Economic overview In 36 editions of 36.

Led by recovery in Western Europe and strong performances by the US, Canada, and key Third World countries, real global output - gross world product (GWP) - rose 3% in 1994 compared with 2% in 1993. Results varied widely among regions and countries. Average growth of 3% in the GDP of industrialized countries (60% of GWP in 1994) and average growth of 6% in the GDP of less developed countries (34% of GWP) were partly offset by a further 11% drop in the GDP of the former USSR/Eastern Europe area (now only 6% of GWP). With the notable exception of Japan at 2.9%, unemployment was typically 5%-12% in the industrial world.

The US accounted for 22% of GWP in 1994; Western Europe accounted for another 22%; and Japan accounted for 8%. These are the three "economic superpowers" which are presumably destined to compete for mastery in international markets on into the 21st century. As for the less developed countries, China, India, and the Four Dragons - South Korea, Taiwan, Hong Kong, and Singapore - once again posted records of 5% growth or better; however, many other countries, especially in Africa, continued to suffer from drought, rapid population growth, inflation, and civil strife.

Central Europe made considerable progress in moving toward "market-friendly" economies, whereas the 15 ex-Soviet countries (with the notable exceptions of the three Baltic states) typically experienced further declines in output, sometimes as high as 30%. Externally, the nation-state, as a bedrock economic-political institution, is steadily losing control over international flows of people, goods, funds, and technology.

Internally, the central government in a number of cases is losing control over resources as separatist regional movements - typically based on ethnicity - gain momentum, e.g., in the successor states of the former Soviet Union, in the former Yugoslavia, and in India. In Western Europe, governments face the difficult political problem of channeling resources away from welfare programs in order to increase investment and strengthen incentives to seek employment.

The addition of nearly 100 million people each year to an already overcrowded globe is exacerbating the problems of pollution, desertification, underemployment, epidemics, and famine. Because of their own internal problems, the industrialized countries have inadequate resources to deal effectively with the poorer areas of the world, which, at least from the economic point of view, are becoming further marginalized. (For the specific economic problems of each country, see the individual country entries in this volume.)

The hydrocarbons sector is the backbone of the economy, accounting for roughly 57% of government revenues, 25% of GDP, and almost all export earnings; Algeria has the fifth largest reserves of natural gas in the world and ranks fourteenth for oil. Algiers' efforts to reform one of the most centrally planned economies in the Arab world began after the 1986 collapse of world oil prices plunged the country into a severe recession.

In 1989, the government launched a comprehensive, IMF-supported program to achieve macroeconomic stabilization and to introduce market mechanisms into the economy. Despite substantial progress toward macroeconomic adjustment, in 1992 the reform drive stalled as Algiers became embroiled in political turmoil. In September 1993, a new government was formed, and one priority was the resumption and acceleration of the structural adjustment process. Buffeted by the slump in world oil prices and burdened with a heavy foreign debt, Algiers concluded a one-year standby arrangement with the IMF in April 1994.

Subsistence agriculture provides the main livelihood for 80%-90% of the population but accounts for less than 15% of GDP. Oil production is vital to the economy, contributing about 60% to GDP. Despite the signing of a peace accord in November 1994 between the Angola government and the UNITA insurgents, sporadic fighting continues and many farmers remain reluctant to return to their fields. As a result, much of the country's food requirements must still be imported.

Angola has rich natural resources - notably gold, diamonds, and arable land, in addition to large oil deposits - but will need to observe the cease-fire, implement the peace agreement, and reform government policies if it is to achieve its potential.

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The economy of Benin remains underdeveloped and dependent on subsistence agriculture, cotton production, and regional trade. Growth in real output has averaged a sound 4% in 1991-94 but this rate barely exceeds the rapid population growth of 3.3%. Inflation jumped to 35% in 1994 (compared to 3% in 1993) following the 50% currency devaluation in January. Commercial and transport activities, which make up almost 36% of GDP, are extremely vulnerable to developments in Nigeria as evidenced by decreased reexport trade in 1994 due to a severe contraction in Nigerian demand.

The industrial sector accounts for less than 10% of GDP and mainly produces foods, beverages, cement, and textiles. Support by the Paris Club and official bilateral creditors has eased the external debt situation in recent years. The government, still burdened with money-losing state enterprises and a bloated civil service, is gradually implementing a World Bank supported structural adjustment program.

The economy has historically been based on cattle raising and crops. Agriculture today provides a livelihood for more than 80% of the population but supplies only about 50% of food needs and accounts for only 5% of GDP. Subsistence farming and cattle raising predominate. The driving force behind the rapid economic growth of the 1970s and 1980s has been the mining industry. This sector, mostly on the strength of diamonds, has gone from generating 25% of GDP in 1980 to 39% in 1994.

No other sector has experienced such growth, especially not agriculture, which is plagued by erratic rainfall and poor soils. The unemployment rate remains a problem at 25%. Hampered by a still sluggish diamond market in 1994, GDP grew by only 1%.

One of the poorest countries in the world, Burkina has a high population density and a high population growth rate, few natural resources, and a fragile soil. Economic development is hindered by a poor communications network within a landlocked country. Agriculture provides about 40% of GDP and is mainly of a subsistence nature. Industry, dominated by unprofitable government-controlled corporations, accounts for about 15% of GDP. Following the 50% currency devaluation in January 1994, the government updated its development program in conjunction with international agencies. Even with the best of plans, however, the government faces formidable problems on all sides.

A landlocked, resource-poor country in an early stage of economic development, Burundi since October 1993 has suffered from massive ethnic-based violence that has displaced an estimated million people, disrupted production, and set back needed reform programs. Burundi is predominately agricultural with roughly 90% of the population dependent on subsistence agriculture. Its economic health depends on the coffee crop, which accounts for 80% of foreign exchange earnings.

The ability to pay for imports therefore continues to rest largely on the vagaries of the climate and the international coffee market. As part of its economic reform agenda, launched in February 1991 with IMF and World Bank support, Burundi is trying to diversify its agricultural exports, attract foreign investment in industry, and modernize government budgetary practices. Although the government remains committed to reforms, it fears new austerity measures would add to ethnic tensions.

Cape Verde's low per capita GDP reflects a poor natural resource base, serious water shortages exacerbated by cycles of long-term drought, and a high birthrate. The economy is service oriented, with commerce, transport, and public services accounting for 60% of GDP. Although nearly 70% of the population lives in rural areas, agriculture's share of GDP is only 20%; the fishing sector accounts for 4%. About 90% of food must be imported.

The fishing potential, mostly lobster and tuna, is not fully exploited. Cape Verde annually runs a high trade deficit, financed by remittances from emigrants and foreign aid, which form important supplements to GDP. Economic reforms, launched by the new democratic government in 1991, are aimed at developing the private sector and attracting foreign investment to diversify the economy. Prospects for 1995 depend heavily on the maintenance of aid flows, remittances, and the momentum of the government's development program.

Because of its offshore oil resources and favorable agricultural conditions, Cameroon has one of the best-endowed, most diversified primary commodity economies in sub-Saharan Africa. Still, it faces many of the serious problems facing other underdeveloped countries, such as political instability, a top-heavy civil service, and a generally unfavorable climate for business enterprise. The development of the oil sector led rapid economic growth between 1970 and 1985. Growth came to an abrupt halt in 1986, precipitated by steep

declines in the prices of major exports:

coffee, cocoa, and petroleum. Export earnings were cut by almost one-third, and inefficiencies in fiscal management were exposed. In 1990-93, with support from the IMF and World Bank, the government began to introduce reforms designed to spur business investment, increase efficiency in agriculture, and recapitalize the nation's banks. Political instability, following suspect elections in 1992, brought IMF/WB structural adjustment to a halt. Although the 50% devaluation of the currency in January 1994 improved the potential for export growth, mismanagement remains and is the main barrier to economic improvement.

Subsistence agriculture, together with forestry, remains the backbone of the CAR economy, with more than 70% of the population living in outlying areas. The agricultural sector generates about half of GDP. Timber has accounted for about 26% of export earnings and the diamond industry for 54%. Important constraints to economic development include the CAR's landlocked position, a poor transportation system, a largely unskilled work force, and a legacy of misdirected macroeconomic policies.

A major plus is the large forest reserves, which the government is moving to protect from overexploitation. The 50% devaluation of the currencies of 14 Francophone African nations on 12 January 1994 had mixed effects on CAR's economy. While diamond, timber, coffee, and cotton exports increased - leading GDP to increase by 5.5% - inflation rose to 40%, fueled by the rising prices of imports on which the economy depends. CAR's poor resource base and primitive infrastructure will keep it dependent on multilateral donors and France for the foreseeable future.

Climate, geographic remoteness, poor resource endowment, and lack of infrastructure make Chad one of the most underdeveloped countries in the world. Its economy is hobbled by political turmoil, conflict with Libya, drought, and food shortages. Consequently the economy has shown little progress in recent years in overcoming a severe setback brought on by civil war in the late 1980s. More than 80% of the work force is involved in subsistence farming and fishing.

Cotton is the major cash crop, accounting for at least half of exports. Chad is highly dependent on foreign aid, especially food credits, given chronic shortages in several regions. Of all the Francophone countries in Africa, Chad has benefited the least from the 50% devaluation of their currencies on 12 January 1994. Despite an increase in external financial aid and favorable price increases for cotton - the primary source of foreign exchange - the corrupt and enfeebled government bureaucracy continues to dampen economic enterprise by neglecting payments to domestic suppliers and public sector salaries. Oil production in the Lake Chad area remains a distant prospect and the subsistence-driven economy probably will continue to limp along in the near term.

One of the world's poorest countries, Comoros is made up of several islands that have poor 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, is the leading sector of the economy.

It 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 90% of imports. The government is struggling to upgrade education and technical training, to privatize commercial and industrial enterprises, to improve health services, to diversify exports, and to reduce the high population growth rate. Continued foreign support is essential if the goal of 4% annual GDP growth is to be reached in the late 1990s.

Zaire's economy has continued to disintegrate although Prime Minister KENGO has had some success in slowing the rate of economic decline. While meaningful economic figures are difficult to come by, Zaire's hyperinflation, chronic large government deficits, and plunging mineral production have made the country one of the world's poorest. Most formal transactions are conducted in hard currency as indigenous bank notes have lost almost all value, and a barter economy now flourishes in all but the largest cities.

Most individuals and families hang on grimly through subsistence farming and petty trade. The government has not been able to meet its financial obligations to the International Monetary Fund or put in place the financial measures advocated by the IMF. Although short-term prospects for improvement are dim, improved political stability would boost Zaire's long-term potential to effectively exploit its vast wealth of mineral and agricultural resources.

Congo's economy is a mixture of village agriculture and handicrafts, an industrial sector based largely on oil, support services, and a government characterized by budget problems and overstaffing. A reform program, supported by the IMF and World Bank, ran into difficulties in 1990-91 because of problems in changing to a democratic political regime and a heavy debt-servicing burden. Oil has supplanted forestry as the mainstay of the economy, providing about two-thirds of government revenues and exports.

In the early 1980s rapidly rising oil revenues enabled Congo to finance large-scale development projects with growth averaging 5% annually, one of the highest rates in Africa. Subsequently, growth has slowed to an average of roughly 1.5% annually, only two-thirds of the population growth rate. Political turmoil and misguided government investment have derailed economic reform programs sponsored by the IMF and World Bank. Even with these difficulties Congo enjoys one of the highest incomes per capita in sub-Saharan Africa

Cote d'Ivoire is among the world's largest producers and exporters of coffee, cocoa beans, and palm-kernel oil. Consequently, the economy is highly sensitive to fluctuations in international prices for coffee and cocoa and to weather conditions. Despite attempts by the government to diversify, the economy is still largely dependent on agriculture and related industries. After several years of lagging performance, the Ivorian economy began a comeback in 1994, due to improved prices for cocoa and coffee, growth in non-traditional primary exports such as pineapples and rubber, trade and banking liberalization, offshore oil and gas discoveries, and generous external financing and debt rescheduling by multilateral lenders and France.

The 50% devaluation in January 1994 caused a one time jump in the inflation rate. Government adherence to a renewed structural adjustment program has led to a budget surplus for the first time in several years, a smaller personnel budget, and an increase in public investment. While real growth in 1994 was only 1.5%, the IMF and World Bank expect it will surpass 6% in 1995.

The economy is based on service activities connected with the country's strategic location and status as a free trade zone in northeast Africa. Two-thirds of the inhabitants live in the capital city, the remainder being 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.

It has few natural resources and little industry. The nation is, therefore, heavily dependent on foreign assistance (an important supplement to GDP) to help support its balance of payments and to finance development projects. An unemployment rate of over 30% continues to be a major problem. Per capita consumption dropped an estimated 35% over the last six years because of recession, civil war, and a high population growth rate (including immigrants and refugees).

Half of Egypt's GDP originates in the public sector, most industrial plants being owned by the government. Overregulation holds back technical modernization and foreign investment. Even so, the economy grew rapidly during the late 1970s and early 1980s, but in 1986 the collapse of world oil prices and an increasingly heavy burden of debt servicing led Egypt to begin negotiations with the IMF for balance-of-payments support.

Egypt's first IMF standby arrangement concluded in mid-1987 was suspended in early 1988 because of the government's failure to adopt promised reforms. Egypt signed a follow-on program with the IMF and also negotiated a structural adjustment loan with the World Bank in 1991. In 1991-93 the government made solid progress on administrative reforms such as liberalizing exchange and interest rates but resisted implementing major structural reforms like streamlining the public sector.

As a result, the economy has not gained momentum and unemployment has become a growing problem. Egypt probably will continue making uneven progress in implementing the successor programs with the IMF and World Bank it signed onto in late 1993. Tourism has plunged since 1992 because of sporadic attacks by Islamic extremists on tourist groups. President MUBARAK has cited population growth as the main cause of the country's economic troubles. The addition of about 1.2 million people a year to the already huge population of 62 million exerts enormous pressure on the 5% of the land area available for agriculture along the Nile.

Agriculture, forestry, and fishing account for about half of GDP and nearly all exports. Subsistence farming predominates. Although pre-independence Equatorial Guinea counted on cocoa production for hard currency earnings, the deterioration of the rural economy under successive brutal regimes has diminished potential for agriculture-led growth. A number of aid programs sponsored by the World Bank and the international donor community have failed to revitalize export agriculture.

Businesses for the most part are owned by government officials and their family members. Commerce accounts for about 8% of GDP and the construction, public works, and service sectors for about 38%. Undeveloped natural resources include titanium, iron ore, manganese, uranium, and alluvial gold. Oil exploration, taking place under concessions offered to US, French, and Spanish firms, has been moderately successful. Increased production from recently discovered natural gas fields will provide a greater share of exports in 1995.

With independence from Ethiopia on 27 April 1993, Eritrea faces the bitter economic problems of a small, desperately poor African country. Most of the population will continue to depend on subsistence farming. Domestic output is substantially augmented by worker remittances from abroad. Government revenues come from custom duties and income and sales taxes. Eritrea has inherited the entire coastline of Ethiopia and has long-term prospects for revenues from the development of offshore oil, offshore fishing, and tourism. For the time being, Ethiopia will be largely dependent on Eritrean ports for its foreign trade.

The economy is based on subsistence agriculture, which occupies more than 60% of the population and contributes nearly 25% to GDP. Manufacturing, which includes a number of agroprocessing factories, accounts for another quarter of GDP. Mining has declined in importance in recent years; high-grade iron ore deposits were depleted by 1978, and health concerns cut world demand for asbestos. Exports of sugar and forestry products are the main earners of hard currency.

Surrounded by South Africa, except for a short border with Mozambique, Swaziland is heavily dependent on South Africa, from which it receives 90% of its imports and to which it sends about half of its exports. Remittances from Swazi workers in South African mines may supplement domestically produced income by as much as 20%.

With the independence of Eritrea on 27 April 1993, Ethiopia continues to face difficult economic problems as one of the poorest and least developed countries in Africa. Its economy is based on agriculture, which accounts for about 45% of GDP, 90% of exports, and 80% of total employment; coffee generates 60% of export earnings. The agricultural sector suffers from frequent periods of drought, poor cultivation practices, and deterioration of internal security conditions.

