Chapter CIII: Section 3: , Taipei, Taiwan, telephone: 886 (2) 2162-2000, FAX (39)

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.

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. Yet short-run economic prospects are good,
provided tensions do not again erupt between indigenous Fijians and
Indo-Fijians.

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
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 12 countries joining
the European Economic and Monetary Union (EMU) - 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 partially or fully privatized many large
companies, banks, and insurers, but the government retains
controlling stakes in several leading firms, including Air France,
France Telecom, Renault, and Thales, and is dominant in some
sectors, particularly power, public transport, and defense
industries. The telecommunications sector is gradually being opened
to competition. France's leaders remain committed to a capitalism in
which they maintain social equity by means of laws, tax policies,
and social spending that reduce income disparity and the impact of
free markets on public health and welfare. The current government
has lowered income taxes and introduced measures to boost
employment. The government is 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 is
also pushing for pension reforms and simplification of
administrative procedures. The tax burden remains one of the highest
in Europe (43.8% of GDP in 2003). The current economic slowdown and
inflexible budget items have pushed the 2003 deficit to 4% of GDP,
above the EU's 3% debt limit. Business investment remains listless
because of low rates of capital utilization, sluggish demand, 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. Including West Bank, the UN estimates that more than
100,000 Palestinians out of the 125,000 who used to work in Israel,
in Israeli settlements, or in joint industrial zones have lost their
jobs. In addition, about 80,000 Palestinian workers inside the
Territories are losing their jobs. International aid of $2 billion
in 2001-02 to the West Bank and Gaza Strip prevented the complete
collapse of the economy and allowed Finance Minister Salam FAYYAD to
implement several financial and economic reforms. Budgetary support,
however, was not as forthcoming in 2003.

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- the
fifth largest national economy in the world - has become one of the
slowest growing economies in the entire euro zone, and a quick
turnaround is not in the offing in the foreseeable future. Growth in
2001-03 fell short of 1%. The modernization and integration of the
eastern German economy continues to be a costly long-term process,
with annual transfers from west to east amounting to roughly $70
billion. Germany's 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. 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. The government is also starting long-needed
structural reforms designed to revitalize the country's economy. 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 35% 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. Receipts from the gold sector should help sustain
GDP growth in 2004. Inflation should ease, but remain a major
internal problem.

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 about 40% 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
annual GDP. The Greek economy grew by about 4.0% for the past two
years, largely because of an investment boom and infrastructure
upgrades for the 2004 Athens Olympic Games. Despite strong growth,
Greece has failed to meet the EU's Growth and Stability Pact budget
deficit criteria of 3% of GDP since 2000; public debt, inflation,
and unemployment are also above the eurozone average. Further
restructuring of the economy include privatizing several state
enterprises, undertaking pension and other reforms, and minimizing
bureaucratic inefficiencies.

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 had
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
Guatemala is the largest and most populous of the Central
American countries with a GDP per capita roughly one-half that of
Brazil, Argentina, and Chile. The agricultural sector accounts for
about one-fourth of GDP, two-thirds of exports, and half of the
labor force. Coffee, sugar, and bananas are the main products. The
1996 signing of peace accords, which ended 36 years of civil war,
removed a major obstacle to foreign investment, but widespread
political violence and corruption scandals continue to dampen
investor confidence. The distribution of income remains highly
unequal, with perhaps 75% of the population below the poverty line.
Ongoing challenges include increasing government revenues,
negotiating further assistance from international donors, upgrading
both government and private financial operations, curtailing drug
trafficking, and narrowing the trade deficit.

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 environment 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. Fighting along the Sierra
Leonean and Liberian borders, as well as refugee movements, have
caused major economic disruptions, including a loss in investor
confidence. Foreign mining companies have reduced expatriate staff,
while panic buying has created food shortages and inflation in local
markets. Guinea is not receiving multilateral aid. The IMF and World
Bank cut off most assistance in 2003. Growth should strengthen in
2004, however, 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 2002-03 and dim prospects for 2004.

Guyana
The Guyanese economy exhibited moderate economic growth in
2001-02, based on expansion in the agricultural and mining sectors,
a more favorable atmosphere for business initiatives, a more
realistic exchange rate, fairly low inflation, and the continued
support of international organizations. Growth then slowed in 2003.
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
In this poorest country in the Western Hemisphere, 80% of the
population lives in abject poverty. Two-thirds of all Haitians
depend on the agriculture sector, which consists mainly of
small-scale subsistence farming. 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. Suspended aid and loan disbursements totaled more than $500
million at the start of 2003. Haiti also suffers from rampant
inflation, a lack of investment, and a severe trade deficit. The
resumption of aid flows from all donors will alleviate but not end
the nation's bitter economic problems. Extensive civil strife in
early 2004, marked by the flight of President ARISTIDE, further
impoverished Haiti.

