Economic overview In 36 editions of 36.

Real global output - gross world product (GWP) - rose an estimated 3.6% in 1996, with the newly industrializing Third World countries again setting the pace. And once more, results varied widely among regions and countries. Average growth of 2.3% in the GDP of industrialized countries (55% of GWP in 1996) and average growth of 6.5% in the GDP of less developed countries (39% of GWP) were partly offset by a 2% drop in the GDP of the former USSR/Eastern Europe area (only 6% of GWP). With the notable exception of Japan at 3%, unemployment was typically 6%-12% in the industrial world.

The US accounted for 21% of GWP in 1996; Western Europe accounted for 20%; 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 and the 15 successor states to the USSR generally made progress in moving toward "market-friendly" economies, but output in Russia and Ukraine continued to fall. 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.)

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 is the second largest gas exporter; and it ranks fourteenth for oil reserves. 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, a robust harvest, and elevated oil prices, the economy experienced a strong recovery and key economic improvements. Recent and planned investments in developing hydrocarbon resources are likely to increase growth and export earnings.

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 about 12% of GDP. Oil production and the supporting activities are vital to the economy, contributing about 50% to GDP. Notwithstanding the signing of a peace accord in November 1994, sporadic violence continues, millions of land mines remain, and many farmers are 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, arable land, and large oil deposits - Angola will need to observe the cease-fire, implement the peace agreement, and reform government policies. Despite the high inflation and political difficulties, total output grew an estimated 9% in 1996, largely due to increased oil production.

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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 1990-95, rose to 5.5% in 1996. Rapid population growth 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 has subsided gradually over the past two years, with 14.5% inflation in 1995 and a target of 4.5% inflation in 1996.

Commercial and transport activities, which make up a large part 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.

Agriculture still provides a livelihood for more than 80% of the population but supplies only about 50% of food needs and accounts for only 4% of GDP. Subsistence farming and cattle raising predominate. The sector is plagued by erratic rainfall and poor soils. Substantial mineral deposits were found in the 1970s and the mining sector grew from 25% of GDP in 1980 to 33% in 1995. The unemployment rate remains a problem at 21%. On the plus side is the substantial positive trade balance.

One of the poorest countries in the world, landlocked Burkina Faso has a high population density and a high population growth rate, few natural resources, and a fragile soil. Over 80% of the population is engaged in subsistence agriculture which is highly vulnerable to variations in rainfall. Industry remains dominated by unprofitable government-controlled corporations. Following the African franc currency devaluation in January 1994 the government updated its development program in conjunction with international agencies, and exports and economic growth have increased.

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 continued to fall in 1996; foods, medicines, and electricity are in extremely short supply. An impoverished and disorganized government can hardly implement the 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 almost 70% of GDP. Although nearly 70% of the population lives in rural areas, the share of agriculture in GNP is only 14%, 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 1997 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 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. Since 1990, the government has embarked on various IMF and World Bank programs designed to spur business investment, increase efficiency in agriculture, improve trade and recapitalize the nation's banks. Political instability, following suspect elections in 1992, has limited the effectiveness of aid programs. Currently, Cameroon receives only minimal assistance from the IMF and the World Bank. Although the 50% devaluation of the currency of 12 January 1994 improved the potential for export growth, mismanagement remains and is the main barrier to economic improvement. The devaluation led to a spurt in inflation to 48% in 1994, but it moderated in 1995-96. 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 16% of export earnings and the diamond industry for nearly 54%. Important constraints to economic development include the CAR's landlocked position, a poor transportation system, a largely unskilled work force, and a legacy of misdirected macroeconomic policies.

The 50% devaluation of the currencies of 14 Francophone African nations on 12 January 1994 had mixed effects on the CAR's economy. Diamond, timber, coffee, and cotton exports increased, leading an estimated rise of GDP of 7% in 1994 and nearly 5% in 1995. Inflation, however, remains a problem. Moreover, ongoing violence between the government and rebel military and civilian groups over pay issues, living conditions, and opposition party political representation has destroyed many businesses in the capital, reducing tax revenues for the government, and delaying negotiations for an IMF financial aid agreement.

Unfavorable 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. About 85% 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 food 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 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; inflation fell to 9% in 1995 but it remains high compared with other Francophone countries. In one favorable development, Chad in December 1996 concluded an agreement with ESSO/Chad (EXXON) for drilling and extracting petroleum at Doba. Oil will be piped through Cameroon for export.

One of the world's poorest countries, Comoros is made up of three islands that have inadequate 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 nearly 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 the bulk 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, to promote tourism, 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.

The economy of Democratic Republic of the Congo has continued to disintegrate, although former Prime Minister KENGO had had some success in slowing the rate of economic decline. While meaningful economic figures are difficult to come by, the high rate of inflation, chronic large government deficits, and plunging mineral production have made it one of the world's poorest countries. 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.

During the bitter civil strive of 1996-97 most individuals and families have hung on grimly through subsistence farming and petty trade. The new KABILA government will be hard pressed to meet its financial obligations to the IMF or to put in place the financial measures advocated by it. Improved political stability would boost the country's long-term potential to effectively exploit its vast mineral and agricultural resources.

The 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 the government 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 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 but inflation has subsided since. Recent efforts to implement economic reforms have begun to show progress; the government and the IMF signed an aid agreement in mid-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, it is still largely dependent on agriculture and related activities, which engage roughly 85% of the population. 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, limited 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 8% by 1996, in part as the economy adjusted to the devaluation. Moreover, government adherence to donor-mandated reforms led to a jump in growth rates - 6.5% in GDP in 1996.

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 40% to 50% 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). Faced with a multitude of economic difficulties, the government has fallen in arrears on long term external debt and has been struggling to meet the stipulations of foreign aid donors.

By the end of the 1980s Egypt - hit by the collapse of the world oil market and servicing a foreign debt totaling about $50 billion - faced crises in virtually all economic sectors. Problems of low productivity and poor economic management were compounded by the adverse social effects of large population growth rates, high inflation, and massive urban overcrowding. In the face of these pressures, in 1991, Egypt undertook wide-ranging macroeconomic stabilization and structural reform measures.

This reform effort has been supported by three successive IMF arrangements, the last of which was concluded in October 1996. Egypt's reform efforts - and its participation in the Gulf war coalition - also led to massive debt relief under the Paris Club arrangements. Egypt's foreign debt fell to about $31 billion at yearend 1996. Although the pace of reform has been uneven and slower than envisaged under the IMF programs, substantial progress has been made in improving macroeconomic performance - budget deficits have been slashed while foreign reserves in 1996 were at an all-time high - and in moving toward a more decentralized, market-oriented economy.

Egypt was able to capitalize on its progress during the third Middle East/North Africa economic conference which it hosted in November 1996. Egypt's President MUBARAK told reporters that Egypt had concluded deals worth $10 billion in investment during the conference, 20 times the country's estimated total direct foreign investment for the 1995/96 fiscal year. According to press reports, Egypt and foreign investors agreed on nine megaprojects, including the export of liquefied natural gas from Egypt to Turkey, estimated at $2 billion to $4 billion.

Egypt has a broad-based inventory of geographic, human, and physical assets which in a liberalized market environment could spur rapid, sustainable growth into the next century. But rapid population growth continues to cast a shadow over economic prospects.

Farming, forestry, and fishing account for about half of GDP. 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 and has contributed to Equatorial Guinea's strong growth rates in the early 1990s. The country responded favorably to the devaluation of the CFA franc in January 1994.

With independence from Ethiopia on 27 April 1993, Eritrea faced the bitter economic problems of a small, desperately poor African country. Most of the population must continue to depend on subsistence farming. Domestic output (GDP) is substantially augmented by worker remittances from abroad. Government revenues come from custom duties and income and sales taxes. Road construction is a top domestic priority. Shortages persist in housing, education, and health care.

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. Ethiopia is largely dependent on Eritrean ports for its foreign commerce.

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 have cut world demand for asbestos. Exports of soft drink concentrate, sugar and wood pulp 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 nearly 90% of its imports and to which it sends more than half of its exports. Remittances from Swazi workers in South African mines supplement domestically earned income by as much as 20%. The government is trying to improve the atmosphere for foreign investment. Overgrazing, soil depletion, and drought persist as problems for the future.

