Economic overview In 36 editions of 36.

Real global output - gross world product (GWP) - again rose 3% in 1995, with the newly industrializing Third World countries setting the pace. And once more, results varied widely among regions and countries. Average growth of 2.5% in the GDP of industrialized countries (56% of GWP in 1995) and average growth of 5% in the GDP of less developed countries (38% of GWP) were partly offset by a small 1.5% drop in the GDP of the former USSR/Eastern Europe area (only 6% of GWP). With the notable exception of Japan at 3.1%, unemployment was typically 6%-12% in the industrial world.

The US accounted for 22% of GWP in 1995; Western Europe accounted for 21%; and Japan accounted for 8%. These are the three "economic superpowers" 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 continued its progress in moving toward "market-friendly" economies. The 15 ex-Soviet countries typically experienced further declines in output, although considerably less than in 1992-94. 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, in India, and in Canada. 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 specific economic developments in 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 economic stabilization and to introduce market mechanisms into the economy. Despite substantial progress toward economic 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. Following a Paris Club debt rescheduling in 1995 and a robust harvest, the economy experienced a strong recovery and key economic improvements.

Angola is an economy in disarray. Despite its abundant natural resources, output per capita is among the world's lowest. Subsistence agriculture provides the main livelihood for 80%-90% of the population but accounts for less than 15% of GDP. Oil production and the supporting activities are vital to the economy, contributing about 50% 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 must still be imported. To take advantage of its rich resources - notably gold, diamonds, extensive forests, Atlantic fisheries, and arable land, in addition to its large oil deposits - Angola will need to observe the cease-fire, implement the peace agreement, and reform government policies.

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The economy of Benin remains underdeveloped and dependent on subsistence agriculture, cotton production, and regional trade. Growth in real output, which had averaged a sound 4% in 1990-94, rose to 6% in 1995. Rapid population growth, now 3.3% per year, offset much of this growth in output. Inflation jumped to 55% in 1994 (compared to 3% in 1993) following the 50% currency devaluation in January 1994, but subsided gradually in 1995.

Commercial and transport activities, which make up 37% 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. 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, has been gradually implementing a World Bank supported structural adjustment program since 1991.

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 sector is plagued by erratic rainfall and poor soils. 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. The unemployment rate remains a problem at 21%. Hampered by a still sluggish diamond market in 1994 and 1995, GDP grew by only 1% in both years.

One of the poorest countries in the world, Burkina Faso 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 is mainly subsistence farming. Industry remains dominated by unprofitable government-controlled corporations. Following the Communaute Financiere Africaine currency devaluation on 12 January 1994, exports appear to have risen, but no official figures have been released yet.

The upswing apparently continued in 1995, with growth perhaps at 4%. The government has updated its development program in conjunction with international agencies, yet even with the best of plans, the government faces formidable problems on all sides.

Burundi is a landlocked, resource-poor country in an early stage of economic development. The economy 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 rests 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. Since October 1993 the nation has suffered from massive ethnic-based violence which has resulted in the death of perhaps 100,000 persons and the displacement of a million others; production has fallen sharply, and an impoverished and disorganized government can hardly implement these needed reform programs.

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, the share of agriculture in GNP is only 13%, of which fishing 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 1996 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 to 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; currently Cameroon receives only minimal assistance from those Bretton Woods institutions. Although the 50% devaluation of the currency of 12 January 1994 improved the potential for export growth, mismanagement remains the main barrier to economic improvement. The devaluation led to a spurt in inflation, to 48% in 1994, but inflation moderated in 1995. Progress toward privatization of remaining state industry remains slow.

Subsistence agriculture, together with forestry, remains the backbone of the economy of the Central African Republic (CAR), with more than 70% of the population living in outlying areas. The agricultural sector generates half of GDP. Timber has accounted for about 13% of export earnings and the diamond industry for nearly 80%. 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 the CAR's economy. While diamond, timber, coffee, and cotton exports increased - leading GDP to increase by 5.5% - inflation rose to 45%, fueled by the rising prices of imports on which the economy depends; inflation dropped back rapidly in 1995. The 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, 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 postpone payment of public sector salaries and to dampen economic enterprise by neglecting payments to domestic suppliers.

The devaluation resulted in stepped-up inflation of 41% in 1994; in contrast to other Francophone countries, Chad continued to suffer high inflation in 1995 because of the government's lack of financial discipline. 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 IMF nor put in place the financial measures advocated by it. Although short-term prospects for improvement remain doubtful, improved political stability would boost Zaire's long-term potential to effectively exploit its vast 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. Oil has supplanted forestry as the mainstay of the economy, providing about 90% of government revenues and exports. In the early 1980s, rapidly rising oil revenues enabled Congo to finance large-scale development projects with GDP growth averaging 5% annually, one of the highest rates in Africa.

Subsequently, falling oil prices cut GDP growth by half. Moreover, the Congolese Government has mortgaged a substantial portion of its oil earnings, contributing to the government's shortage of revenues. The 12 January 1994 devaluation of Franc Zone currencies by 50% resulted in inflation of 61% in 1994. Recent efforts to implement economic reforms have begun to show progress; the IMF has recommended approval of an Enhanced Structural Adjustment Facility agreement in 1996.

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 nontraditional 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 of Franc Zone currencies on 12 January 1994 caused a one-time jump in the inflation rate to 32% for 1994, but this rate fell to perhaps 10% in 1995, in part as the economy adjusted to the devaluation. Moreover, government adherence to donor-mandated reforms led to a budget surplus in 1994. Real growth of GDP in 1994 was 1.7%, a significant improvement following several years of negative growth. In 1995 growth picked up to 5%.

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 enough momentum to tackle the growing problem of unemployment. Egypt made uneven progress in implementing the successor programs it signed onto in late 1993 with the IMF and World Bank; currently it is negotiating another successor program with the IMF. 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 63 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 IMF have been cut off since 1993 because of the government's gross corruption and mismanagement.

Businesses, for the most part, are owned by government officials and their family members. 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. In 1995, exports responded to the devaluation of 12 January 1994, apparently resulting in a sizable surplus and strong GDP growth. Increased production from recently discovered oil and natural gas fields will provide a greater share of exports in 1996-97.

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.

This small landlocked economy is based largely on subsistence agriculture, which occupies more than 60% of the population. Manufacturing features a number of agroprocessing factories. 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 supplement domestically produced income by as much as 20%. Overgrazing, soil depletion, and drougth persist as problems for the future.

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 half 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 three times 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 GDP growth has been feeble since 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% on 12 January 1994 sparked a one-time inflationary surge, to 35%; the rate dropped to 15% in 1995.

Nevertheless, the government must continue to keep a tight rein on spending and wage increases. The IMF and France are considering offering financial assistance in 1996 if Gabon shows progress in privatization and fiscal discipline.

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. Small-scale manufacturing activity features the processing of peanuts, fish, and hides. A sustained structural adjustment program, including a liberalized trade policy, had fostered a respectable 4% annual rate of growth in 1990-93. Reexport trade normally 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, in response to the military's takeover in July 1994, cuts in foreign trade and a decline in tourism have undermined economic growth.

Well endowed with natural resources, Ghana has 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 1995, 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 almost half 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, depreciation of the cedi, and rising public discontent with Ghana's austerity program.

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Although possessing major mineral, hydropower, and agricultural resources, Guinea remains one of the poorest countries in the world. The agricultural sector employs 80% of the work force. 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.

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.

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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. The strong economy continued into 1995 with inflation cut sharply and GDP growth at 5%.

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 which support the milling, canning, leather, and jute industries. 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 will support the economy's continued expansion.

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 continued political turmoil 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 1995.

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 subsequently GDP growth has slowed on average and has 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.

The nonoil manufacturing and construction sectors, which account for about 20% of GDP, have expanded from processing mostly agricultural products to include the production of 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 to sustain 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 roughly 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 35% of GDP and contributing more than 70% of export earnings. Industry is largely confined to the processing of agricultural products and textile manufacturing; it accounts for 15% 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 export, 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 31% of GDP and 90% of export revenues. 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. Drought hurt the 1994 economy, with GDP down by 12.4%. Good weather and a strong tobacco crop resulted in an upturn in 1995. In December 1995, donors pledged $332 million in aid for 1996.

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 12 January 1994. Post-devaluation inflation 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%. In 1995, Morocco suffered from a drought said to be the worst in 30 years. 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 between civil warring factions, 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 continued in 1994-95, and the economy should move forward in the late 1990s, given continued foreign help in meeting debt obligations. One key event in 1995 was the conclusion of negotiations with Enron of Houston, Texas, for a $700 million project to exploit the Pande natural gas fields.

