Chapter XCIX: Front Matter (99)

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

Fiji
Fiji, endowed with forest, mineral, and fish resources, is one
of the most developed of the Pacific island economies, though still
with a large subsistence sector. Sugar exports and a growing tourist
industry - with 300,000 to 400,000 tourists annually - are the major
sources of foreign exchange. Sugar processing makes up one-third of
industrial activity. Long-term problems include low investment,
uncertain land ownership rights, and the government's ability to
manage its budget.

Finland
Finland has a highly industrialized, largely free-market
economy, with per capita output roughly that of the UK, France,
Germany, and Italy. Its key economic sector is manufacturing -
principally the wood, metals, engineering, telecommunications, and
electronics industries. Trade is important, with exports equaling
almost one-third of GDP. Except for timber and several minerals,
Finland depends on imports of raw materials, energy, and some
components for manufactured goods. Because of the climate,
agricultural development is limited to maintaining self-sufficiency
in basic products. Forestry, an important export earner, provides a
secondary occupation for the rural population. Rapidly increasing
integration with Western Europe - Finland was one of the 11
countries joining the European Economic and Monetary Union (EMU) on
1 January 1999 - will dominate the economic picture over the next
several years. Growth in 2003 was held back by the global slowdown
but will pick up in 2004 provided the world economy suffers no
further blows.

France
France is in the midst of transition, from a well-to-do
modern economy that has featured extensive government ownership and
intervention to one that relies more on market mechanisms. The
Socialist-led government has partially or fully privatized many
large companies, banks, and insurers, but still retains controlling
stakes in several leading firms, including Air France, France
Telecom, Renault, and Thales, and remains dominant in some sectors,
particularly power, public transport, and defense industries. The
telecommunications sector is gradually being opened to competition.
France's leaders remain committed to a capitalism in which they
maintain social equity by means of laws, tax policies, and social
spending that reduce income disparity and the impact of free markets
on public health and welfare. The current government has lowered
income taxes and introduced measures to boost employment. At the end
of 2002 the government was focusing on the problems of the high cost
of labor and labor market inflexibility resulting from the 35-hour
workweek and restrictions on lay-offs. The government was also
pushing for pension reforms and simplification of administrative
procedures. The tax burden remains one of the highest in Europe. The
current economic slowdown and inflexible budget items have pushed
the deficit above the EU's 3% debt limit. Business investment
remains listless because of low rates of capital utilization, high
debt, and the steep cost of capital.

French Guiana
The economy is tied closely to the larger French
economy through subsidies and imports. Besides the French space
center at Kourou (which accounts for 25% of GDP), fishing and
forestry are the most important economic activities. Forest and
woodland cover 90% of the country. The large reserves of tropical
hardwoods, not fully exploited, support an expanding sawmill
industry that provides sawn logs for export. Cultivation of crops is
limited to the coastal area, where the population is largely
concentrated; rice and manioc are the major crops. French Guiana is
heavily dependent on imports of food and energy. Unemployment is a
serious problem, particularly among younger workers.

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

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

Gabon
Gabon enjoys a per capita income four times that of most
nations of sub-Saharan Africa. This has supported a sharp decline in
extreme poverty; yet because of high income inequality a large
proportion of the population remains poor. Gabon depended on timber
and manganese until oil was discovered offshore in the early 1970s.
The oil sector now accounts for 50% of GDP. Gabon continues to face
fluctuating prices for its oil, timber, and manganese exports.
Despite the abundance of natural wealth, poor fiscal management
hobbles the economy. Devaluation of its Francophone currency by 50%
on 12 January 1994 sparked a one-time inflationary surge, to 35%;
the rate dropped to 6% in 1996. The IMF provided a one-year standby
arrangement in 1994-95, a three-year Enhanced Financing Facility
(EFF) at near commercial rates beginning in late 1995, and stand-by
credit of $119 million in October 2000. Those agreements mandate
progress in privatization and fiscal discipline. France provided
additional financial support in January 1997 after Gabon had met IMF
targets for mid-1996. In 1997, an IMF mission to Gabon criticized
the government for overspending on off-budget items, overborrowing
from the central bank, and slipping on its schedule for
privatization and administrative reform. The rebound of oil prices
in 1999-2000 helped growth, but drops in production hampered Gabon
from fully realizing potential gains. In December 2000, Gabon signed
a new agreement with the Paris Club to reschedule its official debt.
A follow-up bilateral repayment agreement with the US was signed in
December 2001. Short-term progress depends on an upbeat world
economy and fiscal and other adjustments in line with IMF policies.

Gambia, The
The Gambia has no important mineral or other natural
resources and has a limited agricultural base. About 75% of the
population depends on crops and livestock for its livelihood.
Small-scale manufacturing activity features the processing of
peanuts, fish, and hides. Reexport trade normally constitutes a
major segment of economic activity, but a 1999 government-imposed
preshipment inspection plan, and instability of the Gambian dalasi
(currency) have drawn some of the reexport trade away from The
Gambia. The government's 1998 seizure of the private peanut firm
Alimenta eliminated the largest purchaser of Gambian groundnuts; the
following two marketing seasons have seen substantially lower prices
and sales. A decline in tourism in 2000 has also held back growth.
Unemployment and underemployment rates are extremely high. Shortrun
economic progress remains highly dependent on sustained bilateral
and multilateral aid, on responsible government economic management
as forwarded by IMF technical help and advice, and on expected
growth in the construction sector.

