FranceFrance is in the midst of transition from a well-to-do moderneconomy that has featured extensive government ownership andintervention to one that relies more on market mechanisms. Thegovernment has partially or fully privatized many large companies,banks, and insurers, and has ceded stakes in such leading firms asAir France, France Telecom, Renault, and Thales. It maintains astrong presence in some sectors, particularly power, publictransport, and defense industries. The telecommunications sector isgradually being opened to competition. France's leaders remaincommitted to a capitalism in which they maintain social equity bymeans of laws, tax policies, and social spending that reduce incomedisparity and the impact of free markets on public health andwelfare. Widespread opposition to labor reform has in recent yearshampered the government's ability to revitalize the economy. During2007-08, the government implemented several important labor reforms,including a de facto extension of the 35-hour workweek by allowingemployees to work longer overtime hours. During 2009, the governmentis expected to delay or even renounce other reform efforts due tothe on-going financial crisis. GDP growth dropped to 0.3% in 2008;the French government plans to increase public investment andcontinue injecting capital into the banking sector to alleviate thenegative effects of the crisis during 2009. As a result of lowerfiscal revenues and increased expenditures the general governmentdeficit is expected to exceed the euro-zone ceiling 3% of GDP.France's tax burden remains one of the highest in Europe - at nearly50% of GDP in 2005. With at least 75 million foreign tourists peryear, France is the most visited country in the world and maintainsthe third largest income in the world from tourism.
French PolynesiaSince 1962, when France stationed militarypersonnel in the region, French Polynesia has changed from asubsistence agricultural economy to one in which a high proportionof the work force is either employed by the military or supports thetourist industry. With the halt of French nuclear testing in 1996,the military contribution to the economy fell sharply. Tourismaccounts for about one-fourth of GDP and is a primary source of hardcurrency earnings. Other sources of income are pearl farming anddeep-sea commercial fishing. The small manufacturing sectorprimarily processes agricultural products. The territory benefitssubstantially from development agreements with France aimedprincipally at creating new businesses and strengthening socialservices.
French Southern and Antarctic LandsEconomic activity is limited toservicing meteorological and geophysical research stations, militarybases, and French and other fishing fleets. The fish catches landedon Iles Kerguelen by foreign ships are exported to France andReunion.
GabonGabon enjoys a per capita income four times that of mostsub-Saharan African nations, but because of high income inequality,a large proportion of the population remains poor. Gabon depended ontimber and manganese until oil was discovered offshore in the early1970s. The oil sector now accounts for more than 50% of GDP. Gaboncontinues to face fluctuating prices for its oil, timber, andmanganese exports. Despite the abundance of natural wealth, poorfiscal management hobbles the economy. In 1997, an IMF mission toGabon criticized the government for overspending on off-budgetitems, overborrowing from the central bank, and slipping on itsschedule for privatization and administrative reform. The rebound ofoil prices since 1999 have helped growth, but drops in productionhave hampered Gabon from fully realizing potential gains, and willcontinue to temper the gains for most of this decade. In December2000, Gabon signed a new agreement with the Paris Club to rescheduleits official debt. A follow-up bilateral repayment agreement withthe US was signed in December 2001. Gabon signed a 14-month Stand-ByArrangement with the IMF in May 2007, and received Paris Club debtrescheduling later that year.
Gambia, TheThe Gambia has no confirmed mineral or natural resourcedeposits and has a limited agricultural base. About 75% of thepopulation depends on crops and livestock for its livelihood.Small-scale manufacturing activity features the processing ofpeanuts, fish, and hides. Reexport trade normally constitutes amajor segment of economic activity, but a 1999 government-imposedpreshipment inspection plan, and instability of the Gambian dalasi(currency) have drawn some of the reexport trade away from TheGambia. The Gambia's natural beauty and proximity to Europe has madeit one of the larger markets for tourism in West Africa. Thegovernment's 1998 seizure of the private peanut firm Alimentaeliminated the largest purchaser of Gambian groundnuts. Despite anannounced program to begin privatizing key parastatals, no planshave been made public that would indicate that the governmentintends to follow through on its promises. Unemployment andunderemployment rates remain extremely high; short-run economicprogress depends on sustained bilateral and multilateral aid, onresponsible government economic management, on continued technicalassistance from the IMF and bilateral donors, and on expected growthin the construction sector.
Gaza StripHigh population density, limited land access, and strictinternal and external security controls have kept economicconditions in the Gaza Strip - the smaller of the two areas underthe Palestinian Authority (PA) - even more degraded than in the WestBank. The beginning of the second intifada in September 2000 sparkedan economic downturn, largely the result of Israeli closurepolicies; these policies, which were imposed to address securityconcerns in Israel, disrupted labor and trade access to and from theGaza Strip. In 2001, and even more severely in 2003, Israelimilitary measures in PA areas resulted in the destruction ofcapital, the disruption of administrative structures, and widespreadbusiness closures. The Israeli withdrawal from the Gaza Strip inSeptember 2005 offered some medium-term opportunities for economicgrowth, but Israeli-imposed crossings closures, which became morerestrictive after HAMAS violently took over the territory in June2007, have resulted in widespread private sector layoffs andshortages of most goods. The status of the crossings, which areclosed to all but the most basic goods, has not changed followingIsrael's military offensive into the Gaza Strip in early 2009.
GeorgiaGeorgia's economy sustained GDP growth of close to 10% in2006 and 12% in 2007, based on strong inflows of foreign investmentand robust government spending. However, growth slowed to less than3% in 2008 and is expected to slow further in 2009. Georgia's maineconomic activities include the cultivation of agricultural productssuch as grapes, citrus fruits, and hazelnuts; mining of manganeseand copper; and output of a small industrial sector producingalcoholic and nonalcoholic beverages, metals, machinery, aircraftand chemicals. Areas of recent improvement include growth in theconstruction, banking services, and mining sectors, but reducedavailability of external investment and the slowing regional economyare emerging risks. The country imports nearly all its neededsupplies of natural gas and oil products. It has sizeable hydropowercapacity, a growing component of its energy supplies. Georgia hasovercome the chronic energy shortages of the past by renovatinghydropower plants and by bringing in newly available supplies fromAzerbaijan. It also has an increased ability to pay for moreexpensive gas imports from Russia. The construction on theBaku-T'bilisi-Ceyhan oil pipeline, the Baku-T'bilisi-Erzerum gaspipeline, and the Kars-Akhalkalaki Railroad are part of a strategyto capitalize on Georgia's strategic location between Europe andAsia and develop its role as a transit point for gas, oil and othergoods. Georgia has historically suffered from a chronic failure tocollect tax revenues; however, the government has made greatprogress and has reformed the tax code, improved tax administration,increased tax enforcement, and cracked down on corruption sincecoming to power in 2004. Government revenues have increased nearlyfour fold since 2003. Due to improvements in customs and taxenforcement, smuggling is a declining problem. The country ispinning its hopes for long-term growth on a determined effort toreduce regulation, taxes, and corruption in order to attract foreigninvestment, but the economy faces a more difficult investmentclimate both domestically and internationally.