The economy is heavily dependent on the extraction and processing of 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. Rich alluvial diamond deposits make 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 recent GDP growth barely matching 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, corruption, and poor macroeconomic management. Nigeria's unpopular military rulers failed to make significant progress in diversifying the economy away from overdependence on the capital intensive oil sector which provides almost all foreign exchange earnings and about 80% of budgetary revenues. Regime officials also appear divided on how to redress fundamental economic imbalances that result in troublesome inflation, the steady depreciation of the naira, and the discouragement of investors.

The government's domestic and international arrears continue to limit economic growth and prevent an agreement with the IMF and bilateral creditors on debt relief. The 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. The agricultural sector dominates the economy; coffee and tea normally make up 80%-90% of total exports. The amount of fertile land is limited, however, and deforestation and soil erosion continue to create problems. Manufacturing focuses mainly on the processing of agricultural products. 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 resumption of large-scale 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. GDP in 1994 may have dropped by as much as half. The further decline of GDP in 1995 was much smaller and was more than offset by aid from the outside. Because of the severe damage to real property and the decline in public discipline, recovery of domestic production toward previous levels is proceeding slowly.

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 3 to 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 has hovered around 1.5% since 1991.

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 of that year. After years of foot-dragging, the government has passed a liberalized labor code which should lower the cost of labor and improve the manufacturing sector's competitiveness. Inroads also have been made in closing tax loopholes, eliminating monopoly power in several sectors, and privatizing state owned firms.

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. The IMF, in mid-1995, announced that the government met most economic targets as called for in its Enhanced Structural Adjustment Facility agreement and released the second $50 million tranche. The country's narrow resource base, environmental degradation, and untamed population growth will continue to hold back improvement 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. However, the economic and social infrastructure is not well developed, and serious social disorders continue to push down production, exports, and the value of the leone. Agriculture employs about two-thirds of the working population, with subsistence agriculture dominating the sector. Manufacturing consists mainly of the processing of raw materials and of light manufacturing for the domestic market.

The mining of diamonds, bauxite, and rutile is the major source of hard currency. The government has worked hard to meet its IMF- and World Bank-mandated stabilization targets, holding down fiscal deficits, and retiring much of its domestic debt - but at a steep cost in terms of forgone 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 Leone'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 a large portion 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 resulted in a substantial drop in agricultural output, with widespread famine. In 1994 economic conditions stabilized in the countryside, followed in 1995 by slight improvements. However, ongoing civil strife in Mogadishu and outlying areas is interfering with any substantial recovery.

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 a steady 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. 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, measures it has partially implemented.

The government's continued prosecution of the civil war and its growing international isolation continued to inhibit growth in the nonagricultural sectors of the economy during 1995. Agricultural production in 1995, while fairly good, was not up to the bumper crop level of 1994.

Tanzania is one of the poorest countries in the world. The economy is heavily dependent on agriculture, which accounts for 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.

This small sub-Saharan economy is heavily dependent on subsistence agriculture, which provides employment for more than 60% of the labor force. Cocoa, coffee, and cotton together generate about 30% of 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 effort, supported by the World Bank and the IMF, to implement economic reform measures, 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 12 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.

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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 4.2% in 1991-95, and inflation has been moderate. Growth in tourism and IMF support have been key elements in this solid record. Drought, especially in the south, held back GDP growth in 1995. 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 1995 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.

Despite continuing progress in privatization and budgetary reform, Zambia's economy is showing little improvement. Inflation, while slowing somewhat, continues to be a major concern to the CHILUBA government. Four of Zambia's 20 banks collapsed in 1995, and the nation's debt stood at about $7 billion. Zambia's copper mining sector, which accounts for over 80% of the nation's foreign currency intake, is struggling. Production rates are down as are world copper prices.

Food production is insufficient to meet the country's needs due to previous droughts and an end to government subsidization of agriculture. While the government's economic program aims for 6% growth in each of the next three years, a growth rate of 3-5% is more likely.

Agriculture employs 70% of the labor force of this landlocked nation and supplies almost 40% of exports. 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 4.5% in 1994, only to drop by 2.4% in 1995. The government is continuing to push its IMF/World Bank structural adjustment program aimed at encouraging exports and foreign investment. Officials face the difficult task of restraining expenditures in their effort to keep inflation within bounds.

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

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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, 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, an important supplement of GDP.

Iceland's Scandinavian-type economy is basically capitalistic, but with an extensive welfare system, 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. 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 16 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 and Iran sheltering more than 6 million refugees.

Now, only 1.0 million Afghan refugees remain in Pakistan and about 1.3 million in Iran. Another 1 million probably moved into and around urban areas within Afghanistan. Gross domestic product has fallen substantially over the past 15 years because of the loss of labor and capital and the disruption of trade and transport. Millions of people continue to suffer from insufficient food, clothing, housing, and lack of medical care. Numerical data are extremely shaky.

Under the old Soviet central planning system, Armenia had developed a modern industrial sector, supplying machine building tools, textiles, and other manufactured goods to sister republics in exchange for raw materials and energy. Armenia is a 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. Nevertheless, the economy appears to have bottomed out due largely to the government's strong reform program.

GDP grew by about 5% in 1995. Inflation fell from an average 40% per month in early 1994 to an average 2.4% per month in 1995. A full economic recovery, however, 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 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. Whereas the economies of most of the former Soviet republics had begun to bottom out in 1995, Azerbaijan's economy continued to plummet because of its late start on economic reform.

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. Annual GDP growth has averaged over 4% in recent years from a low base. 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), inadequate power supplies, and, most recently, political disturbances.

In 1995, progress on Bangladesh's development agenda has been slowed by frequent political unrest before and after national elections in early 1996. Opposition parties have challenged the government's authority by resigning from Parliament and sponsoring numerous countrywide strikes that have crippled transport, hindered business activity, and threatened to slow economic growth in 1996.

The economy, one of the world's smallest and 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. The Bhutanese Government has made some progress in expanding the nation's productive base and improving social welfare but growth continues to be constrained by the government's desire to protect the country's environment and cultural traditions.

Growth picked up in 1995 and the country's balance of payments remained strong with comfortable reserves. The cautious fiscal stance planned for FY95/96 suggests continued economic stability in 1996. However, excessive controls and uncertain policies in areas like industrial licensing, trade, labor, and finance continue to hamper foreign investment.

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 a sluggish Soviet-style centrally planned economy to one that is more market-oriented, but still within a rigid political framework of Communist Party 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. Agricultural output doubled in the 1980s, and industry also posted major gains, especially in coastal areas near Hong Kong and opposite Taiwan, where foreign investment and modern production methods helped spur output of both domestic and export goods. GDP has more than tripled 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 1992-95 annual growth of GDP accelerated, particularly in the coastal areas - averaging more than 10% annually according to official figures. In late 1993 China's leadership approved additional long-term reforms aimed at giving still more play to market-oriented institutions and at strengthening the center's control over the financial system; state enterprises would continue to dominate many key industries in what was now termed "a socialist market economy."

In 1995 inflation dropped sharply, reflecting tighter monetary policies and stronger measures to control food prices. At the same time, the government struggled to (a) collect revenues due from provinces, businesses, and individuals; (b) reduce extortion and other economic crimes; and (c) 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 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.

The amount of arable land continues to decline because of erosion and economic development, the cumulative loss since the Communist takeover in 1949 being more than 15%. The next few years will witness increasing tensions between a highly centralized political system and an increasingly decentralized economic system.

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 internal energy resource is hydropower. Since 1991 the economy has sustained severe damage from civil strife.

Georgia has been suffering from acute energy shortages, as it is having problems paying for even minimal imports. Georgia is pinning its hopes for long-term recovery largely on reestablishing trade ties with Russia and on developing international transportation through the key Black Sea ports of P'ot'i and Bat'umi. Statistical estimates on Georgia are subject to a particularly wide margin of error, even compared with other FSU countries. The GDP estimate below probably does not reflect much of its grass roots economic activity. GDP is supplemented by considerable EU and US humanitarian aid.

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 200 million plus 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. GDP growth in 1992-95 has averaged nearly 5%. Most of the country's external fundamentals - including the current account balance and reserves (now nearly $17 billion) are healthy.

Party politics is increasingly shaping the debate over economic reforms. In addition, the 25 Indian states and several union territories, which are playing a more active role in determining economic policy, are further complicating the economic climate. The Indian Government will also have to watch closely rising government expenditures and higher debt servicing which could create a debt trap by the turn of the century.

Nevertheless, India should achieve economic growth of 5.5%-6.5% annually through the next several years. Even if a weak coalition government comes to power in 1996 and is unable to push reforms aggressively, parts of the economy that have already benefited from deregulation will continue to grow. Moreover, the country can build on other strengths, including its diverse industrial base, large scientific and technical pool, well-developed legal system, and its large middle class to achieve higher growth.

