Chapter CXVI: Part 116

Bulgaria
Bulgaria, a former communist country that entered the EU on
1 January 2007, has experienced strong growth since a major economic
downturn in 1996. Successive governments have demonstrated
commitment to economic reforms and responsible fiscal planning, but
have failed so far to rein in rising inflation and large current
account deficits. Bulgaria has averaged more than 6% growth since
2004, attracting significant amounts of foreign direct investment,
but corruption in the public administration, a weak judiciary, and
the presence of organized crime remain significant challenges.

Burkina Faso
One of the poorest countries in the world, landlocked
Burkina Faso has few natural resources and a weak industrial base.
About 90% of the population is engaged in subsistence agriculture,
which is vulnerable to periodic drought. Cotton is the main cash
crop and the government has joined with three other cotton producing
countries in the region - Mali, Niger, and Chad - to lobby in the
World Trade Organization for fewer subsidies to producers in other
competing countries. Since 1998, Burkina Faso has embarked upon a
gradual but successful privatization of state-owned enterprises.
Having revised its investment code in 2004, Burkina Faso hopes to
attract foreign investors. Thanks to this new code and other
legislation favoring the mining sector, the country has seen an
upswing in gold exploration and production. While the bitter
internal crisis in neighboring Cote d'Ivoire is beginning to be
resolved, it is still having a negative effect on Burkina Faso's
trade and employment. In 2007 higher costs for energy and imported
foodstuffs, as well as low cotton prices, dampened a GDP growth rate
that had averaged 6% in the last 10 years. Burkina Faso received a
Millennium Challenge Account threshold grant to improve girls'
education at the primary school level, and appears likely to receive
a grant in the areas of infrastructure, agriculture, and land reform.

Burma
Burma, a resource-rich country, suffers from pervasive
government controls, inefficient economic policies, and rural
poverty. The junta took steps in the early 1990s to liberalize the
economy after decades of failure under the "Burmese Way to
Socialism," but those efforts stalled, and some of the
liberalization measures were rescinded. Despite Burma's increasing
oil and gas revenue, socio-economic conditions have deteriorated due
to the regime's mismanagement of the economy. Lacking monetary or
fiscal stability, the economy suffers from serious macroeconomic
imbalances - including rising inflation, fiscal deficits, multiple
official exchange rates that overvalue the Burmese kyat, a distorted
interest rate regime, unreliable statistics, and an inability to
reconcile national accounts to determine a realistic GDP figure.
Most overseas development assistance ceased after the junta began to
suppress the democracy movement in 1988 and subsequently refused to
honor the results of the 1990 legislative elections. In response to
the government of Burma's attack in May 2003 on AUNG SAN SUU KYI and
her convoy, the US imposed new economic sanctions in August 2003
including a ban on imports of Burmese products and a ban on
provision of financial services by US persons. Further, a poor
investment climate hampers attracting outside investment slowing the
inflow of foreign exchange. The most productive sectors will
continue to be in extractive industries, especially oil and gas,
mining, and timber with the latter especially causing environmental
degradation. Other areas, such as manufacturing and services, are
struggling with inadequate infrastructure, unpredictable
import/export policies, deteriorating health and education systems,
and endemic corruption. A major banking crisis in 2003 shuttered the
country's 20 private banks and disrupted the economy. As of 2007,
the largest private banks operated under tight restrictions limiting
the private sector's access to formal credit. Moreover, the
September 2007 crackdown on prodemocracy demonstrators, including
thousands of monks, further strained the economy as the tourism
industry, which directly employs about 500,000 people, suffered
dramatic declines in foreign visitor levels. In November 2007, the
European Union announced new sanctions banning investment and trade
in Burmese gems, timber and precious stones, while the United States
expanded its sanctions list to include more Burmese government and
military officials and their family members, as well as prominent
regime business cronies, their family members, and associated
companies. Official statistics are inaccurate. Published statistics
on foreign trade are greatly understated because of the size of the
black market and unofficial border trade - often estimated to be as
large as the official economy. Though the Burmese government has
good economic relations with its neighbors, better investment and
business climates and an improved political situation are needed to
promote serious foreign investment, exports, and tourism.

Burundi
Burundi is a landlocked, resource-poor country with an
underdeveloped manufacturing sector. The economy is predominantly
agricultural with more than 90% of the population dependent on
subsistence agriculture. Economic growth depends on coffee and tea
exports, which account for 90% of foreign exchange earnings. The
ability to pay for imports, therefore, rests primarily on weather
conditions and international coffee and tea prices. The Tutsi
minority, 14% of the population, dominates the government and the
coffee trade at the expense of the Hutu majority, 85% of the
population. An ethnic-based war that lasted for over a decade
resulted in more than 200,000 deaths, forced more than 48,000
refugees into Tanzania, and displaced 140,000 others internally.
Only one in two children go to school, and approximately one in 15
adults has HIV/AIDS. Food, medicine, and electricity remain in short
supply. Burundi's GDP grew around 5% annually in 2006-07. Political
stability and the end of the civil war have improved aid flows and
economic activity has increased, but underlying weaknesses - a high
poverty rate, poor education rates, a weak legal system, and low
administrative capacity - risk undermining planned economic reforms.
Burundi will continue to remain heavily dependent on aid from
bilateral and multilateral donors; the delay of funds after a
corruption scandal cut off bilateral aid in 2007 reduced
government's revenues and its ability to pay salaries.