GermanyThe German economy - the fifth largest economy in the worldin PPP terms and Europe's largest - began to contract in the secondquarter of 2008 as the strong euro, high oil prices, tighter creditmarkets, and slowing growth abroad took their toll on Germany'sexport-dependent economy. At just 1% in 2008, GDP growth is expectedto be negative in 2009. Recent stimulus and lender relief effortswill make demands on Germany's federal budget and undercut plans tobalance its budget by 2011. The reforms launched by the formergovernment of Chancellor Gerhard SCHOEDER, deemed necessary due tochronically high unemployment and low average growth, led to stronggrowth in 2007, while unemployment in 2008 fell below 8%, a newpost-reunification low. Germany's aging population, combined withhigh chronic unemployment, has pushed social security outlays to alevel exceeding contributions, but higher government revenues fromthe cyclical upturn in 2006-07 and a 3% rise in the value-added taxcut Germany's budget deficit to within the EU's 3% debt limit in2007. The current government of Chancellor Angela MERKEL hasinitiated other reform measures, such as a gradual increase in themandatory retirement age from 65 to 67 and measures to increasefemale participation in the labor market. The modernization andintegration of the eastern German economy - where unemployment stillexceeds 30% in some municipalities - continues to be a costlylong-term process, with annual transfers from west to east amountingto roughly $80 billion. While corporate restructuring and growingcapital markets have set strong foundations to help Germany meet thelonger-term challenges of European economic integration andglobalization, Germany's export-oriented economy has proved adisadvantage in the context of weak global demand.
GhanaWell endowed with natural resources, Ghana has roughly twicethe per capita output of the poorest countries in West Africa. Evenso, Ghana remains heavily dependent on international financial andtechnical assistance. Gold and cocoa production, and individualremittances, are major sources of foreign exchange. The domesticeconomy continues to revolve around agriculture, which accounts forabout 35% of GDP and employs about 55% of the work force, mainlysmall landholders. Ghana signed a Millennium Challenge Corporation(MCC) Compact in 2006, which aims to assist in transforming Ghana'sagricultural sector. Ghana opted for debt relief under the HeavilyIndebted Poor Country (HIPC) program in 2002, and is also benefitingfrom the Multilateral Debt Relief Initiative that took effect in2006. Thematic priorities under its current Growth and PovertyReduction Strategy, which also provides the framework fordevelopment partner assistance, are: macroeconomic stability;private sector competitiveness; human resource development; and goodgovernance and civic responsibility. Sound macro-economic managementalong with high prices for gold and cocoa helped sustain GDP growthin 2008.
GibraltarSelf-sufficient Gibraltar benefits from an extensiveshipping trade, offshore banking, and its position as aninternational conference center. The British military presence hasbeen sharply reduced and now contributes about 7% to the localeconomy, compared with 60% in 1984. The financial sector, tourism(almost 5 million visitors in 1998), shipping services fees, andduties on consumer goods also generate revenue. The financialsector, the shipping sector, and tourism each contribute 25%-30% ofGDP. Telecommunications accounts for another 10%. In recent years,Gibraltar has seen major structural change from a public to aprivate sector economy, but changes in government spending stillhave a major impact on the level of employment.
GreeceGreece has a capitalist economy with the public sectoraccounting for about 40% of GDP and with per capita GDP abouttwo-thirds that of the leading euro-zone economies. Tourism provides15% of GDP. Immigrants make up nearly one-fifth of the work force,mainly in agricultural and unskilled jobs. Greece is a majorbeneficiary of EU aid, equal to about 3.3% of annual GDP. The Greekeconomy grew by nearly 4.0% per year between 2003 and 2007, duepartly to infrastructural spending related to the 2004 AthensOlympic Games, and in part to an increased availability of credit,which has sustained record levels of consumer spending. But growthdropped to 2.9% in 2008, as a result of the world financial crisisand tightening credit conditions. Greece violated the EU's Growthand Stability Pact budget deficit criteria of no more than 3% of GDPfrom 2001 to 2006, but finally met that criteria in 2007-08. Publicdebt, inflation, and unemployment are above the euro-zone average,but are falling. The Greek Government continues to grapple withcutting government spending, reducing the size of the public sector,and reforming the labor and pension systems, in the face of oftenvocal opposition from the country's powerful labor unions and thegeneral public. The economy remains an important domestic politicalissue in Greece and, while the ruling New Democracy government hashad some success in improving economic growth and reducing thebudget deficit, Athens faces long-term challenges in its effort tocontinue its economic reforms, especially social security reform andprivatization.
GreenlandThe economy remains critically dependent on exports ofshrimp and fish and on a substantial subsidy - about $700 million in2008-09 - from the Danish Government, which supplies about 60% ofgovernment revenues. The public sector, including publicly-ownedenterprises and the municipalities, plays the dominant role in theeconomy. Several interesting hydrocarbon and mineral explorationactivities are ongoing and in 2007 a US firm signed an agreementwith the Greenland Home Rule government to study the feasibility ofbuilding a multi-billion dollar aluminum smelter and hydropowerplant. Denmark plans to reduce its subsidies to Greenland asrevenues from oil exports come onstream.
GrenadaGrenada relies on tourism as its main source of foreignexchange especially since the construction of an internationalairport in 1985. Hurricanes Ivan (2004) and Emily (2005) severelydamaged the agricultural sector - particularly nutmeg and cocoacultivation - which had been a key driver of economic growth.Grenada has rebounded from the devastating effects of the hurricanesbut is now saddled with the debt burden from the rebuilding process.Public debt-to-GDP is nearly 110%, leaving the THOMAS administrationlimited room to engage in public investments and social spending.Strong performances in construction and manufacturing, together withthe development of tourism and an offshore financial industry, havealso contributed to growth in national output; however, economicgrowth will likely slow in 2009 because of the global economicslowdown's effects on tourism and remittances.
GuamThe economy depends largely on US military spending andtourism. Total US grants, wage payments, and procurement outlaysamounted to $1.3 billion in 2004. Over the past 30 years, thetourist industry has grown to become the largest income sourcefollowing national defense. The Guam economy continues to experienceexpansion in both its tourism and military sectors.
