Chapter CXVII: Part 117

Gabon
Gabon enjoys a per capita income four times that of most of
sub-Saharan African nations. but because of high income inequality,
a large proportion of the population remains poor. Gabon depended on
timber and manganese until oil was discovered offshore in the early
1970s. The oil sector now accounts for 50% of GDP. Gabon continues
to face fluctuating prices for its oil, timber, and manganese
exports. Despite the abundance of natural wealth, poor fiscal
management hobbles the economy. The devaluation of the CFA franc -
its currency - by 50% in January 1994 sparked a one-time
inflationary surge, to 35%; the rate dropped to 6% in 1996. The IMF
provided a one-year standby arrangement in 1994-95, a three-year
Enhanced Financing Facility (EFF) at near commercial rates beginning
in late 1995, and stand-by credit of $119 million in October 2000.
Those agreements mandated progress in privatization and fiscal
discipline. France provided additional financial support in January
1997 after Gabon met IMF targets for mid-1996. In 1997, an IMF
mission to Gabon criticized the government for overspending on
off-budget items, overborrowing from the central bank, and slipping
on its schedule for privatization and administrative reform. The
rebound of oil prices since 1999 have helped growth, but drops in
production have hampered Gabon from fully realizing potential gains,
and will continue to temper the gains for most of this decade. In
December 2000, Gabon signed a new agreement with the Paris Club to
reschedule its official debt. A follow-up bilateral repayment
agreement with the US was signed in December 2001. Gabon signed a
14-month Stand-By Arrangement with the IMF in May 2004, and received
Paris Club debt rescheduling later that year. Short-term progress
depends on an upbeat world economy and fiscal and other adjustments
in line with IMF policies.

Gambia, The
The Gambia has no confirmed mineral or natural resource
deposits and has a limited agricultural base. About 75% of the
population depends on crops and livestock for its livelihood.
Small-scale manufacturing activity features the processing of
peanuts, fish, and hides. Reexport trade normally constitutes a
major segment of economic activity, but a 1999 government-imposed
preshipment inspection plan, and instability of the Gambian dalasi
(currency) have drawn some of the reexport trade away from The
Gambia. The Gambia's natural beauty and proximity to Europe has made
it one of the larger markets for tourism in West Africa. The
government's 1998 seizure of the private peanut firm Alimenta
eliminated the largest purchaser of Gambian groundnuts. Despite an
announced program to begin privatizing key parastatals, no plans
have been made public that would indicate that the government
intends to follow through on its promises. Unemployment and
underemployment rates remain extremely high; short-run economic
progress depends on sustained bilateral and multilateral aid, on
responsible government economic management, on continued technical
assistance from the IMF and bilateral donors, and on expected growth
in the construction sector.

Gaza Strip
High population density, limited land access, and strict
internal and external security controls have kept economic
conditions in the Gaza Strip - the smaller of the two areas under
the Palestinian Authority (PA)- even more degraded than in the West
Bank. The beginning of the second intifada in September 2000 sparked
an economic downturn, largely the result of Israeli closure
policies; these policies, which were imposed to address security
concerns in Israel, disrupted labor and trade access to and from the
Gaza Strip. In 2001, and even more severely in 2003, Israeli
military measures in PA areas resulted in the destruction of
capital, the disruption of administrative structures, and widespread
business closures. The Israeli withdrawal from the Gaza Strip in
September 2005 offered some medium-term opportunities for economic
growth, but continued Israeli-imposed crossings closures, which
became more restrictive after Hamas violently took over the
territory in June 2007, have resulted in widespread private sector
layoffs and shortages of most goods.

Georgia
Georgia's economy has sustained robust GDP growth of close
to 10% in 2006 and 12% in 2007, based on strong inflows of foreign
investment and robust government spending. However, a widening trade
deficit and higher inflation are emerging risks to the economy.
Areas of recent improvement include increasing foreign direct
investment as well as growth in the construction, banking services
and mining sectors. Georgia's main economic activities include the
cultivation of agricultural products such as grapes, citrus fruits,
and hazelnuts; mining of manganese and copper; and output of a small
industrial sector producing alcoholic and nonalcoholic beverages,
metals, machinery, aircraft and chemicals. The country imports
nearly all its needed supplies of natural gas and oil products. It
has sizeable hydropower capacity, a growing component of its energy
supplies. Despite the severe damage the economy suffered due to
civil strife in the 1990s, Georgia, with the help of the IMF and
World Bank, has made substantial economic gains since 2000,
achieving positive GDP growth and curtailing inflation. Georgia's
GDP growth neared 10% in 2006 and 2007 despite restrictions on
commerce with Russia. Areas of recent improvement include increased
foreign direct investment as well as growth in the construction,
banking services, and mining sectors. In addition, the reinvigorated
privatization process has met with success. However, a widening
trade deficit and higher inflation are emerging risks to the
economy. Georgia has suffered from a chronic failure to collect tax
revenues; however, the new government is making progress and has
reformed the tax code, improved tax administration, increased tax
enforcement, and cracked down on corruption. Government revenues
have increased nearly four fold since 2003. Due to improvements in
customs and financial (tax) enforcement, smuggling is a declining
problem. Georgia has overcome the chronic energy shortages of the
past by renovating hydropower plants and by bringing newly available
natural gas supplies from Azerbaijan. It also has an increased
ability to pay for more expensive gas imports from Russia. The
country is pinning its hopes for long-term growth on a determined
effort to reduce regulation, taxes and corruption in order to
attract foreign investment. The construction on the
Baku-T'bilisi-Ceyhan oil pipeline, the Baku-T'bilisi-Erzerum gas
pipeline, and the Kars-Akhalkalaki Railroad are part of a strategy
to capitalize on Georgia's strategic location between Europe and
Asia and develop its role as a transit point for gas, oil and other
goods.

