Chapter CXIX: Part 119

Panama
Panama's dollarized economy rests primarily on a
well-developed services sector that accounts for two-thirds of GDP.
Services include operating the Panama Canal, banking, the Colon Free
Zone, insurance, container ports, flagship registry, and tourism.
Economic growth will be bolstered by the Panama Canal expansion
project that began in 2007 and should be completed by 2014 at a cost
of $5.3 billion (about 30% of current GDP). The expansion project
will more than double the Canal's capacity, enabling it to
accommodate ships that are now too large to transverse the
transoceanic crossway and should help to reduce the high
unemployment rate. The government has implemented tax reforms, as
well as social security reforms, and backs regional trade agreements
and development of tourism. Not a CAFTA signatory, Panama in
December 2006 independently negotiated a free trade agreement with
the US, which, when implemented, will help promote the country's
economic growth.

Papua New Guinea
Papua New Guinea is richly endowed with natural
resources, but exploitation has been hampered by rugged terrain and
the high cost of developing infrastructure. Agriculture provides a
subsistence livelihood for 85% of the population. Mineral deposits,
including copper, gold, and oil, account for nearly two-thirds of
export earnings. The government of Prime Minister SOMARE has
expended much of its energy remaining in power. He was the first
prime minister ever to serve a full five-year term. The government
also brought stability to the national budget, largely through
expenditure control; however, it relaxed spending constraints in
2006 and 2007 as elections approached. Numerous challenges still
face the government including regaining investor confidence,
restoring integrity to state institutions, promoting economic
efficiency by privatizing moribund state institutions, and balancing
relations with Australia, its former colonial ruler. Other
socio-cultural challenges could upend the economy including a
worsening HIV/AIDS epidemic and chronic law and order and land
tenure issues. Australia will supply more than $300 million in aid
in FY07/08, which accounts for nearly 20% of the national budget.

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

Paraguay
Landlocked Paraguay has a market economy marked by a large
informal sector. This sector features both reexport of imported
consumer goods to neighboring countries, as well as the activities
of thousands of microenterprises and urban street vendors. Because
of the importance of the informal sector, accurate economic measures
are difficult to obtain. A large percentage of the population,
especially in rural areas, derives its living from agricultural
activity, often on a subsistence basis. On a per capita basis, real
income has stagnated at 1980 levels. Most observers attribute
Paraguay's poor economic performance to political uncertainty,
corruption, limited progress on structural reform, and deficient
infrastructure. The economy rebounded between 2003 and 2007, posting
modest growth each year, as growing world demand for commodities
combined with high prices and favorable weather to support
Paraguay's commodity-based export expansion.

Peru
Peru's economy reflects its varied geography - an arid coastal
region, the Andes further inland, and tropical lands bordering
Colombia and Brazil. Abundant mineral resources are found in the
mountainous areas, and Peru's coastal waters provide excellent
fishing grounds. However, overdependence on minerals and metals
subjects the economy to fluctuations in world prices, and a lack of
infrastructure deters trade and investment. After several years of
inconsistent economic performance, the Peruvian economy grew by more
than 4% per year during the period 2002-06, with a stable exchange
rate and low inflation. Growth jumped to 7.5% in 2007, driven by
higher world prices for minerals and metals. Risk premiums on
Peruvian bonds on secondary markets reached historically low levels
in late 2004, reflecting investor optimism regarding the
government's prudent fiscal policies and openness to trade and
investment. Despite the strong macroeconomic performance,
underemployment and poverty have stayed persistently high. Growth
prospects depend on exports of minerals, textiles, and agricultural
products, and by expectations for the Camisea natural gas
megaproject and for other promising energy projects. Upon taking
office, President GARCIA announced Sierra Exportadora, a program
aimed at promoting economic growth in Peru's southern and central
highlands.

Philippines
The Philippine economy grew at its fastest pace in three
decades with real GDP growth exceeding 7% in 2007. Higher government
spending contributed to the growth, but a resilient service sector
and large remittances from the millions of Filipinos who work abroad
have played an increasingly important role. Economic growth has
averaged 5% since President MACAPAGAL-ARROYO took office in 2001.
Nevertheless, the Philippines will need still higher, sustained
growth to make progress in alleviating poverty, given its high
population growth and unequal distribution of income.
MACAPAGAL-ARROYO averted a fiscal crisis by pushing for new revenue
measures and, until recently, tightening expenditures. Declining
fiscal deficits, tapering debt and debt service ratios, as well as
recent efforts to increase spending on infrastructure and social
services have heightened optimism over Philippine economic
prospects. Although the general macroeconomic outlook has improved
significantly, the Philippines continues to face important
challenges and must maintain the reform momentum in order to catch
up with regional competitors, improve employment opportunities, and
alleviate poverty. Longer-term fiscal stability will require more
sustainable revenue sources, rather than non-recurring revenues from
privatization.

Pitcairn Islands
The inhabitants of this tiny isolated economy exist
on fishing, subsistence farming, handicrafts, and postage stamps.
The fertile soil of the valleys produces a wide variety of fruits
and vegetables, including citrus, sugarcane, watermelons, bananas,
yams, and beans. Bartering is an important part of the economy. The
major sources of revenue are the sale of postage stamps to
collectors and the sale of handicrafts to passing ships. In October
2004, more than one-quarter of Pitcairn's small labor force was
arrested, putting the economy in a bind, since their services were
required as lighter crew to load or unload passing ships.

