Y (continued 74)

Cote d'Ivoire Cote d'Ivoire is heavily dependent on agriculture and related activities, which engage roughly 68% of the population. Cote d'Ivoire is the world's largest producer and exporter of cocoa beans and a significant producer and exporter of coffee and palm oil. Consequently, the economy is highly sensitive to fluctuations in international prices for these products, and, to a lesser extent, in climatic conditions. Cocoa, oil, and coffee are the country's top export revenue earners, but the country is also producing gold. Since the end of the civil war in 2003, political turmoil has continued to damage the economy, resulting in the loss of foreign investment and slow economic growth. GDP grew by more than 2% in 2008 and around 4% per year in 2009-10. Per capita income has declined by 15% since 1999, but registered a slight improvement in 2009-10. Power cuts caused by a turbine failure in early 2010 slowed economic activity. Cote d'Ivoire in 2010 signed agreements to restructure its Paris Club bilateral, other bilateral, and London Club debt. Cote d'Ivoire's long term challenges include political instability and degrading infrastructure.

Croatia Once one of the wealthiest of the Yugoslav republics, Croatia's economy suffered badly during the 1991-95 war as output collapsed and the country missed the early waves of investment in Central and Eastern Europe that followed the fall of the Berlin Wall. Between 2000 and 2007, however, Croatia's economic fortunes began to improve slowly, with moderate but steady GDP growth between 4% and 6% led by a rebound in tourism and credit-driven consumer spending. Inflation over the same period has remained tame and the currency, the kuna, stable. Nevertheless, difficult problems still remain, including a stubbornly high unemployment rate, a growing trade deficit and uneven regional development. The state retains a large role in the economy, as privatization efforts often meet stiff public and political resistance. While macroeconomic stabilization has largely been achieved, structural reforms lag because of deep resistance on the part of the public and lack of strong support from politicians. The EU accession process should accelerate fiscal and structural reform. While long term growth prospects for the economy remain strong, Croatia will face significant pressure as a result of the global financial crisis. Croatia's high foreign debt, anemic export sector, strained state budget, and over-reliance on tourism revenue will result in higher risk to economic stability over the medium term.

Cuba The government continues to balance the need for economic loosening against a desire for firm political control. The government announced it would eliminate 500,000 state jobs by March 2011 and has expanded opportunities for self-employment. President CASTRO said such changes were needed to update the economic model to ensure the survival of socialism. It has rolled back limited reforms undertaken in the 1990s to increase enterprise efficiency and alleviate serious shortages of food, consumer goods, and services. The average Cuban's standard of living remains at a lower level than before the downturn of the 1990s, which was caused by the loss of Soviet aid and domestic inefficiencies. Since late 2000, Venezuela has been providing oil on preferential terms, and it currently supplies about 100,000 barrels per day of petroleum products. Cuba has been paying for the oil, in part, with the services of Cuban personnel in Venezuela including some 30,000 medical professionals.

Curacao Tourism, petroleum refining, and offshore finance are the mainstays of this small economy, which is closely tied to the outside world. Although GDP grew slightly during the past decade, the island enjoys a high per capita income and a well-developed infrastructure compared with other countries in the region. Curacao has an excellent natural harbor that can accommodate large oil tankers. The Venezuelan state oil company leases the single refinery on the island from the government; most of the oil for the refinery is imported from Venezuela; most of the refined products are exported to the US. Almost all consumer and capital goods are imported, with the US, Brazil, Italy, and Mexico being the major suppliers. The government is attempting to diversify its industry and trade and has signed an Association Agreement with the EU to expand business there. Poor soils and inadequate water supplies hamper the development of agriculture. Budgetary problems complicate reform of the health and pension systems for an aging population.

Cyprus The area of the Republic of Cyprus under government control has a market economy dominated by the service sector, which accounts for nearly four-fifths of GDP. Tourism, financial services, and real estate are the most important sectors. Erratic growth rates over the past decade reflect the economy's reliance on tourism, which often fluctuates with political instability in the region and economic conditions in Western Europe. Nevertheless, the economy in the area under government control has grown at a rate well above the EU average since 2000. Cyprus joined the European Exchange Rate Mechanism (ERM2) in May 2005 and adopted the euro as its national currency on 1 January 2008. An aggressive austerity program in the preceding years, aimed at paving the way for the euro, helped turn a soaring fiscal deficit (6.3% in 2003) into a surplus of 1.2% in 2008, and reduced inflation to 4.7%. This prosperity came under pressure in 2009, as construction and tourism slowed in the face of reduced foreign demand triggered by the ongoing global financial crisis. Although Cyprus lagged its EU peers in showing signs of stress from the global crisis, the economy tipped into recession in mid 2009 and contracted 1.8% for the year. In addition, the budget deficit is on the rise and reached 5.7% of GDP in 2010, a violation of the EU's budget deficit criteria of no more than 3% of GDP. In response to the country's deteriorating finances, Nicosia is promising to implement measures to cut the cost of the state payroll, curb tax evasion, and revamp social benefits. However, it has been slow to act, lacking a consensus in parliament and among the social partners for its proposed measures.

Czech Republic The Czech Republic is one of the most stable and prosperous of the post-Communist states of Central and Eastern Europe. Maintaining an open investment climate has been a key element of the Czech Republic's transition from a communist, centrally planned economy to a functioning market economy. As a member of the European Union, with an advantageous location in the center of Europe, a relatively low cost structure, and a well-qualified labor force, the Czech Republic is an attractive destination for foreign investment. Prior to its EU accession in 2004, the Czech government harmonized its laws and regulations with those of the European Union. The small, open, export-driven Czech economy grew by over 6% annually from 2005-2007 and by 2.5% in 2008. The conservative Czech financial system has remained relatively healthy throughout 2009. Nevertheless, the real economy contracted by 4.1% in 2009, mainly due to a significant drop in external demand as the Czech Republic's main export markets fell into recession. GDP is expected to grow by 2.4% in 2010, driven largely by a rebound in external demand, particularly from Gremany.

Denmark This thoroughly modern market economy features a high-tech agricultural sector, state-of-the-art industry with world-leading firms in pharmaceuticals, maritime shipping and renewable energy, and a high dependence on foreign trade. The Danish economy is also characterized by extensive government welfare measures, an equitable distribution of income, and comfortable living standards. Denmark is a net exporter of food and energy and enjoys a comfortable balance of payments surplus. After a long consumption-driven upswing, Denmark's economy began slowing in 2007 with the end of a housing boom. Housing prices dropped markedly in 2008-09. The global financial crisis has exacerbated this cyclical slowdown through increased borrowing costs and lower export demand, consumer confidence, and investment. The global financial crises cut Danish GDP by 0.9% in 2008 and 4.7% in 2009. Historically low levels of unemployment rose sharply with the recession but remain below 5%, about half the level of the EU. Denmark made a modest recovery in 2010 in part because of increased government spending. An impending decline in the ratio of workers to retirees will be a major long-term issue. Denmark maintained a healthy budget surplus for many years up to 2008, but the budget balance swung into deficit during 2009-10. Nonetheless, Denmark's fiscal position remains among the strongest in the EU. Despite previously meeting the criteria to join the European Economic and Monetary Union (EMU), so far Denmark has decided not to join, although the Danish krone remains pegged to the euro.

Dhekelia Economic activity is limited to providing services to the military and their families located in Dhekelia. All food and manufactured goods must be imported.

Djibouti The economy is based on service activities connected with the country's strategic location and status as a free trade zone in the Horn of Africa. Two-thirds of Djibouti's inhabitants live in the capital city; the remainder are mostly nomadic herders. Scanty rainfall limits crop production to fruits and vegetables, and most food must be imported. Djibouti provides services as both a transit port for the region and an international transshipment and refueling center. Imports and exports from landlocked neighbor Ethiopia represent 70% of port activity at Djibouti's container terminal. Djibouti has few natural resources and little industry. The nation is, therefore, heavily dependent on foreign assistance to help support its balance of payments and to finance development projects. An unemployment rate of nearly 60% in urban areas continues to be a major problem. While inflation is not a concern, due to the fixed tie of the Djiboutian franc to the US dollar, the artificially high value of the Djiboutian franc adversely affects Djibouti's balance of payments. Per capita consumption dropped an estimated 35% between 1999 and 2006 because of recession, civil war, and a high population growth rate (including immigrants and refugees). Djibouti has experienced relatively minimal impact from the global economic downturn, but its reliance on diesel-generated electricity and imported food leave average consumers vulnerable to global price shocks.

Dominica The Dominican economy has been dependent on agriculture - primarily bananas - in years past, but increasingly has been driven by tourism as the government seeks to promote Dominica as an "ecotourism" destination. In order to diversify the island's production base, the government also is attempting to develop an offshore financial sector and has signed an agreement with the EU to develop geothermal energy resources. In 2003, the government began a comprehensive restructuring of the economy - including elimination of price controls, privatization of the state banana company, and tax increases - to address an economic and financial crisis and to meet IMF requirements. This restructuring paved the way for an economic recovery - real growth for 2006 reached a two-decade high - and helped to reduce the debt burden, which remains at about 85% of GDP. Hurricane Dean struck the island in August 2007 causing damages equivalent to 20% of GDP. In 2009, growth slowed as a result of the global recession; it picked up only slightly in 2010.