Ethiopia continues to face difficult economic problems as one of the poorest and least developed countries in the world. Its economy is based on agriculture, which accounts for more than 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 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 1991 and Gabon continues to face 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 6% in 1996.

The IMF provided a one-year standby arrangement in 1994-95 and a three-year Enhanced Financing Facility (EFF) at near commercial rates beginning in late 1995. Those agreements mandate progress in privatization and fiscal discipline. France provided additional financial support in January 1997 after Gabon had met IMF targets for mid-1996.

The Gambia has no important mineral or other natural resources and has a limited agricultural base. About 75% of the population depends on crops and livestock for its livelihood. Small-scale manufacturing activity features the processing of peanuts, fish, and hides. Reexport trade normally constitutes a major segment of economic activity, but the 50% devaluation of the CFA franc in January 1994 made Senegalese goods more competitive and hurt the reexport trade.

The Gambia has benefited from a rebound in tourism in 1996 after its decline in response to the military's takeover in July 1994. Short-run economic progress remains highly dependent on sustained bilateral and multilateral aid and on government willingness to reduce intervention in market processes.

Well endowed with natural resources, Ghana has twice the per capita output of the poorer countries in West Africa. Even so, Ghana remains heavily dependent on international financial and technical assistance. Ghana has made steady progress in liberalizing its economy since 1983. Overall growth continued at a rate of approximately 5% in 1995 and 1996, 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. In 1995-96, Ghana has made mixed progress under a three-year structural adjustment program in cooperation with the IMF. On the minus side, public sector wage increases, regional peacekeeping commitments, and the containment of internal unrest in the underdeveloped north have led to continued 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 and is the second largest bauxite producer. The mining sector accounted for about 75% of exports in 1995. Long run improvements in government fiscal arrangements, literacy, and the legal framework are needed if the country is to move out of poverty. Except in the mining industry, foreign investment remains minimal.

Guinea-Bissau ranks among the poorest countries in the world. Farming and fishing are the main economic activities. Cashew nuts, peanuts, palm kernels, and fish are the primary exports. Exploitation of known mineral deposits is unlikely at present because of a weak infrastructure and the high cost of development. Although Guinea-Bissau won an IMF Enhanced Structural Adjustment Facility in 1996, recent political instability and overspending have undermined the progress of economic reform and delayed disbursements of donor aid.

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Since 1993, the government of Kenya has implemented a program of economic liberalization and reform. Steps have included the removal of import licensing and price controls, removal of foreign exchange controls, fiscal and monetary restraint, and reduction of the public sector through privatization of publicly owned companies and downsizing the civil service. With the support of the World Bank, IMF, and other donors, these reforms have led to a turnaround in economic performance following a period of negative growth in the early 1990s.

Kenya's real GDP grew at 5% in 1995 and 4% in 1996, and inflation remained under control. Substantial barriers to growth and development remain, including electricity shortages, the government's continued and inefficient dominance of key sectors, endemic corruption, and the country's high population growth rate (which has declined substantially in recent years).

Small, landlocked, and mountainous, Lesotho has no important natural resources other than water. Its economy is based on agriculture, light manufacturing, and remittances from miners employed in South Africa. The number of such mine workers has declined steadily over the past five years; in 1996 their remittances added about 33% to GDP compared with the addition of roughly 67% in 1990. 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, completion of a major hydropower facility will permit the sale of water to South Africa and will support the economy's continued expansion. The pace of the privatization of state-owned firms increased toward the end of 1994.

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 and economic instability - including the stripping of resources by local warlords - threatens prospects for reconstruction as well as the repatriation of an estimated 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 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 suffers 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 33% of GDP and contributing more than 70% to export earnings. Industry features the processing of agricultural products and textile manufacturing.

Growth in output in 1992-95 averaged only 1.4%, less than half the growth rate of the population. Growth has been held back by antigovernment strikes and demonstrations, a decline in world coffee demand, and the erratic commitment of the government to economic reform. Formidable obstacles stand in the way of Madagascar's realizing its considerable growth potential; the extent of government reforms, outside financial aid, and foreign investment will be key determinants.

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 45% 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.

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 farming and fishing. Industrial activity is concentrated on processing farm commodities. Mali is heavily dependent on foreign aid and vulnerable to fluctuations in world prices for cotton, its main export.

Nonetheless the government has successfully implemented an IMF-recommended structural adjustment program that is helping the economy grow, diversify, and attract foreign investment. Mali's adherence to economic reform, and the 50% devaluation of the African Franc in January 1994, has pushed up economic growth. Several multinational corporations increased gold mining operations in 1996 and the government projects that Mali will become a major Sub-Saharan gold exporter in the next few years.

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 a middle income diversified economy with growing industrial, financial services, 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 25% 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 1991-96 continued strong with solid 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 manageable 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 dirham is now fully convertible for current account transactions; reforms of the financial sector have been implemented; and 43 state enterprises have been privatized.

Drought conditions in three of the last four years have depressed activity in the key agricultural sector, holding down exports and contributing to a 7.5% contraction in real GDP in 1995. Favorable rainfall in 1996 nurtured a record wheat crop and contributed to the 9% overall growth. Servicing the large external debt, preparing the economy for freer trade with the European Union, and finding jobs for Morocco's youthful population remain long-term problems.

One of Africa's poorest countries, Mozambique has failed to exploit the economic potential of its sizable agricultural, hydropower, and transportation resources. Agricultural output is at only 75% of its 1981 level, and grain has to be imported. Industry operates at only 20%-40% of capacity. Foreign assistance programs supply the foreign exchange required to pay for imports of goods and services. The peace accord, signed in October 1992, has improved Mozambique's prospects.

The restoration of electrical transmission lines to South Africa and the completion of a new transmission line to Zimbabwe (permitting the giant Cahora Bassa hydropower plant to export large amounts of electricity), proposed construction of a natural gas pipeline to South Africa, and reform of transportation services will greatly improve foreign exchange receipts. The Mozambique and South African governments are developing the Maputo corridor, linking the port of Maputo with Witbank, South Africa.

In the past few years, more than 500 state enterprises have been privatized, including the country's largest commercial bank and a number of sizable manufacturing firms. Other pending reform measures are the privatization of customs operations, the reform of tax collection, and the facilitation of private enterprise in the transportation, energy, and telecommunications sectors.

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. Half of the population depends on agriculture (largely subsistence agriculture) for its livelihood. Namibia must import some of its food.

Niger is a poor, landlocked Sub-Saharan nation, whose recent GDP growth has barely matched 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. 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 US terminated bilateral assistance to Niger after the coup of 1996. Other donors have reduced their aid.

The oil-rich Nigerian economy continues to be hobbled by political instability, corruption, and poor macroeconomic management. Nigeria's unpopular military rulers have failed to make significant progress in diversifying the economy away from overdependence on the capital intensive oil sector which provides half of GDP, 95% of 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 and the discouragement of investors.

The government's resistance to initiating greater transparency and accountability in managing the country's multibillion dollar oil earnings continues 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. Agricultural production in 1996 suffered from severe shortages of fertilizer.

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 exports. The amount of fertile land is limited, however, and deforestation and soil erosion continue to reduce the production potential. Manufacturing focuses mainly on the processing of agricultural products. 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 took 500,000 lives in that year alone and severely damaged already poor economic prospects. Sketchy data suggest that GDP dropped 50% in 1994 and came back partially, by 25%, in 1995.

Plentiful rains helped agriculture in 1996, and outside aid continued to support this desperately poor economy. The economy continues to suffer massively from failure to maintain the infrastructure, looting, neglect of important cash crops, and lack of health care facilities. Because of the accumulated damage to capital plant and the decline in public discipline, recovery of domestic production will proceed 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 become increasingly dependent on cocoa since independence over 20 years ago. However, cocoa production has substantially declined because of drought and mismanagement. The resulting shortage of cocoa for export has created a persistent balance-of-payments problem. Sao Tome has to import all fuels, most manufactured goods, consumer goods, and a significant amount of food. Over the years, it 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, but economic growth has remained sluggish.

