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

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
have compounded 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; however, stronger growth this year
has improved employment considerably. Growth in 2001-03 fell short
of 1%, rising to 1.7% in 2004, falling back to 0.9% in 2005, and
increasing to 2.2% in 2006. Unemployment fell to 7.1% in October
2006, based on the Internation Labor Organization's measurement. 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 chronic 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 - and a lack of competition in the sevice sectors
have made slow growth a chronic problem. Corporate restructuring and
growing capital markets are setting the foundations that could help
Germany meet the long-term challenges of European economic
integration and globalization; however, the current government has
failed to pass meaningful economic reform that would improve growth
prospects. Higher government revenues from the cyclical upturn in
2006 reduced Germany's budget deficit to within the EU's 3% debt
limit.

Ghana
Well endowed with natural resources, Ghana has roughly twice
the per capita output of the poorest countries in West Africa. Even
so, Ghana remains heavily dependent on international financial and
technical assistance. Gold, 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 2006
along with record high prices for Ghana's largest cocoa crop to
date. Ghana received a Millennium Challenge Corporation (MCC) grant
in 2006, which aims to assist in transforming Ghana's agricultural
export sector.

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

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 nearly 4.0% per year
between 2003 and 2006, largely because of an investment boom and
infrastructure upgrades for the 2004 Athens Olympic Games. 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, despite vocal opposition
from the country's powerful labor unions and the general public.

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.

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-fifths 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, and Guatemala since
then has pursued important reforms and macroeconomic stabilization.
The distribution of income remains highly unequal with about 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. Remittances from a large expatriate
community that moved to the United States during the war have become
an important source of foreign exchange.

Guernsey
Financial services - banking, fund management, insurance -
account for about 23% of employment and 32% of total income in this
tiny, prosperous Channel Island economy. Tourism, manufacturing, and
horticulture, mainly tomatoes and cut flowers, have been declining.
Financial services, construction, retail, and the public sector have
been growing. Light tax and death duties make Guernsey a popular tax
haven. The evolving economic integration of the EU nations is
changing the environment under which Guernsey operates.

Guinea
Guinea possesses major mineral, hydropower, and agricultural
resources, yet remains an underdeveloped nation. The country
possesses almost half of the world's bauxite reserves and is the
second-largest bauxite producer. The mining sector accounts for over
70% of exports. Long-run improvements in government fiscal
arrangements, literacy, and the legal framework are needed if the
country is to move out of poverty. 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 trying to reengage with
the IMF and World Bank, which cut off most assistance in 2003.
Growth rose slightly in 2006, primarily due to increases in global
demand and commodity prices on world markets, but the standard of
living fell. The Guinea franc depreciated sharply as the prices for
basic necessities like food and fuel rose beyond the reach of most
Guineans. Dissatisfaction with economic conditions prompted
nationwide strikes in February and June 2006.

Guinea-Bissau
One of the 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
2002-06.

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. 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 InterAmerican Development
Bank in November 2006 canceled Guyana's nearly $400 million debt
with the Bank. 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
will broaden the country's export market, primarily in the raw
materials sector.

Haiti
Haiti is the poorest country in the Western Hemisphere, with
80% of the population living under the poverty line and 54% in
abject poverty. Two-thirds of all Haitians depend on the agriculture
sector, mainly small-scale subsistence farming, and remain
vulnerable to damage from frequent natural disasters, exacerbated by
the country's widespread deforestation. A macroeconomic program
developed in 2005 with the help of the International Monetary Fund
helped the economy grow 1.8% in 2006, the highest growth rate since
1999. Haiti suffers from higher inflation than similar low-income
countries, a lack of investment, and a severe trade deficit. In
2005, Haiti paid its arrears to the World Bank, paving the way for
reengagement with the Bank. The government relies on formal
international economic assistance for fiscal sustainability. In
2006, Haiti held a successful donors conference in which the total
aid pledged exceeded Haiti's request. Remittances are the primary
source of foreign exchange, equaling nearly a quarter of GDP.

