Chapter CV: Section 3: , Taipei, Taiwan, telephone: 886 (2) 2162-2000, FAX (40)

Iraq
Iraq's economy is dominated by the oil sector, which has
traditionally provided about 95% of foreign exchange earnings.
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 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. Although a comparatively small amount of
capital plant was damaged during the hostilities, looting, insurgent
attacks, and sabotage have undermined efforts to rebuild the
economy. Despite continuing political uncertainty, the Iraqi Interim
Government (IG) has founded the institutions needed to implement
economic policy, and has successfully concluded a debt reduction
agreement with the Paris Club. The high percentage gain estimated
for GDP in 2004 is the result of starting from a low base.

Ireland
Ireland is a small, modern, trade-dependent economy with
growth averaging a robust 7% in 1995-2004. Agriculture, once the
most important sector, is now dwarfed by industry and services.
Industry accounts for 46% of GDP, about 80% of exports, and 29% 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 EU 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 circulating the euro on 1
January 2002 along with 11 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 3.9%.

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. But the leadership faces a severe economic constraint:
the budget has breached the 3% EU deficit ceiling.

Jamaica
The Jamaican economy is heavily dependent on services, which
now account for 60% 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 2003-04, with brisk tourist seasons.
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. Uncertain economic
conditions have led to increased civil unrest, including gang
violence fueled by the drug trade. In 2004, the government faced the
difficult prospect of having to achieve fiscal discipline in order
to maintain debt payments while simultaneously attacking a serious
and growing crime problem which is hampering economic growth.
Attempts at deficit control were derailed by Hurricane Ivan in
September 2004, which required substantial government spending to
repair the damage. Despite the hurricane, tourism looks set to enjoy
solid growth for the foreseeable future.

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, measured on
a purchasing power parity (PPP) basis. (Using market exhange rates
rather than PPP rates, Japan's economy is larger than China's.) 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 tiny 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. From 2000 to 2003,
government efforts to revive economic growth met with little success
and were further hampered by the slowing of the US, European, and
Asian economies. In 2004, growth improved and the lingering fears of
deflation in prices and economic activity lessened. Japan's huge
government debt, which totals more than 160% of GDP, and the aging
of the population are two major long-run problems. A rise in taxes
could be viewed as endangering the revival of growth. 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 Channel Island economy is based on international
financial services, agriculture, and tourism. In 1996 the finance
sector accounted for about 60% of the island's output. Potatoes,
cauliflower, tomatoes, and especially flowers are important export
crops, shipped mostly to the UK. The Jersey breed of dairy cattle is
known worldwide and represents an important export income earner.
Milk products go to the UK and other EU countries. Tourism accounts
for 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. Living standards come
close to those of the UK.

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 WTO (2000), a free
trade accord with the US (2001), and an association agreement with
the EU (2001). These measures have helped improve productivity and
have put Jordan on the foreign investment map. Jordan imported most
of its oil from Iraq, but the US-led war in Iraq in 2003 made Jordan
more dependent on oil from other Gulf nations forcing the Jordanian
government to raise retail petroleum product prices and the sales
tax base. Jordan's export market, which is heavily dependent on
exports to Iraq, was also affected by the war but recovered quickly
while contributing to the Iraq recovery effort. The main challenges
facing Jordan are reducing dependence on foreign grants, reducing
the budget deficit, and creating investment incentives to promote
job creation.

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
has a large agricultural sector featuring livestock and grain.
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. Growth remained at
the high 9% level in 2003 and 2004. 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 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%. GDP grew a moderate 2.2% in 2004.

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
eleventh 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, 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 July
2002, the government took limited steps toward a freer market
economy. In 2004, heightened political tensions with key donor
countries and general donor fatigue threatened the flow of
desperately needed food aid and fuel aid. Black market prices have
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. In 2004, the
regime allowed private markets to sell a wider range of goods and
permitted private farming on an experimental basis in an effort to
boost agricultural output. Firm political control remains the
Communist government's overriding concern, which will constrain any
further loosening of economic regulations.

