Chapter CXI: Section 3: , Taipei, Taiwan, telephone: 886 (2) 2162-2000, FAX (42)

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

Faroe Islands
The Faroese economy has had a strong performance since
1994, mostly as a result of increasing fish landings and high and
stable export prices. Unemployment is minimal and there are signs of
labor shortages in several sectors. The positive economic
development has helped the Faroese Home Rule Government produce
increasing budget surpluses, which in turn have helped reduce the
large public debt, most of it owed to Denmark. However, the total
dependence on fishing makes the Faroese economy extremely
vulnerable, and the present fishing efforts appear in excess of what
is a sustainable level of fishing in the long term. Oil finds close
to the Faroese area give hope for deposits in the immediate Faroese
area, which may eventually lay the basis for a more diversified
economy and thus lessen dependence on Danish economic assistance.
Aided by a substantial annual subsidy (about 15% of GDP) from
Denmark, the Faroese have a standard of living not far below the
Danes and other Scandinavians.

Fiji
Fiji, endowed with forest, mineral, and fish resources, is one
of the most developed of the Pacific island economies, though still
with a large subsistence sector. Sugar exports, remittances from
Fijians working abroad, and a growing tourist industry - with
300,000 to 400,000 tourists annually - are the major sources of
foreign exchange. Fiji's sugar has special access to European Union
markets, but will be harmed by the EU's decision to cut sugar
subsidies. Sugar processing makes up one-third of industrial
activity but is not efficient. Long-term problems include low
investment, uncertain land ownership rights, and the government's
ability to manage its budget. Yet, because of a tourist boom,
short-run economic prospects are good, provided tensions do not
again erupt between indigenous Fijians and Indo-Fijians. Overseas
remittances from Fijians working in Kuwait and Iraq have increased
significantly.

Finland
Finland has a highly industrialized, largely free-market
economy with per capita output roughly that of the UK, France,
Germany, and Italy. Its key economic sector is manufacturing -
principally the wood, metals, engineering, telecommunications, and
electronics industries. Trade is important; exports equal two-fifths
of GDP. Finland excels in high-tech exports, e.g., mobile phones.
Except for timber and several minerals, Finland depends on imports
of raw materials, energy, and some components for manufactured
goods. Because of the climate, agricultural development is limited
to maintaining self-sufficiency in basic products. Forestry, an
important export earner, provides a secondary occupation for the
rural population. Rapidly increasing integration with Western Europe
- Finland was one of the 12 countries joining the European Economic
and Monetary Union (EMU) - will dominate the economic picture over
the next several years. High unemployment remains a persistent
problem.

France
France is in the midst of transition from a well-to-do modern
economy that has featured extensive government ownership and
intervention to one that relies more on market mechanisms. The
government has partially or fully privatized many large companies,
banks, and insurers. It retains controlling stakes in several
leading firms, including Air France, France Telecom, Renault, and
Thales, and is dominant in some sectors, particularly power, public
transport, and defense industries. The telecommunications sector is
gradually being opened to competition. France's leaders remain
committed to a capitalism in which they maintain social equity by
means of laws, tax policies, and social spending that reduce income
disparity and the impact of free markets on public health and
welfare. The government has lowered income taxes and introduced
measures to boost employment and reform the pension system. In
addition, it is focusing on the problems of the high cost of labor
and labor market inflexibility resulting from the 35-hour workweek
and restrictions on lay-offs. The tax burden remains one of the
highest in Europe (nearly 50% of GDP in 2005). The lingering
economic slowdown and inflexible budget items have pushed the budget
deficit above the eurozone's 3%-of-GDP limit; unemployment stands at
10%.

French Guiana
The economy is tied closely to the much larger French
economy through subsidies and imports. Besides the French space
center at Kourou (which accounts for 25% of GDP), fishing and
forestry are the most important economic activities. Forest and
woodland cover 90% of the country. The large reserves of tropical
hardwoods, not fully exploited, support an expanding sawmill
industry that provides sawn logs for export. Cultivation of crops is
limited to the coastal area, where the population is largely
concentrated; rice and manioc are the major crops. French Guiana is
heavily dependent on imports of food and energy. Unemployment is a
serious problem, particularly among younger workers.

