Chapter CXII: Section 3: , Taipei, Taiwan, telephone: 886 (2) 2162-2000, FAX (43)

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 deficit - 11.5% of GDP in 2005 - remains a major concern. 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 Rafiq 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 interest rates. Substantial receipts from donor nations
stabilized government finances in 2003, but did little to reduce the
debt, which stands at nearly 170% of GDP. In 2004 the HARIRI
government issued Eurobonds in an effort to manage maturing debt.
The downturn in economic activity that followed the assassination of
Rafiq al-HARIRI has eased, but has yet to be reversed. Tourism
remains below the level of 2004. The new Prime Minister, Fuad
SINIORA, has pledged to push ahead with economic reform, including
privatization and more efficient government. The Core Group of
nations has announced plans to hold a Donor's Conference in early
2006 to assist the government of Lebanon in restructuring its debt
and increasing foreign investment.

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. However, the government has recently
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, as well as a rapidly expanding apparel-assembly
sector. The latter 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 have helped defuse the
political crisis, but have done little to encourage economic
development. Wealthy international donors, who are ready to assist
reconstruction efforts, are withholding funding until Liberia's
National Assembly signs onto a Governance and Economic Management
Action Plan (GEMAP). The Plan was created in October 2005 by the
International Contact Group for Liberia to help ensure transparent
revenue collection and allocation - something that was lacking under
the Transitional Government and that has limited Liberia's economic
recovery. 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 about 95% of export earnings, about
one-quarter of GDP, and 60% of public sector wages. Substantial
revenues from the energy sector coupled with 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 that
it would abandon programs to build weapons of mass destruction in
December 2003. Almost all US unilateral sanctions against Libya were
removed in April 2004, helping Libya attract more foreign direct
investment, mostly in the energy sector. 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 about 8%
in 2005. 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 - benefitting from its
proximity to 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 28% 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 - GDP per capita ranks first in the world.

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 1997-98 Asian financial crisis and the global
downturn in 2001, its economy grew 10.1% in 2002, 14.2% in 2003, and
28.6% in 2004. During the first three quarters of 2005, Macau
registered year-on-year GDP increases of 6.2%. A rapid rise in the
number of mainland visitors because of China's easing of travel
restrictions, increased public works expenditures, and significant
investment inflows associated with the liberalization of Macau's
gaming industry drove the four-year recovery. The budget also
returned to surplus since 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 led 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 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 central government and
eliminated advantages from inclusion in a de facto free trade area.
An absence of infrastructure, UN sanctions on the downsized
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 3.4% in 2003, 4.1% in 2004,
and 3.7% in 2005. Macedonia has maintained macroeconomic stability
with low inflation, but it has lagged the region in attracting
foreign investment and job growth has been anemic. Macedonia has an
extensive grey market, estimated to be more than 20 percent of GDP,
that 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
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 36% of GDP and 80% of export revenues in 2005. The
performance of the tobacco sector is key to short-term growth as
tobacco accounts for over 60% 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, President MUTHARIKA
championed an anticorruption campaign. Malawi's recent fiscal policy
performance has been very strong, but a serious drought in 2005 and
2006 will heighten pressure on the government to increase spending.

Malaysia
Malaysia, a middle-income country, transformed itself from
1971 through the late 1990s 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% because of 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
Severe Acute Respiratory Syndrome (SARS) and the Iraq War led to
caution in the business community. Growth topped 7% in 2004 and 5%
in 2005. As an oil and gas exporter, Malaysia has profited from
higher world energy prices, although the cost of government
subsidies for domestic gasoline and diesel fuel has risen and offset
some of the benefit. Malaysia "unpegged" the ringgit from the US
dollar in 2005, but so far there has been little movement in the
exchange rate. 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 over the near term
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. Over the past
decade, real GDP growth averaged over 7.5% per year. As a result of
the tsunami, the GDP contracted by about 5.5% in 2005.