Dominican Republic The Dominican Republic has long been viewed primarily as an exporter of sugar, coffee, and tobacco, but in recent years the service sector has overtaken agriculture as the economy's largest employer, due to growth in tourism and free trade zones. The economy is highly dependent upon the US, the destination for nearly 60% of exports. Remittances from the US amount to about a tenth of GDP, equivalent to almost half of exports and three-quarters of tourism receipts. The country suffers from marked income inequality; the poorest half of the population receives less than one-fifth of GDP, while the richest 10% enjoys nearly 40% of GDP. High unemployment and underemployment remains an important long-term challenge. The Central America-Dominican Republic Free Trade Agreement (CAFTA-DR) came into force in March 2007, boosting investment and exports and reducing losses to the Asian garment industry. The growth of the Dominican Republic's economy slowed in 2008-09 because of the global recession, but still remained one of the fastest growing in the region.

Ecuador Ecuador is substantially dependent on its petroleum resources, which have accounted for more than half of the country's export earnings and one-fourth of public sector revenues in recent years. In 1999/2000, Ecuador suffered a severe economic crisis, with GDP contracting by more than 6%. Poverty increased significantly, the banking system collapsed, and Ecuador defaulted on its external debt later that year. In March 2000, the Congress approved a series of structural reforms that also provided for the adoption of the US dollar as legal tender. Dollarization stabilized the economy, and positive growth returned in the years that followed, helped by high oil prices, remittances, and increased non-traditional exports. From 2002-06 the economy grew 5.5%, the highest five-year average in 25 years. After moderate growth in 2007, the economy reached a growth rate of 7.2% in 2008, in large part due to high global petroleum prices. President Rafael CORREA, who took office in January 2007, defaulted on Ecuador's sovereign debt in December 2008, refusing to make payment on $3.2 billion in international bonds, representing over 80% of Ecuador's private external debt. Economic policies under the CORREA administration - including an announcement in late 2009 terminating 13 bilateral investment treaties - have generated economic uncertainty and discouraged private investment. The Ecuadorian economy slowed to 0.4% growth in 2009 due to the global financial crisis, and the sharp decline in world oil prices and remittance flows, but picked up to a 2.4% growth rate in 2010.

Egypt Occupying the northeast corner of the African continent, Egypt is bisected by the highly fertile Nile valley, where most economic activity takes place. Egypt's economy was highly centralized during the rule of former President Gamal Abdel NASSER but has opened up considerably under former President Anwar EL-SADAT and current President Mohamed Hosni MUBARAK. Cairo from 2004 to 2008 aggressively pursued economic reforms to attract foreign investment and facilitate GDP growth. The global financial crisis has slowed the reform efforts. The budget deficit climbed to over 8% of GDP and Egypt's GDP growth slowed to 4.6% in 2009, predominately due to reduced growth in export-oriented sectors, including manufacturing and tourism, and Suez Canal revenues. In 2010, the government spent more on infrastructure and public projects, and exports drove GDP growth to more than 5%, but GDP growth in 2011 is unlikely to bounce back to pre-global financial recession levels, when it stood at 7%. Despite the relatively high levels of economic growth over the past few years, living conditions for the average Egyptian remain poor.

El Salvador Despite being the smallest country geographically in Central America, El Salvador has the third largest economy in the region. The economy took a hit from the global recession and real GDP contracted by 3.5% in 2009. The economy began a slow recovery in 2010 on the back of improved export and remittances figures. Remittances accounted for 16% of GDP in 2009, and about a third of all households receive these transfers. In 2006 El Salvador was the first country to ratify the Dominican Republic-Central American Free Trade Agreement (CAFTA-DR), which has bolstered the export of processed foods, sugar, and ethanol, and supported investment in the apparel sector amid increased Asian competition and the expiration of the Multi-Fiber Agreement in 2005. El Salvador has promoted an open trade and investment environment, and has embarked on a wave of privatizations extending to telecom, electricity distribution, banking, and pension funds. In late 2006, the government and the Millennium Challenge Corporation signed a five-year, $461 million compact to stimulate economic growth and reduce poverty in the country's northern region, the primary conflict zone during the civil war, through investments in education, public services, enterprise development, and transportation infrastructure. With the adoption of the US dollar as its currency in 2001, El Salvador lost control over monetary policy. Any counter-cyclical policy response to the downturn must be through fiscal policy, which is constrained by legislative requirements for a two-thirds majority to approve any international financing.

Equatorial Guinea The discovery and exploitation of large oil reserves have contributed to dramatic economic growth but fluctuating oil prices have produced huge swings in GDP growth in recent years. Forestry, farming, and fishing are also major components of GDP. Subsistence farming is the dominate form of livelihood. Although pre-independence Equatorial Guinea counted on cocoa production for hard currency earnings, the neglect of the rural economy under successive regimes has diminished potential for agriculture-led growth (the government has stated its intention to reinvest some oil revenue into agriculture). A number of aid programs sponsored by the World Bank and the IMF have been cut off since 1993 because of corruption and mismanagement. Government officials and their family members own most businesses, but corruption is rampant. Undeveloped natural resources include titanium, iron ore, manganese, uranium, and alluvial gold. Growth remained strong in 2008, led by oil, but dropped in 2009-10, as the price of oil fell.

Eritrea Since independence from Ethiopia in 1993, Eritrea has faced the economic problems of a small, desperately poor country, accentuated by the recent implementation of restrictive economic policies. Eritrea has a command economy under the control of the sole political party, the People's Front for Democracy and Justice (PFDJ). Like the economies of many African nations, a large share of the population - nearly 80% - is engaged in subsistence agriculture, but they produce only a small share of total output. Since the conclusion of the Ethiopian-Eritrea war in 2000, the government has maintained a firm grip on the economy, expanding the use of the military and party-owned businesses to complete Eritrea's development agenda. The government strictly controls the use of foreign currency by limiting access and availability. Few private enterprises remain in Eritrea. Eritrea's economy depends heavily on taxes paid by members of the diaspora. Erratic rainfall and the delayed demobilization of agriculturalists from the military continue to interfere with agricultural production, and Eritrea's recent harvests have been unable to meet the food needs of the country. The Government continues to place its hope for additional revenue on the development of several international mining projects. Despite difficulties for international companies in working with the Eritrean Government, a Canadian mining company signed a contract with the government in 2007 and began mineral extraction in 2010. Eritrea's economic future depends upon its ability to master social problems such as illiteracy, unemployment, and low skills, and more importantly, on the government's willingness to support a true market economy.

Estonia Estonia, a 2004 European Union entrant, has a modern market-based economy and one of the higher per capita income levels in Central Europe and the Baltic region. Estonia's successive governments have pursued a free market, pro-business economic agenda and have wavered little in their commitment to pro-market reforms. The current government has pursued relatively sound fiscal policies that have resulted in balanced budgets and very low public debt. The economy benefits from strong electronics and telecommunications sectors and strong trade ties with Finland, Sweden, and Germany. Tallinn's priority has been to sustain high growth rates - on average 8% per year from 2003 to 2007. Estonia's economy slowed down markedly and fell sharply into recession in mid-2008, primarily as a result of an investment and consumption slump following the bursting of the real estate market bubble. GDP dropped nearly 15% in 2009, among the world's highest rates of contraction. A modest recovery began in 2010, but unemployment stands above 13%. Estonia adopted the euro in January 2011.

Ethiopia Ethiopia's poverty-stricken economy is based on agriculture, accounting for almost 45% of GDP, and 85% of total employment. The agricultural sector suffers from frequent drought and poor cultivation practices. Coffee is critical to the Ethiopian economy with exports of some $350 million in 2006, but historically low prices have seen many farmers switching to qat to supplement income. Under Ethiopia's constitution, the state owns all land and provides long-term leases to the tenants; the system continues to hamper growth in the industrial sector as entrepreneurs are unable to use land as collateral for loans. In November 2001, Ethiopia qualified for debt relief from the Highly Indebted Poor Countries (HIPC) initiative, and in December 2005 the IMF forgave Ethiopia's debt. The global economic downturn led to balance of payments pressures, partially alleviated by recent emergency funding from the IMF. While GDP growth has remained high, per capita inome is among the lowest in the world.

European Union Internally, the EU has abolished trade barriers, adopted a common currency, and is striving toward convergence of living standards. Internationally, the EU aims to bolster Europe's trade position and its political and economic power. Because of the great differences in per capita income among member states (from $7,000 to $78,000) and in national attitudes toward issues like inflation, debt, and foreign trade, the EU faces difficulties in devising and enforcing common policies. In the wake of the global economic crisis, the European Commission projected that the EU's economy would shrink by 4% in 2009 and 0.1% in 2010. The EU has recovered from the crisis faster than expected, however, and the Commission estimates 2010 growth at 1.8%. Significant risks to growth nevertheless remain, including, high official debts and deficits, aging populations, over-regulation of non-financial businesses, and doubts about the sustainability of European Economic and Monetary Union (EMU). In June 2010, prompted by the Greek financial crisis, the EU and the IMF set up a $1 trillion bailout fund to rescue any EMU member in danger of default, but it has not calmed market jitters that have diminished the value of the euro. Eleven established EU member states introduced the euro as their common currency on 1 January 1999 (Greece did so two years later), but the UK and Denmark have 'opt-outs' that allow them to keep their national currencies, and Sweden has not taken the steps needed to participate. Between 2004 and 2007, the EU admitted 12 countries that are, in general, less advanced economically than the other 15. Of the 12 most recent member states, only Slovenia (1 January 2007), Cyprus and Malta (1 January 2008), Slovakia (1 January 2009), and Estonia (1 January 2011) have adopted the euro; the remaining states other than the UK and Denmark are legally required to adopt the currency upon meeting EU's fiscal and monetary convergence criteria.