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

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

Gabon
Gabon enjoys a per capita income four times that of most of
sub-Saharan African nations. This has supported a sharp decline in
extreme poverty; yet, 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. Devaluation of 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 in 1999-2000 helped
growth, but drops in production hampered Gabon from fully realizing
potential gains. 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 significant 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 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 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 intifadah in September 2000 sparked an
economic downturn, largely the result of Israeli closure policies;
these policies, which were imposed in response to security interests
in Israel, disrupted labor and commodity relationships with the Gaza
Strip. In 2001, and even more severely in 2003, Israeli military
measures in PA areas resulted in the destruction of much capital
plant, the disruption of administrative structure, and widespread
business closures. Including the West Bank, the UN estimates that
more than 100,000 Palestinians out of the 125,000 who used to work
in Israel or in joint industrial zones have lost their jobs. Half
the labor force is unemployed. Israeli withdrawal from the Gaza
Strip in September 2005 offers some medium-term opportunities for
economic growth, especially given the removal of restrictions on
internal movement. In addition, recent agreements and continuing
negotiations on the administration of Gaza's border crossings
increase the prospects for trade.

Georgia
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, and chemicals. The country imports the bulk of
its energy needs, including natural gas and oil products. It has
sizeable but underdeveloped hydropower capacity. Despite the severe
damage the economy has suffered due to civil strife, 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 had 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. In addition, the
reinvigorated privatization process has met with success,
supplementing government expenditures on infrastructure, defense,
and poverty reduction. Despite customs and financial (tax)
enforcement improvements, smuggling is a drain on the economy.
Georgia also suffers from energy shortages due to aging and badly
maintained infrastructure, as well as poor management. Due to
concerted reform efforts, collection rates have improved
considerably to roughly 60%, both in T'bilisi and throughout the
regions. Continued reform in the management of state-owned power
entities is essential to successful privatization and onward
sustainability in this sector. The country is pinning its hopes for
long-term growth on its role as a transit state for pipelines and
trade. The construction on the Baku-T'bilisi-Ceyhan oil pipeline and
the Baku-T'bilisi-Erzerum gas pipeline have brought much-needed
investment and job opportunities. Nevertheless, high energy prices
in 2006 will compound the pressure on the country's inefficient
energy sector. Restructuring the sector and finding energy supply
alternatives to Russia remain major challenges.

Germany
Germany's affluent and technologically powerful economy -
the fifth largest in the world - has become one of the slowest
growing economies in the euro zone. A quick turnaround is not in the
offing in the foreseeable future. Growth in 2001-03 fell short of
1%, rising to 1.7% in 2004 before falling back to 0.9% in 2005. 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 $70 billion. Germany's aging
population, combined with high unemployment, has pushed social
security outlays to a level exceeding contributions from workers.
Structural rigidities in the labor market - including strict
regulations on laying off workers and the setting of wages on a
national basis - have made unemployment a chronic problem. Corporate
restructuring and growing capital markets are setting the
foundations that could allow Germany to meet the long-term
challenges of European economic integration and globalization,
particularly if labor market rigidities are further addressed. In
the short run, however, the fall in government revenues and the rise
in expenditures have raised the deficit above the EU's 3% debt limit.

Ghana
Well endowed with natural resources, Ghana has roughly twice
the per capita output of the poorer countries in West Africa. Even
so, Ghana remains heavily dependent on international financial and
technical assistance. Gold, timber, and cocoa production are major
sources of foreign exchange. The domestic economy continues to
revolve around subsistence agriculture, which accounts for 34% of
GDP and employs 60% of the work force, mainly small landholders.
Ghana opted for debt relief under the Heavily Indebted Poor Country
(HIPC) program in 2002, but was included in a G-8 debt relief
program decided upon at the Gleneagles Summit in July 2005.
Priorities under its current $38 million Poverty Reduction and
Growth Facility (PRGF) include tighter monetary and fiscal policies,
accelerated privatization, and improvement of social services.
Receipts from the gold sector helped sustain GDP growth in 2005
along with record high prices for Ghana's largest cocoa crop to
date. Inflation should ease but remains a major internal problem.
Ghana also remains a candidate country to benefit from Millennium
Challenge Corporation (MCC) funding that could assist in
transforming Ghana's agricultural export sector. A final decision on
its MCC bid is expected in spring 2006.