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. In 2004, it
joined the trillion dollar club of world economies. Today its GDP
per capita is 14 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 6.9% in
1998, then strongly recovered to 9.5% in 1999 and 8.5% 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 7.0%, despite
anemic global growth. Economic growth fell to 3.1% in 2003 because
of a downturn in consumer spending and recovered to an estimated
4.6% in 2004 on the strength of rapid export growth. The government
plans to boost infrastructure spending in 2005. Moderate inflation,
low unemployment, an export surplus, and fairly equal distribution
of income characterize this solid economy.

Kuwait
Kuwait is a small, rich, relatively open economy with proved
crude oil reserves of about 96 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, 4% in 2003, and 3.2% in 2004. 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 and 2004. The government has made
steady strides in controlling its substantial fiscal deficit and
aims to reduce the deficit to 3% 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 6% in 1988-2004 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. The government has sponsored major improvements
in the road system. 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. In late 2004, Laos
gained Normal Trade Relations status with the US, allowing
Laos-based producers to face lower tariffs on their exports; this
may help spur growth.

Latvia
Latvia's transitional economy recovered from the 1998 Russian
financial crisis, largely due to the 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. EU
membership, a top foreign policy goal, came in May 2004. 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. A growing perception that
many of Latvia's banks facilitate illicit activity could damage the
country's vibrant financial sector.

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. In
the years since, Lebanon has rebuilt much of its war-torn physical
and financial infrastructure by borrowing heavily - mostly from
domestic banks. In an attempt to reduce the ballooning national
debt, the HARIRI government began an austerity program, reining in
government expenditures, increasing revenue collection, and
privatizing state enterprises. In November 2002, the government met
with international donors at the Paris II conference to seek
bilateral assistance in restructuring its massive domestic debt at
lower rates of interest. Substantial receipts from donor nations
stabilized government finances in 2003, but did little to reduce the
debt, which stood at nearly 180% of GDP. In 2004 the HARIRI
government issued Eurobonds in an effort to manage maturing debt,
and the KARAMI government has continued this practice. However,
privatization of state-owned enterprises had not occurred by the end
of 2004, as promised during the Paris II conference.

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 garment industry has
grown significantly, mainly due to Lesotho qualifying for the trade
benefits contained in the Africa Growth and Opportunity Act. 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 government mismanagement have destroyed much
of Liberia's economy, especially the infrastructure in and around
Monrovia, while continued international sanctions on diamonds and
timber exports will limit growth prospects for the foreseeable
future. Many businessmen have fled the country, taking capital and
expertise with them. Some have returned, but 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 Transitional
Government, and the arrival of a UN mission are all necessary for
the eventual end of the political crisis, but thus far have done
little to encourage economic development. The reconstruction of
infrastructure and the raising of incomes in this ravaged economy
will largely depend on generous financial support and technical
assistance 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 four 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. Almost all US unilateral sanctions against Libya
were removed in April 2004. 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.

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 dropped from 11% in 2003 to 8% in
2004. 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 joined the EU in May 2004. 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 - in between France,
Belgium, and Germany - 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 cross-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
enjoys an extraordinarily high standard of living.

