Chapter CXVIII: Part 118

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.
Kyrgyzstan was the first Commonwealth of Independent States (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 and a 0.6% decline in 2005.
GDP grew more than 6% in 2007, partly due to higher gold prices
internationally. The government made steady strides in controlling
its substantial fiscal deficit, nearly closing the gap between
revenues and expenditures in 2006, before boosting expenditures more
than 20% in 2007. 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 one-party
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 1988-2007
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 underdeveloped infrastructure, particularly
in rural areas. 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
support from Japan and China. Electricity is available in urban
areas and in most rural districts. Subsistence agriculture,
dominated by rice, accounts for about 40% of GDP and provides 80% of
total employment. The economy will continue to benefit from aid from
international donors and from 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, should help streamline
the government's inefficient tax system.

Latvia
Latvia's economy experienced GDP growth of more than 10% per
year during 2006-07. 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 -
more than 22% of GDP in 2007 - and inflation - at nearly 10% per
year - remain major concerns.

Lebanon
The 1975-90 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 in the 1990s 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 2002 Paris II Donors Conference. The Israeli-Hizballah
conflict in July-August 2006 caused an estimated $3.6 billion in
infrastructure damage, and prompted international donors to pledge
nearly $1 billion in recovery and reconstruction assistance. Donors
met again in January 2007 at the Paris III Donor Conference and
pledged more than $7.5 billion to Lebanon for development projects
and budget support, conditioned on progress on Beirut's fiscal
reform and privatization program. An 18-month political stalemate
and sporadic sectarian and political violence hampered economic
activity, particularly tourism, retail sales, and investment, until
a new government was formed in July 2008.

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 permitted
the sale of water to South Africa and generated royalties for
Lesotho. Lesotho produces about 90% of its own electrical power
needs. 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. In July 2007,
Lesotho signed a Millennium Challenge Account Compact with the US
worth $362.5 million.

Liberia
Civil war and government mismanagement destroyed much of
Liberia's economy, especially the infrastructure in and around the
capital, Monrovia. Many businesses fled the country, taking capital
and expertise with them, but with the conclusion of fighting and the
installation of a democratically-elected government in 2006, some
have returned. 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 banker and
administrator, has taken steps to reduce corruption, build support
from international donors, and encourage private investment.
Embargos on timber and diamond exports have been lifted, opening new
sources of revenue for the government. The reconstruction of
infrastructure and the raising of incomes in this ravaged economy
will largely depend on generous financial and technical assistance
from donor countries and foreign investment in key sectors, such as
infrastructure and power generation.

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 five 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; the
National Oil Company set a goal of nearly doubling oil production to
3 million bbl/day by 2015. 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. Libya's primary
agricultural water source remains the Great Manmade River Project,
but significant resources are being invested in desalinization
research to meet growing water demands.

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 grown rapidly since rebounding from the 1998
Russian financial crisis. Unemployment fell to 3.2% in 2007 while
wages continued to grow at double digit rates, contributing to
rising inflation. Exports and imports also grew strongly, and the
current account deficit rose to nearly 15% of GDP in 2007. 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 is nearly
complete. 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 - benefiting 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, suffered from the global economic
slump in the early part of this decade, the country continues to
enjoy an extraordinarily high standard of living - GDP per capita
ranks second in the world, after Qatar. After two years of strong
economic growth in 2006-07, turmoil in the world financial markets
will slow Luxembourg's economy in 2008, but growth will remain above
the European average.

Macau
Macau's economy has enjoyed strong growth in recent years on
the back of its expanding tourism and gaming sectors. Since opening
up its locally-controlled casino industry to foreign competition in
2001, the territory has attracted tens of billions of dollars in
foreign investment that have helped transform it into the world's
largest gaming center. In 2006, Macau's gaming revenue surpassed
that of the Las Vegas strip, and gaming-related taxes accounted for
75% of total government revenue. The expanding casino sector, and
China's decision beginning in 2002 to relax travel restrictions,
have reenergized Macau's tourism industry, which saw total visitors
grow to 27 million in 2007, up 62% in three years. Macau's strong
economic growth has put pressure its labor market prompting
businesses to look abroad to meet their staffing needs. The
resulting influx of non-resident workers, who totaled one-fifth of
the workforce in 2006, has fueled tensions among some segments of
the population. Macau's traditional manufacturing industry has been
in a slow decline. In 2006, exports of textiles and garments
generated only $1.8 billion compared to $6.9 billion in gross gaming
receipts. Macau's textile industry will continue to move to the
mainland because of the termination in 2005 of the Multi-Fiber
Agreement, which provided a near guarantee of export markets,
leaving the territory more dependent on gambling and trade-related
services to generate growth. However, 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. Macau's currency, the Pataca, is
closely tied to the Hong Kong dollar, which is also freely accepted
in the territory.

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. In 2001,
during a civil conflict, 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 2003-07,
expanding to 5.1% in 2007. Macedonia has maintained macroeconomic
stability with low inflation, but it has so far lagged the region in
attracting foreign investment and creating jobs, despite making
extensive fiscal and business sector reforms. Official unemployment
remains high at nearly 35%, but may be overstated based on the
existence of an extensive gray market, estimated to be more than 20
percent of GDP, that is not captured by official statistics.