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 which took place on 12 January of that year. After years of foot-dragging, the government 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 tax and resource base, environmental degradation, and untamed growth of the population will continue to hold back improvement in living standards over the medium term. According to the draft budget, GDP will again rise by 5% in 1997.

Since independence in 1976, per capita output in this Indian Ocean archipelago 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 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 hamper economic development. 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.

Despite the efforts of South Africa's first majority-run government, income inequality remains among the world's most extreme. 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, lack of job skills, and bleak living conditions.

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 standards, 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 at least 5% 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 kept per capita income at low levels.

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 1996. Hyperinflation has raised consumer prices above the reach of most. Popular unrest erupted several times in 1996 in reaction to unpopular government economic decisions.

Tanzania is one of the poorest countries in the world. The economy is heavily dependent on agriculture, which accounts for 57% of GDP, provides 85% of exports, and employs 90% of the work force. Topography and climatic conditions, however, limit cultivated crops to only 4% of the land area. Industry accounts for 17% 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 1991-96 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 both commercial and 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.

no economic activity

Tunisia has a diverse economy, with important agricultural, mining, energy, tourism, and manufacturing sectors. Detailed governmental control of economic affairs has gradually lessened over the past decade with increasing privatization of trade and commerce, simplification of the tax structure, and a cautious approach to debt. Real growth has averaged 4.5% in 1991-96, and inflation has been moderate. Growth in tourism and increased trade have been key elements in this solid record.

Agricultural production accounted for a major portion of growth in GDP in 1996, growth having been adversely affected by drought in 1995. Further privatization, the attraction of increased foreign investment, and improvements in government 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 progress in privatization and budgetary reform, Zambia's economy has a long way to go. Inflation, while slowing somewhat, continues to be a major concern to the CHILUBA government. 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. Aid cuts by Zambia's donors, arising out of concern for the November 1996 flawed election, will severely damage Zambia's economic prospects. Urged by the World Bank, Zambia has embarked on a privatization program which is to include the all-important copper industry.

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.

no economic activity; declared a nature reserve

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.

no economic activity

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 suffered negative economic growth in the early 1990s, but since 1993 the economy has improved. Nonetheless, prospects for substantial economic growth in the near future are poor. The Greenland Home Rule Government (GHRG) has pursued a light fiscal policy since the late 1980s which has helped create surpluses in the public budget and low inflation. Since 1990, Greenland has registered a foreign trade deficit following the closure of the last remaining lead and zinc mine in 1989.

Greenland today is critically dependent on fishing and fish exports; the shrimp fishery is by far the largest income earner. Despite resumption of several interesting hydrocarbon and minerals exploration activities, it will take several years before production can materialize. Tourism is the only sector offering any near term potential and even this is limited due to a short season and high costs. The public sector, including publicly owned enterprises and the municipalities, plays the dominant role in Greenland's economy. About half the government revenues come from grants from the Danish Government, an important supplement of GDP.

Iceland's Scandinavian-type economy is basically capitalistic, yet with an extensive welfare system, low unemployment, and remarkably even distribution of income. The economy depends heavily on the fishing industry, which provides 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 remains sensitive to declining fish stocks as well as to drops in 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 remains opposed to 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 and livestock raising (sheep and goats). Economic considerations have played second fiddle to political and military upheavals during more than 17 years of war, including the nearly 10-year Soviet military occupation (which ended 15 February 1989). During the war one-third of the population fled the country, with Pakistan and Iran sheltering a combined peak of more than 6 million refugees.

Now, only 750,000 registered Afghan refugees remain in Pakistan and about 1.2 million in Iran. Another 1 million have probably moved into and around urban areas within Afghanistan. Gross domestic product has fallen substantially over the past 17 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 medical care. Inflation remains a serious problem throughout the country, with one estimate putting the rate at 240% in Kabul in 1996. Numerical data are likely to be either unavailable or unreliable.

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. Since the implosion of the USSR in December 1991, Armenia has switched to small-scale agriculture away from the large agroindustrial complexes of the Soviet area. The privatization of industry has been at a much slower pace.

Armenia is a food importer and its mineral deposits (gold, bauxite) are small. The ongoing conflict with Azerbaijan over the ethnic Armenian-dominated region of Nagorno-Karabakh and the embargoes imposed by Azerbaijan and Turkey contributed to a severe economic decline in the early 1990s. By 1994, however, the Armenian Government had launched an ambitious IMF-sponsored economic program that has resulted in positive growth rates in 1995 and 1996.

Armenia also managed to slash inflation and to privatize most small and medium-sized enterprises. The chronic energy shortages Armenia suffered in recent years has been partially offset by the energy supplied by one of its nuclear power plants at Metsamor, which in 1996 supplied about 40% of the country's energy needs, according to the Armenian Government. Moreover, Armenia is expanding its energy imports from Iran.

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 are slowly being replaced. A major short-term obstacle to economic progress, including stepped up foreign investment, is the continuing conflict with Armenia over the ethnic Armenian-dominated region of Nagorno-Karabakh. Trade with Russia and the other former Soviet republics is declining in importance while trade is building up with the nations of Europe, Turkey, Iran and the UAE.

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 largely 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 slow implementation of economic reforms.

Frequent strikes that crippled the economy in 1995 and early 1996 subsided after Prime Minister Sheikh Hasina WAJED's Awami League government assumed power in mid-1996, allowing a return to normal economic activity. The current government has made some headway improving the climate for foreign investors and liberalizing the capital markets; for example, it has negotiated with foreign firms for oil and gas exploration, better countrywide distribution of cooking gas, and the construction of natural gas pipelines and power plants. Progress on other economic reforms has been halting because of opposition from the bureaucracy, public sector unions, and other vested interest groups.

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 40% 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 quadrupling of GDP since 1978. 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 helped spur output of both domestic and export goods. 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 1992-96 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 1995-96 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 corruption 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 and many of which have been losing the ability to pay full wages and pensions.

From 60 to 100 million surplus rural workers are adrift between the villages and the cities, many subsisting through part-time low-paying 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 maintaining growth in living standards. Another long-term threat 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.

China continues to lose arable land because of erosion and economic development; furthermore, the regime gives insufficient priority to agricultural research. The next few years will witness increasing tensions between a highly centralized political system and an increasingly decentralized economic system. Rapid economic growth likely will continue but at a declining rate.

Georgia's economy has traditionally revolved around Black Sea tourism; cultivation of citrus fruits, tea, and grapes; mining of manganese and copper; and output of 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. Despite the severe damage the economy has suffered due to civil strife, Georgia, with the help of the IMF and World Bank, has made substantial economic gains in 1995-96, pushing GDP growth and slashing inflation.

Georgia had been suffering from acute energy shortages, although energy deliveries improved in 1996. Georgia is pinning its hopes for long-term recovery on the development of an international transportation corridor through the key Black Sea ports of P'ot'i and Bat'umi. The decision in 1996 to construct an early Caspian oil pipeline through Georgia underscores the viability of such a corridor and may spur greater western investment in the economy. A growing trade deficit and political uncertainties cloud the short-term economic picture.

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. A large share of the population, perhaps as much as 40%, remains too poor to afford an adequate diet. The policy in the 1980s of fueling economic growth through high government expenditure proved unsustainable, however, and in the wake of an international payments crisis in 1991 India has been transforming its semi-socialist, insular economy into a more open, market-oriented economy.

Production, trade, and investment reforms since 1991 have provided new opportunities for Indian businesspersons and an estimated 200 million plus middle class consumers. New Delhi has stimulated exports, attracted foreign investment, and revived confidence in India's economic prospects. GDP growth exceeded 6% in 1995 and in 1996. Most of the country's external fundamentals - including the current account balance and reserves (now about $19 billion) - are healthy.

Even so, the Indian Government needs to restore the early momentum of reform, especially by continuing reductions in the extensive remaining government regulations. The government will also have to deal with rising government expenditures and higher debt servicing which could create a debt trap by the turn of the century. Even if a series of weak coalition governments come to power in the next few years and are 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, its well-developed legal system, and its large middle class.