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 CFA franc in January 1994 have pushed up economic
growth to a sturdy 5% average in 1996-2005. Worker remittances and
external trade routes for the landlocked country 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 few
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.

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 which
now stands at more than three times the level of annual exports. 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. 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. In 2001, exploratory oil
wells in tracts 80 km offshore indicated potential extraction at
current world oil prices. Mauritania has an estimated 1 billion
barrels of proved reserves. Substantial oil production and exports
are scheduled to begin in early 2006 and may average 75,000 barrels
per day for that year. 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 FOX administration is
cognizant of the need to upgrade infrastructure, modernize the tax
system and labor laws, and allow private investment in the energy
sector, but has been unable to win the support of the opposition-led
Congress. The next government that takes office in December 2006
will confront the same challenges of boosting economic growth,
improving Mexico's international competitiveness, and reducing
poverty.

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.

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. 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 in 2000, and has remained at or
above 6% every year since. 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.

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 because of
reform-embracing, free-market economics and extensive privatization
of the formerly state-run economy. Severe winters and summer
droughts in 2000-2002 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 was 10.6% in 2004 and 5.5% in 2005, largely
because of high copper prices and new gold production. Mongolia's
economy continues to be heavily influenced 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, but the former's actual size 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 are sizeable, and money laundering is a
growing concern. Mongolia settled its $11 billion debt with Russia
at the end of 2003 on 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.

Montenegro
The republic of Montenegro severed its economy from
federal control and from Serbia during the MILOSEVIC era and
continues to maintain its own central bank, uses the euro instead of
the Yugoslav dinar as official currency, collects customs tariffs,
and manages its own budget. The dissolution of the loose political
union between Serbia and Montenegro in 2006 led to separate
membership in several international financial institutions, such as
the IMF, World Bank, and the European Bank for Reconstruction and
Development. Montenegro is pursuing its own membership in the World
Trade Organization as well as negotiating a Stabilization and
Association agreement with the European Union in anticipation of
eventual membership. Severe unemployment remains a key political and
economic problem for this entire region. Montenegro has privatized
its large aluminum complex - the dominant industry - as well as most
of its financial sector, and has begun to attract foreign direct
investment in the tourism sector.

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 volcanic activity 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
Moroccan economic policies brought macroeconomic stability
to the country in the early 1990s but have not spurred growth
sufficient to reduce unemployment that nears 20% in urban areas.
Poverty has actually increased due to the volatile nature of GDP,
Morocco's continued dependence on foreign energy, and its inability
to promote the growth of small and medium size enterprises. 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 and Morocco's financial sector is rudimentary.
Moroccan authorities understand that reducing poverty and providing
jobs is key to domestic security and development. 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. The Free Trade agreement went into effect
in January 2006. In 2005, GDP growth slipped to 1.2% and the budget
deficit rose sharply - to 7.5% of GDP - 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, which the government hopes to achieve
by increasing tourist arrivals and boosting competitiveness in
textiles.

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 work force. 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. In late 2005, and after years of negotiations, the
government signed an agreement to gain Portugal's majority share of
the Cahora Bassa Hydroelectricity (HCB) company, a dam that was not
transferred to Mozambique at independence because of the ensuing
civil war and unpaid debts. More power is needed for additional
investment projects in titanium extraction and processing and
garment manufacturing that could 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 world's worst inequality of income distribution.
The Namibian economy is closely linked to South Africa with the
Namibian dollar pegged one-to-one to the South African rand.
Privatization of several enterprises in coming years may stimulate
long-run foreign investment. Increased fish production and mining of
zinc, copper, uranium, and silver spurred growth in 2003-05.

Nauru
Revenues of this tiny island have traditionally come from
exports of phosphates, now significantly depleted. An Australian
company in 2005 entered into an agreement intended to exploit
remaining supplies. 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 were 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 frozen wages and reduced overstaffed public service departments.
In 2005, the deterioration in housing, hospitals, and other capital
plant continued, and the cost to Australia of keeping the government
and economy afloat continued to climb. Few comprehensive statistics
on the Nauru economy exist, with estimates of Nauru's GDP varying
widely.