The manufacturing sector is heavily dependent on inputs from the agricultural sector. Over 90% of large-scale industry, but less than 10% of agriculture, is state run. The government is considering selling off a portion of state-owned plants, and is implementing reform measures that are gradually liberalizing the economy. A major medium-term problem is the improvement of roads, water supply, and other parts of an infrastructure badly neglected during years of civil strife.

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Notwithstanding its serious ongoing economic problems, Gabon enjoys a per capita income more than twice that of most nations of sub-Saharan Africa. Gabon depended on timber and manganese until oil was discovered offshore in the early 1970s. The oil sector now accounts for 50% of GDP. Real growth was feeble in 1992 and Gabon continues to face the problem of fluctuating prices for its oil, timber, manganese, and uranium exports.

Despite an abundance of natural wealth, and a manageable rate of population growth, the economy is hobbled by poor fiscal management. In 1992, the fiscal deficit widened to 2.4% of GDP, and Gabon failed to settle arrears on its bilateral debt, leading to a cancellation of rescheduling agreements with official and private creditors. Devaluation of its Francophone currency by 50% in January 1994 did not set off an expected inflationary spiral but the government must continue to keep a tight reign on spending and wage increases.

The Gambia has no important mineral or other natural resources and has a limited agricultural base. About 75% of the population is engaged in crop production and livestock raising, which contribute 30% to GDP. Small-scale manufacturing activity - processing peanuts, fish, and hides - accounts for less than 10% of GDP. A sustained structural adjustment program, including a liberalized trade policy, had fostered a respectable 4% rate of growth in recent years.

Reexport trade constitutes one-third of economic activity; however, border closures associated with Senegal's monetary crisis in late 1993 led to a halving of reexport trade, reducing government revenues in turn. The 50% devaluation of the CFA franc in January 1994 has made Senegalese goods more competitive and apparently prompted a relaxation of Senegalese controls, paving the way for a comeback in reexports. But overwhelming these developments were the devastating effects of the military's takeover in July 1994.

By October, traffic at the Port of Banjul had fallen precipitously as importers nervously scaled back their activities with the commencement of the anticorruption drive by the new regime. Concerned with the growing potential for serious unrest after a countercoup attempt was bloodily put down by the regime, the United Kingdom and the EU in November issued a travelers advisory for The Gambia, which brought a halt to tourism almost immediately.

The Gambia faces additional problems in 1995 if, as is likely, economic sanctions by Western governments remain in effect in response to indications that the military regime intends to stay in power far longer than expected by the donors.

Well endowed with natural resources, Ghana is relatively well off, having twice the per capita output of the poorer countries in West Africa. Heavily reliant on international assistance, Ghana has made steady progress in liberalizing its economy since 1983. Overall growth continued at a rate of approximately 5% in 1994, due largely to increased gold, timber, and cocoa production - major sources of foreign exchange. The economy, however, continues to revolve around subsistence agriculture, which accounts for 45% of GDP and employs 55% of the work force, mainly small landholders.

Public sector wage increases, regional peacekeeping commitments, and the containment of internal unrest in the underdeveloped north have placed substantial demands on the government's budget and have led to inflationary deficit financing and a 27% depreciation of the cedi in 1994.

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Guinea-Bissau ranks among the poorest countries in the world. Agriculture and fishing are the main economic activities. Cashew nuts, peanuts, and palm kernels are the primary exports. Exploitation of known mineral deposits is unlikely at present because of a weak infrastructure and the high cost of development. With IMF support the country is committed to an economic reform program emphasizing monetary stability and private sector growth. This process will continue at a slow pace because of a heavy foreign debt burden and internal constraints.

Although possessing major mineral and hydropower resources and considerable potential for agricultural development, Guinea remains one of the poorest countries in the world. The agricultural sector contributes about 40% to GDP and employs 80% of the work force, while industry accounts for 27% of GDP. Guinea possesses over 25% of the world's bauxite reserves. The mining sector accounted for 85% of exports in 1991. Long-run improvements in literacy, financial institutions, and the legal framework are needed if the country is to move out of poverty. Except in the bauxite industry, foreign investment remains minimal.

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Kenya in recent years has had one of the highest natural rates of growth in population, but the statistics have been complicated by the large-scale movement of nomadic groups and of Somalis back and forth across the border. Population growth has been accompanied by deforestation, deterioration in the road system, the water supply, and other parts of the infrastructure. In industry and services, Nairobi's reluctance to embrace IMF-supported reforms had held back investment and growth in 1991-93. Nairobi's push on economic reform in 1994, however, helped support a 3.3% increase in output.

Small, landlocked, and mountainous, Lesotho has no important natural resources other than water. Its economy is based on agriculture, light manufacturing, and remittances from laborers employed in South Africa (these remittances supplement domestic income by as much as 45%). The great majority of households gain their livelihoods from subsistence farming and migrant labor; a large portion of the adult male work force is employed in South African mines.

Manufacturing depends largely on farm products to support the milling, canning, leather, and jute industries; other industries include textile, clothing, and construction. Although drought has decreased agricultural activity over the past few years, improvement of a major hydropower facility will permit the sale of water to South Africa and allow Lesotho's economy to continue its moderate growth.

Civil war since 1990 has destroyed much of Liberia's economy, especially the infrastructure in and around Monrovia. Businessmen have fled the country, taking capital and expertise with them. Many will not return. Richly endowed with water, mineral resources, forests, and a climate favorable to agriculture, Liberia had been a producer and exporter of basic products, while local manufacturing, mainly foreign owned, had been small in scope.

Political instability threatens prospects for economic reconstruction and repatriation of some 750,000 Liberian refugees who have fled to neighboring countries. The political impasse between the interim government and rebel leader Charles TAYLOR has prevented restoration of normal economic life, including the re-establishment of a strong central government with effective economic development programs. The economy deteriorated further in 1994.

The socialist-oriented economy depends primarily upon revenues from the oil sector, which contributes practically all export earnings and about one-third of GDP. In 1990 per capita GDP was the highest in Africa at $5,410, but GDP growth rates have slowed and fluctuated sharply in response to changes in the world oil market. Import restrictions and inefficient resource allocations have led to periodic shortages of basic goods and foodstuffs.

Windfall revenues from the hike in world oil prices in late 1990 improved the foreign payments position and resulted in a current account surplus through 1992. The nonoil manufacturing and construction sectors, which account for about 20% of GDP, have expanded from processing mostly agricultural products to include petrochemicals, iron, steel, and aluminum. Although agriculture accounts for only 5% of GDP, it employs 18% of the labor force.

Climatic conditions and poor soils severely limit farm output, and Libya imports about 75% of its food requirements. The UN sanctions imposed in April 1992 have not yet had a major impact on the economy because Libya's oil revenues generate sufficient foreign exchange which sustains imports of food, consumer goods, and equipment for the oil industry and ongoing development projects.

Madagascar is one of the poorest countries in the world, suffering from chronic malnutrition, underfunded health and education facilities, a 3% annual population growth rate, and severe loss of forest cover, accompanied by erosion. Agriculture, including fishing and forestry, is the mainstay of the economy, accounting for over 30% of GDP and contributing more than 70% of total export earnings. Industry is largely confined to the processing of agricultural products and textile manufacturing; in 1991 it accounted for only 13% of GDP. In 1986 the government introduced a five-year development plan that stressed self-sufficiency in food (mainly rice) by 1990, increased production for exports, and reduced energy imports.

Subsequently, growth in output has been held back because of protracted antigovernment strikes and demonstrations for political reform. Since 1993, corruption and political instability have caused the economy and infrastructure to decay further. Since April 1994, the government commitment to economic reforms has been erratic. Enormous obstacles stand in the way of Madagascar's realizing its considerable growth potential.

Landlocked Malawi ranks among the world's least developed countries. The economy is predominately agricultural, with about 90% of the population living in rural areas. Agriculture accounts for 40% of GDP and 90% of export revenues. After two years of weak performance, economic growth improved significantly in 1988-91 as a result of good weather and a broadly based economic adjustment effort by the government. Drought cut overall output sharply in 1992, but the lost ground was recovered in 1993.

The economy depends on substantial inflows of economic assistance from the IMF, the World Bank, and individual donor nations. The new government faces strong challenges, e.g., to spur exports, to improve educational and health facilities, and to deal with environmental problems of deforestation and erosion.

Mali is among the poorest countries in the world, with 65% of its land area desert or semidesert. Economic activity is largely confined to the riverine area irrigated by the Niger. About 10% of the population is nomadic and some 80% of the labor force is engaged in agriculture and fishing. Industrial activity is concentrated on processing farm commodities. The economy is beginning to turn around after contracting through 1992-93, largely because of enhanced exports and import substitute production in the wake of the 50% devaluation of January 1994. Post-devaluation inflation appears to have peaked at 35% in 1994 and the government appears to be keeping on track with its IMF structural adjustment program.

A majority of the population still depends on agriculture and livestock for a livelihood, even though most of the nomads and many subsistence farmers were forced into the cities by recurrent droughts in the 1970s and 1980s. Mauritania has extensive deposits of iron ore, which account for almost 50% of total exports. The decline in world demand for this ore, however, has led to cutbacks in production. The nation's coastal waters are among the richest fishing areas in the world, but overexploitation by foreigners threatens this key source of revenue.

The country's first deepwater port opened near Nouakchott in 1986. In recent years, drought and economic mismanagement have resulted in a substantial buildup of foreign debt. The government has begun the second stage of an economic reform program in consultation with the World Bank, the IMF, and major donor countries. Short-term growth prospects are gloomy because of the heavy debt service burden, rapid population growth, and vulnerability to climatic conditions.

Since independence in 1968, Mauritius has developed from a low income, agriculturally based economy to middle income diversified economy with growing industrial and tourist sectors. For most of the period annual growth has been of the order of 5% to 6%. This remarkable achievement has been reflected in increased life expectancy, lowered infant mortality, and a much improved infrastructure. Sugarcane is grown on about 90% of the cultivated land area and accounts for 40% of export earnings.

The government's development strategy centers on industrialization (with a view to modernization and to exports), agricultural diversification, and tourism. Economic performance in 1991-93 continued strong with solid real growth and low unemployment.

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

Morocco faces the typical problems of developing countries - restraining government spending, reducing constraints on private activity and foreign trade, and keeping inflation within bounds. Since the early 1980s the government has pursued an economic program toward these objectives with the support of the IMF, the World Bank, and the Paris Club of creditors. The economy has substantial assets to draw

on:

the world's largest phosphate reserves, diverse agricultural and fishing resources, a sizable tourist industry, a growing manufacturing sector, and remittances from Moroccans working abroad. A severe drought in 1992-93 depressed economic activity and held down exports. Real GDP contracted by 4.4% in 1992 and 1.1% in 1993. Despite these setbacks, initiatives to relax capital controls, strengthen the banking sector, and privatize state enterprises went forward in 1993-94. Favorable rainfall in 1994 boosted agricultural production by 40%. Servicing the large debt, high unemployment, and vulnerability to external economic forces remain long-term problems for Morocco.

One of Africa's poorest countries, Mozambique has failed to exploit the economic potential of its sizable agricultural, hydropower, and transportation resources. Indeed, national output, consumption, and investment declined throughout the first half of the 1980s because of internal disorders, lack of government administrative control, and a growing foreign debt. A sharp increase in foreign aid, attracted by an economic reform policy, resulted in successive years of economic growth in the late 1980s, but aid has declined steadily since 1989.

Agricultural output is at only 75% of its 1981 level, and grain has to be imported. Industry operates at only 20%-40% of capacity. The economy depends heavily on foreign assistance to keep afloat. Peace accords signed in October 1992 improved chances of foreign investment, aided IMF-supported economic reforms, and supported continued economic recovery. Elections held in 1994 diverted government attention from the economy, resulting in slippage and delays in the economic reform program. Nonetheless, growth in 1994 was solid and can continue into the late 1990s given continued foreign help in meeting debt obligations.

The economy is heavily dependent on the mining industry to extract and process minerals for export. Mining accounts for almost 25% of GDP. Namibia is the fourth-largest exporter of nonfuel minerals in Africa and the world's fifth-largest producer of uranium. Alluvial diamond deposits are among the richest in the world, making Namibia a primary source for gem-quality diamonds. Namibia also produces large quantities of lead, zinc, tin, silver, and tungsten. More than half the population depends on agriculture (largely subsistence agriculture) for its livelihood. Namibia must import some of its food.

Niger is one of the world's poorest countries, with GDP growth lagging behind the rapid growth of population. The economy is centered on subsistence agriculture, animal husbandry, and reexport trade, and increasingly less on uranium, its major export throughout the 1970s and 1980s. Uranium revenues dropped by almost 50% between 1983 and 1990 with the end of the uranium boom. Terms of trade with Nigeria, Niger's largest regional trade partner, have improved dramatically since the 50% devaluation of the African franc in January 1994; this devaluation boosted exports of livestock, peas, onions, and the products of Niger's small cotton industry.

The government relies on bilateral and multilateral aid for operating expenses and public investment and is strongly induced to adhere to structural adjustment programs designed by the IMF and the World Bank.

The oil-rich Nigerian economy continues to be hobbled by political instability and poor macroeconomic management. Nigeria's unpopular military rulers show no sign of wanting to restore democratic civilian rule in the near future and appear divided on how to redress fundamental economic imbalances that cause troublesome inflation and the steady depreciation of the naira. The government's domestic and international arrears continue to limit economic growth - even in the oil sector - and prevent an agreement with the IMF and bilateral creditors on debt relief. The inefficient (largely subsistence) agricultural sector has failed to keep up with rapid population growth, and Nigeria, once a large net exporter of food, now must import food.

The economy has traditionally been based on agriculture. Sugarcane has been the primary crop for more than a century, and in some years it accounts for 85% of exports. The government has been pushing the development of a tourist industry to relieve high unemployment, which recently amounted to one-third of the labor force. The gap in Reunion between the well-off and the poor is extraordinary and accounts for the persistent social tensions.

The white and Indian communities are substantially better off than other segments of the population, often approaching European standards, whereas indigenous groups suffer the poverty and unemployment typical of the poorer nations of the African continent. The outbreak of severe rioting in February 1991 illustrates the seriousness of socioeconomic tensions. The economic well-being of Reunion depends heavily on continued financial assistance from France.

Rwanda is a poor African nation suffering bitterly from ethnic-based civil war. Almost 50% of GDP comes from the agricultural sector; coffee and tea make up 80%-90% of total exports. The amount of fertile land is limited, however, and deforestation and soil erosion continue to create problems. The industrial sector in Rwanda is small, contributing only 17% to GDP. Manufacturing focuses mainly on the processing of agricultural products.

The Rwandan economy remains dependent on coffee/tea exports and foreign aid. Weak international prices since 1986 have caused the economy to contract and per capita GDP to decline. A structural adjustment program with the World Bank began in October 1990. Ethnic-based insurgency since 1990 has devastated wide areas, especially in the north, and displaced hundreds of thousands of people. A peace accord in mid-1993 temporarily ended most of the fighting, but massive resumption of civil warfare in April 1994 in the capital city Kigali and elsewhere has been taking thousands of lives and severely affecting short-term economic prospects. The economy suffers massively from failure to maintain the infrastructure, looting, neglect of important cash crops, and lack of health care facilities.

The economy depends primarily on financial assistance from the UK. The local population earns some income from fishing, the raising of livestock, and sales of handicrafts. Because there are few jobs, a large proportion of the work force has left to seek employment overseas.

This small poor island economy has remained dependent on cocoa since independence 20 years ago. Since then, however, cocoa production has gradually declined because of drought and mismanagement, so that by 1987 annual output had fallen from 10,000 tons to 3,900 tons. As a result, a shortage of cocoa for export has created a serious balance-of-payments problem. Production of less important crops, such as coffee, copra, and palm kernels, has also declined.

The value of imports generally exceeds that of exports by a ratio of 4:1 or more. The emphasis on cocoa production at the expense of other food crops has meant that Sao Tome has to import 90% of food needs. It also has to import all fuels and most manufactured goods. Over the years, Sao Tome has been unable to service its external debt and has had to depend on concessional aid and debt rescheduling. Considerable potential exists for development of a tourist industry, and the government has taken steps to expand facilities in recent years.

The government also has attempted to reduce price controls and subsidies and to encourage market-based mechanisms, e. g., to facilitate the distribution of imported food. Annual GDP growth is estimated in the 3%-4% range for 1994-96.