Germany
Germany's affluent and technologically powerful economy -
the fifth largest in the world in PPP terms - showed considerable
improvement in 2007 with 2.6% growth. After a long period of
stagnation with an average growth rate of 0.7% between 2001-05 and
chronically high unemployment, stronger growth led to a considerable
fall in unemployment to about 8% near the end of 2007. Among the
most important reasons for Germany's high unemployment during the
past decade were macroeconomic stagnation, the declining level of
investment in plant and equipment, company restructuring, flat
domestic consumption, structural rigidities in the labor market,
lack of competition in the service sector, and high interest rates.
The modernization and integration of the eastern German economy
continues to be a costly long-term process, with annual transfers
from west to east amounting to roughly $80 billion. The former
government of Chancellor Gerhard SCHROEDER launched a comprehensive
set of reforms of labor market and welfare-related institutions. The
current government of Chancellor Angela MERKEL has initiated other
reform measures, such as a gradual increase in the mandatory
retirement age from 65 to 67 and measures to increase female
participation in the labor market. Germany's aging population,
combined with high chronic unemployment, has pushed social security
outlays to a level exceeding contributions, but higher government
revenues from the cyclical upturn in 2006-07 and a 3% rise in the
value-added tax pushed Germany's budget deficit well below the EU's
3% debt limit. Corporate restructuring and growing capital markets
are setting the foundations that could help Germany meet the
long-term challenges of European economic integration and
globalization, although some economists continue to argue the need
for change in inflexible labor and services markets. Growth may fall
below 2% in 2008 as the strong euro, high oil prices, tighter credit
markets, and slowing growth abroad take their toll.

Ghana
Well endowed with natural resources, Ghana has roughly twice
the per capita output of the poorest countries in West Africa. Even
so, Ghana remains heavily dependent on international financial and
technical assistance. Gold and cocoa production, and individual
remittances, are major sources of foreign exchange. The domestic
economy continues to revolve around agriculture, which accounts for
about 35% of GDP and employs about 55% of the work force, mainly
small landholders. Ghana opted for debt relief under the Heavily
Indebted Poor Country (HIPC) program in 2002, and is also benefiting
from the Multilateral Debt Relief Initiative that took effect in
2006. Thematic priorities under its current Growth and Poverty
Reduction Strategy, which also provides the framework for
development partner assistance, are: macroeconomic stability;
private sector competitiveness; human resource development; and good
governance and civic responsibility. Sound macro-economic management
along with high prices for gold and cocoa helped sustain GDP growth
in 2007. Ghana signed a Millennium Challenge Corporation (MCC)
Compact in 2006, which aims to assist in transforming Ghana's
agricultural sector.

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

Greece
Greece has a capitalist economy with the public sector
accounting for about 40% of GDP and with per capita GDP at least 75%
of the leading euro-zone economies. Tourism provides 15% of GDP.
Immigrants make up nearly one-fifth of the work force, mainly in
agricultural and unskilled jobs. Greece is a major beneficiary of EU
aid, equal to about 3.3% of annual GDP. The Greek economy grew by
nearly 4.0% per year between 2003 and 2007, due partly to
infrastructural spending related to the 2004 Athens Olympic Games,
and in part to an increased availability of credit, which has
sustained record levels of consumer spending. Greece violated the
EU's Growth and Stability Pact budget deficit criteria of no more
than 3% of GDP from 2001 to 2006, but finally met that criteria in
2007. Public debt, inflation, and unemployment are above the
euro-zone average, but are falling. The Greek Government continues
to grapple with cutting government spending, reducing the size of
the public sector, and reforming the labor and pension systems, in
the face of often vocal opposition from the country's powerful labor
unions and the general public. The economy remains an important
domestic political issue in Greece and, while the ruling New
Democracy government has had some success in improving economic
growth and reducing the budget deficit, Athens faces long-term
challenges in its effort to continue its economic reforms,
especially social security reform and privatization.

Greenland
The economy remains critically dependent on exports of
fish and a substantial subsidy from the Danish Government, which
supplies about half of government revenues. The public sector,
including publicly owned enterprises and the municipalities, plays
the dominant role in the economy. Several interesting hydrocarbon
and mineral exploration activities are ongoing. Press reports in
early 2007 indicated that two international aluminum companies were
considering building smelters in Greenland to take advantage of
local hydropower potential. Tourism is the only sector offering any
near-term potential, and even this is limited due to a short season
and high costs. Air Greenland began summer-season direct flights to
the US east coast in May 2007, potentially opening a major new
tourism market.

Grenada
Grenada relies on tourism as its main source of foreign
exchange, especially since the construction of an international
airport in 1985. Strong performances in construction and
manufacturing, together with the development of an offshore
financial industry, have also contributed to growth in national
output. Grenada has rebounded from the devastating effects of
Hurricanes Ivan (2004) and Emily (2005), but is now saddled with the
debt burden from the rebuilding process. The agricultural sector,
particularly nutmeg and cocoa cultivation, has gradually recovered,
and the tourism sector has seen substantial increases in foreign
direct investment as the regional share of the tourism market
increases.

Guam
The economy depends largely on US military spending and
tourism. Total US grants, wage payments, and procurement outlays
amounted to $1.3 billion in 2004. Over the past 30 years, the
tourist industry has grown to become the largest income source
following national defense. The Guam economy continues to experience
expansion in both its tourism and military sectors.

