Chapter XCVIII: Front Matter (98)

Australia
Australia has a prosperous Western-style capitalist
economy, with a per capita GDP on par with the four dominant West
European economies. Rising output in the domestic economy has been
offsetting the global slump, and business and consumer confidence
remains robust. Australia's emphasis on reforms is another key
factor behind the economy's strength. The stagnant economic
conditions in major export partners and the impact of the worst
drought in 100 years cast a shadow over prospects for 2003.

Austria
Austria, with its well-developed market economy and high
standard of living, is closely tied to other EU economies,
especially Germany's. Membership in the EU has drawn an influx of
foreign investors attracted by Austria's access to the single
European market and proximity to EU aspirant economies. Slowing
growth in Germany and elsewhere in the world held the economy to
only 1.2% growth in 2001, 0.6% in 2002, and 0.8% in 2003.. To meet
increased competition from both EU and Central European countries,
Austria will need to emphasize knowledge-based sectors of the
economy, continue to deregulate the service sector, and lower its
tax burden. A key issue is the encouragement of much greater
participation in the labor market by its ageing population.

Azerbaijan
Azerbaijan's number one export is oil. Azerbaijan's oil
production declined through 1997 but has registered an increase
every year since. Negotiation of production-sharing arrangements
(PSAs) with foreign firms, which have thus far committed $60 billion
to long-term oilfield development, should generate the funds needed
to spur future industrial development. Oil production under the
first of these PSAs, with the Azerbaijan International Operating
Company, began in November 1997. Azerbaijan shares all the
formidable problems of the former Soviet republics in making the
transition from a command to a market economy, but its considerable
energy resources brighten its long-term prospects. Baku has only
recently begun making progress on economic reform, and old economic
ties and structures are slowly being replaced. One obstacle to
economic progress is the need for stepped up foreign investment in
the non-energy sector. A second obstacle is the continuing conflict
with Armenia over the Nagorno-Karabakh region. Trade with Russia and
the other former Soviet republics is declining in importance while
trade is building with Turkey and the nations of Europe. Long-term
prospects will depend on world oil prices, the location of new
pipelines in the region, and Azerbaijan's ability to manage its oil
wealth.

Bahamas, The
The Bahamas is a stable, developing nation with an
economy heavily dependent on tourism and offshore banking. Tourism
alone accounts for more than 60% of GDP and directly or indirectly
employs half of the archipelago's labor force. Steady growth in
tourism receipts and a boom in construction of new hotels, resorts,
and residences had led to solid GDP growth in recent years, but the
slowdown in the US economy and the attacks of 11 September 2001 held
back growth in these sectors in 2002. Manufacturing and agriculture
together contribute approximately a tenth of GDP and show little
growth, despite government incentives aimed at those sectors.
Overall growth prospects in the short run rest heavily on the
fortunes of the tourism sector, which depends on growth in the US,
the source of most of the visitors.

Bahrain
In Bahrain, petroleum production and refining account for
about 60% of export receipts, 60% of government revenues, and 30% of
GDP. With its highly developed communication and transport
facilities, Bahrain is home to numerous multinational firms with
business in the Gulf. Bahrain is dependent on Saudi Arabia for oil
granted as aid. A large share of exports consists of petroleum
products made from refining imported crude. Construction proceeds on
several major industrial projects. Unemployment, especially among
the young, and the depletion of oil and underground water resources
are major long-term economic problems.

Baker Island
no economic activity

Bangladesh
Despite sustained domestic and international efforts to
improve economic and demographic prospects, Bangladesh remains a
poor, overpopulated, and ill-governed nation. Although half of GDP
is generated through the service sector, nearly two-thirds of
Bangladeshis are employed in the agriculture sector, with rice as
the single-most-important product. Major impediments to growth
include frequent cyclones and floods, inefficient state-owned
enterprises, inadequate port facilities, a rapidly growing labor
force that cannot be absorbed by agriculture, delays in exploiting
energy resources (natural gas), insufficient power supplies, and
slow implementation of economic reforms. Economic reform is stalled
in many instances by political infighting and corruption at all
levels of government. Progress also has been blocked by opposition
from the bureaucracy, public sector unions, and other vested
interest groups. The BNP government, led by Prime Minister Khaleda
ZIA, has the parliamentary strength to push through needed reforms,
but the party's political will to do so has been lacking in key
areas.

Barbados
Historically, the Barbadian economy had been dependent on
sugarcane cultivation and related activities, but production in
recent years has diversified into manufacturing and tourism.
Offshore finance and information services are important foreign
exchange earners, and there is also a light-manufacturing sector.
The government continues its efforts to reduce unemployment, to
encourage direct foreign investment, and to privatize remaining
state-owned enterprises. The economy contracted in 2002 mainly due
to a 3% decline in tourism. Growth should be positive in 2003, the
precise level largely dependent on economic conditions in the US and
Europe.

Bassas da India
no economic activity

Belarus
Belarus has seen little structural reform since 1995, when
President LUKASHENKO launched the country on the path of "market
socialism." In keeping with this policy, LUKASHENKO reimposed
administrative controls over prices and currency exchange rates and
expanded the state's right to intervene in the management of private
enterprise. In addition to the burdens imposed by high inflation and
persistent trade deficits, businesses have been subject to pressure
on the part of central and local governments, e.g., arbitrary
changes in regulations, numerous rigorous inspections, retroactive
application of new business regulations, and arrests of "disruptive"
businessmen and factory owners. A wide range of redistributive
policies has helped those at the bottom of the ladder. Close
relations with Russia, possibly leading to reunion, color the
pattern of economic developments. For the time being, Belarus
remains self-isolated from the West and its open-market economies.