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 real economic growth had been

spectacular:

a 10% average in the 1960s, a 5% average in the 1970s, and a 4% average in the 1980s. Growth slowed considerably 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. Growth picked up in 1996, largely a reflection of stimulative fiscal and monetary policies as well as low rates of inflation and social disorder. As a result of the expansionary fiscal policies and declining tax revenues due to the recession, Japan currently has one of the largest budget deficits as a percent of GDP among the industrialized countries. The crowding of habitable land area and the aging of the population are two other 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. In 1995-96 the pace of the government program of economic reform and privatization quickened, resulting in a substantial shifting of assets into the private sector. The December 1996 signing of the Caspian Pipeline Consortium agreement to build a new pipeline from Kazakstan's western Tengiz oil field to the Black Sea increases prospects for substantially larger oil exports in several years. The emigration of large numbers of skilled Slavic managers and technicians from the northern industrial areas will hold back future growth.

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 1989-96 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, systemic inefficiencies, a cumbersome distribution system, and extensive floods in 1995-96 have resulted in recurring food shortages. Substantial grain shipments from Japan and South Korea are offsetting 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 eight times India's, 15 times North Korea's, and already up with the lesser economies of the European Union. This success has been achieved by a unique system of guidance by an authoritarian government of what is essentially an 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, moved back up to 8% in 1994 and 9% in 1995, and about 7% in 1996. 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.

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 lowered inflation from 88% in 1994 to 32% for 1996, attention is turning toward stimulating growth.

Much of the government's stock in enterprises has been sold. Drops in production have been severe since the break up of the Soviet Union in December 1991, but by mid-1995 production began to recover and exports began to increase. Pensioners, unemployed workers, and government workers with salaries arrears continue to suffer. Foreign assistance plays a substantial role in the country's budget. In 1996 the economy showed strong signs that recovery was underway.

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.

The new government has embraced free-market economics, freezing spending, easing price controls, liberalizing domestic and international trade. Mongolia's severe climate, scattered population, and wide expanses of unproductive land, however, 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.

The dramatic drop in the price of copper which accounts for half of the country's export earnings, has held back economic growth. The Mongolian leadership also 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 with about 60% of the population living below the poverty line. Agriculture is the mainstay of the economy, providing a livelihood for over 80% of the population and accounting for more than 40% of GDP. Industrial activity is limited, mainly involving the processing of agricultural produce including jute, sugarcane, tobacco, and grain. Production of textiles and carpets has expanded recently and accounted for about 80% of foreign exchange earnings in the past two years.

Apart from agricultural land and forests, exploitable natural resources are mica, hydropower, and tourism. Agricultural production is growing about 5% on average as compared with annual population growth of 2.5%. 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 expenditures by reducing subsidies, privatizing state industries, and laying off civil servants. The government made some progress in 1996, signing trade agreements with countries including India, and attracting substantial foreign investment in hydropower. Prospects for foreign trade and investment in areas besides hydropower and tourism will continue to remain poor because of the small size of the economy, its technological backwardness, its remoteness, and its landlocked geographic location highly susceptible to natural disaster. The international community provides funding for more than 60% of Nepal's development budget and more than 30% 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 international markets. Even though GDP growth has remained strong, at roughly 5% annually, international confidence in Prime Minister Benazir BHUTTO's government declined in 1996. The IMF suspended a Standby Agreement in the spring; foreign investment declined; and the budget and trade deficits rose substantially.

In October 1996, BHUTTO responded to IMF pressure to implement reforms, devaluing the rupee by about 8% and raising petroleum prices in an attempt to slow the drain on foreign exchange reserves. But Islamabad still failed to meet IMF revenue and borrowing targets. Pakistan's interim government - in power since President LEGHARI sacked BHUTTO on 5 November 1996 - agreed to slash the budget deficit, push down bank borrowing, implement an agricultural tax; and speed up reforms in the financial sector; accordingly, the Standby Agreement was reinstated in December 1996 and a tranche of $80 million released; but Pakistan fell out of compliance in February 1997. For the long run, Pakistan must deal with serious problems of deteriorating infrastructure, low literacy levels, and persistent sectarian and political violence.

Russia, a vast country with a wealth of natural resources, a well-educated population, and a diverse, but declining, industrial base, continues to experience formidable difficulties in moving from its old centrally planned economy to a modern market economy. Most of 1996 was a lost year for economic reforms, with government officials focused in the first half of the year on President YEL'TSIN's reelection and then on his medical problems.

The only major success was in the fight against inflation, which fell from 131% in 1995 to 22% in 1996. Russia failed to make any progress in restructuring its social welfare programs to target the most needy - among whom are many of the old pensioners - or to pass needed tax reform. While approximately 75% of industry has now been privatized, the agricultural sector has undergone little reform since the break-up of the Soviet Union.

Stockholder rights remain weak while crime and corruption are rampant in much of the economy. Many enterprises continue to operate without hard budget constraints, resulting in barter trade and increased inter-enterprise debts. According to official statistics, the Russian economy declined for the fifth straight year since the beginning of reforms, with GDP in 1996 falling by 6% and industrial output by 5%. The true size of the Russian economy remains controversial, however, with estimates of unreported economic activity ranging from 20%-50% of GDP. Indeed, according to Russian statistics, the Russian consumer has seen a small improvement in the last several years, with real average incomes growing by about 8% from early 1993 to late 1996.

The share of the Russian population living below the poverty line is said to have dropped from one-third in early 1993 to one-fifth in late 1996. Few Russians lack basic necessities, and ownership of consumer goods such as VCRs and automobiles has increased markedly. The growth of wage and pension arrears slowed in the second half of 1996, and the government pledged to clear all budget-funded wage and pension arrears by the end of 1997.

The government continued to be plagued with tax collection problems during 1996, forcing it to cut its planned spending by 18%. A crackdown on major tax debtors at the end of the year had only limited success. Spending by all levels of government remains high, between 40%-45% of GDP. The economy is continuing its integration into world markets. Russia's trade surplus, after adjustment for unreported "shuttle" trade, grew to a record $28.5 billion in 1996, according to official Russian statistics.

Export growth, which slowed from 18% to 9%, was due mostly to increased raw material prices. After increasing by 15% in 1995, imports dipped by 2% in 1996 as Russian demand for Western consumer goods slackened. Russia is continuing to make progress in its WTrO negotiations; the government has made quick accession one of its major policy goals. The continued unsettled economic and political situation has discouraged foreign investment, which totaled only $6.5 billion in 1996, including $2.1 billion in direct investment; furthermore, capital flight continues to exceed in volume the inflow of foreign capital.

The central bank estimates that $30 billion in US currency circulates in the Russian economy. In March 1997, YEL'TSIN signaled his intention to restart stalled economic reforms by reorganizing the cabinet, bringing in a new team of ministers with strong reform credentials.

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 1991-95 as domestic conditions began to improve and conditions for foreign investment brightened. In 1996, however, a drought, slow economic reform, and civil war exacted a heavy economic toll.

Insufficient monsoon rains caused power cuts that hurt industrial and agricultural production, and the stepped-up Tamil insurgency reduced foreign investment and tourism - two key sources of foreign exchange. Meanwhile, Colombo's counterinsurgency efforts caused defense expenditures to overshoot budget targets by 42%. In 1997, agricultural production should recover from the effects of last year's drought, but industry will still be hampered by high real interest rates, slow improvement in foreign investment inflows, and stalled progress on privatization.

The government's main challenge this year will be to curb defense and social welfare spending to cut the budget deficit as a percentage of GDP in half by 1998, as stipulated in its deficit reduction program.

Tajikistan had the next-to-lowest per capita GDP in the former USSR, the highest rate of population growth, an extremely low standard of living, and rampant inflation. 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 from Moscow and of 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 made initial efforts to stabilize the economy and promote reform in 1996.

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 possesses 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 recovered slightly in 1996, but high inflation continued. 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.

In 1996, the government set in place a stabilization program aimed at a unified and market-based exchange rate, allocation of government credits by auction, and strict limits on budget deficits. Privatization goals remain limited. Turkmenistan is working hard to open new gas export channels through Iran and Turkey to Europe, 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 areas of the former Soviet Union with more than 60% of its population living in overpopulated rural communities. Uzbekistan is now 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 in December 1991, 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, slightly 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 bring about much-needed structural changes. The IMF suspended Uzbekistan's $185 million standby arrangement in late 1996 because of governmental steps that made impossible fulfillment of Fund conditions.