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. One notable characteristic of the economy is the working together of manufacturers, suppliers, and distributors in closely knit groups called keiretsu. A second basic feature has been the guarantee of lifetime employment for a substantial portion of the urban labor force; this guarantee is slowly eroding.

Industry, the most important sector of the economy, is heavily dependent on imported raw materials and fuels. The much smaller agricultural sector is highly subsidized and protected, with crop yields among the highest in the world. Usually self-sufficient in rice, Japan must import about 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. For three decades

overall economic growth had been spectacular:

a 10% average in the 1960s, a 5% average in the 1970s and 1980s. Growth came to a halt in 1992-95 largely because of the aftereffects of overinvestment during the late 1980s and contractionary domestic policies intended to wring speculative excesses from the stock and real estate markets. At yearend 1995, the financial structure is shaky with banks holding hundreds of billions of dollars of suspect assets. At the same time, the continued basic strength of the economy has been reflected in substantial trade surpluses, sizable foreign investments, and remarkably low rates of unemployment, inflation, and social disorder. The crowding of the habitable land area and the aging of the population are two major long-run problems.

Kazakstan, 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. Kazakstan'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 Kazakstan'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, resulting in a gradual lifting of state controls over economic activity and a shifting of assets into the private sector.

Nevertheless, government control over key sectors of the economy remains strong. Moreover, 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 an average of 4%-5% annually during 1989-95 because of systemic problems and disruptions in socialist-style economic relations and technological links with the former USSR and China.

The leadership has 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. 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 year 1995 was marked by serious summer floods that worsened an already tenuous food situation. Substantial grain shipments from Japan and South Korea offset a portion of the losses. North Korea remains far behind South Korea in economic development and living standards.

As one of the Four Dragons of East Asia, South Korea has achieved an incredible record of growth. Three decades ago its GDP per capita was comparable with levels in the poorer countries of Africa and Asia. Today its GDP per capita is nine times India's, 14 times North Korea's, and already up with the lesser economies of the European Union. This success has been achieved by a unique combination of authoritarian government guidance of what is at bottom an essentially entrepreneurial process.

The government has sponsored large-scale adoption of technology and management from Japan and other modern nations; has successfully pushed the development of export industries while encouraging the import of machinery and materials at the expense of consumer goods; and has pushed its labor force to a work effort seldom matched anywhere even in wartime. Real GDP grew by an average 10% in 1986-91, then paused to a "mere" 5% in 1992-93, only to move back up to 8% in 1994 and 9% in 1995.

With a much higher standard of living and with a considerable easing of authoritarian controls, the work pace has softened. Growth rates will probably slow down over the medium term because of the exhaustion of former growth opportunities and the need to deal with pollution and the other problems of success.

Kyrgyzstan is a small, poor, mountainous country with a predominantly agricultural economy. Cotton, wool, and meat are the main agricultural products and exports. Industrial exports included gold, mercury, uranium, and hydropower. Kyrgyzstan has been one of the most progressive countries of the former Soviet Union in carrying out market reforms. Following a successful stabilization program, which has lowered inflation from 88% in 1994 to 32% for 1995, attention is turning toward stimulating growth.

About half of government stock in enterprises has been sold. Drops in production have been severe since the break up of the Soviet Union, but by mid-1995 production began to level off as exports began to increase. The level of hardship for pensioners, unemployed workers, and government workers with salaries arrears continues to be very high. Foreign assistance plays a substantial role in the country's budget. In early 1996, the economy apparently is slowly beginning to restore previous levels of output.

During the 1980s tourism became one of the most important and highest growth sectors of the economy. In 1994, tourism, Maldives largest industry, accounted for about 18% of GDP and more than 60% of the Maldives' foreign exchange receipts. Fishing is a second leading growth sector. Over 90% of government tax revenue comes from import duties and tourism-related taxes. 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 cultivable land and the shortage of domestic labor. Most staple foods must be imported. In 1994, industry which consisted mainly of garment production, boat building, and handicrafts accounted for about 15% 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 has been soliciting support from international financial agencies and foreign investors. The economy, however, has still not recovered from the loss of Soviet aid. 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 80% of the population and accounting for about one-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 moving forward with economic reforms particularly those that encourage trade and foreign investment, e.g., by eliminating business licenses and registration requirements in order to simplify investment procedures.

The government has also been cutting public expenditures by reducing subsidies, privatizing state industries, and laying off civil servants. (In 1995 little progress was made in these areas because the communist government had trouble formulating and implementing policies.) The new coalition government is planning to pick up the pace of reforms in 1996, focusing primarily on raising revenues to develop the rural sector by increasing taxation and privatization.

Prospects for foreign trade and investment, particularly in areas other than power development and tourism, will continue to remain poor because of the small size of the economy, its technological backwardness, its remoteness, and its susceptibility to natural disaster. The international community provides funding for 62% of Nepal's developmental budget and for 34% of total budgetary expenditures.

Pakistan is a poor, highly populated Third World country struggling to make the difficult transition to the modern world of high technology and internationalized markets. Prime Minister Benazir BHUTTO has been under pressure from the IMF and other donors to continue the economic reforms and austerity measures begun by her predecessor, caretaker Prime Minister Moeen QURESHI (July-October 1993). The IMF suspended a $1.5 billion Enhanced Structural Adjustment Facility (ESAF) in mid-1995 because Pakistan slowed the pace of economic reform.

Islamabad's most recent budget - announced in June 1995 - reversed some reforms agreed to by the IMF earlier that year, including a slowing of tariff reform. In mid-December 1995, however, the IMF approved a $600 million standby arrangement and urged Pakistan to move forward with economic liberalization. Islamabad has agreed to new economic targets with the IMF, which could lay the basis for a return to an ESAF in 1996.

Little progress was made in the privatization of large state-owned units in 1995. The sale of the power plant Kot Addu - scheduled for April 1995 - was stalled by opposition from labor unions. The sale of a 26% share of United Bank Limited and the Pakistan Telecommunications Corporation to strategic investors was due to take place in 1995 but has been pushed back to 1996. On the plus side real GDP grew 4.7% in 1995, up from 3.9% in 1994: GDP should grow even faster in 1996 as a result of an above average cotton crop.

Secondly, Islamabad reduced the budget deficit to 5.6% of GDP at the end of FY94/95, down from 8% two years earlier. Thirdly, Pakistan attracted $1.6 billion in foreign direct and portfolio investment in FY94/95, more than double inflows of $650 million in the previous fiscal year; financial agreements were reached on five power projects in 1995, including the 1,300-MW $1.8 billion Hab River project. Despite these improvements, the economy remains vulnerable to crisis.

Foreign exchange reserves fell dramatically in 1995, reaching a low of about $1 billion in early December 1995 - only five weeks of import cover - before rising to $1.5 billion by yearend. The trade deficit rose to $2 billion for the first six months of FY94/95, triple the deficit of $600 million during the same period in FY93/94. The government responded to this situation with a package of stabilization reforms on 28 October 1995 which included a 7% devaluation of the rupee, supplementary duties of 10% on many imports, and higher petroleum prices.

Islamabad hopes these moves will help make its exports more competitive. For the long run, Pakistan must deal with serious problems of deteriorating infrastructure, low literacy levels, and persistent law and order problems in Karachi.

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. The break-up of the USSR into 15 successor states in late 1991 destroyed major economic links that have been only partially replaced. As a result of these dislocations and the failure of the government to implement a rigorous and consistent reform program, output in Russia has dropped by one-third since 1990 (instead of the one-half previously estimated). On the one hand, 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 in 1994, establishing private financial institutions, and decentralizing foreign trade.

On the other hand, Russia 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; and the strong showing of the communists and nationalists in the Duma elections in December 1995 casts a shadow over prospects for further reforms. In 1995, the new cash privatization program went slower than planned. The state claims that the nonstate sector produced approximately 70% of GDP in 1995, up from 62% in 1994, although these figures apparently include many enterprises that have only nominally moved out of state control.

Moscow has been slow to develop the legal framework necessary to fully support a market economy and to encourage foreign investment. Stockholder rights remain ill-defined and the Duma has yet to adopt a land code that would allow development of land markets as sources of needed capital. Russia's securities market remains largely unregulated and suffers from the lack of a comprehensive securities law. 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.

Most rank-and-file Russians perceive they are worse off because of growing crime and health problems, the drop in real wages, the great rise in wage arrears, and the widespread threat of unemployment. The number of Russians living below the official poverty level rose by 10% to 36.6 million people, or 25% of the population. The decline in output slowed during 1995, and some sectors showed signs of a turnaround; analysts forecast the resumption of growth in 1996 - at a low rate.