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.

Glorioso Islands
no economic activity

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
menial jobs. Greece is a major beneficiary of EU aid, equal to about
3.3% of annual GDP. The Greek economy grew by about 4.0% for the
between 2003 and 2005, largely because of an investment boom and
infrastructure upgrades for the 2004 Athens Olympic Games. Economic
growth slowed to about 3% in 2005. Greece has not met the EU's
Growth and Stability Pact budget deficit criteria of 3% of GDP since
2000. Public debt, inflation, and unemployment are above the
euro-zone average. To overcome these challenges, the Greek
Government is expected to continue cutting government spending,
reducing the size of the public sector, and reforming the labor and
pension systems.

Greenland
The economy remains critically dependent on exports of
fish and substantial support 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. Despite several interesting
hydrocarbon and mineral exploration activities, it will take a
number of years before production can materialize. Tourism is the
only sector offering any near-term potential, and even this is
limited due to a short season and high costs.

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.

Guadeloupe
This Caribbean economy depends on agriculture, tourism,
light industry, and services. It also depends on France for large
subsidies and imports. Tourism is a key industry, with most tourists
from the US; an increasingly large number of cruise ships visit the
islands. The traditional sugarcane crop is slowly being replaced by
other crops, such as bananas (which now supply about 50% of export
earnings), eggplant, and flowers. Other vegetables and root crops
are cultivated for local consumption, although Guadeloupe is still
dependent on imported food, mainly from France. Light industry
features sugar and rum production. Most manufactured goods and fuel
are imported. Unemployment is especially high among the young.
Hurricanes periodically devastate the economy.

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 largest and most populous of the Central
American countries with a GDP per capita roughly one-half that of
Brazil, Argentina, and Chile. The agricultural sector accounts for
about one-fourth of GDP, two-thirds of exports, and half of the
labor force. Coffee, sugar, and bananas are the main products. The
1996 signing of peace accords, which ended 36 years of civil war,
removed a major obstacle to foreign investment, but widespread
political violence and corruption scandals continue to dampen
investor confidence. The distribution of income remains highly
unequal with perhaps 75% 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 narrowing the trade deficit.

Guernsey
Financial services - banking, fund management, insurance -
account for about 55% of total income in this tiny, prosperous
Channel Island economy. Tourism, manufacturing, and horticulture,
mainly tomatoes and cut flowers, have been declining. 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
possesses almost half of the world's bauxite reserves and is the
second-largest bauxite producer. The mining sector accounted for
over 70% of exports in 2004. Long-run improvements in government
fiscal arrangements, literacy, and the legal framework are needed if
the country is to move out of poverty. Fighting along the Sierra
Leonean and Liberian borders, as well as refugee movements, have
caused major economic disruptions, aggravating a loss in investor
confidence. Panic buying has created food shortages and inflation
and caused riots in local markets. Guinea is not receiving
multilateral aid; the IMF and World Bank cut off most assistance in
2003. Growth rose slightly in 2005, primarily due to increases in
global demand and commodity prices on world markets.

Guinea-Bissau
One of the 10 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. However,
offshore oil prospecting has begun and could lead to much-needed
revenue in the long run. 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, have resulted in continued low growth in
2002-05.

Guyana
The Guyanese economy exhibited moderate economic growth in
2001-02, 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. Growth slowed in 2003 and
came back gradually in 2004, buoyed largely by increased export
earnings; it slowed again in 2005. 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. The bauxite mining sector
should benefit in the near term from restructuring and partial
privatization. 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 might broaden the country's export
market, primarily in the raw materials sector.

Haiti
In this poorest country in the Western Hemisphere, 80% of the
population lives in abject poverty. Two-thirds of all Haitians
depend on the agriculture sector, mainly small-scale subsistence
farming, and remain vulnerable to damage from frequent natural
disasters, exacerbated by the country's widespread deforestation.
The economy grew 1.5% in 2005, the highest growth rate since 1999.
Haiti suffers from rampant inflation, a lack of investment, and a
severe trade deficit. In early 2005, Haiti paid its arrears to the
World Bank, paving the way for reengagement with the Bank. The
government is reliant on formal international economic assistance
for fiscal sustainability. Remittances are the primary source of
foreign exchange, equaling nearly a quarter of GDP in 2005.