Navassa Island
Subsistence fishing and commercial trawling occur
within refuge waters.

Nepal
Nepal is among the poorest and least developed countries in
the world with almost one-third of its population living below the
poverty line. Agriculture is the mainstay of the economy, providing
a livelihood for three-fourths of the population and accounting for
38% of GDP. Industrial activity mainly involves the processing of
agricultural produce including jute, sugarcane, tobacco, and grain.
Security concerns relating to 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 2% 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 2001-05, 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.

New Zealand
Over the past 20 years the government has transformed
New Zealand from an agrarian economy dependent on concessionary
British market access to a more industrialized, free market economy
that can compete globally. This dynamic growth has boosted real
incomes (but left behind many at the bottom of the ladder),
broadened and deepened the technological capabilities of the
industrial sector, and contained inflationary pressures. Per capita
income has risen for six consecutive years and was more than $24,000
in 2005 in purchasing power parity terms. New Zealand is heavily
dependent on trade - particularly in agricultural products - to
drive growth. Exports are equal to about 22% of GDP. Thus far the
economy has been resilient, and the Labor Government promises that
expenditures on health, education, and pensions will increase
proportionately to output.

Nicaragua
Nicaragua, one of the Western Hemisphere's poorest
countries, has low per capita income, widespread underemployment,
and a heavy external debt burden. Distribution of income is one of
the most unequal on the globe. While the country has progressed
toward macroeconomic stability in the past few years, GDP annual
growth has been far too low to meet the country's needs, forcing the
country to rely on international economic assistance to meet fiscal
and debt financing obligations. Nicaragua qualified in early 2004
for some $4.5 billion in foreign debt reduction under the Heavily
Indebted Poor Countries (HIPC) initiative because of its earlier
successful performances under its International Monetary Fund policy
program and other efforts. In October 2005, Nicaragua ratified the
US-Central America Free Trade Agreement (CAFTA), which will provide
an opportunity for Nicaragua to attract investment, create jobs, and
deepen economic development. High oil prices helped drive inflation
to 9.6% in 2005, leading to a fall in real GDP growth to 4% from
over 5% in 2004.

Niger
Niger is one of the poorest countries in the world, ranking
last on the United Nations Development Fund index of human
development. It is a landlocked, Sub-Saharan nation, whose economy
centers on subsistence crops, livestock, and some of the world's
largest uranium deposits. Drought cycles, desertification, a 2.9%
population growth rate, and the drop in world demand for uranium
have undercut the economy. Niger shares a common currency, the CFA
franc, and a common central bank, the Central Bank of West African
States (BCEAO), with seven other members of the West African
Monetary Union. In December 2000, Niger qualified for enhanced debt
relief under the International Monetary Fund program for Highly
Indebted Poor Countries (HIPC) and concluded an agreement with the
Fund on a Poverty Reduction and Growth Facility (PRGF). Debt relief
provided under the enhanced HIPC initiative significantly reduces
Niger's annual debt service obligations, freeing funds for
expenditures on basic health care, primary education, HIV/AIDS
prevention, rural infrastructure, and other programs geared at
poverty reduction. In December 2005, it was announced that Niger had
received 100% multilateral debt relief from the IMF, which
translates into the forgiveness of approximately $86 million USD in
debts to the IMF, excluding the remaining assistance under HIPC.
Nearly half of the government's budget is derived from foreign donor
resources. Future growth may be sustained by exploitation of oil,
gold, coal, and other mineral resources. Uranium prices have
recovered somewhat in the last few years. A drought and locust
infestation in 2005 led to food shortages for as many as 2.5 million
Nigerians.