Falkland Islands (Islas Malvinas) The economy was formerly based on agriculture, mainly sheep farming, but today fishing contributes the bulk of economic activity. In 1987, the government began selling fishing licenses to foreign trawlers operating within the Falkland Islands' exclusive fishing zone. These license fees total more than $40 million per year, which help support the island's health, education, and welfare system. Squid accounts for 75% of the fish taken. Dairy farming supports domestic consumption; crops furnish winter fodder. Foreign exchange earnings come from shipments of high-grade wool to the UK and the sale of postage stamps and coins. The islands are now self-financing except for defense. The British Geological Survey announced a 200-mile oil exploration zone around the islands in 1993, and early seismic surveys suggest substantial reserves capable of producing 500,000 barrels per day; to date, no exploitable site has been identified. An agreement between Argentina and the UK in 1995 seeks to defuse licensing and sovereignty conflicts that would dampen foreign interest in exploiting potential oil reserves. Political tensions between the UK and Argentina rose in early 2010 after a UK company began oil drilling activities in the waters around the Falkland Islands but abated somewhat when the drilling operation failed to discover commercially exploitable oil reserves. Tourism, especially eco-tourism, is increasing rapidly, with about 30,000 visitors in 2001. Another large source of income is interest paid on money the government has in the bank. The British military presence also provides a sizeable economic boost.

Faroe Islands The Faroese economy is dependent on fishing, which makes the economy vulnerable to price swings. The sector accounts for about 95% of exports and nearly half of GDP. In early 2008 the Faroese economy began to slow as a result of smaller catches and historically high oil prices that continue to trouble the economy. Though oil prices have come down, reduced catches, especially of cod and haddock, have continued to strain the Faroese economy. GDP grew 0.5% in 2008-09. The slowdown in the Faroese economy followed a strong performance since the mid-1990s with annual growth rates averaging close to 6%, mostly a result of increased fish landings and salmon farming, and high export prices. Unemployment reached its lowest level in the first half of 2008, but increased to 3.9% in 2009 and is rising. The Faroese Home Rule Government produced increasing budget surpluses that helped to reduce the large public debt, most of it to Denmark. However, total dependence on fishing and salmon farming make the Faroese economy very vulnerable to fluctuations in world demand. In addition, budget surpluses turned to deficits in 2008-09, and the economy at both the country and local level is running large deficits. Initial discoveries of oil in the Faroese area give hope for eventual oil production, which may provide a foundation for a more diversified economy and less dependence on Danish economic assistance. Aided by an annual subsidy from Denmark amounting to about 6% of Faroese GDP, the Faroese have a standard of living almost equal to that of Denmark and Greenland.

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 400,000 to 500,000 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 December 2006 coup and is facing an uncertain recovery time. In 2007 tourist arrivals were down almost 6%, with substantial job losses in the service sector, and GDP dipped. The coup has created a difficult business climate. The EU has suspended all aid until the interim government takes steps toward new elections. Long-term problems include low investment, uncertain land ownership rights, and the government's inability to manage its budget. Overseas remittances from Fijians working in Kuwait and Iraq have decreased significantly. Fiji's current account deficit reached 23% of GDP in 2006.

Finland Finland has a highly industrialized, largely free-market economy with per capita output roughly that of Austria, Belgium, the Netherlands, and Sweden. Trade is important with exports accounting for over one third of GDP in recent years. Finland is strongly competitive in manufacturing - principally the wood, metals, engineering, telecommunications, and electronics industries. Finland excels in high-tech exports such as 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. Finland had been one of the best performing economies within the EU in recent years and its banks and financial markets avoided the worst of global financial crisis. However, the world slowdown hit exports and domestic demand hard in 2009, with Finland experiencing one of the deepest contractions in the euro zone. A recovery of exports stimulated economic growth in 2010, and led to a lowering of unemployment. The recession left a deep mark on general government finances and the debt ratio, turning previously strong budget surpluses into deficits. In the next few years, the great challenge of economic policy will be to implement a post-recession exit strategy in which measures supporting growth will be combined with general government adjustment measures. Longer-term, Finland must address a rapidly aging population and decreasing productivity that threaten competitiveness, fiscal sustainability, and economic growth.

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, and has ceded stakes in such leading firms as Air France, France Telecom, Renault, and Thales. It maintains a strong presence in some sectors, particularly power, public transport, and defense industries. With at least 75 million foreign tourists per year, France is the most visited country in the world and maintains the third largest income in the world from tourism. 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. France has weathered the global economic crisis better than most other big EU economies because of the relative resilience of domestic consumer spending, a large public sector, and less exposure to the downturn in global demand than in some other countries. Nonetheless, France's real GDP contracted 2.5% in 2009, but recovered somewhat in 2010, while the unemployment rate increased from 7.4% in 2008 to 9.5% in 2010. The government pursuit of aggressive stimulus and investment measures in response to the economic crisis, however, are contributing to a deterioration of France's public finances. The government budget deficit rose sharply from 3.4% of GDP in 2008 to 7.8% of GDP in 2010, while France's public debt rose from 68% of GDP to 84% over the same period. Paris is terminating stimulus measures, eliminating tax credits, and freezing most government spending to bring the budget deficit under the 3% euro-zone ceiling by 2013, and to highlight France's commitment to fiscal discipline at a time of intense financial market scrutiny of euro zone debt levels. President SARKOZY - who secured passage of pension reform in 2010 - is expected to seek passage of some tax reforms in 2011, but he may delay additional, more costly, reforms until after the 2012 election.

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, military bases, 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 sub-Saharan African nations, but 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 more than 50% of GDP although the industry is in decline as fields pass their peak production. Gabon continues to face fluctuating prices for its oil, timber, and manganese exports and the global recession led to a GDP contraction of 1.4% in 2009. Despite the abundance of natural wealth, poor fiscal management hobbles the economy. 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 from 1999 to 2008 helped growth, but drops in production have hampered Gabon from fully realizing potential gains. Gabon signed a 14-month Stand-By Arrangement with the IMF in May 2007, and later that year issued a $1 billion sovereign bond to buy back a sizable portion of its Paris Club debt.

Gambia, The The Gambia has sparse natural resource deposits and a limited agricultural base, and relies in part on remittances from workers overseas and tourist receipts. About three-quarters of the population depends on the agricultural sector for its livelihood. Small-scale manufacturing activity features the processing of peanuts, fish, and hides. The Gambia's natural beauty and proximity to Europe has made it one of the larger markets for tourism in West Africa, boosted by government and private sector investments in eco-tourism and upscale facilities. In the past few years, The Gambia's re-export trade - traditionally a major segment of economic activity - has declined, but its banking sector has grown rapidly. Unemployment and underemployment rates remain high; economic progress depends on sustained bilateral and multilateral aid, on responsible government economic management, and on continued technical assistance from multilateral and bilateral donors. The quality of fiscal management, however, is weak. The government has promised to raise civil service wages over the next two years and the deficit is projected to worsen.

Gaza Strip High population density, limited land and sea access, continuing isolation, and strict internal and external security controls have degraded economic conditions in the Gaza Strip - the smaller of the two areas in the Palestinian Territories. Israeli-imposed crossings closures, which became more restrictive after HAMAS violently took over the territory in June 2007, and fighting between HAMAS and Israel during December 2008-January 2009, resulted in the near collapse of most of the private sector, extremely high unemployment, and high poverty rates. Shortages of goods are met through large-scale humanitarian assistance - led by UNRWA - and the HAMAS-regulated black market tunnel trade that flourishes under the Gaza Strip's border with Egypt. However, chnages to the blockade in 2010 included moving from a white list - in which only approved items were allowed into Gaza through the crossings - to a black list, where all but non-approved items were allowed into Gaza through the crossings. Israeli authorities have recently signaled that exports from the territory might be possible in the future, but currently regular exports from Gaza are not permitted.

Georgia Georgia's economy sustained GDP growth of more than 10% in 2006-07, based on strong inflows of foreign investment and robust government spending. However, GDP growth slowed in 2008 following the August 2008 conflict with Russia, and turned negative in 2009 as foreign direct investment and workers' remittances declined in the wake of the global financial crisis, but rebounded in 2010. 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, aircraft and chemicals. Areas of recent improvement include growth in the construction, banking services, and mining sectors, but reduced availability of external investment and the slowing regional economy are emerging risks. The country imports nearly all its needed supplies of natural gas and oil products. It has sizeable hydropower capacity, a growing component of its energy supplies. Georgia has overcome the chronic energy shortages and gas supply interruptions of the past by renovating hydropower plants and by increasingly relying on natural gas imports from Azerbaijan instead of from Russia. The construction on the Baku-T'bilisi-Ceyhan oil pipeline, the Baku-T'bilisi-Erzerum gas pipeline, and the Kars-Akhalkalaki Railroad are part of a strategy to capitalize on Georgia's strategic location between Europe and Asia and develop its role as a transit point for gas, oil and other goods. Georgia has historically suffered from a chronic failure to collect tax revenues; however, the government, since coming to power in 2004, has simplified the tax code, improved tax administration, increased tax enforcement, and cracked down on petty corruption. However, the economic downturn of 2008-09 eroded the tax base and led to a decline in the budget surplus and an increase in public borrowing needs. The country is pinning its hopes for renewed growth on a determined effort to continue to liberalize the economy by reducing regulation, taxes, and corruption in order to attract foreign investment, but the economy faces a more difficult investment climate both domestically and internationally.