Belgium
This modern private enterprise economy has capitalized on
its central geographic location, highly developed transport network,
and diversified industrial and commercial base. Industry is
concentrated mainly in the populous Flemish area in the north. With
few natural resources, Belgium must import substantial quantities of
raw materials and export a large volume of manufactures, making its
economy unusually dependent on the state of world markets. Roughly
three-quarters of its trade is with other EU countries. Public debt
is about 100% of GDP, and the government has succeeded in balancing
its budget. Belgium, together with 11 of its EU partners, began
circulating the euro currency in January 2002. Economic growth in
2001-03 dropped sharply due to the global economic slowdown.
Prospects for 2004 again depend largely on recovery in the EU and
the US.

Belize
In this small, essentially private enterprise economy the
tourism industry is the number one foreign exchange earner followed
by cane sugar, citrus, marine products, bananas, and garments. The
government's expansionary monetary and fiscal policies, initiated in
September 1998, led to GDP growth of 6.5% in 1999, 10.8% in 2000,
4.6% in 2001, and 3.7% in 2002. Major concerns continue to be the
sizable trade deficit and foreign debt. A key short-term objective
remains the reduction of poverty with the help of international
donors.

Benin
The economy of Benin remains underdeveloped and dependent on
subsistence agriculture, cotton production, and regional trade.
Growth in real output has averaged a stable 5% in the past six
years, but rapid population rise has offset much of this increase.
Inflation has subsided over the past several years. In order to
raise growth still further, Benin plans to attract more foreign
investment, place more emphasis on tourism, facilitate the
development of new food processing systems and agricultural
products, and encourage new information and communication
technology. The 2001 privatization policy should continue in
telecommunications, water, electricity, and agriculture in spite of
initial government reluctance. The Paris Club and bilateral
creditors have eased the external debt situation, while pressing for
speeded-up structural reforms.

Bermuda
Bermuda enjoys one of the highest per capita incomes in the
world, with its economy primarily based on providing financial
services for international business and luxury facilities for
tourists. The effects of 11 September 2001 have had both positive
and negative ramifications for Bermuda. On the positive side, a
number of new reinsurance companies have located on the island,
contributing to the expansion of an already robust international
business sector. On the negative side, Bermuda's tourism industry -
which derives over 80% of its visitors from the US - has been
severely hit as American tourists have chosen not to travel. Tourism
rebounded somewhat in 2002, but remains below the pre-11 September
level. Most capital equipment and food must be imported. Bermuda's
industrial sector is small, although construction continues to be
important. Agriculture is limited, only 6% of the land being arable.

Bhutan
The economy, one of the world's smallest and least developed,
is based on agriculture and forestry, providing the main livelihood
for more than 90% of the population. Agriculture consists largely of
subsistence farming and animal husbandry. Rugged mountains dominate
the terrain and make the building of roads and other infrastructure
difficult and expensive. The economy is closely aligned with India's
through strong trade and monetary links and dependence on India's
financial assistance. The industrial sector is technologically
backward, with most production of the cottage industry type. Most
development projects, such as road construction, rely on Indian
migrant labor. Bhutan's hydropower potential and its attraction for
tourists are key resources. The government has made some progress in
expanding the nation's productive base and improving social welfare.
Model education, social, and environment programs are underway with
support from multilateral development organizations. Each economic
program takes into account the government's desire to protect the
country's environment and cultural traditions. Detailed controls and
uncertain policies in areas like industrial licensing, trade, labor,
and finance continue to hamper foreign investment.

Bolivia
Bolivia, long one of the poorest and least developed Latin
American countries, made considerable progress in the 1990s toward
the development of a market-oriented economy. Successes under
President SANCHEZ DE LOZADA (1993-97) included the signing of a free
trade agreement with Mexico and becoming an associate member of the
Southern Cone Common Market (Mercosur), as well as the privatization
of the state airline, telephone company, railroad, electric power
company, and oil company. Growth slowed in 1999, in part due to
tight government budget policies, which limited needed
appropriations for anti-poverty programs, and the fallout from the
Asian financial crisis. In 2000, major civil disturbances held down
growth to 2.5%. Bolivia's GDP failed to grow in 2001 due to the
global slowdown and laggard domestic activity. Growth picked up
slightly in 2002, but the first quarter of 2003 saw extensive civil
riots and looting and loss of confidence in the government. Bolivia
will remain highly dependent on foreign aid unless and until it can
develop its substantial natural resources.

Bosnia and Herzegovina
Bosnia and Herzegovina ranked next to The
Former Yugoslav Republic of Macedonia as the poorest republic in the
old Yugoslav federation. Although agriculture is almost all in
private hands, farms are small and inefficient, and the republic
traditionally is a net importer of food. Industry has been greatly
overstaffed, one reflection of the socialist economic structure of
Yugoslavia. TITO had pushed the development of military industries
in the republic with the result that Bosnia hosted a number of
Yugoslavia's defense plants. The bitter interethnic warfare in
Bosnia caused production to plummet by 80% from 1990 to 1995,
unemployment to soar, and human misery to multiply. With an uneasy
peace in place, output recovered in 1996-99 at high percentage rates
from a low base; but output growth slowed in 2000-02. GDP remains
far below the 1990 level. Economic data are of limited use because,
although both entities issue figures, national-level statistics are
limited. Moreover, official data do not capture the large share of
black market activity. The marka - the national currency introduced
in 1998 - is now pegged to the euro, and the Central Bank of Bosnia
and Herzegovina has dramatically increased its reserve holdings.
Implementation of privatization, however, has been slow, and local
entities only reluctantly support national-level institutions.
Banking reform accelerated in 2001 as all the Communist-era payments
bureaus were shut down. The country receives substantial amounts of
reconstruction assistance and humanitarian aid from the
international community but will have to prepare for an era of
declining assistance.

