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 from 1988-2008

except during the short-lived drop caused by the Asian financial

crisis that began in 1997. Despite this high growth rate, Laos

remains a country with an underdeveloped infrastructure,

particularly in rural areas. It has a rudimentary, but improving,

road system, and limited external and internal telecommunications.

Electricity is available in urban areas and in many rural districts.

Subsistence agriculture, dominated by rice cultivation in lowland

areas, accounts for about 30% of GDP and provides 80% of total

employment. The government in FY08/09 received $560 million from

international donors. Economic growth has reduced official poverty

rates from 46% in 1992 to 26% in 2009. The economy has benefited

from high foreign investment in hydropower, mining, and

construction. Laos gained Normal Trade Relations status with the US

in 2004, and is taking steps required to join the World Trade

Organization, such as reforming import licensing. Related trade

policy reforms will improve the business environment. On the fiscal

side, Laos launched an effort to ensure the collection of taxes in

2009 as the global economic slowdown reduced revenues from mining

projects. Simplified investment procedures and expanded bank credits

for small farmers and small entrepreneurs will improve Lao's

economic prospects. The government appears committed to raising the

country's profile among investors. The World Bank has declared that

Laos's goal of graduating from the UN Development Program's list of

least-developed countries by 2020 is achievable. According Laotian

officials, the 7th Socio-Economic Development Plan for 2011-15 will

outline efforts to achieve Millennium Development Goals.

Latvia

Latvia's economy experienced GDP growth of more than 10% per

year during 2006-07 but entered a severe recession in 2008 as a

result of an unsustainable current account deficit and large debt

exposure amid the softening world economy. GDP plunged 18% in 2009 -

the three former Soviet Baltic republics had the world's worst

declines that year - and another 1.8% in 2010. The IMF, EU, and

other donors provided assistance to Latvia as part of an agreement

to defend the currency's peg to the euro and reduce the fiscal

deficit to about 5% of GDP over time. DOMBROVSKIS' government

enacted major speding cuts to reduce the fiscal deficit to 7.8% of

GDP in 2010, and plans to cut the deficit further in 2011. 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.

Lebanon

Lebanon has a free-market economy and a strong laissez-faire

commercial tradition. The government does not restrict foreign

investment; however, the investment climate suffers from red tape,

corruption, arbitrary licensing decisions, high taxes, tariffs, and

fees, archaic legislation, and weak intellectual property rights.

The Lebanese economy is service-oriented; main growth sectors

include banking and tourism. 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 2000 began an

austerity program, reining in government expenditures, increasing

revenue collection, and passing legislation to privatize 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 the new government was formed in

July 2008. Political stability following the Doha Accord of May 2008

helped boost tourism and, together with a strong banking sector,

enabled real GDP growth of 7% per year in 2009-10 despite a slowdown

in the region.

Lesotho

Small, landlocked, and mountainous, Lesotho relies on

remittances from miners employed in South Africa, customs duties

from the Southern Africa Customs Union (SACU), and export revenue

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 an apparel-assembly sector. Despite

Lesotho's market-based economy being heavily tied to its neighbor

South Africa, the US is an important trade partner because of the

export sector's heavy dependence on apparel exports. Exports have

grown significantly because of 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. Economic growth dropped in

2009, due mainly to the effects of the global economic crisis as

demand for the country's exports declined and SACU revenue fell

precipitously when South Africa - the primary contributor to the

SACU revenue pool - went into recession, but growth returned to 3.5%

in 2010.

Liberia

Liberia is a low income country heavily reliant on foreign

assistance for revenue. 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, several have returned.

