Indonesia, a vast polyglot nation, has been undergoing
significant economic reforms under President YUDHOYONO. Indonesia's
debt-to-GDP ratio has been declining steadily, its foreign exchange
reserves are at an all-time high of over $50 billion, and its stock
market has been one of the three best performers in the world in
2006 and 2007, as global investors sought out higher returns in
emerging markets. The government has introduced significant reforms
in the financial sector, including tax and customs reforms, the
introduction of Treasury bills, and improved capital market
supervision. Indonesia's new investment law, passed in March 2007,
seeks to address some of the concerns of foreign and domestic
investors. Indonesia still struggles with poverty and unemployment,
inadequate infrastructure, corruption, a complex regulatory
environment, and unequal resource distribution among regions.
Indonesia has been slow to privatize over 100 state-owned
enterprises, several of which have monopolies in key sectors. The
non-bank financial sector, including pension funds and insurance,
remains weak. Capital markets are underdeveloped. The high global
price of oil in 2007 increased the cost of domestic fuel and
electricity subsidies, and are contributing to concerns about higher
food prices. Located on the Pacific "Ring of Fire" Indonesia remains
vulnerable to volcanic and tectonic disasters. Significant progress
has been made in rebuilding Aceh after the devastating December 2004
tsunami, and the province now shows more economic activity than
before the disaster. Unfortunately, Indonesia suffered new disasters
in 2006 and early 2007 including: a major earthquake near
Yogyakarta, an industrial accident in Sidoarjo, East Java that
created a "mud volcano," a tsunami in South Java, and major flooding
in Jakarta, all of which caused additional damages in the billions
of dollars. Donors are assisting Indonesia with its disaster
mitigation and early warning efforts.
Iran
Iran's economy is marked by an inefficient state sector,
reliance on the oil sector (which provides 85% of government
revenues), 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 failed to make any
notable progress in fulfilling the goals of the nation's latest
five-year plan. A combination of price controls and subsidies,
particularly on food and energy, continue to weigh down the economy,
and administrative controls, widespread corruption, and other
rigidities undermine the potential for private-sector-led growth. As
a result of these inefficiencies, significant informal market
activity flourishes and shortages are common. High oil prices in
recent years have enabled Iran to amass nearly $70 billion in
foreign exchange reserves. Yet this increased revenue has not eased
economic hardships, which include double-digit unemployment and
inflation - inflation climbed to 26% as of June 2008. The economy
has seen only moderate growth. Iran's educated population, economic
inefficiency and insufficient investment - both foreign and domestic
- have prompted an increasing number of Iranians to seek employment
overseas, resulting in significant "brain drain."
Iraq
Iraq's economy is dominated by the oil sector, which has
traditionally provided about 95% of foreign exchange earnings.
Although looting, insurgent attacks, and sabotage have undermined
economy rebuilding efforts, economic activity is beginning to pick
up in areas recently secured by the US military surge. Oil exports
are around levels seen before Operation Iraqi Freedom, and total
government revenues have benefited from high oil prices. Despite
political uncertainty, Iraq is making some progress in building the
institutions needed to implement economic policy and has negotiated
a debt reduction agreement with the Paris Club and a new Stand-By
Arrangement with the IMF. Iraq has received pledges for $13.5
billion in foreign aid for 2004-07 from outside of the US, more than
$33 billion in total pledges. The International Compact with Iraq
was established in May 2007 to integrate Iraq into the regional and
global economy, and the Iraqi government is seeking to pass laws to
strengthen its economy. This legislation includes a hydrocarbon law
to establish a modern legal framework to allow Iraq to develop its
resources and a revenue sharing law to equitably divide oil revenues
within the nation, although both are still bogged down in
discussions. The Central Bank has been successful in controlling
inflation through appreciation of the dinar against the US dollar.
Reducing corruption and implementing structural reforms, such as
bank restructuring and developing the private sector, will be key to
Iraq's economic success.
Ireland
Ireland is a small, modern, trade-dependent economy with
growth averaging 6% in 1995-2007. Agriculture, once the most
important sector, is now dwarfed by industry and services. Although
the exports sector, dominated by foreign multinationals, remains a
key component of Ireland's economy, construction has most recently
fueled economic growth along with strong consumer spending and
business investment. Property prices have risen more rapidly in
Ireland in the decade up to 2006 than in any other developed world
economy. Per capita GDP is 40% above that of the four big European
economies and the second highest in the EU behind Luxembourg, and in
2007 surpassed that of the United States. The Irish Government has
implemented a series of national economic programs designed to curb
price and wage inflation, invest in infrastructure, increase labor
force skills, and promote foreign investment. A slowdown in the
property market, more intense global competition, and increased
costs, however, have compelled government economists to lower
Ireland's growth forecast slightly for 2008. 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, its major source of economic and
military aid. Israel's GDP, after contracting slightly in 2001 and
2002 due to the Palestinian conflict and troubles in the
high-technology sector, has grown by about 5% per year since 2003.
The economy grew an estimated 5.4% in 2007, the fastest pace since
2000. The government's prudent fiscal policy and structural reforms
over the past few years have helped to induce strong foreign
investment, tax revenues, and private consumption, setting the
economy on a solid growth path.
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:
Italy's official debt remains above 100% of GDP, and the government
has found it difficult to bring the budget deficit down to a level
that would allow a rapid decrease in that debt. The economy
continues to grow by less than the euro-zone average and growth is
expected to decelerate from 1.9% in 2006 and 2007 to under 1.5% in
2008 as the euro-zone and world economies slow.