Poland
Poland has pursued a policy of economic liberalization since
1990 and today stands out as a success story among transition
economies. In 2007, GDP grew an estimated 6.5%, based on rising
private consumption, a jump in corporate investment, and EU funds
inflows. GDP per capita is still much below the EU average, but is
similar to that of the three Baltic states. Since 2004, EU
membership and access to EU structural funds have provided a major
boost to the economy. Unemployment is falling rapidly, though at
roughly 12.8% in 2007, it remains well above the EU average.
Tightening labor markets, and rising global energy and food prices,
pose a risk to consumer price stability. In December 2007 inflation
reached 4.1% on a year-over-year basis, or higher than the upper
limit of the National Bank of Poland's target range. Poland's
economic performance could improve further if the country addresses
some of the remaining deficiencies in its business environment. An
inefficient commercial court system, a rigid labor code,
bureaucratic red tape, and persistent low-level corruption keep the
private sector from performing up to its full potential. Rising
demands to fund health care, education, and the state pension system
present a challenge to the Polish government's effort to hold the
consolidated public sector budget deficit under 3.0% of GDP, a
target which was achieved in 2007. The PO/PSL coalition government
which came to power in November 2007 plans to further reduce the
budget deficit with the aim of eventually adopting the euro. The new
government has also announced its intention to enact
business-friendly reforms, reduce public sector spending growth,
lower taxes, and accelerate privatization. However, the government
does not have the necessary three-fifths majority needed to override
a presidential veto, and thus may have to water down initiatives in
order to garner enough support to pass its pro-business policies.

Portugal
Portugal has become a diversified and increasingly
service-based economy since joining the European Community in 1986.
Over the past two decades, successive governments have privatized
many state-controlled firms and liberalized key areas of the
economy, including the financial and telecommunications sectors. The
country qualified for the European Monetary Union (EMU) in 1998 and
began circulating the euro on 1 January 2002 along with 11 other EU
member economies. Economic growth had been above the EU average for
much of the 1990s, but fell back in 2001-07. GDP per capita stands
at roughly two-thirds of the EU-27 average. A poor educational
system, in particular, has been an obstacle to greater productivity
and growth. Portugal has been increasingly overshadowed by
lower-cost producers in Central Europe and Asia as a target for
foreign direct investment. The budget deficit surged to an all-time
high of 6% of GDP in 2005, but the government reduced the deficit to
2.6% in 2007 - a year ahead of Portugal's targeted schedule.
Nonetheless, the government faces tough choices in its attempts to
boost Portugal's economic competitiveness while keeping the budget
deficit within the eurozone's 3%-of-GDP ceiling.

Puerto Rico
Puerto Rico has one of the most dynamic economies in the
Caribbean region. A diverse industrial sector has far surpassed
agriculture as the primary locus of economic activity and income.
Encouraged by duty-free access to the US and by tax incentives, US
firms have invested heavily in Puerto Rico since the 1950s. US
minimum wage laws apply. Sugar production has lost out to dairy
production and other livestock products as the main source of income
in the agricultural sector. Tourism has traditionally been an
important source of income, with estimated arrivals of nearly 5
million tourists in 2004. Growth fell off in 2001-03, largely due to
the slowdown in the US economy, recovered in 2004-05, but declined
again in 2006-07.

Qatar
Qatar is in the midst of an economic boom supported by its
expanding production of natural gas and oil. Economic policy is
focused on development of Qatar's nonassociated natural gas reserves
and increasing private and foreign investment in non-energy sectors.
Oil and gas account for more than 60% of GDP, roughly 85% of export
earnings, and 70% of government revenues. Oil and gas have made
Qatar the highest per-capita income country and one of the world's
fastest growing. Sustained high oil prices and increased natural gas
exports in recent years have helped build Qatar's budget and trade
surpluses and foreign reserves. Proved oil reserves of more than 15
billion barrels should ensure continued output at current levels for
22 years. Qatar's proved reserves of natural gas are roughly 25
trillion cubic meters, about 15% of the world total and third
largest in the world. Qatar has permitted substantial foreign
investment in the development of its gas fields during the last
decade and became the world's top liquefied natural gas (LNG)
exporter in 2007.

Romania
Romania, which joined the European Union on 1 January 2007,
began the transition from Communism in 1989 with a largely obsolete
industrial base and a pattern of output unsuited to the country's
needs. The country emerged in 2000 from a punishing three-year
recession thanks to strong demand in EU export markets. Domestic
consumption and investment have fueled strong GDP growth in recent
years, but have led to large current account imbalances. Romania's
macroeconomic gains have only recently started to spur creation of a
middle class and address Romania's widespread poverty. Corruption
and red tape continue to handicap its business environment.
Inflation rose in 2007 for the first time in eight years, driven in
part by the depreciation of the currency, rising energy costs, a
nation-wide drought affecting food prices, and a relaxation of
fiscal discipline. Romania hopes to adopt the euro by 2014.

Russia
Russia ended 2007 with its ninth straight year of growth,
averaging 7% annually since the financial crisis of 1998. Although
high oil prices and a relatively cheap ruble initially drove this
growth, since 2003 consumer demand and, more recently, investment
have played a significant role. Over the last six years, fixed
capital investments have averaged real gains greater than 10% per
year and personal incomes have achieved real gains more than 12% per
year. During this time, poverty has declined steadily and the middle
class has continued to expand. Russia has also improved its
international financial position since the 1998 financial crisis.
The federal budget has run surpluses since 2001 and ended 2007 with
a surplus of about 3% of GDP. Over the past several years, Russia
has used its stabilization fund based on oil taxes to prepay all
Soviet-era sovereign debt to Paris Club creditors and the IMF.
Foreign debt is approximately one-third of GDP. The state component
of foreign debt has declined, but commercial debt to foreigners has
risen strongly. Oil export earnings have allowed Russia to increase
its foreign reserves from $12 billion in 1999 to some $470 billion
at yearend 2007, the third largest reserves in the world. During
President PUTIN's first administration, a number of important
reforms were implemented in the areas of tax, banking, labor, and
land codes. These achievements have raised business and investor
confidence in Russia's economic prospects, with foreign direct
investment rising from $14.6 billion in 2005 to approximately $45
billion in 2007. In 2007, Russia's GDP grew 8.1%, led by
non-tradable services and goods for the domestic market, as opposed
to oil or mineral extraction and exports. Rising inflation returned
in the second half of 2007, driven largely by unsterilized capital
inflows and by rising food costs, and approached 12% by year-end. In
2006, Russia signed a bilateral market access agreement with the US
as a prelude to possible WTO entry, and its companies are involved
in global merger and acquisition activity in the oil and gas,
metals, and telecom sectors. Despite Russia's recent success,
serious problems persist. Oil, natural gas, metals, and timber
account for more than 80% of exports and 30% of government revenues,
leaving the country vulnerable to swings in world commodity prices.
Russia's manufacturing base is dilapidated and must be replaced or
modernized if the country is to achieve broad-based economic growth.
The banking system, while increasing consumer lending and growing at
a high rate, is still small relative to the banking sectors of
Russia's emerging market peers. Political uncertainties associated
with this year's power transition, corruption, and lack of trust in
institutions continue to dampen domestic and foreign investor
sentiment. PUTIN has granted more influence to forces within his
government that desire to reassert state control over the economy.
Russia has made little progress in building the rule of law, the
bedrock of a modern market economy. The government has promised
additional legislative amendments to make its intellectual property
protection WTO-consistent, but enforcement remains problematic.