Madagascar
Having discarded past socialist economic policies,
Madagascar has since the mid 1990s followed a World Bank- and
IMF-led policy of privatization and liberalization. This strategy
placed the country on a slow and steady growth path from an
extremely low level. Agriculture, including fishing and forestry, is
a mainstay of the economy, accounting for more than one-fourth of
GDP and employing 80% of the population. Exports of apparel have
boomed in recent years primarily due to duty-free access to the US.
Deforestation and erosion, aggravated by the use of firewood as the
primary source of fuel, are serious concerns. President RAVALOMANANA
has worked aggressively to revive the economy following the 2002
political crisis, which triggered a 12% drop in GDP that year.
Poverty reduction and combating corruption will be the centerpieces
of economic policy for the next few years.

Malawi
Landlocked Malawi ranks among the world's most densely
populated and least developed countries. The economy is
predominately agricultural with about 85% of the population living
in rural areas. Agriculture accounts for more than one-third of GDP
and 90% of export revenues. The performance of the tobacco sector is
key to short-term growth as tobacco accounts for more than half of
exports. The economy depends on substantial inflows of economic
assistance from the IMF, the World Bank, and individual donor
nations. In December 2007, the US granted Malawi eligibility status
to receive financial support within the Millennium Challenge
Corporation (MCC) initiative. Malawi will now begin a consultative
process to develop a five-year program before funding can begin. In
2006, Malawi was approved for relief under the Heavily Indebted Poor
Countries (HIPC) program. The government faces many challenges
including developing a market economy, improving educational
facilities, facing up to environmental problems, dealing with the
rapidly growing problem of HIV/AIDS, and satisfying foreign donors
that fiscal discipline is being tightened. In 2005, President
MUTHARIKA championed an anticorruption campaign. Since 2005
President MUTHARIKA'S government has exhibited improved financial
discipline under the guidance of Finance Minister Goodall GONDWE and
signed a three year Poverty Reduction and Growth Facility worth $56
million with the IMF. Improved relations with the IMF lead other
international donors to resume aid as well.

Malaysia
Malaysia, a middle-income country, has transformed itself
since the 1970s from a producer of raw materials into an emerging
multi-sector economy. Since coming to office in 2003, Prime Minister
ABDULLAH has tried to move the economy farther up the value-added
production chain by attracting investments in high technology
industries, medical technology, and pharmaceuticals. The Government
of Malaysia is continuing efforts to boost domestic demand to wean
the economy off of its dependence on exports. Nevertheless, exports
- particularly of electronics - remain a significant driver of the
economy. As an oil and gas exporter, Malaysia has profited from
higher world energy prices, although the rising cost of domestic
gasoline and diesel fuel forced Kuala Lumpur to reduce government
subsidies. Malaysia "unpegged" the ringgit from the US dollar in
2005 and the currency appreciated 6% per year against the dollar in
2006-07. Although this has helped to hold down the price of imports,
inflationary pressures began to build in 2007. Healthy foreign
exchange reserves and a small external debt greatly reduce the risk
that Malaysia will experience a financial crisis over the near term
similar to the one in 1997. The government presented its five-year
national development agenda in April 2006 through the Ninth Malaysia
Plan, a comprehensive blueprint for the allocation of the national
budget from 2006-10. With national elections expected within the
year, ABDULLAH has unveiled a series of ambitious development
schemes for several regions that have had trouble attracting
business investment. Real GDP growth has averaged about 6% per year
under ABDULLAH, but regions outside of Kuala Lumpur and the
manufacturing hub Penang have not fared as well.

Maldives
Tourism, Maldives' largest industry, accounts for 28% of
GDP and more than 60% of the Maldives' foreign exchange receipts.
Over 90% of government tax revenue comes from import duties and
tourism-related taxes. Fishing is the second leading sector.
Agriculture and manufacturing continue to play a lesser role in the
economy, constrained by the limited availability of cultivable land
and the shortage of domestic labor. Most staple foods must be
imported. Industry, which consists mainly of garment production,
boat building, and handicrafts, accounts for about 7% of GDP. The
Maldivian Government began an economic reform program in 1989
initially by lifting import quotas and opening some exports to the
private sector. Subsequently, it has liberalized regulations to
allow more foreign investment. Real GDP growth averaged over 7.5%
per year for more than a decade. In late December 2004, a major
tsunami left more than 100 dead, 12,000 displaced, and property
damage exceeding $300 million. As a result of the tsunami, the GDP
contracted by about 3.6% in 2005. A rebound in tourism, post-tsunami
reconstruction, and development of new resorts helped the economy
recover quickly. The trade deficit has expanded sharply as a result
of high oil prices and imports of construction material.
Diversifying beyond tourism and fishing and increasing employment
are the major challenges facing the government. Over the longer term
Maldivian authorities worry about the impact of erosion and possible
global warming on their low-lying country; 80% of the area is 1
meter or less above sea level.