Anguilla has few natural resources, and the economy depends heavily on high-class tourism, offshore banking, lobster fishing, and remittances from emigrants. Output growth had averaged about 7% in recent years, mainly as a result of a 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 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 were expected to increase in 1996 due to storm damage to crops in Florida. Overall growth prospects in the short run 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 had been dependent on sugarcane cultivation and related activities, but in recent years the production has diversified into manufacturing and tourism. The start of the Port Charles Marina project in Speightstown helped the tourism industry continue to expand in 1996. The industry generated $331.8 million by the end of June and was expected to double by the end of the year. Prime Minister Owen ARTHUR called for "prudent" financial management to ensure that economic growth would continue.

As part of his plan, the Prime Minister introduced a controversial Value Added Tax (VAT) in an effort to reform the tax administration process. The VAT will be administered at 15% for most industries and 7% for the tourism industry. The government has also continued its efforts to promote regional integration initiatives, to reduce the unacceptably high unemployment rate, and to encourage direct foreign investment.

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 20% 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; 28,000 foreign companies do business with the 600 registered banks and trust companies; banking assets exceed $500 billion. 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 and again in 1996. 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. Poverty has been substantially reduced over the past 15 years, and a strong social safety net has been put in place. Recent trends, however, have been disappointing. Economic growth slipped from 4.3% in 1994 to 2.5% in 1995, and to 0.9% in 1996. Inflation rose to 22.5% in 1995 from 13.5% in 1994, then dropped back to 13.9% in 1996.

Unemployment appears moderate at little more than 5% but substantial underemployment continues. Furthermore, substantial government deficits have undermined efforts to maintain the quality of social services. The

government thus faces a formidable set of problems:

to curb inflation, reduce the deficit, encourage domestic savings, and improve public sector efficiency while increasing the role of the private sector, all this in harmony with IMF agreements.

The state plays the primary role in the economy and controls practically all foreign trade. The government has undertaken several reforms in recent years to stem excess liquidity, increase labor incentives, and alleviate serious shortages of food, consumer goods, and services. The liberalized agricultural markets introduced in October 1994, at which state and private farmers sell above-quota production at unrestricted prices, have broadened legal consumption alternatives and reduced black market prices.

Government efforts to lower subsidies to unprofitable enterprises and to shrink the money supply caused the peso's black market value to move from a peak of 120 to the dollar in the summer of 1994 to a low of 18-20 to the dollar in late September before climbing to 20-21 at the end of 1996. New taxes helped drive down the number of legally registered self-employed workers from 208,000 in January 1996 to 180,000 by December.

Havana announced in 1995 that GDP declined by 35% during 1989-1993, the result of lost Soviet aid and domestic inefficiencies. The drop in GDP apparently halted in 1994, when Cuba reported a 0.7% growth. Government officials claimed that GDP increased by 2.5% in 1995 and 7.8% in 1996. Export earnings rose an estimated 40% in 1996 to $2.1 billion, largely on the strength of increased sugar shipments to Russia and higher nickel production through a joint venture with a Canadian firm. With the economic recovery, imports rose for the second straight year, growing by an estimated 26% to $3.5 billion. Living standards for the average Cuban, however, have not improved significantly.

The economy is dependent on agriculture and thus is highly vulnerable to climatic conditions, notably tropical storms. Agriculture, primarily bananas, accounts for 26% of GDP and employs 40% of the labor force. Development of the tourist industry remains difficult because of the rugged coastline, lack of beaches, 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 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 strong GDP growth in 1995-96. In 1996, there was increased mineral and petroleum exploration, and a new investment law that allows for repatriation of capital dividends has drawn more investment to the island. Upon coming to power in August 1996, President FERNANDEZ nevertheless inherited a trouble-ridden economy hampered by a pressured peso, a large external debt, nearly bankrupt state-owned enterprises, and a manufacturing sector hindered by daily power outages.

In December, FERNANDEZ presented a bold economic reform package - including such reforms as the devaluation of the peso, income tax cuts, a 50% increase in sales taxes, reduced import tariffs, and increased gasoline prices - in an attempt to create a market-oriented economy that can compete internationally. The legislature, however, has been slow to act on several of the economic measures.

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 agriculturally based economy was hurt in 1996 by the emergence of the pink mealy bug which destroyed much of the cocoa harvest. Bananas, a major foreign exchange earner, also suffered due to falling prices, low production, and poor quality. Tourism, the leading foreign exchange earner, continued to do well, as did manufacturing. Construction boomed in 1996 due to concessions for low and middle income mortgages. The government introduced a 5% tax on electricity and telephones and doubled the general consumption tax, which caused a small rise in the inflation rate. The tourist industry faces stiff competition over the next few years.

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 and construction, predominantly in private hands, account for about 20% of GDP and 18% 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; growth receded to 3% in 1996. 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 little or no job creation since President PREVAL took office in February 1996. Failure to reach agreements with international sponsors have denied Haiti badly needed budget and development assistance. Meeting aid conditions in 1997 will be especially challenging in the face of mounting popular criticism of reforms.

Honduras is one of the poorest countries in the Western Hemisphere. Agriculture employs nearly two-thirds of the labor force and produces two-thirds of exports. Productivity remains low. Manufacturing, mining, and construction account for 30 % of GDP and generate 20% of exports. Basic problems include rapid population growth, high underemployment, 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.

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 to 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.

The economy of this volcanic island 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.

Volcanic activity 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. These disruptions, compounded by hurricanes, caused production in 1995 to drop precipitously. The likely slow recovery of tourism and the continued danger of an eruption dimmed the prospects for rapid recovery in 1996.

no economic activity

Tourism, petroleum transshipment, 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 reduced inflation and obtained 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 dropped to roughly 11% in 1994-96.

Economic growth rose sharply in 1995-96, thanks to surges in most export categories. 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 1996 as Nicaragua reached an agreement with Russia, reducing Nicaragua's debt by $3.3 billion. Debt reduction agreements with Paris Club creditors and rescheduling with Latin American creditors also took place. Unemployment remains a pressing problem, however, with roughly half the country's work force unemployed or underemployed.

Because of its key geographic location, Panama's economy is service-based, heavily weighted toward banking, commerce, and tourism. Panama's former protectionist policies have taken their toll, and the economy has been sluggish the last two years, with GDP growth at 1.9% in 1995 and 1.5% in 1996. Although tourism and the Panama Canal posted growth in 1996, most sectors remained stagnant, and some, like the Colon Free Zone, banana and shrimp exports, and construction, were down from 1995.

Although the PEREZ BALLADARES administration has advanced an economic reform program designed to liberalize the trade regime, attract foreign investment, privatize state-owned enterprises, institute fiscal reform, and encourage job-creation through labor code reform, the positive effects of this program have not yet been felt at the macroeconomic level. In 1996, the government concluded a Brady-type plan to restructure the country's commercial debt - one of the highest in the world in per capita terms - allowing it to reenter international financial markets. Panama also completed all requirements to join the World Trade Organization (WTrO) and is awaiting legislative ratification to become a full member.

Puerto Rico has one of the most dynamic economies in the Caribbean region. A diverse industrial sector has surpassed agriculture as the primary locus 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. 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 assumed 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 further expanding tourism, manufacturing, and construction.

Agriculture, dominated by banana production, is the most important sector of this lower middle income 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. The tourism sector has considerable potential for development over the next decade.

Trinidad and Tobago has earned a reputation as an excellent investment site for international businesses. Successful economic reforms implemented in 1995 are expected to bring an average growth rate of 2% over the next three years, and foreign investment and trade are flourishing. Unemployment - a main cause of the country's socio-economic problems - is high, but has decreased to its lowest point in five years. The country enjoys a healthy trade surplus of $500 million, yet its heavy dependence on oil and petrochemical prices makes its trade balance vulnerable to sudden shifts. Furthermore, Caricom, Trinidad and Tobago's main market, is saturated, provoking some countries to establish non-tariff trade barriers.

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 number of US tourists in the first five months of 1996 was down by 55% from the same period in 1995, the lingering result of the fierce hurricanes of 1995. Unemployment rose sharply in 1996. 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. A major economic problem at the beginning of 1997 was the more than $1 billion in governmental arrears, in income tax refunds, payments to vendors, and overdue wages.