Germany The German economy - the fifth largest economy in the world in PPP terms and Europe's largest - is a leading exporter of machinery, vehicles, chemicals, and household equipment and benefits from a highly skilled labor force. Like its western European neighbors, Germany faces significant demographic challenges to sustained long-term growth. Low fertility rates and declining net immigration are increasing pressure on the country's social welfare system and necessitate structural reforms. The modernization and integration of the eastern German economy - where unemployment can exceed 20% in some municipalities - continues to be a costly long-term process, with annual transfers from west to east amounting in 2008 alone to roughly $12 billion. Reforms launched by the government of Chancellor Gerhard SCHROEDER (1998-2005), deemed necessary to address chronically high unemployment and low average growth, contributed to strong growth in 2006 and 2007 and falling unemployment, which in 2008 reached a new post-reunification low of 7.8%. These advances, as well as a government subsidized, reduced working hour scheme, help explain the relatively modest increase in unemployment during the 2008-09 recession - the deepest since World War II - and its healthy decrease in 2010. GDP contracted nearly 5% in 2009 but grew by 3.3% in 2010. Germany crept out of recession thanks largely to rebounding manufacturing orders and exports - primarily outside the Euro Zone - and relatively steady consumer demand. Stimulus and stabilization efforts initiated in 2008 and 2009 and tax cuts introduced in Chancellor Angela MERKEL's second term increased Germany's budget deficit to 3.3% in 2009 and to 3.6% in 2010. The EU has given Germany until 2013 to get its consolidated budget deficit below 3% of GDP. A new constitutional amendment likewise limits the federal government to structural deficits of no more than 0.35% of GDP per annum as of 2016.

Ghana Ghana is well endowed with natural resources and agriculture accounts for roughly one-third of GDP and employs more than half of the workforce, mainly small landholders. The services sector accounts for 50% of GDP. Gold and cocoa production and individual remittances are major sources of foreign exchange. Oil production at Ghana's offshore Jubilee field began in mid-December and is expected to boost economic growth. Ghana signed a Millennium Challenge Corporation (MCC) Compact in 2006, which aims to assist in transforming Ghana's agricultural sector. Ghana opted for debt relief under the Heavily Indebted Poor Country (HIPC) program in 2002, and is also benefiting from the Multilateral Debt Relief Initiative that took effect in 2006. In 2009 Ghana signed a three-year Poverty Reduction and Growth Facility with the IMF to improve macroeconomic stability, private sector competitiveness, human resource development, and good governance and civic responsibility. Sound macro-economic management along with high prices for gold and cocoa helped sustain GDP growth in 2008-10. In early 2010 President John Atta MILLS targeted recovery from high inflation and current account and budget deficits as his priorities.

Gibraltar Self-sufficient Gibraltar benefits from an extensive shipping trade, offshore banking, and its position as an international conference center. Tax rates are low to attract foreign investment. 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), gaming revenues, shipping services fees, and duties on consumer goods also generate revenue. The financial sector, tourism, and the shipping sector contribute 30%, 30%, and 25%, respectively, of GDP. Telecommunications, e-commerce, and e-gaming account for the remaining 15%. 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.

Greece Greece has a capitalist economy with the public sector accounting for about 40% of GDP and with per capita GDP about two-thirds that of the leading euro-zone economies. Tourism provides 15% of GDP. Immigrants make up nearly one-fifth of the work force, mainly in agricultural and unskilled 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 2007, due partly to infrastructural spending related to the 2004 Athens Olympic Games, and in part to an increased availability of credit, which has sustained record levels of consumer spending. But the economy went into recession in 2009 as a result of the world financial crisis, tightening credit conditions, and Athens' failure to address a growing budget deficit, which was triggered by falling state revenues, and increased government expenditures. The economy contracted by 2% in 2009, and 4.8% in 2010. Greece violated the EU's Growth and Stability Pact budget deficit criterion of no more than 3% of GDP from 2001 to 2006, but finally met that criterion in 2007-08, before exceeding it again in 2009, with the deficit reaching 15.4% of GDP. Austerity measures reduced the deficit to 9.4% of GDP in 2010. Public debt, inflation, and unemployment are above the euro-zone average while per capita income is below; unemployment rose to 12% in 2010. Eroding public finances, a credibility gap stemming from inaccurate and misreported statistics, and consistent underperformance on following through with reforms prompted major credit rating agencies in late 2009 to downgrade Greece's international debt rating, and has led the country into a financial crisis. Under intense pressure by the EU and international market participants, the government has adopted a medium-term austerity program that includes cutting government spending, reducing the size of the public sector, decreasing tax evasion, reforming the health care and pension systems, and improving competitiveness through structural reforms to the labor and product markets. Athens, however, faces long-term challenges to push through unpopular reforms in the face of often vocal opposition from the country's powerful labor unions and the general public. Greek labor unions are striking over new austerity measures, but the strikes so far have had a limited impact on the government's will to adopt reforms. An uptick in widespread unrest, however, could challenge the government's ability to implement reforms and meet budget targets, and could also lead to rioting or violence. In April 2010 a leading credit agency assigned Greek debt its lowest possible credit rating; in May, the International Monetary Fund and Eurozone governments provided Greece emergency short- and medium-term loans worth $147 billion so that the country could make debt repayments to creditors. In exchange for the largest bailout ever assembled, the government announced combined spending cuts and tax increases totaling $40 billion over three years, on top of the tough austerity measures already taken. Greece, however, struggled to boost revenues and cut spending to meet 2010 targets set by the EU and the IMF, especially after Eurostat - the EU's statistical office - revised upward Greece's deficit and debt numbers for 2009 and 2010. Greece's lenders are calling on Athens to step up efforts in 2011 to increase tax collection, shore up public enterprises, and rein in health spending, and are planning to give Greece more time to repay its EU-IMF loan. Greece responded by introducing major structural reforms, but investors still question whether Greece can sustain fiscal efforts in the face of a bleak economic outlook and public discontent.

Greenland The economy remains critically dependent on exports of shrimp and fish and on a substantial subsidy - about $650 million in 2009 - from the Danish Government, which supplies nearly 60% of government revenues. The public sector, including publicly owned enterprises and the municipalities, plays the dominant role in Greenland's economy. Greenland's GDP contracted about 2% in 2009 as a result of the global economic slowdown. Budget surpluses turned to deficits beginning in 2007 and unemployment has risen. During the last decade the Greenland Home Rule Government (GHRG) pursued conservative fiscal and monetary policies, but public pressure has increased for better schools, health care and retirement systems. The Greenlandic economy has benefited from increasing catches and exports of shrimp, Greenland halibut and, more recently, crabs. Due to Greenland's continued dependence on exports of fish - which account for 82% of exports - the economy remains very sensitive to foreign developments. International consortia are increasingly active in exploring for hydrocarbon resources off Greenland's western coast, and international studies indicate the potential for oil and gas fields in northern and northeastern Greenland. In May 2007 a US aluminum producer concluded a memorandum of understanding with the Greenland Home Rule Government to build an aluminum smelter and a power generation facility, which takes advantage of Greenland's abundant hydropower potential. Within the area of mining, olivine sand continues to be produced and gold production has resumed in south Greenland. Tourism also offers another avenue of economic growth for Greenland, with increasing numbers of cruise lines now operating in Greenland's western and southern waters during the peak summer tourism season.

Grenada Grenada relies on tourism as its main source of foreign exchange especially since the construction of an international airport in 1985. Hurricanes Ivan (2004) and Emily (2005) severely damaged the agricultural sector - particularly nutmeg and cocoa cultivation - which had been a key driver of economic growth. Grenada has rebounded from the devastating effects of the hurricanes but is now saddled with the debt burden from the rebuilding process. Public debt-to-GDP is nearly 110%, leaving the THOMAS administration limited room to engage in public investments and social spending. Strong performances in construction and manufacturing, together with the development of tourism and an offshore financial industry, have also contributed to growth in national output; however, economic growth was stagnant in 2010 after a sizeable contraction in 2009, because of the global economic slowdown's effects on tourism and remittances.