Russian official data, which fail to capture a considerable portion of private sector output and employment, show that GDP declined by 4% in 1995, as compared with a 15% decline in 1994. Despite continued declines in agricultural and industrial production, unemployment climbed only slowly to about 8% of the work force by yearend because government policies aimed at softening the impact of reforms have created incentives for enterprises to keep workers on the rolls even as production slowed to a crawl.

Moscow renewed tightened financial policies in early 1995 and succeeded in reducing monthly consumer price inflation from 18% in January to about 3% in December, the lowest monthly rate since the beginning of reform. According to official trade statistics, Russia ran a $19.9 billion trade surplus for 1995, up from $15.9 billion in 1994. It continued to shift its trade away from the other former Soviet republics toward the West, with the CIS countries' share of Russian trade falling to 22% in 1995.

Russia made good progress with official and commercial creditors in 1995 in resolving the issue of its $105 billion in Soviet-era debts. When completed, these Paris Club and London Club rescheduling agreements will reduce Russia's repayment liabilities from $20 billion to less than $5 billion annually through the end of the decade. Capital flight reportedly continued to be a problem in 1995, with billions of additional dollars in assets being moved abroad, primarily to bank accounts in Europe.

Industry - dominated by the fast-growing apparel industry - has surpassed agriculture as the main source of export earnings. The economy has been plagued by high rates of unemployment since the late 1970s. Economic growth accelerated in 1991-94 as domestic conditions began to improve and conditions for foreign investment brightened. In 1995, however, the government's emphasis on populist measures and its preoccupation with the stepped-up Tamil insurgency have clouded Sri Lanka's economic prospects and discouraged foreign investors. A further problem for 1996 is the need to curb government overspending.

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, with 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 four years of civil conflict 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. The regime has made only halfhearted efforts to stabilize the economy and promote reform.

Turkmenistan is largely desert country with nomadic cattle raising, intensive agriculture in irrigated oases, and huge gas and oil resources. One-half of 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 substantial 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. The economy remained depressed through 1995 while inflation soared. 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.

For 1996, Turkmenistan will face continuing constraints on its earnings because of its customers' inability to pay for their gas and a below average cotton crop in 1995. Turkmenistan is working hard to open new gas export channels through Iran and Turkey, but these will take many years to realize.

Uzbekistan is a dry, landlocked country of which 10% consists of intensely cultivated, irrigated river valleys. It was one of the poorest republics of the former Soviet Union with more than 60% of its population living in overpopulated rural communities. At the same time, 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.

Following independence, the government sought to prop up its Soviet-style command economy with subsidies and tight controls on production and prices. Faced with high rates of inflation, however, the government stepped up the pace of reform in mid-1994, by introducing tighter monetary policies, expanding privatization, reducing the role of the state in the economy, and improving the environment for foreign investors. Nevertheless, the state continues to be a dominating influence in the economy, and reforms have so far failed to induce far-reaching structural changes.

Anguilla has few natural resources, and the economy depends heavily on tourism, offshore banking, lobster fishing, and remittances from emigrants. Output growth has averaged about 7% in recent years, mainly as a result of boom in tourism thanks to economic expansion in North America and the UK. The economy, and especially the tourism sector, suffered a setback in late 1995 due to the effects of Hurricane Luis in September.

Agricultural output had only just begun to recover from a drought in 1994 when Luis hit. Anguillan officials have put substantial effort into developing the offshore financing sector. A comprehensive package of financial services legislation was enacted in late 1994. In the medium term, prospects for the economy will depend on the tourism sector and, therefore, on continuing income growth in the industrialized nations.

Tourism continues to be by far the dominant activity in the economy but the combined share in GDP of transport and communications, trade, and public utilities has increased markedly in recent years. Tourism's direct contribution to output in 1994 was about 20%. In addition, increased tourist arrivals helped spur growth in the construction and transport sectors. The dual island nation's agricultural production is mainly directed to the domestic market; the sector is constrained by the limited water supply and labor shortages that reflect the pull of higher wages in tourism and construction.

Manufacturing - which accounts for 3.5% of GDP - comprises enclave-type assembly for export with major products being bedding, handicrafts, and electronic components. Prospects for economic growth in the medium term will continue to depend on income growth in the industrialized world, especially in the US, which accounts for about half of all tourist arrivals.

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. In addition, 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 with an economy heavily dependent on tourism and offshore banking. Tourism alone accounts for more than 50% of GDP and directly or indirectly employs 40% of the archipelago's labor force. A slowdown in the expansion of the tourism sector - especially stopover travel from Europe - led to a reduction in the country's GDP growth rate in 1995, down to an estimated 2% from 3.5% in 1994.

The construction sector benefited from hotel rehabilitation and the government's ongoing housing development program. Earnings from exports of vegetable and citrus production have been decreasing since 1993 but are expected to increase in 1996 due to storm damage to crops in Florida. The overall growth prospects through 1996 will depend heavily on the fortunes of the tourism sector and continued income growth in the US, which accounts for the majority of tourist visits.

Historically, the Barbadian economy has been dependent on sugarcane cultivation and related activities, but in recent years the production has diversified into manufacturing and tourism. Sluggish performances in the sugar and tourism sectors - which declined by 25% and 8% respectively - tempered economic expansion in 1995; output increased by 2% for the year, down from nearly 4% in 1994. Improved weather conditions in 1995 are expected to boost agriculture output in 1996.

Since taking office in 1994, Prime Minister ARTHUR has aggressively moved to promote foreign direct investment as part of a policy designed to reduce nagging unemployment. The government has also been active in promoting regional integration initiatives.

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, is highly dependent on tourism, which generates an estimated 45% of the national income. In 1985, the government began offering offshore registration to companies wishing to incorporate in the islands, and incorporation fees now generate substantial revenues. The adoption of a comprehensive insurance law in late 1994, which provides a blanket of confidentiality with regulated statutory gateways for investigation of criminal offenses, is expected to make the British Virgin Islands even more attractive to international business.

Livestock raising is the most important agricultural activity; poor soils limit the islands' ability to meet domestic food requirements. Because of traditional close links with the US Virgin Islands, the British Virgin Islands have used the dollar as their currency since 1959.

With no direct taxation, the Islands are a thriving offshore financial center. Tourism is also a mainstay, accounting for about 70% of GDP and 75% of foreign currency earnings. The tourist industry is aimed at the luxury market and caters mainly to visitors from North America. Total tourist arrivals exceeded one million visitors in 1995 for the first time. 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 the export of bananas, coffee, and other agricultural products. Recent trends have been disappointing. Economic growth slipped from 4.3% in 1994 to 2.5% in 1995, the lowest rate of growth since 1991's 2.1%. Inflation rose dramatically to 22.5% from 13.5% in 1994, well above the government's own projection of 18%. Unemployment rose from 4.0% in 1994 to 5.2% in 1995, and substantial underemployment continues.

These economic woes are likely to be exacerbated in 1996 by a standby arrangement reached with the IMF on 29 November 1995. To restore fiscal balance, the government agreed to curb inflation, reduce the fiscal deficit, increase domestic savings, and improve public sector efficiency while increasing the role of the private sector. Costa Rica signed a free trade agreement with Mexico in 1994.

The state retains a primary role in the economy and controls practically all foreign trade. The government has undertaken several reforms in recent years designed to stem excess liquidity, raise labor incentives, and increase the availability of food, consumer goods, and services from depressed levels. The liberalized agricultural markets introduced in October 1994, where state and private farms are authorized to sell any above-quota production at unrestricted prices, have broadened legal consumption alternatives and reduced black market prices.

The government's efforts to reduce subsidies to loss-making enterprises and shrink the money supply caused the black market exchange rate to move from a peak of 120 pesos to the dollar in the summer of 1994 to 25-30 pesos to the dollar at yearend 1995. The number of self-employed workers licensed by the government increased more slowly in 1995, from 160,000 at yearend 1994 to 190,000 in July 1995 and to about 210,000 in January 1996.

Discussions continue within the leadership over the relative affluence of self-employed workers and the growing inequality of income in what has historically been a strictly egalitarian society. The government released new economic data in 1995 which showed a 35% decline in GDP during 1989-1993, a drop precipitated by the withdrawal of massive Soviet aid and prolonged by Cuba's own economic inefficiencies. The decline in GDP apparently was halted in 1994, and government officials claim that GDP increased by 2.5% in 1995.

Export earnings rose by 20% in 1995 to $1.6 billion, largely on the strength of higher world prices for key commodities and increased production of nickel through joint ventures with a Canadian firm. Higher export revenues and new credits from European firms and Mexico enabled Havana to increase its imports for the first time in six years. Imports rose 21% to almost $2.4 billion, or 30% of the 1989 level. Officials have sharply criticized provisions of legislation under consideration in the US Congress, which aims to curtail third-country investment in expropriated US properties in Cuba and deny official assistance to Havana.