Cambodia
From 2001 to 2004, the economy grew at an average rate of
6.4%, driven largely by an expansion in the garment sector and
tourism. The US and Cambodia signed a Bilateral Textile Agreement,
which gave Cambodia a guaranteed quota of US textile imports and
established a bonus for improving working conditions and enforcing
Cambodian labor laws and international labor standards in the
industry. With the January 2005 expiration of a WTO Agreement on
Textiles and Clothing, Cambodia-based textile producers were forced
to compete directly with lower-priced producing countries such as
China and India. Better-than-expected garment sector performance led
to more than 9% growth in 2007. Its vibrant garment industry employs
more than 350,000 people and contributes more than 70% of Cambodia's
exports. The Cambodian government has committed itself to a policy
supporting high labor standards in an attempt to maintain buyer
interest. In 2005, exploitable oil and natural gas deposits were
found beneath Cambodia's territorial waters, representing a new
revenue stream for the government if commercial extraction begins.
Mining also is attracting significant investor interest,
particularly in the northeastern parts of the country, and the
government has said opportunities exist for mining bauxite, gold,
iron and gems. In 2006, a US-Cambodia bilateral Trade and Investment
Framework Agreement (TIFA) was signed and the first round of
discussions took place in early 2007. The tourism industry continues
to grow rapidly, with foreign arrivals reaching 2 million in 2007.
In 2007 the government signed a joint venture agreement with two
companies to form a new national airline. The long-term development
of the economy remains a daunting challenge. The Cambodian
government is working with bilateral and multilateral donors,
including the World Bank and IMF, to address the country's many
pressing needs. The major economic challenge for Cambodia over the
next decade will be fashioning an economic environment in which the
private sector can create enough jobs to handle Cambodia's
demographic imbalance. More than 50% of the population is less than
21 years old. The population lacks education and productive skills,
particularly in the poverty-ridden countryside, which suffers from
an almost total lack of basic infrastructure.

Cameroon
Because of its modest oil resources and favorable
agricultural conditions, Cameroon has one of the best-endowed
primary commodity economies in sub-Saharan Africa. Still, it faces
many of the serious problems facing other underdeveloped countries,
such as a top-heavy civil service and a generally unfavorable
climate for business enterprise. Since 1990, the government has
embarked on various IMF and World Bank programs designed to spur
business investment, increase efficiency in agriculture, improve
trade, and recapitalize the nation's banks. In June 2000, the
government completed an IMF-sponsored, three-year structural
adjustment program; however, the IMF is pressing for more reforms,
including increased budget transparency, privatization, and poverty
reduction programs. In January 2001, the Paris Club agreed to reduce
Cameroon's debt of $1.3 billion by $900 million; debt relief now
totals $1.26 billion. International oil and cocoa prices have a
significant impact on the economy.

Canada
As an affluent, high-tech industrial society in the
trillion-dollar class, Canada resembles the US in its
market-oriented economic system, pattern of production, and affluent
living standards. Since World War II, the impressive growth of the
manufacturing, mining, and service sectors has transformed the
nation from a largely rural economy into one primarily industrial
and urban. The 1989 US-Canada Free Trade Agreement (FTA) and the
1994 North American Free Trade Agreement (NAFTA) (which includes
Mexico) touched off a dramatic increase in trade and economic
integration with the US. Given its great natural resources, skilled
labor force, and modern capital plant, Canada enjoys solid economic
prospects. Top-notch fiscal management has produced consecutive
balanced budgets since 1997, although public debate continues over
the equitable distribution of federal funds to the Canadian
provinces. Exports account for roughly a third of GDP. Canada enjoys
a substantial trade surplus with its principal trading partner, the
US, which absorbs 80% of Canadian exports each year. Canada is the
US's largest foreign supplier of energy, including oil, gas,
uranium, and electric power. During 2007, Canada enjoyed good
economic growth, moderate inflation, and the lowest unemployment
rate in more than three decades.

Cape Verde
This island economy suffers from a poor natural resource
base, including serious water shortages exacerbated by cycles of
long-term drought. The economy is service-oriented, with commerce,
transport, tourism, and public services accounting for about
three-fourths of GDP. Although nearly 70% of the population lives in
rural areas, the share of food production in GDP is low. About 82%
of food must be imported. The fishing potential, mostly lobster and
tuna, is not fully exploited. Cape Verde annually runs a high trade
deficit, financed by foreign aid and remittances from emigrants;
remittances supplement GDP by more than 20%. Economic reforms are
aimed at developing the private sector and attracting foreign
investment to diversify the economy. Future prospects depend heavily
on the maintenance of aid flows, the encouragement of tourism,
remittances, and the momentum of the government's development
program. Cape Verde became a member of the WTO in July 2008.

Cayman Islands
With no direct taxation, the islands are a thriving
offshore financial center. More than 68,000 companies were
registered in the Cayman Islands as of 2003, including almost 500
banks, 800 insurers, and 5,000 mutual funds. A stock exchange was
opened in 1997. Tourism is also a mainstay, accounting for about 70%
of GDP and 75% of foreign currency earnings. The tourist industry is
aimed at the luxury market and caters mainly to visitors from North
America. Total tourist arrivals exceeded 2.1 million in 2003, with
about half from the US. About 90% of the islands' food and consumer
goods must be imported. The Caymanians enjoy one of the highest
outputs per capita and one of the highest standards of living in the
world.

Central African Republic
Subsistence agriculture, together with
forestry, remains the backbone of the economy of the Central African
Republic (CAR), with more than 70% of the population living in
outlying areas. The agricultural sector generates more than half of
GDP. Timber has accounted for about 16% of export earnings and the
diamond industry, for 40%. Important constraints to economic
development include the CAR's landlocked position, a poor
transportation system, a largely unskilled work force, and a legacy
of misdirected macroeconomic policies. Factional fighting between
the government and its opponents remains a drag on economic
revitalization. Distribution of income is extraordinarily unequal.
Grants from France and the international community can only
partially meet humanitarian needs.

