China

China's economy during the last quarter century has changed

from a centrally planned system that was largely closed to

international trade to a more market-oriented economy that has a

rapidly growing private sector and is a major player in the global

economy. Reforms started in the late 1970s with the phasing out of

collectivized agriculture, and expanded to include the gradual

liberalization of prices, fiscal decentralization, increased

autonomy for state enterprises, the foundation of a diversified

banking system, the development of stock markets, the rapid growth

of the non-state sector, and the opening to foreign trade and

investment. China has generally implemented reforms in a gradualist

or piecemeal fashion, including the sale of minority shares in four

of China's largest state banks to foreign investors and refinements

in foreign exchange and bond markets in 2005. After keeping its

currency tightly linked to the US dollar for years, China in July

2005 revalued its currency by 2.1% against the US dollar and moved

to an exchange rate system that references a basket of currencies.

Cumulative appreciation of the renminbi against the US dollar since

the end of the dollar peg reached 15% in January 2008. The

restructuring of the economy and resulting efficiency gains have

contributed to a more than tenfold increase in GDP since 1978.

Measured on a purchasing power parity (PPP) basis, China in 2007

stood as the second-largest economy in the world after the US,

although in per capita terms the country is still lower

middle-income. Annual inflows of foreign direct investment in 2007

rose to $75 billion. By the end of 2007, more than 5,000 domestic

Chinese enterprises had established direct investments in 172

countries and regions around the world. The Chinese government faces

several economic development challenges: (a) to sustain adequate job

growth for tens of millions of workers laid off from state-owned

enterprises, migrants, and new entrants to the work force; (b) to

reduce corruption and other economic crimes; and (c) to contain

environmental damage and social strife related to the economy's

rapid transformation. Economic development has been more rapid in

coastal provinces than in the interior, and approximately 200

million rural laborers have relocated to urban areas to find work.

One demographic consequence of the "one child" policy is that China

is now one of the most rapidly aging countries in the world.

Deterioration in the environment - notably air pollution, soil

erosion, and the steady fall of the water table, especially in the

north - is another long-term problem. China continues to lose arable

land because of erosion and economic development. In 2007 China

intensified government efforts to improve environmental conditions,

tying the evaluation of local officials to environmental targets,

publishing a national climate change policy, and establishing a high

level leading group on climate change, headed by Premier WEN Jiabao.

The Chinese government seeks to add energy production capacity from

sources other than coal and oil as its double-digit economic growth

increases demand. Chinese energy officials in 2007 agreed to

purchase five third generation nuclear reactors from Western

companies. More power generating capacity came on line in 2006 as

large scale investments - including the Three Gorges Dam across the

Yangtze River - were completed.

Christmas Island

Phosphate mining had been the only significant

economic activity, but in December 1987 the Australian Government

closed the mine. In 1991, the mine was reopened. With the support of

the government, a $34 million casino opened in 1993, but closed in

1998. The Australian Government in 2001 agreed to support the

creation of a commercial space-launching site on the island,

expected to begin operations in the near future.

Clipperton Island

Although 115 species of fish have been identified

in the territorial waters of Clipperton Island, the only economic

activity is tuna fishing.

Cocos (Keeling) Islands

Grown throughout the islands, coconuts are

the sole cash crop. Small local gardens and fishing contribute to

the food supply, but additional food and most other necessities must

be imported from Australia. There is a small tourist industry.

Colombia

Colombia's economy has experienced positive growth over the

past five years despite a serious armed conflict. In fact, 2007 is

regarded by policy makers and the private sector as one of the best

economic years in recent history, after 2005. The economy continues

to improve in part because of austere government budgets, focused

efforts to reduce public debt levels, an export-oriented growth

strategy, improved domestic security, and high commodity prices.

Ongoing economic problems facing President URIBE include reforming

the pension system, reducing high unemployment, and funding new

exploration to offset declining oil production. The government's

economic reforms and democratic security strategy, coupled with

increased investment, have engendered a growing sense of confidence

in the economy. However, the business sector continues to be

concerned about failure of the US Congress to approve the signed FTA.