Mali
Mali is among the poorest countries in the world, with 65% of
its land area desert or semidesert and with a highly unequal
distribution of income. Economic activity is largely confined to the
riverine area irrigated by the Niger. About 10% of the population is
nomadic and some 80% of the labor force is engaged in farming and
fishing. Industrial activity is concentrated on processing farm
commodities. Mali is heavily dependent on foreign aid and vulnerable
to fluctuations in world prices for cotton, its main export, along
with gold. The government has continued its successful
implementation of an IMF-recommended structural adjustment program
that is helping the economy grow, diversify, and attract foreign
investment. Mali's adherence to economic reform and the 50%
devaluation of the CFA franc in January 1994 have pushed up economic
growth to a 5% average in 1996-2007. Worker remittances and external
trade routes for the landlocked country have been jeopardized by
continued unrest in neighboring Cote d'Ivoire.

Malta
Major resources are limestone, a favorable geographic
location, and a productive labor force. Malta produces only about
20% of its food needs, has limited fresh water supplies, and has few
domestic energy sources. The economy is dependent on foreign trade,
manufacturing (especially electronics and pharmaceuticals), and
tourism. Economic recovery of the European economy has lifted
exports, tourism, and overall growth. Malta adopted the euro on 1
January 2008.

Marshall Islands
US Government assistance is the mainstay of this
tiny island economy. The Marshall Islands received more than $1
billion in aid from the US from 1986-2002. Agricultural production,
primarily subsistence, is concentrated on small farms; the most
important commercial crops are coconuts and breadfruit. Small-scale
industry is limited to handicrafts, tuna processing, and copra. The
tourist industry, now a small source of foreign exchange employing
less than 10% of the labor force, remains the best hope for future
added income. The islands have few natural resources, and imports
far exceed exports. Under the terms of the Amended Compact of Free
Association, the US will provide millions of dollars per year to the
Marshall Islands (RMI) through 2023, at which time a Trust Fund made
up of US and RMI contributions will begin perpetual annual payouts.
Government downsizing, drought, a drop in construction, the decline
in tourism, and less income from the renewal of fishing vessel
licenses have held GDP growth to an average of 1% over the past
decade.

Mauritania
Half the population still depends on agriculture and
livestock for a livelihood, even though many of the nomads and
subsistence farmers were forced into the cities by recurrent
droughts in the 1970s and 1980s. Mauritania has extensive deposits
of iron ore, which account for nearly 40% of total exports. The
nation's coastal waters are among the richest fishing areas in the
world, but overexploitation by foreigners threatens this key source
of revenue. The country's first deepwater port opened near
Nouakchott in 1986. In the past, drought and economic mismanagement
resulted in a buildup of foreign debt, which now stands at more than
three times the level of annual exports. In February 2000,
Mauritania qualified for debt relief under the Heavily Indebted Poor
Countries (HIPC) initiative and in December 2001 received strong
support from donor and lending countries at a triennial Consultative
Group review. A new investment code approved in December 2001
improved the opportunities for direct foreign investment. Ongoing
negotiations with the IMF involve problems of economic reforms and
fiscal discipline. In 2001, exploratory oil wells in tracts 80 km
offshore indicated potential extraction at current world oil prices.
Oil prospects, while initially promising, have failed to
materialize. Meantime the government emphasizes reduction of
poverty, improvement of health and education, and promoting
privatization of the economy.

Mauritius
Since independence in 1968, Mauritius has developed from a
low-income, agriculturally based economy to a middle-income
diversified economy with growing industrial, financial, and tourist
sectors. For most of the period, annual growth has been in the order
of 5% to 6%. This remarkable achievement has been reflected in more
equitable income distribution, increased life expectancy, lowered
infant mortality, and a much-improved infrastructure. The economy
rests on sugar, tourism, textiles and apparel, and financial
services, and is expanding into fish processing, information and
communications technology, and hospitality and property development.
Sugarcane is grown on about 90% of the cultivated land area and
accounts for 15% of export earnings. The government's development
strategy centers on creating vertical and horizontal clusters of
development in these sectors. Mauritius has attracted more than
32,000 offshore entities, many aimed at commerce in India, South
Africa, and China. Investment in the banking sector alone has
reached over $1 billion. Mauritius, with its strong textile sector,
has been well poised to take advantage of the Africa Growth and
Opportunity Act (AGOA).

Mayotte
Economic activity is based primarily on the agricultural
sector, including fishing and livestock raising. Mayotte is not
self-sufficient and must import a large portion of its food
requirements, mainly from France. The economy and future development
of the island are heavily dependent on French financial assistance,
an important supplement to GDP. Mayotte's remote location is an
obstacle to the development of tourism.

Mexico
Mexico has a free market economy in the trillion dollar
class. It contains a mixture of modern and outmoded industry and
agriculture, increasingly dominated by the private sector. Recent
administrations have expanded competition in seaports, railroads,
telecommunications, electricity generation, natural gas
distribution, and airports. Per capita income is one-fourth that of
the US; income distribution remains highly unequal. Trade with the
US and Canada has tripled since the implementation of NAFTA in 1994.
Mexico has 12 free trade agreements with over 40 countries
including, Guatemala, Honduras, El Salvador, the European Free Trade
Area, and Japan, putting more than 90% of trade under free trade
agreements. In 2007, during his first year in office, the Felipe
CALDERON administration was able to garner support from the
opposition to successfully pass a pension and a fiscal reform. The
administration continues to face many economic challenges including
the need to upgrade infrastructure, modernize labor laws, and allow
private investment in the energy sector. CALDERON has stated that
his top economic priorities remain reducing poverty and creating
jobs.