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, the second poorest country in Central America and
one of the poorest countries in the Western Hemisphere, with an
extraordinarily unequal distribution of income and massive
unemployment, is banking on expanded trade under the US-Central
America Free Trade Agreement (CAFTA) and on debt relief under the
Heavily Indebted Poor Countries (HIPC) initiative. 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. The economy relies heavily on a narrow range of exports,
notably bananas and coffee, making it vulnerable to natural
disasters and shifts in commodity prices, but in recent years has
experienced a rapid rise in exports of light manufacturers. Growth
remains dependent on the economy of the US, its largest trading
partner, and on reduction of the high crime rate, as a means of
attracting and maintaining investment.

Hong Kong
Hong Kong has a free market economy highly dependent on
international trade. The territory has become more closely linked to
mainland China over the past few years. Even before Hong Kong
reverted to Chinese administration on 1 July 1997, it had extensive
trade and investment ties with China. Hong Kong's service industry
over the past decade has grown rapidly as its manufacturing industry
has moved to the mainland. Hong Kong also has stepped up its efforts
to gain approval to offer more mainland financial services in a bid
to remain competitive with China's growing financial centers. Hong
Kong's 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. Per capita GDP exceeds that of the four big economies of
Western Europe. GDP growth averaged a strong 5% from 1989 to 2006,
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 2006. Moreover, several large initial public offerings
of Chinese companies on the Hong Kong stock exchange since late 2005
have helped to boost Hong Kong's status as a financial hub and have
contributed to the improved performance of the market in late 2006.

Howland Island
no economic activity

Hungary
Hungary has made the transition from a centrally planned to
a market economy, with a per capita income nearly two-thirds that of
the EU-25 average. 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 $60 billion since 1989. Hungarian
sovereign debt was upgraded in 2000 - together with the Czech
Republic, Hungary holds the highest rating among the Central
European transition economies. Rating agencies, however, have
expressed concerns over Hungary's fiscal and current account
deficits. Inflation has declined from 14% in 1998 to 3.7% in 2006.
Unemployment has persisted above 6%. Hungary's labor force
participation rate of 57% is one of the lowest in the Organization
for Economic Cooperation and Development (OECD). Germany is by far
Hungary's largest economic partner. Policy challenges include
cutting the public sector deficit to 3% of GDP by 2008, from about
6.5% in 2006, 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 nearly 60% of export
earnings and employs 6% of the work force. The economy remains
sensitive to declining fish stocks as well as to fluctuations in
world prices for its main exports: fish and fish products, aluminum,
and ferrosilicon. 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. Since 2000
growth has varied from a -1% in 2002 to 8% in 2004.

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 more than 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. The government has reduced
controls on foreign trade and investment. Tariffs averaged 12.5% on
non-agricultural items in 2006. Higher limits on foreign direct
investment were permitted in a few key sectors, such as
telecommunications. However, tariff spikes in sensitive categories,
including agriculture, and incremental progress on economic reforms
still hinder foreign access to India's vast and growing market.
Privatization of government-owned industries remained stalled in
2006, and continues to generate political debate; populist pressure
from within the UPA government and from its Left Front allies
continues to restrain needed initiatives. The economy has posted an
average growth rate of more than 7% in the decade since 1996,
reducing poverty by about 10 percentage points. India achieved 8.5%
GDP growth in 2006, 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. Economic expansion has helped New Delhi
continue to make progress in reducing its federal fiscal deficit.
However, strong growth - more than 8 percent growth in each of the
last three years - combined with easy consumer credit and a real
estate boom is fueling inflation concerns. The huge and growing
population is the fundamental social, economic, and environmental
problem.