Comoros

One of the world's poorest countries, Comoros is made up of

three islands that have inadequate transportation links, a young and

rapidly increasing population, and few natural resources. The low

educational level of the labor force contributes to a subsistence

level of economic activity, high unemployment, and a heavy

dependence on foreign grants and technical assistance. Agriculture,

including fishing, hunting, and forestry, contributes 40% to GDP,

employs 80% of the labor force, and provides most of the exports.

The country is not self-sufficient in food production; rice, the

main staple, accounts for the bulk of imports. The government -

which is hampered by internal political disputes - is struggling to

upgrade education and technical training, privatize commercial and

industrial enterprises, improve health services, diversify exports,

promote tourism, and reduce the high population growth rate. The

political problems caused the economy to contract in 2007.

Remittances from 150,000 Comorans abroad help supplement GDP.

Congo, Democratic Republic of the

The economy of the Democratic

Republic of the Congo - a nation endowed with vast potential wealth

- is slowly recovering from two decades of decline. Conflict, which

began in August 1998, dramatically reduced national output and

government revenue, increased external debt, and resulted in the

deaths of more than 3.5 million people from violence, famine, and

disease. Foreign businesses curtailed operations due to uncertainty

about the outcome of the conflict, lack of infrastructure, and the

difficult operating environment. Conditions began to improve in late

2002 with the withdrawal of a large portion of the invading foreign

troops. The transitional government reopened relations with

international financial institutions and international donors, and

President KABILA has begun implementing reforms, although progress

is slow and the International Monetary Fund curtailed their program

for the DRC at the end of March 2006 because of fiscal overruns.

Much economic activity still occurs in the informal sector, and is

not reflected in GDP data. Renewed activity in the mining sector,

the source of most export income, boosted Kinshasa's fiscal position

and GDP growth. Government reforms and improved security may lead to

increased government revenues, outside budget assistance, and

foreign direct investment, although an uncertain legal framework,

corruption, and a lack of transparency in government policy are

continuing long-term problems.

Congo, Republic of the

The economy is a mixture of subsistence

agriculture, an industrial sector based largely on oil, and support

services, and a government characterized by budget problems and

overstaffing. Oil has supplanted forestry as the mainstay of the

economy, providing a major share of government revenues and exports.

In the early 1980s, rapidly rising oil revenues enabled the

government to finance large-scale development projects with GDP

growth averaging 5% annually, one of the highest rates in Africa.

The government has mortgaged a substantial portion of its oil

earnings through oil-backed loans that have contributed to a growing

debt burden and chronic revenue shortfalls. Economic reform efforts

have been undertaken with the support of international

organizations, notably the World Bank and the IMF. However, the

reform program came to a halt in June 1997 when civil war erupted.

Denis SASSOU-NGUESSO, who returned to power when the war ended in

October 1997, publicly expressed interest in moving forward on

economic reforms and privatization and in renewing cooperation with

international financial institutions. Economic progress was badly

hurt by slumping oil prices and the resumption of armed conflict in

December 1998, which worsened the republic's budget deficit. The

current administration presides over an uneasy internal peace and

faces difficult economic challenges of stimulating recovery and

reducing poverty. Recovery of oil prices has boosted the economy's

GDP and near-term prospects. In March 2006, the World Bank and the

International Monetary Fund (IMF) approved Heavily Indebted Poor

Countries (HIPC) treatment for Congo.

Cook Islands

Like many other South Pacific island nations, the Cook

Islands' economic development is hindered by the isolation of the

country from foreign markets, the limited size of domestic markets,

lack of natural resources, periodic devastation from natural

disasters, and inadequate infrastructure. Agriculture, employing

about one-third of the working population, provides the economic

base with major exports made up of copra and citrus fruit. Black

pearls are the Cook Islands' leading export. Manufacturing

activities are limited to fruit processing, clothing, and

handicrafts. Trade deficits are offset by remittances from emigrants

and by foreign aid, overwhelmingly from New Zealand. In the 1980s

and 1990s, the country lived beyond its means, maintaining a bloated

public service and accumulating a large foreign debt. Subsequent

reforms, including the sale of state assets, the strengthening of

economic management, the encouragement of tourism, and a debt

restructuring agreement, have rekindled investment and growth.