Chad
Chad's primarily agricultural economy will continue to be
boosted by major foreign direct investment projects in the oil
sector that began in 2000. At least 80% of Chad's population relies
on subsistence farming and livestock raising for its livelihood.
Chad's economy has long been handicapped by its landlocked position,
high energy costs, and a history of instability. Chad relies on
foreign assistance and foreign capital for most public and private
sector investment projects. A consortium led by two US companies has
been investing $3.7 billion to develop oil reserves - estimated at 1
billion barrels - in southern Chad. Chinese companies are also
expanding exploration efforts and plan to build a refinery. The
nation's total oil reserves have been estimated to be 1.5 billion
barrels. Oil production came on stream in late 2003. Chad began to
export oil in 2004. Cotton, cattle, and gum arabic provide the bulk
of Chad's non-oil export earnings.

Chile
Chile has a market-oriented economy characterized by a high
level of foreign trade. During the early 1990s, Chile's reputation
as a role model for economic reform was strengthened when the
democratic government of Patricio AYLWIN - which took over from the
military in 1990 - deepened the economic reform initiated by the
military government. Growth in real GDP averaged 8% during 1991-97,
but fell to half that level in 1998 because of tight monetary
policies implemented to keep the current account deficit in check
and because of lower export earnings - the latter a product of the
global financial crisis. A severe drought exacerbated the recession
in 1999, reducing crop yields and causing hydroelectric shortfalls
and electricity rationing, and Chile experienced negative economic
growth for the first time in more than 15 years. Despite the effects
of the recession, Chile maintained its reputation for strong
financial institutions and sound policy that have given it the
strongest sovereign bond rating in South America. Between 2000 and
2007 growth ranged between 2%-6%. Throughout these years Chile
maintained a low rate of inflation with GDP growth coming from high
copper prices, solid export earnings (particularly forestry,
fishing, and mining), and growing domestic consumption. President
BACHELET in 2006 established an Economic and Social Stabilization
Fund to hold excess copper revenues so that social spending can be
maintained during periods of copper shortfalls. This fund probably
surpassed $20 billion at the end of 2007. Chile continues to attract
foreign direct investment, but most foreign investment goes into
gas, water, electricity and mining. Unemployment has exhibited a
downward trend over the past two years, dropping to 7.8% and 7.0% at
the end of 2006 and 2007, respectively. Chile deepened its
longstanding commitment to trade liberalization with the signing of
a free trade agreement with the US, which took effect on 1 January
2004. Chile claims to have more bilateral or regional trade
agreements than any other country. It has 57 such agreements (not
all of them full free trade agreements), including with the European
Union, Mercosur, China, India, South Korea, and Mexico.

China
China's economy during the last quarter century has changed
from a centrally planned system that was largely closed to
international trade to a more market-oriented economy that has a
rapidly growing private sector and is a major player in the global
economy. Reforms started in the late 1970s with the phasing out of
collectivized agriculture, and expanded to include the gradual
liberalization of prices, fiscal decentralization, increased
autonomy for state enterprises, the foundation of a diversified
banking system, the development of stock markets, the rapid growth
of the non-state sector, and the opening to foreign trade and
investment. China has generally implemented reforms in a gradualist
or piecemeal fashion, including the sale of minority shares in four
of China's largest state banks to foreign investors and refinements
in foreign exchange and bond markets in 2005. After keeping its
currency tightly linked to the US dollar for years, China in July
2005 revalued its currency by 2.1% against the US dollar and moved
to an exchange rate system that references a basket of currencies.
Cumulative appreciation of the renminbi against the US dollar since
the end of the dollar peg reached 15% in January 2008. The
restructuring of the economy and resulting efficiency gains have
contributed to a more than tenfold increase in GDP since 1978.
Measured on a purchasing power parity (PPP) basis, China in 2007
stood as the second-largest economy in the world after the US,
although in per capita terms the country is still lower
middle-income. Annual inflows of foreign direct investment in 2007
rose to $75 billion. By the end of 2007, more than 5,000 domestic
Chinese enterprises had established direct investments in 172
countries and regions around the world. The Chinese government faces
several economic development challenges: (a) to sustain adequate job
growth for tens of millions of workers laid off from state-owned
enterprises, migrants, and new entrants to the work force; (b) to
reduce corruption and other economic crimes; and (c) to contain
environmental damage and social strife related to the economy's
rapid transformation. Economic development has been more rapid in
coastal provinces than in the interior, and approximately 200
million rural laborers have relocated to urban areas to find work.
One demographic consequence of the "one child" policy is that China
is now one of the most rapidly aging countries in the world.
Deterioration in the environment - notably air pollution, soil
erosion, and the steady fall of the water table, especially in the
north - is another long-term problem. China continues to lose arable
land because of erosion and economic development. In 2007 China
intensified government efforts to improve environmental conditions,
tying the evaluation of local officials to environmental targets,
publishing a national climate change policy, and establishing a high
level leading group on climate change, headed by Premier WEN Jiabao.
The Chinese government seeks to add energy production capacity from
sources other than coal and oil as its double-digit economic growth
increases demand. Chinese energy officials in 2007 agreed to
purchase five third generation nuclear reactors from Western
companies. More power generating capacity came on line in 2006 as
large scale investments - including the Three Gorges Dam across the
Yangtze River - were completed.

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

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

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

Colombia
Colombia's economy has experienced positive growth over the
past five years despite a serious armed conflict. In fact, 2007 is
regarded by policy makers and the private sector as one of the best
economic years in recent history, after 2005. The economy continues
to improve in part because of austere government budgets, focused
efforts to reduce public debt levels, an export-oriented growth
strategy, improved domestic security, and high commodity prices.
Ongoing economic problems facing President URIBE include reforming
the pension system, reducing high unemployment, and funding new
exploration to offset declining oil production. The government's
economic reforms and democratic security strategy, coupled with
increased investment, have engendered a growing sense of confidence
in the economy. However, the business sector continues to be
concerned about failure of the US Congress to approve the signed FTA.