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

Indonesia
Indonesia, a vast polyglot nation, has struggled to
overcome the Asian financial crisis, and still grapples with high
poverty and unemployment, inadequate infrastructure, endemic
corruption, a fragile banking sector, a poor investment climate, and
unequal resource distribution among regions. The country continues
the slow work of rebuilding from the devastating December 2004
tsunami and from an earthquake in central Java in May 2006 that
caused over $3 billion in damage and losses. Declining oil
production and lack of new exploration investment turned Indonesia
into a net oil importer in 2004. 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, prompting the government to enact a 126% average
fuel price hike in October. The resulting inflation and interest
rate hikes dampened growth through mid-2006, while large increases
in rice prices pushed millions more people under the national
poverty line. Economic reformers introduced three policy packages in
2006 to improve the investment climate, infrastructure, and the
financial sector, but translating them into reality has not been
easy. 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 nearly $60
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. 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 is making some
progress in building the institutions needed to implement economic
policy and has concluded a debt reduction agreement with the Paris
Club and a Standby Arrangement with the IMF. Iraq's economic
prospects will depend on the government's ability to control
inflation, to implement structural reforms such as bank
restructuring, and to develop the private sector.

Ireland
Ireland is a small, modern, trade-dependent economy with
growth averaging 6% in 1995-2006. 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. The Isle of Man also attracts online gambling sites and the
film industry. Trade is mostly with the UK. The Isle of Man enjoys
free access to EU markets.

Israel
Israel has a technologically advanced market economy with
substantial, though diminishing, government participation. It
depends on imports of crude oil, grains, raw materials, and military
equipment. Despite limited natural resources, Israel has intensively
developed its agricultural and industrial sectors over the past 20
years. Israel imports substantial quantities of grain, but is
largely self-sufficient in other agricultural products. Cut
diamonds, high-technology equipment, and agricultural products
(fruits and vegetables) are the leading exports. Israel usually
posts sizable trade deficits, which are covered by large transfer
payments from abroad and by foreign loans. Roughly half of the
government's external debt is owed to the US, 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 2003-05, 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. The
conflict with Lebanon in summer 2006 dampened slightly GDP growth
estimates for the year, but continuing strong foreign investment,
tax revenue, and private consumption levels helped the economy
recover quickly.

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 low growth in 2006, 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.
Jamaica's economy, already saddled with a record of relatively low
growth, was hit hard by Hurricane Ivan in late 2004, and is making a
gradual recovery. 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 high debt burden - the
result of government bailouts to ailing sectors of the economy, most
notably the financial sector in the mid-1990s. Following a strategy
begun in 2004, Jamaica has reduced its public debt to 130% of GDP.
Inflation has declined to 9%. Uncertain economic conditions have led
to increased civil unrest, including gang violence fueled by the
drug trade. The government faces the difficult prospect of having to
achieve fiscal discipline in order to maintain debt payments while
simultaneously attacking a serious and growing crime problem that is
hampering economic growth.

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

Japan
Government-industry cooperation, a strong work ethic, mastery
of high technology, and a comparatively small defense allocation (1%
of GDP) helped Japan advance with extraordinary rapidity to the rank
of second most technologically powerful economy in the world after
the US and the third-largest economy in the world after the US and
China, measured on a purchasing power parity (PPP) basis. One
notable characteristic of the economy 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
2004-06, growth improved and the lingering fears of deflation in
prices and economic activity lessened. Japan's huge government debt,
which totals 175% 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 2005 the finance sector
accounted for about 50% of the island's output. Potatoes,
cauliflower, tomatoes, and especially flowers are important export
crops, shipped mostly to the UK. The Jersey breed of dairy cattle is
known worldwide and represents an important export income earner.
Milk products go to the UK and other EU countries. Tourism accounts
for one-quarter of GDP. In recent years, the government has
encouraged light industry to locate in Jersey, with the result that
an electronics industry has developed alongside the traditional
manufacturing of knitwear. All raw material and energy requirements
are imported, as well as a large share of Jersey's food needs. Light
taxes and death duties make the island a popular tax haven. Living
standards come close to those of the UK.