Guatemala
Guatemala is the most populous of the Central American
countries with a GDP per capita roughly one-half that of Argentina,
Brazil, and Chile. The agricultural sector accounts for about
one-tenth of GDP, two-fifths of exports, and half of the labor
force. Coffee, sugar, and bananas are the main products, with sugar
exports benefiting from increased global demand for ethanol. The
1996 signing of peace accords, which ended 36 years of civil war,
removed a major obstacle to foreign investment, and Guatemala since
then has pursued important reforms and macroeconomic stabilization.
On 1 July 2006, the Central American Free Trade Agreement (CAFTA)
entered into force between the US and Guatemala and has since
spurred increased investment in the export sector. The distribution
of income remains highly unequal with about 56% of the population
below the poverty line. Other ongoing challenges include increasing
government revenues, negotiating further assistance from
international donors, upgrading both government and private
financial operations, curtailing drug trafficking and rampant crime,
and narrowing the trade deficit. Given Guatemala's large expatriate
community in the United States, it is the top remittance recipient
in Central America, with inflows serving as a primary source of
foreign income equivalent to nearly two-thirds of exports.

Guernsey
Financial services - banking, fund management, insurance -
account for about 23% of employment and about 55% of total income in
this tiny, prosperous Channel Island economy. Tourism,
manufacturing, and horticulture, mainly tomatoes and cut flowers,
have been declining. Financial services, construction, retail, and
the public sector have been growing. Light tax and death duties make
Guernsey a popular tax haven. The evolving economic integration of
the EU nations is changing the environment under which Guernsey
operates.

Guinea
Guinea possesses major mineral, hydropower, and agricultural
resources, yet remains an underdeveloped nation. The country has
almost half of the world's bauxite reserves and is the
second-largest bauxite producer. The mining sector accounts for over
70% of exports. Long-run improvements in government fiscal
arrangements, literacy, and the legal framework are needed if the
country is to move out of poverty. Investor confidence has been
sapped by rampant corruption, a lack of electricity and other
infrastructure, a lack of skilled workers, and the political
uncertainty due to the failing health of President Lansana CONTE.
Guinea is trying to reengage with the IMF and World Bank, which cut
off most assistance in 2003, and is working closely with technical
advisors from the U.S. Treasury Department, the World Bank and IMF,
seeking to return to a fully funded program. Growth rose slightly in
2006-07, primarily due to increases in global demand and commodity
prices on world markets, but the standard of living fell. The Guinea
franc depreciated sharply as the prices for basic necessities like
food and fuel rose beyond the reach of most Guineans.
Dissatisfaction with economic conditions prompted nationwide strikes
in February and June 2006.

Guinea-Bissau
One of the five poorest countries in the world,
Guinea-Bissau depends mainly on farming and fishing. Cashew crops
have increased remarkably in recent years, and the country now ranks
sixth in cashew production. Guinea-Bissau exports fish and seafood
along with small amounts of peanuts, palm kernels, and timber. Rice
is the major crop and staple food. However, intermittent fighting
between Senegalese-backed government troops and a military junta
destroyed much of the country's infrastructure and caused widespread
damage to the economy in 1998; the civil war led to a 28% drop in
GDP that year, with partial recovery in 1999-2002. Before the war,
trade reform and price liberalization were the most successful part
of the country's structural adjustment program under IMF
sponsorship. The tightening of monetary policy and the development
of the private sector had also begun to reinvigorate the economy.
Because of high costs, the development of petroleum, phosphate, and
other mineral resources is not a near-term prospect. Offshore oil
prospecting is underway in several sectors but has not yet led to
commercially viable crude deposits. The inequality of income
distribution is one of the most extreme in the world. The government
and international donors continue to work out plans to forward
economic development from a lamentably low base. In December 2003,
the World Bank, IMF, and UNDP were forced to step in to provide
emergency budgetary support in the amount of $107 million for 2004,
representing over 80% of the total national budget. Government drift
and indecision, however, resulted in continued low growth in
2002-06. Higher raw material prices boosted growth to 3.7% in 2007.

Guyana
The Guyanese economy exhibited moderate economic growth in
2001-07, based on expansion in the agricultural and mining sectors,
a more favorable atmosphere for business initiatives, a more
realistic exchange rate, fairly low inflation, and the continued
support of international organizations. Economic recovery since the
2005 flood-related contraction has been buoyed by increases in
remittances and foreign direct investment. Chronic problems include
a shortage of skilled labor and a deficient infrastructure. The
government is juggling a sizable external debt against the urgent
need for expanded public investment. In March 2007, the
Inter-American Development Bank, Guyana's principal donor, canceled
Guyana's nearly $470 million debt, equivalent to nearly 48% of GDP.
The bauxite mining sector should benefit in the near term from
restructuring and partial privatization, and the state-owned sugar
industry will conduct efficiency increasing modernizations. Export
earnings from agriculture and mining have fallen sharply, while the
import bill has risen, driven by higher energy prices. Guyana's
entrance into the Caricom Single Market and Economy (CSME) in
January 2006 will broaden the country's export market, primarily in
the raw materials sector.

Haiti
Haiti is the poorest country in the Western Hemisphere, with
80% of the population living under the poverty line and 54% in
abject poverty. Two-thirds of all Haitians depend on the
agricultural sector, mainly small-scale subsistence farming, and
remain vulnerable to damage from frequent natural disasters,
exacerbated by the country's widespread deforestation. A
macroeconomic program developed in 2005 with the help of the
International Monetary Fund helped the economy grow 3.5% in 2007,
the highest growth rate since 1999. US economic engagement under the
Haitian Hemispheric Opportunity through Partnership Encouragement
(HOPE) Act, passed in December 2006, has boosted the garment and
automotive parts exports and investment by providing tariff-free
access to the US. Haiti suffers from high inflation, a lack of
investment because of insecurity and limited infrastructure, and a
severe trade deficit. In 2005, Haiti paid its arrears to the World
Bank, paving the way for reengagement with the Bank. The government
relies on formal international economic assistance for fiscal
sustainability. Remittances are the primary source of foreign
exchange, equaling nearly a quarter of GDP and more than twice the
earnings from exports.