Comoros
One of the world's poorest countries, Comoros is made up of
three islands that have inadequate transportation links, a young and
rapidly increasing population, and few natural resources. The low
educational level of the labor force contributes to a subsistence
level of economic activity, high unemployment, and a heavy
dependence on foreign grants and technical assistance. Agriculture,
including fishing, hunting, and forestry, contributes 40% to GDP,
employs 80% of the labor force, and provides most of the exports.
The country is not self-sufficient in food production; rice, the
main staple, accounts for the bulk of imports. The government -
which is hampered by internal political disputes - is struggling to
upgrade education and technical training, privatize commercial and
industrial enterprises, improve health services, diversify exports,
promote tourism, and reduce the high population growth rate. The
political problems caused the economy to contract in 2007.
Remittances from 150,000 Comorans abroad help supplement GDP.

Congo, Democratic Republic of the
The economy of the Democratic
Republic of the Congo - a nation endowed with vast potential wealth
- is slowly recovering from two decades of decline. Conflict, which
began in August 1998, dramatically reduced national output and
government revenue, increased external debt, and resulted in the
deaths of more than 3.5 million people from violence, famine, and
disease. Foreign businesses curtailed operations due to uncertainty
about the outcome of the conflict, lack of infrastructure, and the
difficult operating environment. Conditions began to improve in late
2002 with the withdrawal of a large portion of the invading foreign
troops. The transitional government reopened relations with
international financial institutions and international donors, and
President KABILA has begun implementing reforms, although progress
is slow and the International Monetary Fund curtailed their program
for the DRC at the end of March 2006 because of fiscal overruns.
Much economic activity still occurs in the informal sector, and is
not reflected in GDP data. Renewed activity in the mining sector,
the source of most export income, boosted Kinshasa's fiscal position
and GDP growth. Government reforms and improved security may lead to
increased government revenues, outside budget assistance, and
foreign direct investment, although an uncertain legal framework,
corruption, and a lack of transparency in government policy are
continuing long-term problems.

Congo, Republic of the
The economy is a mixture of subsistence
agriculture, an industrial sector based largely on oil, and support
services, and a government characterized by budget problems and
overstaffing. Oil has supplanted forestry as the mainstay of the
economy, providing a major share of government revenues and exports.
In the early 1980s, rapidly rising oil revenues enabled the
government to finance large-scale development projects with GDP
growth averaging 5% annually, one of the highest rates in Africa.
The government has mortgaged a substantial portion of its oil
earnings through oil-backed loans that have contributed to a growing
debt burden and chronic revenue shortfalls. Economic reform efforts
have been undertaken with the support of international
organizations, notably the World Bank and the IMF. However, the
reform program came to a halt in June 1997 when civil war erupted.
Denis SASSOU-NGUESSO, who returned to power when the war ended in
October 1997, publicly expressed interest in moving forward on
economic reforms and privatization and in renewing cooperation with
international financial institutions. Economic progress was badly
hurt by slumping oil prices and the resumption of armed conflict in
December 1998, which worsened the republic's budget deficit. The
current administration presides over an uneasy internal peace and
faces difficult economic challenges of stimulating recovery and
reducing poverty. Recovery of oil prices has boosted the economy's
GDP and near-term prospects. In March 2006, the World Bank and the
International Monetary Fund (IMF) approved Heavily Indebted Poor
Countries (HIPC) treatment for Congo.

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

Coral Sea Islands
no economic activity

Costa Rica
Costa Rica's basically stable economy depends on tourism,
agriculture, and electronics exports. Poverty has remained around
20% for nearly 20 years, and the strong social safety net that had
been put into place by the government has eroded due to increased
financial constraints on government expenditures. Immigration from
Nicaragua has increasingly become a concern for the government. The
estimated 300,000-500,000 Nicaraguans estimated to be in Costa Rica
legally and illegally are an important source of (mostly unskilled)
labor, but also place heavy demands on the social welfare system.
Foreign investors remain attracted by the country's political
stability and high education levels, as well as the fiscal
incentives offered in the free-trade zones. Exports have become more
diversified in the past 10 years due to the growth of the high-tech
manufacturing sector, which is dominated by the microprocessor
industry. Tourism continues to bring in foreign exchange, as Costa
Rica's impressive biodiversity makes it a key destination for
ecotourism. The government continues to grapple with its large
internal and external deficits and sizable internal debt. Reducing
inflation remains a difficult problem because of rising import
prices, labor market rigidities, and fiscal deficits. Tax and public
expenditure reforms will be necessary to close the budget gap. In
October 2007, a national referendum voted in favor of the US-Central
American Free Trade Agreement (CAFTA).

Cote d'Ivoire
Cote d'Ivoire is the world's largest producer and
exporter of cocoa beans and a significant producer and exporter of
coffee and palm oil. Consequently, the economy is highly sensitive
to fluctuations in international prices for these products, and, to
a lesser extent, in climatic conditions. Despite government attempts
to diversify the economy, it is still heavily dependent on
agriculture and related activities, engaging roughly 68% of the
population. Since 2006, oil and gas production have become more
important engines of economic activity than cocoa. According to IMF
statistics, earnings from oil and refined products were $1.3 billion
in 2006, while cocoa-related revenues were $1 billion during the
same period. Cote d'Ivoire's offshore oil and gas production has
resulted in substantial crude oil exports and provides sufficient
natural gas to fuel electricity exports to Ghana, Togo, Benin, Mali
and Burkina Faso. Oil exploration by a number of consortiums of
private companies continues offshore, and President GBAGBO has
expressed hope that daily crude output could reach 200,000 barrels
per day (b/d) by the end of the decade. Since the end of the civil
war in 2003, political turmoil has continued to damage the economy,
resulting in the loss of foreign investment and slow economic
growth. GDP grew by 1.8% in 2006 and 1.7% in 2007. Per capita income
has declined by 15% since 1999.

