Economic overview In 36 editions of 36.

Real global output-gross world product (GWP)-rose an estimated 4.0% in 1997. And, once more, results varied widely among regions and countries. With its solid 3.8% growth, the US again accounted for 21% of GWP in 1997. Western Europe grew at 2.5%, not enough to cut into its high unemployment, and accounted for another 21% of GWP. Japan's faltering economy grew at only 0.9% with its share of GWP at 8%. The advanced countries as a whole accounted for an estimated 53% of GWP, with overall growth at 3.0%. The 15 former Soviet republics and the countries of Eastern Europe posted growth of 1.8%, reversing the long downturn that followed the collapse of communism.

Growth varied widely among these countries, e.g., Ukraine at a negative 3.2%, Russia at a positive 0.4%, and the Baltic countries at a strong 7%. The area as a whole accounted for 5% of global output. China and India, with a combined population of 2.2 billion or 37% of the world total, grew at 8.8% and 5%, respectively. (China's official GDP statistics probably are overstated.) The developing countries as a whole contributed 42% to GWP with an overall growth rate of 5.7%. 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 more than 80 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.

Toward the end of 1997 and on into 1998, serious financial difficulties in several high-growth East Asia countries cast a shadow over short-term global economic prospects. The introduction of the euro as the common currency of much of Western Europe in January 1999 will pose serious economic risks because of varying levels of income and cultural and political differences among the participating nations. (For specific economic developments in each country of the world in 1997, 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; 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.

Burdened with a heavy foreign debt, Algiers concluded a one-year standby arrangement with the IMF in April 1994 and the following year signed onto a three-year extended fund facility. Progress on economic reform, a Paris Club debt rescheduling in 1995, and oil and gas sector expansion have contributed to a recovery since 1995. Investments in developing hydrocarbon resources are likely to maintain growth and export earnings.

Continuing but gradual government efforts to attract foreign and domestic investment outside that sector seek to diversify the economy and tackle problems of high unemployment and falling living standards, problems as yet untouched by the macroeconomic turnaround.

Angola is an economy in disarray because of more than 20 years of nearly continuous warfare. Despite its abundant natural resources, output per capita is among the world's lowest. Subsistence agriculture provides the main livelihood for 85% of the population. 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-gold, diamonds, extensive forests, Atlantic fisheries, arable land, and large oil deposits-Angola will need to 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 and higher oil prices.

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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% during 1990-95, rose to 5.5% in 1996 and was targeted at 4.8% for 1997. 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 over the past three years, with a target of 3.5% inflation in 1997.

Commercial and transport activities, which make up a large part of GDP, are extremely vulnerable to developments in Nigeria, particularly fuel shortages. 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. Diamond mining and tourism also are important to the economy. 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 35% in 1997. Unemployment officially is 21% but unofficial estimates place it closer to 40%. 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, 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. Foods, medicines, and electricity remain in 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 birth rate. 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 GDP in 1995 was only 8%, of which fishing accounts for 1.5%. 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 foreign aid and remittances from emigrants; remittances constitute a supplement to GDP of more than 20%. 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 1998 depend heavily on the maintenance of aid flows, remittances, and the momentum of the government's development program.

Because of its 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 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:

petroleum, coffee, and cocoa. 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. The government, however, failed to press forward vigorously with these programs. The latest enhanced structural adjustment agreement was signed in October 1997; the parties hope this will prove more successful, yet government mismanagement remains a problem. Inflation, which rose to 48% after the devaluation of 1994, has been brought back under control. Progress toward privatization of remaining state industry remains slow. President BIYA's new government of December 1997 has replaced old hands in the government economic control structure with promising technocrats.

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. Military rebellions and social unrest in 1996 were accompanied by widespread destruction of property and a drop in GDP of 1%. Ongoing violence between the government and rebel military groups over pay issues, living conditions, and political representation has destroyed many businesses in the capital, reduced tax revenues for the government, and delayed negotiations for an IMF financial aid agreement.

Landlocked Chad's economic development suffers from it's geographic remoteness, drought, lack of infrastructure, and political turmoil. About 85% of the population depends on agriculture, including the herding of livestock. Of Africa's Francophone countries, Chad benefited least from the 50% devaluation of their currencies in January 1994. Financial aid from the World Bank, the African Development Fund, and other sources is directed largely at the improvement of agriculture, especially livestock production. Lack of financing, however, is stalling the development of a southern oil field and the construction of a proposed oil pipeline through Cameroon.

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 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 maintained in the late 1990s.

The economy of Democratic Republic of the Congo-a nation endowed with vast potential wealth-has declined significantly since the mid-1980s. The new government has instituted a tight fiscal policy that has curbed inflation and currency depreciation. Plans are underway to introduce a new national currency. Most formal transactions are conducted in hard currency but a barter economy flourishes in all but the largest cities.

Most individuals and families survive through subsistence farming or petty trade. International investors show renewed interest, especially in the mining and telecommunications sectors. However, poor infrastructure, an uncertain legal framework, corruption and lack of transparency in government economic policy remain a brake on investment and growth. A number of IMF and World Bank missions have met with the new government to help it develop a coherent economic plan.

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. Economic reform efforts continue with the support of international organizations, notably the World Bank and the IMF.