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. However, a weakening of government resolve to maintain stabilization policies in the election year of 1996 contributed to renewal of inflationary pressures, spurred by the budget deficit which exceeded 12%. The collapse of financial pyramid schemes in early 1997 - which had attracted deposits from a substantial portion of Albania's adult population - triggered unrest in much of the south in early 1997.

The economy continues to be buoyed by 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. Most agricultural land was privatized in 1992, substantially improving peasant incomes. Overall economic performance is likely to be substantially worse in 1997; inflation will easily top 50% and GDP may drop by 5% or more.

Tourism, the mainstay of Andorra's tiny, well-to-do economy, accounts for roughly 80% of GDP. An estimated 10 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 safety net, 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. EU membership has had a positive impact on foreign investment and has helped to lower inflation.

In April 1996, the government passed a two-year austerity budget - including cuts in social allowances, a freeze on civil servants' wages, and new energy and capital gains taxes - designed to bring the economy in line with the Maastricht criteria for membership in the European Economic and Monetary Union (EMU). EMU convergence has become a top priority for Austria. Despite Austria's generally favorable prospects, the economy faces a number of medium-term challenges; for example, fiscal tightening is constraining expected growth, and unemployment is expected to increase.

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 in December 1991, 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 exchange rate policies and suspended Minsk's $300 million standby program in November 1995. The overvalued ruble 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 rose from 5%-20% to 20%-40%. In general, as of the beginning of 1997, Belarus has badly lagged in moving away from the old centrally planned policies of the former USSR.

This highly developed 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, recovered with moderate 2.3% growth in 1994 and 1995, and fell off again to 1.4% in 1996, with continued substantial unemployment. 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 by perhaps 90% since 1990, unemployment to soar, and human misery to multiply. No reliable economic statistics for 1992-96 are available, although output almost certainly is well below $1,000 per head. In the Federation, unemployment remains in the 40%-50% range and inflation is low. By contrast, growth in the Republika Srpska in 1996 was flat and inflation surpassed 30%. The country receives substantial amounts of humanitarian aid from the international community. Wide regional differences in war damage and access to the outside world have resulted in substantial variations in living conditions among local areas.

One of the poorest countries of central Europe, Bulgaria has slowly continued the process of moving from its old command economy towards a market-oriented economy. Slow advancement on economic reforms pitched the economy into crisis in 1996, marked by a banking system in turmoil, a depreciating currency, inflation of 311% and contracting production and foreign trade. Foreign exchange reserves dwindled to extremely low levels ($518 million), while dramatically hiked interest rates added to the domestic debt burden and stifled growth.

GDP fell by 10% in 1996, after experiencing 2.6% growth in 1995. Privatization of state-owned industries stagnated, although the first auction of a mass privatization program was undertaken in late 1996. Lagging progress on structural reforms led to postponement of IMF disbursements under a $580 million standby loan agreed to in July. In November 1996, the IMF proposed a currency board as Bulgaria's best chance to restore confidence in the lev, eliminate discretionary spending, and avoid hyperinflation.

The government has pledged to sell some of the country's most attractive state assets to the highest foreign bidders in 1997. The Bulgarian economy is projected to have another year of negative growth (minus 5%), and inflation near 700% in 1997, assuming introduction of a currency board in July of 1997.

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; 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.

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 - partially macroeconomic stabilization policies - and it has normalized relations with its creditors. Yet it still is struggling with privatization of large state enterprises and with bank reform. The draft 1997 budget boosts expenditures on the repair and upgrading of infrastructure. In 1996, the substantial trade deficit was partially offset by increased earnings from tourism.

Western observers view the Czech Republic as one of the most politically and economically stable post-Communist states. Its key macroeconomic indicators are, in the aggregate, the best in the region, and public opinion polls show strong support for reform. The country emerged from recession in 1994 with 2.6% growth and reached about 5% growth in both 1995 and 1996 while keeping a balanced budget and reorienting exports to the EU. Inflation and unemployment of 8.7% and 3.3% respectively in 1996 are among the lowest in the region.

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 in private hands or is partially privatized. The Czech Republic appears to be the East European frontrunner in economic integration with the West; for example, in 1996 it began to strengthen its bankruptcy law and to improve the transparency of stock market operations.

It was the first post-Communist member of the OECD and is expected to be in the next group of new EU members. Its solid economic performance has led Standard and Poor's to upgrade the country's sovereign credit rating to "A" and has attracted over $6.7 billion in direct foreign investment to Czech industry between 1990 and September 1996 - one quarter from the US. Prague's biggest macroeconomic concerns now are mounting trade and current account deficits.

In addition, the Czech economy still faces transition problems. The government continues to exert too much direct and indirect influence on the privatized economy, and the management of privatized firms sometimes is ineffective. Insufficient regulation and lack of public information in the capital markets and the banking system, combined with a shortage of experienced financial analysts, limit the ability to distribute new credit efficiently.

The judicial system also has trouble speedily processing bankruptcy cases. Prague has promised to overhaul its bankruptcy law and improve stock market and bank operations, but it will take years to ensure compliance. Prague forecasts a balanced budget, 4.5% GDP growth, 3.3% unemployment and 7.5% to 8% inflation for 1997.

This thoroughly modern market 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 a net exporter of food. The 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.

The coalition also vows to maintain a stable currency. The coalition has lowered marginal income taxes while maintaining overall tax revenues; boosted industrial competitiveness through labor market and tax reforms and increased research and development funds; and improved welfare services for the neediest while cutting paperwork and delays. Prime Minister RASMUSSEN's reforms 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). Denmark is, in fact, one of the few EU countries likely to fit into the EMU on time.

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 2% in 1995-96. Following four years of decline, Estonia's GDP grew at 3% in 1995 and 1996.

Despite these positive economic indicators, the current account deficit is widening. The resident IMF representative in Estonia has been worried since early 1996 about a rising public sector deficit boosted by local government spending. Small- and medium-scale privatization is essentially complete, and large-scale privatization is progressing gradually. In 1996, Estonia's national airline was privatized; in 1997 Estonia plans to privatize large infrastructure, i.e., Eesti Energia, Tallinn Port, Estonian Telecom, and Oil Shale.

Estonia has successfully reoriented its 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 in 1995 and 1996 saw a noticeable upturn after several years of decline brought on by a drop in fish catches and declining prices and by over-spending by the Faroese Home Rule Government (FHRG). In the early 1990s, property values plummeted, and the FHRG had to bail out and merge the two largest Faroese banks. Fishing is now improving; wage costs are increasing; the FHRG's budget is almost in balance; and the large foreign debt has come down significantly.

Nevertheless, the total dependence on fishing makes the Faroese economy extremely vulnerable, and the reduction in the foreign debt is at the cost of low investment. Oil finds close to the Faroese area give hope for deposits in the immediate Faroese area, which may lay the basis for an eventual economic rebound. Aided by a substantial annual subsidy from Denmark, the Faroese have 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 has come back from the recession of 1990-92, which had 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 Finns voted in an October 1994 referendum to enter the EU, and Finland officially joined the Union on 1 January 1995. Attempts to cut the unacceptably high rate of unemployment and 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 state control over its capitalistic market system. In running important industrial segments (railways, airlines, electricity, telecommunications), administering 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 but at only 1.3% in 1996.

Persistently high unemployment still poses a major problem for the government, as will the need to cut back on government spending to keep the economy internationally competitive and enable France to qualify for European Economic and Monetary Union, slated to introduce a common European currency in January 1999. The government also has laid plans to sell off much of its stake in the telecommunications and defense industries in 1997 as part of its bid to make domestic companies more competitive with foreign rivals. However, the socialist victory at the polls in June 1997 casts doubt on France's future policy toward economic union and privatization of domestic economic activity.

Germany, the world's third-most powerful economy, is gearing up for the European Economic and Monetary Union in 1999. One key economic priority is meeting the Maastricht criteria for entry into EMU, a goal complicated by record unemployment and stagnating growth. The government has implemented an austerity budget in its attempt to get the deficit down to 3% of GDP as required by Maastricht, but further cuts probably will be necessary and there is little consensus among the parties or elites about next steps toward that end.