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 most populous of the Central American countries with a GDP per capita roughly one-half that of the average for Latin America and the Caribbean. The agricultural sector accounts for nearly 15% of GDP and half of the labor force; key agricultural exports include coffee, sugar, and bananas. The 1996 peace accords, which ended 36 years of civil war, removed a major obstacle to foreign investment, and since then Guatemala has pursued important reforms and macroeconomic stabilization. The Central American Free Trade Agreement (CAFTA) entered into force in July 2006 spurring increased investment and diversification of exports, with the largest increases in ethanol and non-traditional agricultural exports. While CAFTA has helped improve the investment climate, concerns over security, the lack of skilled workers and poor infrastructure continue to hamper foreign direct investment. The distribution of income remains highly unequal with the richest decile comprising over 40% of Guatemala's overall consumption. More than half of the population is below the national poverty line and 15% lives in extreme poverty. Poverty among indigenous groups, which make up 38% of the population, averages 76% and extreme poverty rises to 28%. 43% of children under five are chronically malnourished, one of the highest malnutrition rates in the world. President COLOM entered into office with the promise to increase education, healthcare, and rural development, and in April 2008 he inaugurated a conditional cash transfer program, modeled after programs in Brazil and Mexico, that provide financial incentives for poor families to keep their children in school and get regular health check-ups. Given Guatemala's large expatriate community in the United States, it is the top remittance recipient in Central America, with inflows serving as a primary source of foreign income equivalent to nearly two-thirds of exports. Economic growth fell in 2009 as export demand from US and other Central American markets fell and foreign investment slowed amid the global recession, but the economy recovered gradually in 2010 and will likely return to more normal growth rates by 2012. President COLOM, in his last year in office, will likely face opposition to economic reform, particularly over a long-delayed tax reform and an IMF-recommended reform to strengthen the banking sector. Larger budget deficits and increased debt can be expected in 2011.

Guernsey Financial services - banking, fund management, insurance - account for about 23% of employment and about 55% 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 is a poor country that possesses major mineral, hydropower, and agricultural resources. The country has almost half of the world's bauxite reserves. The mining sector accounts for more than 70% of exports. Long-run improvements in the management of the economy, literacy, and the legal framework are needed if the country is to move out of poverty. Investor confidence has been sapped by rampant corruption, a lack of electricity and other infrastructure, a lack of skilled workers, and the political uncertainty resulting from the death of President Lansana CONTE in December 2008. International donors, including the G-8, the IMF, and the World Bank, cut their development programming significantly in response to the coup, and international partners have said that a resumption of aid will be contingent on a successful democratic transition with a democratically elected president and a functioning National Assembly. Growth rose slightly in 2006-08, primarily due to increases in global demand and commodity prices on world markets, but bauxite and alumina exports were negatively affected by the global economic downturn and the economy in 2009 contracted. International investors expressed renewed interest in Guinea's iron ore mines in 2010.

Guinea-Bissau One of the poorest countries in the world, Guinea-Bissau's legal economy depends mainly on farming and fishing, but trafficking narcotics is probably the most lucrative trade. Cashew crops have increased remarkably in recent years. 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. 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. The combination of limited economic prospects, a weak and faction-ridden government, and favorable geography have made this West African country a way station for drugs bound for Europe.

Guyana The Guyanese economy exhibited moderate economic growth in recent years and is based largely on agriculture and extractive industries. The economy is heavily dependent upon the export of six commodities - sugar, gold, bauxite, shrimp, timber, and rice - which represent nearly 60% of the country's GDP and are highly susceptible to adverse weather conditions and fluctuations in commodity prices. Guyana's entrance into the Caricom Single Market and Economy (CSME) in January 2006 has broadened the country's export market, primarily in the raw materials sector. Economic recovery since a 2005 flood-related contraction was buoyed by increases in remittances and foreign direct investment in the sugar and rice industries as well as the mining sector. 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. In March 2007, the Inter-American Development Bank, Guyana's principal donor, canceled Guyana's nearly $470 million debt, equivalent to nearly 48% of GDP, which along with other Highly Indebted Poor Country (HIPC) debt forgiveness brought the debt-to-GDP ratio down from 183% in 2006 to 120% in 2007. Guyana became heavily indebted as a result of the inward-looking, state-led development model pursued in the 1970s and 1980s. Growth slowed in 2009-10 as a result of the world recession. The slowdown in the domestic economy and lower import costs helped to narrow the country's current account deficit, despite generally lower earnings from exports.

Haiti Haiti's economy suffered a severe setback when a 7.1 magnitude earthquake damaged its capital city, Port-au-Prince, in January 2010. Already the poorest country in the Western Hemisphere with 80% of the population living under the poverty line and 54% in abject poverty, the damage to Port-au-Prince caused the country's GDP to contract an estimated 8% in 2010. Two-thirds of all Haitians depend on the agricultural sector, mainly small-scale subsistence farming, and remain vulnerable to damage from frequent natural disasters, exacerbated by the country's widespread deforestation. US economic engagement under the Haitian Hemispheric Opportunity through Partnership Encouragement (HOPE) Act, passed in December 2006, has boosted apparel exports and investment by providing tariff-free access to the US. Congress voted in 2010 to extend the legislation until 2020 under the Haitian Economic Lift Act (HELP); the apparel sector accounts for three-quarters of Haitian exports and nearly one-tenth of GDP. Remittances are the primary source of foreign exchange, equaling nearly a quarter of GDP and more than twice the earnings from exports. Haiti suffers from a lack of investment because of insecurity and limited infrastructure, and a severe trade deficit. In 2005, Haiti paid its arrears to the World Bank, paving the way for reengagement with the Bank. Haiti received debt forgiveness for over $1 billion of its debt through the Highly-Indebted Poor Country (HIPC) initiative in 2009. The remainder of its outstanding external debt was cancelled by donor countries in early 2010 but has since climbed back to about $500 million. The government relies on formal international economic assistance for fiscal sustainability.

Heard Island and McDonald Islands The islands have no indigenous economic activity, but the Australian Government allows limited fishing in the surrounding waters.

Holy See (Vatican City) The Holy See is supported financially by a variety of sources, including investments, real estate income, and donations from Catholic individuals, dioceses, and institutions; these help fund the Roman Curia (Vatican bureaucracy), diplomatic missions, and media outlets. The separate Vatican City State budget includes the Vatican museums and post office and is supported financially by the sale of stamps, coins, medals, and tourist mementos; by fees for admission to museums; and by publications sales. Moreover, an annual collection taken up in dioceses and direct donations go to a non-budgetary fund known as Peter's Pence, which is used directly by the Pope for charity, disaster relief, and aid to churches in developing nations. 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, suffers from extraordinarily unequal distribution of income, as well as high underemployment. While historically dependent on the export of bananas and coffee, Honduras has diversified its export base to include apparel and automobile wire harnessing. Nearly half of Honduras's economic activity is directly tied to the US, with exports to the US equivalent to 30% of GDP and remittances for another 20%. The US-Central America Free Trade Agreement (CAFTA) came into force in 2006 and has helped foster foriegn direct investment, but physical and political insecurity may deter potential investors; about 70% of FDI is from US firms. The economy registered marginally positive economic growth in 2010, insufficient to improve living standards for the nearly 60% of the population in poverty. The LOBO administration inherited a difficult fiscal position with off-budget debts accrued in previous administrations and government salaries nearly equivalent to tax collections. His government has displayed a commitment to improving tax collection and cutting expenditures. This enabled Tegucigalpa to secure an IMF Precautionary Stand-By agreement in October 2010. The IMF agreement has helped renew multilateral and bilateral donor confidence in Honduras following the ZELAYA administration's economic mismanagement and the political coup.

Hong Kong Hong Kong has a free market economy highly dependent on international trade and finance - the value of goods and services trade, including the sizable share of re-exports, is about four times GDP. Hong Kong's open economy left it exposed to the global economic slowdown, but its increasing integration with China, through trade, tourism, and financial links, helped it recover more quickly than many observers anticipated. The Hong Kong government is promoting the Special Administrative Region (SAR) as the site for Chinese renminbi (RMB) internationalization. Hong Kong residents are allowed to establish RMB-denominated savings accounts; RMB-denominated corporate and Chinese government bonds have been issued in Hong Kong; and RMB trade settlement is allowed. The territory far exceeded the RMB conversion quota set by Beijing for trade settlements in 2010 due to the growth of earnings from exports to the mainland. RMB deposits grew to roughly 3.6% of total system deposits in Hong Kong by October 2010, an increase of over 250% since the beginning of the year. The government is pursuing efforts to introduce additional use of RMB in Hong Kong financial markets and is seeking to expand the RMB quota for 2011. The mainland has long been Hong Kong's largest trading partner, accounting for about half of Hong Kong's exports by value. Hong Kong's natural resources are limited, and food and raw materials must be imported. As a result of China's easing of travel restrictions, the number of mainland tourists to the territory has surged from 4.5 million in 2001 to 17.7 million in 2009, outnumbering visitors from all other countries combined. Hong Kong has also established itself as the premier stock market for Chinese firms seeking to list abroad. In 2009 mainland Chinese companies constituted about 40% of the firms listed on the Hong Kong Stock Exchange and accounted for 60% of the Exchange's market capitalization. During the past decade, as Hong Kong's manufacturing industry moved to the mainland, its service industry has grown rapidly and in 2009 accounted for more than 90% of the territory's GDP. GDP growth averaged a strong 4% from 1989 to 2008. Hong Kong's GDP fell in 2009 as a result of the global financial crisis, but a recovery began in third quarter 2009, and the economy grew nearly 6% in 2010. The Hong Kong government adopted several temporary fiscal policy support measures in response to the crisis that it may discontinue if strong growth is sustained. Credit expansion and tight housing supply conditions caused Hong Kong property prices to rise rapidly in 2010, and some lower income segments of the population are increasingly unable to afford adequate housing. Hong Kong continues to link its currency closely to the US dollar, maintaining an arrangement established in 1983.