Croatia
Once one of the wealthiest of the Yugoslav republics,
Croatia's economy suffered badly during the 1991-95 war as output
collapsed and the country missed the early waves of investment in
Central and Eastern Europe that followed the fall of the Berlin
Wall. Since 2000, however, Croatia's economic fortunes have begun to
improve slowly, with moderate but steady GDP growth between 4% and
6% led by a rebound in tourism and credit-driven consumer spending.
Inflation over the same period has remained tame and the currency,
the kuna, stable. Nevertheless, difficult problems still remain,
including a stubbornly high unemployment rate, a growing trade
deficit and uneven regional development. The state retains a large
role in the economy, as privatization efforts often meet stiff
public and political resistance. While macroeconomic stabilization
has largely been achieved, structural reforms lag because of deep
resistance on the part of the public and lack of strong support from
politicians. The EU accession process should accelerate fiscal and
structural reform.

Cuba
The government continues to balance the need for economic
loosening against a desire for firm political control. It has rolled
back limited reforms undertaken in the 1990s to increase enterprise
efficiency and alleviate serious shortages of food, consumer goods,
and services. The average Cuban's standard of living remains at a
lower level than before the downturn of the 1990s, which was caused
by the loss of Soviet aid and domestic inefficiencies. Since late
2000, Venezuela has been providing oil on preferential terms, and it
currently supplies about 100,000 barrels per day of petroleum
products. Cuba has been paying for the oil, in part, with the
services of Cuban personnel in Venezuela, including some 20,000
medical professionals. In 2007, high metals prices continued to
boost Cuban earnings from nickel and cobalt production. Havana
continued to invest in the country's energy sector to mitigate
electrical blackouts that had plagued the country since 2004.

Cyprus
The area of the Republic of Cyprus under government control
has a market economy dominated by the service sector, which accounts
for 78% of GDP. Tourism, financial services, and real estate are the
most important sectors. Erratic growth rates over the past decade
reflect the economy's reliance on tourism, which often fluctuates
with political instability in the region and economic conditions in
Western Europe. Nevertheless, the economy in the area under
government control grew by an average of 3.6% per year during the
period of 2000-06, well above the EU average. Cyprus joined the
European Exchange Rate Mechanism (ERM2) in May 2005 and adopted the
euro as its national currency on 1 January 2008. An aggressive
austerity program in the preceding years, aimed at paving the way
for the euro, helped turn a soaring fiscal deficit (6.3% in 2003)
into a surplus of 1.5% in 2007. As in the area administered by
Turkish Cypriots, water shortages are a perennial problem; a few
desalination plants are now on line. After 10 years of drought, the
country received substantial rainfall from 2001-04 alleviating
immediate concerns. Rainfall in 2005 and 2006, however, was well
below average, making water rationing a necessity in 2007.

Czech Republic
The Czech Republic is one of the most stable and
prosperous of the post-Communist states of Central and Eastern
Europe. Growth in 2000-07 was supported by exports to the EU,
primarily to Germany, and a strong recovery of foreign and domestic
investment. Domestic demand is playing an ever more important role
in underpinning growth as the availability of credit cards and
mortgages increases. The current account deficit has declined to
around 3.3% of GDP as demand for automotive and other products from
the Czech Republic remains strong in the European Union. Rising
inflation from higher food and energy prices are a risk to balanced
economic growth. Significant increases in social spending in the
run-up to June 2006 elections prevented, the government from meeting
its goal of reducing its budget deficit to 3% of GDP in 2007.
Negotiations on pension and additional healthcare reforms are
continuing without clear prospects for agreement and implementation.
Intensified restructuring among large enterprises, improvements in
the financial sector, and effective use of available EU funds should
strengthen output growth. The pro-business Civic Democratic
Party-led government approved reforms in 2007 designed to cut
spending on some social welfare benefits and reform the tax system
with the aim of eventually reducing the budget deficit to 2.3% of
GDP by 2010. Parliamentary approval for any additional reforms could
prove difficult, however, because of the parliament's even split.
The government withdrew a 2010 target date for euro adoption and
instead aims to meet the eurozone criteria around 2012.

Denmark
The Danish economy has in recent years undergone strong
expansion fueled primarily by private consumption growth, but also
supported by exports and investments. This thoroughly modern market
economy features high-tech agriculture, up-to-date small-scale and
corporate industry, extensive government welfare measures,
comfortable living standards, a stable currency, and high dependence
on foreign trade. Unemployment is low and capacity constraints are
limiting growth potential. Denmark is a net exporter of food and
energy and enjoys a comfortable balance of payments surplus.
Government objectives include streamlining the bureaucracy and
further privatization of state assets. The government has been
successful in meeting, and even exceeding, the economic convergence
criteria for participating in the third phase (a common European
currency) of the European Economic and Monetary Union (EMU), but so
far Denmark has decided not to join 15 other EU members in the euro.
Nonetheless, the Danish krone remains pegged to the euro. Economic
growth gained momentum in 2004 and the upturn continued through
2007. The controversy over caricatures of the Prophet Muhammad
printed in a Danish newspaper in September 2005 led to boycotts of
some Danish exports to the Muslim world, especially exports of dairy
products, but the boycotts did not have a significant impact on the
overall Danish economy. Because of high GDP per capita, welfare
benefits, a low Gini index, and political stability, the Danish
living standards are among the highest in the world. A major
long-term issue will be the sharp decline in the ratio of workers to
retirees.