Gaza Strip
Economic output in the Gaza Strip - under the
responsibility of the Palestinian Authority since the Cairo
Agreement of May 1994 - declined by about one-third between 1992 and
1996. The downturn was largely the result of Israeli closure
policies - the imposition of generalized border closures in response
to security incidents in Israel - which disrupted previously
established labor and commodity market relationships between Israel
and the WBGS (West Bank and Gaza Strip). The most serious negative
social effect of this downturn was the emergence of high
unemployment; unemployment in the WBGS during the 1980s was
generally under 5%; by 1995 it had risen to over 20%. Israel's use
of comprehensive closures decreased during the next few years and,
in 1998, Israel implemented new policies to reduce the impact of
closures and other security procedures on the movement of
Palestinian goods and labor. These changes fueled an almost
three-year-long economic recovery in the West Bank and Gaza Strip;
real GDP grew by 5% in 1998 and 6% in 1999. Recovery was upended in
the last quarter of 2000 with the outbreak of violence, triggering
tight Israeli closures of Palestinian self-rule areas and a severe
disruption of trade and labor movements. In 2001, and even more
severely in 2002, Israeli military measures in Palestinian Authority
areas resulted in the destruction of capital plant and
administrative structure, widespread business closures, and a sharp
drop in GDP. Another major loss has been the decline in income
earned by Palestinian workers in Israel. International aid of $2
billion in 2001-02 to the Gaza Strip and West Bank have prevented
the complete collapse of the economy.

Georgia
Georgia's main economic activities include the cultivation
of agricultural products such as citrus fruits, tea, hazelnuts, and
grapes; mining of manganese and copper; and output of a small
industrial sector producing alcoholic and nonalcoholic beverages,
metals, machinery, and chemicals. The country imports the bulk of
its energy needs, including natural gas and oil products. Its only
sizable internal energy resource is hydropower. Despite the severe
damage the economy has suffered due to civil strife, Georgia, with
the help of the IMF and World Bank, has made substantial economic
gains since 1995, achieving positive GDP growth and curtailing
inflation. However, the Georgian Government suffers from limited
resources due to a chronic failure to collect tax revenues. Georgia
also suffers from energy shortages; it privatized the T'bilisi
distribution network in 1998, but collection rates are low, making
the venture unprofitable. The country is pinning its hopes for
long-term growth on its role as a transit state for pipelines and
trade. The start of construction on the Baku-T'bilisi-Ceyhan oil
pipeline and the Baku-T'bilisi-Erzerum gas pipeline will bring
much-needed investment and job opportunities.

Germany
Germany's affluent and technologically powerful economy has
turned in a weak performance throughout much of the 1990s and early
2000s. The modernization and integration of the eastern German
economy continues to be a costly long-term problem, with annual
transfers from west to east amounting to roughly $70 billion.
Germany's ageing population, combined with high unemployment, has
pushed social security outlays to a level exceeding contributions
from workers. Structural rigidities in the labor market - including
strict regulations on laying off workers and the setting of wages on
a national basis - have made unemployment a chronic problem. Growth
in 2002 and 2003 fell short of 1%. Corporate restructuring and
growing capital markets are setting the foundations that could allow
Germany to meet the long-term challenges of European economic
integration and globalization, particularly if labor market
rigidities are further addressed. In the short run, however, the
fall in government revenues and the rise in expenditures have raised
the deficit above the EU's 3% debt limit.

Ghana
Well endowed with natural resources, Ghana has roughly twice
the per capita output of the poorer countries in West Africa. Even
so, Ghana remains heavily dependent on international financial and
technical assistance. Gold, timber, and cocoa production are major
sources of foreign exchange. The domestic economy continues to
revolve around subsistence agriculture, which accounts for 36% of
GDP and employs 60% of the work force, mainly small landholders.
Ghana opted for debt relief under the Heavily Indebted Poor Country
(HIPC) program in 2002. Policy priorities include tighter monetary
and fiscal policies, accelerated privatization, and improvement of
social services.

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

Glorioso Islands
no economic activity

Greece
Greece has a mixed capitalist economy with the public sector
accounting for half of GDP and with per capita GDP 70% of the
leading euro-zone economies. Tourism provides 15% of GDP. Immigrants
make up nearly one-fifth of the work force, mainly in menial jobs.
Greece is a major beneficiary of EU aid, equal to about 3.3% of GDP.
The economy has improved steadily with economic growth averaging 4%
since 1997, exceeding EU growth by more than 1 percentage point.
Remaining challenges include the reduction of the public debt,
inflation, and unemployment; and further restructuring of the
economy, including privatizing several state enterprises,
undertaking pension and other reforms, and minimizing bureaucratic
inefficiencies. The Olympic Games will be held in Athens in mid-2004.