In 1994 Senegal embarked on its most concerted structural adjustment effort yet to exploit the 50% devaluation of the currencies of the 14 Francophone African nations on 12 January. After years of foot-dragging, the government finally passed a liberalized labor code which should significantly help lower the cost of labor and improve the manufacturing sector's competitiveness. Inroads also have been made in closing tax loopholes and eliminating monopoly power in several sectors.

At the same time the government is holding the line on current fiscal expenditure under the watchful eyes of international organizations on which it depends for substantial support. A bumper peanut crop - Senegal's main source of foreign exchange - coincided with an improvement of international prices and probably resulted in a doubling of earnings in 1994 over 1993. The country's narrow resource base, environmental degradation, and untamed population growth will continue to hold back growth in living standards over the medium term.

Since independence in 1976, per capita output has grown to roughly seven times the old near-subsistence level, led by the tourist sector, which employs about 30% of the labor force and provides more than 70% of hard currency earnings. In recent years the government has encouraged foreign investment in order to upgrade hotels and other services. At the same time, the government has moved to reduce the high dependence on tourism by promoting the development of farming, fishing, and small-scale manufacturing.

The vulnerability of the tourist sector was illustrated by the sharp drop in 1991-92 due largely to the Gulf war. Although the industry has rebounded, the government recognizes the continuing need for upgrading the sector in the face of stiff international competition.

Sierra Leone has substantial mineral, agricultural, and fishery resources, but the economic and social infrastructure is not well developed. Agriculture generates about 40% of GDP and employs about two-thirds of the working population, with subsistence agriculture dominating the sector. Manufacturing, which accounts for roughly 10% of GDP, consists mainly of the processing of raw materials and of light manufacturing for the domestic market.

Diamond mining provides an important source of hard currency. Since 1990, the government has been able to meet its IMF- and World Bank-mandated stabilization targets, holding down fiscal deficits, increasing foreign exchange reserves, and retiring much of its domestic debt - but at a steep cost in terms of capital investments and social spending. Moreover, the economic infrastructure has nearly collapsed due to neglect and war-related disruptions in the mining and agricultural export sectors. The continuing civil war in Liberia has led to a large influx of refugees, who place additional burdens on Sierra Leon's fragile economy.

One of the world's poorest and least developed countries, Somalia has few resources. Moreover, much of the economy has been devastated by the civil war. Agriculture is the most important sector, with livestock accounting for about 40% of GDP and about 65% of export earnings. Nomads and seminomads who are dependent upon livestock for their livelihood make up about 70% of the population. Crop production generates only 10% of GDP and employs about 20% of the work force.

The main export crop is bananas; sugar, sorghum, and corn are grown for the domestic market. The small industrial sector is based on the processing of agricultural products and accounts for less than 10% of GDP; most facilities have been shut down because of the civil strife. The greatly increased political turmoil of 1991-93 has resulted in a substantial drop in agricultural output, with widespread famine. In 1994 economic conditions stabilized in the countryside but may turn worse in 1995 if civil strife intensifies after the UN withdrawal.

Many of the white one-seventh of the South African population enjoy incomes, material comforts, and health and educational standards equal to those of Western Europe. In contrast, most of the remaining population suffers from the poverty patterns of the Third World, including unemployment and lack of job skills. The main strength of the economy lies in its rich mineral resources, which provide two-thirds of exports. Economic developments for the remainder of the 1990s will be driven largely by the new government's attempts to improve black living conditions, to set the country on an aggressive export-led growth path, and to cut back the enormous numbers of unemployed.

The economy in recent years has absorbed less than 5% of the more than 300,000 workers entering the labor force annually. Local economists estimate that the economy must grow between 5% and 6% in real terms annually to absorb all of the new entrants, much less reduce the accumulated total.

Sudan is buffeted by civil war, chronic political instability, adverse weather, high inflation, a drop in remittances from abroad, and counterproductive economic policies. Governmental entities account for more than 70% of new investment. The private sector's main areas of activity are agriculture and trading, with most private industrial investment predating 1980. Agriculture employs 80% of the work force. Industry mainly processes agricultural items.

Sluggish economic performance over the past decade, attributable largely to declining annual rainfall, has reduced levels of per capita income and consumption. A large foreign debt and huge arrearages continue to cause difficulties. In 1990 the International Monetary Fund took the unusual step of declaring Sudan noncooperative because of its nonpayment of arrearages to the Fund. After Sudan backtracked on promised reforms in 1992-93, the IMF threatened to expel Sudan from the Fund.

To avoid expulsion, Khartoum agreed to make payments on its arrears to the Fund, liberalize exchange rates, and reduce subsidies. These measures have been partially implemented. The government's continued prosecution of the civil war and its growing international isolation led to a further deterioration of the nonagricultural sectors of the economy during 1994. Agriculture, on the other hand, after several disappointing years, enjoyed a bumper fall harvest in 1994; its strong performance produced an overall growth rate in GDP of perhaps 7%.

Tanzania is one of the poorest countries in the world. The economy is heavily dependent on agriculture, which accounts for about 58% of GDP, provides 85% of exports, and employs 90% of the work force. Topography and climatic conditions, however, limit cultivated crops to only 5% of the land area. Industry accounts for 8% of GDP and is mainly limited to processing agricultural products and light consumer goods. The economic recovery program announced in mid-1986 has generated notable increases in agricultural production and financial support for the program by bilateral donors.

The World Bank, the International Monetary Fund, and bilateral donors have provided funds to rehabilitate Tanzania's deteriorated economic infrastructure. Growth in 1991-94 has featured a pickup in industrial production and a substantial increase in output of minerals, led by gold. Recent banking reforms have helped increase private sector growth and investment.

The economy is heavily dependent on subsistence agriculture, which accounts for about half of GDP and provides employment for 80% of the labor force. Primary agricultural exports are cocoa, coffee, and cotton, which together generate about 30% of total export earnings. Togo is self-sufficient in basic foodstuffs when harvests are normal. In the industrial sector phosphate mining is by far the most important activity, although it has suffered from the collapse of world phosphate prices and increased foreign competition.

Togo serves as a regional commercial and trade center. The government's decade-long IMF and World Bank supported effort to implement economic reform measures to encourage foreign investment and bring revenues in line with expenditures has stalled. Political unrest, including private and public sector strikes throughout 1992 and 1993, has jeopardized the reform program, shrunk the tax base, and disrupted vital economic activity.

Although strikes had ended in 1994, political unrest and lack of funds prevented the government from taking advantage of the 50% currency devaluation of January 1994. Resumption of World Bank and IMF flows will depend on implementation of several controversial moves toward privatization and on downsizing the military, on which the regime depends to stay in power.

no economic activity

Tunisia has a diverse economy, with important agricultural, mining, energy, tourism, and manufacturing sectors. Detailed governmental control of economic affairs has gradually lessened over the past decade, including increasing privatization of trade and commerce, simplification of the tax structure, and a cautious approach to debt. Real growth has averaged roughly 5% in 1991-94, and inflation has been moderate. Growth in tourism and IMF support have been key elements in this solid record. Further privatization and further improvements in government administrative efficiency are among the challenges for the future.

Uganda has substantial natural resources, including fertile soils, regular rainfall, and sizable mineral deposits of copper and cobalt. Agriculture is the most important sector of the economy, employing over 80% of the work force. Coffee is the major export crop and accounts for the bulk of export revenues. Since 1986 the government - with the support of foreign countries and international agencies - has acted to rehabilitate and stabilize the economy by undertaking currency reform, raising producer prices on export crops, increasing prices of petroleum products, and improving civil service wages.

The policy changes are especially aimed at dampening inflation and boosting production and export earnings. In 1990-94, the economy turned in a solid performance based on continued investment in the rehabilitation of infrastructure, improved incentives for production and exports, and gradually improving domestic security. The economy again prospered in 1994 with rapid growth, low inflation, growing foreign investment, a trimmed bureaucracy, and the continued return of exiled Indian-Ugandan entrepreneurs.

Western Sahara, a territory poor in natural resources and having little rainfall, depends on pastoral nomadism, fishing, and phosphate mining as the principal sources of income for the population. Most of the food for the urban population must be imported. All trade and other economic activities are controlled by the Moroccan Government. Incomes and standards of living are substantially below the Moroccan level.

Prior to 1993 the economy had been in decline for more than a decade with falling imports and growing foreign debt. Economic difficulties stemmed largely from a chronically depressed level of copper production and weak copper prices, generally ineffective economic policies, and high inflation. An annual population growth of 3% brought a decline in per capita GDP of 50% over the decade. However, economic reforms enacted since 1992 have helped reduce inflation, have begun to strengthen the social safety net, and have been accompanied by GDP growth at an estimated 6.8% in 1993 and 4% in 1994. The huge external debt remains a key problem.

Agriculture employs three-fourths of the labor force and supplies almost 40% of exports. The manufacturing sector, based on agriculture and mining, produces a variety of goods and contributes 35% to GDP. Mining accounts for only 5% of both GDP and employment, but minerals and metals account for about 40% of exports. Severe drought caused GDP to drop 8% in 1992, with growth rebounding to 2% in 1993 and 3.5% in 1994. Despite the lingering effects of the drought on economic and social conditions, the government is continuing to push its IMF/World Bank structural adjustment program aimed at encouraging exports and foreign investment.

No economic activity at present except for fishing off the coast and small-scale tourism, both based abroad.

no economic activity

Economic activity is limited to servicing meteorological and geophysical research stations and French and other fishing fleets. The fish catches landed on Iles Kerguelen by foreign ships are exported to France and Reunion.

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Some fishing takes place in adjacent waters. There is a potential source of income from harvesting fin fish and krill. The islands receive income from postage stamps produced in the UK.

Greenland's economic situation at present is difficult. Unemployment is increasing, and prospects for economic growth in the immediate future are dim. Following the closing of the Black Angel lead and zinc mine in 1989, Greenland became almost completely dependent on fishing and fish processing, the sector accounting for 95% of exports. Prospects for fisheries are not bright, as the important shrimp catches will at best stabilize and cod catches have dropped.

Resumption of mining and hydrocarbon activities is not around the corner, thus leaving only tourism with some potential for the near future. The public sector in Greenland, i.e., the central government and its commercial entities and the municipalities, plays a dominant role in Greenland accounting for about two-thirds of total employment. About half the government's revenues come from grants from the Danish Government.

Iceland's Scandinavian-type economy is basically capitalistic, but with an extensive welfare system, relatively low unemployment, and comparatively even distribution of income. The economy is heavily dependent on the fishing industry, which provides nearly 75% of export earnings and employs 12% of the work force. In the absence of other natural resources - except energy - Iceland's economy is vulnerable to changing world fish prices. The economy, in recession since 1988, began to recover in 1993, posting 0.4% growth, but was still hampered by cutbacks in fish quotas as well as falling

world prices for its main exports:

fish and fish products, aluminum, and ferrosilicon. Real GDP grew by perhaps 2.4% in 1994. The center-right government plans to continue its policies of reducing the budget and current account deficits, limiting foreign borrowing, containing inflation, revising agricultural and fishing policies, diversifying the economy, and privatizing state-owned industries. The government, however, remains divided on the issue of EU membership, primarily because of Icelanders' concern about losing control over their fishing resources.

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 located on the island.

Coal mining is the major economic activity on Svalbard. By treaty (9 February 1920), the nationals of the treaty powers have equal rights to exploit mineral deposits, subject to Norwegian regulation. Although US, UK, Dutch, and Swedish coal companies have mined in the past, the only companies still mining are Norwegian and Russian. The settlements on Svalbard are essentially company towns. The Norwegian state-owned coal company employs nearly 60% of the Norwegian population on the island, runs many of the local services, and provides most of the local infrastructure. There is also some trapping of seal, polar bear, fox, and walrus.

Afghanistan is an extremely poor, landlocked country, highly dependent on farming (wheat especially) and livestock raising (sheep and goats). Economic considerations have played second fiddle to political and military upheavals during more than 15 years of war, including the nearly 10-year Soviet military occupation (which ended 15 February 1989). Over the past decade, one-third of the population fled the country, with Pakistan sheltering more than 3 million refugees and Iran about 3 million.

About 1.4 million Afghan refugees remain in Pakistan and about 2 million in Iran. Another 1 million probably moved into and around urban areas within Afghanistan. Although reliable data are unavailable, gross domestic product is lower than 13 years ago because of the loss of labor and capital and the disruption of trade and transport.

Under the old Soviet central planning system, Armenia had developed a more modern industrial sector, supplying machine building equipment, textiles, and other manufactured goods to sister republics in exchange for raw materials and energy resources. Armenia is a large food importer and its mineral deposits (gold, bauxite) are small. The economic decline in recent years (1991-94) has been particularly severe due to the ongoing conflict over the ethnic Armenian-dominated region of Nagorno-Karabakh in Azerbaijan.

Azerbaijan and Turkey have blockaded pipeline and railroad traffic to Armenia for its support of the Karabakh Armenians. This has left Armenia with chronic energy shortages because of a lack of capacity and frequent disruptions of natural gas deliveries through unstable Georgia, as well as difficulties in obtaining other types of fuel. In addition, bread is strictly rationed and there are shortages of other goods. In 1994, the economy seemed to bottom out.

The government has managed to increase its financial and budgetary discipline, bringing inflation down from around 40% per month in first half 1994 to single digits in second half 1994 and the first quarter of 1995. A full economic recovery cannot be expected until the conflict is settled and the blockade lifted.

Azerbaijan is less developed industrially than either Armenia or Georgia, the other Transcaucasian states. It resembles the Central Asian states in its majority nominally Muslim population, high structural unemployment, and low standard of living. The economy's most prominent products are oil, cotton, and gas. Production from the Caspian oil and gas field has been in decline for several years, but the November 1994 ratification of the $7.5 billion oil deal with a consortium of Western companies should generate the funds needed to spur future industrial development.

Azerbaijan accounted for 1.5% to 2% of the capital stock and output of the former Soviet Union. Azerbaijan shares all the formidable problems of the ex-Soviet republics in making the transition from a command to a market economy, but its considerable energy resources brighten its long-term prospects. Baku has only recently begun making progress on economic reform, and old economic ties and structures have yet to be replaced.

Despite sustained domestic and international efforts to improve economic and demographic prospects, Bangladesh remains one of the world's poorest, most densely populated, and least developed nations. Its economy is overwhelmingly agricultural, with the cultivation of rice the single most important activity in the economy. Major impediments to growth include frequent cyclones and floods, the inefficiency of state-owned enterprises, a rapidly growing labor force that cannot be absorbed by agriculture, delays in exploiting energy resources (natural gas), and inadequate power supplies.

Excellent rice crops and expansion of the export garment industry led to real growth of 4% in 1992 and again in 1993. Policy measures intended to reduce government regulation of private industry, to curb population growth, and to expand employment opportunities have had only partial success given the serious nature of Bangladesh's basic problems.

The economy, one of the world's least developed, is based on agriculture and forestry, which provide the main livelihood for 90% of the population and account for about half of GDP. Agriculture consists largely of subsistence farming and animal husbandry. Rugged mountains dominate the terrain and make the building of roads and other infrastructure difficult and expensive. The economy is closely aligned with India's through strong trade and monetary links.

The industrial sector is small and technologically backward, with most production of the cottage industry type. Most development projects, such as road construction, rely on Indian migrant labor. Bhutan's hydropower potential and its attraction for tourists are key resources; however, the government limits the number of tourists to 4,000 per year to minimize foreign influence. Much of the impetus for growth has come from large public-sector companies.

Nevertheless, in recent years, Bhutan has shifted toward decentralized development planning and greater private initiative. The government privatized several large public-sector firms, is revamping its trade regime and liberalizing administerial procedures over industrial licensing. The government's industrial contribution to GDP decreased from 13% in 1988 to about 11% in 1993.

All economic activity is concentrated on the largest island of Diego Garcia, where joint UK-US defense facilities are located. Construction projects and various services needed to support the military installations are done by military and contract employees from the UK, Mauritius, the Philippines, and the US. There are no industrial or agricultural activities on the islands.

