The Indian Ocean provides major sea routes connecting
the Middle East, Africa, and East Asia with Europe and the Americas.
It carries a particularly heavy traffic of petroleum and petroleum
products from the oilfields of the Persian Gulf and Indonesia. Its
fish are of great and growing importance to the bordering countries
for domestic consumption and export. Fishing fleets from Russia,
Japan, South Korea, and Taiwan also exploit the Indian Ocean, mainly
for shrimp and tuna. Large reserves of hydrocarbons are being tapped
in the offshore areas of Saudi Arabia, Iran, India, and western
Australia. An estimated 40% of the world's offshore oil production
comes from the Indian Ocean. Beach sands rich in heavy minerals and
offshore placer deposits are actively exploited by bordering
countries, particularly India, South Africa, Indonesia, Sri Lanka,
and Thailand.
Indonesia
Indonesia, a vast polyglot nation, has made significant
economic advances under the administration of President YUDHOYONO
but faces challenges stemming from the global financial crisis and
world economic downturn. Indonesia's debt-to-GDP ratio in recent
years has declined steadily because of increasingly robust GDP
growth and sound fiscal stewardship. The government has introduced
significant reforms in the financial sector, including in the areas
of tax and customs, the use of Treasury bills, and capital market
supervision. Indonesia's 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. The non-bank financial
sector, including pension funds and insurance, remains weak. Despite
efforts to broaden and deepen capital markets, they remain
underdeveloped. Economic difficulties in early 2008 centered on high
global food and oil prices and their impact on Indonesia's poor and
on the budget. The onset of the global financial crisis dampened
inflationary pressures, but increased risk aversion for emerging
market assets resulted in large losses in the stock market,
significant depreciation of the rupiah, and a difficult environment
for bond issuance. As global demand has slowed and prices for
Indonesia's commodity exports have fallen, Indonesia faces the
prospect of growth significantly below the 6-plus percent recorded
in 2007 and 2008.
Iran
Iran's economy is marked by an inefficient state sector,
reliance on the oil sector, which provides the majority of
government revenues, and statist policies, which create major
distortions throughout the system. Most economic activity is
controlled by the state. Private sector activity is typically
limited to small-scale workshops, farming, and services. Price
controls, subsidies, and other rigidities weigh down the economy,
undermining the potential for private-sector-led growth. Significant
informal market activity flourishes. Corruption and shortages of
goods are widespread. President Mahmud AHMADI-NEJAD has proposed
reforms to Iran's system of price controls and subsidies,
particularly on food and energy. However, previous government-led
efforts at reform - such as fuel rationing in July 2007 and the
imposition of the Value-Added Tax (VAT) in October 2008 - were met
with stiff resistance and violent protests. High oil prices in
recent years allowed Iran to greatly increase its export earnings
and amass nearly $100 billion in foreign exchange reserves. But with
oil prices currently below $40 per barrel, the Iranian government is
facing difficulties. Tehran has formulated a 2009 budget that
anticipates lower oil prices. The government has drawn down the
country's Oil Stabilization Fund, and may be dipping into foreign
exchange reserves. Iran continues to suffer from double-digit
unemployment and inflation - inflation climbed to a 28% annual rate
in 2008. Underemployment among Iran's educated youth has convinced
many to seek jobs overseas, resulting in a significant "brain drain."
Iraq
Decreasing insurgent attacks and an improving security
environment in many parts of the country are helping to spur
economic activity. Iraq's economy is dominated by the oil sector,
which has traditionally provided over 90% of foreign exchange
earnings. Oil exports are around levels seen before Operation Iraqi
Freedom. Total government revenues have benefited from high oil
prices in recent years; however, revenues have declined
significantly since the oil price drop in fall 2008. Iraq is making
some progress in building the institutions needed to implement
economic policy. In March 2009 Iraq concluded a Stand-By Arrangement
(SBA) with the IMF that details economic reforms. The SBA allows an
80% reduction of the debt owed to Paris Club creditor nations. 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 under contentious political negotiation.
Some foreign entities have expressed interest in reinvigorating
Iraq's industrial sector. The government of Iraq is pursuing a
strategy to gain foreign participation in joint ventures with
State-owned enterprises. Provincial Councils are also using their
own budgets to promote and facilitate investment at the local level.
The Central Bank has been successful in controlling inflation
through appreciation of the dinar against the US dollar. However,
Iraq's challenge will be to use macroeconomic gains to improve the
lives of ordinary Iraqis. 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. GDP
growth averaged 6% in 1995-2007, but economic activity dropped
sharply in 2008 and Ireland entered into a recession for the first
time in more than a decade with the onset of the world financial
crisis and subsequent severe slowdown in the property and
construction markets. Agriculture, once the most important sector,
is now dwarfed by industry and services. Although the export sector,
dominated by foreign multinationals, remains a key component of
Ireland's economy, construction most recently fueled economic growth
along with strong consumer spending and business investment.