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. The private sector accounts for more than 80% of GDP. Foreign ownership of and investment in Hungarian firms are widespread, with cumulative foreign direct investment worth more than $70 billion. The government's austerity measures, imposed since late 2006, have reduced the budget deficit from over 9% of GDP in 2006 to 3.8% in 2010. Hungary's impending inability to service its short-term debt - brought on by the global financial crisis in late 2008 - led Budapest to obtain an IMF-arranged financial assistance package worth over $25 billion. The global economic downturn, declining exports, and low domestic consumption and fixed asset accumulation, dampened by government austerity measures, resulted in an economic contraction of 6.3% in 2009. The economy rebounded in 2010 with a big boost from exports, and growth of more than 2.5% is expected in 2011. Unemployment remained high, at more than 11%.

Iceland Iceland's Scandinavian-type social-market economy combines a capitalist structure and free-market principles with an extensive welfare system. Prior to the 2008 crisis, Iceland had achieved high growth, low unemployment, and a remarkably even distribution of income. The economy depends heavily on the fishing industry, which provides 40% of export earnings, more than 12% of GDP, and employs 7% of the work force. It 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. Iceland's economy has been diversifying into manufacturing and service industries in the last decade, particularly within the fields of software production, biotechnology, and tourism. Abundant geothermal and hydropower sources have attracted substantial foreign investment in the aluminum sector and boosted economic growth, although the financial crisis has put several investment projects on hold. Much of Iceland's economic growth in recent years came as the result of a boom in domestic demand following the rapid expansion of the country's financial sector. Domestic banks expanded aggressively in foreign markets, and consumers and businesses borrowed heavily in foreign currencies, following the privatization of the banking sector in the early 2000s. Worsening global financial conditions throughout 2008 resulted in a sharp depreciation of the krona vis-a-vis other major currencies. The foreign exposure of Icelandic banks, whose loans and other assets totaled more than 10 times the country's GDP, became unsustainable. Iceland's three largest banks collapsed in late 2008. The country secured over $10 billion in loans from the IMF and other countries to stabilize its currency and financial sector, and to back government guarantees for foreign deposits in Icelandic banks. GDP fell 6.8% in 2009, and unemployment peaked at 9.4% in February 2009. GDP fell 3.4% in 2010. Since the collapse of Iceland's financial sector, government economic priorities have included: stabilizing the krona, reducing Iceland's high budget deficit, containing inflation, restructuring the financial sector, and diversifying the economy. Three new banks were established to take over the domestic assets of the collapsed banks. Two of them have foreign majority ownership, while the State holds a majority of the shares of the third. British and Dutch authorities have pressed claims totaling over $5 billion against Iceland to compensate their citizens for losses suffered on deposits held in the failed Icelandic bank, Landsbanki Islands. Iceland agreed to new terms with the UK and the Netherlands to compensate British and Dutch depositors, but the agreement must first be approved by the Icelandic President. Iceland began EU accession negotiations with the EU in July 2010, however, public support has dropped substantially because of concern about losing control over fishing resources and in reaction to measures taken by Brussels during the ongoing Eurozone crisis.

India India is developing into an open-market economy, yet traces of its past autarkic policies remain. Economic liberalization, including industrial deregulation, privatization of state-owned enterprises, and reduced controls on foreign trade and investment, began in the early 1990s and has served to accelerate the country's growth, which has averaged more than 7% per year since 1997. India's diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. Slightly more than half of the work force is in agriculture, but services are the major source of economic growth, accounting for more than half of India's output, with only one-third of its labor force. India has capitalized on its large educated English-speaking population to become a major exporter of information technology services and software workers. In 2010, the Indian economy rebounded robustly from the global financial crisis - in large part because of strong domestic demand - and growth exceeded 8% year-on-year in real terms. Merchandise exports, which account for about 15% of GDP, returned to pre-financial crisis levels. An industrial expansion and high food prices, resulting from the combined effects of the weak 2009 monsoon and inefficiencies in the government's food distribution system, fueled inflation which peaked at about 11% in the first half fo 2010, but has gradually decreased to single digits following a series of central bank interest rate hikes. New Delhi in 2010 reduced subsidies in fuel and fertilizers, sold a small percentage of its shares in some state-owned enterprises and auctioned off rights to radio bandwidth for 3G telecommunications in part to lower the government's deficit. The Indian Government seeks to reduce its deficit to 5.5% of GDP in FY 2010-11, down from 6.8% in the previous fiscal year. India's long term challenges include widespread poverty, inadequate physical and social infrastructure, limited non-agricultural employment opportunities, insufficient access to quality basic and higher education, and accommodiating rual-to-urban migration.

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 weathered the global financial crisis relatively smoothly because of its heavy reliance on domestic consumption as the driver of economic growth. Although the economy slowed significantly in 2009 from the 6%-plus growth rate recorded in 2007 and 2008, by 2010 growth returned to a 6% rate. During the recession, Indonesia outperformed its regional neighbors and joined China and India as the only G20 members posting growth. The government made economic advances under the first administration of President YUDHOYONO, introducing significant reforms in the financial sector, including tax and customs reforms, the use of Treasury bills, and capital market development and supervision. Indonesia's debt-to-GDP ratio in recent years has declined steadily because of increasingly robust GDP growth and sound fiscal stewardship. Indonesia still struggles with poverty and unemployment, inadequate infrastructure, corruption, a complex regulatory environment, and unequal resource distribution among regions. YUDHOYONO's reelection, with respected economist BOEDIONO as his vice president, suggests broad continuity of economic policy, although the start of their term has been marred by corruption scandals and the departure of an internationally respected finance minister. The government in 2010 faces the ongoing challenge of improving Indonesia's insufficient infrastructure to remove impediments to economic growth, while addressing climate change mitigation and adaptation needs, particularly with regard to conserving Indonesia's forests and peatlands, the focus of a potentially trailblazing $1 billion REDD+ pilot project.

Iran Iran's economy is marked by an inefficient state sector, reliance on the oil sector, which provides the majority of government revenues, and statist policies, which create major distortions throughout the system. Private sector activity is typically limited to small-scale workshops, farming, and services. Price controls, subsidies, and other rigidities weigh down the economy, undermining the potential for private-sector-led growth. Significant informal market activity flourishes. The legislature in late 2009 passed President Mahmud AHMADI-NEJAD's bill to reduce subsidies, particularly on food and energy. The bill would phase out subsidies - which benefit Iran's upper and middle classes the most - over three to five years and replace them with cash payments to Iran's lower classes. However, the start of the program was delayed repeatedly throughout 2010 over fears of public reaction to higher prices. This is the most extensive economic reform since the government implemented gasoline rationing in 2007. The recovery of world oil prices in the last year increased Iran's oil export revenue by at least $10 billion over 2009, easing some of the financial impact of the newest round of international sanctions. Although inflation has fallen substantially since the mid-2000s, Iran continues to suffer from double-digit unemployment and underemployment. Underemployment among Iran's educated youth has convinced many to seek jobs overseas, resulting in a significant "brain drain."

Iraq An improved security environment and an initial wave of foreign investment are helping to spur economic activity, particularly in the energy, construction, and retail sectors. Broader economic improvement, long-term fiscal health, and sustained increases in the standard of living still depend on the government passing major policy reforms and on continued development of Iraq's massive oil reserves. Although foreign investors viewed Iraq with increasing interest in 2010, most are still hampered by difficulties in acquiring land for projects and by other regulatory impediments. Iraq's economy is dominated by the oil sector, which provides over 90% of government revenue and 80% of foreign exchange earnings. Since mid-2009, oil export earnings have returned to levels seen before Operation Iraqi Freedom and government revenues have rebounded, along with global oil prices. In 2011 Baghdad probably will increase oil exports above the current level of 1.9 million barrels per day (bbl/day) as a result of new contracts with international oil companies, but is likely to fall short of the 2.4 million bbl/day it is forecasting in its budget. Iraq is making modest progress in building the institutions needed to implement economic policy. In 2010, Bagdad signed a new agreement with both the IMF and World Bank for conditional aid programs that will help strengthen Iraq's economic institutions. Some reform-minded leaders within the Iraqi government are seeking to pass laws to strengthen the economy. This legislation includes a package of laws to establish a modern legal framework for the oil sector and a mechanism to equitably divide oil revenues within the nation, although these and other important reforms are still under contentious and sporadic negotiation. Iraq's recent contracts with major oil companies have the potential to greatly expand oil revenues, but Iraq will need to upgrade its oil processing, pipeling, and export infrastructure to enable these deals to reach their potential. The Government of Iraq is pursuing a strategy to gain additional foreign investment in Iraq's economy. This includes an amendment to the National Investment Law, multiple international trade and investment events, as well as potential participation in joint ventures with state-owned enterprises. Provincial Councils also are using their own budgets to promote and facilitate investment at the local level. However, widespread corruption, inadequate infrastructure, insufficient essential services, and antiquated commercial laws and regulations stifle investment and continue to constrain the growth of private, non-energy sectors. The Central Bank has successfully held the exchange rate at approximately 1,170 Iraqi dinar/US dollar since January 2009. Inflation has decreased consistently since 2006 as the security situation has improved. However, Iraqi leaders remain hard pressed to translate macroeconomic gains into improved lives for ordinary Iraqis. Unemployment remains a problem throughout the country. Reducing corruption and implementing reforms - such as bank restructuring and developing the private sector - would be important steps in this direction.