Beginning in late 1978 the Chinese leadership has been trying to move the economy from the sluggish Soviet-style centrally planned economy to a more productive and flexible economy with market elements, but still within the framework of monolithic Communist control. To this end the authorities switched to a system of household responsibility in agriculture in place of the old collectivization, increased the authority of local officials and plant managers in industry, permitted a wide variety of small-scale enterprise in services and light manufacturing, and opened the economy to increased foreign trade and investment.

The result has been a strong surge in production, particularly in agriculture in the early 1980s. Industry also has posted major gains, especially in coastal areas near Hong Kong and opposite Taiwan, where foreign investment and modern production methods have helped spur production of both domestic and export goods. Aggregate output has more than doubled since 1978. On the darker side, the leadership has often experienced in its hybrid system the worst results of socialism (bureaucracy, lassitude, corruption) and of capitalism (windfall gains and stepped-up inflation). Beijing thus has periodically backtracked, retightening central controls at intervals.

In 1992-94 annual growth of GDP accelerated, particularly in the coastal areas - to more than 10% annually according to official claims. In late 1993 China's leadership approved additional long-term reforms aimed at giving more play to market-oriented institutions and at strengthening the center's control over the financial system. In 1994 strong growth continued in the widening market-oriented areas of the economy. At the same time, the government struggled to (a) collect revenues due from provinces, businesses, and individuals; (b) keep inflation within bounds; (c) reduce extortion and other economic crimes; and (d) keep afloat the large state-owned enterprises, most of which had not participated in the vigorous expansion of the economy.

From 60 to 100 million surplus rural workers are adrift between the villages and the cities, many barely subsisting through part-time low-pay jobs. Popular resistance, changes in central policy, and loss of authority by rural cadres have weakened China's population control program, which is essential to the nation's long-term economic viability. One of the most dangerous long-term threats to continued rapid economic growth is the deterioration in the environment, notably air pollution, soil erosion, and the steady fall of the water table especially in the north.

Georgia's economy has traditionally revolved around Black Sea tourism; cultivation of citrus fruits, tea, and grapes; mining of manganese and copper; and a small industrial sector producing wine, metals, machinery, chemicals, and textiles. The country imports the bulk of its energy needs, including natural gas and oil products. Its only sizable domestic energy resource is hydropower. Since 1990, widespread conflicts, e.g., in Abkhazia, South Ossetia, and Mingreliya, have severely aggravated the economic crisis resulting from the disintegration of the Soviet command economy in December 1991.

Throughout 1993 and 1994, much of industry was functioning at only 20% of capacity; heavy disruptions in agricultural cultivation were reported; and tourism was shut down. The country is precariously dependent on US and EU humanitarian grain shipments, as most other foods are priced beyond reach of the average citizen. Georgia is also suffering from an acute energy crisis, as it is having problems paying for even minimal imports.

Georgia is pinning its hopes for recovery on reestablishing trade ties with Russia and on developing international transportation through the key Black Sea ports of P'ot'i and Bat'umi. The government began a tenuous program in 1994 aiming to stabilize prices and reduce large consumer subsidies.

India's economy is a mixture of traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of support services. Faster economic growth in the 1980s permitted a significant increase in real per capita private consumption. A large share of the population, perhaps as much as 40%, remains too poor to afford an adequate diet. Financial strains in 1990 and 1991 prompted government austerity measures that slowed industrial growth but permitted India to meet its international payment obligations without rescheduling its debt.

Production, trade, and investment reforms since 1991 have provided new opportunities for Indian businessmen and an estimated 100 million to 200 million middle class consumers. New Delhi has always paid its foreign debts on schedule and has stimulated exports, attracted foreign investment, and revived confidence in India's economic prospects. Foreign exchange reserves, precariously low three years ago, now total more than $19 billion.

Positive factors for the remainder of the 1990s are India's strong entrepreneurial class and the central government's recognition of the continuing need for market-oriented approaches to economic development, for example in upgrading the wholly inadequate communications facilities. Negative factors include the desperate poverty of hundreds of millions of Indians and the impact of the huge and expanding population on an already overloaded environment.

Government-industry cooperation, a strong work ethic, mastery of high technology, and a comparatively small defense allocation (roughly 1% of GDP) have helped Japan advance with extraordinary rapidity to the rank of second most powerful economy in the world. Industry, the most important sector of the economy, is heavily dependent on imported raw materials and fuels. Usually self-sufficient in rice, Japan must import about 50% of its requirements of other grain and fodder crops.

Japan maintains one of the world's largest fishing fleets and accounts for nearly 15% of the global catch. Overall economic growth has been spectacular: a 10% average in the 1960s, a 5% average in the 1970s and 1980s. Economic growth came to a halt in 1992-93 largely because of contractionary domestic policies intended to wring speculative excesses from the stock and real estate markets. Growth resumed at a 0.6% pace in 1994 largely because of consumer demand.

As for foreign trade, the stronger yen and slower global growth are containing export growth. Unemployment and inflation remain remarkably low in comparison with the other industrialized nations. Japan continues to run a huge trade surplus - $121 billion in 1994, roughly the same size as in 1993 - which supports extensive investment in foreign assets. Prime Minister MURAYAMA has yet to formalize his government's plans for administrative and economic reform, including reduction in the trade surplus. As leader of a coalition government, he has softened his own socialist positions. The crowding of the habitable land area and the aging of the population are two major long-run problems.

Kazakhstan, the second largest of the former Soviet states in territory, possesses enormous untapped fossil-fuel reserves as well as plentiful supplies of other minerals and metals. It also has considerable agricultural potential with its vast steppe lands accommodating both livestock and grain production. Kazakhstan's industrial sector rests on the extraction and processing of these natural resources and also on a relatively large machine building sector specializing in construction equipment, tractors, agricultural machinery, and some defense items.

The breakup of the USSR and the collapse of demand for Kazakhstan's traditional heavy industry products have resulted in a sharp contraction of the economy since 1991, with the steepest annual decline occurring in 1994. The government has pursued a moderate program of economic reform and privatization which is gradually lifting state controls over economic activity and shifting assets into the private sector. Nevertheless, government control over key sectors of the economy remains strong.

Sustained economic hardships and continued pressures from industrial elites will make it difficult for the government to sustain its policies of monetary and fiscal discipline which had brought down inflation by the end of 1994. Continued lack of pipeline transportation for expanded oil exports has closed off a likely source of economic recovery.

More than 90% of this command economy is socialized; agricultural land is collectivized; and state-owned industry produces 95% of manufactured goods. State control of economic affairs is unusually tight even for a Communist country because of the small size and homogeneity of the society and the strict rule of KIM Il-song in the past and now his son, KIM Chong-il. Economic growth during the period 1984-88 averaged 2%-3%, but output declined by 3%-5% annually during 1989-92 because of systemic problems and disruptions in socialist-style economic relations with the former USSR and China.

In 1992, output dropped sharply, by perhaps 7%-9%, as the economy felt the cumulative effect of the reduction in outside support. The leadership insisted on maintaining its high level of military outlays from a shrinking economic pie. Moreover, a serious drawdown in inventories and critical shortages in the energy sector have led to increasing interruptions in industrial production. Abundant mineral resources and hydropower have formed the basis of industrial development since World War II. Output of the extractive industries includes coal, iron ore, magnesite, graphite, copper, zinc, lead, and precious metals.

Manufacturing is centered on heavy industry, including military industry, with light industry lagging far behind. Despite the use of improved seed varieties, expansion of irrigation, and the heavy use of fertilizers, North Korea has not yet become self-sufficient in food production. Indeed, a shortage of arable lands, several years of poor harvests, and a cumbersome distribution system have resulted in chronic food shortages.

The collapse of Communism in the former Soviet Union and Eastern Europe in 1989-91 has disrupted important technological links. North Korea remains far behind South Korea in economic development and living standards. GDP is stagnant.

The driving force behind the economy's dynamic growth has been the planned development of an export-oriented economy in a vigorously entrepreneurial society. Real GDP increased more than 10% annually between 1986 and 1991. This growth ultimately led to an overheated situation characterized by a tight labor market, strong inflationary pressures, and a rapidly rising current account deficit. As a result, in 1992, economic policy focused on slowing the growth rate of inflation and reducing the deficit. Annual growth slowed to 5%, still above the rate in most other countries of the world, and recovered to 6.3% in 1993. The economy expanded by 8.3% in 1994, driven by booming exports.

Kyrgyzstan is one of the smallest and poorest states of the former Soviet Union. Its economy is heavily agricultural, growing cotton and tobacco on irrigated land in the south and grain in the foothills of the north and raising sheep and goats on mountain pastures. Its small and obsolescent industrial sector, concentrated around Bishkek, has traditionally relied on Russia and other CIS countries for customers and industrial inputs, including most of its fuel.

Since 1990, the economy has contracted by almost 50% as subsidies from Moscow vanished and trade links with other former Soviet republics eroded. At the same time, the Kyrgyz government stuck to tight monetary and fiscal policies in 1994 that succeeded in reducing inflation from 23% per month in 1993 to 5.4% per month in 1994. Moreover, Kyrgyzstan has been the most successful of the Central Asian states in reducing state controls over the economy and privatizing state industries.

Nevertheless, restructuring proved to be a slow and painful process in 1994 despite relatively large flows of foreign aid and continued progress on economic reform. The decline in output in 1995 may be much smaller, perhaps 5%, compared with an estimated 24% in 1994.

Fishing is the largest industry, employing 25% of the work force and accounting for over 60% of exports. Over 90% of government tax revenue comes from import duties and tourism-related taxes. During the 1980s tourism became one of the most important and highest growth sectors of the economy. In 1993, tourism accounted for 17% of GDP and more than 60% of the Maldives' foreign exchange receipts. The Maldivian government initiated an economic reform program in 1989 initially by lifting import quotas and opening some exports to the private sector.

Subsequently, it has liberalized regulations to allow more foreign investment. Agriculture and manufacturing continue to play a minor role in the economy, constrained by the limited availability of cultivatable land and the shortage of domestic labor. Most staple foods must be imported. In 1993, industry which consisted mainly of garment production, boat building, and handicrafts accounted for about 6% of GDP.

Mongolia's severe climate, scattered population, and wide expanses of unproductive land have constrained economic development. Economic activity traditionally has been based on agriculture and the breeding of livestock. In past years extensive mineral resources had been developed with Soviet support; total Soviet assistance at its height amounted to 30% of GDP. The mining and processing of coal, copper, molybdenum, tin, tungsten, and gold account for a large part of industrial production.

Timber and fishing are also important sectors. The Mongolian leadership has been gradually making the transition from Soviet-style central planning to a market economy through privatization and price reform, and is soliciting support from international financial agencies and foreign investors. The economy, however, has still not recovered from the loss of Soviet aid, and the country continues to suffer substantial economic hardships, with one-fourth of the population below the poverty line.

Nepal is among the poorest and least developed countries in the world. Agriculture is the mainstay of the economy, providing a livelihood for over 90% of the population and accounting for half of GDP. Industrial activity is limited, mainly involving the processing of agricultural produce (jute, sugarcane, tobacco, and grain). Production of textiles and carpets has expanded recently and accounted for 85% of foreign exchange earnings in FY93/94.

Apart from agricultural land and forests, exploitable natural resources are mica, hydropower, and tourism. Agricultural production in the late 1980s grew by about 5%, as compared with annual population growth of 2.6%. More than 40% of the population is undernourished. Since May 1991, the government has been encouraging trade and foreign investment, e.g., by eliminating business licenses and registration requirements in order to simplify domestic and foreign investment.

The government also has been cutting public expenditures by reducing subsidies, privatizing state industries, and laying off civil servants. Prospects for foreign trade and investment in the 1990s remain poor, however, because of the small size of the economy, its technological backwardness, its remoteness, and susceptibility to natural disaster. The international community provides funding for 70% of Nepal's developmental budget and for 30% of total budgetary expenditures. The government, realizing that attempts to reverse three years of liberalization would jeopardize this vital support, almost certainly will move ahead with its reform program in 1995-96.

The Pakistani economy has made progress in several key areas since Benazir BHUTTO became Prime Minister in October 1993. She has been under pressure from international donors and the IMF - which gave Pakistan a $1.3 billion structural adjustment credit in February 1994 - to continue the economic reforms and austerity measures begun by her predecessor, caretaker Prime Minister Moeen QURESHI (July-October 1993). Foreign exchange reserves climbed to more than $3 billion in 1994, and the budget deficit was substantially reduced.

Real GDP growth was 4% in FY93/94, up from 2.3% in FY92/93. Foreign direct and portfolio investment also have increased. Privatization of large public sector utilities began in 1994 with the sale of 12% of the Pakistan Telecommunications Corporation (PTC) and the Water and Power Development Authority (WAPDA); the sale of state-owned banks and other large units are planned for 1995. Still, the government must cope with long-standing economic vulnerabilities - high levels of debt service and defense spending, a small tax base, a huge population, and dependence on cotton-based exports - which hamper its ability to create a stable economic environment. In addition, Pakistan's infrastructure is inadequate and deteriorating, low levels of literacy constrain industrial growth, and increasing sectarian, ethnic, and tribal violence disrupt production.

Russia, a vast country with a wealth of natural resources, a well-educated population, and a diverse industrial base, continues to experience formidable difficulties in moving from its old centrally planned economy to a modern market economy. President YEL'TSIN's government has made substantial strides in converting to a market economy since launching its economic reform program in January 1992 by freeing nearly all prices, slashing defense spending, eliminating the old centralized distribution system, completing an ambitious voucher privatization program, establishing private financial institutions, and decentralizing foreign trade.

Russia, however, has made little progress in a number of key areas that are needed to provide a solid foundation for the transition to a market economy. Financial stabilization has remained elusive, with wide swings in monthly inflation rates. Only limited restructuring of industry has occurred so far because of a scarcity of investment funds and the failure of enterprise managers to make hard cost-cutting decisions.

In addition, Moscow has yet to develop a social safety net that would allow faster restructuring by relieving enterprises of the burden of providing social benefits for their workers and has been slow to develop the legal framework necessary to fully support a market economy and to encourage foreign investment. As a result, output has continued to fall. According to Russian official data, which probably overstate the fall, GDP declined by 15% in 1994 compared with a 12% decline in 1993.

Industrial output in 1994 fell 21% with all major sectors taking a hit. Agricultural production in 1994 was down 9%. The grain harvest totaled 81 million tons, some 15 million tons less than in 1993. Unemployment climbed to an estimated 6.6 million or about 7% of the work force by yearend 1994. Floundering Russian firms have already had to put another 4.8 million workers on involuntary, unpaid leave or shortened workweeks.

Government fears of large-scale unemployment continued to hamper industrial restructuring efforts. According to official Russian data, real per capita income was up nearly 18% in 1994 compared with 1993, in part because many Russians are working second jobs. Most Russians perceive that they are worse off now because of growing crime and health problems and mounting wage arrears. Russia has made significant headway in privatizing state assets, completing its voucher privatization program at midyear 1994.

At least a portion of about 110,000 state enterprises were transferred to private hands by the end of 1994. Including partially privatized firms, the private sector accounted for roughly half of GDP in 1994. Financial stabilization continued to remain a challenge for the government. Moscow tightened financial policies in late 1993 and early 1994, including postponing planned budget spending, and succeeded in reducing monthly inflation from 18% in January to about 5% in July and August.

At midyear, however, the government relaxed austerity measures in the face of mounting pressure from industry and agriculture, sparking a new round of inflation; the monthly inflation rate jumped to roughly 15% per month during the fourth quarter. In response, Moscow announced a fairly tight government budget for 1995 designed to bring monthly inflation down to around 1% by the end of 1995. According to official statistics, Russia's 1994 trade with nations outside the former Soviet Union produced a $12.3 billion surplus, up from $11.3 billion in 1993.

Foreign sales - comprised largely of oil, natural gas, and other raw materials - grew more than 8%. Imports also were up 8% as demand for food and other consumer goods surged. Russian trade with other former Soviet republics continued to decline. At the same time, Russia paid only a fraction of the roughly $20 billion in debt that came due in 1994, and by the end of the year, Russia's hard currency foreign debt had risen to nearly $100 billion.

Moscow reached agreement to restructure debts with Paris Club official creditors in mid-1994 and concluded a preliminary deal with its commercial bank creditors late in the year to reschedule debts owed them in early 1995. Capital flight continued to be a serious problem in 1994, with billions of additional dollars in assets being moved abroad, primarily to bank accounts in Europe. Russia's physical plant continues to deteriorate because of insufficient maintenance and new construction. Plant and equipment on average are twice the age of the West's. Many years will pass before Russia can take full advantage of its natural resources and its human assets.