Johnston Atoll
no economic activity

Jordan
Jordan is a small Arab country with insufficient supplies of
water, oil, and other natural resources. 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. Since
Jordan's graduation from its most recent IMF program in 2002, Amman
has continued to follow IMF guidelines, practicing careful monetary
policy, and making 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, and has forced 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 - 8% or more per year in
2002-06 - 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 in 2006 completed the Atasu-Alashankou
portion of an oil pipeline to China that is planned to extend from
the country's Caspian coast eastward to the Chinese border in future
construction. 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 2006
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. Since then,
however, the KIBAKI government has been rocked by high-level graft
scandals. The World Bank suspended aid for most of 2006, and the IMF
has delayed loans pending further action by the government on
corruption. The scandals have not seemed to affect growth, with GDP
growing more than 5% in 2006.

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 more than 10% of GDP. Remittances from seamen on
merchant ships abroad account for more than $5 million each year.
Kiribati receives around $15 million annually for the government
budget from an Australian trust fund.

Korea, North
North Korea, one of the world's most centrally 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. Due in part to severe
summer flooding followed by dry weather conditions in the fall of
2006, the nation has suffered its 12th 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. By December 2005, the regime terminated most
international humanitarian assistance operations in the DPRK
(calling instead for developmental assistance only) and restricted
the activities of remaining 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 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
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 2006,
growth moderated to about 4-5%. A downturn in consumer spending was
offset by rapid export growth. 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. High oil prices in recent years have
helped build Kuwait's budget and trade surpluses and foreign
reserves. As a result of this positive fiscal situation, the need
for economic reforms is less urgent and the government has not
earnestly pushed through new initiatives.

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. Following
independence Kyrgyzstan was progressive in carrying out market
reforms, such as an improved regulatory system and land reform, but
political instability during 2005-06 has undercut the investment
climate. 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. The
economy is heavily weighted toward gold export and a drop in output
at the main Kumtor gold mine sparked a 0.5% decline in GDP in 2002,
but GDP growth bounced back the following year. In 2005 Kyrgyzstan
again experienced a decline in GDP, this time 0.6%. The government
has made steady strides in controlling its substantial fiscal
deficit, virtually balancing revenues and expenditures in 2006. The
government and international financial institutions have been
engaged in a comprehensive medium-term poverty reduction and
economic growth strategy; in 2005 Bishkek agreed to pursue
much-needed tax reform and in 2006 became eligible for the heavily
indebted poor countries (HIPC) initiative. 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% per year in 1988-2006
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 hydropower and mining.
Construction will be another strong economic driver, especially as
hydroelectric dam and road projects gain steam. Several policy
changes since 2004 may help spur growth. In late 2004, Laos gained
Normal Trade Relations status with the US, allowing Laos-based
producers to benefit from lower tariffs on exports. Laos is taking
steps to join the World Trade Organization in the next few years;
the resulting trade policy reforms will improve the business
environment. On the fiscal side, a value-added tax (VAT) regime,
slated to begin in 2008, will streamline the government's
inefficient tax system.

Latvia
Latvia's transitional economy recovered from the 1998 Russian
financial crisis, largely due to the government's budget stringency
and a gradual reorientation of exports toward EU countries,
lessening Latvia's trade dependency on Russia. The majority of
companies, banks, and real estate have been privatized, although the
state still holds sizable stakes in a few large enterprises. Latvia
officially joined the World Trade Organization in February 1999. EU
membership, a top foreign policy goal, came in May 2004. The current
account deficit - 15.7% of GDP in 2006 - remains a major concern.
The perception that many of Latvia's banks facilitate illicit
activity could damage the country's vibrant financial sector.

Lebanon
The 1975-91 civil war seriously damaged Lebanon's economic
infrastructure, cut national output by half, and all but ended
Lebanon's position as a Middle Eastern entrepot and banking hub. In
the years since, Lebanon has rebuilt much of its war-torn physical
and financial infrastructure by borrowing heavily - mostly from
domestic banks. In an attempt to reduce the ballooning national
debt, the Rafiq HARIRI government began an austerity program,
reining in government expenditures, increasing revenue collection,
and privatizing state enterprises, but economic and financial reform
initiatives stalled and public debt continued to grow despite
receipt of more than $2 billion in bilateral assistance at the Paris
II Donors Conference. The Israeli-Hizballah conflict caused an
estimated $3.6 billion in infrastructure damage in July and August
2006, and internal Lebanese political tension continues to hamper
economic activity.