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

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

Guadeloupe
The Caribbean economy depends on agriculture, tourism,
light industry, and services. It also depends on France for large
subsidies and imports. Tourism is a key industry, with most tourists
from the US; an increasingly large number of cruise ships visit the
islands. The traditional sugarcane crop is slowly being replaced by
other crops, such as bananas (which now supply about 50% of export
earnings), eggplant, and flowers. Other vegetables and root crops
are cultivated for local consumption, although Guadeloupe is still
dependent on imported food, mainly from France. Light industry
features sugar and rum production. Most manufactured goods and fuel
are imported. Unemployment is especially high among the young.
Hurricanes periodically devastate the economy.

Guam
The economy depends on US military spending, tourism, and the
export of fish and handicrafts. Total US grants, wage payments, and
procurement outlays amounted to $1 billion in 1998. Over the past 20
years, the tourist industry has grown rapidly, creating a
construction boom for new hotels and the expansion of older ones.
More than 1 million tourists visit Guam each year. The industry has
recently suffered setbacks because of the continuing Japanese
slowdown; the Japanese normally make up almost 90% of the tourists.
Most food and industrial goods are imported. Guam faces the problem
of building up the civilian economic sector to offset the impact of
military downsizing.

Guatemala
The agricultural sector accounts for about one-fourth of
GDP, two-thirds of exports, and half of the labor force. Coffee,
sugar, and bananas are the main products. Former President ARZU
(1996-2000) worked to implement a program of economic liberalization
and political modernization. President PORTILLO has continued the
liberalization program but with more sporadic results. The 1996
signing of the peace accords, which ended 36 years of civil war,
removed a major obstacle to foreign investment, but numerous
corruption scandals associated with the PORTILLO administration have
dampened investor confidence. The distribution of income remains
highly unequal, with perhaps 75% of the population below the poverty
line. Ongoing challenges include increasing the government revenues,
negotiating further assistance from international donors, upgrading
both government and private financial operations, and narrowing the
trade deficit. A free trade agreement between the US and Central
American countries promises greater access to US and neighboring
markets.

Guernsey
Financial services - banking, fund management, insurance,
etc. - account for about 55% of total income in this tiny Channel
Island economy. Tourism, manufacturing, and horticulture, mainly
tomatoes and cut flowers, have been declining. Light tax and death
duties make Guernsey a popular tax haven. The evolving economic
integration of the EU nations is changing the rules of the game
under which Guernsey operates.

Guinea
Guinea possesses major mineral, hydropower, and agricultural
resources, yet remains an underdeveloped nation. The country
possesses over 30% of the world's bauxite reserves and is the
second-largest bauxite producer. The mining sector accounted for
about 75% of exports in 1999. Long-run improvements in government
fiscal arrangements, literacy, and the legal framework are needed if
the country is to move out of poverty. The government made
encouraging progress in budget management in 1997-99, and reform
progress was praised in the World Bank/IMF October 2000 assessment.
However, fighting along the Sierra Leonean and Liberian borders has
caused major economic disruptions. In addition to direct defense
costs, the violence has led to a sharp decline in investor
confidence. Foreign mining companies have reduced expatriate staff,
while panic buying has created food shortages and inflation in local
markets. Multilateral aid - including Heavily Indebted Poor
Countries (HIPC) debt relief - and single digit inflation permitted
moderate 3.7% growth in 2002. Growth should strengthen in 2003
because of a slowly improving security situation and increased
investor confidence.

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

Guyana
The Guyanese economy has exhibited moderate economic growth
in 2001-02, based on expansion in the agricultural and mining
sectors, a more favorable atmosphere for business initiatives, a
more realistic exchange rate, fairly low inflation, and the
continued support of international organizations. Chronic problems
include a shortage of skilled labor and a deficient infrastructure.
The government is juggling a sizable external debt against the
urgent need for expanded public investment. The bauxite mining
sector should benefit in the near term by restructuring and partial
privatization.

Haiti
About 80% of the population lives in abject poverty. Nearly
70% of all Haitians depend on the agriculture sector, which consists
mainly of small-scale subsistence farming and employs about
two-thirds of the economically active work force. Following
legislative elections in May 2000, fraught with irregularities,
international donors - including the US and EU - suspended almost
all aid to Haiti. The economy shrank an estimated 1.2% in 2001 and
an estimated 0.9% in 2002. The contraction will likely intensify in
2003 unless a political agreement with donors is reached on economic
policy. Suspended aid and loan disbursements totaled more than $500
million at the start of 2003.

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

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

Honduras
Honduras, one of the poorest countries in the Western
Hemisphere with an extraordinarily unequal distribution of income,
is banking on expanded trade privileges under the Enhanced Caribbean
Basin Initiative and on debt relief under the Heavily Indebted Poor
Countries (HIPC) initiative. While the country has met most of its
macroeconomic targets, it failed to meet the IMF's goals to
liberalize its energy and telecommunications sectors. Growth remains
dependent on the status of the US economy, its major trading
partner, on commodity prices, particularly coffee, and on reduction
of the high crime rate.