Industry - dominated by the fast-growing apparel industry - has surpassed agriculture as the main source of export earnings and accounts for over 16% of GDP. The economy has been plagued by high rates of unemployment since the late 1970s. Economic growth, which has been depressed by ethnic unrest, accelerated in 1991-94 as domestic conditions began to improve and conditions for foreign investment brightened. Currently, however, the new government's emphasis on populist measures has clouded Sri Lanka's economic prospects.

Tajikistan had the next-to-lowest per capita GDP in the former USSR, the highest rate of population growth, and an extremely low standard of living. Agriculture dominates the economy, cotton being the most important crop. Mineral resources, varied but limited in amount, include silver, gold, uranium, and tungsten. Industry is limited to a large aluminum plant, hydropower facilities, and small obsolete factories mostly in light industry and food processing.

The Tajik economy has been gravely weakened by three years of civil war and by the loss of subsidies and markets for its products, which has left Tajikistan dependent on Russia and Uzbekistan and on international humanitarian assistance for much of its basic subsistence needs. Moreover, constant political turmoil and the continued dominance by former Communist officials have impeded the introduction of meaningful economic reforms.

In the meantime, Tajikistan's efforts to adopt the Russian ruble as its domestic currency despite Russia's unwillingness to supply sufficient rubles left the country in a severe monetary crisis throughout 1994, keeping inflation low but leaving workers and pensioners unpaid for months at a time. The government has announced plans to introduce its own currency in 1995 to help resolve the problem.

Turkmenistan is largely desert country with nomadic cattle raising, intensive agriculture in irrigated oases, and huge gas and oil resources. Half its irrigated land is planted in cotton making it the world's tenth largest producer. It also has the world's fifth largest reserves of natural gas and significant oil resources. Until the end of 1993, Turkmenistan had experienced less economic disruption than other former Soviet states because its economy received a boost from higher prices for oil and gas and a sharp increase in hard currency earnings.

In 1994, Russia's refusal to export Turkmen gas to hard currency markets and mounting debts of its major customers in the former USSR for gas deliveries contributed to a sharp fall in industrial production and caused the budget to shift from a surplus to a slight deficit. Furthermore, with an authoritarian ex-Communist regime in power and a tribally-based social structure, Turkmenistan has taken a cautious approach to economic reform, hoping to use gas and cotton sales to sustain its inefficient economy.

With the onset of economic hard times, even cautious moves toward economic restructuring and privatization have slowed down. For 1995, Turkmenistan will face continuing constraints on its earnings because of its customers' inability to pay for their gas and a low average cotton crop in 1994. Turkmenistan is working hard to open new gas export channels through Iran and Turkey, but these may take many years to realize.

Uzbekistan is a dry, landlocked country of which 10% consists of intensely cultivated, irrigated river valleys. It is one of the poorest states of the former USSR with 60% of its population living in overpopulated rural communities. Nevertheless, Uzbekistan is the world's third largest cotton exporter, a major producer of gold and natural gas, and a regionally significant producer of chemicals and machinery. Since independence, the government has sought to prop up the Soviet-style command economy with subsidies and tight controls on prices and production.

Such policies have buffered the economy from the sharp declines in output and high inflation experienced by many other former Soviet republics. They had become increasingly unsustainable, however, as inflation moves along at 14% per month and as Russia has forced the Uzbek government to introduce its own currency. Faced with mounting economic problems, the government has begun to move on a reform agenda and cooperate with international financial institutions, announced an acceleration of privatization, and stepped up efforts to attract foreign investors. Nevertheless, the regime is likely to find it difficult to sustain its drive for economic reform.

Anguilla has few natural resources, and the economy depends heavily on lobster fishing, offshore banking, tourism, and remittances from emigrants. In recent years the economy has benefited from a boom in tourism and construction. Development plans center around the improvement of the infrastructure, particularly transport and tourist facilities, and also light industry.

The economy is primarily service oriented, with tourism the most important determinant of economic performance. In 1993, tourism made a direct contribution to GDP of about 17%, and also spurred growth in other sectors such as construction and transport. While only accounting for roughly 5% of GDP in 1993, agricultural production increased by 4%. Tourist arrivals remained strong in 1994.

Tourism is the mainstay of the Aruban economy, although offshore banking and oil refining and storage are also important. The rapid growth of the tourism sector over the last decade has resulted in a substantial expansion of other activities. Construction has boomed, with hotel capacity five times the 1985 level. Additionally, the reopening of the country's oil refinery in 1993, a major source of employment and foreign exchange earnings, has further spurred growth. Aruba's small labor force and less than 1% unemployment rate have led to a large number of unfilled job vacancies despite sharp rises in wage rates in recent years.

The Bahamas is a stable, developing nation whose economy is based primarily on tourism and offshore banking. Tourism alone provides about 50% of GDP and directly or indirectly employs about 50,000 people or 40% of the local work force. The economy has slackened in recent years, as the annual increase in the number of tourists slowed. Nonetheless, per capita GDP is one of the highest in the region.

A per capita income of $9,200 gives Barbados one of the highest standards of living of all the small island states of the eastern Caribbean. Historically, the economy was based on the cultivation of sugarcane and related activities. In recent years, however, the economy has diversified into manufacturing and tourism. A moderate recovery that began in late 1993 after 3 years of contraction is mainly due to increased tourism and expansion in the construction sector. Economic prospects for 1995 depend mostly on continued growth in the industrialized countries, especially in Europe, which would spur further expansion in tourism.

The small, essentially private enterprise economy is based primarily on agriculture, agro-based industry, and merchandising, with tourism and construction assuming increasing importance. Agriculture accounts for about 30% of GDP and provides 75% of export earnings, while sugar, the chief crop, accounts for almost 40% of hard currency earnings. The US, Belize's main trading partner, is assisting in efforts to reduce dependency on sugar with an agricultural diversification program.

The economy, one of the most prosperous in the Caribbean area, is highly dependent on the tourist industry, which generates about 21% of the national income. In 1985 the government offered offshore registration to companies wishing to incorporate in the islands, and, in consequence, incorporation fees generated about $2 million in 1987. The economy slowed in 1991 because of the poor performances of the tourist sector and tight commercial bank credit. Livestock raising is the most significant agricultural activity. The islands' crops, limited by poor soils, are unable to meet food requirements.

The economy depends heavily on tourism (70% of GDP and 75% of foreign currency earnings) and offshore financial services, with the tourist industry aimed at the luxury market and catering mainly to visitors from North America. About 90% of the islands' food and consumer goods must be imported. The Caymanians enjoy one of the highest outputs per capita and one of the highest standards of living in the world.

Costa Rica's basically stable and progressive economy depends especially on tourism and export of bananas, coffee, and other agricultural products. In 1994 the economy grew at an estimated 4.3%, compared with 6.5% in 1993, 7.7% in 1992, and 2.1% in 1991. Inflation in 1993 dropped to 9% from 17% in 1992 and 25% in 1991, an indication of basic financial stability. Unemployment is officially reported at only 4.0%, but there is much underemployment. Costa Rica signed a free trade agreement with Mexico in 1994.

Cuba's heavily statist economy remains severely depressed as the result of its own inefficiencies and the loss of massive amounts of economic aid from the former Soviet Bloc. Total output in 1994 was only about half the output of 1989. The fall in output and in imports is reflected in the deterioration of food supplies, shortages of electricity, inability to get spare parts, and the replacement of motor-driven vehicles by bicycles and draft animals.

Higher world market prices for sugar and nickel in 1994, however, resulted in a slight increase in export earnings for the first time in six years, despite lower production of both commodities. The growth of tourism slowed in late 1994 as a result of negative publicity surrounding the exodus of Cubans from the island and other international factors. The government continued its aggressive search for foreign investment and announced preliminary agreements to form large joint ventures with Mexican investors in telecommunications and oil refining.

In mid-1994, the National Assembly began introducing several new taxes and price increases to stem growing excess liquidity and restore some of the peso's value as a monetary instrument. In October the government attempted to stimulate food production by permitting the sale of any surplus production (over state quotas) at unrestricted prices at designated markets. Similar but much smaller markets were also introduced for the sale of manufactured goods in December.

The various government measures have influenced a remarkable appreciation of the black market value of the peso, from more than 100 pesos to the dollar in September 1994 to 40 pesos to the dollar in early 1995. Policy discussions continue in the bureaucracy over the proper pace and scope of economic reform.

The economy is dependent on agriculture and thus is highly vulnerable to climatic conditions. Agriculture accounts for about 30% of GDP and employs 40% of the labor force. Principal products include bananas, citrus, mangoes, root crops, and coconuts. Development of the tourist industry remains difficult because of the rugged coastline and the lack of an international airport. In 1994 a tropical storm devastated the banana industry.

The Dominican economy showed some signs of slippage in 1994, although its overall performance in recent years has been relatively strong. After posting an increase of nearly 8% in 1992, GDP growth fell to 3% in 1993 and 1994 as mining output decreased and erosion of real wages caused private consumption to decline. A pre-election boost in government spending in early 1994 led to the first government deficit in four years and bumped inflation up to 14% for the year.

Continued dynamism in construction and the services sector, especially tourism, should keep the economy growing in 1995. Tourism, agriculture, and manufacturing for export remain key sectors of the economy. Domestic industry is based on the processing of agricultural products, oil refining, and chemicals.

The agricultural sector accounts for 24% of GDP, employs about 40% of the labor force, and contributes about 66% to total exports. Coffee is the major commercial crop, accounting for 45% of export earnings. The manufacturing sector, based largely on food and beverage processing, accounts for 19% of GDP and 15% of employment. In 1992-94 the government made substantial progress toward privatization and deregulation of the economy. Growth in national output in 1991-94 nearly averaged 5%, exceeding growth in population for the first time since 1987; and inflation in 1994 of 10% was down from 19% in 1993.

The economy is essentially agricultural and centers on the traditional production of spices and tropical plants. Agriculture accounts for about 15% of GDP and 80% of exports and employs 24% of the labor force. Tourism is the leading foreign exchange earner, followed by agricultural exports. Manufacturing remains relatively undeveloped, but is expected to grow, given a more favorable private investment climate since 1983. The economy achieved an impressive average annual growth rate of 5.5% in 1986-91 but has stalled since 1992. Unemployment remains high at about 25%.

The economy depends on agriculture, tourism, light industry, and services. It is also dependent upon France for large subsidies and imports. Tourism is a key industry, with most tourists from the US. In addition, an increasingly large number of cruise ships visit the islands. The traditionally important sugarcane crop is slowly being replaced by other crops, such as bananas (which now supply about 50% of export earnings), eggplant, and flowers.

Other vegetables and root crops are cultivated for local consumption, although Guadeloupe is still dependent on imported food, which comes mainly from France. Light industry consists mostly of sugar and rum production. Most manufactured goods and fuel are imported. Unemployment is especially high among the young.

The economy is based on family and corporate agriculture, which accounts for 25% of GDP, employs about 60% of the labor force, and supplies two-thirds of exports. Manufacturing, predominantly in private hands, accounts for about 15% of GDP and 12% of the labor force. In both 1990 and 1991, the economy grew by 3%, the fourth and fifth consecutive years of mild growth. In 1992 growth picked up to almost 5% as government policies favoring competition and foreign trade and investment took stronger hold. In 1993-94, despite political unrest, this momentum continued, foreign investment held up, and annual growth was 4%.

About 75% of the population live in abject poverty. Agriculture is mainly small-scale subsistence farming and employs two-thirds of the work force. The majority of the population does not have ready access to safe drinking water, adequate medical care, or sufficient food. The lack of employment opportunities remains one of the most critical problems facing the economy, along with soil erosion and political instability.

International trade sanctions in response to the September 1991 coup against President ARISTIDE further damaged the economy. The restoration of President ARISTIDE, the lifting of sanctions in late 1994, and foreign aid will alleviate some economic problems. Haiti will continue to depend heavily on foreign aid.

Honduras is one of the poorest countries in the Western Hemisphere. Agriculture, the most important sector of the economy, accounts for 28% of GDP, employs 62% of the labor force, and produces two-thirds of exports. Productivity remains low. Manufacturing, still in its early stages, employs 9% of the labor force, accounts for 15% of GDP, and generates 20% of exports. The service sectors, including public administration, account for 50% of GDP and employ 20% of the labor force.

Many basic problems face the economy, including rapid population growth, high unemployment, inflation, a lack of basic services, a large and inefficient public sector, and the dependence of the export sector mostly on coffee and bananas, which are subject to sharp price fluctuations. A far-reaching reform program, initiated by former President CALLEJAS in 1990 and scaled back by President REINA, is beginning to take hold.

Key sectors in this island economy are bauxite (alumina and bauxite account for more than half of exports) and tourism. The government's tight fiscal and monetary policies, which have been partially successful in curbing inflation, have held growth to 1.2% in 1993 and 2.0% in 1994.

The economy is based on sugarcane, bananas, tourism, and light industry. Agriculture accounts for about 10% of GDP and the small industrial sector for 10%. Sugar production has declined, with most of the sugarcane now used for the production of rum. Banana exports are increasing, going mostly to France. The bulk of meat, vegetable, and grain requirements must be imported, contributing to a chronic trade deficit that requires large annual transfers of aid from France.

Tourism has become more important than agricultural exports as a source of foreign exchange. The majority of the work force is employed in the service sector and in administration. Banana workers launched protests late in 1992 because of falling banana prices and fears of greater competition in the European market from other producers.

The economy is small and open with economic activity centered on tourism and construction. Tourism is the most important sector and accounts for roughly one-fifth of GDP. Agriculture accounts for about 4% of GDP and industry 10%. The economy is heavily dependent on imports, making it vulnerable to fluctuations in world prices. Exports consist mainly of electronic parts sold to the US.

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Tourism and offshore finance are the mainstays of the economy. The islands enjoy a high per capita income and a well-developed infrastructure as compared with other countries in the region. Almost all consumer and capital goods are imported, with Venezuela and the US being the major suppliers. Poor soils and inadequate water supplies hamper the development of agriculture.

Since March 1991, when President CHAMORRO began an ambitious economic stabilization program, Nicaragua has had considerable success in reducing inflation and obtaining substantial economic aid from abroad. Annual inflation fell from more than 750% in 1991 to less than 5% in 1992. Inflation rose again to an estimated 20% in 1993, although this increase was due almost entirely to a large currency devaluation in January.

As of early 1994, the government was close to finalizing an enhanced structural adjustment facility with the IMF, after the previous standby facility expired in early 1993. Despite these successes, achieving overall economic growth in an economy scarred by misguided economic values and civil war during the 1980s has proved elusive. Economic growth was flat in 1992 and slightly negative in 1993. Nicaragua's per capita foreign debt is one of the highest in the world; nonetheless, as of late 1993, Nicaragua was current on its post-1988 debt as well as on payments to the international financial institutions.

Definition of property rights remains a problem; ownership disputes over large tracts of land, businesses, and homes confiscated by the previous government have yet to be resolved. A rise in exports of coffee and other products led growth in 1994.

Because of its key geographic location, Panama's economy is service-based, heavily weighted toward banking, commerce, and tourism. Trade and financial ties with the US are especially close. GDP grew at 3.6% in 1994, a respectable rate, yet below the 7.1% average of the early 1990s. Banking and financial services and trade through the Colon Free Zone continued to expand rapidly, with the industrial and agricultural sectors experiencing little growth.

The new administration, inaugurated 1 September 1994, has launched an economic plan designed to reverse rising unemployment, attract foreign investment, cut back the size of government, and modernize the economy. The success of the plan in meeting its goals for 1995 and beyond depends largely on the success of the administration in reforming the labor code and instituting the reforms necessary to join the GATT.

Puerto Rico has one of the most dynamic economies in the Caribbean region. Industry has surpassed agriculture as the primary sector of economic activity and income. Encouraged by duty free access to the US and by tax incentives, US firms have invested heavily in Puerto Rico since the 1950s. US minimum wage laws apply. Important industries include pharmaceuticals, electronics, textiles, petrochemicals, and processed foods.