Cote d'Ivoire is among the world's largest producers and exporters of coffee, cocoa beans, and palm oil. Consequently, the economy is highly sensitive to fluctuations in international prices for these products 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 26% in 1994, but the rate fell to 7% in 1996 and an estimated 3.4% in 1997. Moreover, government adherence to donor-mandated reforms led to a jump in growth rates-6.5% in GDP in 1996 and again in 1997.

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 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 seven 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.

At the end of the 1980s, Egypt faced problems of low productivity and poor economic management, compounded by the adverse social effects of excessive population growth, 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. 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 1997 were at an all-time high. And Egypt has been moving toward a more decentralized, market-oriented economy.

These economic reforms and growing investment opportunities have prompted increasing foreign investment, but incoming capital has largely been concentrated in stock market portfolio flows. Egypt's economy also has been hit by a sharp downturn in tourism-a key foreign exchange and job producing sector-following the 17 November 1997 massacre of foreign tourists at Luxor. Although Egypt will probably regain these revenues over time, the slump in tourism is likely to slow the GDP growth rate in 1998.

The discovery and exploitation of large oil reserves have contributed to dramatic economic growth in recent years. Farming, forestry, and fishing are also major components 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. 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. The economy is largely based on subsistence agriculture, with over 70% of the population involved in farming and herding. The small industrial sector consists mainly of light industries with outmoded technologies. Domestic output (GDP) is substantially augmented by worker remittances from abroad.

Government revenues come from custom duties and taxes on income and sales. Road construction is a top domestic priority. Eritrea has inherited the entire coastline of Ethiopia and has long-term prospects for revenues from the development of offshore oil fields, offshore fishing, and tourism. Eritrea's economic future depends on its ability to master fundamental social and economic problems, e.g., overcoming illiteracy, promoting job creation, expanding technical training, attracting foreign investment, and streamlining the bureaucracy.

In this small landlocked economy, subsistence agriculture 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 remains 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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Gabon enjoys a per capita income four times that of most nations of sub-Saharan Africa. This has supported a sharp decline in extreme poverty but because of high income inequality a large proportion of the population remains poor. Gabon depended on timber and manganese until oil was discovered offshore in the early 1970s. The oil sector now accounts for 50% of GDP. Gabon continues to face fluctuating prices for its oil, timber, manganese, and uranium exports.

Despite the 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. In 1997, an IMF mission to Gabon chastened the government for overspending on off-budget items, overborrowing from the central bank, and slipping on its schedule for privatization and administrative reform (such as reduced public sector employment and salary growth).

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 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 responsible government economic management.

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. Gold, timber, and cocoa production are major sources of foreign exchange. The domestic economy continues to revolve around subsistence agriculture, which accounts for 41% of GDP and employs 60% of the work force, mainly small landholders.

In 1995-97, Ghana made mixed progress under a three-year structural adjustment program in cooperation with the IMF. On the minus side, public sector wage increases and regional peacekeeping commitments have led to continued inflationary deficit financing, depreciation of the cedi, and rising public discontent with Ghana's austerity measures.

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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. The government made encouraging progress in budget management in 1997. Except in the mining industry, foreign investment remains minimal.

One of the 20 poorest countries in the world, Guinea-Bissau depends mainly on farming and fishing. Cashew crops have increased remarkably in recent years, and the country now ranks sixth in cashew production. Guinea-Bissau exports fish and seafood along with small amounts of peanuts, palm kernels, and timber. Rice is the major crop and staple food. Trade reform and price liberalization are the most successful part of the country's structural adjustment program under IMF sponsorship.

The tightening of monetary policy and the development of the private sector have begun to reinvigorate the economy. Inflation dropped sharply in the first quarter of 1997. Membership in the WAMU (West African Monetary Union), begun in May 1997, should help support 5% annual growth and contribute to fiscal discipline. Because of high costs, the development of petroleum, phosphate, and other mineral resources is not a near-term prospect.

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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 privatizing 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. Growth slowed in 1997. Political violence damaged the tourist industry, and the IMF allowed Kenya's Enhanced Structural Adjustment Program to lapse due to the government's failure to enact reform conditions and to adequately address public sector corruption. Moreover, El Nino rains destroyed crops and damaged an already crumbling infrastructure in 1997 and on into 1998.

Long-term barriers to development include electricity shortages, the government's continued and inefficient dominance of key sectors, endemic corruption, and the country's high population growth rate.

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. Manufacturing depends largely on farm products which support the milling, canning, leather, and jute industries.

Recent foreign investments will enable Lesotho to export garments made from imported textiles. Although drought has decreased agricultural activity over the past few years, completion of a major hydropower facility in January 1998 now permits 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. Many businessmen have fled the country, taking capital and expertise with them. Some returned during 1997. 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.

The democratically elected government, installed in August 1997, inherited massive international debts and currently relies on revenues from its maritime registry to provide the bulk of its foreign exchange earnings. The restoration of the infrastructure and the raising of incomes in this ravaged economy depends on continued disarmament of factions and the implementation of sound macro- and micro-economic policies of the new government.

The socialist-oriented economy depends primarily upon revenues from the oil sector, which contributes practically all export earnings and about one-third of GDP. Per capita GDP is the highest in Africa at $6,700, but disproportionately little of national income flows down to the lower orders of society. GDP growth fluctuates sharply in response to changes in the world oil market; GDP has either contracted or grown very sluggishly since 1992.

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 do not have a major impact on the economy although they have increased transaction and transportation costs.

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 textile manufacturing and the processing of agricultural products.