GuatemalaGuatemala is the most populous of the Central Americancountries with a GDP per capita roughly one-half that of Argentina,Brazil, and Chile. The agricultural sector accounts for aboutone-tenth of GDP, two-fifths of exports, and half of the laborforce. Coffee, sugar, and bananas are the main products, with sugarexports benefiting from increased global demand for ethanol. The1996 signing of peace accords, which ended 36 years of civil war,removed a major obstacle to foreign investment, and Guatemala sincethen has pursued important reforms and macroeconomic stabilization.The Central American Free Trade Agreement (CAFTA) entered into forcein July 2006 and has since spurred increased investment in theexport sector, but concerns over security, the lack of skilledworkers and poor infrastructure continued to hamper foreignparticipation. The distribution of income remains highly unequalwith more than half of the population below the national povertyline. Other ongoing challenges include increasing governmentrevenues, negotiating further assistance from international donors,curtailing drug trafficking and rampant crime, and narrowing thetrade deficit. Given Guatemala's large expatriate community in theUnited States, it is the top remittance recipient in CentralAmerica, with inflows serving as a primary source of foreign incomeequivalent to nearly two-thirds of exports. Economic growth willslow in 2009 as export demand from US and other Central Americanmarkets drop and foreign investment slows amid the global slowdown.
GuernseyFinancial services - banking, fund management, insurance -account for about 23% of employment and about 55% of total income inthis tiny, prosperous Channel Island economy. Tourism,manufacturing, and horticulture, mainly tomatoes and cut flowers,have been declining. Financial services, construction, retail, andthe public sector have been growing. Light tax and death duties makeGuernsey a popular tax haven. The evolving economic integration ofthe EU nations is changing the environment under which Guernseyoperates.
GuineaGuinea possesses major mineral, hydropower, and agriculturalresources, yet remains an underdeveloped nation. The country hasalmost half of the world's bauxite reserves. The mining sectoraccounts for more than 70% of exports. Long-run improvements ingovernment fiscal arrangements, literacy, and the legal frameworkare needed if the country is to move out of poverty. Investorconfidence has been sapped by rampant corruption, a lack ofelectricity and other infrastructure, a lack of skilled workers, andthe political uncertainty because of the death of President LansanaCONTE in December 2008. Guinea is trying to reengage with the IMFand World Bank, which cut off most assistance in 2003, and isworking closely with technical advisors from the U.S. TreasuryDepartment, the World Bank and IMF, seeking to return to a fullyfunded program. Growth rose slightly in 2006-08, primarily due toincreases in global demand and commodity prices on world markets,but the standard of living fell. The Guinea franc depreciatedsharply as the prices for basic necessities like food and fuel rosebeyond the reach of most Guineans. Dissatisfaction with economicconditions prompted nationwide strikes in February and June 2006.
Guinea-BissauOne of the five poorest countries in the world,Guinea-Bissau depends mainly on farming and fishing. Cashew cropshave increased remarkably in recent years, and the country now ranksfifth in cashew production. Guinea-Bissau exports fish and seafoodalong with small amounts of peanuts, palm kernels, and timber. Riceis the major crop and staple food. However, intermittent fightingbetween Senegalese-backed government troops and a military juntadestroyed much of the country's infrastructure and caused widespreaddamage to the economy in 1998; the civil war led to a 28% drop inGDP that year, with partial recovery in 1999-2002. Before the war,trade reform and price liberalization were the most successful partof the country's structural adjustment program under IMFsponsorship. The tightening of monetary policy and the developmentof the private sector had also begun to reinvigorate the economy.Because of high costs, the development of petroleum, phosphate, andother mineral resources is not a near-term prospect. Offshore oilprospecting is underway in several sectors but has not yet led tocommercially viable crude deposits. The inequality of incomedistribution is one of the most extreme in the world. The governmentand international donors continue to work out plans to forwardeconomic development from a lamentably low base. In December 2003,the World Bank, IMF, and UNDP were forced to step in to provideemergency budgetary support in the amount of $107 million for 2004,representing over 80% of the total national budget. Government driftand indecision, however, resulted in continued low growth in2002-06. Higher raw material prices boosted growth in 2007 and 2008.
GuyanaThe Guyanese economy exhibited moderate economic growth inrecent years and is based largely on agriculture and extractiveindustries. The economy is heavily dependent upon the export of sixcommodities - sugar, gold, bauxite, shrimp, timber, and rice - whichrepresent nearly 60% of the country's GDP and are highly susceptibleto adverse weather conditions and fluctuations in commodity prices.Economic recovery since the 2005 flood-related contraction has beenbuoyed by increases in remittances and foreign direct investment inthe sugar and rice industries as well as the mining sector. Thebauxite mining sector should benefit in the near term fromrestructuring and partial privatization, and the state-owned sugarindustry will conduct efficiency increasing modernizations. Exportearnings from agriculture and mining have remained flat as risingcommodity prices have offset declining production, while the importbill has risen, driven by higher energy costs. Chronic problemsinclude a shortage of skilled labor and a deficient infrastructure.The government is juggling a sizable external debt against theurgent need for expanded public investment. In March 2007, theInter-American Development Bank, Guyana's principal donor, canceledGuyana's nearly $470 million debt, equivalent to nearly 48% of GDP,which along with other Highly Indebted Poor Country (HIPC) debtforgiveness brought the debt-to-GDP ratio down from 183% in 2006 to120% in 2007. Guyana became heavily indebted as a result of theinward-looking, state-led development model pursued in the 1970s and1980s. 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.
HaitiHaiti is the poorest country in the Western Hemisphere with80% of the population living under the poverty line and 54% inabject poverty. Two-thirds of all Haitians depend on theagricultural sector, mainly small-scale subsistence farming, andremain vulnerable to damage from frequent natural disasters,exacerbated by the country's widespread deforestation. While theeconomy has recovered in recent years, registering positive growthsince 2005, four tropical storms in 2008 severely damaged thetransportation infrastructure and agricultural sector. US economicengagement under the Haitian Hemispheric Opportunity throughPartnership Encouragement (HOPE) Act, passed in December 2006, hasboosted apparel exports and investment by providing tariff-freeaccess to the US. HOPE II, passed in October 2008, has furtherimproved the export environment for the apparel sector by extendingpreferences to 2018; the apparel sector accounts for two-thirds ofHaitian exports and nearly one-tenth of GDP. Remittances are theprimary source of foreign exchange, equaling nearly a quarter of GDPand more than twice the earnings from exports. Haiti suffers fromhigh inflation, a lack of investment because of insecurity andlimited infrastructure, and a severe trade deficit. In 2005, Haitipaid its arrears to the World Bank, paving the way for reengagementwith the Bank. Haiti is expected to receive debt forgiveness forabout $525 million of its debt through the Highly-Indebted PoorCountry (HIPC) initiative by mid-2009. The government relies onformal international economic assistance for fiscal sustainability.
Heard Island and McDonald IslandsThe islands have no indigenouseconomic activity, but the Australian Government allows limitedfishing in the surrounding waters.
Holy See (Vatican City)The Holy See is supported financially by avariety of sources, including investments, real estate income, anddonations from Catholic individuals, dioceses, and institutions;these help fund the Roman Curia (Vatican bureaucracy), diplomaticmissions, and media outlets. The separate Vatican City State budgetincludes the Vatican museums and post office and is supportedfinancially by the sale of stamps, coins, medals, and touristmementos; by fees for admission to museums; and by publicationssales. Moreover, an annual collection taken up in dioceses anddirect donations go to a non-budgetary fund known as Peter's Pence,which is used directly by the Pope for charity, disaster relief, andaid to churches in developing nations. The incomes and livingstandards of lay workers are comparable to those of counterparts whowork in the city of Rome.