Jamaica
The Jamaican economy is heavily dependent on services, which
now account for more than 60% of GDP. The country continues to
derive most of its foreign exchange from tourism, remittances, and
bauxite/alumina. Remittances account for nearly 20% of GDP and are
equivalent to tourism revenues. Jamaica's economy, already saddled
with a record of sluggish growth, will suffer an economic setback
from damages caused by Hurricane Dean in August 2007. The economy
faces serious long-term problems: high but declining interest rates,
increased foreign competition, exchange rate instability, a sizable
merchandise trade deficit, large-scale unemployment and
underemployment, and a debt-to-GDP ratio of 135%. Jamaica's onerous
debt burden - the fourth highest per capita - is the result of
government bailouts to ailing sectors of the economy, most notably
the financial sector in the mid-to-late 1990s. Inflation also has
declined, standing at about 7% at the end of 2007. High unemployment
exacerbates the serious crime problem, including gang violence that
is fueled by the drug trade. The GOLDING administration 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 has been how manufacturers,
suppliers, and distributors have worked 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 have now eroded. 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 55% 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 and an asset price
bubble during the late 1980s that required a protracted period of
time for firms to reduce excess debt, capital, and labor. From 2000
to 2001, government efforts to revive economic growth proved short
lived and were hampered by the slowing of the US, European, and
Asian economies. In 2002-07, growth improved and the lingering fears
of deflation in prices and economic activity lessened, leading the
central bank to raise interest rates to 0.25% in July 2006, up from
the near 0% rate of the six years prior, and to 0.50% in February
2007. In addition, the 10-year privatization of Japan Post, which
has functioned not only as the national postal delivery system but
also, through its banking and insurance facilities as Japan's
largest financial institution, was completed in October 2007,
marking a major milestone in the process of structural reform.
Nevertheless, Japan's huge government debt, which totals 182% 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. Debate also continues on the role of and effects
of reform in restructuring the economy, particularly with respect to
increasing income disparities.
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.
Jordan
Jordan is a small Arab country with insufficient supplies of
water, oil, and other natural resources. Poverty, unemployment, and
inflation are fundamental problems, but King ABDALLAH II, 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, making substantial headway with privatization, and opening
the trade regime. Jordan's exports have significantly increased
under the free trade accord with the US and Jordanian Qualifying
Industrial Zones (QIZ), which allow Jordan to export goods duty free
to the US. In 2006, Jordan reduced its debt-to-GDP ratio
significantly. These measures have helped improve productivity and
have made Jordan more attractive for foreign investment. Before the
US-led war in Iraq, Jordan imported most of its oil from Iraq. Since
2003, however, Jordan has been more dependent on oil from other Gulf
nations. The government ended subsidies for petroleum and other
consumer goods in 2008 in an effort to control the budget. The main
challenges facing Jordan are reducing dependence on foreign grants,
reducing the budget deficit, attracting investments, and creating
jobs.
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. 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
2002-07 - thanks largely to its booming energy sector, but also to
economic reform, good harvests, and foreign investment. Inflation,
however, jumped to more than 10% in 2007. In the energy sector, the
opening of the Caspian Consortium pipeline in 2001, from western
Kazakhstan's Tengiz oilfield to the Black Sea, substantially raised
export capacity. In 2006 Kazakhstan completed the Atasu-Alashankou
portion of an oil pipeline to China that is planned in future
construction to extend from the country's Caspian coast eastward to
the Chinese border. The country has embarked upon an industrial
policy designed to diversify the economy away from overdependence on
the oil sector by developing its manufacturing potential. 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 2007 due to massive oil-related foreign-exchange inflows. Aided
by strong growth and foreign exchange earnings, Kazakhstan aspires
to become a regional financial center and has created a banking
system comparable to those in Central Europe.
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. After some early progress in
rooting out corruption and encouraging donor support, the KIBAKI
government was rocked by high-level graft scandals in 2005 and 2006.
In 2006 the World Bank and IMF delayed loans pending action by the
government on corruption. The international financial institutions
and donors have since resumed lending, despite little action on the
government's part to deal with corruption. The scandals have not
weighed down growth, with estimated real GDP growth at more than 6
percent in 2007.
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. Private sector initiatives and a financial
sector are in the early stages of development. 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 directed
and least open economies, faces chronic economic problems.
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 from pre-1990 levels. Due
in part to severe summer flooding followed by dry weather conditions
in the fall of 2006, the nation suffered its 13th year of food
shortages because of on-going systemic problems including a lack of
arable land, collective farming practices, and persistent shortages
of tractors and fuel. During the summer of 2007, severe flooding
again occurred. Large-scale international food aid deliveries have
allowed the people of North Korea to escape widespread starvation
since famine threatened in 1995, but the population continues to
suffer from prolonged malnutrition and poor living conditions.
Large-scale military spending draws off resources needed for
investment and civilian consumption. Since 2002, the government has
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 government tried to
reverse some of these policies by forbidding private sales of grains
and reinstituting a centralized food rationing system. By December
2005, the government terminated most international humanitarian
assistance operations in North Korea (calling instead for
developmental assistance only) and restricted the activities of
remaining international and non-governmental aid organizations such
as the World Food Program. External food aid now comes primarily
from China and South Korea in the form of grants and long-term
concessional loans. During the October 2007 summit, South Korea also
agreed to develop some of North Korea's infrastructure and natural
resources and light industry. 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 roughly the same as that of Greece and Spain. 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 1997-98 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 by 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 2007,
growth moderated to about 4-5% annually. A downturn in consumer
spending was offset by rapid export growth. Moderate inflation, low
unemployment, and an export surplus in 2007 characterize this solid
economy, but inflation and unemployment are increasing in the face
of rising oil prices.