Heard Island and McDonald Islands
The islands have no indigenous
economic activity, but the Australian Government allows limited
fishing in the surrounding waters.

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

Honduras
Honduras, the second poorest country in Central America and
one of the poorest countries in the Western Hemisphere, with an
extraordinarily unequal distribution of income and massive
unemployment, is banking on expanded trade under the US-Central
America Free Trade Agreement (CAFTA) and on debt relief under the
Heavily Indebted Poor Countries (HIPC) initiative. Despite
improvements in tax collections, the government's fiscal deficit is
growing due to increases in current expenditures and financial
losses from the state energy and telephone companies. Honduras is
the fastest growing remittance destination in the region with
inflows representing over a quarter of GDP, equivalent to nearly
three-quarters of exports. The economy relies heavily on a narrow
range of exports, notably bananas and coffee, making it vulnerable
to natural disasters and shifts in commodity prices, however,
investments in the maquila and non-traditional export sectors are
slowly diversifying the economy. Growth remains dependent on the
economy of the US, its largest trading partner, and on reduction of
the high crime rate, as a means of attracting and maintaining
investment.

Hong Kong
Hong Kong has a free market economy highly dependent on
international trade. In 2006, the total value of goods and services
trade, including the sizable share of reexports, was equivalent to
400% of GDP. The territory has become increasingly integrated with
mainland China over the past few years through trade, tourism, and
financial links. The mainland has long been Hong Kong's largest
trading partner, accounting for 46% of Hong Kong's total trade by
value in 2006. As a result of China's easing of travel restrictions,
the number of mainland tourists to the territory has surged from 4.5
million in 2001 to 13.6 million in 2006, when they outnumbered
visitors from all other countries combined. Hong Kong has also
established itself as the premier stock market for Chinese firms
seeking to list abroad. Bolstered by several successful initial
public offerings in early 2007, by September 2007 mainland companies
accounted for one-third of the firms listed on the Hong Kong Stock
Exchange, and more than half of the Exchange's market
capitalization. During the past decade, as Hong Kong's manufacturing
industry moved to the mainland, its service industry has grown
rapidly and now accounts for 91% of the territory's GDP. Hong Kong's
natural resources are limited, and food and raw materials must be
imported. GDP growth averaged a strong 5% from 1989 to 2007, despite
the economy suffering two recessions during the Asian financial
crisis in 1997-98 and the global downturn in 2001-02. Hong Kong
continues to link its currency closely to the US dollar, maintaining
an arrangement established in 1983.

Hungary
Hungary has made the transition from a centrally planned to
a market economy, with a per capita income nearly two-thirds that of
the EU-25 average. The private sector accounts for more than 80% of
GDP. Foreign ownership of and investment in Hungarian firms are
widespread, with cumulative foreign direct investment totaling more
than $60 billion since 1989. Hungary issues investment-grade
sovereign debt. International observers, however, have expressed
concerns over Hungary's fiscal and current account deficits. In
2007, Hungary eliminated a trade deficit that had persisted for
several years. Inflation declined from 14% in 1998 to a low of 3.7%
in 2006, but jumped to 7.8% in 2007. Unemployment has persisted
above 6%. Hungary's labor force participation rate of 57% is one of
the lowest in the Organization for Economic Cooperation and
Development (OECD). Germany is by far Hungary's largest economic
partner. Policy challenges include cutting the public sector deficit
to 4% of GDP by 2008, from about 6% in 2007. The government's
austerity program of tax hikes and subsidy cuts has reduced
Hungary's large budget deficit, but the reforms have dampened
domestic consumption, slowing GDP growth to about 2% in 2007. The
government will need to pass additional reforms to ensure the
long-term stability of public finances. The government plans to
eventually lower its public sector deficit to below 3% of GDP to
adopt the euro.

Iceland
Iceland's Scandinavian-type economy is basically
capitalistic, yet with an extensive welfare system (including
generous housing subsidies), low unemployment, and remarkably even
distribution of income. In the absence of other natural resources
(except for abundant geothermal power), the economy depends heavily
on the fishing industry, which provides 70% of export earnings and
employs 6% of the work force. The economy remains sensitive to
declining fish stocks as well as to fluctuations in world prices for
its main exports: fish and fish products, aluminum, and
ferrosilicon. Substantial foreign investment in the aluminum and
hydropower sectors has boosted economic growth which, nevertheless,
has been volatile and characterized by recurrent imbalances.
Government policies include reducing the current account deficit,
limiting foreign borrowing, containing inflation, revising
agricultural and fishing policies, and diversifying the economy. The
government remains opposed to EU membership, primarily because of
Icelanders' concern about losing control over their fishing
resources. Iceland's economy has been diversifying into
manufacturing and service industries in the last decade, and new
developments in software production, biotechnology, and financial
services are taking place. The tourism sector is also expanding,
with the recent trends in ecotourism and whale watching. The 2006
closure of the US military base at Keflavik had very little impact
on the national economy; Iceland's low unemployment rate aided
former base employees in finding alternate employment.