Macau
Macau's well-to-do economy has remained one of the most open
in the world since its reversion to China in 1999. Apparel exports
and tourism are mainstays of the economy. Although the territory was
hit hard by the 1998 Asian financial crisis and the global downturn
in 2001, its economy grew 9.5% in 2002 and 15.6% in 2003. During the
first three quarters of 2004, Macau registered year-on-year GDP
increases of more than 20 percent. A rapid rise in the number of
mainland visitors because of China's easing of restrictions on
travel, increased public works expenditures, and significant
investment inflows associated with the liberalization of Macau's
gaming industry drove the recovery. The budget also returned to
surplus in 2002 because of the surge in visitors from China and a
hike in taxes on gambling profits, which generated about 70% of
government revenue. The three companies awarded gambling licenses
have pledged to invest $2.2 billion in the territory, which will
boost GDP growth. Much of Macau's textile industry may move to the
mainland as the Multi-Fiber Agreement is phased out. The territory
may have to rely more on gambling and trade-related services to
generate growth. Two new casinos were opened by new foreign gambling
licensees in 2004; development of new infrastructure and facilities
in preparation for Macau's hosting of the 2005 East Asian Games will
bolster the construction sector. The Closer Economic Partnership
Agreement (CEPA) between Macau and mainland China that came into
effect on 1 January 2004 offers many Macau-made products tariff-free
access to the mainland, and the range of products covered by CEPA
was to be expanded on 1 January 2005.

Macedonia
At independence in September 1991, Macedonia was the least
developed of the Yugoslav republics, producing a mere 5% of the
total federal output of goods and services. The collapse of
Yugoslavia ended transfer payments from the center and eliminated
advantages from inclusion in a de facto free trade area. An absence
of infrastructure, UN sanctions on the down-sized Yugoslavia, one of
its largest markets, and a Greek economic embargo over a dispute
about the country's constitutional name and flag hindered economic
growth until 1996. GDP subsequently rose each year through 2000.
However, the leadership's commitment to economic reform, free trade,
and regional integration was undermined by the ethnic Albanian
insurgency of 2001. The economy shrank 4.5% because of decreased
trade, intermittent border closures, increased deficit spending on
security needs, and investor uncertainty. Growth barely recovered in
2002 to 0.9%, then rose by a moderate 3.4% in 2003, and is estimated
at 1.3% in 2004. Unemployment at one-third of the workforce remains
a critical economic problem. Much of the extensive grey market
activity falls outside official statistics.

Madagascar
Having discarded past socialist economic policies,
Madagascar has since the mid 1990s followed a World Bank and IMF led
policy of privatization and liberalization. This strategy has placed
the country on a slow and steady growth path from an extremely low
level. Agriculture, including fishing and forestry, is a mainstay of
the economy, accounting for more than one-fourth of GDP and
employing 80% of the population. Exports of apparel have boomed in
recent years primarily due to duty-free access to the United States.
Deforestation and erosion, aggravated by the use of firewood as the
primary source of fuel are serious concerns. President RAVALOMANANA
has worked aggressively to revive the economy following the 2002
political crisis, which triggered a 12% drop in GDP that year.
Poverty reduction and combating corruption will be the centerpieces
of economic policy for the next few years.

Malawi
Landlocked Malawi ranks among the world's least developed
countries. The economy is predominately agricultural, with about 90%
of the population living in rural areas. Agriculture accounted for
nearly 40% of GDP and 88% of export revenues in 2001. The
performance of the tobacco sector is key to short-term growth as
tobacco accounts for over 50% of exports. The economy depends on
substantial inflows of economic assistance from the IMF, the World
Bank, and individual donor nations. In late 2000, Malawi was
approved for relief under the Heavily Indebted Poor Countries (HIPC)
program. The government faces strong challenges, including
developing a market economy, improving educational facilities,
facing up to environmental problems, dealing with the rapidly
growing problem of HIV/AIDS, and satisfying foreign donors that
fiscal discipline is being tightened. In 2005, the anticorruption
campaign championed by President MUTHARIKA may help encourage
investment and economic growth.