Dhekelia
Economic activity is limited to providing services to the
military and their families located in Dhekelia. All food and
manufactured goods must be imported.

Djibouti
The economy is based on service activities connected with
the country's strategic location and status as a free trade zone in
the Horn of Africa. Two-thirds of Djibouti's inhabitants live in the
capital city; the remainder are mostly nomadic herders. Scanty
rainfall limits crop production to fruits and vegetables, and most
food must be imported. Djibouti provides services as both a transit
port for the region and an international transshipment and refueling
center. Imports and exports from landlocked neighbor Ethiopia
represent 85% of port activity at Djibouti's container terminal.
Djibouti has few natural resources and little industry. The nation
is, therefore, heavily dependent on foreign assistance to help
support its balance of payments and to finance development projects.
An unemployment rate of nearly 60% continues to be a major problem.
While inflation is not a concern, due to the fixed tie of the
Djiboutian franc to the US dollar, the artificially high value of
the Djiboutian franc adversely affects Djibouti's balance of
payments. Per capita consumption dropped an estimated 35% between
1999 and 2006 because of recession, civil war, and a high population
growth rate (including immigrants and refugees). Faced with a
multitude of economic difficulties, the government has fallen in
arrears on long-term external debt and has been struggling to meet
the stipulations of foreign aid donors.

Dominica
The Dominican economy depends on agriculture, primarily
bananas, and remains highly vulnerable to climatic conditions and
international economic developments. Tourism has increased as the
government seeks to promote Dominica as an "ecotourism" destination.
In 2003, the government began a comprehensive restructuring of the
economy - including elimination of price controls, privatization of
the state banana company, and tax increases - to address Dominica's
economic and financial crisis of 2001-02 and to meet IMF targets.
This restructuring paved the way for the current economic recovery -
real growth for 2006 reached a two-decade high - and will help to
reduce the debt burden, which remains at about 100% of GDP. In order
to diversify the island's production base, the government is
attempting to develop an offshore financial sector and is
researching Dominica's capability to export geothermal energy.

Dominican Republic
The Dominican Republic has enjoyed strong GDP
growth since 2005, with double digit growth in 2006. In 2007,
exports were bolstered by the nearly 50% increase in nickel prices;
however, prices are expected to fall in 2008, contributing to a
slowdown in GDP growth for the year. Although the country has long
been viewed primarily as an exporter of sugar, coffee, and tobacco,
in recent years the service sector has overtaken agriculture as the
economy's largest employer due to growth in tourism and free trade
zones. The economy is highly dependent upon the US, the source of
nearly three-fourths of exports, and remittances represent about a
tenth of GDP, equivalent to almost half of exports and
three-quarters of tourism receipts. With the help of strict fiscal
targets agreed to in the 2004 renegotiation of an IMF standby loan,
President FERNANDEZ has stabilized the country's financial
situation, lowering inflation to less than 6%. A fiscal expansion is
expected for 2008 prior to the elections in May and for Tropical
Storm Noel reconstruction. Although the economy is growing at a
respectable rate, high unemployment and underemployment remains an
important challenge. The country suffers from marked income
inequality; the poorest half of the population receives less than
one-fifth of GNP, while the richest 10% enjoys nearly 40% of
national income. The Central America-Dominican Republic Free Trade
Agreement (CAFTA-DR) came into force in March 2007, which should
boost investment and exports and reduce losses to the Asian garment
industry.

Ecuador
Ecuador is substantially dependent on its petroleum
resources, which have accounted for more than half of the country's
export earnings and one-fourth of public sector revenues in recent
years. In 1999/2000, Ecuador suffered a severe economic crisis, with
GDP contracted by more than 6%, with a significant increase in
poverty. The banking system also collapsed, and Ecuador defaulted on
its external debt later that year. In March 2000, Congress approved
a series of structural reforms that also provided for the adoption
of the US dollar as legal tender. Dollarization stabilized the
economy, and positive growth returned in the years that followed,
helped by high oil prices, remittances, and increased
non-traditional exports. From 2002-06 the economy grew 5.5%, the
highest five-year average in 25 years. The poverty rate declined but
remained high at 38% in 2006. In 2006 the government of Alfredo
PALACIO (2005-07) seized the assets of Occidental Petroleum for
alleged contract violations and imposed a windfall revenue tax on
foreign oil companies, leading to the suspension of free trade
negotiations with the US. These measures, combined with chronic
underinvestment in the state oil company, Petroecuador, led to a
drop in petroleum production in 2007. PALACIO's successor, Rafael
CORREA, raised the specter of debt default - but Ecuador has paid
its debt on time. He also decreed a higher windfall revenue tax on
private oil companies, then sought to renegotiate their contracts to
overcome the debilitating effect of the tax. This generated economic
uncertainty; private investment has dropped and economic growth has
slowed significantly.

Egypt
Occupying the northeast corner of the African continent, Egypt
is bisected by the highly fertile Nile valley, where most economic
activity takes place. In the last 30 years, the government has
reformed the highly centralized economy it inherited from President
Gamel Abdel NASSER. In 2005, Prime Minister Ahmed NAZIF's government
reduced personal and corporate tax rates, reduced energy subsidies,
and privatized several enterprises. The stock market boomed, and GDP
grew about 5% per year in 2005-06, and topped 7% in 2007. Despite
these achievements, the government has failed to raise living
standards for the average Egyptian, and has had to continue
providing subsidies for basic necessities. The subsidies have
contributed to a sizeable budget deficit - roughly 7.5% of GDP in
2007 - and represent a significant drain on the economy. Foreign
direct investment has increased significantly in the past two years,
but the NAZIF government will need to continue its aggressive
pursuit of reforms in order to sustain the spike in investment and
growth and begin to improve economic conditions for the broader
population. Egypt's export sectors - particularly natural gas - have
bright prospects.