Rwanda
Rwanda is a poor rural country with about 90% of the
population engaged in (mainly subsistence) agriculture. It is the
most densely populated country in Africa and is landlocked with few
natural resources and minimal industry. Primary foreign exchange
earners are coffee and tea. The 1994 genocide decimated Rwanda's
fragile economic base, severely impoverished the population,
particularly women, and eroded the country's ability to attract
private and external investment. However, Rwanda has made
substantial progress in stabilizing and rehabilitating its economy
to pre-1994 levels, although poverty levels are higher now. GDP has
rebounded and inflation has been curbed. Despite Rwanda's fertile
ecosystem, food production often does not keep pace with population
growth, requiring food imports. Rwanda continues to receive
substantial aid money and obtained IMF-World Bank Heavily Indebted
Poor Country (HIPC) initiative debt relief in 2005-06. Rwanda also
received Millennium Challenge Account Threshold status in 2006. The
government has embraced an expansionary fiscal policy to reduce
poverty by improving education, infrastructure, and foreign and
domestic investment and pursuing market-oriented reforms, although
energy shortages, instability in neighboring states, and lack of
adequate transportation linkages to other countries continue to
handicap growth.

Saint Barthelemy
The economy of Saint Barthelemy is based upon
high-end tourism and duty-free luxury commerce, serving visitors
primarily from North America. The luxury hotels and villas host
70,000 visitors each year with another 130,000 arriving by boat. The
relative isolation and high cost of living inhibits mass tourism.
The construction and public sectors also enjoy significant
investment in support of tourism. With limited fresh water
resources, all food must be imported, as must all energy resources
and most manufactured goods. Employment is strong and attracts labor
from Brazil and Portugal.

Saint Helena
The economy depends largely on financial assistance
from the UK, which will amount to about $27 million in FY06/07 or
almost 70% of annual budgetary revenues. The local population earns
income from fishing, raising livestock, and sales of handicrafts.
Because there are few jobs, 25% of the work force has left to seek
employment on Ascension Island, on the Falklands, and in the UK.

Saint Kitts and Nevis
Sugar was the traditional mainstay of the
Saint Kitts economy until the 1970s. Following the 2005 harvest, the
government closed the sugar industry after decades of losses of 3-4%
of GDP annually. To compensate for employment losses, the government
has embarked on a program to diversify the agricultural sector and
to stimulate other sectors of the economy. Activities such as
tourism, export-oriented manufacturing, and offshore banking have
assumed larger roles in the economy and have contributed to the
recent robust growth. Tourism revenues are now the chief source of
the islands' foreign exchange; about 341,800 tourists visited Nevis
in 2005. The current government is constrained by a high debt
burden, public debt reached 190% of GDP by the end of 2005, largely
attributable to public enterprise losses.

Saint Lucia
The island nation has been able to attract foreign
business and investment, especially in its offshore banking and
tourism industries, with a surge in foreign direct investment in
2006, attributed to the construction of several tourism projects.
Tourism is the main source of foreign exchange, with almost 900,000
arrivals in 2007. The manufacturing sector is the most diverse in
the Eastern Caribbean area, and the government is trying to
revitalize the banana industry. Saint Lucia is vulnerable to a
variety of external shocks including declines in European Union
banana preferences, volatile tourism receipts, natural disasters,
and dependence on foreign oil. High debt servicing obligations
constrain the KING administration's ability to respond to adverse
external shocks. Economic fundamentals remain solid, even though
unemployment needs to be reduced.

Saint Martin
The economy of Saint Martin centers around tourism with
85% of the labor force engaged in this sector. Over one million
visitors come to the island each year with most arriving through the
Princess Juliana International Airport in Sint Maarten. No
significant agriculture and limited local fishing means that almost
all food must be imported. Energy resources and manufactured goods
are also imported, primarily from Mexico and the United States.
Saint Martin is reported to have the highest per capita income in
the Caribbean.

Saint Pierre and Miquelon
The inhabitants have traditionally earned
their livelihood by fishing and by servicing fishing fleets
operating off the coast of Newfoundland. The economy has been
declining, however, because of disputes with Canada over fishing
quotas and a steady decline in the number of ships stopping at Saint
Pierre. In 1992, an arbitration panel awarded the islands an
exclusive economic zone of 12,348 sq km to settle a longstanding
territorial dispute with Canada, although it represents only 25% of
what France had sought. France heavily subsidizes the islands to the
great betterment of living standards. The government hopes an
expansion of tourism will boost economic prospects. Fish farming,
crab fishing, and agriculture are being developed to diversify the
local economy. Recent test drilling for oil may pave the way for
development of the energy sector.

Saint Vincent and the Grenadines
Economic growth slowed slightly in
2007 after reaching a 10 year high of nearly 7% in 2006, but is
expected to remain robust, hinging upon seasonal variations in the
agricultural and tourism sectors and a recent increase in
construction activity. This lower-middle-income country is
vulnerable to natural disasters - tropical storms wiped out
substantial portions of crops in 1994, 1995, and 2002. In 2007, the
islands had more than 200,000 tourist arrivals, mostly to the
Grenadines. Saint Vincent is home to a small offshore banking sector
and has moved to adopt international regulatory standards. The
government's ability to invest in social programs and respond to
external shocks is constrained by its high debt burden - 25 percent
of current revenues are directed towards debt servicing.