Liberia has the distinction of having the highest ratio of direct

foreign investment to GDP in the world. 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 and is reviving those sectors. 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 and Liberia shipped its first

major timber exports to Europe in 2010. The country reached its

Heavily Indebted Poor Countries initiative completion point in 2010

and nearly $5 billion of international debt was permanently

eliminated. This new status will enable Liberia to estabilish a

sovereign credit rating and issue bonds. Liberia's Paris Club

creditors agreed to cancel Liberia's debt as well. Rebuilding

infrastructure and raising incomes will 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, 25% of

GDP, and 80% of government revenue. The weakness in world

hydrocarbon prices in 2009 reduced Libyan government tax income and

constrained economic growth. 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. The process of lifting US

unilateral sanctions began in the spring of 2004; all sanctions were

removed by June 2006, helping Libya attract greater foreign direct

investment, especially in the energy sector. Libyan oil and gas

licensing rounds continue to draw high international interest; the

National Oil Corporation (NOC) set a goal of nearly doubling oil

production to 3 million bbl/day by 2012. In November 2009, the NOC

announced that that target may slip to as late as 2017. 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 the highest per capita income in the world. 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 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. In 2008,

Liechtenstein came under renewed international pressure -

particularly from Germany - to improve transparency in its banking

and tax systems. In December 2008, Liechtenstein signed a Tax

Information Exchange Agreement with the US. Upon Liechtenstein's

conclusion of 12 bilateral information-sharing agreements, the OECD

in October 2009 removed the principality from its "grey list" of

countries that had yet to implement the organization's Model Tax

Convention.

Lithuania

Lithuania gained membership in the World Trade

Organization and joined the EU in May 2004. Despite Lithuania's EU

accession, Lithuania's trade with its Central and Eastern European

neighbors, and Russia in particular, accounts for a growing

percentage of total trade. 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. Lithuania's economy grew on average 8% per year

for the four years prior to 2008 driven by exports and domestic

demand. However, GDP plunged nearly 15% in 2009 - during the 2008-09

crisis the three former Soviet Baltic republics had the world's

worst economic declines. In 2009, the government launched a

high-profile campaign, led by Prime Minister KUBILIUS, to attract

foreign investment and to develop export markets. The current

account deficit, which had risen to roughly 15% of GDP in 2007-08,

recovered to a surplus of 4% 2009 and 3.5% in 2010 in the wake of a

cutback in imports to almost half the 2008 level. Nevertheless,

economic growth was flat and unemployment continued upward to 16% in

2010.

Luxembourg

This small, stable, high-income economy - benefiting from

its proximity to France, Belgium, and Germany - has historically

featured 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, but Luxembourg has lost some of its advantages as a tax

haven because of OECD and EU pressure. The economy depends on

foreign and cross-border workers for about 60% of its labor force.

Luxembourg, like all EU members, suffered from the global economic

crisis that began in late 2008, but unemployment has trended below

the EU average. Following strong expansion from 2004 to 2007,

Luxembourg's economy contracted and 3.4% in 2009, but rebounded 2.6%

in 2010. The country continues to enjoy an extraordinarily high

standard of living - GDP per capita ranks third in the world, after

Liechtenstein and Qatar, and is the highest in the EU. Turmoil in

the world financial markets and lower global demand during 2008-09

prompted the government to inject capital into the banking sector

and implement stimulus measures to boost the economy. Government

stimulus measures and support for the banking sector, however, led

to a 5% government budget deficit in 2009, however, the deficit was

cut below 3% in 2010.

Macau

Macau's economy slowed dramatically in 2009 as a result of the

global economic slowdown, but strong growth resumed in 2010, largely

on the back of strong tourism and gaming sectors. After opening up

its locally-controlled casino industry to foreign competition in

2001, the territory attracted tens of billions of dollars in foreign

investment, transforming Macau into one of the world's largest

gaming center. Macau's gaming and tourism businesses were fueled by

China's decision to relax travel restrictions on Chinese citizens

wishing to visit Macau. By 2006, Macau's gaming revenue surpassed

that of the Las Vegas strip, and gaming-related taxes accounted for

more than 70% of total government revenue. In 2008, Macau introduced

measures to cool the rapidly developing sector. This city of nearly

570,000 hosted more than 21 million visitors in 2009. Almost 51%

came from mainland China. Macau's traditional manufacturing industry

has virtually disappeared since the termination of the Multi-Fiber

Agreement in 2005. In 2009, total exports were less than US$1

billion, while gaming receipts were almost US$15 billion. By October

2010, gross gaming revenue had already reached US$19 billion for the

year. The Macau government plans to tighten control over the opening

of new casinos and strengthen supervision of local casino operations

in 2011 and has introduced measures to diversify the economy. The

Closer Economic Partnership Agreement (CEPA) between Macau and

mainland China that came into effect on 1 January 2004 offers

Macau-made products tariff-free access to the mainland;

nevertheless, China remains Macau's third largest goods export

market, behind Hong Kong and the United States. Macau's currency,

the Pataca, is closely tied to the Hong Kong dollar, which is also

freely accepted in the territory.