Malaysia
Malaysia, a middle-income country, transformed itself from
1971 through the late 1990's from a producer of raw materials into
an emerging multi-sector economy. Growth was almost exclusively
driven by exports - particularly of electronics. As a result,
Malaysia was hard hit by the global economic downturn and the slump
in the information technology (IT) sector in 2001 and 2002. GDP in
2001 grew only 0.5% due to an estimated 11% contraction in exports,
but a substantial fiscal stimulus package equal to US $1.9 billion
mitigated the worst of the recession and the economy rebounded in
2002 with a 4.1% increase. The economy grew 4.9% in 2003,
notwithstanding a difficult first half, when external pressures from
SARS and the Iraq War led to caution in the business community.
Growth topped 7% in 2004. Healthy foreign exchange reserves, low
inflation, and a small external debt are all strengths that make it
unlikely that Malaysia will experience a financial crisis similar to
the one in 1997. The economy remains dependent on continued growth
in the US, China, and Japan, top export destinations and key sources
of foreign investment.

Maldives
Tourism, Maldives' largest industry, accounts for 20% of
GDP and more than 60% of the Maldives' foreign exchange receipts.
Over 90% of government tax revenue comes from import duties and
tourism-related taxes. Fishing is a second leading sector. The
Maldivian Government began an economic reform program in 1989
initially by lifting import quotas and opening some exports to the
private sector. Subsequently, it has liberalized regulations to
allow more foreign investment. Agriculture and manufacturing
continue to play a lesser role in the economy, constrained by the
limited availability of cultivable land and the shortage of domestic
labor. Most staple foods must be imported. Industry, which consists
mainly of garment production, boat building, and handicrafts,
accounts for about 18% of GDP. Maldivian authorities worry about the
impact of erosion and possible global warming on their low-lying
country; 80% of the area is one meter or less above sea level. In
late December 2004, a major tsunami left more than 100 dead, 12,000
displaced, and property damage exceeding $300 million.

Mali
Mali is among the poorest countries in the world, with 65% of
its land area desert or semidesert and with a highly unequal
distribution of income. Economic activity is largely confined to the
riverine area irrigated by the Niger. About 10% of the population is
nomadic and some 80% of the labor force is engaged in farming and
fishing. Industrial activity is concentrated on processing farm
commodities. Mali is heavily dependent on foreign aid and vulnerable
to fluctuations in world prices for cotton, its main export, along
with gold. The government has continued its successful
implementation of an IMF-recommended structural adjustment program
that is helping the economy grow, diversify, and attract foreign
investment. Mali's adherence to economic reform and the 50%
devaluation of the African franc in January 1994 have pushed up
economic growth to a sturdy 5% average in 1996-2004. Worker
remittances and external trade routes have been jeopardized by
continued unrest in neighboring Cote d'Ivoire.

Malta
Major resources are limestone, a favorable geographic
location, and a productive labor force. Malta produces only about
20% of its food needs, has limited fresh water supplies, and has no
domestic energy sources. The economy is dependent on foreign trade,
manufacturing (especially electronics and textiles), and tourism.
Continued sluggishness in the European economy is holding back
exports, tourism, and overall growth.

Man, Isle of
Offshore banking, manufacturing, and tourism are key
sectors of the economy. The government's policy of offering
incentives to high-technology companies and financial institutions
to locate on the island has paid off in expanding employment
opportunities in high-income industries. As a result, agriculture
and fishing, once the mainstays of the economy, have declined in
their shares of GDP. Trade is mostly with the UK. The Isle of Man
enjoys free access to EU markets.

Marshall Islands
US Government assistance is the mainstay of this
tiny island economy. Agricultural production, primarily subsistence,
is concentrated on small farms; the most important commercial crops
are coconuts and breadfruit. Small-scale industry is limited to
handicrafts, tuna processing, and copra. The tourist industry, now a
small source of foreign exchange employing less than 10% of the
labor force, remains the best hope for future added income. The
islands have few natural resources, and imports far exceed exports.
Under the terms of the Amended Compact of Free Association, the US
will provide millions of dollars per year to the Marshall Islands
(RMI) through 2023, at which time a Trust Fund made up of US and RMI
contributions will begin perpetual annual payouts. Government
downsizing, drought, a drop in construction, the decline in tourism
and foreign investment due to the Asian financial difficulties, and
less income from the renewal of fishing vessel licenses have held
GDP growth to an average of 1% over the past decade.