Samoa
The economy of Samoa has traditionally been dependent on
development aid, family remittances from overseas, agriculture, and
fishing. The country is vulnerable to devastating storms.
Agriculture employs two-thirds of the labor force and furnishes 90%
of exports, featuring coconut cream, coconut oil, and copra. The
fish catch declined during the El Nino of 2002-03 but returned to
normal by mid-2005. The manufacturing sector mainly processes
agricultural products. One factory in the Foreign Trade Zone employs
3,000 people to make automobile electrical harnesses for an assembly
plant in Australia. Tourism is an expanding sector, accounting for
25% of GDP; 116,000 tourists visited the islands in 2006. The Samoan
Government has called for deregulation of the financial sector,
encouragement of investment, and continued fiscal discipline, while
at the same time protecting the environment. Observers point to the
flexibility of the labor market as a basic strength for future
economic advances. Foreign reserves are in a relatively healthy
state, the external debt is stable, and inflation is low.

San Marino
The tourist sector contributes over 50% of GDP. In 2006
more than 2.1 million tourists visited San Marino. The key
industries are banking, clothing and apparel, electronics, and
ceramics. Main agricultural products are wine and cheeses. The per
capita level of output and standard of living are comparable to
those of the most prosperous regions of Italy, which supplies much
of its food.

Sao Tome and Principe
This small, poor island economy has become
increasingly dependent on cocoa since independence in 1975. Cocoa
production has substantially declined in recent years because of
drought and mismanagement. Sao Tome has to import all fuels, most
manufactured goods, consumer goods, and a substantial amount of
food. Over the years, it has had difficulty servicing its external
debt and has relied heavily on concessional aid and debt
rescheduling. Sao Tome benefited from $200 million in debt relief in
December 2000 under the Highly Indebted Poor Countries (HIPC)
program, which helped bring down the country's $300 million debt
burden. In August 2005, Sao Tome signed on to a new 3-year IMF
Poverty Reduction and Growth Facility (PRGF) program worth $4.3
million. Considerable potential exists for development of a tourist
industry, and the government has taken steps to expand facilities in
recent years. The government also has attempted to reduce price
controls and subsidies. Sao Tome is optimistic about the development
of petroleum resources in its territorial waters in the oil-rich
Gulf of Guinea, which are being jointly developed in a 60-40 split
with Nigeria. The first production licenses were sold in 2004,
though a dispute over licensing with Nigeria delayed Sao Tome's
receipt of more than $20 million in signing bonuses for almost a
year. Real GDP growth exceeded 6% in 2007, as a result of increases
in public expenditures and oil-related capital investment.

Saudi Arabia
Saudi Arabia has an oil-based economy with strong
government controls over major economic activities. It possesses
more than 20% of the world's proven petroleum reserves, ranks as the
largest exporter of petroleum, and plays a leading role in OPEC. The
petroleum sector accounts for roughly 75% of budget revenues, 45% of
GDP, and 90% of export earnings. About 40% of GDP comes from the
private sector. Roughly 5.5 million foreign workers play an
important role in the Saudi economy, particularly in the oil and
service sectors. High oil prices have boosted growth, government
revenues, and Saudi ownership of foreign assets, while enabling
Riyadh to pay down domestic debt. The government is encouraging
private sector growth - especially in power generation,
telecommunications, natural gas exploration, and petrochemicals - to
lessen the kingdom's dependence on oil exports and to increase
employment opportunities for the swelling Saudi population, nearly
40% of which are youths under 15 years old. Unemployment is high,
and the large youth population generally lacks the education and
technical skills the private sector needs. Riyadh has substantially
boosted spending on job training and education, infrastructure
development, and government salaries. As part of its effort to
attract foreign investment and diversify the economy, Saudi Arabia
acceded to the WTO in December 2005 after many years of
negotiations. The government has announced plans to establish six
"economic cities" in different regions of the country to promote
development and diversification.

Senegal
In January 1994, Senegal undertook a bold and ambitious
economic reform program with the support of the international donor
community. This reform began with a 50% devaluation of Senegal's
currency, the CFA franc, which was linked at a fixed rate to the
French franc. Government price controls and subsidies have been
steadily dismantled. After seeing its economy contract by 2.1% in
1993, Senegal made an important turnaround, thanks to the reform
program, with real growth in GDP averaging over 5% annually during
1995-2007. Annual inflation had been pushed down to the low single
digits. As a member of the West African Economic and Monetary Union
(WAEMU), Senegal is working toward greater regional integration with
a unified external tariff and a more stable monetary policy. High
unemployment, however, continues to prompt illegal migrants to flee
Senegal in search of better job opportunities in Europe. Senegal was
also beset by an energy crisis that caused widespread blackouts in
2006 and 2007. The phosphate industry has struggled for two years to
secure capital, and reduced output has directly impacted GDP. In
2007, Senegal signed agreements for major new mining concessions for
iron, zircon, and gold with foreign companies. Firms from Dubai have
agreed to manage and modernize Dakar's maritime port, and create a
new special economic zone. Senegal still relies heavily upon outside
donor assistance. Under the IMF's Highly Indebted Poor Countries
(HIPC) debt relief program, Senegal has benefited from eradication
of two-thirds of its bilateral, multilateral, and private-sector
debt. In 2007, Senegal and the IMF agreed to a new, non-disbursing,
Policy Support Initiative program.

Serbia
MILOSEVIC-era mismanagement of the economy, an extended
period of economic sanctions, and the damage to Yugoslavia's
infrastructure and industry during the NATO airstrikes in 1999 left
the economy only half the size it was in 1990. After the ousting of
former Federal Yugoslav President MILOSEVIC in September 2000, the
Democratic Opposition of Serbia (DOS) coalition government
implemented stabilization measures and embarked on a market reform
program. After renewing its membership in the IMF in December 2000,
a down-sized Yugoslavia continued to reintegrate into the
international community by rejoining the World Bank (IBRD) and the
European Bank for Reconstruction and Development (EBRD). A World
Bank-European Commission sponsored Donors' Conference held in June
2001 raised $1.3 billion for economic restructuring. In November
2001, the Paris Club agreed to reschedule the country's $4.5 billion
public debt and wrote off 66% of the debt. In July 2004, the London
Club of private creditors forgave $1.7 billion of debt just over
half the total owed. Belgrade has made only minimal progress in
restructuring and privatizing its holdings in major sectors of the
economy, including energy and telecommunications. It has made
halting progress towards EU membership and is currently pursuing a
Stabilization and Association Agreement with Brussels. Serbia is
also pursuing membership in the World Trade Organization.
Unemployment remains an ongoing political and economic problem.