Lesotho
Small, landlocked, and mountainous, Lesotho relies on
remittances from miners employed in South Africa and customs duties
from the Southern Africa Customs Union for the majority of
government revenue. However, the government has recently
strengthened its tax system to reduce dependency on customs duties.
Completion of a major hydropower facility in January 1998 now
permits the sale of water to South Africa, also generating royalties
for Lesotho. As the number of mineworkers has declined steadily over
the past several years, a small manufacturing base has developed
based on farm products that support the milling, canning, leather,
and jute industries, as well as a rapidly expanding apparel-assembly
sector. The latter has grown significantly, mainly due to Lesotho
qualifying for the trade benefits contained in the Africa Growth and
Opportunity Act. The economy is still primarily based on subsistence
agriculture, especially livestock, although drought has decreased
agricultural activity. The extreme inequality in the distribution of
income remains a major drawback. Lesotho has signed an Interim
Poverty Reduction and Growth Facility with the IMF.

Liberia
Civil war and government mismanagement have destroyed much
of Liberia's economy, especially the infrastructure in and around
Monrovia. Many businessmen have fled the country, taking capital and
expertise with them. Some have returned, but many will not. Richly
endowed with water, mineral resources, forests, and a climate
favorable to agriculture, Liberia had been a producer and exporter
of basic products - primarily raw timber and rubber. Local
manufacturing, mainly foreign owned, had been small in scope.
President JOHNSON SIRLEAF, a Harvard-trained economist, has taken
steps to reduce corruption, build support from international donors,
and encourage private investment. An embargo on timber exports has
been lifted, opening a source of revenue for the government, but
diamonds remain under UN sanctions. The reconstruction of
infrastructure and the raising of incomes in this ravaged economy
will largely depend on generous financial support and technical
assistance from donor countries.

Libya
The Libyan economy depends primarily upon revenues from the
oil sector, which contribute about 95% of export earnings, about
one-quarter of GDP, and 60% of public sector wages. Substantial
revenues from the energy sector coupled with a small population give
Libya one of the highest per capita GDPs in Africa, but little of
this income flows down to the lower orders of society. Libyan
officials in the past four years have made progress on economic
reforms as part of a broader campaign to reintegrate the country
into the international fold. This effort picked up steam after UN
sanctions were lifted in September 2003 and as Libya announced in
December 2003 that it would abandon programs to build weapons of
mass destruction. Almost all US unilateral sanctions against Libya
were removed in April 2004, helping Libya attract more foreign
direct investment, mostly in the energy sector. Libyan oil and gas
licensing rounds continue to draw high international interest. Libya
faces a long road ahead in liberalizing the socialist-oriented
economy, but initial steps - including applying for WTO membership,
reducing some subsidies, and announcing plans for privatization -
are laying the groundwork for a transition to a more market-based
economy. The non-oil manufacturing and construction sectors, which
account for more than 20% of GDP, have expanded from processing
mostly agricultural products to include the production of
petrochemicals, iron, steel, and aluminum. Climatic conditions and
poor soils severely limit agricultural output, and Libya imports
about 75% of its food.

Liechtenstein
Despite its small size and limited natural resources,
Liechtenstein has developed into a prosperous, highly
industrialized, free-enterprise economy with a vital financial
service sector and living standards on a par with its large European
neighbors. The Liechtenstein economy is widely diversified with a
large number of small businesses. Low business taxes - the maximum
tax rate is 20% - and easy incorporation rules have induced many
holding or so-called letter box companies to establish nominal
offices in Liechtenstein, providing 30% of state revenues. The
country participates in a customs union with Switzerland and uses
the Swiss franc as its national currency. It imports more than 90%
of its energy requirements. Liechtenstein has been a member of the
European Economic Area (an organization serving as a bridge between
the European Free Trade Association (EFTA) and the EU) since May
1995. The government is working to harmonize its economic policies
with those of an integrated Europe.