HondurasHonduras, the second poorest country in Central America,has an extraordinarily unequal distribution of income and highunemployment. The economy relies heavily on a narrow range ofexports, notably bananas and coffee, making it vulnerable to naturaldisasters and shifts in commodity prices; however, investments inthe maquila and non-traditional export sectors are slowlydiversifying the economy. Economic growth remains dependent on theUS economy its largest trading partner, and will decline in 2009 asa result of reduction in export demand and tightening global creditmarkets. Remittances represent over a quarter of GDP or nearlythree-quarters of exports. The US-Central America Free TradeAgreement (CAFTA) came into force in 2006 and has helped fosterinvestment. Despite improvements in tax collections, thegovernment's fiscal deficit is growing due to increases in currentexpenditures and financial losses from the state energy andtelephone companies.
Hong KongHong Kong has a free market economy highly dependent oninternational trade and finance, which has left it heavily exposedto the global economic slowdown that began in 2008. The total valueof goods and services trade, including the sizable share ofreexports, was equivalent to 404% of GDP in 2007. The territory hasbecome increasingly integrated with mainland China over the past fewyears through trade, tourism, and financial links. The mainland haslong been Hong Kong's largest trading partner, accounting for nearly49% of Hong Kong's exports trade by value in 2008. As a result ofChina's easing of travel restrictions, the number of mainlandtourists to the territory has surged from 4.5 million in 2001 to16.9 million in 2008, when they outnumbered visitors from all othercountries combined. Hong Kong has also established itself as thepremier stock market for Chinese firms seeking to list abroad. Morethan one-third of the firms listed on the Hong Kong Stock Exchangeare now mainland Chinese companies. They account for 60% of theExchange's market capitalization. During the past decade, as HongKong's manufacturing industry moved to the mainland, its serviceindustry has grown rapidly and now accounts for more than 90% of theterritory's GDP. Hong Kong's natural resources are limited, and foodand raw materials must be imported. GDP growth averaged a strong 5%from 1989 to 2007, but the global financial crisis caused a sharpslowdown in the second half of 2008, pushing the territory intorecession. Hong Kong continues to link its currency closely to theUS dollar, maintaining an arrangement established in 1983.
HungaryHungary has made the transition from a centrally planned toa market economy, with a per capita income nearly two-thirds that ofthe EU-25 average. The private sector accounts for more than 80% ofGDP. Foreign ownership of and investment in Hungarian firms iswidespread, with cumulative foreign direct investment totaling morethan $200 billion since 1989. The government's IMF-mandatedausterity measures, imposed since late 2006, have reduced the budgetdeficit from over 9% of GDP in 2006 to 3.3% in 2008. Hungary'simpending inability to service its short-term debt - brought on bythe global credit crunch in late 2008 - led Budapest to seek andreceive an IMF-arranged financial assistance package worth over $25billion. The global financial crisis, declining exports, and lowdomestic consumption and fixed asset accumulation, dampened bygovernment austerity measures, will result in a negative growth rateof about -1.5% to -2.5% in 2009.
IcelandIceland's Scandinavian-type social-market economy combines acapitalist structure and free-market principles with an extensivewelfare system, including generous housing subsidies. Prior to the2008 crisis, Iceland had achieved high growth, low unemployment, anda remarkably even distribution of income. Government economicpriorities have included stabilizing the krona, reducing the currentaccount deficit, containing inflation, restructuring the financialsector, and diversifying the economy. The economy depends heavily onthe fishing industry, which provides 40% of export earnings, morethan 12% of GDP, and employs 7% of the work force. It remainssensitive to declining fish stocks as well as to fluctuations inworld prices for its main exports: fish and fish products, aluminum,and ferrosilicon. Iceland's economy has been diversifying intomanufacturing and service industries in the last decade, with newdevelopments in software production, biotechnology, and tourism.Abundant geothermal sources have attracted substantial foreigninvestment in the aluminum and hydropower sectors and boostedeconomic growth, although the financial crisis has put severalinvestment projects on hold. Much of Iceland's economic growth inrecent years came as the result of a boom in domestic demandfollowing the rapid expansion of the country's financial sector.Domestic banks expanded aggressively in foreign markets, andconsumers and businesses borrowed heavily in foreign-currency loans,following the privatization of the sector in the early 2000s.Worsening global financial conditions throughout 2008 resulted in asharp depreciation of the krona vis-a-vis other major currencies.The foreign exposure of Icelandic banks, whose loans and otherassets totaled more than 10 times the country's GDP, becameunsustainable. Iceland's three largest banks collapsed in late 2008.The country negotiated over $10 billion in loans from the IMF andother countries to stabilize its currency and financial sector, andto guarantee foreign deposits in Icelandic banks. A protractedrecession is expected in 2009 and 2010 with GDP likely to contractand unemployment likely to surpass 10%. The collapse of thefinancial system has led to a major shift in opinion in favor ofjoining the EU and adopting the euro. Previous opposition to thismove stemmed from Icelanders' concern about losing control of theirfishing resources. Iceland's coalition government collapsed inJanuary 2009 following protests over growing joblessness and lossesto personal savings.
IndiaIndia's diverse economy encompasses traditional villagefarming, modern agriculture, handicrafts, a wide range of modernindustries, and a multitude of services. Services are the majorsource of economic growth, accounting for more than half of India'soutput with less than one third of its labor force. Slightly morethan half of the work force is in agriculture, leading the UnitedProgressive Alliance (UPA) government to articulate a rural economicdevelopment program that includes creating basic infrastructure toimprove the lives of the rural poor and boost economic performance.The government has reduced controls on foreign trade and investment.Higher limits on foreign direct investment were permitted in a fewkey sectors, such as telecommunications. However, tariff spikes insensitive categories, including agriculture, and incrementalprogress on economic reforms still hinder foreign access to India'svast and growing market. Privatization of government-ownedindustries remains stalled and continues to generate politicaldebate; populist pressure from within the UPA government hadrestrained needed initiatives. The economy has posted an averagegrowth rate of more than 7% in the decade since 1997, reducingpoverty by about 10 percentage points. India achieved 9.6% GDPgrowth in 2006, 9.0% in 2007, and 6.6% in 2008, significantlyexpanding manufactures through late 2008. India also is capitalizingon its large numbers of well-educated people skilled in the Englishlanguage to become a major exporter of software services andsoftware workers. Strong growth combined with easy consumer credit,a real estate boom, and fast-rising commodity prices fueledinflation concerns from mid-2006 to August 2008. Rising tax revenuesfrom better tax administration and economic expansion helped NewDelhi make progress in reducing its fiscal deficit for threestraight years before skyrocketing global commodity prices more thandoubled the cost of government energy and fertilizer subsidies. Theballooning subsidies, amidst slowing growth, brought the return of alarge fiscal deficit in 2008. In the long run, the huge and growingpopulation is the fundamental social, economic, and environmentalproblem.