Martinique
The economy is based on sugarcane, bananas, tourism, and
light industry. Agriculture accounts for about 6% of GDP and the
small industrial sector for 11%. Sugar production has declined, with
most of the sugarcane now used for the production of rum. Banana
exports are increasing, going mostly to France. The bulk of meat,
vegetable, and grain requirements must be imported, contributing to
a chronic trade deficit that requires large annual transfers of aid
from France. Tourism, which employs more than 11,000 people, has
become more important than agricultural exports as a source of
foreign exchange.

Mauritania
Half the population still depends on agriculture and
livestock for a livelihood, even though many of the nomads and
subsistence farmers were forced into the cities by recurrent
droughts in the 1970s and 1980s. Mauritania has extensive deposits
of iron ore, which account for nearly 40% of total exports. The
decline in world demand for this ore, however, has led to cutbacks
in production. The nation's coastal waters are among the richest
fishing areas in the world, but overexploitation by foreigners
threatens this key source of revenue. The country's first deepwater
port opened near Nouakchott in 1986. In the past, drought and
economic mismanagement resulted in a buildup of foreign debt. In
February 2000, Mauritania qualified for debt relief under the
Heavily Indebted Poor Countries (HIPC) initiative and in December
2001 received strong support from donor and lending countries at a
triennial Consultative Group review. In 2001, exploratory oil wells
in tracts 80 km offshore indicated potential extraction at current
world oil prices. A new investment code approved in December 2001
improved the opportunities for direct foreign investment. Ongoing
negotiations with the IMF involve problems of economic reforms and
fiscal discipline. Substantial oil production and exports probably
will not begin until 2006. Meantime the government emphasizes
reduction of poverty, improvement of health and education, and
promoting privatization of the economy.

Mauritius
Since independence in 1968, Mauritius has developed from a
low-income, agriculturally based economy to a middle-income
diversified economy with growing industrial, financial, and tourist
sectors. For most of the period, annual growth has been in the order
of 5% to 6%. This remarkable achievement has been reflected in more
equitable income distribution, increased life expectancy, lowered
infant mortality, and a much-improved infrastructure. Sugarcane is
grown on about 90% of the cultivated land area and accounts for 25%
of export earnings. The government's development strategy centers on
expanding local financial institutions and building a domestic
information telecommunications industry. Mauritius has attracted
more than 9,000 offshore entities, many aimed at commerce in India
and South Africa, and investment in the banking sector alone has
reached over $1 billion. Mauritius, with its strong textile sector,
has been well poised to take advantage of the Africa Growth and
Opportunity Act (AGOA).

Mayotte
Economic activity is based primarily on the agricultural
sector, including fishing and livestock raising. Mayotte is not
self-sufficient and must import a large portion of its food
requirements, mainly from France. The economy and future development
of the island are heavily dependent on French financial assistance,
an important supplement to GDP. Mayotte's remote location is an
obstacle to the development of tourism.

Mexico
Mexico has a free market economy that recently entered the
trillion dollar class. It contains a mixture of modern and outmoded
industry and agriculture, increasingly dominated by the private
sector. Recent administrations have expanded competition in
seaports, railroads, telecommunications, electricity generation,
natural gas distribution, and airports. Per capita income is
one-fourth that of the US; income distribution remains highly
unequal. Trade with the US and Canada has tripled since the
implementation of NAFTA in 1994. Mexico has 12 free trade agreements
with over 40 countries including, Guatemala, Honduras, El Salvador,
the European Free Trade Area, and Japan, putting more than 90% of
trade under free trade agreements. The government is cognizant of
the need to upgrade infrastructure, modernize the tax system and
labor laws, and provide incentives to invest in the energy sector,
but progress is slow.