Hong Kong
Hong Kong has a free market economy highly dependent on
international trade. Natural resources are limited, and food and raw
materials must be imported. Imports and exports, including
reexports, each exceed GDP in dollar value. Even before Hong Kong
reverted to Chinese administration on 1 July 1997 it had extensive
trade and investment ties with China. Hong Kong has been further
integrating its economy with China because China's growing openness
to the world economy has increased competitive pressure on Hong
Kong's service industries, and Hong Kong's re-export business from
China is a major driver of growth. Per capita GDP compares with the
level in the four big economies of Western Europe. GDP growth
averaged a strong 5% in 1989-1997, but Hong Kong suffered two
recessions in the past 6 years because of the Asian financial crisis
in 1998 and the global downturn of 2001-2002. The Severe Acute
Respiratory Syndrome (SARS) outbreak has also battered Hong Kong's
economy but the resumption of strong growth began in 2003.

Howland Island
no economic activity

Hungary
Hungary has made the transition from a centrally planned to
a market economy, with a per capita income one-half that of the Big
Four European nations. Hungary continues to demonstrate strong
economic growth and to work toward accession to the European Union
in May 2004. The private sector accounts for over 80% of GDP.
Foreign ownership of and investment in Hungarian firms are
widespread, with cumulative foreign direct investment totaling more
than $23 billion since 1989. Hungarian sovereign debt was upgraded
in 2000 to the second-highest rating among all the Central European
transition economies. Inflation has declined substantially, from 14%
in 1998 to 4.7% in 2003; unemployment has persisted around the 6%
level. Germany is by far Hungary's largest economic partner.
Short-term issues include the reduction of the public sector deficit
to 3% in 2004 and avoiding unjustified increases in wages.

Iceland
Iceland's Scandinavian-type economy is basically
capitalistic, yet with an extensive welfare system (including
generous housing subsidies), low unemployment, and remarkably even
distribution of income. In the absence of other natural resources
(except for abundant hydrothermal and geothermal power), the economy
depends heavily on the fishing industry, which provides 70% of
export earnings and employs 12% of the work force. The economy
remains sensitive to declining fish stocks as well as to
fluctuations in world prices for its main exports: fish and fish
products, aluminum, and ferrosilicon. Government policies include
reducing the budget and current account deficits, limiting foreign
borrowing, containing inflation, revising agricultural and fishing
policies, diversifying the economy, and privatizing state-owned
industries. The government remains opposed to EU membership,
primarily because of Icelanders' concern about losing control over
their fishing resources. Iceland's economy has been diversifying
into manufacturing and service industries in the last decade, and
new developments in software production, biotechnology, and
financial services are taking place. The tourism sector is also
expanding, with the recent trends in ecotourism and whale watching.
Growth had been remarkably steady in 1996-2001 at 3%-5%, but could
not be sustained in 2002 in an environment of global recession.
Growth resumed in 2003, and inflation dropped back from 5% to 2%.

India
India's economy encompasses traditional village farming,
modern agriculture, handicrafts, a wide range of modern industries,
and a multitude of support services. Overpopulation severely
handicaps the economy and about a quarter of the population is too
poor to be able to afford an adequate diet. Government controls have
been reduced on imports and foreign investment, and privatization of
domestic output has proceeded slowly. The economy has posted an
excellent average growth rate of 6% since 1990, reducing poverty by
about 10 percentage points. India has large numbers of well-educated
people skilled in the English language; India is a major exporter of
software services and software workers; the information technology
sector leads the strong growth pattern. The World Bank and others
worry about the continuing public-sector budget deficit, running at
approximately 10% of GDP in 1997-2002. In 2003 the state-owned
Indian Bank substantially reduced non-performing loans, attracted
new customers, and turned a profit. Deep-rooted problems remain,
notably conflicts among political and cultural groups.

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

Indonesia
Indonesia, a vast polyglot nation, faces severe economic
development problems stemming from secessionist movements and the
low level of security in the regions; the lack of reliable legal
recourse in contract disputes; corruption; weaknesses in the banking
system; and strained relations with the IMF. Investor confidence
will remain low and few new jobs will be created under these
circumstances. In November 2001, Indonesia agreed with the IMF on a
series of economic reforms in 2002, thus enabling further IMF
disbursements. Negotiations with the IMF and bilateral donors
continued in 2002. Keys to future growth remain internal reform, the
build-up of the confidence of international donors and investors,
and a strong comeback in the global economy.

Iran
Iran's economy is a mixture of central planning, state
ownership of oil and other large enterprises, village agriculture,
and small-scale private trading and service ventures. President
KHATAMI has continued to follow the market reform plans of former
President RAFSANJANI and has indicated that he will pursue
diversification of Iran's oil-reliant economy although he has made
little progress toward that goal. Relatively high oil prices in
recent years have enabled Iran to amass some $15 billion in foreign
exchange reserves, but have not solved Iran's structural economic
problems, including high unemployment and inflation.