Botswana
Botswana has maintained one of the world's highest growth
rates since independence in 1966. Through fiscal discipline and
sound management, Botswana has transformed itself from one of the
poorest countries in the world to a middle-income country with a per
capita GDP of $9,500 in 2002. Two major investment services rank
Botswana as the best credit risk in Africa. Diamond mining has
fueled much of the expansion and currently accounts for more than
one-third of GDP and for nine-tenths of export earnings. Tourism,
subsistence farming, and cattle raising are other key sectors. On
the downside, the government must deal with high rates of
unemployment and poverty. Unemployment officially is 21%, but
unofficial estimates place it closer to 40%. HIV/AIDS infection
rates are the highest in the world and threaten Botswana's
impressive economic gains. Long-term prospects are overshadowed by
the prospects of a leveling off in diamond mining production.

Bouvet Island
no economic activity; declared a nature reserve

Brazil
Possessing large and well-developed agricultural, mining,
manufacturing, and service sectors, Brazil's economy outweighs that
of all other South American countries and is expanding its presence
in world markets. The maintenance of large current account deficits
via capital account surpluses became problematic as investors became
more risk averse to emerging markets as a consequence of the Asian
financial crisis in 1997 and the Russian bond default in August
1998. After crafting a fiscal adjustment program and pledging
progress on structural reform, Brazil received a $41.5 billion
IMF-led international support program in November 1998. In January
1999, the Brazilian Central Bank announced that the real would no
longer be pegged to the US dollar. The consequent devaluation helped
moderate the downturn in economic growth in 1999, and the country
posted moderate GDP growth in 2000. Economic growth slowed
considerably in 2001-03 - to less than 2% - because of a slowdown in
major markets and the hiking of interest rates by the Central Bank
to combat inflationary pressures. New president DA SILVA, who took
office 1 January 2003, has given priority to reforming the complex
tax code, trimming the overblown civil service pension system, and
continuing the fight against inflation.

British Indian Ocean Territory
All economic activity is concentrated
on the largest island of Diego Garcia, where joint UK-US defense
facilities are located. Construction projects and various services
needed to support the military installations are done by military
and contract employees from the UK, Mauritius, the Philippines, and
the US. There are no industrial or agricultural activities on the
islands. When the Ilois return, they plan to reestablish sugarcane
production and fishing.

British Virgin Islands
The economy, one of the most stable and
prosperous in the Caribbean, is highly dependent on tourism,
generating an estimated 45% of the national income. An estimated
350,000 tourists, mainly from the US, visited the islands in 1998.
Tourism suffered in 2002 because of the lackluster US economy. In
the mid-1980s, the government began offering offshore registration
to companies wishing to incorporate in the islands, and
incorporation fees now generate substantial revenues. Roughly
400,000 companies were on the offshore registry by yearend 2000. The
adoption of a comprehensive insurance law in late 1994, which
provides a blanket of confidentiality with regulated statutory
gateways for investigation of criminal offenses, is expected to make
the British Virgin Islands even more attractive to international
business. Livestock raising is the most important agricultural
activity; poor soils limit the islands' ability to meet domestic
food requirements. Because of traditionally close links with the US
Virgin Islands, the British Virgin Islands has used the dollar as
its currency since 1959.

Brunei
This small, wealthy economy encompasses a mixture of foreign
and domestic entrepreneurship, government regulation, welfare
measures, and village tradition. Crude oil and natural gas
production account for nearly half of GDP. Per capita GDP is far
above most other Third World countries, and substantial income from
overseas investment supplements income from domestic production. The
government provides for all medical services and subsidizes rice and
housing. Brunei's leaders are concerned that steadily increased
integration in the world economy will undermine internal social
cohesion, although it became a more prominent player by serving as
chairman for the 2000 APEC (Asian Pacific Economic Cooperation)
forum. Plans for the future include upgrading the labor force,
reducing unemployment, strengthening the banking and tourist
sectors, and, in general, further widening the economic base beyond
oil and gas.

Bulgaria
Bulgaria, a former communist country striving to enter the
European Union, has experienced macroeconomic stability and strong
growth since a major economic downturn in 1996 led to the fall of
the then socialist government. As a result, the government became
committed to economic reform and responsible fiscal planning. A $300
million stand-by agreement negotiated with the IMF at the end of
2001 has supported government efforts to overcome high rates of
poverty and unemployment.

Burkina Faso
One of the poorest countries in the world, landlocked
Burkina Faso has few natural resources, a fragile soil, and a highly
unequal distribution of income. About 90% of the population is
engaged in (mainly subsistence) agriculture, which is vulnerable to
variations in rainfall. Industry remains dominated by unprofitable
government-controlled corporations. Following the African franc
currency devaluation in January 1994 the government updated its
development program in conjunction with international agencies, and
exports and economic growth have increased. Maintenance of
macroeconomic progress depends on continued low inflation, reduction
in the trade deficit, and reforms designed to encourage private
investment. The internal crisis in neighboring Cote d'Ivoire
continues to hurt trade and industrial prospects and deepens the
need for international assistance.

Burma
Burma is a resource-rich country that suffers from abject
rural poverty. The military regime took steps in the early 1990s to
liberalize the economy after decades of failure under the "Burmese
Way to Socialism", but those efforts have since stalled. Burma has
been unable to achieve monetary or fiscal stability, resulting in an
economy that suffers from serious macroeconomic imbalances -
including a steep inflation rate and an official exchange rate that
overvalues the Burmese kyat by more than 100 times the market rate.
In addition, most overseas development assistance ceased after the
junta suppressed the democracy movement in 1988 and subsequently
ignored the results of the 1990 election. Burma is data poor, and
official statistics are often dated and inaccurate. Published
estimates of Burma's foreign trade are greatly understated because
of the size of the black market and border trade - often estimated
to be one to two times the official economy.