India
India's diverse economy encompasses traditional village
farming, modern agriculture, handicrafts, a wide range of modern
industries, and a multitude of services. Services are the major
source of economic growth, accounting for more than half of India's
output with less than one third of its labor force. About
three-fifths of the work force is in agriculture, leading the United
Progressive Alliance (UPA) government to articulate an economic
reform program that includes developing basic infrastructure to
improve the lives of the rural poor and boost economic performance.
The government has reduced controls on foreign trade and investment.
Higher limits on foreign direct investment were permitted in a few
key sectors, such as telecommunications. However, tariff spikes in
sensitive categories, including agriculture, and incremental
progress on economic reforms still hinder foreign access to India's
vast and growing market. Privatization of government-owned
industries remains stalled and continues to generate political
debate; populist pressure from within the UPA government and from
its Left Front allies continues to restrain needed initiatives. The
economy has posted an average growth rate of more than 7% in the
decade since 1997, reducing poverty by about 10 percentage points.
India achieved 8.5% GDP growth in 2006, and again in 2007,
significantly expanding production of manufactures. India is
capitalizing on its large numbers of well-educated people skilled in
the English language to become a major exporter of software services
and software workers. Economic expansion has helped New Delhi
continue to make progress in reducing its federal fiscal deficit.
However, strong growth combined with easy consumer credit and a real
estate boom fueled inflation concerns in 2006 and 2007, leading to a
series of central bank interest rate hikes that have slowed credit
growth and eased inflation concerns. The huge and growing population
is the fundamental social, economic, and environmental problem.

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

Indonesia
Indonesia, a vast polyglot nation, has been undergoing
significant economic reforms under President YUDHOYONO. Indonesia's
debt-to-GDP ratio has been declining steadily, its foreign exchange
reserves are at an all-time high of over $50 billion, and its stock
market has been one of the three best performers in the world in
2006 and 2007, as global investors sought out higher returns in
emerging markets. The government has introduced significant reforms
in the financial sector, including tax and customs reforms, the
introduction of Treasury bills, and improved capital market
supervision. Indonesia's new investment law, passed in March 2007,
seeks to address some of the concerns of foreign and domestic
investors. Indonesia still struggles with poverty and unemployment,
inadequate infrastructure, corruption, a complex regulatory
environment, and unequal resource distribution among regions.
Indonesia has been slow to privatize over 100 state-owned
enterprises, several of which have monopolies in key sectors. The
non-bank financial sector, including pension funds and insurance,
remains weak. Capital markets are underdeveloped. The high global
price of oil in 2007 increased the cost of domestic fuel and
electricity subsidies, and are contributing to concerns about higher
food prices. Located on the Pacific "Ring of Fire" Indonesia remains
vulnerable to volcanic and tectonic disasters. Significant progress
has been made in rebuilding Aceh after the devastating December 2004
tsunami, and the province now shows more economic activity than
before the disaster. Unfortunately, Indonesia suffered new disasters
in 2006 and early 2007 including: a major earthquake near
Yogyakarta, an industrial accident in Sidoarjo, East Java that
created a "mud volcano," a tsunami in South Java, and major flooding
in Jakarta, all of which caused additional damages in the billions
of dollars. Donors are assisting Indonesia with its disaster
mitigation and early warning efforts.

Iran
Iran's economy is marked by an inefficient state sector,
reliance on the oil sector (which provides 85% of government
revenues), and statist policies that create major distortions
throughout. Most economic activity is controlled by the state.
Private sector activity is typically small-scale workshops, farming,
and services. President Mahmud AHMADI-NEJAD failed to make any
notable progress in fulfilling the goals of the nation's latest
five-year plan. A combination of price controls and subsidies,
particularly on food and energy, continue to weigh down the economy,
and administrative controls, widespread corruption, and other
rigidities undermine the potential for private-sector-led growth. As
a result of these inefficiencies, significant informal market
activity flourishes and shortages are common. High oil prices in
recent years have enabled Iran to amass nearly $70 billion in
foreign exchange reserves. Yet this increased revenue has not eased
economic hardships, which include double-digit unemployment and
inflation - inflation climbed to 26% as of June 2008. The economy
has seen only moderate growth. Iran's educated population, economic
inefficiency and insufficient investment - both foreign and domestic
- have prompted an increasing number of Iranians to seek employment
overseas, resulting in significant "brain drain."

Iraq
Iraq's economy is dominated by the oil sector, which has
traditionally provided about 95% of foreign exchange earnings.
Although looting, insurgent attacks, and sabotage have undermined
economy rebuilding efforts, economic activity is beginning to pick
up in areas recently secured by the US military surge. Oil exports
are around levels seen before Operation Iraqi Freedom, and total
government revenues have benefited from high oil prices. Despite
political uncertainty, Iraq is making some progress in building the
institutions needed to implement economic policy and has negotiated
a debt reduction agreement with the Paris Club and a new Stand-By
Arrangement with the IMF. Iraq has received pledges for $13.5
billion in foreign aid for 2004-07 from outside of the US, more than
$33 billion in total pledges. The International Compact with Iraq
was established in May 2007 to integrate Iraq into the regional and
global economy, and the Iraqi government is seeking to pass laws to
strengthen its economy. This legislation includes a hydrocarbon law
to establish a modern legal framework to allow Iraq to develop its
resources and a revenue sharing law to equitably divide oil revenues
within the nation, although both are still bogged down in
discussions. The Central Bank has been successful in controlling
inflation through appreciation of the dinar against the US dollar.
Reducing corruption and implementing structural reforms, such as
bank restructuring and developing the private sector, will be key to
Iraq's economic success.

Ireland
Ireland is a small, modern, trade-dependent economy with
growth averaging 6% in 1995-2007. Agriculture, once the most
important sector, is now dwarfed by industry and services. Although
the exports sector, dominated by foreign multinationals, remains a
key component of Ireland's economy, construction has most recently
fueled economic growth along with strong consumer spending and
business investment. Property prices have risen more rapidly in
Ireland in the decade up to 2006 than in any other developed world
economy. Per capita GDP is 40% above that of the four big European
economies and the second highest in the EU behind Luxembourg, and in
2007 surpassed that of the United States. The Irish Government has
implemented a series of national economic programs designed to curb
price and wage inflation, invest in infrastructure, increase labor
force skills, and promote foreign investment. A slowdown in the
property market, more intense global competition, and increased
costs, however, have compelled government economists to lower
Ireland's growth forecast slightly for 2008. Ireland joined in
circulating the euro on 1 January 2002 along with 11 other EU
nations.