Micronesia, Federated States of
Economic activity consists primarily
of subsistence farming and fishing. The islands have few mineral
deposits worth exploiting, except for high-grade phosphate. The
potential for a tourist industry exists, but the remote location, a
lack of adequate facilities, and limited air connections hinder
development. The Amended Compact of Free Association with the US
guarantees the Federated States of Micronesia (FSM) millions of
dollars in annual aid through 2023, and establishes a Trust Fund
into which the US and the FSM make annual contributions in order to
provide annual payouts to the FSM in perpetuity after 2023. The
country's medium-term economic outlook appears fragile due not only
to the reduction in US assistance but also to the slow growth of the
private sector. Geographical isolation and a poorly developed
infrastructure remain major impediments to long-term growth.

Midway Islands
The economy is based on providing support services
for the national wildlife refuge activities located on the islands.
All food and manufactured goods must be imported.

Moldova
Moldova remains one of the poorest countries in Europe
despite recent progress from its small economic base. It enjoys a
favorable climate and good farmland but has no major mineral
deposits. As a result, the economy depends heavily on agriculture,
featuring fruits, vegetables, wine, and tobacco. Moldova must import
almost all of its energy supplies from Russia. Energy shortages
contributed to sharp production declines after the breakup of the
Soviet Union in December 1991. As part of an ambitious reform effort
after independence, Moldova introduced a convertible currency, freed
prices, stopped issuing preferential credits to state enterprises,
backed steady land privatization, removed export controls, and freed
interest rates. The government entered into agreements with the
World Bank and the IMF to promote growth and reduce poverty. The
economy returned to positive growth of 2.1% in 2000, 6.1% in 2001,
7.2% in 2002, 6.3% in 2003, and 6.8% in 2004. Further reforms will
come slowly because of strong political forces backing government
controls. The economy remains vulnerable to higher fuel prices, poor
agricultural weather, and the skepticism of foreign investors.

Monaco
Monaco, bordering France on the Mediterranean coast, is a
popular resort, attracting tourists to its casino and pleasant
climate. In 2001, a major construction project extended the pier
used by cruise ships in the main harbor. The principality has
successfully sought to diversify into services and small,
high-value-added, nonpolluting industries. The state has no income
tax and low business taxes and thrives as a tax haven both for
individuals who have established residence and for foreign companies
that have set up businesses and offices. The state retains
monopolies in a number of sectors, including tobacco, the telephone
network, and the postal service. Living standards are high, roughly
comparable to those in prosperous French metropolitan areas. Monaco
does not publish national income figures; the estimates below are
extremely rough.

Mongolia
Economic activity in Mongolia has traditionally been based
on herding and agriculture. Mongolia has extensive mineral deposits;
copper, coal, molybdenum, tin, tungsten and gold account for a large
part of industrial production. Soviet assistance, at its height
one-third of GDP, disappeared almost overnight in 1990 and 1991 at
the time of the dismantlement of the USSR. The following decade saw
Mongolia endure both deep recession due to political inaction and
natural disasters, as well as economic growth due to reform
embracing free-market economics and extensive privatization of the
formerly state-run economy. Severe winters and summer droughts in
2000, 2001, and 2002 resulted in massive livestock die-off and zero
or negative GDP growth. This was compounded by falling prices for
Mongolia's primary sector exports and widespread opposition to
privatization. Growth improved from 2002 at 4% to 2003 at 5%, due
largely to high copper prices and new gold production, with the
government claiming a 10.6% growth rate for 2004 that is
unconfirmed. Mongolia's economy continues to be heavily impacted by
its neighbors. For example, Mongolia purchases 80% of its petroleum
products and a substantial amount of electric power from Russia,
leaving it vulnerable to price increases. China is Mongolia's chief
export partner and a main source of the "shadow" or "grey" economy.
The World Bank and other international financial institutions
estimate the grey economy to be at least equal to that of the
official economy. The actual size of this grey - largely cash -
economy is difficult to calculate since the money does not pass
through the hands of tax authorities or the banking sector.
Remittances from Mongolians working abroad both legally and
illegally constitute a sizeable portion. Money laundering is growing
as an accompanying concern. Mongolia settled its $11 billion debt
with Russia at the end of 2003 on very favorable terms. Mongolia,
which joined the World Trade Organization in 1997, seeks to expand
its participation and integration into Asian regional economic and
trade regimes.