Ireland Ireland is a small, modern, trade-dependent economy. Ireland joined 11 other EU nations in circulating the euro on 1 January 2002. GDP growth averaged 6% in 1995-2007, but economic activity has dropped sharply since 2008 with GDP falling by over 3% in 2008, nearly 8% in 2009, and 1% in 2010, and further contraction is expectd in 2011. Ireland entered into a recession for the first time in more than a decade with the onset of the world financial crisis and subsequent severe slowdown in its domestic property and construction markets. Agriculture, once the most important sector, is now dwarfed by industry and services. Although the export sector, dominated by foreign multinationals, remains a key component of Ireland's economy, construction most recently fueled economic growth along with strong consumer spending and business investment. Property prices rose more rapidly in Ireland in the decade up to 2007 than in any other developed economy. However, average home prices have fallen 50% from the 2007 peak. In 2008 the COWEN government moved to guarantee all bank deposits, recapitalize the banking system, and establish partly-public venture capital funds in response to the country's economic downturn. In 2009, in an effort to stabilize the banking sector, the Irish Government established the National Asset Management Agency (NAMA) to acquire problem commercial property and development loans from Irish banks. Faced with sharply reduced revenues and a burgeoning budget deficit, the Irish Government introduced the first in a series of draconian budgets in 2009. In addition to across-the-board cuts in spending, the 2009 budget included wage reductions for all public servants. These measures were not sufficient. The budget deficit reached nearly 38% of GDP in 2010 because of additional government support for the banking sector. In late 2010, the COWEN Government agreed to a $112 billion loan package from the EU and IMF to help Dublin recapitalize its banking sector and avoid defaulting on its sovereign debt, and initiated a four-year austerity plan to cut an additional $20 billion from its budget.

Isle of Man Offshore banking, manufacturing, and tourism are key sectors of the economy. The government offers low taxes and other 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 contributions to 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. 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. 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, its major source of economic and military aid. Israel's GDP, after contracting slightly in 2001 and 2002 due to the Palestinian conflict and troubles in the high-technology sector, grew about 5% per year from 2004-07. The global financial crisis of 2008-09 spurred a brief recession in Israel, but the country entered the crisis with solid fundamentals - following years of prudent fiscal policy and a series of liberalizing reforms - and a resilient banking sector, and the economy has shown signs of an early recovery. Following GDP growth of 4% in 2008, Israel's GDP slipped to 0.2% in 2009, but reached 3.4% in 2010, as exports rebounded. The global economic downturn affected Israel's economy primarily through reduced demand for Israel's exports in the United States and EU, Israel's top trading partners. Exports account for about 25% of the country's GDP. The Israeli Government responded to the recession by implementing a modest fiscal stimulus package and an aggressive expansionary monetary policy - including cutting interest rates to record lows, purchasing government bonds, and intervening in the foreign currency market. The Bank of Israel began raising interest rates in the summer of 2009 when inflation rose above the upper end of the Bank's target and the economy began to show signs of recovery.

Italy Italy has a diversified industrial economy, which is divided into a developed industrial north, dominated by private companies, and a less-developed, welfare-dependent, agricultural south, with high unemployment. The Italian economy is driven in large part by the manufacture of high-quality consumer goods produced by small and medium-sized enterprises, many of them family owned. Italy also has a sizable underground economy, which by some estimates accounts for as much as 15% of GDP. These activities are most common within the agriculture, construction, and service sectors. Italy has moved slowly on implementing needed structural reforms, such as reducing graft, overhauling costly entitlement programs, and increasing employment opportunities for young workers, particularly women. The international financial crisis worsened conditions in Italy's labor market, with unemployment rising from 6.2% in 2007 to 8.4% in 2010, but in the longer-term Italy's low fertility rate and quota-driven immigration policies will increasingly strain its economy. A rise in exports and investment driven by the global economic recovery nevertheless helped the economy grow by about 1% in 2010 following a 5% contraction in 2009. The Italian government has struggled to limit government spending, but Italy's exceedingly high public debt remains above 115% of GDP, and its fiscal deficit - just 1.5% of GDP in 2007 - exceeded 5% in 2009 and 2010, as the costs of servicing the country's debt rose.

Jamaica The Jamaican economy is heavily dependent on services, which now account for more than 60% of GDP. The country continues to derive most of its foreign exchange from tourism, remittances, and bauxite/alumina. Remittances account for nearly 15% of GDP and exports of bauxite and alumina make up about 10%. Tourism revenues account for roughly 10% of GDP, and both arrivals and revenues grew in 2010, up 4% and 6% respectively. The Economic growth faces many challenges: high crime and corruption, large-scale unemployment and underemployment, and a debt-to-GDP ratio of more than 120%. Jamaica's onerous debt burden - the fourth highest per capita - is the result of government bailouts to ailing sectors of the economy, most notably to the financial sector in the mid-to-late 1990s. The Government of Jamaica signed a $1.27 billion, 27-month Standby Agreement with the International Monetary Fund for balance of payment support in February 2010. Other multilaterals have also provided millions of dollars in loans and grants. The government's difficult fiscal position hinders spending on infrastructure and social programs, particularly as job losses rise in a shrinking economy. The GOLDING administration 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. High unemployment exacerbates the crime problem, including gang violence that is fueled by the drug trade.

Jan Mayen Jan Mayen is a volcanic island with no exploitable natural resources, although surrounding waters contain substantial fish stocks and potential untapped petroleum resources. Economic activity is limited to providing services for employees of Norway's radio and meteorological stations on the island.

Japan In the years following World War II, government-industry cooperation, a strong work ethic, mastery of high technology, and a comparatively small defense allocation (1% of GDP) helped Japan develop a technologically advanced economy. Two notable characteristics of the post-war economy were the close interlocking structures of manufacturers, suppliers, and distributors, known as keiretsu, and the guarantee of lifetime employment for a substantial portion of the urban labor force. Both features are now eroding under the dual pressures of global competition and domestic demographic change. Japan's industrial sector is heavily dependent on imported raw materials and fuels. A tiny agricultural sector is highly subsidized and protected, with crop yields among the highest in the world. Usually self sufficient in rice, Japan imports 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 inefficient investment and an asset price bubble in the late 1980s that required a protracted period of time for firms to reduce excess debt, capital, and labor. The Japanese financial sector was not heavily exposed to sub-prime mortgages or their derivative instruments and weathered the initial effect of the recent global credit crunch, but a sharp downturn in business investment and global demand for Japan's exports in late 2008 pushed Japan further into recession. Government stimulus spending helped the economy recover in late 2009 and 2010, but Tokyo is warning that GDP growth will slow in 2011. Prime Minister Kan's government has proposed opening the agricultural and services sectors to greater foreign competition and boosting exports through free-trade agreements, but debate continues on restructuring the economy and funding new stimulus programs in the face of a tight fiscal situation. Japan's huge government debt, which is approaching 200 percent of GDP, persistent deflation, and an aging and shrinking population are major complications for the economy.

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, displacing more traditional industries. 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.

Jordan Jordan's economy is among the smallest in the Middle East, with insufficient supplies of water, oil, and other natural resources, underlying the government's heavy reliance on foreign assistance. Other economic challenges for the government include chronic high rates of poverty, unemployment, inflation, and a large budget deficit. Since assuming the throne in 1999, King ABDALLAH has implemented significant economic reforms, such as opening the trade regime, privatizing state-owned companies, and eliminating most fuel subsidies, which in the past few years have spurred economic growth by attracting foreign investment and creating some jobs. The global economic slowdown, however, has depressed Jordan's GDP growth. Export-oriented sectors such as manufacturing, mining, and the transport of re-exports have been hit the hardest. The Government approved two supplementary budgets in 2010, but sweeping tax cuts planned for 2010 did not materialize because of Amman's need for additional revenue to cover excess spending. The budget deficit is likely to remain high, at 5-6% of GDP, and Amman likely will continue to depend heavily on foreign assistance to finance the deficit in 2011. Jordan's financial sector has been relatively isolated from the international financial crisis because of its limited exposure to overseas capital markets. Jordan is currently exploring nuclear power generation to forestall energy shortfalls.

Kazakhstan Kazakhstan, geographically the largest of the former Soviet republics, excluding Russia, possesses enormous fossil fuel reserves and plentiful supplies of other minerals and metals, such as uranium, copper, and zinc. It also has a large agricultural sector featuring livestock and grain. Kazakhstan's industrial sector is primarily focused on the extraction and processing of these natural resources. Kazakhstan enjoyed double-digit growth in 2000-01 and 8% or more per year in 2002-07 - thanks largely to its booming energy sector but also to economic reform, good harvests, and increased foreign investment; GDP growth slowed dramatically following the near-collapse of the banking sector in late 2007 and the declines in oil and metals prices associated with the global economic downturn in 2008-09. Kazakhstan has embarked upon an industrial policy designed to diversify the economy away from overdependence on the oil sector as well expanding export markets away from its historical reliance on Russia. Nevertheless, growth is still driven by oil. The government has engaged in several disputes with Western oil companies over the terms of production agreements, most recently, with regard to the Kashagan project in 2007-08 and the Karachaganak project in 2009.