The economy is dependent on agriculture and thus is highly vulnerable to climatic conditions. Agriculture accounts for 26% of GDP and employs 40% of the labor force. Development of the tourist industry remains difficult because of the rugged coastline and the lack of an international airport. Hurricane Luis devastated the country's banana crop in September 1995; tropical storms had wiped out one-quarter of the crop in 1994 as well. The newly elected government is attempting to develop an offshore financial industry in order to diversify the island's production base.

Economic reforms launched in late 1994 contributed to exchange rate stabilization, reduced inflation, and relatively strong GDP growth in 1995. Output growth was concentrated in the tourism and free trade zone (ftz) sectors while sugar and non-ftz manufacturing declined last year. Drought in early 1995 hurt agricultural production but favorable world prices for export commodities helped mitigate the impact. Sugar refining was devastated by a disastrous harvest resulting from the drought and ongoing problems at the state-owned sugar company.

Unreliable electric supplies continue to hamper expansion in manufacturing; small and medium-sized retail firms also suffer due to the dismal power situation. A presidential election scheduled for May 1996 could lead to increased government spending before and in the immediate aftermath of the vote, raising the potential for rising inflation and increased pressure on the Dominican peso.

El Salvador possesses a fast-growing entrepreneurial economy in which 90% of economic activity is in private hands, with growth averaging 5% since 1990. Yet, because the 1980s were a decade of civil war and stagnation, per capita GDP has not regained the level of the late 1970s. The rebound in the 1990s stems from the government program, in conjunction with the IMF, of privatization, deregulation, and fiscal stabilization. The economy now is oriented more toward manufacturing and services compared with agriculture. The sizable trade deficits are in the main covered by remittances from the large number of Salvadorans abroad.

The economy is essentially agricultural and centers on the traditional production of spices and tropical plants. Agriculture accounts for about 10% 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 growing due to a favorable private investment climate since 1983. The economy achieved an impressive average annual growth rate of 5.5% in 1986-91 but has slowed since 1992. The new MITCHELL government has moved forward with a plan to eliminate personal income tax in the hope of spurring domestic consumption.

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 20% 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 averaged 4%. Strong international prices for Guatemala's traditional commodity exports featured 4.9% growth in 1995. Given the markedly uneven distribution of land and income, the government faces major obstacles in its program of economic modernization and the reduction of poverty.

About 75% of the population lives in abject poverty. Nearly 70% of all Haitians depend on the agriculture sector, which consists mainly of small-scale subsistence farming and employs about two-thirds of the economically active work force. The country has experienced only moderate job creation since President ARISTIDE was returned to power in October 1994. Failure to reach agreement with multilateral lenders in late 1995 led to rising deficit spending and subsequently increasing inflation and a drop in the value of the Haitian currency in the final months of 1995.

Potential investors, both foreign and domestic, have been reluctant to risk their capital, planning to "wait and see" what happens in the months following the inauguration of newly elected President Rene PREVAL and the drawdown of UN peacekeeping forces. The PREVAL government will have to grapple with implementing necessary, although unpopular, economic reforms in order to obtain badly needed foreign aid and improve Haiti's ability to attract foreign capital if the Haitian economy is to gain momentum. Haiti will continue to depend heavily on foreign aid in the medium term.

Honduras is one of the poorest countries in the Western Hemisphere. Agriculture, the most important sector of the economy, employs nearly two-thirds of the labor force and produces two-thirds of exports. Productivity remains low. Manufacturing, still in its early stages, employs about 9% of the labor force, and generates 20% of exports. 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. Since assuming office in 1992, Prime Minister PATTERSON has consolidated the market-oriented reforms initiated by his predecessor, Michael MANLEY, to make Jamaica a regional leader in economic reform. PATTERSON has eliminated most price controls, streamlined tax schedules, and privatized government enterprises.

Tight monetary and fiscal policies under an IMF program have helped slow inflation and stabilize the exchange rate, but, as a result, economic growth has slowed down and unemployment remains high. Jamaica's medium-term prospects depend largely on its ability to continue to attract foreign capital and limit speculation against the Jamaican dollar.

The economy is based on sugarcane, bananas, tourism, and light industry. Agriculture accounts for about 6% of GDP and the small industrial sector for 11%. 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 related services. Tourism accounts for roughly one-quarter of Montserrat's national income. The island's main export is electronic components which are mainly shipped to the US. The agriculture sector is small; cabbages, carrots, cucumbers, and onions are grown for the domestic market; additionally, some hot peppers and live plants are exported to the US and Europe.

The threat of a volcanic eruption in late 1995 led to the repeated evacuation of Montserrat's capital, Plymouth, and deep ash from the volcano destroyed much of the yearend crops. As a result, production in 1995 dropped precipitously. The likely slow recovery of tourism and the continued danger of an eruption dim the prospects for rapid recovery in 1996.

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Tourism and offshore finance are the mainstays of this small economy, which is closely tied to the outside world. 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.

The Nicaraguan economy, devastated during the 1980s by economic mismanagement and civil war, is beginning to rebound. Since March 1991, when President CHAMORRO launched 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. After rising again to an estimated 20% in 1993, the annual inflation rate was 11.7% in 1994 and 11.4% in 1995.

While economic growth was flat in 1992 and negative in 1993, the 1995 growth rate is about 4%, thanks to surges in most export categories. Recent legislation (November 1995) authorizing the privatization of the TELCOR telecommunications company and resolving the issue of property confiscated by the previous Sandinista government may reassure potential investors. The government's efforts to liberalize trade include a December 1995 decision to stop requiring exporters to bring their foreign exchange earnings into Nicaragua.

On the debt front, the Nicaraguan Government launched a successful debt buyback program in 1995, purchasing 73% of its $1.373 billion commercial debt inherited from previous governments. Progress also occurred on reducing bilateral debt in November 1995 as Nicaragua reached an agreement with Germany, reducing Nicaragua's $616 million debt to the former GDR by 80%. Debt reduction agreements with Paris Club creditors and rescheduling with the US also took place. Unemployment remains a pressing problem, however, with roughly half the country's population unemployed or underemployed.

Because of its key geographic location, Panama's economy is service-based, heavily weighted toward banking, commerce, and tourism. The manufacturing and agriculture sectors have become inefficient under protectionist policies. After fast growth during the early 1990s, the economy has slowed down in the last two years, with GDP growth at 2.8% in 1994 and in 1995. The slowdown has been due mostly to a reduction in construction activities and stagnation in the Colon Free Zone and financial services, the three fastest growing sectors early in the decade.

To counter the slowdown, the PEREZ BALLADARES administration has launched an economic reform program designed to reverse unemployment, attract foreign investment, cut back the size of government, and modernize the economy. In 1995, Panama reached an agreement in principle to reschedule its commercial debt - one of the highest in the world in per capita terms - which will allow the country to reenter international financial markets. Panama should complete all requirements to join the World Trade Organization (WTrO) in 1996.

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. Most food is imported. The newly elected government has undertaken a program designed to revitalize the faltering sugar sector. It is also working to improve revenue collection in order to better fund social programs.

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 Iris in mid-1995 caused the loss of 20% 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. The government has been relatively unsuccessful at introducing new industries, and high unemployment rates of 35%-40% continue. The continuing dependence on a single crop represents the biggest obstacle to the islands' development; tropical storms wiped out substantial portions of crops in both 1994 and 1995.

Trinidad and Tobago's oil- and petrochemical-dependent economy enjoys a high per capita income, although living standards have declined since the boom years of 1973-82. The country managed to record a second successive year of economic growth in 1995, the first period of substantial expansion since the early 1980s. A broad economic reform program, including the floating of the exchange rate, trade and capital market liberalization, and an extensive privatization program by the previous administration has left the incoming PANDAY government in a relatively sound economic position. Trinidad and Tobago's economic prospects continue to depend heavily on world petroleum prices, however, and further progress toward diversification will be an important challenge in the medium term.

The Turks and Caicos economy is based on tourism, fishing, and offshore financial services. Most food for domestic consumption is imported; there is some subsistence farming - mainly corn, cassava, citrus, and beans - on the Caicos Islands. The tourism sector expanded in 1995, posting a 10% increase in the first quarter as compared to the same period in 1994. The US was the leading source of tourists in 1995, accounting for upward of 70% of arrivals or about 60,000 visitors. Major sources of government revenue include fees from offshore financial activities and customs receipts as the Islands rely on imports for nearly all consumption and capital goods.

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 1993-95 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 has been spurred by the remittances of some 20% of the labor force 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 industrial sector ended its five-year, 78% decline in 1995, recording roughly 6% growth.