Sugar production has lost out to dairy production and other livestock products as the main source of income in the agricultural sector. Tourism has traditionally been an important source of income for the island, with estimated arrivals of nearly 3.9 million tourists in 1993.

The economy has traditionally depended on the growing and processing of sugarcane; decreasing world prices have hurt the industry in recent years. Tourism and export-oriented manufacturing have begun to assume larger roles, although they still only account for 7% and 4% of GDP respectively. Growth in the construction and tourism sectors spurred the economic expansion in 1994. Most food is imported.

Though foreign investment in manufacturing and information processing in recent years has increased Saint Lucia's industrial base, the economy remains vulnerable due to its heavy dependence on banana production, which is subject to periodic droughts and tropical storms. Indeed, the destructive effect of Tropical Storm Debbie in mid-1994 caused the loss of 60% of the year's banana crop. Increased competition from Latin American bananas will probably further reduce market prices, exacerbating Saint Lucia's need to diversify its economy in coming years, e.g., by expanding tourism, manufacturing, and construction

Agriculture, dominated by banana production, is the most important sector of the economy. The services sector, based mostly on a growing tourist industry, is also important. In 1993, economic growth slowed to 1.4%, reflecting a sharp decline in agricultural production caused by drought. The government has been relatively unsuccessful at introducing new industries, and high unemployment rates of 35%-40% continue.

Trinidad and Tobago's petroleum-based economy still enjoys a high per capita income by Latin American standards, even though output and living standards are substantially below the boom years of 1973-82. The country suffers from widespread unemployment, large foreign-debt payments, and periods of low international oil prices. The government has begun to make progress in its efforts to diversify exports and to liberalize its trade regime, making 1994 the first year of substantial growth since the early 1980s.

The economy is based on fishing, tourism, and offshore banking. Only subsistence farming - corn, cassava, citrus, and beans - exists on the Caicos Islands, so that most foods, as well as nonfood products, must be imported.

Tourism is the primary economic activity, accounting for more than 70% of GDP and 70% of employment. The manufacturing sector consists of textile, electronics, pharmaceutical, and watch assembly plants. The agricultural sector is small, most food being imported. International business and financial services are a small but growing component of the economy. One of the world's largest petroleum refineries is at Saint Croix.

An extremely poor country by European standards, Albania is making the difficult transition to a more open-market economy. The economy rebounded in 1993-94 after a severe depression accompanying the collapse of the previous centrally planned system in 1990 and 1991. Stabilization policies - including a strict monetary policy, public sector layoffs, and reduced social services - have improved the government's fiscal situation and reduced inflation.

The recovery was spurred by the remittances of some 20% of the population which works abroad, mostly in Greece and Italy. These remittances supplement GDP and help offset the large foreign trade deficit. Foreign assistance and humanitarian aid also supported the recovery. Most agricultural land was privatized in 1992, substantially improving peasant incomes. Albania's limited industrial sector, now less than one-sixth of GDP, continued to decline in 1994.

A sharp fall in chromium prices reduced hard currency receipts from the mining sector. Large segments of the population, especially those living in urban areas, continue to depend on humanitarian aid to meet basic food requirements. Unemployment remains a severe problem accounting for approximately one-fifth of the work force. Growth is expected to continue in 1995, but could falter if Albania becomes involved in the conflict in the former Yugoslavia, workers' remittances from Greece are reduced, or foreign assistance declines.

Tourism, the mainstay of Andorra's economy, accounts for roughly 80% of GDP. An estimated 13 million tourists visit annually, attracted by Andorra's duty-free status and by its summer and winter resorts. The banking sector, with its "tax haven" status, also contributes substantially to the economy. Agricultural production is limited by a scarcity of arable land, and most food has to be imported. The principal livestock activity is sheep raising.

Manufacturing consists mainly of cigarettes, cigars, and furniture. Andorra is a member of the EU Customs Union; it is unclear what effect the European Single Market will have on the advantages Andorra obtains from its duty-free status.

Austria boasts a prosperous and stable market economy with a sizable but falling proportion of nationalized industry and with extensive welfare benefits. Thanks to its raw material endowment, a technically skilled labor force, and strong links to German industrial firms, Austria occupies specialized niches in European industry and services (tourism, banking) and produces almost enough food to feed itself with only 8% of the labor force in agriculture.

After 11 consecutive years of growth, the Austrian economy experienced a mild recession in 1993, but growth resumed in 1994. Unemployment is 4.3% and will likely stay at that level as companies adjust to the competition of EU membership beginning 1 January 1995. To prepare for EU membership, Austria's government has taken measures to open the economy by introducing a major tax reform, privatizing state-owned firms, and liberalizing cross-border capital movements.

Problems for the 1990s include an aging population, the high level of industrial subsidies, and the struggle to keep welfare benefits within budgetary capabilities - the deficit climbed to over 4% of GDP in 1994.

Belarus ranks among the most developed of the former Soviet states, with a relatively modern - by Soviet standards - and diverse machine building sector and a robust agriculture sector. It also serves as a transport link for Russian oil exports to the Baltic states and Eastern and Western Europe. The breakup of the Soviet Union and its command economy has resulted in a sharp economic contraction as traditional trade ties have collapsed.

The Belarusian government has lagged behind the governments of most other former Soviet states in economic reform, with privatization almost nonexistent. The system of state orders and distribution persists. In mid-1994, the Belarusian government embarked on an austerity program with IMF support to slash state credits and consumer subsidies in order to bring down the budget deficit and reduce inflation. However, despite its promising start, the regime's drive to reinvigorate the economy has fallen short, and the IMF has criticized its failure to implement the reforms that the Fund had negotiated.

As a result, the IMF has suspended talks on introducing a stand-by arrangement. Economic relations with Russia, which will have an important bearing on the future course of the economy, will be strengthened if Minsk adopts the necessary legislation to implement a customs union agreed to in January 1995.

This small private enterprise economy has capitalized on its central geographic location, highly developed transport network, and diversified industrial and commercial base. Industry is concentrated mainly in the populous Flemish area in the north, although the government is encouraging reinvestment in the southern region of Walloon. With few natural resources Belgium must import substantial quantities of raw materials and export a large volume of manufactures, making its economy unusually dependent on the state of world markets.

Three-fourths of its trade is with other EU countries. The economy grew at a strong 4% pace during the period 1988-90, slowed to 1% in 1991-92, dropped by 1.5% in 1993, and recovered with 2.3% growth in 1994. Belgium's public debt has risen to 140% of GDP, and the government is trying to control its expenditures to bring the figure more into line with other industrialized countries.

Bosnia and Herzegovina ranked next to The Former Yugoslav Republic of Macedonia as the poorest republic in the old Yugoslav federation. Although agriculture has been almost all in private hands, farms have been small and inefficient, and the republic traditionally has been a net importer of food. Industry has been greatly overstaffed, one reflection of the rigidities of Communist central planning and management. TITO had pushed the development of military industries in the republic with the result that Bosnia hosted a large share of Yugoslavia's defense plants.

As of February 1995, Bosnia and Herzegovina was being torn apart by the continued bitter interethnic warfare that has caused production to plummet, unemployment and inflation to soar, and human misery to multiply. No economic statistics for 1992-94 are available, although output clearly has fallen substantially below the levels of earlier years and almost certainly is well below $1,000 per head. The country receives substantial amounts of humanitarian aid from the international community.

The Bulgarian economy continued its painful adjustment in 1994 from the misdirected development undertaken during four decades of Communist rule. Many aspects of a market economy have been put in place and have begun to function, but much of the economy, especially the industrial sector, has yet to re-establish market links lost with the collapse of the other centrally planned Soviet Bloc economies. The prices of many imported industrial inputs, especially energy products, have risen markedly, and falling real wages have not sufficed to restore competitiveness.

The government plans more extensive privatization in 1995 to improve the management of enterprises and to encourage foreign investment. Bulgaria resumed payments on its $10 billion in commercial debt in 1993 following the negotiation of a 50% write-off.

Before the dissolution of Yugoslavia, the republic of Croatia, after Slovenia, was the most prosperous and industrialized area, with a per capita output perhaps one-third above the Yugoslav average. At present, Croatian Serb Separatists control approximately one-third of the Croatian territory, and one of the overriding determinants of Croatia's long-term political and economic prospects will be the resolution of this territorial dispute. Croatia faces

serious economic problems stemming from:

the legacy of longtime Communist mismanagement of the economy; large foreign debt; damage during the fighting to bridges, factories, power lines, buildings, and houses; the large refugee population, both Croatian and Bosnian; and the disruption of economic ties to Serbia and the other former Yugoslav republics, as well as within its own territory. At the minimum, extensive Western aid and investment, especially in the tourist and oil industries, would seem necessary to revive the moribund economy. However, peace and political stability must come first; only then will recent government moves toward a "market-friendly" economy restore old levels of output. As of February 1995, fighting continues among Croats, Serbs, and Muslims, and national boundaries and final political arrangements are still in doubt.

The government of the Czech Republic, using successful stabilization policies to bolster its claims to full membership in the western economic community, has reduced inflation to 10%, kept unemployment at 3%, balanced the budget, run trade surpluses, and reoriented exports to the EU since the breakup of the Czechoslovak federation on 1 January 1993. GDP grew 2% in 1994 after stagnating in 1993 and contracting nearly 20% since 1990.

Prague's mass privatization program, including its innovative distribution of ownership shares to Czech citizens via 'coupon vouchers,' has made the most rapid progress in Eastern Europe. When coupon shares are distributed in early 1995, 75%-80% of the economy will be in private hands or partially privatized, according to the Czech government. Privatized companies still face major problems in restructuring; the number of annual bankruptcies quadrupled in 1994.

In September 1994, Prague repaid $471 million in IMF loans five years ahead of schedule, making the Czech Republic the first East European country to pay off all IMF debts. Despite these outlays, hard-currency reserves in the banking system totaled more than $8.5 billion in October. Standard & Poor's boosted the Republic's credit rating to BBB+ in mid-1994 - up from a BBB rating that was already two steps higher than Hungary's and one step above Greece's rating.

Prague forecasts a balanced budget, at least 3% GDP growth, 5% unemployment, and single-digit inflation for 1995. Inflationary pressures - primarily as a result of foreign bank lending to Czech enterprises but perhaps also due to eased currency convertibility controls - are likely to be the most troublesome issues in 1995. Continuing economic recovery in Western Europe should boost Czech exports and production but a substantial increase in prices could erode the Republic's comparative advantage in low wages and exchange rates.

Prague already took steps in 1994 to increase control over banking policies to neutralize the impact of foreign inflows on the money supply. Although Czech unemployment is currently the lowest in Central Europe, it will probably increase 1-2 percentage points in 1995 as large state firms go bankrupt or are restructured and service sector growth slows.

This thoroughly modern economy features high-tech agriculture, up-to-date small-scale and corporate industry, extensive government welfare measures, comfortable living standards, and high dependence on foreign trade. Denmark is self-sufficient in food production. The new center-left coalition government will concentrate on reducing the persistent high unemployment rate and the budget deficit as well as following the previous government's policies of maintaining low inflation and a current account surplus.

In the face of recent international market pressure on the Danish krone, the coalition has also vowed to maintain a stable currency. The coalition hopes to lower marginal income taxes while maintaining overall tax revenues; boost industrial competitiveness through labor market and tax reforms and increased research and development funds; and improve welfare services for the neediest while cutting paperwork and delays.

Prime Minister RASMUSSEN's reforms will focus on adapting Denmark to the criteria for European integration by 1999; although Copenhagen has won from the European Union (EU) the right to opt out of the European Monetary Union (EMU) if a national referendum rejects it. Denmark is, in fact, one of the few EU countries likely to fit into the EMU on time. Denmark is weathering the current worldwide slump better than many West European countries.

After posting 4.5% real GDP growth in 1994, Copenhagen is predicting a continued strong showing in 1995, with real GDP up by 3.2%. The government expects an upswing in business investment in 1995 to drive economic growth. Although unemployment is high, it remains stable compared to most European countries.

Bolstered by a widespread national desire to reintegrate into Western Europe, the Estonian government has pursued an ambitious program of market reforms and stabilization measures, which is rapidly transforming the economy. Three years after independence - and two years after the introduction of the kroon - Estonians are beginning to reap tangible benefits; inflation, though still high, was brought down to about 2% per month in second half 1994; production declines have bottomed out with estimated growth of 4% in 1994; and living standards are rising.

Economic restructuring has been dramatic. By 1994 the service sector accounted for over 55% of GDP, while the once-dominant heavy industrial sector continues to shrink. The private sector is growing rapidly; the share of the state enterprises in the economy has steadily declined and by late 1994 accounted for only about 40% of GDP. Estonia's foreign trade has shifted rapidly from East to West; the Western industrialized countries now account for two-thirds of foreign trade.

The Faroese, who have long enjoyed the affluent living standards of the Danes and other Scandinavians, now must cope with the decline of the all-important fishing industry and one of the world's heaviest per capita external debts of about $25,000. When the nations of the world extended their fishing zones to 200 nautical miles in the early 1970s, the Faroese no longer could continue their traditional long-distance fishing and subsequently depleted their own nearby fishing areas.

The government's tight controls on fish stocks and its austerity measures have caused a recession, and subsidy cuts will force nationalization in the fishing industry, which has already been plagued with bankruptcies. Copenhagen has threatened to withhold its annual subsidy of $130 million - roughly one-third of the islands' budget revenues - unless the Faroese make significant efforts to balance their budget. To this extent the Faroe government is expected to continue its tough policies, including introducing a 20% value-added tax (VAT) in 1993, and has agreed to an IMF economic-political stabilization plan. In addition to its annual subsidy, the Danish government has bailed out the second largest Faroe bank to the tune of $140 million since October 1992.

Finland has a highly industrialized, largely free market economy, with per capita output two-thirds of the US figure. Its key economic sector is manufacturing - principally the wood, metals, and engineering industries. Trade is important, with the export of goods representing about 30% of GDP. Except for timber and several minerals, Finland depends on imports of raw materials, energy, and some components for manufactured goods.

Because of the climate, agricultural development is limited to maintaining self-sufficiency in basic products. Forestry, an important export earner, provides a secondary occupation for the rural population. The economy, which experienced an average of 4.9% annual growth between 1987 and 1989, sank into deep recession in 1991 as GDP contracted by 6.5%. The recession - which continued in 1992 with GDP contracting by 4.1% - has been caused by economic overheating, depressed foreign markets, and the dismantling of the barter system between Finland and the former Soviet Union under which Soviet oil and gas had been exchanged for Finnish manufactured goods.

The Finnish Government has proposed efforts to increase industrial competitiveness and efficiency by an increase in exports to Western markets, cuts in public expenditures, partial privatization of state enterprises, and changes in monetary policy. In June 1991 Helsinki had tied the markka to the European Union's (EU) European Currency Unit (ECU) to promote stability. Ongoing speculation resulting from a lack of confidence in the government's policies forced Helsinki to devalue the markka by about 12% in November 1991 and to indefinitely break the link in September 1992.

The devaluations have boosted the competitiveness of Finnish exports. The recession bottomed out in 1993, and Finland participated in the general European upturn of 1994. Unemployment probably will remain a serious problem during the next few years; the majority of Finnish firms face a weak domestic market and the troubled German and Swedish export markets. The Finns voted in an October 1994 referendum to enter the EU, and Finland officially joined the Union on 1 January 1995. Increasing integration with Western Europe will dominate the economic picture over the next few years.

One of the world's most highly developed economies, France has substantial agricultural resources and a diversified modern industrial sector. Large tracts of fertile land, the application of modern technology, and subsidies have combined to make it the leading agricultural producer in Western Europe. Largely self-sufficient in agricultural products, France is a major exporter of wheat and dairy products. The industrial sector generates about one-quarter of GDP, and the growing services sector has become crucial to the economy.

Following stagnation and recession in 1991-93, French GDP in 1994 expanded 2.4%. Growth in 1995 is expected to be in the 3.0% to 3.5% range. Persistently high unemployment will still pose a major problem for the government. Paris remains committed to maintaining the franc-deutsche mark parity, which has kept French interest rates high despite France's low inflation. Although the pace of economic and financial integration within the European Union has slowed down, integration presumably will remain a major force shaping the fortunes of the various economic sectors over the next few years.