Montserrat
Severe volcanic activity, which began in July 1995, has
put a damper on this small, open economy. A catastrophic eruption in
June 1997 closed the airports and seaports, causing further economic
and social dislocation. Two-thirds of the 12,000 inhabitants fled
the island. Some began to return in 1998, but lack of housing
limited the number. The agriculture sector continued to be affected
by the lack of suitable land for farming and the destruction of
crops. Prospects for the economy depend largely on developments in
relation to the volcano and on public sector construction activity.
The UK has launched a three-year $122.8 million aid program to help
reconstruct the economy. Half of the island is expected to remain
uninhabitable for another decade.

Morocco
Morocco faces problems typical for developing countries:
restraining government spending, reducing constraints on private
activity and foreign trade, and achieving sustainable growth.
Despite structural adjustment programs supported by the IMF, the
World Bank, and the Paris Club, the dirham is only fully convertible
for current account transactions. In 2004 Moroccan authorities
instituted measures to boost foreign direct investment and trade by
signing a free trade agreement with the US and selling government
shares in the state telecommunications company and in the largest
state-owned bank. Favorable rainfall over the past two years has
boosted agricultural output and GDP growth passed 4% in 2004. In
2005 the budget deficit is expected to rise sharply - from 1.9% of
GDP in 2004 - because of substantial increases in wages and oil
subsidies. Long-term challenges include preparing the economy for
freer trade with the US and European Union, improving education and
job prospects for Morocco's youth, and raising living standards.

Mozambique
At independence in 1975, Mozambique was one of the
world's poorest countries. Socialist mismanagement and a brutal
civil war from 1977-92 exacerbated the situation. In 1987, the
government embarked on a series of macroeconomic reforms designed to
stabilize the economy. These steps, combined with donor assistance
and with political stability since the multi-party elections in
1994, have led to dramatic improvements in the country's growth
rate. Inflation was reduced to single digits during the late 1990s
although it returned to double digits in 2000-03. Fiscal reforms,
including the introduction of a value-added tax and reform of the
customs service, have improved the government's revenue collection
abilities. In spite of these gains, Mozambique remains dependent
upon foreign assistance for much of its annual budget, and the
majority of the population remains below the poverty line.
Subsistence agriculture continues to employ the vast majority of the
country's workforce. A substantial trade imbalance persists although
the opening of the MOZAL aluminum smelter, the country's largest
foreign investment project to date has increased export earnings.
Additional investment projects in titanium extraction and processing
and garment manufacturing should further close the import/export
gap. Mozambique's once substantial foreign debt has been reduced
through forgiveness and rescheduling under the IMF's Heavily
Indebted Poor Countries (HIPC) and Enhanced HIPC initiatives, and is
now at a manageable level.

Namibia
The economy is heavily dependent on the extraction and
processing of minerals for export. Mining accounts for 20% of GDP.
Rich alluvial diamond deposits make Namibia a primary source for
gem-quality diamonds. Namibia is the fourth-largest exporter of
nonfuel minerals in Africa, the world's fifth-largest producer of
uranium, and the producer of large quantities of lead, zinc, tin,
silver, and tungsten. The mining sector employs only about 3% of the
population while about half of the population depends on subsistence
agriculture for its livelihood. Namibia normally imports about 50%
of its cereal requirements; in drought years food shortages are a
major problem in rural areas. A high per capita GDP, relative to the
region, hides the great inequality of income distribution; nearly
one-third of Namibians had annual incomes of less than $1,400 in
constant 1994 dollars, according to a 1993 study. The Namibian
economy is closely linked to South Africa with the Namibian dollar
pegged to the South African rand. Privatization of several
enterprises in coming years may stimulate long-run foreign
investment. Mining of zinc, copper, and silver and increased fish
production led growth in 2003-04.