Burundi
Burundi is a landlocked, resource-poor country with an
underdeveloped manufacturing sector. The economy is predominantly
agricultural with roughly 90% of the population dependent on
subsistence agriculture. Economic growth depends on coffee and tea
exports, which account for 90% of foreign exchange earnings. The
ability to pay for imports, therefore, rests primarily on weather
conditions and international coffee and tea prices. The Tutsi
minority, 14% of the population, dominates the government and the
coffee trade at the expense of the Hutu majority, 85% of the
population. Since October 1993 an ethnic-based war has resulted in
the death of over 200,000 persons, sent 800,000 refugees into
Tanzania, and displaced 525,000 others internally. Doubts about the
prospects for sustainable peace continue to impede development. Only
one in two children go to school, and approximately one in ten
adults has HIV/AIDS. Food, medicine, and electricity remain in short
supply.

Cambodia
Cambodia's economy slowed dramatically in 1997-1998 due to
the regional economic crisis, civil violence, and political
infighting. Foreign investment and tourism fell off. In 1999, the
first full year of peace in 30 years, progress was made on economic
reforms and growth resumed at 5.0%. Despite severe flooding, GDP
grew at 5.0% in 2000, 6.3% in 2001, and 5.2% in 2002. Tourism was
Cambodia's fastest growing industry, with arrivals up 34% in 2000
and up another 40% in 2001 before the September 11, 2001 terrorist
attacks in the US. Even given these stout growth estimates, the
long-term development of the economy after decades of war remains a
daunting challenge. The population lacks education and productive
skills, particularly in the poverty-ridden countryside, which
suffers from an almost total lack of basic infrastructure. Fear of
renewed political instability and corruption within the government
discourage foreign investment and delay foreign aid. The government
is addressing these issues with assistance from bilateral and
multilateral donors.

Cameroon
Because of its oil resources and favorable agricultural
conditions, Cameroon has one of the best-endowed primary commodity
economies in sub-Saharan Africa. Still, it faces many of the serious
problems facing other underdeveloped countries, such as a top-heavy
civil service and a generally unfavorable climate for business
enterprise. Since 1990, the government has embarked on various IMF
and World Bank programs designed to spur business investment,
increase efficiency in agriculture, improve trade, and recapitalize
the nation's banks. In June 2000, the government completed an
IMF-sponsored, three-year structural adjustment program; however,
the IMF is pressing for more reforms, including increased budget
transparency, privatization, and poverty reduction programs.
International oil and cocoa prices have considerable impact on the
economy.

Canada
As an affluent, high-tech industrial society, Canada today
closely resembles the US in its market-oriented economic system,
pattern of production, and high living standards. Since World War
II, the impressive growth of the manufacturing, mining, and service
sectors has transformed the nation from a largely rural economy into
one primarily industrial and urban. The 1989 US-Canada Free Trade
Agreement (FTA) and the 1994 North American Free Trade Agreement
(NAFTA) (which includes Mexico) touched off a dramatic increase in
trade and economic integration with the US. As a result of the close
cross-border relationship, the economic sluggishness in the United
States in 2001-02 had a negative impact on the Canadian economy.
Real growth averaged nearly 3% during 1993-2000, but declined in
2001, with moderate recovery in 2002. Unemployment is up, with
contraction in the manufacturing and natural resource sectors.
Nevertheless, given its great natural resources, skilled labor
force, and modern capital plant Canada enjoys solid economic
prospects. Two shadows loom, the first being the continuing
constitutional impasse between English- and French-speaking areas,
which has been raising the specter of a split in the federation.
Another long-term concern is the flow south to the US of
professionals lured by higher pay, lower taxes, and the immense
high-tech infrastructure. A key strength in the economy is the
substantial trade surplus.

Cape Verde
This island economy suffers from a poor natural resource
base, including serious water shortages exacerbated by cycles of
long-term drought. The economy is service-oriented, with commerce,
transport, tourism, and public services accounting for 72% of GDP.
Although nearly 70% of the population lives in rural areas, the
share of agriculture in GDP in 2001 was only 11%, of which fishing
accounts for 1.5%. About 82% of food must be imported. The fishing
potential, mostly lobster and tuna, is not fully exploited. Cape
Verde annually runs a high trade deficit, financed by foreign aid
and remittances from emigrants; remittances supplement GDP by more
than 20%. Economic reforms are aimed at developing the private
sector and attracting foreign investment to diversify the economy.
Prospects for 2003 depend heavily on the maintenance of aid flows,
tourism, remittances, and the momentum of the government's
development program.

Cayman Islands
With no direct taxation, the islands are a thriving
offshore financial center. More than 40,000 companies were
registered in the Cayman Islands as of 1998, including almost 600
banks and trust companies; banking assets exceed $500 billion. A
stock exchange was opened in 1997. Tourism is also a mainstay,
accounting for about 70% of GDP and 75% of foreign currency
earnings. The tourist industry is aimed at the luxury market and
caters mainly to visitors from North America. Total tourist arrivals
exceeded 1.2 million in 1997, with 600,000 from the US. About 90% of
the islands' food and consumer goods must be imported. The
Caymanians enjoy one of the highest outputs per capita and one of
the highest standards of living in the world.

Central African Republic
Subsistence agriculture, together with
forestry, remains the backbone of the economy of the Central African
Republic (CAR), with more than 70% of the population living in
outlying areas. The agricultural sector generates half of GDP.
Timber has accounted for about 16% of export earnings and the
diamond industry for 54%. Important constraints to economic
development include the CAR's landlocked position, a poor
transportation system, a largely unskilled work force, and a legacy
of misdirected macroeconomic policies. Factional fighting between
the government and its opponents remains a drag on economic
revitalization, with GDP growth likely to be no more than 1.3% in
2003. Distribution of income is extraordinarily unequal. Grants from
France and the international community can only partially meet
humanitarian needs.