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

Holy See (Vatican City)
This unique, noncommercial economy is
supported financially by an annual contribution from Roman Catholic
dioceses throughout the world, 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
and massive unemployment, 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 has 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 also battered Hong Kong's
economy, but a boom in tourism from the mainland because of China's
easing of travel restrictions, a return of consumer confidence, and
a solid rise in exports resulted in the resumption of strong growth
in late 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 joined 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 and further increasing
the flexibility of the labor markets.

Iceland
Iceland's Scandinavian-type economy is basically
capitalistic, yet with an extensive welfare system (including
generous housing subsidies), low unemployment, and remarkably even
distribution of income. In the absence of other natural resources
(except for abundant geothermal power), the economy depends heavily
on the fishing industry, which provides 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. Government controls have been
reduced on foreign trade and 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 is capitalizing on its large
numbers of well-educated people skilled in the English language to
become a major exporter of software services and software workers.
Despite strong growth, the World Bank and others worry about the
continuing public-sector budget deficit, running at approximately
60% of GDP.

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 economic
development problems stemming from recent acts of terrorism, unequal
resource distribution among regions, endemic corruption, the lack of
reliable legal recourse in contract disputes, weaknesses in the
banking system, and a generally poor climate for foreign investment.
Indonesia withdrew from its IMF program at the end of 2003, but
issued a "White Paper" that commits the government to maintaining
fundamentally sound macroeconomic policies previously established
under IMF guidelines. Investors, however, continued to face a host
of on-the-ground microeconomic problems and an inadequate judicial
system. Keys to future growth remain internal reform, building up
the confidence of international and domestic investors, and strong
global economic growth.

Iran
Iran's economy is marked by a bloated, inefficient state
sector, over reliance on the oil sector, and statist policies that
create major distortions throughout. Most economic activity is
controlled by the state. Private sector activity is typically
small-scale - workshops, farming, and services. President KHATAMI
has continued to follow the market reform plans of former President
RAFSANJANI, with limited progress. Relatively high oil prices in
recent years have enabled Iran to amass some $22 billion in foreign
exchange reserves, but have not eased economic hardships such as
high unemployment and inflation. In December 2003 a major earthquake
devastated the city of Bam in southeastern Iran, killing more than
30,000 people.

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 that 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. 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
pre-1991 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, but with the loss of a comparatively small
amount of capital plant. The rebuilding of oil, electricity, and
other production is proceeding steadily at the start of 2004 with
foreign support and despite the continuation of severe internal
strife. A joint UN and World Bank report released in the fall of
2003 estimated that Iraq's key reconstruction needs through 2007
would cost $55 billion. In October 2003, international donors
pledged assistance worth more than $33 billion toward this
rebuilding effort.

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 2.1% 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 and the second highest in
the sEU, behind Luxembourg. Over the past decade, the Irish
Government has implemented a series of national economic programs
designed to curb price and wage inflation, reduce government
spending, increase labor force skills, and promote foreign
investment. Ireland joined in 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
substantial quantities of grain but is largely self-sufficient in
other agricultural products. Cut diamonds, high-technology
equipment, and agricultural products (fruits and vegetables) are the
leading exports. Israel usually posts sizable 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 bitter Israeli-Palestinian conflict; difficulties
in the high-technology, construction, and tourist sectors; and
fiscal austerity in the face of growing inflation led to small
declines in GDP in 2001 and 2002. The economy grew at 1% in 2003,
with improvements in tourism and foreign direct investment. In 2004,
rising business and consumer confidence - as well as higher demand
for Israeli exports - boosted GDP by 2.7%.

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 Jamaican economy is heavily dependent on services, which
now account for 70% of GDP. The country continues to derive most of
its foreign exchange from tourism, remittances, and bauxite/alumina.
The global economic slowdown, particularly after the terrorist
attacks in the US on 11 September 2001, stunted economic growth; the
economy rebounded moderately in 2003, with one of the best tourist
seasons on record. But the economy faces serious long-term problems:
high interest rates; increased foreign competition; a pressured,
sometimes sliding, exchange rate; a sizable merchandise trade
deficit; large-scale unemployment; and a growing internal debt, the
result of government bailouts to ailing sectors of the economy. The
ratio of debt to GDP is close to 150%. Inflation, previously a
bright spot, is expected to remain in the double digits. Depressed
economic conditions have led to increased civil unrest, including
gang violence fueled by the drug trade. In 2004, the government
faces the difficult prospect of having to achieve fiscal discipline
in order to maintain debt payments while simultaneously attacking a
serious and growing crime problem that is hampering economic growth.