Heard Island and McDonald Islands
No indigenous economic activity,
but the Australian Government allows limited fishing around the
islands.

Holy See (Vatican City)
This unique, noncommercial economy is
supported financially by an annual contribution from Roman Catholic
dioceses throughout the world (known as Peter's Pence); 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, 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. The
country has met most of its macroeconomic targets, and began a
three-year IMF Poverty Reduction and Growth Facility (PGRF) program
in February 2004. Growth remains dependent on the economy of the US,
its largest trading partner, on continued exports of non-traditional
agricultural products (such as melons, chiles, tilapia, and shrimp),
and on reduction of the high crime rate.

Hong Kong
Hong Kong has a free market, entrepot economy, highly
dependent on international trade. Natural resources are limited, and
food and raw materials must be imported. Gross imports and exports
(i.e., including reexports to and from third countries) each exceed
GDP in dollar value. Even before Hong Kong reverted to Chinese
administration on 1 July 1997, it had extensive trade and investment
ties with China. Hong Kong has been further integrating its economy
with China because China's growing openness to the world economy has
made manufacturing in China much more cost effective. Hong Kong's
reexport business to and from China is a major driver of growth. Per
capita GDP is comparable to that of the four big economies of
Western Europe. GDP growth averaged a strong 5% from 1989 to 2005,
but Hong Kong suffered two recessions in the past eight years
because of the Asian financial crisis in 1997-1998 and the global
downturn in 2001-2002. Although the Severe Acute Respiratory
Syndrome (SARS) outbreak in 2003 also battered Hong Kong's economy,
a solid rise in exports, a boom in tourism from the mainland because
of China's easing of travel restrictions, and a return of consumer
confidence resulted in the resumption of strong growth from late
2003 through 2005.

Howland Island
no economic activity

Hungary
Hungary has made the transition from a centrally planned to
a market economy, with a per capita income about 60% of the EU-25
average. Hungary continues to demonstrate strong economic growth and
acceded to the EU in May 2004. The private sector accounts for over
80% of GDP. Foreign ownership of and investment in Hungarian firms
are widespread, with cumulative foreign direct investment totaling
more than $34 billion between 1990 and 2003. Several private sector
analysts and sovereign ratings agencies have expressed concerns over
Hungary's unsustainable budget and current account deficits.
Inflation has declined from 14% in 1998 to 3.5% in 2005.
Unemployment in 2005 rose to 7.1%, its highest point since 1999;
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 3% of GDP by
2008, from about 6.1% in 2005, and orchestrating an orderly interest
rate reduction without sparking capital outflows.

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 4% 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. 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. Growth had
been remarkably steady in 1996-2001 at 3%-5%, but could not be
sustained in 2002 in an environment of global recession. Growth
resumed in 2003, and estimates call for strong growth until 2007,
slowly dropping until the end of the decade.

Iles Eparses
no economic activity

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 half of India's output
with less than one quarter of its labor force. About three-fifths of
the work-force is in agriculture, leading the 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. Government controls on foreign trade and
investment have been reduced in some areas, but high tariffs
(averaging 20% on non-agricultural items in 2004) and limits on
foreign direct investment are still in place. The government in 2005
liberalized investment in the civil aviation, telecom, and
construction sectors. Privatization of government-owned industries
essentially came to a halt in 2005, and continues to generate
political debate; continued social, political, and economic
rigidities hold back needed initiatives. The economy has posted an
average growth rate of more than 7% in the decade since 1994,
reducing poverty by about 10 percentage points. India achieved 7.6%
GDP growth in 2005, significantly expanding manufacturing. 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. Despite strong growth, the World Bank and
others worry about the combined state and federal budget deficit,
running at approximately 9% of GDP; government borrowing has kept
interest rates high. Economic deregulation would help attract
additional foreign capital and lower interest rates. 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 struggled to
overcome the Asian financial crisis, and still grapples with high
unemployment, a fragile banking sector, endemic corruption,
inadequate infrastructure, a poor investment climate, and unequal
resource distribution among regions. Indonesia became a net oil
importer in 2004 because of declining production and lack of new
exploration investment. In late December 2004, the Indian Ocean
tsunami took 131,000 lives with another 37,000 missing, left some
570,000 displaced persons, and caused an estimated $4.5 billion in
damages and losses. The cost of subsidizing domestic fuel placed
increasing strain on the budget in 2005, and combined with
indecisive monetary policy, contributed to a run on the currency in
August 2005, prompting the government to enact a 126% average fuel
price hike in October. The resulting inflation and interest rate
hikes dampened growth prospects in 2006. However, in October 2006,
Jakarta paid off its outstanding IMF debt, incurred during the
1997-98 Asian financial crisis, four years ahead of schedule. Keys
to future growth remain internal reform, building up the confidence
of international and domestic investors, and strong global economic
growth.