A sharp fall in chromium prices has 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. Now that sanctions on Serbia have been suspended, the falloff in hard currency earnings from smuggling will aggravate unemployment problems. Growth is expected to continue in 1996, but could falter if workers' remittances from Greece are reduced or foreign assistance declines.

Tourism, the mainstay of Andorra's tiny, well-to-do 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. Andorra's comparative advantage has recently eroded as the economies of neighboring France and Spain have been opened up, providing broader availability of goods and lower tariffs. 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 and is treated as an EU member for trade in manufactured goods (no tariffs) and as a non-EU member for agricultural products.

Austria has a well-developed market economy with a sizable - but falling - proportion of nationalized industry, an extensive social system, and a high standard of living. Austria's economy is closely integrated with Germany and other EU members - Austria joined the EU on 1 January 1995. Since the early 1980s, the Austrian economy has experienced stable growth. Following a mild recession in 1993, Austria's economy - driven by strong exports, investment, and private consumption - expanded 2.7% in 1994 and about 2.4% in 1995.

The slowdown in 1995 was largely due to an appreciation of the Austrian schilling and its negative effect on exports and tourism. EU membership has had a positive impact on foreign investment and has helped to lower inflation. Despite Austria's generally favorable economic prospects, the government faces a number of economic challenges, especially budget consolidation. Smaller than expected revenues and rising welfare payments caused the budget deficit to climb to 7.1% of GDP in 1995.

Austria also faces a growing unemployment problem. Although low by European standards, Austria's unemployment rate has risen gradually during the 1990s as companies restructured to meet competition from the EU single market and Eastern Europe.

At the time of independence in late 1991, Belarus was one of the most developed of the former Soviet states, inheriting a modern - by Soviet standards - machine building sector and robust agricultural sector. However, the breakup of the Soviet Union and its traditional trade ties, as well as the government's failure to embrace market reforms, has resulted in a sharp economic decline. Privatization is virtually nonexistent and the system of state orders and distribution persists.

Although President LUKASHENKO pronounces his 1995 macro stabilization policies a success - annual inflation dropped from 2,220% in 1994 to 244% in 1995 - the IMF has criticized his insistence on maintaining the steady exchange rate for Belarusian rubel, which has traded at 11,500 to the dollar since late 1994. The IMF suspended Minsk's $300 million standby program in November 1995 until the government would agree to a devaluation of the rubel.

The overvalued rubel has especially hurt Belarusian exporters, most of which now operate at a loss. In addition, the January 1995 Customs Union agreement with Russia - which required Minsk to adjust its foreign trade practices to mirror Moscow's - has resulted in higher import tariffs for Belarusian consumers; tariffs have risen from 5%-20% to 20%-40%.

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.

Two-thirds of its trade is with other EU countries. The economy grew at a strong 4% annual pace during the period 1988-90, slowed to 1% in 1991-92, dropped by 1.5% in 1993, and recovered with moderate 2.3% growth in 1994 and 1995. 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.

The bitter interethnic warfare in Bosnia caused production to plummet, unemployment and inflation to soar, and human misery to multiply. No economic statistics for 1992-95 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.

One of the poorest countries of central Europe, Bulgaria has continued the difficult process of moving from its old command economy to a modern, market-oriented economy. GDP rose a moderate 2.4% in 1995; inflation was down sharply; and unemployment fell from an estimated 16% to 12%. Despite this progress, structural reforms necessary to underpin macroeconomic stabilization were not pursued vigorously. Mass privatization of state-owned industry continued to move slowly, although privatization of small-scale industry, particularly in the retail and service sectors, accelerated. The Bulgarian economy will continue to grow in 1996, but economic reforms will remain politically difficult as the population has become weary of the process.

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. Croatia faces considerable economic

problems stemming from:

the legacy of longtime communist mismanagement of the economy; large foreign debt; damage during the internecine 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. Western aid and investment, especially in the tourist and oil industries, would help restore the economy. The government has been successful in some reform efforts including stabilization policies and has normalized relations with creditors. Yet it still is struggling with privatization of large state enterprises and with bank reform. The draft 1996 budget, which had raised concerns about inflation, capitalizes on the "peace dividend" to boost expenditures on the repair and upgrading of infrastructure.

The Czech Republic, which separated from Slovakia on 1 January 1993, emerged from recession with 2.6% growth in 1994 and 5% growth in 1995. Inflation in 1994-95 was cut in half; unemployment was kept at about 3%; the budget was balanced; and exports were reoriented to the EU. 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.

About 80% of the economy is wholly or partially in private hands. Because of its progress on reform, the Czech Republic in 1995 became the first post-Communist member of the OECD. Its solid economic performance also led Standard and Poor's to upgrade the country's sovereign credit rating to "A" and attracted nearly $5.3 billion in direct foreign investment to Czech industry between 1990 and September 1995. The Czech crown became convertible for current account transactions in October 1995.

Czech companies increasingly are using the international capital market to fund capital investment, and foreign currency reserves totaled $13.9 billion at the end of 1995. Prague's biggest macroeconomic concern now is limiting the inflationary effect of these large capital inflows. The Czech economy also still faces microeconomic problems. Prague has promised to strengthen its bankruptcy law and improve the transparency of stock market operations in 1996, but some changes probably will not take effect until some time after the parliamentary elections of mid-1996 and will depend largely on voluntary compliance. Prague forecasts a balanced budget, 5.5% GDP growth, 2.8% unemployment, and 8.1% inflation for 1996.

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 persistently 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; 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. Although unemployment is high, it remains stable compared to most European countries.

Estonia continues to experience strong economic growth after its economy bottomed out in 1993. Bolstered by a widespread national desire to reintegrate into Western Europe, Estonia has adhered to disciplined fiscal and financial policies and has led the FSU countries in pursuing economic reform. Monthly inflation has been held to under 5% since the beginning of 1992, with monthly inflation in 1995 at 2%. Following four years of decline, Estonia's GDP grew 5% in 1994 and 6% in 1995 - among the highest rates in Europe, according to estimates of the IMF and Estonia's own Economic Ministry.

Despite these positive economic indicators, unemployment - 8% in 1994 - is on the rise, and wages - especially for teachers and law enforcement personnel - have not kept pace with inflation. Small- and medium-scale privatization is essentially complete, and large-scale privatization is progressing, but slowly. Estonia has successfully reoriented it trade toward the West, two-thirds of exports now going to Western markets.

Estonia's free trade policies were the cornerstone of its negotiations with the European Union, and led to the signing of an association agreement in June 1995. Estonia was the only Baltic state not to have a transition period imposed by the EU prior to its implementation of a free trade agreement.

The Faroese economy is experiencing a moderate upturn after several years of decline brought on by over-fishing and declining fish prices, large budget deficits by the Faroese Home Rule Government (FHRG), plummeting property values, and a bail-out merger of the two largest Faroese banks. Near-term forecasts suggest continued economic recovery, and oil finds close to the Faroese area may lay the basis for an eventual economic rebound. Aided by a substantial annual subsidy from Denmark, the Faroese have enjoyed a standard of living comparable to the Danes and other Scandinavians.

Finland has a highly industrialized, largely free-market economy, with per capita output equaling that of the UK, France and Italy. 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 four West European trillion-dollar economies, the French economy features considerable - albeit diminishing - state control over its capitalistic market system. In running important industrial segments (railways, airlines, electricity, telecommunications), administrating an exceptionally generous social welfare system, and staffing an enormous bureaucracy, the state spends about 55% of GDP. 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 expanded 2.4% in 1994 and in 1995.

Persistently high unemployment still poses a major problem for the government, as will the need to cut back on welfare benefits and bureaucratic budgets. Paris remains committed to maintaining the franc-deutsche mark parity, which has kept French interest rates high at the expense of jobs. Although the pace of economic and financial integration within the European Union has slowed down, integration will remain a major force in France, shaping the fortunes of the various economic sectors over the next few years.

Germany, the world's third-most powerful economy, faces its own unique problem of bringing its eastern area up to scratch after 45 years of communist rule. Despite substantial progress toward economic integration, the eastern states will continue to rely on subsidies from the federal government into the next century. Assistance to the east of about $100 billion annually has helped the region average nearly 8% annual economic growth since 1991, even though the overall German economy has averaged less than 2% growth.

The economic recovery in the east has been led by the construction industries, with growth increasingly supported by the service sectors and light manufacturing industries. Western Germany, which accounts for 90% of overall German GDP and has three times the per capita income of eastern Germany, is perennially the first- or second-largest exporter, after the US, in the world. Nonetheless, business and political leaders have in recent years become increasingly concerned about Germany's apparent decline in attractiveness as a business location.