Indian OceanThe Indian Ocean provides major sea routes connectingthe Middle East, Africa, and East Asia with Europe and the Americas.It carries a particularly heavy traffic of petroleum and petroleumproducts from the oilfields of the Persian Gulf and Indonesia. Itsfish are of great and growing importance to the bordering countriesfor domestic consumption and export. Fishing fleets from Russia,Japan, South Korea, and Taiwan also exploit the Indian Ocean, mainlyfor shrimp and tuna. Large reserves of hydrocarbons are being tappedin the offshore areas of Saudi Arabia, Iran, India, and westernAustralia. An estimated 40% of the world's offshore oil productioncomes from the Indian Ocean. Beach sands rich in heavy minerals andoffshore placer deposits are actively exploited by borderingcountries, particularly India, South Africa, Indonesia, Sri Lanka,and Thailand.
IndonesiaIndonesia, a vast polyglot nation, has made significanteconomic advances under the administration of President YUDHOYONObut faces challenges stemming from the global financial crisis andworld economic downturn. Indonesia's debt-to-GDP ratio in recentyears has declined steadily because of increasingly robust GDPgrowth and sound fiscal stewardship. The government has introducedsignificant reforms in the financial sector, including in the areasof tax and customs, the use of Treasury bills, and capital marketsupervision. Indonesia's investment law, passed in March 2007, seeksto address some of the concerns of foreign and domestic investors.Indonesia still struggles with poverty and unemployment, inadequateinfrastructure, corruption, a complex regulatory environment, andunequal resource distribution among regions. The non-bank financialsector, including pension funds and insurance, remains weak. Despiteefforts to broaden and deepen capital markets, they remainunderdeveloped. Economic difficulties in early 2008 centered on highglobal food and oil prices and their impact on Indonesia's poor andon the budget. The onset of the global financial crisis dampenedinflationary pressures, but increased risk aversion for emergingmarket assets resulted in large losses in the stock market,significant depreciation of the rupiah, and a difficult environmentfor bond issuance. As global demand has slowed and prices forIndonesia's commodity exports have fallen, Indonesia faces theprospect of growth significantly below the 6-plus percent recordedin 2007 and 2008.
IranIran's economy is marked by an inefficient state sector,reliance on the oil sector, which provides the majority ofgovernment revenues, and statist policies, which create majordistortions throughout the system. Most economic activity iscontrolled by the state. Private sector activity is typicallylimited to small-scale workshops, farming, and services. Pricecontrols, subsidies, and other rigidities weigh down the economy,undermining the potential for private-sector-led growth. Significantinformal market activity flourishes. Corruption and shortages ofgoods are widespread. President Mahmud AHMADI-NEJAD has proposedreforms to Iran's system of price controls and subsidies,particularly on food and energy. However, previous government-ledefforts at reform - such as fuel rationing in July 2007 and theimposition of the Value-Added Tax (VAT) in October 2008 - were metwith stiff resistance and violent protests. High oil prices inrecent years allowed Iran to greatly increase its export earningsand amass nearly $100 billion in foreign exchange reserves. But withoil prices currently below $40 per barrel, the Iranian government isfacing difficulties. Tehran has formulated a 2009 budget thatanticipates lower oil prices. The government has drawn down thecountry's Oil Stabilization Fund, and may be dipping into foreignexchange reserves. Iran continues to suffer from double-digitunemployment and inflation - inflation climbed to a 28% annual ratein 2008. Underemployment among Iran's educated youth has convincedmany to seek jobs overseas, resulting in a significant "brain drain."
IraqDecreasing insurgent attacks and an improving securityenvironment in many parts of the country are helping to spureconomic activity. Iraq's economy is dominated by the oil sector,which has traditionally provided over 90% of foreign exchangeearnings. Oil exports are around levels seen before Operation IraqiFreedom. Total government revenues have benefited from high oilprices in recent years; however, revenues have declinedsignificantly since the oil price drop in fall 2008. Iraq is makingsome progress in building the institutions needed to implementeconomic policy. In March 2009 Iraq concluded a Stand-By Arrangement(SBA) with the IMF that details economic reforms. The SBA allows an80% reduction of the debt owed to Paris Club creditor nations. TheInternational Compact with Iraq was established in May 2007 tointegrate Iraq into the regional and global economy, and the Iraqigovernment is seeking to pass laws to strengthen its economy. Thislegislation includes a hydrocarbon law to establish a modern legalframework to allow Iraq to develop its resources and a revenuesharing law to equitably divide oil revenues within the nation,although both are still under contentious political negotiation.Some foreign entities have expressed interest in reinvigoratingIraq's industrial sector. The government of Iraq is pursuing astrategy to gain foreign participation in joint ventures withState-owned enterprises. Provincial Councils are also using theirown budgets to promote and facilitate investment at the local level.The Central Bank has been successful in controlling inflationthrough appreciation of the dinar against the US dollar. However,Iraq's challenge will be to use macroeconomic gains to improve thelives of ordinary Iraqis. Reducing corruption and implementingstructural reforms, such as bank restructuring and developing theprivate sector, will be key to Iraq's economic success.
IrelandIreland is a small, modern, trade-dependent economy. GDPgrowth averaged 6% in 1995-2007, but economic activity droppedsharply in 2008 and Ireland entered into a recession for the firsttime in more than a decade with the onset of the world financialcrisis and subsequent severe slowdown in the property andconstruction 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 ofIreland's economy, construction most recently fueled economic growthalong with strong consumer spending and business investment.Property prices rose more rapidly in Ireland in the decade up to2006 than in any other developed world economy. Per capita GDP alsosurged during Ireland's high-growth years, and in 2007 surpassedthat of the United States. The Irish Government has implemented aseries of national economic programs designed to curb price and wageinflation, invest in infrastructure, increase labor force skills,and promote foreign investment. In 2008 the COWEN government movedto guarantee all bank deposits, recapitalize the banking system, andestablish partly-public venture capital funds in response to thecountry's economic downturn. Ireland joined in circulating the euroon 1 January 2002 along with 11 other EU nations.
Isle of ManOffshore banking, manufacturing, and tourism are keysectors of the economy. The government offers incentives tohigh-technology companies and financial institutions to locate onthe island; this has paid off in expanding employment opportunitiesin high-income industries. As a result, agriculture and fishing,once the mainstays of the economy, have declined in theircontributions to GDP. The Isle of Man also attracts online gamblingsites and the film industry. Trade is mostly with the UK. The Isleof Man enjoys free access to EU markets.