Iran
Iran's economy is marked by a bloated, inefficient state
sector, over reliance on the oil sector, 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 has continued to follow the market reform plans of
former President RAFSANJANI, with limited progress. Relatively high
oil prices in recent years have enabled Iran to amass some $40
billion in foreign exchange reserves, but have not eased economic
hardships such as high unemployment and inflation. The proportion of
the economy devoted to the development of weapons of mass
destruction remains a contentious issue with leading Western nations.

Iraq
Iraq's economy is dominated by the oil sector, which has
traditionally provided about 95% of foreign exchange earnings.
Iraq's seizure of Kuwait in August 1990, subsequent international
economic sanctions, and damage from military action by an
international coalition beginning in January 1991 drastically
reduced economic activity. Although government policies supporting
large military and internal security forces and allocating resources
to key supporters of the regime hurt the economy, implementation of
the UN's oil-for-food program, which began in December 1996, helped
improve conditions for the average Iraqi citizen. Iraq was allowed
to export limited amounts of oil in exchange for food, medicine, and
some infrastructure spare parts. In December 1999, the UN Security
Council authorized Iraq to export under the program as much oil as
required to meet humanitarian needs. Per capita food imports
increased significantly, while medical supplies and health care
services steadily improved. Per capita output and living standards
were still well below the pre-1991 level, but any estimates have a
wide range of error. The military victory of the US-led coalition in
March-April 2003 resulted in the shutdown of much of the central
economic administrative structure. Although a comparatively small
amount of capital plant was damaged during the hostilities, looting,
insurgent attacks, and sabotage have undermined efforts to rebuild
the economy. Attacks on key economic facilities - especially oil
pipelines and infrastructure - have prevented Iraq from reaching
projected export volumes, but total government revenues have been
higher than anticipated due to high oil prices. Despite political
uncertainty, Iraq has established the institutions needed to
implement economic policy, has successfully concluded a three-stage
debt reduction agreement with the Paris Club, and is working toward
a Standby Arrangement with the IMF. The Standby Arrangement would
clear the way for continued debt relief from the Paris Club.

Ireland
Ireland is a small, modern, trade-dependent economy with
growth averaging a robust 7% in 1995-2004. Agriculture, once the
most important sector, is now dwarfed by industry and services.
Industry accounts for 46% of GDP, about 80% of exports, and 29% of
the labor force. Although exports remain the primary engine for
Ireland's growth, the economy has also benefited from a rise in
consumer spending, construction, and business investment. Per capita
GDP is 10% above that of the four big European economies and the
second highest in the EU behind Luxembourg. Over the past decade,
the Irish Government has implemented a series of national economic
programs designed to curb price and wage inflation, reduce
government spending, increase labor force skills, and promote
foreign investment. Ireland joined in circulating the euro on 1
January 2002 along with 11 other EU nations.

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. 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 government participation. It depends on imports of crude
oil, grains, raw materials, and military equipment. Despite limited
natural resources, Israel has intensively developed its agricultural
and industrial sectors over the past 20 years. Israel imports
substantial quantities of grain, but is largely self-sufficient in
other agricultural products. Cut diamonds, high-technology
equipment, and agricultural products (fruits and vegetables) are the
leading exports. Israel usually posts sizable current account
deficits, which are covered by large transfer payments from abroad
and by foreign loans. Roughly half of the government's external debt
is owed to the US, which is its major source of economic and
military aid. The bitter Israeli-Palestinian conflict; difficulties
in the high-technology, construction, and tourist sectors; and
fiscal austerity in the face of growing inflation led to small
declines in GDP in 2001 and 2002. The economy rebounded in 2003 and
2004, growing at a 4% rate each year, as the government tightened
fiscal policy and implemented structural reforms to boost
competition and efficiency in the markets. In 2005, rising consumer
confidence, tourism, and foreign direct investment - as well as
higher demand for Israeli exports - boosted GDP by 4.7%.