Property prices rose more rapidly in Ireland in the decade up to
2006 than in any other developed world economy. Per capita GDP also
surged during Ireland's high-growth years, 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. In 2008 the COWEN government moved
to guarantee all bank deposits, recapitalize the banking system, and
establish partly-public venture capital funds in response to the
country's economic downturn. 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
contributions to 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 3.9% in 2008, slowed by the global
financial crisis. 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, which is divided
into a developed industrial north, dominated by private companies,
and a less-developed, welfare-dependent, agricultural south, with
high unemployment. The Italian economy is driven in large part by
the manufacture of high-quality consumer goods produced by small and
medium-sized enterprises. Italy also has a sizable underground
economy, which by some estimates accounts for as much as 15% of GDP.
These activities are most common within the agriculture,
construction, and service sectors. Italy has moved slowly on
implementing needed structural reforms, such as lightening the high
tax burden and overhauling Italy's rigid labor market and
over-generous pension system and these conditions will be
exacerbated by the recent global financial crisis. The Italian
government is seeking to rein in government spending, but the
leadership faces a severe economic constraint: Italy's official debt
remains above 100% of GDP, and the fiscal deficit - 1.5% of GDP in
2007 - could approach 3% in 2009 as political pressure to stimulate
the economy and the costs of servicing Italy's debt rise. The
economy will continue to contract through 2009 as the global demand
for exports drop.
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 the lowest economic growth in Latin America, will face
increasing difficulties as the global economy slows. The economy
faces serious long-term problems: a sizable merchandise trade
deficit, large-scale unemployment and underemployment, and a
debt-to-GDP ratio of almost 130%. 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. It hinders government spending on
infrastructure and social programs as debt servicing accounts for
nearly half of government expenditures. Inflation rose sharply in
2008 as a result of high prices for imported food and oil and should
fall in 2009 with the decline in international oil prices. 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
In the years following World War II, 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 speed to the rank of second most
technologically powerful economy in the world after the US. Today,
measured on a purchasing power parity (PPP) basis, Japan is the
third-largest economy in the world after the US and China. Two
notable characteristic of the post-war economy were the close
interlocking structures of manufacturers, suppliers, and
distributors, known as keiretsu, and the guarantee of lifetime
employment for a substantial portion of the urban labor force. Both
features are now eroding under the dual pressures of global
competition and domestic demographic change. Japan's industrial
sector is heavily dependent on imported raw materials and fuels. A
tiny agricultural sector is highly subsidized and protected, with
crop yields among the highest in the world. Usually self sufficient
in rice, Japan imports about 60% of its food on a caloric basis.
Japan maintains one of the world's largest fishing fleets and
accounts for nearly 15% of the global catch. For three decades,
overall real economic growth had been spectacular - a 10% average in
the 1960s, a 5% average in the 1970s, and a 4% average in the 1980s.
Growth slowed markedly in the 1990s, averaging just 1.7%, largely
because of the after effects of inefficient investment and an asset
price bubble in the late 1980s that required a protracted period of
time for firms to reduce excess debt, capital, and labor. In October
2007 Japan's longest post-war period of economic expansion ended
after 69 months and Japan entered into recession in 2008, with 2009
marking a return to near 0% interest rates. 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. The Japanese financial sector was not heavily
exposed to sub-prime mortgages or their derivative instruments and
weathered the initial effect of the global credit crunch, but a
sharp downturn in business investment and global demand for Japan's
exports in late 2008 pushed Japan further into a recession. Japan's
huge government debt, which totals 170% of GDP, and the aging of the
population are two major long-run problems. Debate continues on the
role of and effects of reform in restructuring the economy.
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, displacing more traditional
industries. 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 with some
Israeli content duty free to the US. In 2006 and 2008, Jordan used
privatization proceeds to significantly reduce its debt-to-GDP
ratio. These measures have helped improve productivity and have made
Jordan more attractive for foreign investment. 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 growing budget
deficit, attracting investments, and creating jobs. Jordan is
currently exploring nuclear power generation to forestall energy
shortfalls. Jordan's conservative banking sector has been largely
protected from the worldwide financial crisis, but many businesses,
particularly in the tourism and real estate sector, are predicting a
slow-down in 2009.
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. Kazakhstan enjoyed
double-digit growth in 2000-01 and 8% or more per year in 2002-07 -
thanks largely to its booming energy sector, but also to economic
reform, good harvests, and increased foreign investment; growth
slowed to 2.4% in 2008, however, as a result of declining oil prices
and a softening world economy. Inflation reached 10% in 2007 and 17%
in 2008. In the energy sector, the opening of the Caspian Pipeline
Consortium 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 changed the corporate tax code
to favor domestic industry as a means 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, most recently, with regard to the Kashagan
project in 2007-08. Since 2007, Astana has provided financial
support to the banking sector which has been struggling with poor
asset quality and large foreign loans.
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. Post-election violence in
early 2008, coupled with the effects of the global financial crisis
on remittance and exports, reduced GDP growth to 2.2% in 2008, down
from 7% the previous year.
Kiribati
A remote country of 33 scattered coral atolls, Kiribati has
few natural resources and is one of the least developed Pacific
Islands. 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 the EU, UK, US, Japan, Australia, New Zealand, Canada, UN
agencies, and Taiwan accounts for 20-25% 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.