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

Israel
Israel has a technologically advanced market economy with
substantial, though diminishing, government participation. It
depends on imports of crude oil, grains, raw materials, and military
equipment. Despite limited natural resources, Israel has intensively
developed its agricultural and industrial sectors over the past 20
years. Israel imports substantial quantities of grain but is largely
self-sufficient in other agricultural products. Cut diamonds,
high-technology equipment, and agricultural products (fruits and
vegetables) are the leading exports. Israel usually posts sizable
trade deficits, which are covered by large transfer payments from
abroad and by foreign loans. Roughly half of the government's
external debt is owed to the US, its major source of economic and
military aid. Israel's GDP, after contracting slightly in 2001 and
2002 due to the Palestinian conflict and troubles in the
high-technology sector, has grown by about 5% per year since 2003.
The economy grew an estimated 5.4% in 2007, the fastest pace since
2000. The government's prudent fiscal policy and structural reforms
over the past few years have helped to induce strong foreign
investment, tax revenues, and private consumption, setting the
economy on a solid growth path.

Italy
Italy has a diversified industrial economy with roughly the
same total and per capita output as France and the UK. This
capitalistic economy remains divided into a developed industrial
north, dominated by private companies, and a less-developed,
welfare-dependent, agricultural south, with 20% unemployment. Most
raw materials needed by industry and more than 75% of energy
requirements are imported. Over the past decade, Italy has pursued a
tight fiscal policy in order to meet the requirements of the
Economic and Monetary Unions and has benefited from lower interest
and inflation rates. The current government has enacted numerous
short-term reforms aimed at improving competitiveness and long-term
growth. Italy has moved slowly, however, on implementing needed
structural reforms, such as lightening the high tax burden and
overhauling Italy's rigid labor market and over-generous pension
system, because of the current economic slowdown and opposition from
labor unions. But the leadership faces a severe economic constraint:
Italy's official debt remains above 100% of GDP, and the government
has found it difficult to bring the budget deficit down to a level
that would allow a rapid decrease in that debt. The economy
continues to grow by less than the euro-zone average and growth is
expected to decelerate from 1.9% in 2006 and 2007 to under 1.5% in
2008 as the euro-zone and world economies slow.

Jamaica
The Jamaican economy is heavily dependent on services, which
now account for more than 60% of GDP. The country continues to
derive most of its foreign exchange from tourism, remittances, and
bauxite/alumina. Remittances account for nearly 20% of GDP and are
equivalent to tourism revenues. Jamaica's economy, already saddled
with a record of sluggish growth, will suffer an economic setback
from damages caused by Hurricane Dean in August 2007. The economy
faces serious long-term problems: high but declining interest rates,
increased foreign competition, exchange rate instability, a sizable
merchandise trade deficit, large-scale unemployment and
underemployment, and a debt-to-GDP ratio of 135%. Jamaica's onerous
debt burden - the fourth highest per capita - is the result of
government bailouts to ailing sectors of the economy, most notably
the financial sector in the mid-to-late 1990s. Inflation also has
declined, standing at about 7% at the end of 2007. High unemployment
exacerbates the serious crime problem, including gang violence that
is fueled by the drug trade. The GOLDING administration faces the
difficult prospect of having to achieve fiscal discipline in order
to maintain debt payments while simultaneously attacking a serious
and growing crime problem that is hampering economic growth.

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

Japan
Government-industry cooperation, a strong work ethic, mastery
of high technology, and a comparatively small defense allocation (1%
of GDP) helped Japan advance with extraordinary rapidity to the rank
of second most technologically powerful economy in the world after
the US and the third-largest economy in the world after the US and
China, measured on a purchasing power parity (PPP) basis. One
notable characteristic of the economy has been how manufacturers,
suppliers, and distributors have worked together in closely-knit
groups called keiretsu. A second basic feature has been the
guarantee of lifetime employment for a substantial portion of the
urban labor force. Both features have now eroded. Japan's industrial
sector is heavily dependent on imported raw materials and fuels. The
tiny agricultural sector is highly subsidized and protected, with
crop yields among the highest in the world. Usually self sufficient
in rice, Japan must import about 55% of its food on a caloric basis.
Japan maintains one of the world's largest fishing fleets and
accounts for nearly 15% of the global catch. For three decades,
overall real economic growth had been spectacular - a 10% average in
the 1960s, a 5% average in the 1970s, and a 4% average in the 1980s.
Growth slowed markedly in the 1990s, averaging just 1.7%, largely
because of the after effects of overinvestment and an asset price
bubble during the late 1980s that required a protracted period of
time for firms to reduce excess debt, capital, and labor. From 2000
to 2001, government efforts to revive economic growth proved short
lived and were hampered by the slowing of the US, European, and
Asian economies. In 2002-07, growth improved and the lingering fears
of deflation in prices and economic activity lessened, leading the
central bank to raise interest rates to 0.25% in July 2006, up from
the near 0% rate of the six years prior, and to 0.50% in February
2007. In addition, the 10-year privatization of Japan Post, which
has functioned not only as the national postal delivery system but
also, through its banking and insurance facilities as Japan's
largest financial institution, was completed in October 2007,
marking a major milestone in the process of structural reform.
Nevertheless, Japan's huge government debt, which totals 182% of
GDP, and the aging of the population are two major long-run
problems. Some fear that a rise in taxes could endanger the current
economic recovery. Debate also continues on the role of and effects
of reform in restructuring the economy, particularly with respect to
increasing income disparities.