They cite the increasing preference of German companies to locate manufacturing facilities - long the strength of the postwar economy - to foreign countries, including the US, rather than in Germany, so they can be closer to their markets and avoid Germany's high production costs. The conditions under which European economic integration - especially movement toward a single European currency - will proceed will be another key issue facing Germany in the next few years.

Gibraltar benefits from an extensive shipping trade and offshore banking. The British military presence has been sharply reduced and now 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. The basic entrepreneurial system underwent extensive socialist change in 1981-89, which enlarged the public sector from 55% of GDP in 1981 to about 70% in 1989. Tourism is a major source of foreign exchange, and agriculture is self-sufficient, except for meat, dairy products, and animal feedstuffs. Despite a moderate recovery in industrial output over the last year, the Greek economy remains weak, with real GDP growth of 1.7%; the country's huge public sector and burgeoning budget deficit are contributing to a public debt of 120% of GDP. The government's hard drachma policy and public sector wage restraint are largely responsible for the downward trend in inflation, which is at the lowest level in 20 years.

Investment is likely to be the primary engine for economic growth in 1996. Athens continues to rely heavily on EU aid, which currently amounts to about 4% of GDP. New Prime Minister SIMITIS's reputation as the architect of Athens' mid-1980s austerity program suggests that he will pursue prudent economic policies that will bring Greece closer to meeting the EU criteria for participating in economic and monetary union. SIMITIS faces strong opposition to further privatization and further austerity.

Financial services account for about 55% 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.

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.

Hungary, probably the most Western-oriented economy in East Europe before the transition to a market system began in 1990, made good progress in the initial years of transition. The reform process slowed in 1993-94, however, in part because of the May 1994 elections and the resulting change in government. By 1994 the privatization of state firms had ground to a halt, while both the budget and current account deficits soared to unsustainable levels - about 8% and 10% of GDP, respectively.

The situation improved sharply in 1995; an austerity program introduced in March reduced both deficits, and a renewed privatization effort later in 1995 resulted in more than $3 billion worth of sales of state firms to foreign investors - money that will be used to reduce Hungary's large foreign debt. As for other macroeconomic developments, real GDP increased 2.9% in 1994 - following several years of steep decline - and about 1.5% in 1995.

Unemployment reached 14% in early 1993 before gradually falling back to 10% in 1995. Inflation has oscillated; it reached 40% in mid-1991, dropped to 17% in early 1994, and then jumped back to 31% by mid-1995. Prospects for 1996 are good. With the government still committed to austerity, both the budget and current account deficits should fall to about 4% of GDP. Economic growth is expected to be about 2% and unemployment at about 10%, with inflation falling to 20% by yearend. In March 1996 the IMF signed a new standby loan agreement with Budapest, and the OECD approved Hungary's application for admission.

The economy is small and trade dependent. Agriculture, once the most important sector, is now dwarfed by industry, which accounts for 38% 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 EU 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. Most raw materials needed by industry and over 75% of energy requirements must be imported.

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 inflationary wage indexation system, and started to scale back its 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 EU.

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's economic transformation to a modern market economy - rivaled only by Estonia among the former Soviet states - faltered in 1995 as a result of banking and budget crises. Latvia's largely unregulated financial sector suffered a series of bank failures, including the collapse of the country's largest commercial bank - Bank Baltija - due largely to criminal activity by the owners. The government's attempts to compensate depositors of failed banks exacerbated an existing budget shortfall; poor revenue collection and a soft treasury bill market had already caused the government to incur a larger than expected deficit early in the year.

As a result of the crises, Latvia's budget deficit for 1995 was $168 million, double that originally planned. In addition, GDP growth came to a halt. The Central Bank maintained its tough monetary policies - severely limiting credits to the state, despite the budget problems - helping to keep annual inflation the lowest among the Baltic states, at about 20%. New Prime Minister SKELE wants to invigorate the privatization of industry; agriculture already is mainly in private hands.

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 the urban areas of its large European neighbors. Low business taxes - the maximum tax rate is 18% - 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 declaring independence in 1990, Lithuania has implemented reforms aimed at eliminating the vestiges of the former socialist system. With the help of the IMF and other international institutions, the government has adopted a disciplined program to restrain inflation, reduce price controls, lower the budget deficit and privatize the economy. Lithuania has embarked on a series of price liberalizations; most price controls have been abolished.

More than two-thirds of its industrial facilities as well as most housing and agricultural enterprises have been privatized, although important "strategic" enterprises have been exempted from privatization - namely energy and telecommunications. While Lithuania has reduced its trade dependence on Russia and other republics of the FSU from 85% in 1991 to about 40% in 1995, Russia remains Lithuania's leading trading partner.

Lithuania has made great strides in reducing its annual rate of inflation - from over 1,100% in 1992 to about 35% in 1995. Production bottomed out in 1994-95. A banking crisis beginning in September, during which central bank reserves dropped one-third, held back growth in 1995. If the government can stay the course on economic reform and fiscal discipline - which may be politically difficult in the election year of 1996 - Lithuania could be set for strong economic growth in the near term.

As for real resources, Lithuania's growth depends largely on its ability to exploit its 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. 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 EU, 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 million tourists visited the island. Per capita GDP of $12,000 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, the economy depends heavily on agriculture, featuring fruits, vegetables, wine, and tobacco. Moldova must import all of its supplies of oil, coal, and natural gas. Energy shortages have contributed to sharp production declines since the breakup of the Soviet Union in 1991. The Moldovan Government has been 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 convertible 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 1996. Published estimates probably overstated the decline in output in 1991-94; the $2,310 per capita figure for GDP thus is a minimum estimate.

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 55% 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, roughly comparable to those in prosperous French metropolitan areas.

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. The end of sanctions on Serbia and the lifting of the Greek embargo on Macedonia have reopened its natural trade corridors, but the country has been slow to capitalize on these opportunities. Moreover, the Former Yugoslav Republic of Macedonia's geographical isolation, technological underdevelopment, and potential political instability place it far down the list of countries of interest to Western investors. An internal commitment to economic reform would encourage foreign investment over the long run.

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 more than 50% of GDP and results in one of the highest average tax burdens in the world (46%). 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. Norway imports more than half its food needs. Economic growth, only 1.6% in 1993, moved up to 5.5% in 1994 and remained strong in 1995. Oslo opted to stay out of the EU during a referendum in November 1994.

In 1995, Poland continued 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. Although real GDP fell sharply in 1990 and 1991, in 1992 Poland became the first country in the region to resume economic growth with a 2.6% increase.

Growth advanced to 3.8% in 1993, 5.2% in 1994, and 6.5% in 1995. Most of the growth since 1991 had come from the booming private sector, which now accounts for about 60% of GDP, due in large part to the creation of new private firms. The slow pace of privatization picked up somewhat in 1995, as 512 smaller state enterprises were transferred to private National Investment Funds under the Mass Privatization Program, but large-scale industry remains largely in state hands.

Industrial production increased 10.2% in 1995, following a 13.2% rise in 1994, yet remains about 13% below the 1989 level. Inflation, which had approached 1,200% annually in early 1990, fell to 21.6% in December 1995, as the government held the 1995 budget deficit to less than 3% of GDP. After peaking at 16.9% in July 1994, unemployment gradually fell to 14.9% in December 1995 - although the rate still approaches 30% in some regions.

The trade and current account balances officially are in deficit but in fact both have comfortable surpluses because of large, unrecorded sales to cross-border visitors. Prospects for 1996 are good, with the government promising to push privatization and social welfare reform. Economic growth should remain above 5%, with inflation dropping below 20% by yearend 1996 and unemployment continuing its slow decline. As for external debt, the burden was sharply reduced by reschedulings and write-offs of both private and official debt during 1991-94.

Portugal's short-term economic fundamentals are strong - the economy grew by 2.8% in 1995, with similar growth expected in 1996 and 1997, and unemployment is among the lowest in the EU. The Socialist government has pledged its dedication both to meeting the Maastricht monetary convergence criteria and to increasing social spending, including provision of a guaranteed minimum income. The government's 1996 budget, passed in March 1996, includes a budget deficit target of 4.2%, to be attained largely through cuts in non-social-service government spending and income from an ambitious privatization program.

As for the long run, Portugal hopes for a steady modernization of its capital plant, its work force, and its infrastructure in order to catch up with the productivity and income levels of the Big Four economies of Western Europe.

Romania, one of the poorer East European countries moving away from the command economy, posted its third straight year of growth in 1995. Bucharest also was successful in reducing its inflation rate to 25% - less than half the 1994 rate - because of tight monetary and fiscal policies, while unemployment fell to 9% as the private sector hired more workers. Despite these successes on the economic front, Romania has lagged much of Central and Eastern Europe in the restructuring process.