In recent years business and political leaders have become increasingly concerned about Germany's apparent decline in attractiveness as a business location. They cite the increasing preference of German companies to locate new manufacturing facilities - long the strength of the postwar economy - in foreign countries, including the US, rather than in Germany, so they can be closer to their markets and avoid Germany's high taxes and labor costs.

At the same time, Germany 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 the annual subsidy of approximately $100 billion from the western part into the next century. Assistance from the west helped the east to average nearly 8% annual economic growth in 1992-95, even though the overall German economy had averaged less than 2% growth; growth in the east, however, tumbled to 2% in 1996, with unemployment a particularly severe problem.

Gibraltar benefits from an extensive shipping trade, offshore banking, and its position as an international conference center. 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 with the public sector accounting for roughly half of GDP. Tourism is a major source of foreign exchange, and agriculture is self-sufficient, except for meat, dairy products, and animal feedstuffs. Macroeconomic problems include mediocre GDP growth, the huge public sector, substantial budget deficits, and 10% unemployment. The government's hard drachma policy and public sector wage restraint are largely responsible for the downward trend in inflation, now at the lowest level in 22 years.

Investment is likely to be the primary engine for economic growth in 1997. Athens continues to rely heavily on EU aid, which currently amounts to about 4% of GDP. Despite widespread protests from unions and farmers, Prime Minister SIMITIS presented a tough 1997 budget to help 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. Plans to increase defense spending could undermine SIMITIS's goal to curb government expenditures.

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 had the most Western-oriented economy in East Europe before the transition to a market system began in 1990, and Budapest 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 the year resulted in more than $3 billion worth of sales of state firms to foreign investors - money used mostly to reduce Hungary's large foreign debt. Real GDP increased 2.9% in 1994 - following several years of steep decline - and about 1.5% in 1995 and only 0.5% in 1996. Unemployment reached 14% in early 1993 before gradually falling back to 11% in 1996. Inflation has oscillated; it reached 40% in mid-1991, dropped to 17% in early 1994, jumped back to 31% by mid-1995, and settled at 20% in 1996. Prospects for 1997 and 1998 are good compared with the situation earlier. Most forecasters expect 2% to 3% GDP growth in 1997 and slightly higher growth in 1998. Inflation and unemployment are edging down. With the government still committed to reform, both the budget and current account deficits are at IMF target levels - about 4% of GDP. Budapest also is making good progress in restructuring the pension, health, tax, education, and other systems as part of the effort to decrease the role of government. This dramatic shift in economic policy was rewarded in 1996 by the IMF, which finally signed the standby agreement Budapest had sought, and by the OECD, which welcomed Hungary as a member.

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 26% 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. Since the 1980s, 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.

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. This basically capitalistic economy is still divided into a developed industrial north, dominated by private companies, and a less developed agricultural south, with 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.

In November 1996 the lire rejoined the European monetary system, which it had left in September 1992 when under extreme pressure in currency markets. Italy in early 1997 faces the problem of restructuring its economy to meet Maastricht criteria for inclusion in the EMU, together with other problems of refurbishing a tottering communications system, curbing industrial pollution, and adjusting to new EU and global competitive forces.

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.

In the five years following the implosion of the USSR in December 1991, the Latvian economy has made substantial progress toward establishing a modern market economy and widening economic ties with the West. Two major long-term concerns are the growing trade deficit and the impact of organized crime. The economy in 1996 has largely recovered from the mid-1995 collapse of several commercial banks - including Latvia's large bank, Bank Baltija - and a severe government budget crisis.

Prime Minister SKELE has stated that he expects the country's GDP to grow 5% in 1997 through the implementation of the government's new economic reform program. In December 1996, the government passed a balanced 1997 budget - its first - that SKELE predicts will reduce inflation to 10% to 12% in 1997. Unemployment, which has held steady at about 6% over the past two years, reached roughly 7.5% in 1996. One of SKELE's key objectives for 1997 is to speed up the privatization program, which has lagged behind other areas of reform.

Despite its small size and limited natural resources, Liechtenstein has developed into a prosperous, highly industrialized, free-enterprise economy with a vital financial service sector and living standards on a 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. It imports more than 90% of its energy requirements. Liechtenstein is a member of the European Economic Area (an organization serving as a bridge between EFTA and EU) since May 1995. The government is working to harmonize its economic policies with those of an integrated Europe.

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, abolish most price controls, lower the budget deficit, and privatize the economy. More than two-thirds of its industrial facilities as well as most housing and agricultural enterprises have been privatized.

Although some important "strategic" enterprises remain exempt from privatization, the new government has outlined plans to privatize large companies dealing with transport, pipelines, communications, and energy. 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 and 13.1% in 1996.

Although the government tried to stay the course on economic reform and fiscal discipline in 1996, the new government, which took office in 1996 inherited high debts for energy supplies. 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 low unemployment. Agriculture is based on small family-owned farms. The industrial sector, until recently dominated by steel, has become increasingly more diversified. During the past decades, 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. The economy is dependent on foreign trade, industry (especially electronics and textiles), and tourism; the state-owned Malta drydocks employs about 3,800 people. In 1995, over 1.1 million tourists visited the island. Per capita GDP of $12,600 places Malta in the range of the less affluent EU countries. The island is divided politically over the question of joining the EU.

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, largely from Russia. Energy shortages contributed to sharp production declines after the breakup of the Soviet Union in 1991. The Moldovan Government has recently been making progress on an ambitious economic reform agenda, and the IMF has called Moldova a model for the region.

As part of its reform efforts, Moldova 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. With the election of President LUCINSCHI in December 1996, it is unclear how rapidly the reforms will be pushed.

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. Industrial activity features food-processing, oil-refining, and metalworking. 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. Sharp cuts in subsidy and social security spending have been accompanied by sustained growth in output and employment. The Dutch will almost certainly qualify for the first wave of countries entering the Economic and Monetary Union (EMU) in 1999.

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. The economy slowly rebounded in 1996 after years of recession. Continued recovery depends on Macedonia's ability to redevelop trade ties with Greece and Serbia and Montenegro; as well as on Skopje's continued commitment to economic liberalization.

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.

Norway is a prosperous bastion of welfare capitalism. The economy consists of 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 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 levels 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. Only Saudi Arabia exports more oil than Norway. Norway imports more than half its food needs. Economic growth, only 1.6% in 1993, has improved steadily over the past few years, resulting in a budget surplus in 1996. Oslo opted to stay out of the EU during a referendum in November 1994.

Despite their high per capita income - outstripped among major nations only by the US - and their generous welfare benefits, the Norwegians worry about that time in the 21st century when the oil and gas run out.

In 1996, Poland continued to make good progress in the difficult transition to a market economy. The transition 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, 6.5% in 1995, and 6.0% in 1996. Most of the growth since 1991 has come from the booming private sector, which now accounts for more than 60% of GDP, attributable mostly to the creation of new private firms. Large-scale industry still remains largely in state hands. 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.

The government has promised to extend privatization and social welfare reform and to maintain fiscal and monetary discipline. As for external debt, the burden was sharply reduced by reschedulings and write-offs of both private and official debt during 1991-95.

Portugal's short-term economic fundamentals remain

strong:

the economy has grown by more than 2% during the past two years, with similar growth expected in 1997. The Socialist government's primary economic goal is to place Portugal in the first group of countries adopting the single European currency, and it has instituted a disciplined 1997 budget to bolster Lisbon's chances. Portuguese government forecasts suggest that it is likely to meet partially the Maastricht monetary convergence criteria by lowering its budget deficit from 4% of GDP in 1996 to 2.9% in 1997, although the government predicts that government debt will be cut only to 68% of GDP, overshooting Maastricht's 60% target. Social programs - a priority for the Socialists - will still grow slightly faster than GDP in 1997, mandating strict budget discipline in other areas. As for the long run, Portugal is increasing its infrastructure spending - much of it in anticipation of hosting the world's International Exposition in 1998 - while working to modernize its capital plant and increase competitiveness in hopes of increasing Portugal's GDP, which remains below 65% of the EU's average GDP per capita.