Micronesia, Federated States of
Economic activity consists primarily
of subsistence farming and fishing. The islands have few mineral
deposits worth exploiting, except for high-grade phosphate. The
potential for a tourist industry exists, but the remote location, a
lack of adequate facilities, and limited air connections hinder
development. Under the original terms of the Compact of Free
Association, the US provided $1.3 billion in grant aid during the
period 1986-2001; the level of aid has been subsequently reduced.
The Amended Compact of Free Association with the US guarantees the
Federated States of Micronesia (FSM) millions of dollars in annual
aid through 2023, and establishes a Trust Fund into which the US and
the FSM make annual contributions in order to provide annual payouts
to the FSM in perpetuity after 2023. The country's medium-term
economic outlook appears fragile due not only to the reduction in US
assistance but also to the current slow growth of the private sector.

Moldova
Moldova remains one of the poorest countries in Europe
despite recent progress from its small economic base. It enjoys a
favorable climate and good farmland but has no major mineral
deposits. As a result, the economy depends heavily on agriculture,
featuring fruits, vegetables, wine, and tobacco. Moldova must import
almost all of its energy supplies. Moldova's dependence on Russian
energy was underscored at the end of 2005, when a Russian-owned
electrical station in Moldova's separatist Transnistria region cut
off power to Moldova and Russia's Gazprom cut off natural gas in
disputes over pricing. Russia's decision to ban Moldovan wine and
agricultural products, coupled with its decision to double the price
Moldova paid for Russian natural gas, slowed GDP growth in 2006.
However, in 2007 growth returned to the 6% level Moldova had
achieved in 2000-05, boosted by Russia's partial removal of the
bans, solid fixed capital investment, and strong domestic demand
driven by remittances from abroad. Economic reforms have been slow
because of corruption and strong political forces backing government
controls. Nevertheless, the government's primary goal of EU
integration has resulted in some market-oriented progress. The
granting of EU trade preferences and increased exports to Russia
will encourage higher growth rates in 2008, but the agreements are
unlikely to serve as a panacea, given the extent to which export
success depends on higher quality standards and other factors. The
economy remains vulnerable to higher fuel prices, poor agricultural
weather, and the skepticism of foreign investors. Also, the presence
of an illegal separatist regime in Moldova's Transnistria region
continues to be a drag on the Moldovan economy.

Monaco
Monaco, bordering France on the Mediterranean coast, is a
popular resort, attracting tourists to its casino and pleasant
climate. The principality also is a major banking center and has
successfully sought to diversify into services and small,
high-value-added, nonpolluting industries. The state has no income
tax and low business taxes and thrives as a tax haven both for
individuals who have established residence and for foreign companies
that have set up businesses and offices. The state retains
monopolies in a number of sectors, including tobacco, the telephone
network, and the postal service. Living standards are high, roughly
comparable to those in prosperous French metropolitan areas.

Mongolia
Economic activity in Mongolia has traditionally been based
on herding and agriculture. Mongolia has extensive mineral deposits.
Copper, coal, gold, molybdenum, fluorspar, uranium, tin, and
tungsten account for a large part of industrial production and
foreign direct investment. Soviet assistance, at its height
one-third of GDP, disappeared almost overnight in 1990 and 1991 at
the time of the dismantlement of the USSR. The following decade saw
Mongolia endure both deep recession because of political inaction
and natural disasters, as well as economic growth because of
reform-embracing, free-market economics and extensive privatization
of the formerly state-run economy. Severe winters and summer
droughts in 2000-02 resulted in massive livestock die-off and zero
or negative GDP growth. This was compounded by falling prices for
Mongolia's primary sector exports and widespread opposition to
privatization. Growth was 10.6% in 2004, 5.5% in 2005, 7.5% in 2006,
and 9.9% in 2007 largely because of high copper prices and new gold
production. Mongolia is experiencing its highest inflation rate in
over a decade as consumer prices in 2007 rose 15%, largely because
of increased fuel and food costs. Mongolia's economy continues to be
heavily influenced by its neighbors. For example, Mongolia purchases
95% of its petroleum products and a substantial amount of electric
power from Russia, leaving it vulnerable to price increases. Trade
with China represents more than half of Mongolia's total external
trade - China receives about 70% of Mongolia's exports. Remittances
from Mongolians working abroad both legally and illegally are
sizable, and money laundering is a growing concern. Mongolia settled
its $11 billion debt with Russia at the end of 2003 on favorable
terms. Mongolia, which joined the World Trade Organization in 1997,
seeks to expand its participation and integration into Asian
regional economic and trade regimes.

Montenegro
Montenegro severed its economy from federal control and
from Serbia during the MILOSEVIC era and maintained its own central
bank, used the euro instead of the Yugoslav dinar as official
currency, collected customs tariffs, and managed its own budget. The
dissolution of the loose political union between Serbia and
Montenegro in 2006 led to separate membership in several
international financial institutions, such as the European Bank for
Reconstruction and Development. On 18 January 2007, Montenegro
joined the World Bank and IMF. Montenegro is pursuing its own
membership in the World Trade Organization as well as negotiating a
Stabilization and Association agreement with the European Union in
anticipation of eventual membership. Severe unemployment remains a
key political and economic problem for this entire region.
Montenegro has privatized its large aluminum complex - the dominant
industry - as well as most of its financial sector, and has begun to
attract foreign direct investment in the tourism sector.