Iraq
Iraq's economy is dominated by the oil sector, which has
traditionally provided about 95% of foreign exchange earnings. In
the 1980s financial problems caused by massive expenditures in the
eight-year war with Iran and damage to oil export facilities by Iran
led the government to implement austerity measures, borrow heavily,
and later reschedule foreign debt payments; Iraq suffered economic
losses from the war of at least $100 billion. After hostilities
ended in 1988, oil exports gradually increased with the construction
of new pipelines and restoration of damaged facilities. Iraq's
seizure of Kuwait in August 1990, subsequent international economic
sanctions, and damage from military action by an international
coalition beginning in January 1991 drastically reduced economic
activity. Although government policies supporting large military and
internal security forces and allocating resources to key supporters
of the regime have hurt the economy, implementation of the UN's
oil-for-food program beginning in December 1996 helped improve
conditions for the average Iraqi citizen. Iraq was allowed to export
limited amounts of oil in exchange for food, medicine, and some
infrastructure spare parts. In December 1999 the UN Security Council
authorized Iraq to export under the program as much oil as required
to meet humanitarian needs. Oil exports have recently been more than
three-quarters prewar level. However, 28% of Iraq's export revenues
under the program have been deducted to meet UN Compensation Fund
and UN administrative expenses. The drop in GDP in 2001-02 was
largely the result of the global economic slowdown and lower oil
prices. Per capita food imports increased significantly, while
medical supplies and health care services steadily improved. Per
capita output and living standards were still well below the prewar
level, but any estimates have a wide range of error. The military
victory of the US-led coalition in March-April 2003 resulted in the
shutdown of much of the central economic administrative structure
and the loss of a comparatively small amount of capital plant.

Ireland
Ireland is a small, modern, trade-dependent economy with
growth averaging a robust 8% in 1995-2002. The global slowdown,
especially in the information technology sector, pressed growth down
to 2.7% in 2003. Agriculture, once the most important sector, is now
dwarfed by industry and services. Industry accounts for 46% of GDP
and about 80% of exports and employs 28% of the labor force.
Although exports remain the primary engine for Ireland's growth, the
economy has also benefited from a rise in consumer spending,
construction, and business investment. Per capita GDP is 10% above
that of the four big European economies. Over the past decade, the
Irish Government has implemented a series of national economic
programs designed to curb inflation, reduce government spending,
increase labor force skills, and promote foreign investment. Ireland
joined in launching the euro currency system in January 1999 along
with 10 other EU nations.

Israel
Israel has a technologically advanced market economy with
substantial government participation. It depends on imports of crude
oil, grains, raw materials, and military equipment. Despite limited
natural resources, Israel has intensively developed its agricultural
and industrial sectors over the past 20 years. Israel imports
significant quantities of grain but is largely self-sufficient in
other agricultural products. Cut diamonds, high-technology
equipment, and agricultural products (fruits and vegetables) are the
leading exports. Israel usually posts sizable current account
deficits, which are covered by large transfer payments from abroad
and by foreign loans. Roughly half of the government's external debt
is owed to the US, which is its major source of economic and
military aid. The influx of Jewish immigrants from the former USSR
during the period 1989-99, coupled with the opening of new markets
at the end of the Cold War, energized Israel's economy, which grew
rapidly in the early 1990s; growth began moderating in 1996 when the
government imposed tighter fiscal and monetary policies and the
immigration bonus petered out. Growth was a strong 7.2% in 2000, but
the bitter Israeli-Palestinian conflict, difficulties in the
high-technology, construction, and tourist sectors, and fiscal
austerity in the face of growing inflation led to small declines in
GDP in 2001 and 2002.

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

Jamaica
The economy, which depends heavily on tourism and bauxite,
has been stagnant since 1995. After five years of recession, the
economy inched ahead, by 0.8% in 2000, 1.7% in 2001, and 0.8% in
2002; the global economic slowdown, particularly in the United
States after the 11 September 2001 terrorist attacks, has stunted
the economic recovery. Serious problems include: high interest
rates; increased foreign competition; a pressured, sometimes
sliding, exchange rate; a widening merchandise trade deficit; and a
growing internal debt, the result of government bailouts to various
ailing sectors of the economy, particularly the financial sector.
Depressed economic conditions have led to increased civil unrest,
including serious violent crime. Jamaica's medium-term prospects
will depend upon encouraging investment and tourism, maintaining a
competitive exchange rate, selling off reacquired firms, and
implementing proper fiscal and monetary policies.

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

Japan
Government-industry cooperation, a strong work ethic, mastery
of high technology, and a comparatively small defense allocation (1%
of GDP) helped Japan advance with extraordinary rapidity to the rank
of second-most-technologically-powerful economy in the world after
the US and third-largest economy after the US and China. One notable
characteristic of the economy is the working together of
manufacturers, suppliers, and distributors in closely-knit groups
called keiretsu. A second basic feature has been the guarantee of
lifetime employment for a substantial portion of the urban labor
force. Both features are now eroding. Industry, the most important
sector of the economy, is heavily dependent on imported raw
materials and fuels. The much smaller agricultural sector is highly
subsidized and protected, with crop yields among the highest in the
world. Usually self-sufficient in rice, Japan must import about 50%
of its requirements of other grain and fodder crops. 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
aftereffects of overinvestment during the late 1980s and
contractionary domestic policies intended to wring speculative
excesses from the stock and real estate markets. Government efforts
to revive economic growth have met with little success and were
further hampered in 2000-2003 by the slowing of the US, European,
and Asian economies. Japan's huge government debt, which is
approaching 150% of GDP, and the ageing of the population are two
major long-run problems. Robotics constitutes a key long-term
economic strength with Japan possessing 410,000 of the world's
720,000 "working robots." Internal conflict over the proper way to
reform the ailing banking system continues.