The private sector accounted for only 40% of GDP in 1995 with over 90% of industry remaining in state hands. Privatization is slated to pick up in 1996, but Bucharest faces other economic problems that could stall recovery, including a growing budget deficit, limited reform of the agricultural and energy sectors, and accumulated decay of the infrastructure.

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 highly destructive 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. Like the other former Yugoslav republics, it depended on its sister republics for large amounts of 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. 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 $2,000 per capita is extremely rough. The economy is recovering extremely slowly following the suspension of UN sanctions in December 1995.

Since its separation from the Czech Republic on 1 January 1993, Slovakia has continued the difficult transformation from a centrally controlled economy to a modern market-oriented economy. Macroeconomic performance improved steadily in 1994 and 1995 - with 4.8% and 6% growth, respectively. But privatization progressed only in fits and starts. Strong export performance boosted growth in both years, with consumption and investment rebounding.

Unemployment fell to 12.8% in November 1995, the lowest level since mid-1993, and inflation dropped from 26% in 1993 to 7.5% in 1995. The federal government deficit fell from 7% of GDP in 1993 to less than 2% in 1994-95, as growth boosted revenues. Positive international financial performance led Standard & Poor's to raise its rating of the National Bank of Slovakia's foreign currency debt to just one step below investment grade.

The trade and current accounts are both in surplus, and foreign currency reserves held by the central bank have climbed to $3.5 billion. Foreign debt of $4.6 billion - about the same as Romania's - is the lowest in Central and Eastern Europe and the second lowest per capita. Bratislava made the Slovak crown convertible for current account transactions on 1 October 1995. Slovakia continued to have difficulty attracting foreign investment, however, because of perceived political uncertainty and vacillations in privatization policy. The government as well as the OECD projects 5% growth in 1996 and 1997.

Slovenia appears to be making a solid economic recovery, fulfilling the promise it showed at the time of Yugoslavia's breakup. Its per capita GDP is now the highest in Central and Eastern Europe and not far below the levels in the poorer West European countries. Slovenia has benefited from strong ties to Western Europe and suffered comparatively small physical damage during Yugoslavia's breakup. The beginning was difficult, however.

Real GDP fell 15% in 1991-92, while inflation soared to 200% in 1992 and unemployment reached 9%. The turning point came in 1993, when real GDP grew 1%, unemployment leveled off, and inflation slowed dramatically. In 1994, real GDP rose 5.5%, tapering off to an estimated 4.8% in 1995, while inflation and unemployment both were down to about 8% by late 1995. The government gets good marks from foreign observers for fiscal policy - the budget deficit has not exceeded 1% of GDP in any year since 1991, and the current account balance has remained in surplus throughout the transition period, with the exception of 1995.

The Slovene privatization program, which began in 1994, involves about 1,400 firms, but only 412 have been privatized. The rest are expected to reach private hands by end-1996, but that does not include firms in so-called strategic industries, such as telecommunications and energy. Foreign investment jumped to an estimated $150 million in 1995 from $83.7 million in 1994. With inflation and unemployment expected to continue edging down, the outlook for 1996 is generally good. A slowdown in Western Europe - which buys 70% of Slovenia's exports - could hurt exports, however, lowering GDP growth to about 4% and perhaps pushing the current account into a small deficit.

Spain, with a mixed capitalist economy and a per capita GDP two-thirds that of the four leading economies of Western Europe, has shared with these countries the recession of the early 1990s, the gradual upturn of 1994-95, and the ongoing controversies over the timing and terms of European economic union. Reduction of the budget deficit - at 5.9% of GDP in 1995 - to meet the Maastricht monetary convergence criterion of 3% by 1997 remains the primary goal of Spanish economic policy, but political pressures had kept the Socialist government from implementing the full range of reforms necessary to meet this goal.

Spain's official unemployment rate of 23% is the highest in the EU, and the troubled Socialists had been reluctant to cut social spending. Parliament rejected the administration's proposed 1996 budget because of political wrangling - not because of great differences with the substance of the spending plan - forcing the government to continue spending at 1995 levels and use piecemeal decrees to raise consumption taxes to a level consistent with inflation.

The conservative opposition Popular Party, now in power after ending 13 years of Socialist rule in the spring of 1996, has promised to cut government spending, loosen regulations on financial markets, and lower taxes to spur job creation. The conservatives have stated support for Spain's role in the EU but also have cautioned against harming Spain's economy by moving too quickly to meet the criteria for monetary union.

Aided by 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 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 1993, agriculture accounted for only 2% of GDP and 2% of the jobs. In recent years, however, this extraordinarily favorable picture has been clouded by budgetary difficulties, inflation, growing unemployment, and a gradual loss of competitiveness in international markets. In November 1992, Sweden broke its tie to the EC's ECU (European Currency Unit), and depreciation of the krona has boosted export competitiveness and helped lift Sweden out of its 1991-93 recession.

To curb the budget deficit and bolster confidence in the economy, the government adopted an adjustment program in November 1994 that aims to eliminate the government budget deficit and to stabilize the debt to GDP ratio. Sweden has harmonized its economic policies with those of the EU, which it joined at the start of 1995.

Switzerland, a fundamentally prosperous and stable modern economy with a per capita GDP roughly 10% above that of the big West European economies, is experiencing short-term difficulties. After recovering slowly in 1994-95 from recession, the Swiss economy remains weak, mainly because of the strong Swiss franc and weak growth in Swiss export market, especially in other European countries. Over the near term, growth may average barely 1%, with more than one-half of this increase resulting from growth in inventories.

Weak domestic consumer demand is the principal culprit; stagnation in real disposable income is combining with a reluctance to reduce saving rates in the face of an uncertain employment outlook. Switzerland's leading sectors, including financial services, biotechnology, pharmaceuticals, and special-purpose machines, will therefore be more reliant on export markets at the same time they are being squeezed by the strong franc.

Consequently, growth in machinery and equipment investment, for example, is expected to taper off. On the other side, import growth has been fueled by the strong franc; there are growing indications that Swiss manufacturers are substituting imported inputs for domestic ones.

After Russia, the Ukrainian republic was far and away the most important economic component of the former Soviet Union, producing about four 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 policies pushed inflation to hyperinflationary levels in late 1993. Since his election in July 1994, President KUCHMA has developed a comprehensive economic reform program, maintained financial discipline, and removed almost all controls over prices and foreign trade. Implementation of KUCHMA's economic agenda is encountering considerable resistance from parliament, entrenched bureaucrats, and industrial interests. However, should KUCHMA succeed in implementing aggressive market reforms during 1996, the economy may stabilize and possibly achieve real growth in the range of 0.5%-1%.

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 about 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. The economy registered 3.9% GDP growth in 1994, the best rate for six years, but slipped back to 2.7% in 1995.

Exports and manufacturing output have been the primary engines of growth. Unemployment is gradually falling. Inflation is at a tolerable 3%. A major economic policy question for the UK in the 1990s is the terms on which it participates in the financial and economic integration of Europe.

In Bahrain, 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. 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 and prosperous, but highly susceptible to external shocks. Industry contributes 25% to GDP and employs 26% of the labor force, while the service sector contributes 70% to GDP and employs 62% of the labor force. After surging 9.7% in 1992, economic growth slowed to 1.6% 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. However, real GDP picked up in 1994 and 1995, as inflation fell from 4.7% to about 3%. Economic

prospects appear favorable for 1996:

real GDP is likely to grow between 3% and 4%, and inflation is likely to rise slightly to 3.5%-4.5%. 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 and government service, which together employ about half of the work force. Moreover, the small, vulnerable economy has suffered because the Turkish lira is legal tender. Economic growth sharply dropped during 1994 because of the severe economic crisis affecting the mainland, and inflation soared to 215%. To compensate for the economy's weakness, Turkey provides direct and indirect aid to nearly every sector; financial support has risen and now equals in value 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 has depended upon Israel for nearly 90% of its external trade. Aggravating the impact of Israeli military administration, unrest in the territory from 1988 to 1993 (intifadah) raised unemployment and lowered the standard of living of Gazans.

The Persian Gulf crisis and its aftershocks also 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 has brought a new set of adjustment problems. The stringent border restrictions have held back economic growth in 1995 and 1996.

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 or have been reversed 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 85% of Iran's export revenues - are providing less relief to Iran than usual because of reduced oil prices. Iran's financial situation will remain tight in 1996 because the bulk of payments due under its rescheduling agreements in 1993-94 will be coming due.

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; Iraq suffered economic losses of at least $100 billion from the war.

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 1994 and 1995; consumer prices have more than doubled in both 1994 and 1995. 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 for 1994-95 is well below the 1989-90 level, but any estimate has a wide range of error.

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, agriculture, forestry, and fishing 3.5%, and services 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 US, 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 525,000 during the period 1990-95, 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.