Montserrat
Severe volcanic activity, which began in July 1995, has
put a damper on this small, open economy. A catastrophic eruption in
June 1997 closed the airports and seaports, causing further economic
and social dislocation. Two-thirds of the 12,000 inhabitants fled
the island. Some began to return in 1998, but lack of housing
limited the number. The agriculture sector continued to be affected
by the lack of suitable land for farming and the destruction of
crops. Prospects for the economy depend largely on developments in
relation to the volcanic activity and on public sector construction
activity. The UK has launched a three-year $122.8 million aid
program to help reconstruct the economy. Half of the island is
expected to remain uninhabitable for another decade.

Morocco
Moroccan economic policies brought macroeconomic stability
to the country in the early 1990s but have not spurred growth
sufficient to reduce unemployment - nearing 20% in urban areas -
despite the Moroccan Government's ongoing efforts to diversify the
economy. Morocco's GDP growth rate slowed to 2.1% in 2007 as a
result of a draught that severely reduced agricultural output and
necessitated wheat imports at rising world prices. Continued
dependence on foreign energy and Morocco's inability to develop
small and medium size enterprises also contributed to the slowdown.
Moroccan authorities understand that reducing poverty and providing
jobs are key to domestic security and development. In 2005, Morocco
launched the National Initiative for Human Development (INDH), a $2
billion social development plan to address poverty and unemployment
and to improve the living conditions of the country's urban slums.
Moroccan authorities are implementing reform efforts to open the
economy to international investors. Despite structural adjustment
programs supported by the IMF, the World Bank, and the Paris Club,
the dirham is only fully convertible for current account
transactions. In 2000, Morocco entered an Association Agreement with
the EU and, in 2006, entered a Free Trade Agreement (FTA) with the
US. Long-term challenges include improving education and job
prospects for Morocco's youth, and closing the income gap between
the rich and the poor, which the government hopes to achieve by
increasing tourist arrivals and boosting competitiveness in textiles.

Mozambique
At independence in 1975, Mozambique was one of the
world's poorest countries. Socialist mismanagement and a brutal
civil war from 1977-92 exacerbated the situation. In 1987, the
government embarked on a series of macroeconomic reforms designed to
stabilize the economy. These steps, combined with donor assistance
and with political stability since the multi-party elections in
1994, have led to dramatic improvements in the country's growth
rate. Inflation was reduced to single digits during the late 1990s,
and although it returned to double digits in 2000-06, in 2007
inflation had slowed to 8%, while GDP growth reached 7.5%. Fiscal
reforms, including the introduction of a value-added tax and reform
of the customs service, have improved the government's revenue
collection abilities. In spite of these gains, Mozambique remains
dependent upon foreign assistance for much of its annual budget, and
the majority of the population remains below the poverty line.
Subsistence agriculture continues to employ the vast majority of the
country's work force. A substantial trade imbalance persists
although the opening of the Mozal aluminum smelter, the country's
largest foreign investment project to date, has increased export
earnings. At the end of 2007, and after years of negotiations, the
government took over Portugal's majority share of the Cahora Bassa
Hydroelectricity (HCB) company, a dam that was not transferred to
Mozambique at independence because of the ensuing civil war and
unpaid debts. More power is needed for additional investment
projects in titanium extraction and processing and garment
manufacturing that could further close the import/export gap.
Mozambique's once substantial foreign debt has been reduced through
forgiveness and rescheduling under the IMF's Heavily Indebted Poor
Countries (HIPC) and Enhanced HIPC initiatives, and is now at a
manageable level. In July 2007 the Millennium Challenge Corporation
(MCC) signed a Compact with Mozambique; the Mozambican government
moved rapidly to ratify the Compact and propose a plan for funding.

Namibia
The economy is heavily dependent on the extraction and
processing of minerals for export. Mining accounts for 8% of GDP,
but provides more than 50% of foreign exchange earnings. Rich
alluvial diamond deposits make Namibia a primary source for
gem-quality diamonds. Namibia is the fourth-largest exporter of
nonfuel minerals in Africa, the world's fifth-largest producer of
uranium, and the producer of large quantities of lead, zinc, tin,
silver, and tungsten. The mining sector employs only about 3% of the
population while about half of the population depends on subsistence
agriculture for its livelihood. Namibia normally imports about 50%
of its cereal requirements; in drought years food shortages are a
major problem in rural areas. A high per capita GDP, relative to the
region, hides one of the world's most unequal income distributions.
The Namibian economy is closely linked to South Africa with the
Namibian dollar pegged one-to-one to the South African rand.
Increased payments from the Southern African Customs Union (SACU)
put Namibia's budget into surplus in 2007 for the first time since
independence, but SACU payments will decline after 2008 as part of a
new revenue sharing formula. Increased fish production and mining of
zinc, copper, uranium, and silver spurred growth in 2003-07, but
growth in recent years was undercut by poor fish catches and high
costs for metal inputs.