Seychelles
Since independence in 1976, per capita output in this
Indian Ocean archipelago has expanded to roughly seven times the
pre-independence, near-subsistence level, moving the island into the
upper-middle income group of countries. Growth has been led by the
tourist sector, which employs about 30% of the labor force and
provides more than 70% of hard currency earnings, and by tuna
fishing. In recent years, the government has encouraged foreign
investment to upgrade hotels and other services. At the same time,
the government has moved to reduce the dependence on tourism by
promoting the development of farming, fishing, and small-scale
manufacturing. Sharp drops illustrated the vulnerability of the
tourist sector in 1991-92 due largely to the Gulf War and once again
following the 11 September 2001 terrorist attacks on the US.
Economic growth slowed in 1998-2002 and fell in 2003-04, due to
sluggish tourist and tuna sectors, but resumed in 2005-07. Real GDP
grew by 5.8% in 2007, driven by tourism and a boom in
tourism-related construction. The Seychelles rupee was allowed to
depreciate in 2006 after being overvalued for years and fell by 10%
in the first 9 months of 2007.

Sierra Leone
Sierra Leone is an extremely poor nation with
tremendous inequality in income distribution. While it possesses
substantial mineral, agricultural, and fishery resources, its
physical and social infrastructure is not well developed, and
serious social disorders continue to hamper economic development.
Nearly half of the working-age population engages in subsistence
agriculture. Manufacturing consists mainly of the processing of raw
materials and of light manufacturing for the domestic market.
Alluvial diamond mining remains the major source of hard currency
earnings accounting for nearly half of Sierra Leone's exports. The
fate of the economy depends upon the maintenance of domestic peace
and the continued receipt of substantial aid from abroad, which is
essential to offset the severe trade imbalance and supplement
government revenues. The IMF has completed a Poverty Reduction and
Growth Facility program that helped stabilize economic growth and
reduce inflation. A recent increase in political stability has led
to a revival of economic activity such as the rehabilitation of
bauxite and rutile mining.

Singapore
Singapore has a highly developed and successful
free-market economy. It enjoys a remarkably open and corruption-free
environment, stable prices, and a per capita GDP equal to that of
the four largest West European countries. The economy depends
heavily on exports, particularly in consumer electronics and
information technology products. It was hard hit from 2001-03 by the
global recession, by the slump in the technology sector, and by an
outbreak of Severe Acute Respiratory Syndrome (SARS) in 2003, which
curbed tourism and consumer spending. Fiscal stimulus, low interest
rates, a surge in exports, and internal flexibility led to vigorous
growth in 2004-07 with real GDP growth averaging 7% annually. The
government hopes to establish a new growth path that will be less
vulnerable to the global demand cycle for information technology
products - it has attracted major investments in pharmaceuticals and
medical technology production - and will continue efforts to
establish Singapore as Southeast Asia's financial and high-tech hub.

Slovakia
Slovakia has mastered much of the difficult transition from
a centrally planned economy to a modern market economy. The DZURINDA
government made excellent progress during 2001-04 in macroeconomic
stabilization and structural reform. Major privatizations are nearly
complete, the banking sector is almost completely in foreign hands,
and the government has helped facilitate a foreign investment boom
with business friendly policies such as labor market liberalization
and a 19% flat tax. Foreign investment in the automotive sector has
been strong. Slovakia's economic growth exceeded expectations in
2001-07 despite the general European slowdown. Unemployment, at an
unacceptable 18% in 2003-04, dropped to 8.6% in 2007 but remains the
economy's Achilles heel. Slovakia joined the EU on 1 May 2004 and
will be the second of the new EU member states to adopt the euro in
2009 if it continues to meet euro adoption criteria in 2008. Despite
its 2006 pre-election promises to loosen fiscal policy and reverse
the previous DZURINDA government's pro-market reforms, FICO's
cabinet has thus far been careful to keep a lid on spending in order
to meet euro adoption criteria. The FICO government is pursuing a
state-interventionist economic policy, however, and has pushed to
regulate energy and food prices.

Slovenia
Slovenia, which on 1 January 2007 became the first 2004
European Union entrant to adopt the euro, is a model of economic
success and stability for the region. With the highest per capita
GDP in Central Europe, Slovenia has excellent infrastructure, a
well-educated work force, and a strategic location between the
Balkans and Western Europe. Privatization has lagged since 2002, and
the economy has one of highest levels of state control in the EU.
Structural reforms to improve the business environment have allowed
for somewhat greater foreign participation in Slovenia's economy and
have helped to lower unemployment. In March 2004, Slovenia became
the first transition country to graduate from borrower status to
donor partner at the World Bank. In December 2007, Slovenia was
invited to begin the accession process for joining the OECD. Despite
its economic success, foreign direct investment (FDI) in Slovenia
has lagged behind the region average, and taxes remain relatively
high. Furthermore, the labor market is often seen as inflexible, and
legacy industries are losing sales to more competitive firms in
China, India, and elsewhere.

Solomon Islands
The bulk of the population depends on agriculture,
fishing, and forestry for at least part of its livelihood. Most
manufactured goods and petroleum products must be imported. The
islands are rich in undeveloped mineral resources such as lead,
zinc, nickel, and gold. Prior to the arrival of the Regional
Assistance Mission to the Solomon Islands (RAMSI), severe ethnic
violence, the closing of key businesses, and an empty government
treasury culminated in economic collapse. RAMSI's efforts to restore
law and order and economic stability have led to modest growth as
the economy rebuilds.