Chad
Chad's primarily agricultural economy will continue to be
boosted by major oilfield and pipeline projects that began in 2000.
Over 80% of Chad's population relies on subsistence farming and
stock raising for its livelihood. Cotton, cattle, and gum arabic
provide the bulk of Chad's export earnings, but Chad will begin to
export oil in 2004. Chad's economy has long been handicapped by its
landlocked position, high energy costs, and a history of
instability. Chad relies on foreign assistance and foreign capital
for most public and private sector investment projects. A consortium
led by two US companies has been investing $3.7 billion to develop
oil reserves estimated at 1 billion barrels in southern Chad. Oil
production is scheduled to come on stream in late 2003.

Chile
Chile has a market-oriented economy characterized by a high
level of foreign trade. During the early 1990s, Chile's reputation
as a role model for economic reform was strengthened when the
democratic government of Patricio AYLWIN - which took over from the
military in 1990 - deepened the economic reform initiated by the
military government. Growth in real GDP averaged 8% during 1991-97,
but fell to half that level in 1998 because of tight monetary
policies implemented to keep the current account deficit in check
and because of lower export earnings - the latter a product of the
global financial crisis. A severe drought exacerbated the recession
in 1999, reducing crop yields and causing hydroelectric shortfalls
and electricity rationing, and Chile experienced negative economic
growth for the first time in more than 15 years. Despite the effects
of the recession, Chile maintained its reputation for strong
financial institutions and sound policy that have given it the
strongest sovereign bond rating in South America. By the end of
1999, exports and economic activity had begun to recover, and growth
rebounded to 4.4% in 2000. Growth fell back to 2.8% in 2001 and 1.8%
in 2002, largely due to lackluster global growth and the devaluation
of the Argentine peso. Unemployment remains stubbornly high, putting
pressure on President LAGOS to improve living standards. One bright
spot was the signing of a free trade agreement with the US, which
will take effect on 1 January 2004.

China
In late 1978 the Chinese leadership began moving the economy
from a sluggish, Soviet-style centrally planned economy to a more
market-oriented system. Whereas the system operates within a
political framework of strict Communist control, the economic
influence of non-state organizations and individual citizens has
been steadily increasing. The authorities switched to a system of
household and village responsibility in agriculture in place of the
old collectivization, increased the authority of local officials and
plant managers in industry, permitted a wide variety of small-scale
enterprises in services and light manufacturing, and opened the
economy to increased foreign trade and investment. The result has
been a quadrupling of GDP since 1978. In 2003, with its 1.3 billion
people but a GDP of just $5,000 per capita, China stood as the
second-largest economy in the world after the US (measured on a
purchasing power parity basis). Agriculture and industry have posted
major gains, especially in coastal areas near Hong Kong and opposite
Taiwan, where foreign investment has helped spur output of both
domestic and export goods. The leadership, however, often has
experienced - as a result of its hybrid system - the worst results
of socialism (bureaucracy and lassitude) and of capitalism (windfall
gains and growing income disparities). China thus has periodically
backtracked, retightening central controls at intervals. The
government has struggled to (a) collect revenues due from provinces,
businesses, and individuals; (b) reduce corruption and other
economic crimes; and (c) keep afloat the large state-owned
enterprises, many of which had been shielded from competition by
subsidies and had been losing the ability to pay full wages and
pensions. From 80 to 120 million surplus rural workers are adrift
between the villages and the cities, many subsisting through
part-time low-paying jobs. Popular resistance, changes in central
policy, and loss of authority by rural cadres have weakened China's
population control program, which is essential to maintaining
long-term growth in living standards. Another long-term threat to
growth is the deterioration in the environment, notably air
pollution, soil erosion, and the steady fall of the water table
especially in the north. China continues to lose arable land because
of erosion and economic development. Beijing says it will intensify
efforts to stimulate growth through spending on infrastructure -
such as water control and power grids - and poverty relief and
through rural tax reform aimed at eliminating arbitrary local levies
on farmers. Accession to the World Trade Organization helps
strengthen China's ability to maintain strong growth rates but at
the same time puts additional pressure on the hybrid system of
strong political controls and growing market influences. China has
benefited from a huge expansion in computer internet use. Foreign
investment remains a strong element in China's remarkable economic
growth.

Christmas Island
Phosphate mining had been the only significant
economic activity, but in December 1987 the Australian Government
closed the mine. In 1991, the mine was reopened. With the support of
the government, a $34 million casino opened in 1993. The casino
closed in 1998. The Australian Government in 2001 agreed to support
the creation of a commercial space-launching site on the island,
slated to begin operation in 2003.

Clipperton Island
Although 115 species of fish have been identified
in the territorial waters of Clipperton Island, the only economic
activity is tuna fishing.

Cocos (Keeling) Islands
Grown throughout the islands, coconuts are
the sole cash crop. Small local gardens and fishing contribute to
the food supply, but additional food and most other necessities must
be imported from Australia. There is a small tourist industry.

Colombia
Colombia's economy suffers from weak domestic and foreign
demand, austere government budgets, and serious internal armed
conflict. Other economic problems facing the new president URIBE
range from reforming the pension system to reducing high
unemployment. Two of Colombia's leading exports, oil and coffee,
face an uncertain future; new exploration is needed to offset
declining oil production, while coffee harvests and prices are
depressed. Colombian business leaders are calling for greater
progress in solving the conflict with insurgent groups. On the
positive side, several international financial institutions have
praised the economic reforms introduced by President URIBE and have
pledged enough funding to cover Colombia's debt servicing costs in
2003.