Nauru
Revenues of this tiny island have traditionally come from
exports of phosphates, now significantly depleted. An Australian
company in 2005 entered into an agreement intended to exploit
remaining supplies. Few other resources exist with most necessities
being imported, mainly from Australia, its former occupier and later
major source of support. The rehabilitation of mined land and the
replacement of income from phosphates are serious long-term
problems. In anticipation of the exhaustion of Nauru's phosphate
deposits, substantial amounts of phosphate income were invested in
trust funds to help cushion the transition and provide for Nauru's
economic future. As a result of heavy spending from the trust funds,
the government faces virtual bankruptcy. To cut costs the government
has frozen wages and reduced overstaffed public service departments.
In 2005, the deterioration in housing, hospitals, and other capital
plant continued, and the cost to Australia of keeping the government
and economy afloat continued to climb. Few comprehensive statistics
on the Nauru economy exist, with estimates of Nauru's GDP varying
widely.

Navassa Island
Subsistence fishing and commercial trawling occur
within refuge waters.

Nepal
Nepal is among the poorest and least developed countries in
the world with almost one-third of its population living below the
poverty line. Agriculture is the mainstay of the economy, providing
a livelihood for three-fourths of the population and accounting for
38% of GDP. Industrial activity mainly involves the processing of
agricultural produce including jute, sugarcane, tobacco, and grain.
Security concerns relating to the Maoist conflict have led to a
decrease in tourism, a key source of foreign exchange. Nepal has
considerable scope for exploiting its potential in hydropower and
tourism, areas of recent foreign investment interest. Prospects for
foreign trade or investment in other sectors will remain poor,
however, because of the small size of the economy, its technological
backwardness, its remoteness, its landlocked geographic location,
its civil strife, and its susceptibility to natural disaster.

Netherlands
The Netherlands has a prosperous and open economy, which
depends heavily on foreign trade. The economy is noted for stable
industrial relations, moderate unemployment and inflation, a sizable
current account surplus, and an important role as a European
transportation hub. Industrial activity is predominantly in food
processing, chemicals, petroleum refining, and electrical machinery.
A highly mechanized agricultural sector employs no more than 3% of
the labor force but provides large surpluses for the food-processing
industry and for exports. The Netherlands, along with 11 of its EU
partners, began circulating the euro currency on 1 January 2002. The
country continues to be one of the leading European nations for
attracting foreign direct investment and is one of the five largest
investors in the US. The economy experienced a slowdown in 2005 but
in 2006 recovered to the fastest pace in six years on the back of
increased exports and strong investment. The pace of job growth
reached 10-year highs in 2007.

Netherlands Antilles
Tourism, petroleum refining, and offshore
finance are the mainstays of this small economy, which is closely
tied to the outside world. Although GDP has declined or grown
slightly in each of the past eight years, the islands enjoy a high
per capita income and a well-developed infrastructure compared with
other countries in the region. Most of the oil Netherlands Antilles
imports for its refineries come from Venezuela. Almost all consumer
and capital goods are imported, the US, Italy, and Mexico being the
major suppliers. Poor soils and inadequate water supplies hamper the
development of agriculture. Budgetary problems hamper reform of the
health and pension systems of an aging population. The Netherlands
provides financial aid to support the economy.

New Caledonia
New Caledonia has about 25% of the world's known
nickel resources. Only a small amount of the land is suitable for
cultivation, and food accounts for about 20% of imports. In addition
to nickel, substantial financial support from France - equal to more
than 15% of GDP - and tourism are keys to the health of the economy.
Substantial new investment in the nickel industry, combined with the
recovery of global nickel prices, brightens the economic outlook for
the next several years.

New Zealand
Over the past 20 years the government has transformed
New Zealand from an agrarian economy dependent on concessionary
British market access to a more industrialized, free market economy
that can compete globally. This dynamic growth has boosted real
incomes - but left behind many at the bottom of the ladder - and
broadened and deepened the technological capabilities of the
industrial sector. Per capita income has risen for eight consecutive
years and reached $27,300 in 2007 in purchasing power parity terms.
Consumer and government spending have driven growth in recent years,
and exports picked up in 2006 after struggling for several years.
Exports were equal to about 22% of GDP in 2007, down from 33% of GDP
in 2001. Thus far the economy has been resilient, and the Labor
Government promises that expenditures on health, education, and
pensions will increase proportionately to output. Inflationary
pressures have built in recent years and the central bank raised its
key rate 13 times since January 2004 to finish 2007 at 8.25%. A
large balance of payments deficit poses another challenge in
managing the economy.

Nicaragua
Nicaragua has widespread underemployment, one of the
highest degrees of income inequality in the world, and the third
lowest per capita income in the Western Hemisphere. While the
country has progressed toward macroeconomic stability in the past
few years, annual GDP growth has been far too low to meet the
country's needs, forcing the country to rely on international
economic assistance to meet fiscal and debt financing obligations.
In early 2004, Nicaragua secured some $4.5 billion in foreign debt
reduction under the Heavily Indebted Poor Countries (HIPC)
initiative, and in October 2007, the IMF approved a new poverty
reduction and growth facility (PRGF) program that should create
fiscal space for social spending and investment. The continuity of a
relationship with the IMF reinforces donor confidence, despite
private sector concerns surrounding ORTEGA, which has dampened
investment. The US-Central America Free Trade Agreement (CAFTA) has
been in effect since April 2006 and has expanded export
opportunities for many agricultural and manufactured goods. Energy
shortages fueled by high oil prices, however, are a serious
bottleneck to growth.

