temporary slowdown. The agricultural sector is made up of cattle ranches and small farms producing coconuts, breadfruit, tomatoes, and melons. Garment production is by far the most important industry with the employment of 17,500 mostly Chinese workers and sizable shipments to the US under duty and quota exemptions.

Norway The Norwegian economy is a prosperous bastion of welfare capitalism, featuring a combination of free market activity and government intervention. The government controls key areas such as the vital petroleum sector (through large-scale state enterprises). The country is richly endowed with natural resources - petroleum, hydropower, fish, forests, and minerals - and is highly dependent on its oil production and international oil prices, with oil and gas accounting for one-third of exports. Only Saudi Arabia and Russia export more oil than Norway. Norway opted to stay out of the EU during a referendum in November 1994; nonetheless, it contributes sizably to the EU budget. The government has moved ahead with privatization. Although Norwegian oil production peaked in 2000, natural gas production is still rising. Norwegians realize that once their gas production peaks they will eventually face declining oil and gas revenues; accordingly, Norway has been saving its oil-and-gas-boosted budget surpluses in a Government Petroleum Fund, which is invested abroad and now is valued at more than $250 billion. After lackluster growth of less than 1% in 2002-03, GDP growth picked up to 3-4% in 2004-06. Norway's economy remains buoyant. Domestic economic activity is, and will continue to be, the main driver of growth, supported by high consumer confidence and strong investment spending in the offshore oil and gas sector.

Oman Oman is a middle-income economy in the Middle East with notable oil and gas resources, a substantial trade surplus, and low inflation. Sustained high oil prices in recent years have helped build Oman's budget and trade surpluses and foreign reserves. Oman joined the World Trade Organization in November 2000 and continues to liberalize its markets. To reduce unemployment and limit dependence on foreign labor, the government is encouraging the replacement of foreign expatriate workers with local workers. Oman actively seeks private foreign investors, especially in the industrial, information technology, tourism, and higher education fields. Industrial development plans focus on gas resources, metal manufacturing, petrochemicals, and international transshipment ports.