Coral Sea Islands

no economic activity

Costa Rica

Costa Rica's basically stable economy depends on tourism,

agriculture, and electronics exports. Poverty has remained around

20% for nearly 20 years, and the strong social safety net that had

been put into place by the government has eroded due to increased

financial constraints on government expenditures. Immigration from

Nicaragua has increasingly become a concern for the government. The

estimated 300,000-500,000 Nicaraguans estimated to be in Costa Rica

legally and illegally are an important source of (mostly unskilled)

labor, but also place heavy demands on the social welfare system.

Foreign investors remain attracted by the country's political

stability and high education levels, as well as the fiscal

incentives offered in the free-trade zones. Exports have become more

diversified in the past 10 years due to the growth of the high-tech

manufacturing sector, which is dominated by the microprocessor

industry. Tourism continues to bring in foreign exchange, as Costa

Rica's impressive biodiversity makes it a key destination for

ecotourism. The government continues to grapple with its large

internal and external deficits and sizable internal debt. Reducing

inflation remains a difficult problem because of rising import

prices, labor market rigidities, and fiscal deficits. Tax and public

expenditure reforms will be necessary to close the budget gap. In

October 2007, a national referendum voted in favor of the US-Central

American Free Trade Agreement (CAFTA).

Cote d'Ivoire

Cote d'Ivoire is the world's largest producer and

exporter of cocoa beans and a significant producer and exporter of

coffee and palm oil. Consequently, the economy is highly sensitive

to fluctuations in international prices for these products, and, to

a lesser extent, in climatic conditions. Despite government attempts

to diversify the economy, it is still heavily dependent on

agriculture and related activities, engaging roughly 68% of the

population. Since 2006, oil and gas production have become more

important engines of economic activity than cocoa. According to IMF

statistics, earnings from oil and refined products were $1.3 billion

in 2006, while cocoa-related revenues were $1 billion during the

same period. Cote d'Ivoire's offshore oil and gas production has

resulted in substantial crude oil exports and provides sufficient

natural gas to fuel electricity exports to Ghana, Togo, Benin, Mali

and Burkina Faso. Oil exploration by a number of consortiums of

private companies continues offshore, and President GBAGBO has

expressed hope that daily crude output could reach 200,000 barrels

per day (b/d) by the end of the decade. Since the end of the civil

war in 2003, political turmoil has continued to damage the economy,

resulting in the loss of foreign investment and slow economic

growth. GDP grew by 1.8% in 2006 and 1.7% in 2007. Per capita income

has declined by 15% since 1999.

Croatia

Once one of the wealthiest of the Yugoslav republics,

Croatia's economy suffered badly during the 1991-95 war as output

collapsed and the country missed the early waves of investment in

Central and Eastern Europe that followed the fall of the Berlin

Wall. Since 2000, however, Croatia's economic fortunes have begun to

improve slowly, with moderate but steady GDP growth between 4% and

6% led by a rebound in tourism and credit-driven consumer spending.

Inflation over the same period has remained tame and the currency,

the kuna, stable. Nevertheless, difficult problems still remain,

including a stubbornly high unemployment rate, a growing trade

deficit and uneven regional development. The state retains a large

role in the economy, as privatization efforts often meet stiff

public and political resistance. While macroeconomic stabilization

has largely been achieved, structural reforms lag because of deep

resistance on the part of the public and lack of strong support from

politicians. The EU accession process should accelerate fiscal and

structural reform.

Cuba

The government continues to balance the need for economic

loosening against a desire for firm political control. It has rolled

back limited reforms undertaken in the 1990s to increase enterprise

efficiency and alleviate serious shortages of food, consumer goods,

and services. The average Cuban's standard of living remains at a

lower level than before the downturn of the 1990s, which was caused

by the loss of Soviet aid and domestic inefficiencies. Since late

2000, Venezuela has been providing oil on preferential terms, and it

currently supplies about 100,000 barrels per day of petroleum

products. Cuba has been paying for the oil, in part, with the

services of Cuban personnel in Venezuela, including some 20,000

medical professionals. In 2007, high metals prices continued to

boost Cuban earnings from nickel and cobalt production. Havana

continued to invest in the country's energy sector to mitigate

electrical blackouts that had plagued the country since 2004.