Niger
Niger is one of the poorest countries in the world, ranking
near last on the United Nations Development Fund index of human
development. It is a landlocked, Sub-Saharan nation, whose economy
centers on subsistence crops, livestock, and some of the world's
largest uranium deposits. Drought cycles, desertification, and a
2.9% population growth rate, have undercut the economy. Niger shares
a common currency, the CFA franc, and a common central bank, the
Central Bank of West African States (BCEAO), with seven other
members of the West African Monetary Union. In December 2000, Niger
qualified for enhanced debt relief under the International Monetary
Fund program for Highly Indebted Poor Countries (HIPC) and concluded
an agreement with the Fund on a Poverty Reduction and Growth
Facility (PRGF). Debt relief provided under the enhanced HIPC
initiative significantly reduces Niger's annual debt service
obligations, freeing funds for expenditures on basic health care,
primary education, HIV/AIDS prevention, rural infrastructure, and
other programs geared at poverty reduction. In December 2005, Niger
received 100% multilateral debt relief from the IMF, which
translates into the forgiveness of approximately US $86 million in
debts to the IMF, excluding the remaining assistance under HIPC.
Nearly half of the government's budget is derived from foreign donor
resources. Future growth may be sustained by exploitation of oil,
gold, coal, and other mineral resources. Uranium prices have
increased sharply in the last few years. A drought and locust
infestation in 2005 led to food shortages for as many as 2.5 million
Nigeriens.

Nigeria
Oil-rich Nigeria, long hobbled by political instability,
corruption, inadequate infrastructure, and poor macroeconomic
management, is undertaking some reforms under a new reform-minded
administration. Nigeria's former military rulers failed to diversify
the economy away from its overdependence on the capital-intensive
oil sector, which provides 20% of GDP, 95% of foreign exchange
earnings, and about 80% of budgetary revenues. The largely
subsistence agricultural sector has failed to keep up with rapid
population growth - Nigeria is Africa's most populous country - and
the country, once a large net exporter of food, now must import
food. Following the signing of an IMF stand-by agreement in August
2000, Nigeria received a debt-restructuring deal from the Paris Club
and a $1 billion credit from the IMF, both contingent on economic
reforms. Nigeria pulled out of its IMF program in April 2002, after
failing to meet spending and exchange rate targets, making it
ineligible for additional debt forgiveness from the Paris Club. In
the last year the government has begun showing the political will to
implement the market-oriented reforms urged by the IMF, such as to
modernize the banking system, to curb inflation by blocking
excessive wage demands, and to resolve regional disputes over the
distribution of earnings from the oil industry. In 2003, the
government began deregulating fuel prices, announced the
privatization of the country's four oil refineries, and instituted
the National Economic Empowerment Development Strategy, a
domestically designed and run program modeled on the IMF's Poverty
Reduction and Growth Facility for fiscal and monetary management. In
November 2005, Abuja won Paris Club approval for a debt-relief deal
that eliminated $18 billion of debt in exchange for $12 billion in
payments - a total package worth $30 billion of Nigeria's total $37
billion external debt. The deal requires Nigeria to be subject to
stringent IMF reviews. GDP rose strongly in 2007, based largely on
increased oil exports and high global crude prices. Newly-elected
President YAR'ADUA has pledged to continue the economic reforms of
his predecessor and the proposed budget for 2008 reflects the
administrations emphasis on infrastructure improvements.
Infrastructure is the main impediment to growth. The government is
working toward developing stronger public-private partnerships for
electricity and roads.

Niue
The economy suffers from the typical Pacific island problems of
geographic isolation, few resources, and a small population.
Government expenditures regularly exceed revenues, and the shortfall
is made up by critically needed grants from New Zealand that are
used to pay wages to public employees. Niue has cut government
expenditures by reducing the public service by almost half. The
agricultural sector consists mainly of subsistence gardening,
although some cash crops are grown for export. Industry consists
primarily of small factories to process passion fruit, lime oil,
honey, and coconut cream. The sale of postage stamps to foreign
collectors is an important source of revenue. The island in recent
years has suffered a serious loss of population because of
emigration to New Zealand. Efforts to increase GDP include the
promotion of tourism and a financial services industry, although the
International Banking Repeal Act of 2002 resulted in the termination
of all offshore banking licenses. Economic aid from New Zealand in
2002 was US$2.6 million. Niue suffered a devastating typhoon in
January 2004, which decimated nascent economic programs. While in
the process of rebuilding, Niue has been dependent on foreign aid.

Norfolk Island
Tourism, the primary economic activity, has steadily
increased over the years and has brought a level of prosperity
unusual among inhabitants of the Pacific islands. The agricultural
sector has become self-sufficient in the production of beef,
poultry, and eggs.