Lithuania
Lithuania, the Baltic state that has conducted the most
trade with Russia, has slowly rebounded from the 1998 Russian
financial crisis. Unemployment dropped from 11% in 2003 to 4.5% in
2006. Growing domestic consumption and increased investment have
furthered recovery. Trade has been increasingly oriented toward the
West. Lithuania has gained membership in the World Trade
Organization and joined the EU in May 2004. Privatization of the
large, state-owned utilities, particularly in the energy sector, is
nearing completion. Overall, more than 80% of enterprises have been
privatized. Foreign government and business support have helped in
the transition from the old command economy to a market economy.

Luxembourg
This stable, high-income economy - benefitting from its
proximity to France, Belgium, and Germany - features solid growth,
low inflation, and low unemployment. The industrial sector,
initially dominated by steel, has become increasingly diversified to
include chemicals, rubber, and other products. Growth in the
financial sector, which now accounts for about 28% of GDP, has more
than compensated for the decline in steel. Most banks are
foreign-owned and have extensive foreign dealings. Agriculture is
based on small family-owned farms. The economy depends on foreign
and cross-border workers for about 60% of its labor force. Although
Luxembourg, like all EU members, has suffered from the global
economic slump, the country enjoys an extraordinarily high standard
of living - GDP per capita ranks first in the world.

Macau
Macau's well-to-do economy has remained one of the most open
in the world since its reversion to China in 1999. Apparel exports
and tourism are mainstays of the economy. Although the territory was
hit hard by the 1997-98 Asian financial crisis and the global
downturn in 2001, its economy grew 10.1% in 2002, 14.2% in 2003, and
28.6% in 2004 before slowing to 6.7% in 2005. The economic boom was
powered by gambling, tourism, and the construction necessary to
support such endeavours. China's decision to ease travel
restrictions led to a rapid rise in the number of mainland visitors.
The opening of Macau's gaming industry to foreign access in 2001
spurred an increase in public works expenditures. The budget also
returned to surplus in 2002 because of the surge in visitors from
China and a hike in taxes on gambling profits, which generated about
70% of government revenue. Much of Macau's textile industry may move
to the mainland due to the termination in 2005 of the Multi-Fiber
Agreement, which provided a near guarantee of export markets,
leaving the territory more dependant on gambling and trade-related
services to generate growth. The Closer Economic Partnership
Agreement (CEPA) between Macau and mainland China that came into
effect on 1 January 2004 offers many Macau-made products tariff-free
access to the mainland. The range of products covered by CEPA was
expanded on 1 January 2005.

Macedonia
At independence in September 1991, Macedonia was the least
developed of the Yugoslav republics, producing a mere 5% of the
total federal output of goods and services. The collapse of
Yugoslavia ended transfer payments from the central government and
eliminated advantages from inclusion in a de facto free trade area.
An absence of infrastructure, UN sanctions on the downsized
Yugoslavia, and a Greek economic embargo over a dispute about the
country's constitutional name and flag hindered economic growth
until 1996. GDP subsequently rose each year through 2000. However,
the leadership's commitment to economic reform, free trade, and
regional integration was undermined by the ethnic Albanian
insurgency of 2001. The economy shrank 4.5% because of decreased
trade, intermittent border closures, increased deficit spending on
security needs, and investor uncertainty. Growth barely recovered in
2002 to 0.9%, then averaged 4% per year during 2003-06. Macedonia
has maintained macroeconomic stability with low inflation, but it
has lagged the region in attracting foreign investment and job
growth has been anemic. Macedonia has an extensive grey market,
estimated to be more than 20 percent of GDP, that falls outside
official statistics.