Somalia
Despite the lack of effective national governance, Somalia
has maintained a healthy informal economy, largely based on
livestock, remittance/money transfer companies, and
telecommunications. Agriculture is the most important sector, with
livestock normally accounting for about 40% of GDP and about 65% of
export earnings. Nomads and semi-pastoralists, who are dependent
upon livestock for their livelihood, make up a large portion of the
population. Livestock, hides, fish, charcoal, and bananas are
Somalia's principal exports, while sugar, sorghum, corn, qat, and
machined goods are the principal imports. Somalia's small industrial
sector, based on the processing of agricultural products, has
largely been looted and sold as scrap metal. Somalia's service
sector also has grown. Telecommunication firms provide wireless
services in most major cities and offer the lowest international
call rates on the continent. In the absence of a formal banking
sector, money exchange services have sprouted throughout the
country, handling between $500 million and $1 billion in remittances
annually. Mogadishu's main market offers a variety of goods from
food to the newest electronic gadgets. Hotels continue to operate
and are supported with private-security militias. Somalia's arrears
to the IMF continued to grow in 2006-07. Statistics on Somalia's
GDP, growth, per capita income, and inflation should be viewed
skeptically. In late December 2004, a major tsunami caused an
estimated 150 deaths and resulted in destruction of property in
coastal areas.

South Africa
South Africa is a middle-income, emerging market with
an abundant supply of natural resources; well-developed financial,
legal, communications, energy, and transport sectors; a stock
exchange that is 17th largest in the world; and modern
infrastructure supporting an efficient distribution of goods to
major urban centers throughout the region. Growth has been robust
since 2004, as South Africa has reaped the benefits of macroeconomic
stability and a global commodities boom. However, unemployment
remains high and outdated infrastructure has constrained growth. At
the end of 2007, South Africa began to experience an electricity
crisis because state power supplier Eskom suffered supply problems
with aged plants, necessitating "load-shedding" cuts to residents
and businesses in the major cities. Daunting economic problems
remain from the apartheid era - especially poverty, lack of economic
empowerment among the disadvantaged groups, and a shortage of public
transportation. South African economic policy is fiscally
conservative but pragmatic, focusing on controlling inflation,
maintaining a budget surplus, and using state-owned enterprises to
deliver basic services to low-income areas as a means to increase
job growth and household income.

South Georgia and the South Sandwich Islands
Some fishing takes
place in adjacent waters. There is a potential source of income from
harvesting finfish and krill. The islands receive income from
postage stamps produced in the UK, sale of fishing licenses, and
harbor and landing fees from tourist vessels. Tourism from
specialized cruise ships is increasing rapidly.

Southern Ocean
Fisheries in 2005-06 landed 128,081 metric tons, of
which 83% (106,591 tons) was krill (Euphausia superba) and 9.7%
(12,364 tons) Patagonian toothfish (Dissostichus eleginoides),
compared to 147,506 tons in 2004-05 of which 86% (127,035 tons) was
krill and 8% (11,821 tons) Patagonian toothfish (estimated fishing
from the area covered by the Convention of the Conservation of
Antarctic Marine Living Resources (CCAMLR), which extends slightly
beyond the Southern Ocean area). International agreements were
adopted in late 1999 to reduce illegal, unreported, and unregulated
fishing, which in the 2000-01 season landed, by one estimate, 8,376
metric tons of Patagonian and Antarctic toothfish. In the 2006-07
Antarctic summer, 35,552 tourists visited the Southern Ocean,
compared to 29,799 in 2005-2006 (estimates provided to the Antarctic
Treaty by the International Association of Antarctica Tour Operators
(IAATO), and does not include passengers on overflights and those
flying directly in and out of Antarctica).

Spain
The Spanish economy boomed from 1986 to 1990 averaging 5%
annual growth. After a European-wide recession in the early 1990s,
the Spanish economy resumed moderate growth starting in 1994.
Spain's mixed capitalist economy supports a GDP that on a per capita
basis is equal to that of the leading West European economies. The
center-right government of former President Jose Maria AZNAR
successfully worked to gain admission to the first group of
countries launching the European single currency (the euro) on 1
January 1999. The AZNAR administration continued to advocate
liberalization, privatization, and deregulation of the economy and
introduced some tax reforms to that end. Unemployment fell steadily
under the AZNAR administration but remains high at 7.6%. Growth
averaging more than 3% annually during 2003-07 was satisfactory
given the background of a faltering European economy. The Socialist
president, Jose Luis Rodriguez ZAPATERO, has made mixed progress in
carrying out key structural reforms, which need to be accelerated
and deepened to sustain Spain's economic growth. Despite the
economy's relative solid footing significant downside risks remain
including Spain's continued loss of competitiveness, the potential
for a housing market collapse, the country's changing demographic
profile, and a decline in EU structural funds.

Spratly Islands
Economic activity is limited to commercial fishing.
The proximity to nearby oil- and gas-producing sedimentary basins
suggests the potential for oil and gas deposits, but the region is
largely unexplored. There are no reliable estimates of potential
reserves. Commercial exploitation has yet to be developed.

Sri Lanka
In 1977, Colombo abandoned statist economic policies and
its import substitution trade policy for more market-oriented
policies, export-oriented trade, and encouragement of foreign
investment. Recent changes in government, however, have brought some
policy reversals. Currently, the ruling Sri Lanka Freedom Party has
a more statist economic approach, which seeks to reduce poverty by
steering investment to disadvantaged areas, developing small and
medium enterprises, promoting agriculture, and expanding the already
enormous civil service. The government has halted privatizations.
Although suffering a brutal civil war that began in 1983, Sri Lanka
saw GDP growth average 4.5% in the last 10 years with the exception
of a recession in 2001. In late December 2004, a major tsunami took
about 31,000 lives, left more than 6,300 missing and 443,000
displaced, and destroyed an estimated $1.5 billion worth of
property. Government spending and reconstruction drove growth to
more than 7% in 2006 but reduced agriculture output probably slowed
growth to about 6 percent in 2007. Government spending and loose
monetary policy drove inflation to nearly 16% in 2007. Sri Lanka's
most dynamic sectors now are food processing, textiles and apparel,
food and beverages, port construction, telecommunications, and
insurance and banking. In 2006, plantation crops made up only about
15% of exports (compared with more than 90% in 1970), while textiles
and garments accounted for more than 60%. About 800,000 Sri Lankans
work abroad, 90% of them in the Middle East. They send home more
than $1 billion a year. The struggle by the Tamil Tigers of the
north and east for an independent homeland continues to cast a
shadow over the economy.