Comoros
One of the world's poorest countries, Comoros is made up of
three islands that have inadequate transportation links, a young and
rapidly increasing population, and few natural resources. The low
educational level of the labor force contributes to a subsistence
level of economic activity, high unemployment, and a heavy
dependence on foreign grants and technical assistance. Agriculture,
including fishing, hunting, and forestry, contributes 40% to GDP,
employs 80% of the labor force, and provides most of the exports.
The country is not self-sufficient in food production; rice, the
main staple, accounts for the bulk of imports. The government -
which is hampered by internal political disputes - is struggling to
upgrade education and technical training, to privatize commercial
and industrial enterprises, to improve health services, to diversify
exports, to promote tourism, and to reduce the high population
growth rate. Increased foreign support is essential if the goal of
4% annual GDP growth is to be met. Remittances from 150,000 Comorans
abroad help supplement GDP.

Congo, Democratic Republic of the
The economy of the Democratic
Republic of the Congo - a nation endowed with vast potential wealth
- has declined drastically since the mid-1980s. The war, which began
in August 1998, has dramatically reduced national output and
government revenue, has increased external debt, and has resulted in
the deaths from war, famine, and disease of perhaps 3.5 million
people. Foreign businesses have curtailed operations due to
uncertainty about the outcome of the conflict, lack of
infrastructure, and the difficult operating environment. The war has
intensified the impact of such basic problems as an uncertain legal
framework, corruption, inflation, and lack of openness in government
economic policy and financial operations. Conditions improved in
late 2002 with the withdrawal of a large portion of the invading
foreign troops. A number of IMF and World Bank missions have met
with the government to help it develop a coherent economic plan, and
President KABILA has begun implementing reforms. Much economic
activity lies outside the GDP data.

Congo, Republic of the
The economy is a mixture of village
agriculture and handicrafts, an industrial sector based largely on
oil, support services, and a government characterized by budget
problems and overstaffing. Oil has supplanted forestry as the
mainstay of the economy, providing a major share of government
revenues and exports. In the early 1980s, rapidly rising oil
revenues enabled the government to finance large-scale development
projects with GDP growth averaging 5% annually, one of the highest
rates in Africa. The government has mortgaged a substantial portion
of its oil earnings, contributing to a shortage of revenues. The 12
January 1994 devaluation of Franc Zone currencies by 50% resulted in
inflation of 61% in 1994, but inflation has subsided since. Economic
reform efforts continued with the support of international
organizations, notably the World Bank and the IMF. The reform
program came to a halt in June 1997 when civil war erupted. Denis
SASSOU-NGUESSO, who returned to power when the war ended in October
1997, publicly expressed interest in moving forward on economic
reforms and privatization and in renewing cooperation with
international financial institutions. However, economic progress was
badly hurt by slumping oil prices and the resumption of armed
conflict in December 1998, which worsened the republic's budget
deficit. The current administration presides over an uneasy internal
peace and faces difficult economic problems of stimulating recovery
and reducing poverty.

Cook Islands
Like many other South Pacific island nations, the Cook
Islands' economic development is hindered by the isolation of the
country from foreign markets, the limited size of domestic markets,
lack of natural resources, periodic devastation from natural
disasters, and inadequate infrastructure. Agriculture provides the
economic base with major exports made up of copra and citrus fruit.
Manufacturing activities are limited to fruit processing, clothing,
and handicrafts. Trade deficits are offset by remittances from
emigrants and by foreign aid, overwhelmingly from New Zealand. In
the 1980s and 1990s, the country lived beyond its means, maintaining
a bloated public service and accumulating a large foreign debt.
Subsequent reforms, including the sale of state assets, the
strengthening of economic management, the encouragement of tourism,
and a debt restructuring agreement, have rekindled investment and
growth.

Coral Sea Islands
no economic activity

Costa Rica
Costa Rica's basically stable economy depends on tourism,
agriculture, and electronics exports. Poverty has been substantially
reduced over the past 15 years, and a strong social safety net has
been put into place. At the same time, distribution of income
remains severely unequal. Foreign investors remain attracted by the
country's political stability and high education levels, and tourism
continues to bring in foreign exchange. However, traditional export
sectors have not kept pace. Low coffee prices and an overabundance
of bananas have hurt the agricultural sector. The government
continues to grapple with its large deficit and massive internal
debt, with the need to modernize the state-owned electricity and
telecommunications sector, and with the problem of bringing down
inflation.

Cote d'Ivoire
Cote d'Ivoire is among the world's largest producers
and exporters of coffee, cocoa beans, and palm oil. Consequently,
the economy is highly sensitive to fluctuations in international
prices for these products and to weather conditions. Despite
government attempts to diversify the economy, it is still largely
dependent on agriculture and related activities, which engage
roughly 68% of the population. After several years of lagging
performance, the Ivorian economy began a comeback in 1994, due to
the 50% devaluation of the CFA franc and improved prices for cocoa
and coffee, growth in nontraditional primary exports such as
pineapples and rubber, limited trade and banking liberalization,
offshore oil and gas discoveries, and generous external financing
and debt rescheduling by multilateral lenders and France. Moreover,
government adherence to donor-mandated reforms led to a jump in
growth to 5% annually during 1996-99. Growth was negative in 2000-02
because of the difficulty of meeting the conditions of international
donors, continued low prices of key exports, and severe civil war
fighting.

Croatia
Before the dissolution of Yugoslavia, the Republic of
Croatia, after Slovenia, was the most prosperous and industrialized
area, with a per capita output perhaps one-third above the Yugoslav
average. The economy emerged from its mild recession in 2000 with
tourism the main factor, but massive structural unemployment remains
a key negative element. The government's failure to press the
economic reforms needed to spur growth is largely the result of
coalition politics and public resistance, particularly from the
trade unions. Opponents fear reforms would cut jobs, wages, and
social benefits. The government has a heavy backload of civil cases,
many involving tenure land. The country is likely to experience only
moderate growth without disciplined fiscal and structural reform.