Jersey
Jersey's economy is based on international financial
services, agriculture, and tourism. In 2005 the finance sector
accounted for about 50% of the island's output. Potatoes,
cauliflower, tomatoes, and especially flowers are important export
crops, shipped mostly to the UK. The Jersey breed of dairy cattle is
known worldwide and represents an important export income earner.
Milk products go to the UK and other EU countries. Tourism accounts
for one-quarter of GDP. In recent years, the government has
encouraged light industry to locate in Jersey, with the result that
an electronics industry has developed alongside the traditional
manufacturing of knitwear. All raw material and energy requirements
are imported, as well as a large share of Jersey's food needs. Light
taxes and death duties make the island a popular tax haven. Living
standards come close to those of the UK.

Jordan
Jordan is a small Arab country with insufficient supplies of
water, oil, and other natural resources. Poverty, unemployment, and
inflation are fundamental problems, but King ABDALLAH II, since
assuming the throne in 1999, has undertaken some broad economic
reforms in a long-term effort to improve living standards. Since
Jordan's graduation from its most recent IMF program in 2002, Amman
has continued to follow IMF guidelines, practicing careful monetary
policy, making substantial headway with privatization, and opening
the trade regime. Jordan's exports have significantly increased
under the free trade accord with the US and Jordanian Qualifying
Industrial Zones (QIZ), which allow Jordan to export goods duty free
to the US. In 2006, Jordan reduced its debt-to-GDP ratio
significantly. These measures have helped improve productivity and
have made Jordan more attractive for foreign investment. Before the
US-led war in Iraq, Jordan imported most of its oil from Iraq. Since
2003, however, Jordan has been more dependent on oil from other Gulf
nations. The government ended subsidies for petroleum and other
consumer goods in 2008 in an effort to control the budget. The main
challenges facing Jordan are reducing dependence on foreign grants,
reducing the budget deficit, attracting investments, and creating
jobs.

Kazakhstan
Kazakhstan, the largest of the former Soviet republics in
territory, excluding Russia, possesses enormous fossil fuel reserves
and plentiful supplies of other minerals and metals. It also has a
large agricultural sector featuring livestock and grain.
Kazakhstan's industrial sector rests on the extraction and
processing of these natural resources. The breakup of the USSR in
December 1991 and the collapse in demand for Kazakhstan's
traditional heavy industry products resulted in a short-term
contraction of the economy, with the steepest annual decline
occurring in 1994. In 1995-97, the pace of the government program of
economic reform and privatization quickened, resulting in a
substantial shifting of assets into the private sector. Kazakhstan
enjoyed double-digit growth in 2000-01 - 8% or more per year in
2002-07 - thanks largely to its booming energy sector, but also to
economic reform, good harvests, and foreign investment. Inflation,
however, jumped to more than 10% in 2007. In the energy sector, the
opening of the Caspian Consortium pipeline in 2001, from western
Kazakhstan's Tengiz oilfield to the Black Sea, substantially raised
export capacity. In 2006 Kazakhstan completed the Atasu-Alashankou
portion of an oil pipeline to China that is planned in future
construction to extend from the country's Caspian coast eastward to
the Chinese border. The country has embarked upon an industrial
policy designed to diversify the economy away from overdependence on
the oil sector by developing its manufacturing potential. The policy
aims to reduce the influence of foreign investment and foreign
personnel. The government has engaged in several disputes with
foreign oil companies over the terms of production agreements;
tensions continue. Upward pressure on the local currency continued
in 2007 due to massive oil-related foreign-exchange inflows. Aided
by strong growth and foreign exchange earnings, Kazakhstan aspires
to become a regional financial center and has created a banking
system comparable to those in Central Europe.

Kenya
The regional hub for trade and finance in East Africa, Kenya
has been hampered by corruption and by reliance upon several primary
goods whose prices have remained low. In 1997, the IMF suspended
Kenya's Enhanced Structural Adjustment Program due to the
government's failure to maintain reforms and curb corruption. A
severe drought from 1999 to 2000 compounded Kenya's problems,
causing water and energy rationing and reducing agricultural output.
As a result, GDP contracted by 0.2% in 2000. The IMF, which had
resumed loans in 2000 to help Kenya through the drought, again
halted lending in 2001 when the government failed to institute
several anticorruption measures. Despite the return of strong rains
in 2001, weak commodity prices, endemic corruption, and low
investment limited Kenya's economic growth to 1.2%. Growth lagged at
1.1% in 2002 because of erratic rains, low investor confidence,
meager donor support, and political infighting up to the elections.
In the key December 2002 elections, Daniel Arap MOI's 24-year-old
reign ended, and a new opposition government took on the formidable
economic problems facing the nation. After some early progress in
rooting out corruption and encouraging donor support, the KIBAKI
government was rocked by high-level graft scandals in 2005 and 2006.
In 2006 the World Bank and IMF delayed loans pending action by the
government on corruption. The international financial institutions
and donors have since resumed lending, despite little action on the
government's part to deal with corruption. The scandals have not
weighed down growth, with estimated real GDP growth at more than 6
percent in 2007.

Kiribati
A remote country of 33 scattered coral atolls, Kiribati has
few natural resources. Commercially viable phosphate deposits were
exhausted at the time of independence from the UK in 1979. Copra and
fish now represent the bulk of production and exports. The economy
has fluctuated widely in recent years. Economic development is
constrained by a shortage of skilled workers, weak infrastructure,
and remoteness from international markets. Tourism provides more
than one-fifth of GDP. Private sector initiatives and a financial
sector are in the early stages of development. Foreign financial aid
from UK, Japan, Australia, New Zealand, and China equals more than
10% of GDP. Remittances from seamen on merchant ships abroad account
for more than $5 million each year. Kiribati receives around $15
million annually for the government budget from an Australian trust
fund.