Nigeria
Oil-rich Nigeria, long hobbled by political instability,
corruption, inadequate infrastructure, and poor macroeconomic
management, is undertaking some reforms under a new reform-minded
administration. Nigeria's former military rulers failed to diversify
the economy away from its overdependence on the capital-intensive
oil sector, which provides 20% of GDP, 95% of foreign exchange
earnings, and about 65% of budgetary revenues. The largely
subsistence agricultural sector has failed to keep up with rapid
population growth - Nigeria is Africa's most populous country - and
the country, once a large net exporter of food, now must import
food. Following the signing of an IMF stand-by agreement in August
2000, Nigeria received a debt-restructuring deal from the Paris Club
and a $1 billion credit from the IMF, both contingent on economic
reforms. Nigeria pulled out of its IMF program in April 2002, after
failing to meet spending and exchange rate targets, making it
ineligible for additional debt forgiveness from the Paris Club. In
the last year the government has begun showing the political will to
implement the market-oriented reforms urged by the IMF, such as to
modernize the banking system, to curb inflation by blocking
excessive wage demands, and to resolve regional disputes over the
distribution of earnings from the oil industry. In 2003, the
government began deregulating fuel prices, announced the
privatization of the country's four oil refineries, and instituted
the National Economic Empowerment Development Strategy, a
domestically designed and run program modeled on the IMF's Poverty
Reduction and Growth Facility for fiscal and monetary management.
GDP rose strongly in 2005, based largely on increased oil exports
and high global crude prices. In November 2005, Abuja won Paris Club
approval for a historic debt-relief deal that by March 2006 should
eliminate $30 billion worth of Nigeria's total $37 billion external
debt. The deal first requires that Nigeria repay roughly $12 billion
in arrears to its bilateral creditors. Nigeria would then be allowed
to buy back its remaining debt stock at a discount. The deal also
commits Nigeria to more intensified IMF reviews.

Niue
The economy suffers from the typical Pacific island problems of
geographic isolation, few resources, and a small population.
Government expenditures regularly exceed revenues, and the shortfall
is made up by critically needed grants from New Zealand that are
used to pay wages to public employees. Niue has cut government
expenditures by reducing the public service by almost half. The
agricultural sector consists mainly of subsistence gardening,
although some cash crops are grown for export. Industry consists
primarily of small factories to process passion fruit, lime oil,
honey, and coconut cream. The sale of postage stamps to foreign
collectors is an important source of revenue. The island in recent
years has suffered a serious loss of population because of
emigration to New Zealand. Efforts to increase GDP include the
promotion of tourism and a financial services industry, although the
International Banking Repeal Act of 2002 resulted in the termination
of all offshore banking licenses. Economic aid from New Zealand in
2002 was about US$2 million. Niue suffered a devastating typhoon in
January 2004, which decimated nascent economic programs. While in
the process of rebuilding, Niue has been dependent on foreign aid.

Norfolk Island
Tourism, the primary economic activity, has steadily
increased over the years and has brought a level of prosperity
unusual among inhabitants of the Pacific islands. The agricultural
sector has become self-sufficient in the production of beef,
poultry, and eggs.

Northern Mariana Islands
The economy benefits substantially from
financial assistance from the US. The rate of funding has declined
as locally generated government revenues have grown. The key tourist
industry employs about 50% of the work force and accounts for
roughly one-fourth of GDP. Japanese tourists predominate. Annual
tourist entries have exceeded one-half million in recent years, but
financial difficulties in Japan have caused a temporary slowdown.
The agricultural sector is made up of cattle ranches and small farms
producing coconuts, breadfruit, tomatoes, and melons. Garment
production is by far the most important industry with the employment
of 17,500 mostly Chinese workers and sizable shipments to the US
under duty and quota exemptions.