Cyprus

The area of the Republic of Cyprus under government control

has a market economy dominated by the service sector, which accounts

for 78% of GDP. Tourism, financial services, and real estate are the

most important sectors. Erratic growth rates over the past decade

reflect the economy's reliance on tourism, which often fluctuates

with political instability in the region and economic conditions in

Western Europe. Nevertheless, the economy in the area under

government control grew by an average of 3.6% per year during the

period of 2000-06, well above the EU average. Cyprus joined the

European Exchange Rate Mechanism (ERM2) in May 2005 and adopted the

euro as its national currency on 1 January 2008. An aggressive

austerity program in the preceding years, aimed at paving the way

for the euro, helped turn a soaring fiscal deficit (6.3% in 2003)

into a surplus of 1.5% in 2007. As in the area administered by

Turkish Cypriots, water shortages are a perennial problem; a few

desalination plants are now on line. After 10 years of drought, the

country received substantial rainfall from 2001-04 alleviating

immediate concerns. Rainfall in 2005 and 2006, however, was well

below average, making water rationing a necessity in 2007.

Czech Republic

The Czech Republic is one of the most stable and

prosperous of the post-Communist states of Central and Eastern

Europe. Growth in 2000-07 was supported by exports to the EU,

primarily to Germany, and a strong recovery of foreign and domestic

investment. Domestic demand is playing an ever more important role

in underpinning growth as the availability of credit cards and

mortgages increases. The current account deficit has declined to

around 3.3% of GDP as demand for automotive and other products from

the Czech Republic remains strong in the European Union. Rising

inflation from higher food and energy prices are a risk to balanced

economic growth. Significant increases in social spending in the

run-up to June 2006 elections prevented, the government from meeting

its goal of reducing its budget deficit to 3% of GDP in 2007.

Negotiations on pension and additional healthcare reforms are

continuing without clear prospects for agreement and implementation.

Intensified restructuring among large enterprises, improvements in

the financial sector, and effective use of available EU funds should

strengthen output growth. The pro-business Civic Democratic

Party-led government approved reforms in 2007 designed to cut

spending on some social welfare benefits and reform the tax system

with the aim of eventually reducing the budget deficit to 2.3% of

GDP by 2010. Parliamentary approval for any additional reforms could

prove difficult, however, because of the parliament's even split.

The government withdrew a 2010 target date for euro adoption and

instead aims to meet the eurozone criteria around 2012.

Denmark

The Danish economy has in recent years undergone strong

expansion fueled primarily by private consumption growth, but also

supported by exports and investments. This thoroughly modern market

economy features high-tech agriculture, up-to-date small-scale and

corporate industry, extensive government welfare measures,

comfortable living standards, a stable currency, and high dependence

on foreign trade. Unemployment is low and capacity constraints are

limiting growth potential. Denmark is a net exporter of food and

energy and enjoys a comfortable balance of payments surplus.

Government objectives include streamlining the bureaucracy and

further privatization of state assets. The government has been

successful in meeting, and even exceeding, the economic convergence

criteria for participating in the third phase (a common European

currency) of the European Economic and Monetary Union (EMU), but so

far Denmark has decided not to join 15 other EU members in the euro.

Nonetheless, the Danish krone remains pegged to the euro. Economic

growth gained momentum in 2004 and the upturn continued through

2007. The controversy over caricatures of the Prophet Muhammad

printed in a Danish newspaper in September 2005 led to boycotts of

some Danish exports to the Muslim world, especially exports of dairy

products, but the boycotts did not have a significant impact on the

overall Danish economy. Because of high GDP per capita, welfare

benefits, a low Gini index, and political stability, the Danish

living standards are among the highest in the world. A major

long-term issue will be the sharp decline in the ratio of workers to

retirees.

Dhekelia

Economic activity is limited to providing services to the

military and their families located in Dhekelia. All food and

manufactured goods must be imported.

Djibouti

The economy is based on service activities connected with

the country's strategic location and status as a free trade zone in

the Horn of Africa. Two-thirds of Djibouti's inhabitants live in the

capital city; the remainder are mostly nomadic herders. Scanty

rainfall limits crop production to fruits and vegetables, and most

food must be imported. Djibouti provides services as both a transit

port for the region and an international transshipment and refueling

center. Imports and exports from landlocked neighbor Ethiopia

represent 85% of port activity at Djibouti's container terminal.