Sudan
Sudan's economy is booming on the back of increases in oil
production, high oil prices, and large inflows of foreign direct
investment. GDP growth registered more than 10% per year in 2006 and
2007. From 1997 to date, Sudan has been working with the IMF to
implement macroeconomic reforms, including a managed float of the
exchange rate. Sudan began exporting crude oil in the last quarter
of 1999. Agricultural production remains important, because it
employs 80% of the work force and contributes a third of GDP. The
Darfur conflict, the aftermath of two decades of civil war in the
south, the lack of basic infrastructure in large areas, and a
reliance by much of the population on subsistence agriculture ensure
much of the population will remain at or below the poverty line for
years despite rapid rises in average per capita income. In January
2007, the government introduced a new currency, the Sudanese Pound,
at an initial exchange rate of $1.00 equals 2 Sudanese Pounds.

Suriname
The economy is dominated by the mining industry, with
exports of alumina, gold, and oil accounting for about 85% of
exports and 25% of government revenues, making the economy highly
vulnerable to mineral price volatility. The short-term economic
outlook depends on the government's ability to control inflation and
on the development of projects in the bauxite and gold mining
sectors. Suriname has received aid for these projects from
Netherlands, Belgium, and the European Development Fund. Suriname's
economic prospects for the medium term will depend on continued
commitment to responsible monetary and fiscal policies and to the
introduction of structural reforms to liberalize markets and promote
competition. In 2000, the government of Ronald VENETIAAN, returned
to office and inherited an economy with inflation of over 100% and a
growing fiscal deficit. He quickly implemented an austerity program,
raised taxes, attempted to control spending, and tamed inflation.
These economic policies are likely to remain in effect during
VENETIAAN's third term. Prospects for local onshore oil production
are good as a drilling program is underway. Offshore oil drilling
was given a boost in 2004 when the State Oil Company (Staatsolie)
signed exploration agreements with Repsol, Maersk, and Occidental.
Bidding on these new offshore blocks was completed in July 2006.

Svalbard
Coal mining is the major economic activity on Svalbard. The
treaty of 9 February 1920 gave the 41 signatories equal rights to
exploit mineral deposits, subject to Norwegian regulation. Although
US, UK, Dutch, and Swedish coal companies have mined in the past,
the only companies still mining are Norwegian and Russian. The
settlements on Svalbard are essentially company towns. The Norwegian
state-owned coal company employs nearly 60% of the Norwegian
population on the island, runs many of the local services, and
provides most of the local infrastructure. There is also some
hunting of seal, reindeer, and fox.

Swaziland
In this small, landlocked economy, subsistence agriculture
occupies approximately 70% of the population. The manufacturing
sector has diversified since the mid-1980s. Sugar and wood pulp
remain important foreign exchange earners. In 2007, the sugar
industry increased efficiency and diversification efforts, in
response to a 17% decline in EU sugar prices. Mining has declined in
importance in recent years with only coal and quarry stone mines
remaining active. Surrounded by South Africa, except for a short
border with Mozambique, Swaziland is heavily dependent on South
Africa from which it receives more than nine-tenths of its imports
and to which it sends 60% of its exports. Swaziland's currency is
pegged to the South African rand, subsuming Swaziland's monetary
policy to South Africa. Customs duties from the Southern African
Customs Union, which may equal as much as 70% of government revenue
this year, and worker remittances from South Africa substantially
supplement domestically earned income. Swaziland is not poor enough
to merit an IMF program; however, the country is struggling to
reduce the size of the civil service and control costs at public
enterprises. The government is trying to improve the atmosphere for
foreign investment. With an estimated 40% unemployment rate,
Swaziland's need to increase the number and size of small and medium
enterprises and attract foreign direct investment is acute.
Overgrazing, soil depletion, drought, and sometimes floods persist
as problems for the future. More than one-fourth of the population
needed emergency food aid in 2006-07 because of drought, and nearly
two-fifths of the adult population has been infected by HIV/AIDS.

Sweden
Aided by peace and neutrality for the whole of the 20th
century, Sweden has achieved an enviable standard of living under a
mixed system of high-tech capitalism and extensive welfare benefits.
It has a modern distribution system, excellent internal and external
communications, and a skilled labor force. Timber, hydropower, and
iron ore constitute the resource base of an economy heavily oriented
toward foreign trade. Privately owned firms account for about 90% of
industrial output, of which the engineering sector accounts for 50%
of output and exports. Agriculture accounts for only 1% of GDP and
2% of employment. Sweden is in the midst of a sustained economic
upswing, boosted by increased domestic demand and strong exports.
This and robust finances have offered the center-right government
considerable scope to implement its reform program aimed at
increasing employment, reducing welfare dependence, and streamlining
the state's role in the economy. The government plans to sell $31
billion in state assets during the next three years to further
stimulate growth and raise revenue to pay down the federal debt. In
September 2003, Swedish voters turned down entry into the euro
system concerned about the impact on the economy and sovereignty.

Switzerland
Switzerland is a peaceful, prosperous, and stable modern
market economy with low unemployment, a highly skilled labor force,
and a per capita GDP larger than that of the big Western European
economies. The Swiss in recent years have brought their economic
practices largely into conformity with the EU's to enhance their
international competitiveness. Switzerland remains a safehaven for
investors, because it has maintained a degree of bank secrecy and
has kept up the franc's long-term external value. Reflecting the
anemic economic conditions of Europe, GDP growth stagnated during
the 2001-03 period, improved during 2004-05, and jumped to 2.9% in
2006, and 2.6% in 2007. Unemployment has remained at less than half
the EU average.

Syria
The Syrian economy grew by an estimated 3.3% in real terms in
2007 led by the petroleum and agricultural sectors, which together
account for about one-half of GDP. Higher crude oil prices countered
declining oil production and led to higher budgetary and export
receipts. Damascus has implemented modest economic reforms in the
past few years, including cutting lending interest rates, opening
private banks, consolidating all of the multiple exchange rates,
raising prices on some subsidized items, most notably gasoline and
cement, and establishing the Damascus Stock Exchange - which is set
to begin operations in 2009. In October 2007, for example, Damascus
raised the price of subsidized gasoline by 20%, and may institute a
rationing system in 2008. In addition, President ASAD signed
legislative decrees to encourage corporate ownership reform, and to
allow the Central Bank to issue Treasury bills and bonds for
government debt. Nevertheless, the economy remains highly controlled
by the government. Long-run economic constraints include declining
oil production, high unemployment and inflation, rising budget
deficits, and increasing pressure on water supplies caused by heavy
use in agriculture, rapid population growth, industrial expansion,
and water pollution.