Norway
The Norwegian economy is a prosperous bastion of welfare
capitalism, featuring a combination of free market activity and
government intervention. The government controls key areas such as
the vital petroleum sector (through large-scale state enterprises).
The country is richly endowed with natural resources - petroleum,
hydropower, fish, forests, and minerals - and is highly dependent on
its oil production and international oil prices, with oil and gas
accounting for one-third of exports. Only Saudi Arabia and Russia
export more oil than Norway. Norway opted to stay out of the EU
during a referendum in November 1994; nonetheless, it contributes
sizably to the EU budget. The government has moved ahead with
privatization. Although Norwegian oil production peaked in 2000,
natural gas production is still rising. Norwegians realize that once
their gas production peaks they will eventually face declining oil
and gas revenues; accordingly, Norway has been saving its
oil-and-gas-boosted budget surpluses in a Government Petroleum Fund,
which is invested abroad and now is valued at more than $250
billion. After lackluster growth of 1% in 2002 and 0.5% in 2003, GDP
growth picked up to 3.3% in 2004 and to 3.7% in 2005.

Oman
Oman is a middle-income economy in the Middle East with notable
oil and gas resources, a substantial trade surplus, and low
inflation. Work on a new liquefied natural gas (LNG) facility
progressed in 2005 and will contribute to slightly higher oil and
gas exports in 2006. Oman continues to liberalize its markets and
joined the World Trade Organization (WTO) in November 2000. To
reduce unemployment and limit dependence on foreign labor, the
government is encouraging the replacement of foreign expatriate
workers with local workers. Training in information technology,
business management, and English support this objective. Industrial
development plans focus on gas resources, metal manufacturing,
petrochemicals, and international transshipment ports. In 2005, Oman
signed agreements with several foreign investors to boost oil
reserves, build and operate a power plant, and develop a second
mobile phone network in the country.

Pacific Ocean
The Pacific Ocean is a major contributor to the world
economy and particularly to those nations its waters directly touch.
It provides low-cost sea transportation between East and West,
extensive fishing grounds, offshore oil and gas fields, minerals,
and sand and gravel for the construction industry. In 1996, over 60%
of the world's fish catch came from the Pacific Ocean. Exploitation
of offshore oil and gas reserves is playing an ever-increasing role
in the energy supplies of the US, Australia, NZ, China, and Peru.
The high cost of recovering offshore oil and gas, combined with the
wide swings in world prices for oil since 1985, has led to
fluctuations in new drillings.

Pakistan
Pakistan, an impoverished and underdeveloped country, has
suffered from decades of internal political disputes, low levels of
foreign investment, and a costly, ongoing confrontation with
neighboring India. However, IMF-approved government policies,
bolstered by generous foreign assistance and renewed access to
global markets since 2001, have generated solid macroeconomic
recovery the last four years. The government has made substantial
macroeconomic reforms since 2000, although progress on more
politically sensitive reforms has slowed. For example, in the budget
for fiscal year 2006, Islamabad did not impose taxes on the
agriculture or real estate sectors, despite Pakistan's chronically
low tax-to-GDP ratio. While long-term prospects remain uncertain,
given Pakistan's low level of development, medium-term prospects for
job creation and poverty reduction are the best in more than a
decade. Islamabad has raised development spending from about 2% of
GDP in the 1990s to 4% in 2003, a necessary step towards reversing
the broad underdevelopment of its social sector. GDP growth, spurred
by double-digit gains in industrial production over the past year,
has become less dependent on agriculture, and remained above 7% in
2004 and 2005. Inflation remains the biggest threat to the economy,
jumping to more than 9% in 2005. The World Bank and Asian
Development Bank announced that they would provide US $1 billion
each in aid to help Pakistan rebuild areas hit by the October 2005
earthquake in Kashmir. Foreign exchange reserves continued to reach
new levels in 2005, supported by steady worker remittances. In the
near term, growth probably cannot be sustained at the 7% level;
however, massive international aid, increased government spending,
lower taxes, and pay increases for government workers will help
Pakistan maintain strong GDP growth over the longer term.

Palau
The economy consists primarily of tourism, subsistence
agriculture, and fishing. The government is the major employer of
the work force, relying heavily on financial assistance from the US.
Business and tourist arrivals numbered 63,000 in 2003. The
population enjoys a per capita income twice that of the Philippines
and much of Micronesia. Long-run prospects for the key tourist
sector have been greatly bolstered by the expansion of air travel in
the Pacific, the rising prosperity of leading East Asian countries,
and the willingness of foreigners to finance infrastructure
development.