Italy
Italy has a diversified industrial economy with roughly the
same total and per capita output as France and the UK. This
capitalistic economy remains divided into a developed industrial
north, dominated by private companies, and a less-developed,
welfare-dependent, agricultural south, with 20% unemployment. Most
raw materials needed by industry and more than 75% of energy
requirements are imported. Over the past decade, Italy has pursued a
tight fiscal policy in order to meet the requirements of the
Economic and Monetary Unions and has benefited from lower interest
and inflation rates. The current government has enacted numerous
short-term reforms aimed at improving competitiveness and long-term
growth. Italy has moved slowly, however, on implementing needed
structural reforms, such as lightening the high tax burden and
overhauling Italy's rigid labor market and over-generous pension
system, because of the current economic slowdown and opposition from
labor unions. But the leadership faces a severe economic constraint:
the budget deficit has breached the 3% EU ceiling. The economy
experienced almost no growth in 2005, and unemployment remained at a
high level.

Jamaica
The Jamaican economy is heavily dependent on services, which
now account for 60% of GDP. The country continues to derive most of
its foreign exchange from remittances, tourism, and bauxite/alumina.
The global economic slowdown, particularly after the terrorist
attacks in the US on 11 September 2001, stunted economic growth; the
economy rebounded moderately in 2003-04, with brisk tourist seasons.
But the economy faces serious long-term problems: high interest
rates, increased foreign competition, exchange rate instability, a
sizable merchandise trade deficit, large-scale unemployment and
underemployment, and a growing stock of internal debt - the result
of government bailouts to ailing sectors of the economy, most
notably the financial sector in the mid-1990s. The ratio of debt to
GDP is 135%. Inflation, previously a bright spot, is expected to
remain in the double digits. Uncertain economic conditions have led
to increased civil unrest, including gang violence fueled by the
drug trade. In 2004, the government faced the difficult prospect of
having to achieve fiscal discipline in order to maintain debt
payments while simultaneously attacking a serious and growing crime
problem that is hampering economic growth. Attempts at deficit
control were derailed by Hurricane Ivan in September 2004, which
required substantial government spending to repair the damage.
Despite the hurricane, tourism looks set to enjoy solid growth for
the foreseeable future.

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

Japan
Government-industry cooperation, a strong work ethic, mastery
of high technology, and a comparatively small defense allocation (1%
of GDP) helped Japan advance with extraordinary rapidity to the rank
of second most technologically powerful economy in the world after
the US and 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 is how manufacturers,
suppliers, and distributors work 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 are now eroding. 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 60% 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 during the late 1980s
and contractionary domestic policies intended to wring speculative
excesses from the stock and real estate markets and to force a
restructuring of the economy. From 2000 to 2003, government efforts
to revive economic growth met with little success and were further
hampered by the slowing of the US, European, and Asian economies. In
2004 and 2005, growth improved and the lingering fears of deflation
in prices and economic activity lessened. Japan's huge government
debt, which totals 170% 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. Internal conflict over the
proper way to reform the financial system will continue as Japan
Post's banking, insurance, and delivery services undergo
privatization between 2007 and 2017.

Jarvis Island
no economic activity

Jersey
Jersey's economy is based on international financial
services, agriculture, and tourism. In 1996, the finance sector
accounted for about 60% of the island's output. Potatoes,
cauliflower, tomatoes, and especially flowers are important export
crops, shipped mostly to the UK. The Jersey breed of dairy cattle is
known worldwide and represents an important export income earner.
Milk products go to the UK and other EU countries. Tourism accounts
for 24% of GDP. In recent years, the government has encouraged light
industry to locate in Jersey, with the result that an electronics
industry has developed alongside the traditional manufacturing of
knitwear. All raw material and energy requirements are imported, as
well as a large share of Jersey's food needs. Light taxes and death
duties make the island a popular tax haven. Living standards come
close to those of the UK.