IsraelIsrael has a technologically advanced market economy withsubstantial, though diminishing, government participation. Itdepends on imports of crude oil, grains, raw materials, and militaryequipment. Despite limited natural resources, Israel has intensivelydeveloped its agricultural and industrial sectors over the past 20years. Israel imports substantial quantities of grain but is largelyself-sufficient in other agricultural products. Cut diamonds,high-technology equipment, and agricultural products (fruits andvegetables) are the leading exports. Israel usually posts sizabletrade deficits, which are covered by large transfer payments fromabroad and by foreign loans. Roughly half of the government'sexternal debt is owed to the US, its major source of economic andmilitary aid. Israel's GDP, after contracting slightly in 2001 and2002 due to the Palestinian conflict and troubles in thehigh-technology sector, has grown by about 5% per year since 2003.The economy grew an estimated 3.9% in 2008, slowed by the globalfinancial crisis. The government's prudent fiscal policy andstructural reforms over the past few years have helped to inducestrong foreign investment, tax revenues, and private consumption,setting the economy on a solid growth path.
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. 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 lightening the high tax burden and overhauling Italy's rigid labor market and over-generous pension system and these conditions will be exacerbated by the recent global financial crisis. The Italian government is seeking to rein in government spending, but the leadership faces a severe economic constraint: Italy's official debt remains above 100% of GDP, and the fiscal deficit - 1.5% of GDP in 2007 - could approach 3% in 2009 as political pressure to stimulate the economy and the costs of servicing Italy's debt rise. The economy will continue to contract through 2009 as the global demand for exports drop.
JamaicaThe Jamaican economy is heavily dependent on services, whichnow account for more than 60% of GDP. The country continues toderive most of its foreign exchange from tourism, remittances, andbauxite/alumina. Remittances account for nearly 20% of GDP and areequivalent to tourism revenues. Jamaica's economy, already saddledwith the lowest economic growth in Latin America, will faceincreasing difficulties as the global economy slows. The economyfaces serious long-term problems: a sizable merchandise tradedeficit, large-scale unemployment and underemployment, and adebt-to-GDP ratio of almost 130%. Jamaica's onerous debt burden -the fourth highest per capita - is the result of government bailoutsto ailing sectors of the economy, most notably the financial sectorin the mid-to-late 1990s. It hinders government spending oninfrastructure and social programs as debt servicing accounts fornearly half of government expenditures. Inflation rose sharply in2008 as a result of high prices for imported food and oil and shouldfall in 2009 with the decline in international oil prices. Highunemployment exacerbates the serious crime problem, including gangviolence that is fueled by the drug trade. The GOLDINGadministration faces the difficult prospect of having to achievefiscal discipline in order to maintain debt payments whilesimultaneously attacking a serious and growing crime problem that ishampering economic growth.
Jan MayenJan Mayen is a volcanic island with no exploitable naturalresources. Economic activity is limited to providing services foremployees of Norway's radio and meteorological stations on theisland.
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 advance with extraordinary speed to the rank of second most technologically powerful economy in the world after the US. Today, measured on a purchasing power parity (PPP) basis, Japan is the third-largest economy in the world after the US and China. Two notable characteristic 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. In October 2007 Japan's longest post-war period of economic expansion ended after 69 months and Japan entered into recession in 2008, with 2009 marking a return to near 0% interest rates. The 10-year privatization of Japan Post, which has functioned not only as the national postal delivery system but also, through its banking and insurance facilities as Japan's largest financial institution, was completed in October 2007, marking a major milestone in the process of structural reform. The Japanese financial sector was not heavily exposed to sub-prime mortgages or their derivative instruments and weathered the initial effect of the global credit crunch, but a sharp downturn in business investment and global demand for Japan's exports in late 2008 pushed Japan further into a recession. Japan's huge government debt, which totals 170% of GDP, and the aging of the population are two major long-run problems. Debate continues on the role of and effects of reform in restructuring the economy.
JerseyJersey's economy is based on international financialservices, agriculture, and tourism. In 2005 the finance sectoraccounted for about 50% of the island's output. Potatoes,cauliflower, tomatoes, and especially flowers are important exportcrops, shipped mostly to the UK. The Jersey breed of dairy cattle isknown worldwide and represents an important export income earner.Milk products go to the UK and other EU countries. Tourism accountsfor one-quarter of GDP. In recent years, the government hasencouraged light industry to locate in Jersey, with the result thatan electronics industry has developed, displacing more traditionalindustries. All raw material and energy requirements are imported,as well as a large share of Jersey's food needs. Light taxes anddeath duties make the island a popular tax haven. Living standardscome close to those of the UK.
JordanJordan is a small Arab country with insufficient supplies ofwater, oil, and other natural resources. Poverty, unemployment, andinflation are fundamental problems, but King ABDALLAH II, sinceassuming the throne in 1999, has undertaken some broad economicreforms in a long-term effort to improve living standards. SinceJordan's graduation from its most recent IMF program in 2002, Ammanhas continued to follow IMF guidelines, practicing careful monetarypolicy, making substantial headway with privatization, and openingthe trade regime. Jordan's exports have significantly increasedunder the free trade accord with the US and Jordanian QualifyingIndustrial Zones (QIZ), which allow Jordan to export goods with someIsraeli content duty free to the US. In 2006 and 2008, Jordan usedprivatization proceeds to significantly reduce its debt-to-GDPratio. These measures have helped improve productivity and have madeJordan more attractive for foreign investment. The government endedsubsidies for petroleum and other consumer goods in 2008 in aneffort to control the budget. The main challenges facing Jordan arereducing dependence on foreign grants, reducing the growing budgetdeficit, attracting investments, and creating jobs. Jordan iscurrently exploring nuclear power generation to forestall energyshortfalls. Jordan's conservative banking sector has been largelyprotected from the worldwide financial crisis, but many businesses,particularly in the tourism and real estate sector, are predicting aslow-down in 2009.
KazakhstanKazakhstan, the largest of the former Soviet republics interritory, excluding Russia, possesses enormous fossil fuel reservesand plentiful supplies of other minerals and metals. It also has alarge agricultural sector featuring livestock and grain.Kazakhstan's industrial sector rests on the extraction andprocessing of these natural resources. Kazakhstan enjoyeddouble-digit growth in 2000-01 and 8% or more per year in 2002-07 -thanks largely to its booming energy sector, but also to economicreform, good harvests, and increased foreign investment; growthslowed to 2.4% in 2008, however, as a result of declining oil pricesand a softening world economy. Inflation reached 10% in 2007 and 17%in 2008. In the energy sector, the opening of the Caspian PipelineConsortium in 2001, from western Kazakhstan's Tengiz oilfield to theBlack Sea, substantially raised export capacity. In 2006, Kazakhstancompleted the Atasu-Alashankou portion of an oil pipeline to Chinathat is planned in future construction to extend from the country'sCaspian coast eastward to the Chinese border. The country hasembarked upon an industrial policy designed to diversify the economyaway from overdependence on the oil sector by developing itsmanufacturing potential. The policy changed the corporate tax codeto favor domestic industry as a means to reduce the influence offoreign investment and foreign personnel. The government has engagedin several disputes with foreign oil companies over the terms ofproduction agreements, most recently, with regard to the Kashaganproject in 2007-08. Since 2007, Astana has provided financialsupport to the banking sector which has been struggling with poorasset quality and large foreign loans.