Taiwan
Taiwan has a dynamic capitalist economy with gradually
decreasing guidance of investment and foreign trade by the
authorities. In keeping with this trend, some large, state-owned
banks and industrial firms are being privatized. Exports have
provided the primary impetus for industrialization. The island runs
a large trade surplus, and its foreign reserves are among the
world's largest. Despite restrictions on cross-strait links, China
has overtaken the US to become Taiwan's largest export market and
its second-largest source of imports after Japan. China is also the
island's number one destination for foreign direct investment.
Strong trade performance in 2007 pushed Taiwan's GDP growth rate
above 5%, and unemployment is below 4%.

Tajikistan
Tajikistan has one of the lowest per capita GDPs among
the 15 former Soviet republics. Only 7% of the land area is arable.
Cotton is the most important crop, but this sector is burdened with
debt and an obsolete infrastructure. Mineral resources include
silver, gold, uranium, and tungsten. Industry consists only of a
large aluminum plant, hydropower facilities, and small obsolete
factories mostly in light industry and food processing. The civil
war (1992-97) severely damaged the already weak economic
infrastructure and caused a sharp decline in industrial and
agricultural production. While Tajikistan has experienced steady
economic growth since 1997, nearly two-thirds of the population
continues to live in abject poverty. Economic growth reached 10.6%
in 2004, but dropped to 8% in 2005, 7% in 2006, and 7.8% in 2007.
Tajikistan's economic situation remains fragile due to uneven
implementation of structural reforms, corruption, weak governance,
widespread unemployment, seasonal power shortages, and the external
debt burden. Continued privatization of medium and large state-owned
enterprises could increase productivity. A debt restructuring
agreement was reached with Russia in December 2002 including a $250
million write-off of Tajikistan's $300 million debt. Tajikistan
ranks third in the world in terms of water resources per head, but
suffers winter power shortages due to poor management of water
levels in rivers and reservoirs. Completion of the Sangtuda I
hydropower dam - built with Russian investment - and the Sangtuda II
and Rogun dams will add substantially to electricity output. If
finished according to Tajik plans, Rogun will be the world's tallest
dam. Tajikistan has also received substantial infrastructure
development loans from the Chinese government to improve roads and
an electricity transmission network. To help increase north-south
trade, the US funded a $36 million bridge which opened in August
2007 and links Tajikistan and Afghanistan.

Tanzania
Tanzania is one of the poorest countries in the world. The
economy depends heavily on agriculture, which accounts for more than
40% of GDP, provides 85% of exports, and employs 80% of the work
force. Topography and climatic conditions, however, limit cultivated
crops to only 4% of the land area. Industry traditionally featured
the processing of agricultural products and light consumer goods.
The World Bank, the IMF, and bilateral donors have provided funds to
rehabilitate Tanzania's out-of-date economic infrastructure and to
alleviate poverty. Long-term growth through 2005 featured a pickup
in industrial production and a substantial increase in output of
minerals led by gold. Recent banking reforms have helped increase
private-sector growth and investment. Continued donor assistance and
solid macroeconomic policies supported real GDP growth of nearly 7%
in 2007.

Thailand
With a well-developed infrastructure, a free-enterprise
economy, and generally pro-investment policies, Thailand appears to
have fully recovered from the 1997-98 Asian Financial Crisis. The
country was one of East Asia's best performers from 2002-04. Boosted
by strong export growth, the Thai economy grew 4.5% in 2007. Bangkok
has pursued preferential trade agreements with a variety of partners
in an effort to boost exports and to maintain high growth. By 2007,
the tourism sector had largely recovered from the major 2004
tsunami. Following the military coup in September 2006, investment
and consumer confidence stagnated due to the uncertain political
climate that lasted through the December 2007 elections. Foreign
investor sentiment was further tempered by a 30% reserve requirement
on capital inflows instituted in December 2006, and discussion of
amending Thailand's rules governing foreign-owned businesses.
Economic growth in 2007 was due almost entirely to robust export
performance - despite the pressure of an appreciating currency.
Exports have performed at record levels, rising nearly 17% in 2006
and 12% in 2007. Export-oriented manufacturing - in particular
automobile production - and farm output are driving these gains.

Timor-Leste
In late 1999, about 70% of the economic infrastructure
of Timor-Leste was laid waste by Indonesian troops and
anti-independence militias. Three hundred thousand people fled
westward. Over the next three years a massive international program,
manned by 5,000 peacekeepers (8,000 at peak) and 1,300 police
officers, led to substantial reconstruction in both urban and rural
areas. By the end of 2005, refugees had returned or had settled in
Indonesia. The country continues to face great challenges in
rebuilding its infrastructure, strengthening the civil
administration, and generating jobs for young people entering the
work force. The development of oil and gas resources in offshore
waters has begun to supplement government revenues ahead of schedule
and above expectations - the result of high petroleum prices. The
technology-intensive industry, however, has done little to create
jobs for the unemployed because there are no production facilities
in Timor. Gas is piped to Australia. In June 2005 the National
Parliament unanimously approved the creation of a Petroleum Fund to
serve as a repository for all petroleum revenues and preserve the
value of Timor-Leste's petroleum wealth for future generations. The
Fund held assets of US$1.8 billion as of September 2007. The
mid-2006 outbreak of violence and civil unrest disrupted both
private and public sector economic activity and created 100,000
internally displaced persons - about 10 percent of the population.
While real non-oil GDP growth in 2006 was negative, the economy
probably rebounded in 2007. The underlying economic policy challenge
the country faces remains how best to use oil-and-gas wealth to lift
the non-oil economy onto a higher growth path and reduce poverty. In
late 2007, the new government announced plans aimed at increasing
spending, reducing poverty, and improving the country's
infrastructure, but it continues to face capacity constraints. In
the short term, the government must also address continuing problems
related to the crisis of 2006, especially the displaced Timorese.