Romania, one of the poorer countries in Central and Eastern Europe, began the transition from Communism with a largely obsolete industrial base and a pattern of output unsuited to the country's needs. Over the past seven years, economic restructuring has lagged behind most other countries in the region. Consequently, economic performance is declining, with slowing GDP growth, ballooning budget deficits, accelerating inflation, a plunging exchange rate, and anemic foreign investment.

Unemployment was low at about 6% at the end of 1996, but the rate will rise when restructuring gets underway. A new government elected in November 1996 promises to accelerate economic reform, restructuring, and privatization, introduce fiscal and monetary austerity, reduce the state's role in the economy, and open Romania to foreign investment. The government will tackle its formidable economic problems in two stages, with an emergency plan over the winter of 1996/97 to ensure social and political stability, followed by a radical structural reform program over its remaining three-and-one-half years aimed eventually at EU accession.

At the same time, it wants to keep campaign promises to increase benefits to disadvantaged groups. Bucharest hopes to receive financial and technical assistance from international financial institutions and western governments and negotiations over a new IMF standby agreement are underway. If reform stalls, however, Romania's bond rating - just below investment grade - could fall and needed capital from both public and private sources could quickly dry up. Rich agricultural and oil resources are strengths for the future.

The tourist sector contributes over 50% of GDP. In 1995 more than 3.3 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. Output in Serbia and Montenegro dropped by half in 1992-93. Like the other former Yugoslav republics, it had depended on its sister republics for large amounts of energy 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 1995. Reliable statistics are hard to come by; the GDP estimate is extremely rough. The economic boom anticipated by the government after the suspension of UN sanctions in December 1995 failed to materialize in 1996 and early 1997, exacerbating the regime's financial problems.

Since the establishment of the Slovak 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 1994-96, but privatization progressed only in fits and starts. Strong export performance boosted GDP growth to 4.8% in 1994 after a four-year decline. GDP surged to 7.4% growth in 1995 and should be only slightly less in 1996, the fastest growth in Central and Eastern Europe.

Unemployment fell to about 12% in 1996 and inflation dropped from 26% in 1993 to 5.5% in 1996, the lowest in the region. Foreign debt of $4.6 billion also is the lowest in the region and the second lowest per capita. Private activity now makes up roughly two-thirds of GDP. Positive international financial performance has 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.

Although Slovak economic performance continues to be impressive, many warning signs of possible danger ahead have been raised. Aggregate demand has surged in the form of increased personal and government consumption. At the same time that the budget deficit is growing, the money supply has been rapidly increasing, which could apply upward pressure on inflation. The trade and current account deficits both are mounting as imports soar and exports sag.

Perhaps most troubling, Slovakia continues to have difficulty attracting foreign investment because of perceived political problems and halting progress on restructuring and privatization. The government projects 6.4% growth in 1997 and 5% in 1998. Continuing economic recovery in western Europe should boost exports and production, but Slovakia's image with foreign creditors and investors could suffer setbacks in 1997 if progress on privatization and restructuring stalls.

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 comparable to 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. 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 3.5% in 1995 and an estimated 3% in 1996. 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 1995-96.

The Slovene privatization program, which began in 1994, involves about 1,400 firms, but less than half have been privatized. Growth in the near term depends largely on economic revitalization in Western Europe which buys 70% of Slovenia's exports. Slovenia itself must press on with privatization, restructuring, the encouragement of foreign investment, and the maintenance of a stable tolar.

Spain's mixed capitalist economy supports a GDP three-fourths that of the four leading West European economies. Its center-right government has staked much on gaining admission to the first group of countries to implement the European single currency by developing an austere 1997 budget - including a wage freeze for public-sector employees - in hopes of meeting the Maastricht monetary convergence criteria. The government slashed spending by $1.6 billion in mid-1996 to ensure that Spain's deficit did not exceed its target of 4.4% of GDP for the year; the government forecasts a deficit of 3% for 1997.

The AZNAR administration advocates liberalization, privatization, and deregulation of the economy, and has introduced some tax reforms to that end. Unemployment, nevertheless, remains the highest in the EU at about 22%, but the government, for political reasons, has made only limited progress in changing labor laws or reforming pension schemes, which are key to the sustainability of Spain's economic advances.

Aided by peace and neutrality for the whole twentieth century, 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.

Agriculture accounts 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. 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 continued economic difficulties. GDP has dropped for five consecutive quarters, unemployment is reaching record levels, and the fiscal deficit is again above 3% of GDP. In 1997, growth may reach barely 0.6%; a recovery is not likely before mid to late 1997.

Weak domestic consumer demand is partly at fault; declining 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 in 1997 also is likely to be lower than the 1995 rate of 6.6%, but higher than 1996's expected 1.9%.

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. Shortly after the implosion of the USSR in December 1991, 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.

Output in 1992-96 fell precipitously to less than half the 1991 level. Loose monetary policies pushed inflation to hyperinflationary levels in late 1993. Since his election in July 1994, President KUCHMA has pushed a comprehensive economic reform program, maintained financial discipline, and tried to remove almost all remaining controls over prices and foreign trade. Implementation of KUCHMA's economic agenda is encountering considerable resistance from parliament, entrenched bureaucrats, and industrial interests. However, if KUCHMA succeeds in implementing aggressive market reforms during 1997, the economy should reverse its downward trend, with real growth occurring by late 1997 and into 1998.

The UK is one of the world's great trading powers and financial centers, and its essentially capitalistic economy ranks among the four largest in Western Europe. Over the past 17 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; 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 and 2.4% in 1996.

Exports and manufacturing output have been the primary engines of growth. Unemployment is gradually falling. Inflation is a comfortable 2.6%. A major economic policy question for the UK in the late 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 60% 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.

Construction proceeds on several major industrial projects. 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 23% to GDP and employs 25% of the labor force, while the service sector contributes 72% to GDP and employs 62% of the labor force. Erratic growth rates in the 1990s reflect the economy's vulnerability to swings in tourist arrivals (caused by fluctuations in political and economic conditions in Western Europe and the Middle East) and the need for structural changes in the economy.

One bright spot has been the low rate of inflation. In 1996 Cyprus fully satisfied all the Maastricht convergence criteria. 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. To compensate for the economy's weakness, Turkey provides direct and indirect aid to nearly every sector. In January 1997, Turkey signed a $250 million economic cooperation accord with the Turkish Cypriot area to support tourism, education, and industry.

Economic progress in the Gaza Strip has been hampered by tight Israeli security restrictions. 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. The Persian Gulf crisis and its aftershocks has dealt blows to Gaza since August 1990.

Worker remittances from the Gulf states have dropped, unemployment and popular unrest have increased, and living standards have fallen. The withdrawal of Israel from the Gaza Strip in May 1994 has added to the set of adjustment problems. This series of disruptions has meant a sharp decline in employment in Israel since 1991 and a drop in GDP as a whole. An estimated 378,000 persons were in refugee camps in 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. Under President RAFSANJANI, the government adopted a number of market reforms to reduce the state's role in the economy, but most of these changes have moved slowly or have been reversed because of political opposition. In the early 1990s, Iran experienced a financial crisis caused by an import surge that began in 1989 and general financial mismanagement.

In 1993-1994, Iran rescheduled $15 billion in debt, with the bulk of payments due in 1996-97. The strong oil market in 1996 has helped ease financial pressures, however, and Tehran has so far made timely debt service payments. In 1996, Iran's oil earnings - which account for 85% of total export revenues - climbed 20% from the previous year. Iran's financial situation will remain tight through the end of the decade, and continued timely debt service payments will depend, in part, on persistent strong oil prices during the next few years.

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 are at 25% of the prewar level following the implementation of UN Security Council Resolution 986 in December 1996. Shortages of spare parts continue. 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 could 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 accord with a UN resolution Iraq agreed to an oil-for-food deal in 1996, under which it would export $2 billion worth of oil in exchange for badly needed food and medicine. The first oil was pumped in December 1996, and the first supplies of food and medicine should arrive in March 1997. Per capita output for 1995-96 and living standards are well below the 1989-90 level, but any estimates have 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. Manufacturing and construction employ about 29% 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 sizable 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 750,000 during the period 1989-96, initially 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.