Growth in output in 1992-97 averaged less than 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.

In 1997, the government continued its successful implementation of 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 anticipates 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 poor 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 1991-97 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, an important supplement to GDP. Mayotte's remote location is an obstacle to the development of tourism.

Morocco faces the problems typical 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 state enterprises are slowly being privatized.

Drought conditions in 1997 depressed activity in the key agricultural sector, holding down exports and contributing to a 2.2% contraction in real GDP. Favorable rainfalls in the fall of 1997 have led to forecasts of robust, 8%-9% real GDP growth in 1998. Servicing the external debt, preparing the economy for freer trade with the European Union, improving education and living standards, and finding jobs for Morocco's youthful population remain long-term challenges.

Before the peace accord of October 1992, Mozambique had been devastated by civil war and was one of the poorest countries on the globe. Prospects subsequently improved, and with its solid economic performance in 1996-97, Mozambique has begun to exploit its sizable agricultural, hydropower, and transportation resources. Foreign assistance programs help supply the foreign exchange required to support the budget and pay for imports of goods and services.

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 700 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 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 20% 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. Although per capita GDP is three to six times the per capita GDP of Africa's poorest countries, the majority of Namibia's people live in pronounced poverty because of the great inequality of income distribution and the large amounts going to foreigners. The Namibian economy has close links to South Africa.

Niger is a poor, landlocked Sub-Saharan nation, whose economy centers on subsistence agriculture, animal husbandry, reexport trade, and increasingly less on uranium, its major export since the 1970s. Terms of trade with Nigeria, Niger's largest regional trade partner, have improved dramatically since the 50% devaluation of the West African franc in January 1994; this devaluation boosted exports of livestock, cowpeas, 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 30% of GDP, 95% of foreign exchange earnings, and about 80% of budgetary revenues. 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, and production of fertilizer fell even further in 1997.

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 that has suffered 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.

Civil war in 1990 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 violence and genocide 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. In 1994-96, peace was restored throughout much of the country.

In 1996-97 most of the refugees who fled the war returned to Rwanda. 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 face significant challenges in rehabilitating infrastructure, agriculture, health care facilities, and capital plant. 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. Sao Tome is also optimistic that significant petroleum discoveries are forthcoming in its territorial waters in the oil-rich waters of the Gulf of Guinea.

In January 1994, Senegal undertook a bold and ambitious economic reform program with the support of the international donor community. This reform began with a 50% devaluation of Senegal's currency, the CFA franc, which is linked at a fixed rate to the French franc. Government price controls and subsidies have been steadily dismantled. After seeing its economy contract by 2.1% in 1993, Senegal made an important turnaround, thanks to the reform program, with real growth in GDP of 5.6% in 1996 and 4.7% in 1997.

Annual inflation has been pushed below 3% and the fiscal deficit has been cut to less than 1.5% of GDP. Investment has been steadily rising from 13.8% of GDP in 1993 to 16.5% in 1997. As a member of the West African Economic and Monetary Union (UEMOA), Senegal is working toward greater regional integration with a unified external tariff. Senegal also realized full Internet connectivity in 1996, creating a miniboom in information technology-based services. Private activity now accounts for 82% of GDP. On the negative side, Senegal faces deep-seated urban problems of chronic unemployment, juvenile delinquency, and drug addiction.

Since independence in 1976, per capita output in this Indian Ocean archipelago has expanded to roughly seven times the old near-subsistence level. Growth has been led by the tourist sector, which employs about 30% of the labor force and provides more than 70% of hard currency earnings, and by tuna fishing, which accounted for 70% of GDP in 1996-97. 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. The seizure of power by the new Armed Forces Revolutionary Council (AFRC) in May 1997 led to UN sanctions and a sharp drop in GDP. About two-thirds of the working-age population engages in subsistence agriculture.

Manufacturing consists mainly of the processing of raw materials and of light manufacturing for the domestic market. Bauxite and rutile mines have been shut down by civil strife. The major source of hard currency is found in the mining of diamonds, the large majority of which are smuggled out of the country.

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 semi-nomads, 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.

After livestock, bananas are the principal export; sugar, sorghum, corn, and fish are products for the domestic market. The small industrial sector, based on the processing of agricultural products, accounts for less than 10% of GDP; most facilities have been shut down because of the civil strife. Moreover, ongoing civil disturbances in Mogadishu and outlying areas are interfering with any substantial economic advance.

South Africa is a middle-income, developing country with an abundant supply of resources, well developed financial, legal, communications, energy, and transport sectors, a stock exchange that ranks among the 10 largest in the world, and a modern infrastructure supporting an efficient distribution of goods to major urban centers throughout the region. Growth has been positive since the historic election of President Nelson MANDELA in the country's first multi-racial elections in 1994, but not strong enough to cut into the substantial unemployment.

Daunting economic problems remain from the apartheid era, especially the problems of poverty and economic empowerment among the blacks. Other problems are crime and corruption. The new South African Government demonstrated its commitment to open markets, privatization, and a favorable investment climate with the release of its macroeconomic strategy in June 1996. Called "Growth, Employment and Redistribution," this policy framework includes the introduction of tax incentives to stimulate new investment in labor-intensive projects, expansion of basic infrastructure services, the restructuring and partial privatization of state assets, continued reduction of tariffs and subsidies to promote economic efficiency, improved services to the disadvantaged, and integration into the global economy.