El Salvador
The smallest country in Central America, El Salvador has
the third largest economy, but growth has been modest in recent
years. Robust growth in non-traditional exports have offset declines
in the maquila exports, while remittances and external aid offset
the trade deficit from high oil prices and strong import demand for
consumer and intermediate goods. El Salvador leads the region in
remittances per capita with inflows equivalent to nearly all export
income. Implementation in 2006 of the Central America-Dominican
Republic Free Trade Agreement (CAFTA), which El Salvador was the
first to ratify, has strengthened an already positive export trend.
With the adoption of the US dollar as its currency in 2001, El
Salvador lost control over monetary policy and must concentrate on
maintaining a disciplined fiscal policy. The current government has
pursued economic diversification, with some success in promoting
textile production, international port services, and tourism through
tax incentives. It is committed to opening the economy to trade and
investment, and has embarked on a wave of privatizations extending
to telecom, electricity distribution, banking, and pension funds. In
late 2006, the government and the Millennium Challenge Corporation
signed a five-year, $461 million compact to stimulate economic
growth and reduce poverty in the country's northern region through
investments in education, public services, enterprise development,
and transportation infrastructure.

Equatorial Guinea
The discovery and exploitation of large oil
reserves have contributed to dramatic economic growth in recent
years. Forestry, farming, and fishing are also major components of
GDP. Subsistence farming predominates. Although pre-independence
Equatorial Guinea counted on cocoa production for hard currency
earnings, the neglect of the rural economy under successive regimes
has diminished potential for agriculture-led growth (the government
has stated its intention to reinvest some oil revenue into
agriculture). A number of aid programs sponsored by the World Bank
and the IMF have been cut off since 1993, because of corruption and
mismanagement. No longer eligible for concessional financing because
of large oil revenues, the government has been trying to agree on a
"shadow" fiscal management program with the World Bank and IMF.
Government officials and their family members own most businesses.
Undeveloped natural resources include titanium, iron ore, manganese,
uranium, and alluvial gold. Growth remained strong in 2007, led by
oil.

Eritrea
Since independence from Ethiopia in 1993, Eritrea has faced
the economic problems of a small, desperately poor country,
accentuated by the recent implementation of restrictive economic
policies. Eritrea has a command economy under the control of the
sole political party, the People's Front for Democracy and Justice
(PFDJ). Like the economies of many African nations, the economy is
largely based on subsistence agriculture, with 80% of the population
involved in farming and herding. The Ethiopian-Eritrea war in
1998-2000 severely hurt Eritrea's economy. GDP growth fell to zero
in 1999 and to -12.1% in 2000. The May 2000 Ethiopian offensive into
northern Eritrea caused some $600 million in property damage and
loss, including losses of $225 million in livestock and 55,000
homes. The attack prevented planting of crops in Eritrea's most
productive region, causing food production to drop by 62%. Even
during the war, Eritrea developed its transportation infrastructure,
asphalting new roads, improving its ports, and repairing war-damaged
roads and bridges. Since the war ended, the government has
maintained a firm grip on the economy, expanding the use of the
military and party-owned businesses to complete Eritrea's
development agenda. The government strictly controls the use of
foreign currency, limiting access and availability. Few private
enterprises remain in Eritrea. Eritrea's economy is heavily
dependent on taxes paid by members of the diaspora. Erratic rainfall
and the delayed demobilization of agriculturalists from the military
continue to interfere with agricultural production, and Eritrea's
recent harvests have not been able to meet the food needs of the
country. The government continues to place its hope for additional
revenue on the development of several international mining projects.
Despite difficulties for international companies in working with the
Eritrean government, a Canadian mining company signed a contract
with the GSE in 2007 and plans to begin mineral extraction in 2010.
Eritrea also anticipates opening a free trade zone at the port of
Massawa in 2008. Eritrea's economic future depends upon its ability
to master social problems such as illiteracy, unemployment, and low
skills, and more importantly, on the government's willingness to
support a true market economy.

Estonia
Estonia, a 2004 European Union entrant, has a modern
market-based economy and one of the highest per capita income levels
in Central Europe. The economy benefits from strong electronics and
telecommunications sectors and strong trade ties with Finland,
Sweden, and Germany. The current government has pursued relatively
sound fiscal policies, resulting in balanced budgets and low public
debt. In 2007, however, a large current account deficit and rising
inflation put pressure on Estonia's currency, which is pegged to the
euro, highlighting the need for growth in export-generating
industries.

Ethiopia
Ethiopia's poverty-stricken economy is based on
agriculture, accounting for almost half of GDP, 60% of exports, and
80% of total employment. The agricultural sector suffers from
frequent drought and poor cultivation practices. Coffee is critical
to the Ethiopian economy with exports of some $350 million in 2006,
but historically low prices have seen many farmers switching to qat
to supplement income. The war with Eritrea in 1998-2000 and
recurrent drought have buffeted the economy, in particular coffee
production. In November 2001, Ethiopia qualified for debt relief
from the Highly Indebted Poor Countries (HIPC) initiative, and in
December 2005 the IMF voted to forgive Ethiopia's debt to the body.
Under Ethiopia's constitution, the state owns all land and provides
long-term leases to the tenants; the system continues to hamper
growth in the industrial sector as entrepreneurs are unable to use
land as collateral for loans. Drought struck again late in 2002,
leading to a 3.3% decline in GDP in 2003. Normal weather patterns
helped agricultural and GDP growth recover during 2004-07.