Five years after the fall of the Berlin Wall, progress towards economic integration between eastern and western Germany is clearly visible, yet the eastern region almost certainly will remain dependent on subsidies funded by western Germany until well into the next century. The staggering $390 billion in western German assistance that the eastern states have received since 1990 - 40 times the amount in real terms of US Marshall Fund aid sent to West Germany after World War II - is just beginning to have an impact on the eastern German standard of living, which plummeted after unification.

Assistance to the east continues to run at roughly $100 billion annually. Although the growth rate in the east was much greater than in the west in 1993-94, eastern GDP per capita nonetheless remains well below preunification levels; it will take 10-15 years for the eastern states to match western Germany's living standards. The economic recovery in the east is led by the construction industries which account for one-third of industrial output, with growth increasingly supported by the service sectors and light manufacturing industries.

Eastern Germany's economy is changing from one anchored on manufacturing to a more service-oriented economy. Western Germany, with three times the per capita output of the eastern states, has an advanced market economy and is a world leader in exports. The strong recovery in 1994 from recession began in the export sector and spread to the investment and consumption sectors in response to falling interest rates. Western Germany has a highly urbanized and skilled population that enjoys excellent living standards, abundant leisure time, and comprehensive social welfare benefits. It is relatively poor in natural resources, coal being the most important mineral. Western Germany's world-class companies manufacture technologically advanced goods. The region's

economy is mature:

services and manufacturing account for the dominant share of economic activities, and raw materials and semimanufactured goods constitute a large portion of imports.

Gibraltar benefits from an extensive shipping trade and offshore banking. The British military presence has been severely reduced and now only contributes about 11% to the local economy. The financial sector accounts for 15% of GDP; tourism, shipping services fees, and duties on consumer goods also generate revenue. Because more than 70% of the economy is in the public sector, changes in government spending have a major impact on the level of employment.

Greece has a mixed capitalist economy with the basic entrepreneurial system overlaid in 1981-89 by a socialist system that enlarged the public sector from 55% of GDP in 1981 to about 70% in 1989. Since then, the public sector has been reduced to about 60% of GDP. Tourism continues as a major source of foreign exchange, and agriculture is self-sufficient except for meat, dairy products, and animal feedstuffs. Over the last decade, real GDP growth has averaged 1.6% a year, compared with the European Union average of 2.2%. Inflation continues to be well above the EU average, and the national debt has reached 140% of GDP, the highest in the EU. Prime Minister PAPANDREOU will probably make only limited progress correcting the economy's problems of high inflation, large budget deficit, and decaying infrastructure.

His economic program suggests that although he will shun his expansionary policies of the 1980s, he will avoid tough measures needed to slow inflation or reduce the state's role in the economy. He has limited the previous government's privatization plans, for example, and has called for generous welfare spending and real wage increases. Athens continues to rely heavily on EU aid, which recently has amounted to about 6% of GDP. Greece almost certainly will not meet the EU's Maastricht Treaty convergence targets of public deficit held to 3% of GDP and national debt to 60% of GDP by 1999. Per capita GDP has fallen below Portugal's level, the lowest among EU members.

Financial services account for more than 50% of total income. Tourism, manufacturing, and horticulture, mainly tomatoes and cut flowers, have been declining. Bank profits (1992) registered a record 26% growth. Fund management and insurance are the two other major income generators. Per capita output and living standards are somewhat lower than the levels of the less affluent EU countries.

This unique, noncommercial economy is supported financially by contributions (known as Peter's Pence) from Roman Catholics throughout the world, the sale of postage stamps and tourist mementos, fees for admission to museums, and the sale of publications. The incomes and living standards of lay workers are comparable to, or somewhat better than, those of counterparts who work in the city of Rome.

Since 1989 Hungary has been a leader in the transition from a socialist command economy to a market economy - thanks in large part to its initial economic reforms during the Communist era. The private sector now accounts for about 55% of GDP. Nonetheless, the transformation is proving difficult, and many citizens say life was better under the old system. On the bright side, the four-year decline in output finally ended in 1994, as real GDP increased an estimated 3%. This growth helped reduce unemployment to just over 10% by yearend, down from a peak of 13%. However, no progress was made against inflation, which remained stuck at about 20%, and the already-large current account deficit in the balance of payments actually got worse, reaching almost $4 billion.

Underlying Hungary's other economic problems is the large budget deficit, which probably exceeded 7% of GDP in 1994, despite some late-year budget cutting by the new leftist government. In 1995 the government has pledged to accelerate privatization and lower the budget deficit to 5.5% of GDP. It believes this fiscal tightening will reduce the current account deficit to $2.5 billion but at the cost of holding economic growth to only 1%.

The economy is small and trade dependent. Agriculture, once the most important sector, is now dwarfed by industry, which accounts for 37% of GDP, about 80% of exports, and employs 28% of the labor force. Although exports remain the primary engine for Ireland's robust growth, the economy is also benefiting from a rise in consumer spending and recovery in both construction and business investment. Ireland has substantially reduced its external debt since 1987, to 40% of GDP in 1994.

Over the same period, inflation has fallen sharply and chronic trade deficits have been transformed into annual surpluses. Unemployment remains a serious problem, however, and job creation is the main focus of government policy. To ease unemployment, Dublin aggressively courts foreign investors and recently created a new industrial development agency to aid small indigenous firms. Government assistance is constrained by Dublin's continuing deficit reduction measures.

Offshore banking, manufacturing, and tourism are key sectors of the economy. The government's policy of offering incentives to high-technology companies and financial institutions to locate on the island 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. Banking now contributes about 45% to GDP. Trade is mostly with the UK. The Isle of Man enjoys free access to European Union markets.

Since World War II the Italian economy has changed from one based on agriculture into a ranking industrial economy, with approximately the same total and per capita output as France and the UK. The country is still divided into a developed industrial north, dominated by private companies, and an undeveloped agricultural south, dominated by large public enterprises. Services account for 48% of GDP, industry 35%, agriculture 4%, and public administration 13%. Most raw materials needed by industry and over 75% of energy requirements must be imported.

After growing at an average annual rate of 3% in 1983-90, growth slowed to about 1% in 1991 and 1992, fell by 0.7% in 1993, and recovered to 2% in 1994. In the second half of 1992, Rome became unsettled by the prospect of not qualifying to participate in EU plans for economic and monetary union later in the decade; thus it finally began to address its huge fiscal imbalances. Subsequently, the government has adopted fairly stringent budgets, abandoned its highly inflationary wage indexation system, and started to scale back its extremely generous social welfare programs, including pension and health care benefits.

Monetary officials were forced to withdraw the lira from the European monetary system in September 1992 when it came under extreme pressure in currency markets. For the 1990s, Italy faces the problems of pushing ahead with fiscal reform, refurbishing a tottering communications system, curbing pollution in major industrial centers, and adjusting to the new competitive forces accompanying the ongoing expansion and economic integration of the European Union.

The economy is based largely on financial services, agriculture, and tourism. 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 earner. Milk products go to the UK and other EU countries. In 1986 the finance sector overtook tourism as the main contributor to GDP, accounting for 40% of the island's output.

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.

Latvia is rapidly becoming a dynamic market economy, rivaled only by Estonia among the former Soviet states in the speed of its transformation. However, the transition has been painful; in 1994 the IMF reported a 2% growth in GDP, following steep declines in 1992-93. The government's tough monetary policies and reform program have kept inflation at less than 2% a month, supported a dynamic private sector now accounting for more than half of GDP, and spurred the growth of trade ties with the West.

Much of agriculture is already privatized and the government plans to step up the pace of privatization of state enterprises. Latvia thus is in the midst of recovery, helped by the country's strategic location on the Baltic Sea, its well-educated population, and its diverse - albeit largely obsolete - industrial structure.

Despite its small size and limited natural resources, Liechtenstein has developed into a prosperous, highly industrialized, free-enterprise economy with a vital service sector and living standards on par with its large European neighbors. Low business taxes - the maximum tax rate is 20% - and easy incorporation rules have induced about 25,000 holding or so-called letter box companies to establish nominal offices in Liechtenstein, providing 30% of state revenues.

The country participates in a customs union with Switzerland and uses the Swiss franc as its national currency. Liechtenstein plans to join the European Economic Area (an organization serving as a bridge between EFTA and EU) in 1995.

Since independence in September 1991, Lithuania has made steady progress in developing a market economy. Almost 50% of state property has been privatized and trade is diversifying with a gradual shift away from the former Soviet Union to Western markets. In addition, the Lithuanian government has adhered to a disciplined budgetary and financial policy which has brought inflation down from a monthly average of around 14% in first half 1993 to an average of 3.1% in 1994.

Nevertheless, the process has been painful with industrial output in 1993 less than half the 1991 level. The economy appeared to have bottomed out in 1994, and Vilnius's policies have laid the groundwork for vigorous recovery over the next few years. Recovery will build on Lithuanian's strategic location with its ice-free port at Klaipeda and its rail and highway hub in Vilnius connecting it with Eastern Europe, Belarus, Russia, and Ukraine, and on its agriculture potential, highly skilled labor force, and diversified industrial sector. Lacking important natural resources, it will remain dependent on imports of fuels and raw materials.

The stable, prosperous economy features moderate growth, low inflation, and negligible unemployment. Agriculture is based on small but highly productive family-owned farms. The industrial sector, until recently dominated by steel, has become increasingly more diversified, particularly toward high-technology firms. During the past decade, growth in the financial sector has more than compensated for the decline in steel.

Services, especially banking, account for a growing proportion of the economy. Luxembourg participates in an economic union with Belgium on trade and most financial matters, is also closely connected economically to the Netherlands, and as a member of the 15-member European Union enjoys the advantages of the open European market.

Significant resources are limestone, a favorable geographic location, and a productive labor force. Malta produces only about 20% of its food needs, has limited freshwater supplies, and has no domestic energy sources. Consequently, the economy is highly dependent on foreign trade and services. Manufacturing and tourism are the largest contributors to the economy. Manufacturing accounts for about 24% of GDP, with the electronics and textile industries major contributors and with the state-owned Malta drydocks employing about 4,300 people. In 1994, over 1,000,000 tourists visited the island. Per capita GDP of $10,760 places Malta in the range of the less affluent EU countries.

Moldova enjoys a favorable climate and good farmland but has no major mineral deposits. As a result, Moldova's economy is primarily based on agriculture, featuring fruits, vegetables, wine, and tobacco. Moldova must import all of its supplies of oil, coal, and natural gas, and energy shortages have contributed to sharp production declines since the breakup of the Soviet Union in 1991. The Moldovan government is making steady progress on an ambitious economic reform agenda, and the IMF has called Moldova a model for the region.

As part of its reform efforts, Chisinau has introduced a stable currency, freed all prices, stopped issuing preferential credits to state enterprises and backed their steady privatization, removed export controls, and freed interest rates. Chisinau appears strongly committed to continuing these reforms in 1995. Meanwhile, privatization of medium and large enterprises got underway in mid-1994 and is expected to pick up speed in 1995.

To improve its precarious energy situation, Chisinau reached an agreement with Moscow in December 1994 on gas deliveries for 1995. Gazprom, Russia's national gas company, has agreed to reduce prices for natural gas deliveries to Moldova from the world market price of $80/thousand cubic meters (tcm) to $58/tcm in return for part ownership of the Moldovan pipeline system.

Monaco, situated on the French Mediterranean coast, is a popular resort, attracting tourists to its casino and pleasant climate. The Principality has successfully sought to diversify into services and small, high-value-added, nonpolluting industries. The state has no income tax and low business taxes and thrives as a tax haven both for individuals who have established residence and for foreign companies that have set up businesses and offices.

About 50% of Monaco's annual revenue comes from value-added taxes on hotels, banks, and the industrial sector; about 25% of revenue comes from tourism. Living standards are high, that is, roughly comparable to those in prosperous French metropolitan suburbs.

This highly developed and affluent economy is based on private enterprise. The government makes its presence felt, however, through many regulations, permit requirements, and welfare programs affecting most aspects of economic activity. The trade and financial services sector contributes over 50% of GDP. Industrial activity provides about 25% of GDP and is led by the food-processing, oil-refining, and metalworking industries.

The highly mechanized agricultural sector employs only 4% of the labor force, but provides large surpluses for export and the domestic food-processing industry. Indeed the Netherlands ranks third worldwide in value of agricultural exports, behind the US and France. High unemployment and a sizable budget deficit are currently the most serious economic problems. Many of the economic issues of the 1990s will reflect the course of European economic integration.

The Former Yugoslav Republic of Macedonia, although the poorest republic in the former Yugoslav federation, can meet basic food and energy needs through its own agricultural and coal resources. Its economic decline will continue unless ties are reforged or enlarged with its neighbors Serbia and Montenegro, Albania, Greece, and Bulgaria. The economy depends on outside sources for all of its oil and gas and most of its modern machinery and parts.

An important supplement of GDP is the remittances from thousands of Macedonians working in Germany and other West European nations. Continued political turmoil, both internally and in the region as a whole, prevents any swift readjustments of trade patterns and economic programs. The country's industrial output and GDP are expected to decline further in 1995. The Former Yugoslav Republic of Macedonia's geographical isolation, technological backwardness, and potential political instability place it far down the list of countries of interest to Western investors.

Resolution of the dispute with Greece and an internal commitment to economic reform would encourage foreign investment over the long run. In the immediate future, the worst scenario for the economy would be the spread of fighting across its borders.

Norway has a mixed economy involving a combination of free market activity and government intervention. The government controls key areas, such as the vital petroleum sector (through large-scale state enterprises) and extensively subsidizes agriculture, fishing, and areas with sparse resources. Norway also maintains an extensive welfare system that helps propel public sector expenditures to slightly more than 50% of the GDP and results in one of the highest average tax burdens in the world (54%). A small country with a high dependence on international trade, Norway is basically an exporter of raw materials and semiprocessed goods, with an abundance of small- and medium-sized firms, and is ranked among the major shipping nations.

The country is richly endowed with natural resources - petroleum, hydropower, fish, forests, and minerals - and is highly dependent on its oil sector to keep its economy afloat. Norway imports more than half its food needs. Although one of the government's main priorities is to reduce this dependency, this situation is not likely to improve for years to come. The government also hopes to reduce unemployment and strengthen and diversify the economy through tax reform and a series of expansionary budgets.

The budget deficit is expected to hit a record 8% of GDP because of welfare spending and bail-outs of the banking system. Unemployment is currently running at 8.4% - including those in job programs - because of the weakness of the economy outside the oil sector. Economic growth, only 1.6% in 1993, moved up to 5.5% in 1994. Oslo opted to stay out of the EU during a referendum in November 1994.

Poland continues to make good progress in the difficult transition to a market economy that began on 1 January 1990, when the new democratic government instituted "shock therapy" by decontrolling prices, slashing subsidies, and drastically reducing import barriers. Real GDP fell sharply in 1990 and 1991, but in 1992 Poland became the first country in the region to resume economic growth with a 2.6% increase. Growth increased to 3.8% in 1993 and 5.5% in 1994 - the highest rate in Europe except for Albania.

All of the growth since 1991 has come from the booming private sector, which now accounts for at least 55% of GDP, even though privatization of the state-owned enterprises is proceeding slowly and most industry remains in state hands. Industrial production increased 12% in 1994 - led by 50% jumps in the output of motor vehicles, radios and televisions, and pulp and paper - and is now well above the 1990 level. Inflation, which had approached 1,200% annually in early 1990, was down to about 30% in 1994, as the government held the budget deficit to 1.5% of GDP. After five years of steady increases, unemployment has leveled off at about 16% nationwide, although it approaches 30% in some regions.

The trade deficit was sharply reduced in 1994, due mainly to increased exports to Western Europe, Poland's main customer. The leftist government elected in September 1993 gets generally good marks from foreign observers for its management of the budget but is often criticized for not moving faster on privatization.

Portugal's economy contracted 0.4% in 1993 but registered a 1.4% growth in 1994, with 3% growth expected in 1995 and 1996. This comeback rests on high levels of public investment, continuing strong export growth, and a gradual recovery in consumer spending. The government's long-run economic goal is the modernization of Portuguese markets, industry, infrastructure, and work force in order to catch up with productivity and income levels of the more advanced EU countries.