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 1997. Hyperinflation has raised consumer prices above the reach of most. In 1997, a top priority was to develop potentially lucrative oilfields in south-central Sudan; the government was seeking foreign partners to exploit the oil sector.

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 1991-97 has featured a pickup in industrial production and a substantial increase in output of minerals, led by gold. Natural gas exploration in the Rufiji Delta looks promising and production could start by 2002. 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, with occasional regional supply difficulties. 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.

The 12 January 1994 devaluation of the currency by 50% provided an important impetus to renewed structural adjustment; these efforts were facilitated by the end of strife in 1994 and a return to overt political calm. The 1998 presidential elections provide an important opportunity for Togo's evolving political system to demonstrate that the country can participate in a peaceful and effective manner with World Bank and IMF programs.

Progress depends on continuing privatization, increased transparency in government accounting to accommodate increased social service outlays, and possible downsizing of the military, on which the regime has depended to stay in place.

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Tunisia has a diverse economy, with important agricultural, mining, energy, tourism, and manufacturing sectors. 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 prudent approach to debt. Real growth averaged 4.6% in 1992-96 and reached 5.6% in 1997, down from 6.9% in 1996, which benefited from a record cereal crop.

Inflation has been moderate. Growth in tourism and increased trade have been key elements in this solid record. Tunisia's association agreement with the European Union entered into force on 1 March 1998, the first such accord between the EU and Mediterranean countries to be activated. Under the agreement Tunisia will gradually remove barriers to trade with the EU over the next decade. 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 1990-97, the economy

turned in a solid performance based on:

continued investment in the rehabilitation of infrastructure, improved incentives for production and exports, reduced inflation, gradually improved domestic security, and the return of exiled Indian-Ugandan entrepreneurs.

Western Sahara, a territory poor in natural resources and lacking sufficient 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 27% of the labor force of this landlocked nation and supplies almost 25% of exports. Mining accounts for only 5% of both GDP and employment, but minerals and metals account for about 20% of exports. The government is working to consolidate earlier progress in developing a market-oriented economy. Although the IMF suspended support for Zimbabwe's economic structural adjustment program (ESAP) in 1995, due to government failure to meet key targets, recent talks between the government and the Fund have held hope for renewed support if Zimbabwe remains committed to budgetary targets.

A key element of the budget is the Zimbabwe Program for Socio-Economic Transformation (ZIMPREST), the second phase of ESAP, whose goals include increased commercialization and privatization of government-owned enterprises and more "outward-looking" trade and investment policies. The World Bank resumed balance of payments support to Zimbabwe in early 1998. Government 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. Communications

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

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

Greenland suffered negative economic growth in the early 1990s, but since 1993 the economy has improved. 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. Growth is likely to slow in 1998, to a still respectable 3.9%.

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. Communications

Coal mining is the major economic activity on Svalbard. The treaty of 9 February 1920 gives the 41 signatories 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 18 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 18 years because of the loss of labor and capital and the disruption of trade and transport. Much of the population continues 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 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 agricultural sector has long-term needs for more investment and updated technology.

The privatization of industry has been at a slower pace, but ahead of most of the rest of the CIS. 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 1995-97.

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 negotiation of more than a dozen production-sharing arrangements (PSAs) with foreign firms, which have thus far committed $30 billion to oil field development, should generate the funds needed to spur future industrial development.

Oil production under the first of these PSAs, with the Azerbaijan International Operating Company, began in November 1997. 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. A serious long-term challenge is the maintenance of the competitiveness of non-oil exports in world markets.

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 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. The Bhutanese Government has made some progress in expanding the nation's productive base and improving social welfare. Model education, social, and environment programs in Bhutan are underway with support from multilateral development organizations.

Each economic program takes into account the government's desire to protect the country's environment and cultural traditions. GDP growth averaged 5% per year in 1991-95, with information not yet available for 1996-97. Detailed 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 a more market-oriented economy 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 1992-97 annual growth of GDP accelerated, particularly in the coastal areas-averaging about 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 1995-97 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 may 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. Hong Kong's reversion on 1 July 1997 to Chinese administration will strengthen the already close ties between the two economies.

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 1995-97, increasing GDP growth and slashing inflation.

Georgia still suffers from energy shortages, although energy deliveries are steadily improving. 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 construction of a Caspian oil pipeline through Georgia-scheduled to open in early 1999-should spur greater western investment in the economy. A growing trade deficit, continuing problems with corruption, and political uncertainties cloud the short-term economic picture.

India's economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of support services. 67% of India's labor force of nearly 400 million work in agriculture, which contributes 30% of the country's GDP. Production, trade, and investment reforms since 1991 have provided new opportunities for Indian businesspersons and an estimated 300 million middle class consumers.

New Delhi has avoided debt rescheduling, attracted foreign investment, and revived confidence in India's economic prospects since 1991. Many of the country's fundamentals - including savings rates (26% of GDP) and reserves (now about $24 billion) - are healthy. Inflation eased to 7% in 1997, and interest rates dropped to between 10% and 13%. Even so, the Indian Government needs to restore the early momentum of reform, especially by continuing reductions in the extensive remaining government regulations.

Moreover, economic policy changes have not yet significantly increased jobs or reduced the risk that international financial strains will reemerge within the next few years. Nearly 40% of the Indian population remains too poor to afford an adequate diet. India's exports, currency, and foreign institutional investment were affected by the East Asian crisis in late 1997 and early 1998, but capital account controls, a low ratio of short-term debt to reserves, and enhanced supervision of the financial sector helped insulate it from near term balance-of-payments problems.