Northern Mariana Islands
The economy benefits substantially from
financial assistance from the US. The rate of funding has declined
as locally generated government revenues have grown. The key tourist
industry employs about 50% of the work force and accounts for
roughly one-fourth of GDP. Japanese tourists predominate. Annual
tourist entries have exceeded one-half million in recent years, but
financial difficulties in Japan have caused a temporary slowdown.
The agricultural sector is made up of cattle ranches and small farms
producing coconuts, breadfruit, tomatoes, and melons. Garment
production is by far the most important industry with the employment
of 17,500 mostly Chinese workers and sizable shipments to the US
under duty and quota exemptions.

Norway
The Norwegian economy is a prosperous bastion of welfare
capitalism, featuring a combination of free market activity and
government intervention. The government controls key areas, such as
the vital petroleum sector, through large-scale state enterprises.
The country is richly endowed with natural resources - petroleum,
hydropower, fish, forests, and minerals - and is highly dependent on
its oil production and international oil prices, with oil and gas
accounting for one-third of exports. Only Saudi Arabia and Russia
export more oil than Norway. Norway opted to stay out of the EU
during a referendum in November 1994; nonetheless, as a member of
the European Economic Area, it contributes sizably to the EU budget.
The government has moved ahead with privatization. Although
Norwegian oil production peaked in 2000, natural gas production is
still rising. Norwegians realize that once their gas production
peaks they will eventually face declining oil and gas revenues;
accordingly, Norway has been saving its oil-and-gas-boosted budget
surpluses in a Government Petroleum Fund, which is invested abroad
and now is valued at more than $250 billion. After lackluster growth
of less than 1% in 2002-03, GDP growth picked up to 3-5% in 2004-07,
partly due to higher oil prices. Norway's economy remains buoyant.
Domestic economic activity is, and will continue to be, the main
driver of growth, supported by high consumer confidence and strong
investment spending in the offshore oil and gas sector. Norway's
record high budget surplus and upswing in the labor market in 2007
highlight the strength of its economic position going into 2008.

Oman
Oman is a middle-income economy that is heavily dependent on
dwindling oil resources, but sustained high oil prices in recent
years have helped build Oman's budget and trade surpluses and
foreign reserves. Oman joined the World Trade Organization in
November 2000 and continues to liberalize its markets. It ratified a
free trade agreement with the US in September 2006, and, through the
Gulf Cooperation Council, seeks similar agreements with the EU,
China and Japan. As a result of its dwindling oil resources, Oman is
actively pursuing a development plan that focuses on
diversification, industrialization, and privatization, with the
objective of reducing the oil sector's contribution to GDP to 9
percent by 2020. Muscat is attempting to "Omanize" the labor force
by replacing foreign expatriate workers with local workers. Oman
actively seeks private foreign investors, especially in the
industrial, information technology, tourism, and higher education
fields. Industrial development plans focus on gas resources, metal
manufacturing, petrochemicals, and international transshipment ports.

Pacific Ocean
The Pacific Ocean is a major contributor to the world
economy and particularly to those nations its waters directly touch.
It provides low-cost sea transportation between East and West,
extensive fishing grounds, offshore oil and gas fields, minerals,
and sand and gravel for the construction industry. In 1996, over 60%
of the world's fish catch came from the Pacific Ocean. Exploitation
of offshore oil and gas reserves is playing an ever-increasing role
in the energy supplies of the US, Australia, NZ, China, and Peru.
The high cost of recovering offshore oil and gas, combined with the
wide swings in world prices for oil since 1985, has led to
fluctuations in new drillings.

Pakistan
Pakistan, an impoverished and underdeveloped country, has
suffered from decades of internal political disputes, low levels of
foreign investment, and a costly, ongoing confrontation with
neighboring India. However, since 2001, IMF-approved reforms - most
notably, privatization of the banking sector - bolstered by generous
foreign assistance and renewed access to global markets, have
generated macroeconomic recovery. Pakistan has experienced GDP
growth in the 6-8% range in 2004-07, spurred by gains in the
industrial and service sectors. Poverty levels have decreased by 10%
since 2001, and Islamabad has steadily raised development spending
in recent years, including a 52% real increase in the budget
allocation for development in FY07. In 2007 the fiscal deficit - a
result of chronically low tax collection and increased spending -
exceeded Islamabad's target of 4% of GDP. Inflation remains the top
concern among the public, jumping from 7.7% in 2007 to more than 11%
during the first few months of 2008, primarily because of rising
world commodity prices. The Pakistani rupee has depreciated since
the proclamation of emergency rule in November 2007.

Palau
The economy consists primarily of tourism, subsistence
agriculture, and fishing. The government is the major employer of
the work force relying heavily on financial assistance from the US.
The Compact of Free Association with the US, entered into after the
end of the UN trusteeship on 1 October 1994, provided Palau with up
to $700 million in US aid for the following 15 years in return for
furnishing military facilities. Business and tourist arrivals
numbered 63,000 in 2003. The population enjoys a per capita income
roughly 50% higher than that of the Philippines and much of
Micronesia. Long-run prospects for the key tourist sector have been
greatly bolstered by the expansion of air travel in the Pacific, the
rising prosperity of leading East Asian countries, and the
willingness of foreigners to finance infrastructure development.