Jarvis Island
no economic activity

Jersey
The economy is based largely on international financial
services, agriculture, and tourism. Potatoes, cauliflower, tomatoes,
and especially flowers are important export crops, shipped mostly to
the UK. The Jersey breed of dairy cattle is known worldwide and
represents an important export income earner. Milk products go to
the UK and other EU countries. In 1996 the finance sector accounted
for about 60% of the island's output. Tourism, another mainstay of
the economy, accounts for 24% of GDP. In recent years, the
government has encouraged light industry to locate in Jersey, with
the result that an electronics industry has developed alongside the
traditional manufacturing of knitwear. All raw material and energy
requirements are imported, as well as a large share of Jersey's food
needs. Light taxes and death duties make the island a popular tax
haven.

Johnston Atoll
Economic activity is limited to providing services to
US military personnel and contractors located on the island. All
food and manufactured goods must be imported.

Jordan
Jordan is a small Arab country with inadequate supplies of
water and other natural resources such as oil. Debt, poverty, and
unemployment are fundamental problems, but King ABDALLAH since
assuming the throne in 1999 has undertaken some broad economic
reforms in a long-term effort to improve living standards. Amman in
the past three years has worked closely with the IMF, practiced
careful monetary policy, and made significant headway with
privatization. The government also has liberalized the trade regime
sufficiently to secure Jordan's membership in the WTrO (2000), a
free trade accord with US (2000), and an association agreement with
the EU (2001). These measures have helped improve productivity and
have put Jordan on the foreign investment map. The US-led war in
Iraq in 2003 dealt an economic blow to Jordan, which was dependent
on Iraq for discounted oil. It remains unclear how Jordan will
finance energy imports in the absence of such a deal. Other ongoing
challenges include fiscal adjustment to reduce the budget deficit
and broader investment incentives to promote job-creating ventures.

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

Kazakhstan
Kazakhstan, the largest of the former Soviet republics in
territory, excluding Russia, possesses enormous fossil fuel reserves
as well as plentiful supplies of other minerals and metals. It also
is a large agricultural - livestock and grain - producer.
Kazakhstan's industrial sector rests on the extraction and
processing of these natural resources and also on a growing
machine-building sector specializing in construction equipment,
tractors, agricultural machinery, and some defense items. The
breakup of the USSR in December 1991 and the collapse in demand for
Kazakhstan's traditional heavy industry products resulted in a
short-term contraction of the economy, with the steepest annual
decline occurring in 1994. In 1995-97, the pace of the government
program of economic reform and privatization quickened, resulting in
a substantial shifting of assets into the private sector. Kazakhstan
enjoyed double-digit growth in 2000-01 - and a solid 9.5% in 2002 -
thanks largely to its booming energy sector, but also to economic
reform, good harvests, and foreign investment. The opening of the
Caspian Consortium pipeline in 2001, from western Kazakhstan's
Tengiz oilfield to the Black Sea, substantially raised export
capacity. The country has embarked upon an industrial policy
designed to diversify the economy away from overdependence on the
oil sector, by developing light industry. Additionally, the policy
aims to reduce the influence of foreign investment and foreign
personnel; the government has engaged in several disputes with
foreign oil companies over the terms of production agreements, and
tensions continue.

Kenya
Kenya, the regional hub for trade and finance in East Africa,
is hampered by corruption and reliance upon several primary goods
whose prices remain low. Following strong economic growth in 1995
and 1996, Kenya's economy has stagnated, with GDP growth failing to
keep up with the rate of population growth. In 1997, the IMF
suspended Kenya's Enhanced Structural Adjustment Program due to the
government's failure to maintain reforms and curb corruption. A
severe drought from 1999 to 2000 compounded Kenya's problems,
causing water and energy rationing and reducing agricultural output.
As a result, GDP contracted by 0.3% in 2000. The IMF, which had
resumed loans in 2000 to help Kenya through the drought, again
halted lending in 2001 when the government failed to institute
several anticorruption measures. Despite the return of strong rains
in 2001, weak commodity prices, endemic corruption, and low
investment limited Kenya's economic growth to 1%. Growth fell below
1% in 2002 because of erratic rains, low investor confidence, meager
donor support, and political infighting up to the elections. In the
key December 27, 2002 elections, Daniel Arap MOI's 24-year-old reign
ended, and a new opposition government took on the formidable
economic problems facing the nation. Substantial donor support and
rooting out corruption are essential to making Kenya realize its
substantial economic potential.