Export growth, has been slipping in 1996-97, averaging only about 4% to 5%-a large drop from the more than 20% increases it was experiencing over the prior three years-mainly because of the fall in Asian currencies relative to the rupee. Energy, telecommunications, and transportation shortages and the legacy of inefficient factories constrain industrial growth which expanded only 6.7% in 1997-down from more than 11% in 1996.

Growth of the agricultural sector is still fairly slow rebounding to only 5.7% in 1997 from a fall of 0.1% in 1996. Agricultural investment has slowed, while costly subsidies on fertilizer, food distribution, and rural electricity remain. Nevertheless, even if a series of weak coalition governments continue to rule in New Delhi over 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. Indian think tanks project GDP growth of at least 5.5% in 1998.

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 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 markedly 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 to 3.9% in 1996, largely a reflection of stimulative fiscal and monetary policies as well as low rates of inflation. But in 1997 growth fell back to 1%. As a result of the expansionary fiscal policies and declining tax revenues due to the recession, Japan 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.

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

The breakup of the USSR and the collapse of demand for Kazakhstan's traditional heavy industry products have resulted in a sharp contraction of the economy since 1991, with the steepest annual decline occurring in 1994. In 1995-97 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 western Kazakhstan's 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% or more annually during 1989-97 because of systemic problems and disruptions in economic 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 is not yet 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 followed by a severe drought in 1997 have resulted in increasingly serious 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 through the late 1980s was achieved by a system of close government business ties, including directed credit, import restrictions, sponsorship of specific industries, and a strong labor effort.

The government promoted the import of raw materials and technology at the expense of consumer goods and encouraged savings and investment over consumption. The Asian financial crisis of 1997/98 exposed certain longstanding weaknesses in South Korea's development model, including high debt/equity ratios, massive foreign borrowing, and an undisciplined financial sector. Also, a number of private sector conglomerates are near bankruptcy.

At yearend 1997, an international effort, spearheaded by the IMF, was underway to shore up reserves and stabilize the economy. Growth in 1998 will be sharply cut. Long-term growth will depend on how successfully South Korea implements planned economic reforms that would bolster the financial sector, improve corporate management, and open the economy further to foreign participation.

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 include 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 15% for 1997, 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 breakup 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 salary arrears continue to suffer. Foreign assistance played a substantial role in the country's economic turnaround in 1996-97.

Tourism, Maldives largest industry, accounts for about 18% of GDP and more than 60% of the Maldives' foreign exchange receipts. Over 90% of government tax revenue comes from import duties and tourism-related taxes. About 350,000 tourists visited the islands in 1997. Fishing is a second leading growth sector. The Maldivian Government began 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. Industry, which consists mainly of garment production, boat building, and handicrafts, accounts for about 15% of GDP. Maldivian authorities worry about the impact of erosion and possible global warming on their low-lying country; 80% of the area is three feet or less above sea level.

The 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, but disappeared almost overnight in 1990-91.

The mining and processing of coal, copper, molybdenum, tin, tungsten, and gold account for a large part of industrial production. The Mongolian leadership has been soliciting support from foreign donors, who pledged some $250 million in aid in October 1997. Economic growth picked up in 1997 after stalling in 1996 due to a series of natural disasters and declines in world prices of copper and cashmere.

Nepal is among the poorest and least developed countries in the world with more than half of its 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 40% of GDP. Industrial activity mainly involves 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 by 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. More recently, however, political instability - five different governments over the past few years-has hampered Kathmandu's ability to forge consensus to implement key economic reforms. Nepal has considerable scope for accelerating economic growth by exploiting its potential in hydropower and tourism, areas where there has recently been foreign investment interest.

Prospects for foreign trade or investment in other areas will remain poor, however, because of the small size of the economy, its technological backwardness, its remoteness, its landlocked geographic location, and its susceptibility to natural disaster. The international community's role of funding more than 60% of Nepal's development budget and more than 28% of total budgetary expenditures will likely continue as a major ingredient of growth.

Pakistan continues to suffer through a damaging foreign exchange crisis. The crisis stems from years of loose fiscal policies that exacerbated inflation and allowed the public debt, money supply, and current account deficit to explode. In April 1997, Prime Minister SHARIF introduced a stimulus package of tax cuts intended to boost failing industrial output and spur export growth. At that time, the IMF endorsed the program, paving the way for a $1.5 billion Enhanced Structural Adjustment Facility.

Although the economy showed signs of improvement following the measures, SHARIF has refused to implement the tough structural reforms necessary for sustained, longer-term growth. As a consequence, at yearend 1997, industrial production continued to flag, foreign exchange reserves continued to teeter around $1 billion-only four weeks of imports-and borrowing to support the budget deficit already exceeded the amount allocated for the entire fiscal year. At the same time, the government must cope with long-standing economic vulnerabilities-inadequate infrastructure, low levels of literacy, and increasing sectarian, ethnic, and tribal 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. After seven consecutive years of contraction 1990-96 in which GDP fell by one-third, GDP grew by 0.4% in 1997, according to official statistics. Moscow continued to make strides in its battle against inflation, which fell to 11%, half the 1996 rate.