KenyaThe regional hub for trade and finance in East Africa, Kenyahas been hampered by corruption and by reliance upon several primarygoods whose prices have remained low. In 1997, the IMF suspendedKenya's Enhanced Structural Adjustment Program due to thegovernment's failure to maintain reforms and curb corruption. Asevere drought from 1999 to 2000 compounded Kenya's problems,causing water and energy rationing and reducing agricultural output.As a result, GDP contracted by 0.2% in 2000. The IMF, which hadresumed loans in 2000 to help Kenya through the drought, againhalted lending in 2001 when the government failed to instituteseveral anticorruption measures. Despite the return of strong rainsin 2001, weak commodity prices, endemic corruption, and lowinvestment limited Kenya's economic growth to 1.2%. Growth lagged at1.1% in 2002 because of erratic rains, low investor confidence,meager donor support, and political infighting up to the elections.In the key December 2002 elections, Daniel Arap MOI's 24-year-oldreign ended, and a new opposition government took on the formidableeconomic problems facing the nation. After some early progress inrooting out corruption and encouraging donor support, the KIBAKIgovernment was rocked by high-level graft scandals in 2005 and 2006.In 2006, the World Bank and IMF delayed loans pending action by thegovernment on corruption. The international financial institutionsand donors have since resumed lending, despite little action on thegovernment's part to deal with corruption. Post-election violence inearly 2008, coupled with the effects of the global financial crisison remittance and exports, reduced GDP growth to 2.2% in 2008, downfrom 7% the previous year.
KiribatiA remote country of 33 scattered coral atolls, Kiribati hasfew natural resources and is one of the least developed PacificIslands. Commercially viable phosphate deposits were exhausted atthe time of independence from the UK in 1979. Copra and fish nowrepresent the bulk of production and exports. The economy hasfluctuated widely in recent years. Economic development isconstrained by a shortage of skilled workers, weak infrastructure,and remoteness from international markets. Tourism provides morethan one-fifth of GDP. Private sector initiatives and a financialsector are in the early stages of development. Foreign financial aidfrom the EU, UK, US, Japan, Australia, New Zealand, Canada, UNagencies, and Taiwan accounts for 20-25% of GDP. Remittances fromseamen on merchant ships abroad account for more than $5 millioneach year. Kiribati receives around $15 million annually for thegovernment budget from an Australian trust fund.
Korea, NorthNorth Korea, one of the world's most centrally directedand least open economies, faces chronic economic problems.Industrial capital stock is nearly beyond repair as a result ofyears of underinvestment and shortages of spare parts. Large-scalemilitary spending draws off resources needed for investment andcivilian consumption. Industrial and power output have declined inparallel from pre-1990 levels. Severe flooding in the summer of 2007aggravated chronic food shortages caused by on-going systemicproblems including a lack of arable land, collective farmingpractices, and persistent shortages of tractors and fuel.Large-scale international food aid deliveries have allowed thepeople of North Korea to escape widespread starvation since faminethreatened in 1995, but the population continues to suffer fromprolonged malnutrition and poor living conditions. Since 2002, thegovernment has allowed private "farmers' markets" to begin selling awider range of goods. It also permitted some private farming - on anexperimental basis - in an effort to boost agricultural output. InOctober 2005, the government tried to reverse some of these policiesby forbidding private sales of grains and reinstituting acentralized food rationing system. By December 2005, the governmentterminated most international humanitarian assistance operations inNorth Korea (calling instead for developmental assistance only) andrestricted the activities of remaining international andnon-governmental aid organizations such as the World Food Program.External food aid now comes primarily from China and South Korea inthe form of grants and long-term concessional loans. In May 2008,the US agreed to give 500,000 metric tons of food to North Korea viathe World Food Program and US nongovernmental organizations;Pyongyang began receiving these shipments in mid-2008. During theOctober 2007 summit, South Korea also agreed to develop some ofNorth Korea's infrastructure, natural resources, and light industry,but inter-Korean economic cooperation slowed in 2008 as Pyongyangrestricted tourism and manufacturing joint ventures in the North,and food aid from South Korea was suspended. Firm political controlremains the Communist government's overriding concern, which willlikely inhibit the loosening of economic regulations.
Korea, SouthSince the 1960s, South Korea has achieved an incrediblerecord of growth and integration into the high-tech modern worldeconomy. Four decades ago, GDP per capita was comparable with levelsin the poorer countries of Africa and Asia. In 2004, South Koreajoined the trillion dollar club of world economies. In 2008, its GDPper capita was roughly the same as that of the Czech Republic andNew Zealand. Initially, this success was achieved by a system ofclose government/business ties including directed credit, importrestrictions, sponsorship of specific industries, and a strong laboreffort. The government promoted the import of raw materials andtechnology at the expense of consumer goods and encouraged savingsand investment over consumption. The Asian financial crisis of1997-98 exposed longstanding weaknesses in South Korea's developmentmodel including high debt/equity ratios, massive foreign borrowing,and an undisciplined financial sector. GDP plunged by 6.9% in 1998,then recovered by 9% in 1999-2000. Korea adopted numerous economicreforms following the crisis, including greater openness to foreigninvestment and imports. Growth fell back to 3.3% in 2001 because ofthe slowing global economy, falling exports, and the perception thatmuch-needed corporate and financial reforms had stalled. Led byconsumer spending and exports, growth in 2002 was an impressive 7%despite anemic global growth. Between 2003 and 2007, growthmoderated to about 4-5% annually. A downturn in consumer spendingwas offset by rapid export growth. In 2008, inflation increased inthe face of rising oil and food prices before easing in the fourthquarter. Korea was hit hard by the global financial turmoil thatbegan in September 2008. Stock prices fell by more than 40% for theyear and the value of the won fell by approximately 26%. Korean GDPshrank in the fourth quarter and GDP growth for the year was just2.2%. The Korean government adopted several measures to combat thecredit crunch and stimulate the economy.
KosovoOver the past few years Kosovo's economy has shownsignificant progress in transitioning to a market-based system andmaintaining macroeconomic stability, but it is still highlydependent on the international community and the diaspora forfinancial and technical assistance. Remittances from the diaspora -located mainly in Germany and Switzerland - are estimated to accountfor about 15% of GDP, and donor-financed activities and aid foranother 15%. Kosovo's citizens are the poorest in Europe with anaverage annual per capita income of only $2,300. Unemployment,around 40% of the population, is a significant problem thatencourages outward migration and black market activity. Most ofKosovo's population lives in rural towns outside of the capital,Pristina. Inefficient, near-subsistence farming is common - theresult of small plots, limited mechanization, and lack of technicalexpertise. With international assistance, Kosovo has been able toprivatize 50% of its state-owned enterprises (SOEs) by number, andover 90% of SOEs by value. Minerals and metals - including lignite,lead, zinc, nickel, chrome, aluminum, magnesium, and a wide varietyof construction materials - once formed the backbone of industry,but output has declined because of ageing equipment and insufficientinvestment. A limited and unreliable electricity supply due totechnical and financial problems is a major impediment to economicdevelopment. Kosovo's Ministry of Energy and Mining has solicitedexpressions of interest from private investors to develop a newpower plant in order to address Kosovo and the region's unmet andgrowing demands for power. The official currency of Kosovo is theeuro, but the Serbian dinar is also used in Serb enclaves. Kosovo'stie to the euro has helped keep core inflation low. Kosovo has oneof the most open economies in the region, and continues to work withthe international community on measures to improve the businessenvironment and attract foreign investment.