Kingman Reef
no economic activity

Kiribati
A remote country of 33 scattered coral atolls, Kiribati has
few natural resources. Commercially viable phosphate deposits were
exhausted at the time of independence from the UK in 1979. Copra and
fish now represent the bulk of production and exports. The economy
has fluctuated widely in recent years. Economic development is
constrained by a shortage of skilled workers, weak infrastructure,
and remoteness from international markets. Tourism provides more
than one-fifth of GDP. The financial sector is at an early stage of
development as is the expansion of private sector initiatives.
Foreign financial aid from UK, Japan, Australia, New Zealand, and
China is a critical supplement to GDP, equal to 25%-50% of GDP in
recent years. Remittances from workers abroad account for more than
$5 million each year.

Korea, North
North Korea, one of the world's most centrally planned
and isolated economies, faces desperate economic conditions.
Industrial capital stock is nearly beyond repair as a result of
years of underinvestment and spare parts shortages. Industrial and
power output have declined in parallel. The nation has suffered its
tenth year of food shortages because of a lack of arable land;
collective farming; weather-related problems, including major
drought in 2000; and chronic shortages of fertilizer and fuel.
Massive international food aid deliveries have allowed the regime to
escape mass starvation since 1995-96, but the population remains the
victim of prolonged malnutrition and deteriorating living
conditions. Large-scale military spending eats up resources needed
for investment and civilian consumption. Recently, the regime has
placed emphasis on earning hard currency, developing information
technology, addressing power shortages, and attracting foreign aid,
but in no way at the expense of relinquishing central control over
key national assets or undergoing widespread market-oriented
reforms. In 2003, heightened political tensions with key donor
countries and general donor fatigue have held down the flow of
desperately needed food aid and have threatened fuel aid as well.

Korea, South
As one of the Four Tigers of East Asia, South Korea has
achieved an incredible record of growth and integration into the
high-tech modern world economy. Three decades ago GDP per capita was
comparable with levels in the poorer countries of Africa and Asia.
Today its GDP per capita is 18 times North Korea's and equal to the
lesser economies of the European Union. This success through the
late 1980s was achieved by a system of close government/business
ties, including directed credit, import restrictions, sponsorship of
specific industries, and a strong labor effort. The government
promoted the import of raw materials and technology at the expense
of consumer goods and encouraged savings and investment over
consumption. The Asian financial crisis of 1997-99 exposed
longstanding weaknesses in South Korea's development model,
including high debt/equity ratios, massive foreign borrowing, and an
undisciplined financial sector. Growth plunged to a negative 6.6% in
1998, then strongly recovered to 10.8% in 1999 and 9.2% in 2000.
Growth fell back to 3.3% in 2001 because of the slowing global
economy, falling exports, and the perception that much-needed
corporate and financial reforms had stalled. Led by consumer
spending and exports, growth in 2002 was an impressive 6.2%, despite
anemic global growth, followed by moderate 2.8% growth in 2003. In
2003 the six-day work week was reduced to five days.

Kuwait
Kuwait is a small, rich, relatively open economy with proved
crude oil reserves of about 98 billion barrels - 10% of world
reserves. Petroleum accounts for nearly half of GDP, 95% of export
revenues, and 80% of government income. Kuwait's climate limits
agricultural development. Consequently, with the exception of fish,
it depends almost wholly on food imports. About 75% of potable water
must be distilled or imported. Kuwait continues its discussions with
foreign oil companies to develop fields in the northern part of the
country. Oil production declined by an estimated 8% in 2002 but is
expected to return to the 2001 level in 2003.

Kyrgyzstan
Kyrgyzstan is a small, poor, mountainous country with a
predominantly agricultural economy. Cotton, tobacco, wool, and meat
are the main agricultural products, although only tobacco and cotton
are exported in any quantity. Industrial exports include gold,
mercury, uranium, and natural gas and electricity. Kyrgyzstan has
been fairly progressive in carrying out market reforms, such as an
improved regulatory system and land reform. Kyrgyzstan was the first
CIS country to be accepted into the World Trade Organization. With
fits and starts, inflation has been lowered to an estimated 7% in
2001, 2.1% in 2002, and 4.0% in 2003. Much of the government's stock
in enterprises has been sold. Drops in production had been severe
after the breakup of the Soviet Union in December 1991, but by
mid-1995 production began to recover and exports began to increase.
Growth was held down to 2.1% in 1998 largely because of the
spillover from Russia's economic difficulties, but moved ahead to
3.6% in 1999, 5% in 2000, and 5% again in 2001. The drop in output
at the Kumtor gold mine sparked a 0.5% decline in GDP in 2002 and
again in 2003. On the positive side, the government and the
international financial institutions have been engaged in a
comprehensive medium-term poverty reduction and economic growth
strategy. Further restructuring of domestic industry and success in
attracting foreign investment are keys to future growth.

Laos
The government of Laos - one of the few remaining official
Communist states - began decentralizing control and encouraging
private enterprise in 1986. The results, starting from an extremely
low base, were striking - growth averaged 7% in 1988-2001 except
during the short-lived drop caused by the Asian financial crisis
beginning in 1997. Despite this high growth rate, Laos remains a
country with a primitive infrastructure; it has no railroads, a
rudimentary road system, and limited external and internal
telecommunications. Electricity is available in only a few urban
areas. Subsistence agriculture accounts for half of GDP and provides
80% of total employment. The economy will continue to benefit from
aid from the IMF and other international sources and from new
foreign investment in food processing and mining.