Macedonia

Having a small, open economy makes Macedonia vulnerable to

economic developments in Europe and dependent on regional

integration and progress toward EU membership for continued economic

growth. 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. Since then, 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 33%, but may be overstated based on the existence of

an extensive gray market, estimated to be more than 20% of GDP, that

is not captured by official statistics. In the wake of the global

economic downturn, Macedonia has experienced decreased foreign

direct investment, lowered credit, and a large trade deficit, but

the financial system remained sound. Macroeconomic stability was

maintained by a prudent monetary policy, which kept the domestic

currency at the pegged level against the euro, at the expense of

raising interest rates. As a result, GDP fell in 2009. but returned

to positive in 2010.

Madagascar

After discarding socialist economic policies in the

mid-1990s, Madagascar followed a World Bank- and IMF-led policy of

privatization and liberalization that has been undermined since the

start of the political crisis. 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. However,

Madagascar's failure to comply with the requirements of the African

Growth and Opportunity Act (AGOA) led to the termination of the

country's duty-free access in January 2010. Deforestation and

erosion, aggravated by the use of firewood as the primary source of

fuel, are serious concerns. Former President RAVALOMANANA worked

aggressively to revive the economy following the 2002 political

crisis, which triggered a 12% drop in GDP that year. The current

political crisis which began in early 2009 has dealt additional

blows to the economy. Tourism dropped more than 50% in 2009,

compared with the previous year, and many investors are wary of

entering the uncertain investment environment.

Malawi

Landlocked Malawi ranks among the world's most densely

populated and least developed countries. The economy is

predominately agricultural with about 80% of the population living

in rural areas. Agriculture, which has benefited from fertilizer

subsidies since 2006, 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 2006, Malawi was approved for relief under the Heavily

Indebted Poor Countries (HIPC) program. In December 2007, the US

granted Malawi eligibility status to receive financial support

within the Millennium Challenge Corporation (MCC) initiative. 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. 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. The government has announced infrastructure

projects that could yield improvements, such as a new oil pipeline,

for better fuel access, and the potential for a waterway link

through Mozambican rivers to the ocean, for better transportation

options. Since 2009, however, Malawi experienced some setbacks,

including a general shortage of foreign exchange, which has damaged

its ability to pay for imports, and fuel shortages that hinder

transportation and productivity. Investment fell 23% in 2009. The

government has failed to address barriers to investment such as

unreliable power, water shortages, poor telecommunications

infrastructure, and the high costs of services.

Malaysia

Malaysia, a middle-income country, has transformed itself

since the 1970s from a producer of raw materials into an emerging

multi-sector economy. Under current Prime Minister NAJIB, Malaysia

is attempting to achieve high-income status by 2020 and to move

farther up the value-added production chain by attracting

investments in Islamic finance, high technology industries, medical

technology, and pharmaceuticals. The NAJIB administration also is

continuing efforts to boost domestic demand and 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, combined with strained government

finances, has forced Kuala Lumpur to reduce government subsidies.

The government is also trying to lessen its dependence on state oil

producer Petronas, which supplies at least 40% of government

revenue. The central bank maintains healthy foreign exchange

reserves and its well-developed regulatory regime has limited

Malaysia's exposure to riskier financial instruments and the global

financial crisis. Nevertheless, decreasing worldwide demand for

consumer goods hurt Malaysia's exports and economic growth in 2009,

although both showed signs of recovery in 2010. In order to attract

increased investment, NAJIB has also sought to revise the special

economic and social preferences accorded to ethnic Malays under the

New Economic Policy of 1970, but he has encountered significant

opposition, especially from Malay nationalists.