Nauru
Revenues of this tiny island have traditionally come from
exports of phosphates, but reserves are now depleted. Few other
resources exist with most necessities being imported, mainly from
Australia, its former occupier and later major source of support.
The rehabilitation of mined land and the replacement of income from
phosphates are serious long-term problems. In anticipation of the
exhaustion of Nauru's phosphate deposits, substantial amounts of
phosphate income have been invested in trust funds to help cushion
the transition and provide for Nauru's economic future. As a result
of heavy spending from the trust funds, the government faces virtual
bankruptcy. To cut costs the government has called for a freeze on
wages, a reduction of over-staffed public service departments,
privatization of numerous government agencies, and closure of some
overseas consulates. In recent years Nauru has encouraged the
registration of offshore banks and corporations. In 2004 the
deterioration in housing, hospitals, and other capital plant
continued, and the cost to Australia of keeping the government and
economy afloat has substantially mounted. Few comprehensive
statistics on the Nauru economy exist, with estimates of Nauru's GDP
varying widely.

Navassa Island
subsistence fishing and commercial trawling
activities within refuge waters

Nepal
Nepal is among the poorest and least developed countries in
the world with 40% of its population living below the poverty line.
Agriculture is the mainstay of the economy, providing a livelihood
for over 80% of the population and accounting for 40% of GDP.
Industrial activity mainly involves the processing of agricultural
produce including jute, sugarcane, tobacco, and grain. Security
concerns in the wake of the Maoist conflict have led to a decrease
in tourism, a key source of foreign exchange. Nepal has considerable
scope for exploiting its potential in hydropower and tourism, areas
of recent foreign investment interest. Prospects for foreign trade
or investment in other sectors will remain poor, however, because of
the small size of the economy, its technological backwardness, its
remoteness, its landlocked geographic location, its civil strife,
and its susceptibility to natural disaster.

Netherlands
The Netherlands has a prosperous and open economy, which
depends heavily on foreign trade. The economy is noted for stable
industrial relations, moderate unemployment and inflation, a sizable
current account surplus, and an important role as a European
transportation hub. Industrial activity is predominantly in food
processing, chemicals, petroleum refining, and electrical machinery.
A highly mechanized agricultural sector employs no more than 4% of
the labor force but provides large surpluses for the food-processing
industry and for exports. The Netherlands, along with 11 of its EU
partners, began circulating the euro currency on 1 January 2002. The
country continues to be one of the leading European nations for
attracting foreign direct investment. Economic growth slowed
considerably in 2001-04, as part of the global economic slowdown,
but for the four years before that, annual growth averaged nearly
4%, well above the EU average.

Netherlands Antilles
Tourism, petroleum refining, and offshore
finance are the mainstays of this small economy, which is closely
tied to the outside world. Although GDP has declined or grown
slightly in each of the past eight years, the islands enjoy a high
per capita income and a well-developed infrastructure compared with
other countries in the region. Almost all consumer and capital goods
are imported, the US and Mexico being the major suppliers. Poor
soils and inadequate water supplies hamper the development of
agriculture. Budgetary problems hamper reform of the health and
pension systems of an aging population.

New Caledonia
New Caledonia has about 25% of the world's known
nickel resources. Only a small amount of the land is suitable for
cultivation, and food accounts for about 20% of imports. In addition
to nickel, substantial financial support from France - equal to more
than one-fourth of GDP - and tourism are keys to the health of the
economy. Substantial new investment in the nickel industry, combined
with the recovery of global nickel prices, brightens the economic
outlook for the next several years.