Latvia
Latvia's transitional economy recovered from the 1998 Russian
financial crisis, largely due to the SKELE government's budget
stringency and a gradual reorientation of exports toward EU
countries, lessening Latvia's trade dependency on Russia. The
majority of companies, banks, and real estate have been privatized,
although the state still holds sizable stakes in a few large
enterprises. Latvia officially joined the World Trade Organization
in February 1999. Preparing for EU membership continues as a top
foreign policy goal. The current account and internal government
deficits remain major concerns, but the government's efforts to
increase efficiency in revenue collection may lessen the budget
deficit.

Lebanon
The 1975-91 civil war seriously damaged Lebanon's economic
infrastructure, cut national output by half, and all but ended
Lebanon's position as a Middle Eastern entrepot and banking hub.
Peace enabled the central government to restore control in Beirut,
begin collecting taxes, and regain access to key port and government
facilities. Economic recovery was helped by a financially sound
banking system and resilient small- and medium-scale manufacturers.
Family remittances, banking services, manufactured and farm exports,
and international aid provided the main sources of foreign exchange.
Lebanon's economy made impressive gains since the launch in 1993 of
"Horizon 2000," the government's $20 billion reconstruction program.
Real GDP grew 8% in 1994, 7% in 1995, 4% in 1996 and in 1997, but
slowed to 1.2% in 1998, -1.6% in 1999, -0.6% in 2000, 0.8% in 2001,
and 1.5% in 2002. During the 1990s annual inflation fell to almost
0% from more than 100%. Lebanon has rebuilt much of its war-torn
physical and financial infrastructure. The government nonetheless
faces serious challenges in the economic arena. It has funded
reconstruction by borrowing heavily - mostly from domestic banks. In
order to reduce the ballooning national debt, the re-installed
HARIRI government began an economic austerity program to rein in
government expenditures, increase revenue collection, and privatize
state enterprises. The HARIRI government met with international
donors at the Paris II conference in November 2002 to seek bilateral
assistance restructuring its domestic debt at lower rates of
interest. While privatization of state-owned enterprises had not
occurred by the end of 2002, the government had successfully avoided
a currency devaluation and debt default in 2002.

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

Liberia
Civil war and misgovernment have destroyed much of Liberia's
economy, especially the infrastructure in and around Monrovia. Many
businessmen have fled the country, taking capital and expertise with
them. Some have returned; many will not. Richly endowed with water,
mineral resources, forests, and a climate favorable to agriculture,
Liberia had been a producer and exporter of basic products -
primarily raw timber and rubber. Local manufacturing, mainly foreign
owned, had been small in scope. The restoration of the
infrastructure and the raising of incomes in this ravaged economy
depend on the settlement of civil warfare, the implementation of
sound macro- and micro-economic policies, including the
encouragement of foreign investment, and generous support from donor
countries.

Libya
The socialist-oriented economy depends primarily upon revenues
from the oil sector, which contribute practically all export
earnings and about one-quarter of GDP. These oil revenues and a
small population give Libya one of the highest per capita GDPs in
Africa, but little of this income flows down to the lower orders of
society. Import restrictions and inefficient resource allocations
have led to periodic shortages of basic goods and foodstuffs. The
nonoil manufacturing and construction sectors, which account for
about 20% of GDP, have expanded from processing mostly agricultural
products to include the production of petrochemicals, iron, steel,
and aluminum. Climatic conditions and poor soils severely limit
agricultural output, and Libya imports about 75% of its food. Higher
oil prices in the last three years led to an increase in export
revenues, which has improved macroeconomic balances but has done
little to stimulate broad-based economic growth. Libya is making
slow progress toward economic liberalization and the upgrading of
economic infrastructure, but truly market-based reforms will be slow
in coming.

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

Lithuania
Lithuania, the Baltic state that has conducted the most
trade with Russia, has slowly rebounded from the 1998 Russian
financial crisis. Unemployment remains high, still 10.7% in 2003,
but is improving. Growing domestic consumption and increased
investment have furthered recovery. Trade has been increasingly
oriented toward the West. Lithuania has gained membership in the
World Trade Organization and has moved ahead with plans to join the
EU. Privatization of the large, state-owned utilities, particularly
in the energy sector, is nearing completion. Overall, more than 80%
of enterprises have been privatized. Foreign government and business
support have helped in the transition from the old command economy
to a market economy.

Luxembourg
This stable, high-income economy features solid growth,
low inflation, and low unemployment. The industrial sector,
initially dominated by steel, has become increasingly diversified to
include chemicals, rubber, and other products. Growth in the
financial sector, which now accounts for about 22% of GDP, has more
than compensated for the decline in steel. Most banks are
foreign-owned and have extensive foreign dealings. Agriculture is
based on small family-owned farms. The economy depends on foreign
and trans-border workers for more than 30% of its labor force.
Although Luxembourg, like all EU members, has suffered from the
global economic slump, the country has maintained a fairly strong
growth rate and enjoys an extraordinarily high standard of living.