The central government made good on most back wages owed public-sector employees-including the military-although the stock of wage arrears to employees of private enterprises remained large. Privatization revenues increased significantly, largely on the strength of a few high-profile tenders, such as that of telecommunications giant Svyazinvest. On the downside, Moscow continued to struggle with a severe fiscal imbalance.

Lagging tax collections led the government to adopt a revised budget in spring 1997 that cut spending by about 20% despite protests from the legislature. Russia's traditional trade surplus continued to contract-largely because of soft international commodity prices-and Moscow's WTrO accession made only halting progress. Although President YEL'TSIN brought in a new economic team early in 1997, key structural reform initiatives continue to move slowly.

A revised tax code remains stuck in the Duma, while little progress is being made on agricultural land reform. Small business development has lagged. Prospects for a return to robust growth have been set back by the spillover from Asia's financial turmoil, which hit Russia hard during the last quarter of 1997. Moscow at first tried to both support the ruble and keep interest rates down, but this policy proved unsustainable, and in early December 1997 the Central Bank let interest rates rise sharply.

As the year ended, Russian authorities were attempting to put the best face on the financial situation, while at the same time scaling back their previous optimistic growth projections for 1998 to 1%-2%. Because of Russia's severe macroeconomic constraints, resources allocated to the military sector have declined sharply since the implosion of the USSR in December 1991.

At independence in 1948, plantations growing tea, rubber, or coconuts and paddies growing rice for subsistence dominated Sri Lanka's economy, and, as late as 1970, plantation crops accounted for 93% of exports. In 1977, Colombo abandoned statist economic policies and its import substitution trade policy for market-oriented policies and export-oriented trade. Sri Lanka's most dynamic industries now are food processing, textiles and apparel, food and beverages, telecommunications, and insurance and banking.

By 1996 plantation crops made up only 20% of exports, while textiles and garments accounted for 63%. GDP grew at an annual average rate of 5.5% throughout the 1990s until a drought and a deteriorating security situation lowered growth to 3.8% in 1996. The economy rebounded in second half 1996, however, and continued to perform well in 1997 with growth of 6%. Sustained economic growth, coupled with population growth of only 1.1%, has pushed Sri Lanka from the ranks of the poorest countries in the world up to the threshold of the middle income countries.

For the next round of reforms, the central bank of Sri Lanka recommends that Colombo expand market mechanisms in nonplantation agriculture, dismantle the government's monopoly on wheat imports, and promote more competition in the financial sector. A continuing cloud over the economy is the fighting between the Sinhalese and the minority Tamils, which has cost 50,000 lives in the past 14 years.

Tajikistan has the lowest per capita GDP among the former Soviet republics. Agriculture dominates the economy, with cotton 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.

Tajikistan thus depends on aid from Russia and Uzbekistan and on international humanitarian assistance for much of its basic subsistence needs. Even if the peace agreement of June 1997 is honored, the country faces major problems in integrating refugees and former combatants into the economy. Moreover, constant political turmoil and the continued dominance by former communist officials have impeded the introduction of meaningful economic reforms.

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 bottomed out 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 densely populated 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 began to 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. The economy, and especially the tourism sector, suffered a setback in late 1995 due to the effects of Hurricane Luis in September but recovered in 1996. 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 accounting directly or indirectly to more than half of GDP. Increased tourist arrivals have 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. Moderate growth in tourism receipts and a boom in construction of new hotels, resorts, and residences led to an increase of the country's GDP by an estimated 3.5% in 1997. Manufacturing and agriculture together contribute less than 10% of GDP and show little growth despite government incentives aimed at those sectors. 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 visitors.

Historically, the Barbadian economy had been dependent on sugarcane cultivation and related activities, but production in recent years has diversified into manufacturing and tourism. The start of the Port Charles Marina project in Speightstown helped the tourism industry continue to expand in 1996-97. The government continues its efforts to reduce the unacceptably high unemployment rate, encourage direct foreign investment, and privatize remaining state-owned enterprises.

The small, essentially private enterprise economy is based primarily on agriculture, agro-based industry, and merchandising, with tourism and construction assuming greater importance. Sugar, the chief crop, accounts for more than one-third of exports, while the banana industry is the country's largest employer. The government's tough austerity program in 1997 resulted in an economic slowdown that is likely to continue in 1998.

Political tension in the run-up to the elections will tend to discourage investment, already suffering as a result of tight monetary and fiscal policies. The trade deficit has been growing, mostly as a result of low export prices for sugar and bananas and could increase further if a pre-election boost in government spending leads to a rise in imports. The ruling in 1997 by the World Trade Organization against the European Union's banana import regime-which had granted Belize preferential treatment - is also hurting the prospects for growth, and could contribute to an increase in already high unemployment.

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. An estimated 210,000 companies were on the offshore registry by yearend 1996. 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 has 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 1 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, and then rebounded in 1997 to 3%. Inflation rose to 22.5% in 1995 from 13.5% in 1994, receded to 17.5% in 1996, then dropped to 11.2% in 1997.

Unemployment appears moderate at 5.7%, 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. One important positive development-the infusion of more than $200 million in 1997 by microchip giant Intel and the anticipated attraction of other high-tech firms to Costa Rica will help stimulate growth and employment over the next several years.

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 semi-official exchange rate for the Cuban peso to move from a peak of 120 to the dollar in the summer of 1994 to 23 to the dollar by yearend 1997. New taxes introduced in 1996 helped drive down the number of self-employed workers from 208,000 in January 1996 to 176,000 by September 1997. Havana announced in 1995 that GDP declined by 35% during 1989-93, the result of lost Soviet aid and domestic inefficiencies.