Per capita income now equals only 55% of the EU average. Economic policy in 1994 focused on reducing inflationary pressures by lowering the fiscal deficit, maintaining a stable escudo, moderating wage increases, and encouraging increased competition. The government's medium-term objective is to be in the first tier of the EU countries eligible to join the economic and monetary union (EMU) as early as 1997. To this end, the 1995 budget posits a cut in total deficit to 5.8% of GDP.

Despite the continuing difficulties in moving away from the former command system, the Romanian economy seems to have bottomed out in 1993-94. Market oriented reforms have been introduced fitfully since the downfall of CEAUSESCU in December 1989, with the result a growing private sector, especially in services. The slow pace of structural reform, however, has exacerbated Romania's high inflation rate and eroded real wages.

Agricultural production rebounded in 1993 from the drought-reduced harvest of 1992. The economy continued its recovery in 1994, further gains being realized in agriculture, construction, services, and trade. Food supplies are adequate but expensive. Romania's infrastructure had deteriorated over the last five years due to reduced levels of public investment. Residents of the capital reported frequent disruptions of heating and water services. The slow and painful process of conversion to a more open economy will continue in 1995.

The tourist sector contributes over 50% of GDP. In 1993 more than 3 million tourists visited San Marino. The key industries are banking, wearing apparel, electronics, and ceramics. Main agricultural products are wine and cheeses. The per capita level of output and standard of living are comparable to those of Italy, which supplies much of its food.

The swift collapse of the Yugoslav federation in 1991 has been followed by bloody ethnic warfare, the destabilization of republic boundaries, and the breakup of important interrepublic trade flows. Serbia and Montenegro faces major economic problems; output has dropped sharply, particularly in 1993. First, like the other former Yugoslav republics, it depended on its sister republics for large amounts of foodstuffs, energy supplies, and manufactures.

Wide differences in climate, mineral resources, and levels of technology among the republics accentuated this interdependence, as did the communist practice of concentrating much industrial output in a small number of giant plants. The breakup of many of the trade links, the sharp drop in output as industrial plants lost suppliers and markets, and the destruction of physical assets in the fighting all have contributed to the economic difficulties of the republics.

One singular factor in the economic situation of Serbia and Montenegro is the continuation in office of a communist government that is primarily interested in political and military mastery, not economic reform. A further complication is the imposition of economic sanctions by the UN in 1992. Hyperinflation ended with the establishment of a new currency unit in June 1993; prices were relatively stable in 1994. Reliable statistics are hard to come by; the GDP estimate of $1,000 per capita in 1994 is extremely rough. Output in 1994 seems to have leveled off after the plunge in 1993.

In 1994 macroeconomic performance improved steadily but privatization progressed only in fits and starts. Most of Slovakia's IMF-approved targets were met by an interim government that lasted 9 months. Annual inflation fell from 23% in 1993 to 12%; unemployment at 14.6% was still well below forecasts of 17%; and the budget deficit was around half that in 1993. Slovakia's nearly $200 million trade surplus also compares favorably with a more than $800 million deficit in 1993.

Furthermore, after contracting almost 25% in the three years following 1990, GDP grew 4.3% in 1994, according to official statistics. Bratislava in June qualified for a $254 million IMF stand-by loan and the second $90 million tranche of its Systemic Transformation Facility and, in December, received approval for a European Union loan worth about $160 million. By the end of September 1994, the Central Bank's foreign currency reserves had tripled since the end of 1993.

Slovakia continued to have difficulty attracting foreign investment, however, because of perceived political instability and halting progress in privatization. The interim government prepared property worth nearly $2 billion for the second wave of coupon privatization and sold participation in the program to over 80% of Slovakia's eligible citizens. Parties controlling the new Parliament in November 1994, however, put the second wave of coupon privatization on hold and suspended sales of 38 firms until the new government could evaluate the interim government's decisions in early 1995.

The new government's targets for 1995 include GDP growth of 3%, inflation of 8%-10%, unemployment of 15%, and a budget deficit under 3% of GDP. Continuing economic recovery in western Europe should boost Slovak exports and production, but Slovakia's image with foreign creditors and investors could suffer setbacks in 1995 if progress on privatization stalls or budget deficits mount beyond IMF-recommended levels.

Slovenia appears to be making a solid economic recovery, fulfilling the promise it showed at the time of Yugoslavia's breakup. It was by far the most prosperous of the former Yugoslav republics, with a per capita income more than twice the national average. It also benefited from strong ties to Western Europe and suffered comparatively small physical damage in the dismemberment process. The beginning was difficult, however.

Real GDP fell 15% during 1991-92, while inflation jumped to 247% in 1991 and unemployment topped 8% - nearly three times the 1989 level. The turning point came in 1993 when real GDP grew 1%, unemployment leveled off at about 9%, and inflation slowed dramatically to 23%. In 1994, the rate of growth of GDP rose to 4%, unemployment remained stable, and inflation dropped to 20%. This was accomplished, moreover, without balance-of-payments problems.

The government gets generally good economic marks from foreign observers, particularly with regard to fiscal policy - the budget deficit in 1994 was only about 1% of GDP, following several years of small surpluses. Prospects for 1995 appear good, with economic growth expected to remain strong while unemployment and inflation may decline slightly. Privatization, sluggish to date, is expected to pick up in 1995.

Spain, with a per capita output approximately two-thirds that of the four leading economies of Western Europe, has shared with these countries the recession of the early 1990s and the upturn of their economic fortunes in 1994. But whereas unemployment in these countries has hovered just above 10%, Spain has been forced to cope with a 25% unemployment rate. Continued political turmoil has complicated the establishment of stable government policies toward budgetary restraint, interest rates, labor law reform, and Spain's role in the evolving economic integration of Western Europe.

Because the recession has been so deep, the growth in industrial output, tourism, and other sectors in 1994, while welcome, falls far short of the growth required to bring unemployment down to, say, 10%. The recovery in the economies of major trade partners, the comparatively low inflation rate, lower interest rates, and prospects in the tourist sector suggest that Spain can make substantial progress in 1995.

Aided by a long period of peace and neutrality during World War I through World War II, Sweden has achieved an enviable standard of living under a mixed system of high-tech capitalism and extensive welfare benefits. It has a modern distribution system, excellent internal and external communications, and a skilled labor force. Timber, hydropower, and iron ore constitute the resource base of an economy that is heavily oriented toward foreign trade.

Privately owned firms account for about 90% of industrial output, of which the engineering sector accounts for 50% of output and exports. In 1990, agriculture accounted for only 1.2% of GDP and 1.9% of the jobs, Sweden being about 50% sufficient in most products. In the last few years, however, this extraordinarily favorable picture has been clouded by inflation, growing unemployment, and a gradual loss of competitiveness in international markets.

Although Prime Minister BILDT's center-right minority coalition had hoped to charge ahead with free-market-oriented reforms, a skyrocketing budget deficit - about 14% of GDP in FY93/94 projections - and record unemployment have forestalled many of the plans. Unemployment in 1994 is estimated at around 9% with another 5% in job training. Continued heavy foreign exchange speculation forced the government to cooperate in late 1992 with the opposition Social Democrats on two crisis packages - one a severe austerity pact and the other a program to spur industrial competitiveness - which basically set economic policy through 1997.

In November 1992, Sweden broke its tie to the EC's ECU, and the krona has since depreciated about 25% against the dollar. The boost in export competitiveness from the depreciation helped lift Sweden out of its 3-year recession. To curb the budget deficit and bolster confidence in the economy, the new Social Democratic government is proposing cuts in welfare benefits, subsidies, defense, and foreign aid. Sweden has harmonized its economic policies with those of the EU, which it joined at the start of 1995.

Switzerland's economy - one of the most prosperous and stable in the world - is nonetheless undergoing a stressful adjustment after both the inflationary boom of the late 1980s and the electorate's rejection of membership in the European Economic Area (EEA) in 1992. So far the decision to remain outside the European single market structure does not appear to have harmed Swiss interests. In December 1994, the Swiss began bilateral negotiations with the EU aimed at establishing closer ties in areas of mutual interest and progressing toward the free circulation of persons, goods, capital, and services between the two parties.

The Swiss emerged from a three-year recession in mid-1993 and posted 1.8% GDP growth in 1994. The Swiss central bank's tight monetary policies brought inflation down from about 4% in 1992 to just under 1% in 1994. Unemployment has fallen slightly from 5.1% in 1993 to 4.7% in 1994. Swiss per capita output, living standards, education, and health care remain unsurpassed in Europe. The country has few mineral resources, but its spectacular natural beauty sustains a substantial tourism industry.

After Russia, the Ukrainian republic was far and away the most important economic component of the former Soviet Union, producing more than three times the output of the next-ranking republic. Its fertile black soil generated more than one-fourth of Soviet agricultural output, and its farms provided substantial quantities of meat, milk, grain, and vegetables to other republics. Likewise, its diversified heavy industry supplied equipment and raw materials to industrial and mining sites in other regions of the former USSR. In early 1992, the Ukrainian government liberalized most prices and erected a legal framework for privatization, but widespread resistance to reform within the government and the legislature soon stalled reform efforts and led to some backtracking.

Loose monetary and fiscal policies pushed inflation to hyperinflationary levels in late 1993. Greater monetary and fiscal restraint lowered inflation in 1994, but also contributed to an accelerated decline in industrial output. Since his election in July 1994, President KUCHMA has developed - and parliament has approved - a comprehensive economic reform program, maintained financial discipline, and reduced state controls over prices, the exchange rate, and foreign trade.

Implementation of KUCHMA's economic agenda will encounter considerable resistance from parliament, entrenched bureaucrats, and industrial interests and will contribute to further declines in output and rising unemployment which will sorely test the government's ability to stay the course on reform in 1995.

The UK is one of the world's great trading powers and financial centers, and its economy ranks among the four largest in Western Europe. The economy is essentially capitalistic; over the past 13 years the ruling Tories have greatly reduced public ownership and contained the growth of social welfare programs. Agriculture is intensive, highly mechanized, and efficient by European standards, producing about 60% of food needs with only 1% of the labor force.

The UK has large coal, natural gas, and oil reserves, and primary energy production accounts for 12% of GDP, one of the highest shares of any industrial nation. Services, particularly banking, insurance, and business services, account by far for the largest proportion of GDP while industry continues to decline in importance, now employing only 25% of the work force and generating only 21% of GDP. The economy registered 4.2% GDP growth in 1994, its fastest annual rate for six years.

Exports and manufacturing output are the primary engines of growth. Unemployment is gradually falling. Inflation is at the lowest level in 27 years, but British monetary authorities raised interest rates to 6.25% in 1994 in a preemptive strike on emerging inflationary pressures such as higher taxes and rising manufacturing costs. The combination of a buoyant economy and fiscal tightening is projected to trim the FY94/95 budget shortfall to about $50 billion - down from about $75 billion in FY93/94. The major economic policy question for Britain in the 1990s is the terms on which it participates in the financial and economic integration of Europe.

Tiny in area, Bahrain is well-to-do in economic resources and per capita income. Petroleum production and processing account for about 80% of export receipts, 60% of government revenues, and 30% of GDP. Economic conditions have fluctuated with the changing fortunes of oil since 1985, for example, during and following the Gulf crisis of 1990-91. With its highly developed communication and transport facilities Bahrain is home to numerous multinational firms with business in the Gulf.

A large share of exports consists of petroleum products made from imported crude. Prospects for 1995 are good, with private enterprise the main driving force, e.g., in banking and construction. Unemployment, especially among the young, and the depletion of both oil and underground water resources are major long-term economic problems.

The Greek Cypriot economy is small, diversified, and prosperous. Industry contributes 14% to GDP and employs 29% of the labor force, while the service sector contributes 53% to GDP and employs 57% of the labor force. An average 6.8% rise in real GDP between 1986 and 1990 was temporarily checked in 1991, because of the adverse effects of the Gulf war on tourism. After surging 8.5% in 1992, growth slowed to 2.0% in 1993 - its lowest level in two decades - because of the decline in tourist arrivals associated with the recession in Western Europe, Cyprus' main trading partner, and the loss in export competitiveness due to a sharp rise in unit labor costs.

Real GDP is likely to have picked up in 1994, and inflation is estimated to have risen to between 5% and 6%. The Turkish Cypriot economy has less than one-third the per capita GDP of the south. Because it is recognized only by Turkey, it has had much difficulty arranging foreign financing, and foreign firms have hesitated to invest there. The economy remains heavily dependent on agriculture, which employs one-quarter of the work force.

Moreover, because the Turkish lira is legal tender, the Turkish Cypriot economy has suffered the same high inflation as mainland Turkey. The small, vulnerable economy is estimated to have experienced a sharp drop in growth during 1994 because of the severe economic crisis affecting the mainland. To compensate for the economy's weakness, Turkey provides direct and indirect aid to nearly every sector; financial support has risen in value to about one-third of Turkish Cypriot GDP.

In 1991 roughly 40% of Gaza Strip workers were employed across the border by Israeli industrial, construction, and agricultural enterprises, with worker remittances supplementing GDP by roughly 50%. Gaza depends upon Israel for nearly 90% of its external trade. Aggravating the impact of Israeli military administration, unrest in the territory since 1988 (intifadah) has raised unemployment and lowered the standard of living of Gazans.

The Persian Gulf crisis and its aftershocks also have dealt blows to Gaza since August 1990. Worker remittances from the Gulf states have dropped, unemployment has increased, and exports have fallen. The withdrawal of Israel from the Gaza Strip in May 1994 brings a new set of adjustment problems.

Iran's economy is a mixture of central planning, state ownership of oil and other large enterprises, village agriculture, and small-scale private trading and service ventures. Over the past several years, the government has introduced several measures to liberalize the economy and reduce government intervention, but most of these changes have moved slowly because of political opposition. Iran has faced increasingly severe financial difficulties since mid-1992 due to an import surge that began in 1989 and general financial mismanagement.

At yearend 1993 the Iranian Government estimated that it owed foreign creditors about $30 billion; an estimated $8 billion of this debt was in arrears. At yearend 1994, Iran rescheduled $12 billion in debt. Earnings from oil exports - which provide 90% of Iran's export revenues - are providing less relief to Iran than usual because of reduced oil prices.

The Ba'thist regime engages in extensive central planning and management of industrial production and foreign trade while leaving some small-scale industry and services and most agriculture to private enterprise. The economy has been dominated by the oil sector, which has traditionally provided about 95% of foreign exchange earnings. In the 1980s, financial problems caused by massive expenditures in the eight-year war with Iran and damage to oil export facilities by Iran, led the government to implement austerity measures and to borrow heavily and later reschedule foreign debt payments.

After the end of hostilities in 1988, oil exports gradually increased with the construction of new pipelines and restoration of damaged facilities. Agricultural development remained hampered by labor shortages, salinization, and dislocations caused by previous land reform and collectivization programs. The industrial sector, although accorded high priority by the government, also was under financial constraints. Iraq's seizure of Kuwait in August 1990, subsequent international economic embargoes, and military action by an international coalition beginning in January 1991 drastically changed the economic picture.

Industrial and transportation facilities, which suffered severe damage, have been partially restored. Oil exports remain at less than 5% of the previous level. Shortages of spare parts continue. Living standards deteriorated even further in 1993 and 1994; consumer prices have more than doubled in both 1993 and 1994. The UN-sponsored economic embargo has reduced exports and imports and has contributed to the sharp rise in prices.

The Iraqi government has been unwilling to abide by UN resolutions so that the economic embargo can be removed. The government's policies of supporting large military and internal security forces and of allocating resources to key supporters of the regime have exacerbated shortages. In brief, per capita output in 1993-94 is far below the 1989-90 level, but no precise estimate is available.

Israel has a market economy with substantial 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. Industry employs about 22% of Israeli workers, construction 6.5%, agriculture, forestry, and fishing 3.5%, and services most of the rest.

Israel is largely self-sufficient in food production except for grains. Diamonds, high-technology equipment, and agricultural products (fruits and vegetables) are leading exports. Israel usually posts current account 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 United States, which is its major source of economic and military aid.

To earn needed foreign exchange, Israel has been targeting high-technology niches in international markets, such as medical scanning equipment. The influx of Jewish immigrants from the former USSR, which topped 450,000 during the period 1990-94, increased unemployment, intensified housing problems, and strained the government budget. At the same time, the immigrants bring to the economy valuable scientific and professional expertise.