Cuba
The government continues to balance the need for economic
loosening against a desire for firm political control. It has
undertaken limited reforms in recent years to increase enterprise
efficiency and alleviate serious shortages of food, consumer goods,
and services but is unlikely to implement extensive changes. A major
feature of the economy is the dichotomy between relatively efficient
export enclaves and inefficient domestic sectors. The average
Cuban's standard of living remains at a lower level than before the
severe economic depression of the early 1990s, which was caused by
the loss of Soviet aid and domestic inefficiencies. High oil import
prices, recessions in key export markets, damage from Hurricanes
Isidore and Lili, and the tourist slump after 11 September 2001
hampered growth in 2002.

Cyprus
The Greek Cypriot economy is prosperous but highly
susceptible to external shocks. Erratic growth rates over the past
decade reflect the economy's vulnerability to swings in tourist
arrivals, caused by political instability in the region and
fluctuations in economic conditions in Western Europe. Economic
policy is focused on meeting the criteria for admission to the EU.
As in the Turkish sector, water shortages are a perennial problem; a
few desalination plants are now online. The Turkish Cypriot economy
has roughly one-third of the per capita GDP of the south. Because it
is recognized only by Turkey, it has had much difficulty arranging
foreign financing and investment. It remains heavily dependent on
agriculture and government service, which together employ about half
of the work force. To compensate for the economy's weakness, Turkey
provides grants and loans to support economic development. Ankara
provided $200 million in 2002 and pledged $450 million for the
2003-05 period. Future events throughout the island will be highly
influenced by the outcome of negotiations on the UN-sponsored
agreement to unite the Greek and Turkish areas and by the
arrangements under which the island joins the EU.

Czech Republic
One of the most stable and prosperous of the
post-Communist states, the Czech Republic has been recovering from
recession since mid-1999. Growth in 2000-03 was supported by exports
to the EU, primarily to Germany, and a near doubling of foreign
direct investment. Domestic demand is playing an ever more important
role in underpinning growth as interest rates drop and the
availability of credit cards and mortgages increases. High current
account deficits - averaging around 5% of GDP in the last several
years - could be a persistent problem. Inflation is under control.
The EU put the Czech Republic just behind Poland and Hungary in
preparations for accession, which will give further impetus and
direction to structural reform. Moves to complete banking,
telecommunications, and energy privatization will encourage
additional foreign investment, while intensified restructuring among
large enterprises and banks and improvements in the financial sector
should strengthen output growth. But revival in the European
economies remains essential to stepped-up growth.

Denmark
This thoroughly modern market economy features high-tech
agriculture, up-to-date small-scale and corporate industry,
extensive government welfare measures, comfortable living standards,
a stable currency, and high dependence on foreign trade. Denmark is
a net exporter of food and energy and enjoys a comfortable balance
of payments surplus. Government objectives include streamlining the
bureaucracy and further privatization of state assets. The
government has been successful in meeting, and even exceeding, the
economic convergence criteria for participating in the third phase
(a common European currency) of the European Economic and Monetary
Union (EMU), but Denmark has decided not to join the 12 other EU
members in the euro; even so, the Danish Krone remains pegged to the
euro. Given the sluggish state of the European economy, growth in
2003 was a mere 1.1%.

Djibouti
The economy is based on service activities connected with
the country's strategic location and status as a free trade zone in
northeast Africa. Two-thirds of the inhabitants live in the capital
city, the remainder being 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.
It 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 50% continues to be a major problem. Inflation
is not a concern, however, because of the fixed tie of the franc to
the US dollar. Per capita consumption dropped an estimated 35% over
the last seven years because of recession, civil war, and a high
population growth rate (including immigrants and refugees). Faced
with a multitude of economic difficulties, the government has fallen
in arrears on long-term external debt and has been struggling to
meet the stipulations of foreign aid donors. Another factor limiting
growth is the negative impact on port activity now that Ethiopia has
more trade route options.

Dominica
The Dominican economy depends on agriculture, primarily
bananas, and remains highly vulnerable to climatic conditions and
international economic developments. Hurricane Luis devastated the
country's banana crop in 1995 after tropical storms wiped out a
quarter of the 1994 crop. The economy subsequently has been fueled
by increases in construction, soap production, and tourist arrivals.
Development of the tourism industry remains difficult however,
because of the rugged coastline, lack of beaches, and the absence of
an international airport. Economic growth is sluggish, and
unemployment is greater than 20%. The government has been attempting
to develop an offshore financial sector in order to diversify the
island's production base.

Dominican Republic
The Dominican Republic's economy experienced
dramatic growth over the last decade, even though the economy was
hit hard by Hurricane Georges in 1998. Although the country has long
been viewed primarily as an exporter of sugar, coffee, and tobacco,
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 country suffers from marked income inequality; the
poorest half of the population receives less than one-fifth of GNP,
while the richest 10% enjoy nearly 40% of national income. Growth
probably will slow in 2003 with reduced tourism and expected low
growth in the US economy, the source of 87% of export revenues.

East Timor
In late 1999, about 70% of the economic infrastructure of
East Timor was laid waste by Indonesian troops and anti-independence
militias, and 260,000 people fled westward. Over the next three
years, however, a massive international program, manned by 5,000
peacekeepers (8,000 at peak) and 1,300 police officers, led to
substantial reconstruction in both urban and rural areas. By
mid-2002, all but about 50,000 of the refugees had returned. The
country faces great challenges in continuing the rebuilding of
infrastructure and the strengthening of the infant civil
administration. One promising long-term project is the planned
development of oil resources in nearby waters.