The drop in GDP apparently halted in 1994, when Cuba reported 0.7% growth, followed by increases of 2.5% in 1995 and 7.8% in 1996. Growth slowed again in 1997, to 2.5%, in part due to a poor sugar harvest. Export earnings declined 3% in 1997, to $1.9 billion, the result of lower sugar export volume and lower world prices for nickel and sugar. Imports remained unchanged in 1997 at $3.2 billion. Tourism plays a key role in foreign currency earnings.

The disparity between those at the top of the ladder and those at the bottom has increased markedly in the past 10 years. Living standards for the average Cuban remain at a depressed level compared with 1990.

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. Even though reforms are moving ahead at a slow pace, the economy grew vigorously in 1997, with tourism and telecommunications leading the advance. The government is working to increase electric generating capacity, a key to continued economic growth.

In 1997 the government emphasized a fixed exchange rate, along with conservative monetary and fiscal policies to promote foreign investment. Inflation fell to an unprecedented low of 2%. Exports reached a record level and were the main engine of growth. Productivity in other sectors remained weaker, however. For the last few years, El Salvador has experienced sizable deficits in both its trade and its fiscal accounts.

The trade deficit has been offset by remittances from the large number of Salvadorans living abroad and from external aid. The deficit is expected to increase in 1998 as imports continue to rise. San Salvador is stepping up its privatization efforts in 1998 to increase revenues. Late in 1997 the legislative assembly approved a privatization law that will facilitate the sale of the state-owned telephone company sometime in 1998. The government also plans to privatize pension funds later in the year.

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; an increasingly large number of cruise ships visit the islands. The traditional 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, mainly from France. Light industry features sugar and rum production. Most manufactured goods and fuel are imported. Unemployment is especially high among the young.

The agricultural sector accounts for one-fourth of GDP and two-thirds of exports and employs more than half of the labor force. Coffee, sugar, and bananas are the main products. Manufacturing and construction account for one-fifth of GDP. Since assuming office in January 1996, President ARZU has worked to implement a program of economic liberalization and political modernization. The signing of the Peace Accords in December 1996, which ended 36 years of civil war, removed a major obstacle to foreign investment.

In 1997, Guatemala met its economic targets when GDP growth accelerated to 4.1% and inflation fell to 9%. The government also increased tax revenues-historically the lowest in Latin America-to 9% of GDP and created a new tax administration. It also successfully placed $150 million in dollar-denominated notes in the international markets. Debt service costs should decline in 1998. Remaining challenges for the administration in 1998 include completing a deal with the IMF and stabilizing monetary policy.

Throughout 1997, the Central Bank maintained a tight money supply, helping to control inflation, but it also caused high interest rates and led to operating losses for the bank. Early in 1998, it relaxed its monetary policy in an effort to correct these problems, but increased pressure on the quetzal has prompted the bank to intervene to prop up its value.

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, although the informal economy is growing. Failure to reach agreements with international sponsors have denied Haiti badly needed budget and development assistance. Meeting aid conditions in 1998 will be especially challenging in the face of mounting popular criticism of reforms.

In 1994 the REINA administration inherited an economy in the grips of stagflation due to an unprecedented energy crisis, declining agricultural output, and extravagant public expenditures. In response the REINA administration cut the fiscal deficit and enacted a number of structural reforms including passage of a modern financial sector reform law in 1995 and a central bank reform law in 1996. As a result, Honduras finished 1997 with improved GDP growth and a decreasing rate of inflation.

The newly elected FLORES administration faces pressure from the international financial community and the IMF to further decrease the fiscal deficit and implement key reforms, including the privatization of state enterprises such as Hondutel. Tegucigalpa will probably implement tighter fiscal and monetary policies to keep inflation low and meet commitments to the IMF. This may slow GDP growth to 3.5% in 1998. Moreover, wage increases for public-sector employees, agreed to in 1997, will make it difficult for FLORES to make headway on the fiscal deficit and inflation.

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 eliminated most price controls, streamlined tax schedules, and privatized government enterprises. Continued tight monetary and fiscal policies have helped slow inflation and stabilize the exchange rate, but have resulted in the slow-down of economic growth (moving from 1.5% in 1992 to 0.5% in 1995.

In 1996, GDP was in negative growth (-1.4%) and remained so in 1997. Serious problems include: high interest rates; increased foreign competition; the weak financial condition of business in general resulting in receiverships or closures and downsizings of companies; the shift in investment portfolios to non-productive, short-term high yield instruments; a pressured, sometimes sliding, exchange rate; a widening merchandise trade deficit; and a growing internal debt for government bailouts to various ailing sectors of the economy.

Jamaica's medium-term prospects will depend upon encouraging investment in the productive sectors, maintaining a competitive exchange rate, stabilizing the labor environment, and implementing proper fiscal and monetary policies.

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 mid-1997 led to a substantial evacuation of the southern half of the island, including the capital, Plymouth. Volcanic activity since July 1995 has resulted in the departure of an estimated 8,000 people, mainly to Antigua and Guadeloupe.

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. In 1991 President CHAMORRO launched an ambitious economic stabilization program that reduced inflation and obtained substantial economic aid from abroad. Economic growth rose sharply in 1995-97, due to surges in exports and efforts to enhance trade liberalization. The program, however, hit some snags, and a 1994-97 IMF Enhanced Structural Adjustment Facility (ESAF) signed by the CHAMORRO administration with the Fund lapsed in September 1996 due to non-compliance.