Djibouti has few natural resources and little industry. The nation

is, therefore, heavily dependent on foreign assistance to help

support its balance of payments and to finance development projects.

An unemployment rate of nearly 60% continues to be a major problem.

While inflation is not a concern, due to the fixed tie of the

Djiboutian franc to the US dollar, the artificially high value of

the Djiboutian franc adversely affects Djibouti's balance of

payments. Per capita consumption dropped an estimated 35% between

1999 and 2006 because of recession, civil war, and a high population

growth rate (including immigrants and refugees). Faced with a

multitude of economic difficulties, the government has fallen in

arrears on long-term external debt and has been struggling to meet

the stipulations of foreign aid donors.

Dominica

The Dominican economy depends on agriculture, primarily

bananas, and remains highly vulnerable to climatic conditions and

international economic developments. Tourism has increased as the

government seeks to promote Dominica as an "ecotourism" destination.

In 2003, the government began a comprehensive restructuring of the

economy - including elimination of price controls, privatization of

the state banana company, and tax increases - to address Dominica's

economic and financial crisis of 2001-02 and to meet IMF targets.

This restructuring paved the way for the current economic recovery -

real growth for 2006 reached a two-decade high - and will help to

reduce the debt burden, which remains at about 100% of GDP. In order

to diversify the island's production base, the government is

attempting to develop an offshore financial sector and is

researching Dominica's capability to export geothermal energy.

Dominican Republic

The Dominican Republic has enjoyed strong GDP

growth since 2005, with double digit growth in 2006. In 2007,

exports were bolstered by the nearly 50% increase in nickel prices;

however, prices are expected to fall in 2008, contributing to a

slowdown in GDP growth for the year. Although the country has long

been viewed primarily as an exporter of sugar, coffee, and tobacco,

in recent years the service sector has overtaken agriculture as the

economy's largest employer due to growth in tourism and free trade

zones. The economy is highly dependent upon the US, the source of

nearly three-fourths of exports, and remittances represent about a

tenth of GDP, equivalent to almost half of exports and

three-quarters of tourism receipts. With the help of strict fiscal

targets agreed to in the 2004 renegotiation of an IMF standby loan,

President FERNANDEZ has stabilized the country's financial

situation, lowering inflation to less than 6%. A fiscal expansion is

expected for 2008 prior to the elections in May and for Tropical

Storm Noel reconstruction. Although the economy is growing at a

respectable rate, high unemployment and underemployment remains an

important challenge. The country suffers from marked income

inequality; the poorest half of the population receives less than

one-fifth of GNP, while the richest 10% enjoys nearly 40% of

national income. The Central America-Dominican Republic Free Trade

Agreement (CAFTA-DR) came into force in March 2007, which should

boost investment and exports and reduce losses to the Asian garment

industry.

Ecuador

Ecuador is substantially dependent on its petroleum

resources, which have accounted for more than half of the country's

export earnings and one-fourth of public sector revenues in recent

years. In 1999/2000, Ecuador suffered a severe economic crisis, with

GDP contracted by more than 6%, with a significant increase in

poverty. The banking system also collapsed, and Ecuador defaulted on

its external debt later that year. In March 2000, Congress approved

a series of structural reforms that also provided for the adoption

of the US dollar as legal tender. Dollarization stabilized the

economy, and positive growth returned in the years that followed,

helped by high oil prices, remittances, and increased

non-traditional exports. From 2002-06 the economy grew 5.5%, the

highest five-year average in 25 years. The poverty rate declined but

remained high at 38% in 2006. In 2006 the government of Alfredo

PALACIO (2005-07) seized the assets of Occidental Petroleum for

alleged contract violations and imposed a windfall revenue tax on

foreign oil companies, leading to the suspension of free trade

negotiations with the US. These measures, combined with chronic

underinvestment in the state oil company, Petroecuador, led to a

drop in petroleum production in 2007. PALACIO's successor, Rafael

CORREA, raised the specter of debt default - but Ecuador has paid

its debt on time. He also decreed a higher windfall revenue tax on

private oil companies, then sought to renegotiate their contracts to

overcome the debilitating effect of the tax. This generated economic

uncertainty; private investment has dropped and economic growth has

slowed significantly.