KuwaitKuwait is a small, rich, relatively open economy withself-reported crude oil reserves of about 104 billion barrels - 8%of world reserves. Petroleum accounts for nearly half of GDP, 95% ofexport revenues, and 80% of government income. Kuwait experiencedrapid economic growth over the last several years on the back ofhigh oil prices and in 2008 posted its tenth consecutive budgetsurplus. As a result of this positive fiscal situation, the need foreconomic reforms was less urgent and the government did not pushthrough new initiatives. The drop in oil prices in late 2008 willreduce Kuwait's fiscal surplus in 2009. The global financial crisismay slow the pace of investment and development projects, but Kuwaithas vowed to use its considerable financial resources to stabilizethe economy if necessary.
KyrgyzstanKyrgyzstan is a poor, mountainous country with apredominantly agricultural economy. Cotton, tobacco, wool, and meatare the main agricultural products, although only tobacco and cottonare exported in any quantity. Industrial exports include gold,mercury, uranium, natural gas, and electricity. Followingindependence, Kyrgyzstan was progressive in carrying out marketreforms 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 ofthe government's stock in enterprises has been sold. Drops inproduction had been severe after the breakup of the Soviet Union inDecember 1991, but by mid-1995, production began to recover andexports began to increase. The economy is heavily weighted towardgold export and a drop in output at the main Kumtor gold minesparked a 0.5% decline in GDP in 2002 and a 0.6% decline in 2005.The government made steady strides in controlling its substantialfiscal deficit, nearly closing the gap between revenues andexpenditures in 2006, before boosting expenditures more than 20% in2007-08. The government and international financial institutionshave been engaged in a comprehensive medium-term poverty reductionand economic growth strategy. In 2005, Bishkek agreed to pursuemuch-needed tax reform and, in 2006, became eligible for the heavilyindebted poor countries (HIPC) initiative. Progress fightingcorruption, further restructuring of domestic industry, and successin attracting foreign investment are keys to future growth. GDP grewmore than 6% annually in 2007-08, partly due to higher gold pricesinternationally, but growth is likely to decline from that level in2009, due to declining demand and lower commodity prices in the wakeof the international financial crisis.
LaosThe government of Laos, one of the few remaining one-partyCommunist states, began decentralizing control and encouragingprivate enterprise in 1986. The results, starting from an extremelylow base, were striking - growth averaged 6% per year from 1988-2008except during the short-lived drop caused by the Asian financialcrisis that began in 1997. Despite this high growth rate, Laosremains a country with an underdeveloped infrastructure,particularly in rural areas. It has no railroads, a rudimentary roadsystem, and limited external and internal telecommunications, thoughthe government is sponsoring major improvements in the road systemwith support from Japan and China. Electricity is available in urbanareas and in many rural districts. Subsistence agriculture,dominated by rice, accounts for about 40% of GDP and provides 80% oftotal employment. The government depends upon aid from internationaldonors for over 80% of its capital investment. The economy has untilrecently benefited from high foreign investment in hydropower,mining, and construction. The fiscal crisis of late 2008, and therapid drop in commodity prices - especially copper - has slowedthese investments. Several policy changes since 2004 may help spurgrowth. Laos, which gained Normal Trade Relations status with the USin 2004, is taking steps to join the World Trade Organization.Related trade policy reforms will improve the business environment.On the fiscal side, a value-added tax (VAT) regime, which began witha few large businesses in early 2009, should slowly help streamlinethe government's inefficient tax system. Economic prospects willimprove gradually as the administration continues to simplifyinvestment procedures and as a more competitive banking sectorextends credit to small farmers and small entrepreneurs. Thegovernment appears committed to raising the country's profile amonginvestors. Foreign donors have praised the Lao government for itsefforts to improve the investment regime. The World Bank hasdeclared that Laos' goal of graduating from the UN DevelopmentProgram's list of least-developed countries by 2020 could beachievable.
LatviaLatvia's economy experienced GDP growth of more than 10% peryear during 2006-07; but entered a severe recession in 2008 as aresult of an unsustainable current account deficit and large debtexposure amid the softening world economy. The IMF, EU, and otherdonors provided assistance to Latvia as part of an agreement todefend the currency's peg to the euro and reduce the fiscal deficitto about 5% of GDP. The majority of companies, banks, and realestate have been privatized, although the state still holds sizablestakes in a few large enterprises. Latvia officially joined theWorld Trade Organization in February 1999. EU membership, a topforeign policy goal, came in May 2004. The current account deficitand inflation remain major concerns.
LebanonLebanon has a free-market economy and a strong laissez-fairecommercial tradition. The government does not restrict foreigninvestment; however, the investment climate suffers from red tape,corruption, arbitrary licensing decisions, high taxes, tariffs, andfees, archaic legislation, and weak intellectual property rights.The Lebanese economy is service-oriented; main growth sectorsinclude banking and tourism. The 1975-90 civil war seriously damagedLebanon's economic infrastructure, cut national output by half, andall but ended Lebanon's position as a Middle Eastern entrepot andbanking hub. In the years since, Lebanon has rebuilt much of itswar-torn physical and financial infrastructure by borrowing heavily- mostly from domestic banks. In an attempt to reduce the ballooningnational debt, the Rafiq HARIRI government in 2000 began anausterity program, reining in government expenditures, increasingrevenue collection, and passing legislation to privatize stateenterprises, but economic and financial reform initiatives stalledand public debt continued to grow despite receipt of more than $2billion in bilateral assistance at the 2002 Paris II DonorsConference. The Israeli-Hizballah conflict in July-August 2006caused an estimated $3.6 billion in infrastructure damage, andprompted international donors to pledge nearly $1 billion inrecovery and reconstruction assistance. Donors met again in January2007 at the Paris III Donor Conference and pledged more than $7.5billion to Lebanon for development projects and budget support,conditioned on progress on Beirut's fiscal reform and privatizationprogram. An 18-month political stalemate and sporadic sectarian andpolitical violence hampered economic activity, particularly tourism,retail sales, and investment, until the new government was formed inJuly 2008. Political stability since the Doha Accord of May 2008 hashelped to boost investment and tourism, but economic growth islikely to slow in 2009 as a result of the global economic recession.