Palmyra Atoll
no economic activity

Panama
Panama's dollarised economy rests primarily on a
well-developed services sector that accounts for three-fourths of
GDP. Services include operating the Panama Canal, banking, the Colon
Free Zone, insurance, container ports, flagship registry, and
tourism. A slump in the Colon Free Zone and agricultural exports,
the global slowdown, and the withdrawal of US military forces held
back economic growth in 2000-03; growth picked up in 2004 and 2005
led by export-oriented services and a construction boom stimulated
by tax incentives. The government has implemented tax reforms, as
well as social security reforms, and backs regional trade agreements
and development of tourism. Unemployment remains high.

Papua New Guinea
Papua New Guinea is richly endowed with natural
resources, but exploitation has been hampered by rugged terrain and
the high cost of developing infrastructure. Agriculture provides a
subsistence livelihood for 85% of the population. Mineral deposits,
including oil, copper, and gold, account for nearly two-thirds of
export earnings. The economy has improved over the past three years
because of high commodity prices following a prolonged period of
instability. The government of Prime Minister SOMARE has expended
much of its energy remaining in power and should be the first
government in decades to serve a full five-year term. The government
has also brought stability to the national budget thus far, largely
through expenditure control. Numerous challenges still face the
government including regaining investor confidence, restoring
integrity to state institutions, promoting economic efficiency by
privatizing moribund state institutions, and balancing relations
with Australia, the former colonial ruler. Other socio-cultural
challenges include the HIV/Aids epidemic, law and order, and land
tenure issues. Australia annually supplies $240 million in aid,
which accounts for nearly 20% of the national budget.

Paracel Islands
China announced plans in 1997 to open the islands
for tourism.

Paraguay
Landlocked Paraguay has a market economy marked by a large
informal sector. This sector features both reexport of imported
consumer goods to neighboring countries, as well as the activities
of thousands of microenterprises and urban street vendors. Because
of the importance of the informal sector, accurate economic measures
are difficult to obtain. A large percentage of the population
derives its living from agricultural activity, often on a
subsistence basis. The formal economy grew by an average of about 3%
annually in 1995-97, but averaged near-zero growth in 1998-2001 and
contracted by 2.3 percent in 2002, in response to regional contagion
and an outbreak of hoof-and-mouth disease. On a per capita basis,
real income has stagnated at 1980 levels. Most observers attribute
Paraguay's poor economic performance to political uncertainty,
corruption, lack of progress on structural reform, substantial
internal and external debt, and deficient infrastructure. Aided by a
firmer exchange rate and perhaps a greater confidence in the
economic policy of the DUARTE FRUTOS administration, the economy
rebounded between 2003 and 2005, posting modest growth each year.

Peru
Peru's economy reflects its varied geography - an arid coastal
region, the Andes further inland, and tropical lands bordering
Colombia and Brazil. Abundant mineral resources are found in the
mountainous areas, and Peru's coastal waters provide excellent
fishing grounds. However, overdependence on minerals and metals
subjects the economy to fluctuations in world prices, and a lack of
infrastructure deters trade and investment. After several years of
inconsistent economic performance, the Peruvian economy grew by more
than 4 percent per year during the period 2002-2005, with a stable
exchange rate and low inflation. Risk premiums on Peruvian bonds on
secondary markets reached historically low levels in late 2004,
reflecting investor optimism regarding the government's prudent
fiscal policies and openness to trade and investment. Despite the
strong macroeconomic performance, the TOLEDO administration remained
unpopular in 2005, and unemployment and poverty have stayed
persistently high. Economic growth will be driven by the Camisea
natural gas megaproject and by exports of minerals, textiles, and
agricultural products. Peru is expected to sign a free-trade
agreement with the United States in early 2006.