Kenya Although 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. The IMF, which had resumed loans in 2000 to help Kenya through a drought, again halted lending in 2001 when the government failed to institute several anticorruption measures. 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. After some early progress in rooting out corruption and encouraging donor support, the KIBAKI government was rocked by high-level graft scandals in 2005 and 2006. In 2006, the World Bank and IMF delayed loans pending action by the government on corruption. The international financial institutions and donors have since resumed lending, despite little action on the government's part to deal with corruption. Post-election violence in early 2008, coupled with the effects of the global financial crisis on remittance and exports, reduced GDP growth to 1.7 in 2008, but the economy rebounded in 2009-10.

Kiribati A remote country of 33 scattered coral atolls, Kiribati has few natural resources and is one of the least developed Pacific Islands. 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. Private sector initiatives and a financial sector are in the early stages of development. Foreign financial aid from the EU, UK, US, Japan, Australia, New Zealand, Canada, UN agencies, and Taiwan accounts for 20-25% 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 directed and least open economies, faces chronic economic problems. Industrial capital stock is nearly beyond repair as a result of years of underinvestment and shortages of spare parts. Large-scale military spending draws off resources needed for investment and civilian consumption. Industrial and power output have declined in parallel from pre-1990 levels. Severe flooding in the summer of 2007 aggravated chronic food shortages caused by on-going systemic problems, including a lack of arable land, collective farming practices, and persistent shortages of tractors and fuel. Large-scale international food aid deliveries have allowed the people of North Korea to escape widespread starvation since famine threatened in 1995, but the population continues to suffer from prolonged malnutrition and poor living conditions. Since 2002, the government has allowed private "farmers' markets" 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 government tried to reverse some of these policies by forbidding private sales of grains and reinstituting a centralized food rationing system. By December 2005, the government terminated most international humanitarian assistance operations in North Korea (calling instead for developmental assistance only) and restricted the activities of remaining international and non-governmental aid organizations. In mid-2008, North Korea began receiving food aid under a US program to deliver 500,000 metric tons of food via the World Food Program and US nongovernmental organizations; but Pyongyang stopped accepting the aid in March 2009. In December 2009, North Korea carried out a redenomination of its currency, capping the amount of North Korean won that could be exchanged for the new notes, and limiting the exchange to a one-week window. A concurrent crackdown on markets and foreign currency use yielded severe shortages and inflation, forcing Pyongyang to ease the restrictions by February 2010. Nevertheless, firm political control remains the Communist government's overriding concern, which likely will inhibit changes to North Korea's current economic system.

Korea, South Since the 1960s, South Korea has achieved an incredible record of growth and global integration to become a high-tech industrialized 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, and currently is among the world's 20 largest economies. Initially, a system of close government and business ties, including directed credit and import restrictions, made this success possible. 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 1997-98 exposed longstanding weaknesses in South Korea's development model including high debt/equity ratios and massive short-term foreign borrowing. GDP plunged by 6.9% in 1998, and then recovered by 9% in 1999-2000. Korea adopted numerous economic reforms following the crisis, including greater openness to foreign investment and imports. Growth moderated to about 4-5% annually between 2003 and 2007. With the global economic downturn in late 2008, South Korean GDP growth slowed to 0.2% in 2009. In the third quarter of 2009, the economy began to recover, in large part due to export growth, low interest rates, and an expansionary fiscal policy, and growth exceeded 6% in 2010. The South Korean economy's long term challenges include a rapidly aging population, inflexible labor market, and overdependence on manufacturing exports to drive economic growth.

Kosovo Over the past few years Kosovo's economy has shown significant progress in transitioning to a market-based system and maintaining macroeconomic stability, but it is still highly dependent on the international community and the diaspora for financial and technical assistance. Remittances from the diaspora - located mainly in Germany and Switzerland - are estimated to account for about 14% of GDP, and donor-financed activities and aid for another 7.5%. Kosovo's citizens are the poorest in Europe with an average annual per capita income of only $2,500. Unemployment, around 40% of the population, is a significant problem that encourages outward migration and black market activity. Most of Kosovo's population lives in rural towns outside of the capital, Pristina. Inefficient, near-subsistence farming is common - the result of small plots, limited mechanization, and lack of technical expertise. With international assistance, Kosovo has been able to privatize 50% of its state-owned enterprises (SOEs) by number, and over 90% of SOEs by value. Minerals and metals - including lignite, lead, zinc, nickel, chrome, aluminum, magnesium, and a wide variety of construction materials - once formed the backbone of industry, but output has declined because of ageing equipment and insufficient investment. A limited and unreliable electricity supply due to technical and financial problems is a major impediment to economic development. Kosovo's Ministry of Energy and Mining has solicited expressions of interest from private investors to develop a new power plant in order to address Kosovo and the region's unmet and growing demands for power. The official currency of Kosovo is the euro, but the Serbian dinar is also used in Serb enclaves. Kosovo's tie to the euro has helped keep core inflation low. Kosovo has one of the most open economies in the region, and continues to work with the international community on measures to improve the business environment and attract foreign investment. Kosovo has kept the government budget in balance as a result of efficient value added tax (VAT) collection at the borders and inefficient budget execution. In order to help integrate Kosovo into regional economic structures, UNMIK signed (on behalf of Kosovo) its accession to the Central Europe Free Trade Area (CEFTA) in 2006. However, Serbia and Bosnia have refused to recognize Kosovo's customs stamp or extend reduced tariff privileges for Kosovo products under CEFTA. In July 2008, Kosovo received pledges of $1.9 billion from 37 countries in support of its reform priorities. In June 2009, Kosovo joined the World Bank and International Monetary Fund, and Kosovo began servicing its share of the former Yugoslavia's debt.

Kuwait Kuwait has a geographically small, but wealthy, relatively open economy with self-reported crude oil reserves of about 102 billion barrels - about 9% of world reserves. Petroleum accounts for nearly half of GDP, 95% of export revenues, and 95% of government income. Kuwaiti officials have committed to increasing oil production to 4 million barrels per day by 2020. The rise in global oil prices throughout 2010 is reviving government consumption and economic growth as Kuwait experiences a 20% increase in government budget revenue. Kuwait has done little to diversify its economy, in part, because of this positive fiscal situation, and, in part, due to the poor business climate and the acrimonious relationship between the National Assembly and the executive branch, which has stymied most movement on economic reforms. Nonetheless, the government in May 2010 passed a privatization bill that allows the government to sell assets to private investors, and in January passed an economic development plan that pledges to spend up to $130 billion in five years to diversify the economy away from oil, attract more investment, and boost private sector participation in the economy. Increasing government expenditures by so large an amount during the planned time frame may be difficult to accomplish.

Kyrgyzstan Kyrgyzstan is a poor, mountainous country with a dominant agricultural sector. 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. The economy depends heavily on gold exports - mainly from output at the Kumtor gold mine. Following independence, Kyrgyzstan was progressive in carrying out market reforms, such as an improved regulatory system and land reform. Kyrgyzstan was the first Commonwealth of Independent States (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. In 2005, the BAKIEV government and international financial institutions initiated a comprehensive medium-term poverty reduction and economic growth strategy. Bishkek agreed to pursue much needed tax reform and, in 2006, became eligible for the heavily indebted poor countries (HIPC) initiative. The government made steady strides in controlling its substantial fiscal deficit, nearly closing the gap between revenues and expenditures in 2006, before boosting expenditures more than 20% in 2007-08. GDP grew about 8% annually in 2007-08, partly due to higher gold prices internationally, but slowed to 2.3% in 2009. The overthrow of President BAKIEV in April, 2010 and subsequent ethnic clashes left hundreds dead and damaged infrastructure. Shrinking trade and agricultural production, as well as political instability, caused GDP to contract about 3.5% in 2010. The fiscal deficit widened to 12% of GDP, reflecting significant increases in crisis-related spending, including both rehabilitation of damaged infrastructure and bank recapitalization. Progress in reconstruction, fighting corruption, restructuring domestic industry, and attracting foreign aid and investment are key to future growth.

Laos The government of Laos, one of the few remaining one-party 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 from 1988-2008 except during the short-lived drop caused by the Asian financial crisis that began in 1997. Despite this high growth rate, Laos remains a country with an underdeveloped infrastructure, particularly in rural areas. It has a rudimentary, but improving, road system, and limited external and internal telecommunications. Electricity is available in urban areas and in many rural districts. Subsistence agriculture, dominated by rice cultivation in lowland areas, accounts for about 30% of GDP and provides 80% of total employment. The government in FY08/09 received $560 million from international donors. Economic growth has reduced official poverty rates from 46% in 1992 to 26% in 2009. The economy has benefited from high foreign investment in hydropower, mining, and construction. Laos gained Normal Trade Relations status with the US in 2004, and is taking steps required to join the World Trade Organization, such as reforming import licensing. Related trade policy reforms will improve the business environment. On the fiscal side, Laos launched an effort to ensure the collection of taxes in 2009 as the global economic slowdown reduced revenues from mining projects. Simplified investment procedures and expanded bank credits for small farmers and small entrepreneurs will improve Lao's economic prospects. The government appears committed to raising the country's profile among investors. The World Bank has declared that Laos's goal of graduating from the UN Development Program's list of least-developed countries by 2020 is achievable. According Laotian officials, the 7th Socio-Economic Development Plan for 2011-15 will outline efforts to achieve Millennium Development Goals.