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

Japan
Government-industry cooperation, a strong work ethic, mastery
of high technology, and a comparatively small defense allocation (1%
of GDP) helped Japan advance with extraordinary rapidity to the rank
of second most technologically-powerful economy in the world after
the US and 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
after effects 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 totals more
than 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 substantial 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 the 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 (worth $300-$600 million a year). Several
Gulf nations have provided temporary aid to compensate for the loss
of this oil; when this foreign aid expires, the Jordanian government
has pledged to raise retail petroleum product prices and the sales
tax base. Other ongoing challenges include fiscal adjustment to
reduce the budget deficit, broader investment incentives to promote
job-creating ventures, and the encouragement of tourism.

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
The regional hub for trade and finance in East Africa, Kenya
has been hampered by corruption, notably in the judicial system, and
by reliance upon several primary goods whose prices have remained
low. In 1997, the IMF suspended Kenya's Enhanced Structural
Adjustment Program due to the government's failure to maintain
reforms and curb corruption. A severe drought from 1999 to 2000
compounded Kenya's problems, causing water and energy rationing and
reducing agricultural output. As a result, GDP contracted by 0.2% in
2000. The IMF, which had resumed loans in 2000 to help Kenya through
the drought, again halted lending in 2001 when the government failed
to institute several anticorruption measures. Despite the return of
strong rains in 2001, weak commodity prices, endemic corruption, and
low investment limited Kenya's economic growth to 1.2%. Growth
lagged at 1.1% in 2002 because of erratic rains, low investor
confidence, meager donor support, and political infighting up to the
elections. In the key 27 December 2002 elections, Daniel Arap MOI's
24-year-old reign ended, and a new opposition government took on the
formidable economic problems facing the nation. In 2003, progress
was made in rooting out corruption, and encouraging donor support,
with GDP growth edging up to 1.7%.

Kingman Reef
no economic activity

Kiribati
A remote country of 33 scattered coral atolls, Kiribati has
few natural resources. Commercially viable phosphate deposits were
exhausted at the time of independence from the UK in 1979. Copra and
fish now represent the bulk of production and exports. The economy
has fluctuated widely in recent years. Economic development is
constrained by a shortage of skilled workers, weak infrastructure,
and remoteness from international markets. Tourism provides more
than one-fifth of GDP. The financial sector is at an early stage of
development as is the expansion of private sector initiatives.
Foreign financial aid from UK, Japan, Australia, New Zealand, and
China equals 25%-50% of GDP. 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, 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. In
2003, heightened political tensions with key donor countries and
general donor fatigue threatened the flow of desperately needed food
aid and fuel aid as well. Black market prices continued to rise
following the increase in official prices and wages in the summer of
2002, leaving some vulnerable groups, such as the elderly and
unemployed, less able to buy goods. The regime, however, relaxed
restrictions on farmers' market activities in spring 2003, leading
to an expansion of market activity.

Korea, South
Since the early 1960s, South Korea has achieved an
incredible record of growth and integration into the high-tech
modern world economy. Four decades ago GDP per capita was comparable
with levels in the poorer countries of Africa and Asia. 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 National Assembly approved legislation reducing the six-day
work week 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.

Kyrgyzstan
Kyrgyzstan is a poor, mountainous country with a
predominantly agricultural economy. Cotton, tobacco, wool, and meat
are the main agricultural products, although only tobacco and cotton
are exported in any quantity. Industrial exports include gold,
mercury, uranium, 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.
Kyrgyzstan has distinguished itself by adopting relatively liberal
economic policies. The drop in output at the Kumtor gold mine
sparked a 0.5% decline in GDP in 2002, but GDP growth bounced back
to 6% in 2003. The government has made steady strides in controlling
its substantial fiscal deficit and aims to reduce the deficit to 4.4
percent of GDP in 2004. 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,
1.5% in 2002, and 3% in 2003. 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 2003, massive receipts from donor
nations stabilized government finances in 2002-04.

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 departure of the former
president, Charles TAYLOR, to Nigeria in August 2003, the
establishment of the all-inclusive National Transition Government of
Liberia (NTGL), and the arrival of a UN mission are all encouraging
signs that the political crisis is coming to an end. The restoration
of infrastructure and the raising of incomes in this ravaged economy
depend on the implementation of sound macro- and micro-economic
policies, including the encouragement of foreign investment, and
generous support from donor countries.

Libya
The Libyan 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. Libyan
officials in the past three years have made progress on economic
reforms as part of a broader campaign to reintegrate the country
into the international fold. This effort picked up steam after UN
sanctions were lifted in September 2003 and as Libya announced in
December 2003 that it would abandon programs to build weapons of
mass destruction. Libya faces a long road ahead in liberalizing the
socialist-oriented economy, but initial steps - including applying
for WTO membership, reducing some subsidies, and announcing plans
for privatization - are laying the groundwork for a transition to a
more market-based economy. The non-oil manufacturing and
construction sectors, which account for 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.