Korea, North
North Korea, one of the world's most centrally directed
and least open economies, faces chronic economic problems.
Industrial capital stock is nearly beyond repair as a result of
years of underinvestment and shortages of spare parts. Industrial
and power output have declined in parallel from pre-1990 levels. Due
in part to severe summer flooding followed by dry weather conditions
in the fall of 2006, the nation suffered its 13th year of food
shortages because of on-going systemic problems including a lack of
arable land, collective farming practices, and persistent shortages
of tractors and fuel. During the summer of 2007, severe flooding
again occurred. Large-scale international food aid deliveries have
allowed the people of North Korea to escape widespread starvation
since famine threatened in 1995, but the population continues to
suffer from prolonged malnutrition and poor living conditions.
Large-scale military spending draws off resources needed for
investment and civilian consumption. Since 2002, the government has
formalized an arrangement whereby private "farmers' markets" were
allowed to begin selling a wider range of goods. It also permitted
some private farming on an experimental basis in an effort to boost
agricultural output. In October 2005, the government tried to
reverse some of these policies by forbidding private sales of grains
and reinstituting a centralized food rationing system. By December
2005, the government terminated most international humanitarian
assistance operations in North Korea (calling instead for
developmental assistance only) and restricted the activities of
remaining international and non-governmental aid organizations such
as the World Food Program. External food aid now comes primarily
from China and South Korea in the form of grants and long-term
concessional loans. During the October 2007 summit, South Korea also
agreed to develop some of North Korea's infrastructure and natural
resources and light industry. Firm political control remains the
Communist government's overriding concern, which will likely inhibit
the loosening of economic regulations.

Korea, South
Since the 1960s, South Korea has achieved an incredible
record of growth and integration into the high-tech modern world
economy. Four decades ago, GDP per capita was comparable with levels
in the poorer countries of Africa and Asia. In 2004, South Korea
joined the trillion dollar club of world economies. Today its GDP
per capita is roughly the same as that of Greece and Spain. This
success was achieved by a system of close government/business ties
including directed credit, import restrictions, sponsorship of
specific industries, and a strong labor effort. The government
promoted the import of raw materials and technology at the expense
of consumer goods and encouraged savings and investment over
consumption. The Asian financial crisis of 1997-98 exposed
longstanding weaknesses in South Korea's development model including
high debt/equity ratios, massive foreign borrowing, and an
undisciplined financial sector. GDP plunged by 6.9% in 1998, then
recovered by 9.5% in 1999 and 8.5% in 2000. Growth fell back to 3.3%
in 2001 because of the slowing global economy, falling exports, and
the perception that much-needed corporate and financial reforms had
stalled. Led by consumer spending and exports, growth in 2002 was an
impressive 7%, despite anemic global growth. Between 2003 and 2007,
growth moderated to about 4-5% annually. A downturn in consumer
spending was offset by rapid export growth. Moderate inflation, low
unemployment, and an export surplus in 2007 characterize this solid
economy, but inflation and unemployment are increasing in the face
of rising oil prices.

Kosovo
Over the past few years Kosovo's economy has shown
significant progress in transitioning to a market-based system, but
it is still highly dependent on the international community and the
diaspora for financial and technical assistance. Remittances from
the diaspora - located mainly in Germany and Switzerland - account
for about 30% of GDP. Kosovo's citizens are the poorest in Europe
with an average annual per capita income of only $1800 - about
one-third the level of neighboring Albania. Unemployment - at more
than 40% of the population - is a severe problem that encourages
outward migration. Most of Kosovo's population lives in rural towns
outside of the capital, Pristina. Inefficient, near-subsistence
farming is common - the result of small plots, limited
mechanization, and lack of technical expertise. Economic growth is
largely driven by the private sector - mostly small-scale retail
businesses. With international assistance, Kosovo has been able to
privatize 50% of its state-owned enterprises (SOEs) by number, and
over 90% of SOEs by value. Minerals and metals - including lignite,
lead, zinc, nickel, chrome, aluminum, magnesium, and a wide variety
of construction materials - once formed the backbone of industry,
but output has declined because investment has been insufficient to
replace ageing Eastern Bloc equipment. Technical and financial
problems in the power sector also impedes industrial development.
The US has worked with the World Bank to prepare a commercial tender
for the development of new power generating and mining capacity. The
official currency of Kosovo is the euro, but the Serbian dinar is
also used in the Serb enclaves. Kosovo's tie to the euro has helped
keep inflation low. Kosovo has maintained a budget surplus as a
result of efficient tax collection and inefficient budget execution.
While maintaining ultimate oversight, UNMIK continues to work with
the EU and with Kosovo's government to accelerate economic growth,
lower unemployment, and attract foreign investment. In order to help
integrate Kosovo into regional economic structures, UNMIK signed (on
behalf of Kosovo) its accession to the Central Europe Free Trade
Area (CEFTA) in 2006. In February 2008, UNMIK also represented
Kosovo at the newly established Regional Cooperation Council (RCC).

Kuwait
Kuwait is a small, rich, relatively open economy with
self-reported crude oil reserves of about 104 billion barrels - 10%
of world reserves. Petroleum accounts for nearly half of GDP, 95% of
export revenues, and 80% of government income. High oil prices in
recent years have helped build Kuwait's budget and trade surpluses
and foreign reserves. As a result of this positive fiscal situation,
the need for economic reforms is less urgent and the government has
not earnestly pushed through new initiatives. Despite its vast oil
reserves, Kuwait experienced power outages during the summer months
in 2006 and 2007 because demand exceeded power generating capacity.
Power outages are likely to worsen, given its high population growth
rates, unless the government can increase generating capacity. In
May 2007 Kuwait changed its currency peg from the US dollar to a
basket of currencies in order to curb inflation and to reduce its
vulnerability to external shocks.