Johnston Atoll
no economic activity

Jordan
Jordan is a small Arab country with inadequate supplies of
water and other natural resources such as oil. Debt, poverty, and
unemployment are fundamental problems, but King ABDALLAH, since
assuming the throne in 1999, has undertaken some broad economic
reforms in a long-term effort to improve living standards. 'Amman in
the past three years has worked closely with the IMF, practiced
careful monetary policy, and made substantial headway with
privatization. The government also has liberalized the trade regime
sufficiently to secure Jordan's membership in the WTO (2000), a free
trade accord with the US (2001), and an association agreement with
the EU (2001). These measures have helped improve productivity and
have put Jordan on the foreign investment map. Jordan imported most
of its oil from Iraq, but the US-led war in Iraq in 2003 made Jordan
more dependent on oil from other Gulf nations, forcing the Jordanian
Government to raise retail petroleum product prices and the sales
tax base. Jordan's export market, which is heavily dependent on
exports to Iraq, was also affected by the war but recovered quickly
while contributing to the Iraq recovery effort. The main challenges
facing Jordan are reducing dependence on foreign grants, reducing
the budget deficit, and creating investment incentives to promote
job creation.

Juan de Nova Island
Up to 12,000 tons of guano are mined per year.

Kazakhstan
Kazakhstan, the largest of the former Soviet republics in
territory, excluding Russia, possesses enormous fossil fuel reserves
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 and also on a growing
machine-building sector specializing in construction equipment,
tractors, agricultural machinery, and some defense items. The
breakup of the USSR in December 1991 and the collapse in demand for
Kazakhstan's traditional heavy industry products resulted in a
short-term contraction of the economy, with the steepest annual
decline occurring in 1994. In 1995-97, the pace of the government
program of economic reform and privatization quickened, resulting in
a substantial shifting of assets into the private sector. Kazakhstan
enjoyed double-digit growth in 2000-01 - 9% or more per year in
2002-05 - thanks largely to its booming energy sector, but also to
economic reform, good harvests, and foreign investment. The opening
of the Caspian Consortium pipeline in 2001, from western
Kazakhstan's Tengiz oilfield to the Black Sea, substantially raised
export capacity. Kazakhstan also has begun work on an ambitious
cooperative construction effort with China to build an oil pipeline
that will 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 light industry. 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 2005
due to massive oil-related foreign-exchange inflows.

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. In 2003, progress was made in
rooting out corruption and encouraging donor support. GDP grew more
than 5% in 2005.

Kingman Reef
no economic activity

Kiribati
A remote country of 33 scattered coral atolls, Kiribati has
few natural resources. Commercially viable phosphate deposits were
exhausted at the time of independence from the UK in 1979. Copra and
fish now represent the bulk of production and exports. The economy
has fluctuated widely in recent years. Economic development is
constrained by a shortage of skilled workers, weak infrastructure,
and remoteness from international markets. Tourism provides more
than one-fifth of GDP. The financial sector is at an early stage of
development as is the expansion of private sector initiatives.
Foreign financial aid from UK, Japan, Australia, New Zealand, and
China equals about 20% 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 planned
and isolated economies, faces desperate economic conditions.
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. Despite an increased
harvest in 2005 because of more stable weather conditions,
fertilizer assistance from South Korea, and an extraordinary
mobilization of the population to help with agricultural production,
the nation has suffered its 11th year of food shortages because of
on-going systemic problems, including a lack of arable land,
collective farming practices, and chronic shortages of tractors and
fuel. Massive international food aid deliveries have allowed the
people of North Korea to escape mass starvation since famine
threatened in 1995, but the population continues to suffer from
prolonged malnutrition and poor living conditions. Large-scale
military spending eats up resources needed for investment and
civilian consumption. In 2004, the regime 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 regime reversed some of these policies by
forbidding private sales of grains and reinstituting a centralized
food rationing system. In December 2005, the regime confirmed that
it intended to carry out earlier threats to terminate all
international humanitarian assistance operations in the DPRK
(calling instead for developmental assistance only) and to restrict
the activities of international and non-governmental aid
organizations such as the World Food Program. Firm political control
remains the Communist government's overriding concern, which will
likely inhibit the loosening of economic regulations.