European Union
Internally, the EU is attempting to lower trade
barriers, adopt a common currency, and move toward convergence of
living standards. Internationally, the EU aims to bolster Europe's
trade position and its political and economic power. Because of the
great differences in per capita income among member states (from
$7,000 to $69,000) and historic national animosities, the EU faces
difficulties in devising and enforcing common policies. For example,
since 2003 Germany and France have flouted the member states' treaty
obligation to prevent their national budgets from running more than
a 3% deficit. In 2004 and 2007, the EU admitted 10 and two
countries, respectively, that are, in general, less advanced
technologically and economically than the other 15. Eleven
established EU member states introduced the euro as their common
currency on 1 January 1999 (Greece did so two years later), but the
UK, Sweden, and Denmark chose not to participate. Of the 12 most
recent member states, only Slovenia (1 January 2007) and Cyprus and
Malta (1 January 2008) have adopted the euro; the remaining nine are
legally required to adopt the currency upon meeting EU's fiscal and
monetary convergence criteria.

Falkland Islands (Islas Malvinas)
The economy was formerly based on
agriculture, mainly sheep farming, but today fishing contributes the
bulk of economic activity. In 1987, the government began selling
fishing licenses to foreign trawlers operating within the Falkland
Islands' exclusive fishing zone. These license fees total more than
$40 million per year, which help support the island's health,
education, and welfare system. Squid accounts for 75% of the fish
taken. Dairy farming supports domestic consumption; crops furnish
winter fodder. Exports feature shipments of high-grade wool to the
UK and the sale of postage stamps and coins. The islands are now
self-financing except for defense. The British Geological Survey
announced a 200-mile oil exploration zone around the islands in
1993, and early seismic surveys suggest substantial reserves capable
of producing 500,000 barrels per day; to date, no exploitable site
has been identified. An agreement between Argentina and the UK in
1995 seeks to defuse licensing and sovereignty conflicts that would
dampen foreign interest in exploiting potential oil reserves.
Tourism, especially eco-tourism, is increasing rapidly, with about
30,000 visitors in 2001. Another large source of income is interest
paid on money the government has in the bank. The British military
presence also provides a sizeable economic boost.

Faroe Islands
The Faroese economy is dependent on fishing, which
makes the economy vulnerable to price swings. Since 2003 the Faroese
economy has picked up as a result of higher prices for fish and for
housing. Unemployment is minimal and government finances are
relatively sound. Oil finds close to the Islands give hope for
economically recoverable deposits, which could eventually lay the
basis for a more diversified economy and lessen dependence on Danish
economic assistance. Aided by a substantial annual subsidy (about
15% of GDP) from Denmark, the Faroese have a standard of living not
far below the Danes and other Scandinavians.

Fiji
Fiji, endowed with forest, mineral, and fish resources, is one
of the most developed of the Pacific island economies, though still
with a large subsistence sector. Sugar exports, remittances from
Fijians working abroad, and a growing tourist industry - with
400,000 to 500,000 tourists annually - are the major sources of
foreign exchange. Fiji's sugar has special access to European Union
markets, but will be harmed by the EU's decision to cut sugar
subsidies. Sugar processing makes up one-third of industrial
activity but is not efficient. Fiji's tourism industry was damaged
by the December 2006 coup and is facing an uncertain recovery time.
The coup has created a difficult business climate. Tourist arrivals
for 2007 are estimated to be down almost 6%, with substantial job
losses in the service sector. In July 2007 the Reserve Bank of Fiji
announced the economy was expected to contract by 3.1% in 2007.
Fiji's current account deficit reached 23% of GDP in 2006. The EU
has suspended all aid until the interim government takes steps
toward new elections. Long-term problems include low investment,
uncertain land ownership rights, and the government's inability to
manage its budget. Overseas remittances from Fijians working in
Kuwait and Iraq have decreased significantly.

Finland
Finland has a highly industrialized, largely free-market
economy with per capita output roughly that of the UK, France,
Germany, and Italy. Its key economic sector is manufacturing -
principally the wood, metals, engineering, telecommunications, and
electronics industries. Trade is important; exports equal nearly
two-fifths of GDP. Finland excels in high-tech exports, e.g., mobile
phones. Except for timber and several minerals, Finland depends on
imports of raw materials, energy, and some components for
manufactured goods. Because of the climate, agricultural development
is limited to maintaining self-sufficiency in basic products.
Forestry, an important export earner, provides a secondary
occupation for the rural population. High unemployment remains a
persistent problem. In 2007 Russia announced plans to impose high
tariffs on raw timber exported to Finland. The Finnish pulp and
paper industry will be threatened if these duties are put into place
in 2008 and 2009, and the matter is now being handled by the
European Union.

France
France is in the midst of transition from a well-to-do modern
economy that has featured extensive government ownership and
intervention to one that relies more on market mechanisms. The
government has partially or fully privatized many large companies,
banks, and insurers, and has ceded stakes in such leading firms as
Air France, France Telecom, Renault, and Thales. It maintains a
strong presence in some sectors, particularly power, public
transport, and defense industries. The telecommunications sector is
gradually being opened to competition. France's leaders remain
committed to a capitalism in which they maintain social equity by
means of laws, tax policies, and social spending that reduce income
disparity and the impact of free markets on public health and
welfare. Widespread opposition to labor reform has in recent years
hampered the government's ability to revitalize the economy. In
2007, the government launched divisive labor reform efforts that
will continue into 2008. France's tax burden remains one of the
highest in Europe (nearly 50% of GDP in 2005). France brought the
budget deficit within the eurozone's 3%-of-GDP limit for the first
time in 2007 and has reduced unemployment to roughly 8%. With at
least 75 million foreign tourists per year, France is the most
visited country in the world and maintains the third largest income
in the world from tourism.

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

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