Ecuador
Ecuador has substantial oil resources and rich agricultural
areas. Because the country exports primary products such as oil,
bananas, and shrimp, fluctuations in world market prices can have a
substantial domestic impact. Ecuador joined the World Trade
Organization (WTrO) in 1996, but has failed to comply with many of
its accession commitments. The aftermath of El Nino and depressed
oil market of 1997-98 drove Ecuador's economy into a free-fall in
1999. The beginning of 1999 saw the banking sector collapse, which
helped precipitate an unprecedented default on external loans later
that year. Continued economic instability drove a 70% depreciation
of the currency throughout 1999, which forced a desperate government
to "dollarize" the currency regime in 2000. The move stabilized the
currency, but did not stave off the ouster of the government.
Gustavo NOBOA, who assumed the presidency in January 2000, has
managed to pass substantial economic reforms and mend relations with
international financial institutions. Ecuador completed its first
standby agreement since 1986 when the IMF Board approved a 10
December 2001 disbursement of $96 million, the final installment of
a $300 million standby credit agreement. In February 2003, newly
installed president Lucio GUTIERREZ faced a budget gap and massive
foreign debt. He has pledged to use oil revenues to pay off debt and
is seeking additional IMF support.

Egypt
Egypt improved its macroeconomic performance throughout most
of the last decade by following IMF advice on fiscal, monetary, and
structural reform policies. As a result, Egypt managed to tame
inflation, slash budget deficits, and attract more foreign
investment. In the past four years, however, the pace of reform has
slackened, and excessive spending on national infrastructure
projects has widened budget deficits again. Lower foreign exchange
earnings since 1998 resulted in pressure on the Egyptian pound and
periodic dollar shortages. Monetary pressures have increased since
11 September 2001 because of declines in tourism and Suez Canal
tolls, and Egypt has devalued the pound several times in the past
year. The development of a gas export market is a major bright spot
for future growth prospects. In the short term, regional tensions
will continue to affect tourism and hold back prospects for economic
expansion.

El Salvador
In recent years, this Central American economy has been
suffering from a weak tax collection system, factory closings, the
aftermaths of Hurricane Mitch of 1998 and the devastating
earthquakes of early 2001, and weak world coffee prices. On the
bright side, inflation has fallen to single digit levels, and total
exports have grown substantially. The trade deficit has been offset
by annual remittances of almost $2 billion from Salvadorans living
abroad and by external aid. The US dollar is now the legal tender.
Because competitor countries have fluctuating exchange rates, El
Salvador must face the challenge of raising productivity and
lowering costs.

Equatorial Guinea
The discovery and exploitation of large oil
reserves have contributed to dramatic economic growth in recent
years. Forestry, farming, and fishing are also major components of
GDP. Subsistence farming predominates. 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. No longer eligible for concessional financing because
of large oil revenues, the government has been unsuccessfully trying
to agree on a "shadow" fiscal management program with the World Bank
and IMF. Businesses, for the most part, are owned by government
officials and their family members. Undeveloped natural resources
include titanium, iron ore, manganese, uranium, and alluvial gold.
Growth will remain strong in 2003, led by oil.

Eritrea
Since independence from Ethiopia on 24 May 1993, Eritrea has
faced the economic problems of a small, desperately poor country.
Like the economies of many African nations, the economy is largely
based on subsistence agriculture, with 80% of the population
involved in farming and herding. The Ethiopian-Eritrea war in
1998-2000 severely hurt Eritrea's economy. GDP growth fell to zero
in 1999 and to -1% in 2000. The May 2000 Ethiopian offensive into
northern Eritrea caused some $600 million in property damage and
loss, including losses of $225 million in livestock and 55,000
homes. The attack prevented planting of crops in Eritrea's most
productive region, causing food production to drop by 62%. Even
during the war, Eritrea developed its transportation infrastructure,
asphalting new roads, improving its ports, and repairing war damaged
roads and bridges. Since the war ended, 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. Erratic rainfall and the delayed demobilization
of agriculturalists from the military kept cereal production well
below normal, holding down growth in 2002. Eritrea's economic future
depends upon its ability to master social problems such as
illiteracy, unemployment, and low skills, and to open its economy to
private enterprise so the diaspora's money and expertise can foster
economic growth.

Estonia
Estonia, as a new member of the World Trade Organization, is
steadily moving toward a modern market economy with increasing ties
to the West, including the pegging of its currency to the euro. The
economy benefits from strong electronics and telecoms sectors. A
major goal is accession to the EU, possibly by 2004. The economy is
greatly influenced by developments in Finland, Sweden, and Germany,
three major trading partners. The high current account deficit
remains a concern.

Ethiopia
Ethiopia's poverty-stricken economy is based on
agriculture, which accounts for half of GDP, 85% of exports, and 80%
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 $270 million in 2000/01, but
historically low prices have seen many farmers switching to qat to
supplement their income. The war with Eritrea in 1999-2000 and
recurrent drought have buffeted the economy, in particular coffee
production. In November 2001 Ethiopia qualified for debt relief from
the Highly Indebted Poor Countries (HIPC) initiative. Under
Ethiopia's land tenure system, the government 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. Strong growth in 2002 resulted
from good rainfall early in the year, the cessation of hostilities,
and renewed foreign aid and debt relief. But drought struck again
late in 2002, and the World Food Program (WFP) estimates 14 million
Ethiopians need food immediately to survive into 2003. The
government estimates than annual growth of 7% is needed to reduce
poverty, yet the maintenance of 5% in 2003 will be quite difficult
(one estimate is for 1.5% growth).

Europa Island
no economic activity

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 Falklands
exclusive fishing zone. These license fees total more than $40
million per year, which goes to 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. Exports feature 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.
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.