Korea, South
Since the early 1960s, South Korea has achieved an
incredible record of growth and integration into the high-tech
modern world economy. Four decades ago, GDP per capita was
comparable with levels in the poorer countries of Africa and Asia.
In 2004, South Korea joined the trillion dollar club of world
economies. Today its GDP per capita is equal to the lesser economies
of the EU. This success through the late 1980s was achieved by a
system of close government/business ties, including directed credit,
import restrictions, sponsorship of specific industries, and a
strong labor effort. The government promoted the import of raw
materials and technology at the expense of consumer goods and
encouraged savings and investment over consumption. The Asian
financial crisis of 1997-99 exposed longstanding weaknesses in South
Korea's development model, including high debt/equity ratios,
massive foreign borrowing, and an undisciplined financial sector.
GDP plunged by 6.9% in 1998, then recovered 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 2005, growth moderated to
about 4%. A downturn in consumer spending was offset by rapid export
growth. In 2005, the government proposed labor reform legislation
and a corporate pension scheme to help make the labor market more
flexible, and new real estate policies to cool property speculation.
Moderate inflation, low unemployment, an export surplus, and fairly
equal distribution of income characterize this solid economy.

Kuwait
Kuwait is a small, rich, relatively open economy with
self-reported crude oil reserves of about 96 billion barrels - 10%
of world reserves. Petroleum accounts for nearly half of GDP, 95% of
export revenues, and 80% of government income. Kuwait's climate
limits agricultural development. Consequently, with the exception of
fish, it depends almost wholly on food imports. About 75% of potable
water must be distilled or imported. Kuwait continues its
discussions with foreign oil companies to develop fields in the
northern part of the country.

Kyrgyzstan
Kyrgyzstan is a poor, mountainous country with a
predominantly agricultural economy. Cotton, tobacco, wool, and meat
are the main agricultural products, although only tobacco and cotton
are exported in any quantity. Industrial exports include gold,
mercury, uranium, natural gas, and electricity. Kyrgyzstan has been
progressive in carrying out market reforms, such as an improved
regulatory system and land reform. Kyrgyzstan was the first CIS
country to be accepted into the World Trade Organization. Much of
the government's stock in enterprises has been sold. Drops in
production had been severe after the breakup of the Soviet Union in
December 1991, but by mid-1995, production began to recover and
exports began to increase. Kyrgyzstan has distinguished itself by
adopting relatively liberal economic policies. The drop in output at
the Kumtor gold mine sparked a 0.5% decline in GDP in 2002, but GDP
growth bounced back in 2003-05. The government has made steady
strides in controlling its substantial fiscal deficit and reduced
the deficit to 1% of GDP in 2005. The government and international
financial institutions have been engaged in a comprehensive
medium-term poverty reduction and economic growth strategy, and in
2005 agreed to pursue much-needed tax reform. Progress fighting
corruption, further restructuring of domestic industry, and success
in attracting foreign investment are keys to future growth.

Laos
The government of Laos, one of the few remaining official
Communist states, began decentralizing control and encouraging
private enterprise in 1986. The results, starting from an extremely
low base, were striking - growth averaged 6% in 1988-2004 except
during the short-lived drop caused by the Asian financial crisis
beginning in 1997. Despite this high growth rate, Laos remains a
country with a primitive infrastructure. It has no railroads, a
rudimentary road system, and limited external and internal
telecommunications, though the government is sponsoring major
improvements in the road system with possible support from Japan.
Electricity is available in only a few urban areas. Subsistence
agriculture, dominated by rice, accounts for about half of GDP and
provides 80% of total employment. The economy will continue to
benefit from aid by the IMF and other international sources and from
new foreign investment in food processing and mining. Construction
will be another strong economic driver, especially as hydroelectric
dam and road projects gain steam. In late 2004, Laos gained Normal
Trade Relations status with the US, allowing Laos-based producers to
face lower tariffs on exports. This new status may help spur growth.
In addition, the European Union has agreed to provide $1 million to
the Lao Government for technical assistance in preparations for WTO
membership. If the avian flu worsens and spreads in the region,
however, prospects for tourism could dim.