In 1997, however, the IMF resumed negotiations for an ESAF with the ALEMAN administration, and agreed to an ESAF in 1998. IMF approval of the ESAF cleared the way for debt relief by the Paris Club later that year and has opened the way for debt relief under the Highly Indebted Poor Countries Initiative. Implementation of a 1997 property accord-designed to resolve conflict over properties confiscated by the Sandinistas in the 1980s-should also help inspire international investor confidence.

Strong growth is forecast for 1998, with implementation of a 1997 free trade agreement with Mexico expected to boost agricultural exports, although the industrial sector may come under pressure from increased Mexican competition.

Because of its key geographic location, Panama's economy is service-based, heavily weighted toward banking, commerce, and tourism. Since taking office in 1994, President PEREZ BALLADARES 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 government privatized its two remaining ports along the Panama Canal in 1997 and approved the sale of the railroad in early 1998.

It also plans to sell other assets, including the electric company. Panama joined the World Trade Organization (WTrO) and approved a tariff reduction that will give the country the lowest average tariff rates in Latin America. A banking reform law was approved by the legislature in early 1998 and will take effect in June. After two years of near stagnation, the reforms are beginning to take root; GDP grew by 3.6% in 1997 and is expected to grow by more than 5% in 1998. The most important sectors driving growth have been the Panama Canal and the shipping and port activities. The Colon Free Zone also rebounded from a slow year in 1996.

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 4 million tourists in 1993. The construction sector has been a key factor in recent economic growth.

The economy has traditionally depended on the growing and processing of sugarcane; decreasing world prices have hurt the industry in recent years. Tourism, export-oriented manufacturing, and offshore banking activity have assumed larger roles. Most food is imported. The 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. In 1997 some leaders in Nevis were urging separation from Saint Kitts on the basis that Nevis was paying far more in taxes than it was receiving in government services.

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 were implemented in 1995, 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, yet its heavy dependence on oil and petrochemical prices makes its trade balance vulnerable to sudden shifts. Tourism is a major foreign exchange earner, with 260,000 arrivals in 1995, 80% from Europe.

The Turks and Caicos economy is based on tourism, fishing, and offshore financial services. Most capital goods and food for domestic consumption are imported. The US was the leading source of tourists in 1996, accounting for more than half of the 87,000 visitors. Major sources of government revenue include fees from offshore financial activities and customs receipts.

Tourism is the primary economic activity, accounting for more than 70% of GDP and 70% of employment. The islands normally host 2 million visitors a year. 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 severe social unrest which led to more than 1,500 deaths, widespread destruction of property, and an 8% drop in GDP. The new government installed in July 1997 has taken strong measures to restore public order and to revive economic activity and trade.

The economy continues to be bolstered 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.

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, a member of the European Union since 1 January 1995, has a well-developed market economy with a high standard of living. With exports of goods and services reaching over 40% of GDP, Austria's economy is closely integrated with other EU member countries, especially with Germany. Austria's entry into the EU has drawn an influx of foreign investors attracted by Austria's access to the single European market. Austria is well on its way to meeting all Maastricht convergence criteria for monetary union, through privatization efforts, the 1996-98 budget consolidation programs, and austerity measures, which were expected to bring total public sector deficit down to 3% of GDP in 1997 and public debt in line with the 60% of GDP required by the EU. Cuts mainly affect the civil service and Austria's generous social system, the two major causes of the government deficit.

To meet increased competition from both the EU and Central European countries, Austria will need to emphasize knowledge-based sectors of the economy and deregulate the service sector, particularly telecommunications and the energy sector. Economic prospects are expected to brighten in 1998 with GDP growth projected to be 2.5%.

The Belarusian government has revived economic output since mid-1996 by pursuing a policy of rapid credit expansion, ending years of cumulative decline. Real GDP increased by 2.6% in 1996 and the growth rate tripled in 1997. Lack of profitability and resurgent inflation-which increased from an average monthly rate of 2.8% in 1996 to 4.4% in 1997-however, have kept enterprises from making much needed capital investments.

As a result, infrastructure and equipment stocks have continued to deteriorate. Belarus has seen little structural reform since 1995, when LUKASHENKO launched the country on the path of "market socialism." Privatization of enterprises controlled by the central government virtually ceased in 1996. As of May 1997, only about 10% of all enterprises under central government control had been privatized. In addition, LUKASHENKO has re-imposed administrative control over prices and the national currency's exchange rate, and expanded the state's right to intervene arbitrarily in the management of private enterprise.

Lack of structural reform, and a climate hostile to business, have inhibited foreign investment in Belarus in 1995-97. In 1995 Belarus ranked second to last among the 15 former Soviet republics in terms of the average amount of foreign investment it attracted per capita. Although it moved up to 11th place in 1996, this was largely due to inflows from Russia related to the construction of the Yamal natural gas pipeline.

Belarus's trade deficit has grown steadily over the past three years - from 8% of total trade turnover in 1995 to 14% in the first quarter of 1997 - despite the government's efforts to promote exports and limit imports. Given Belarus's limited fiscal reserve, a continued growth in the trade deficit will increase vulnerability to a balance of payments crisis.

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 fell from 127% of GDP in 1996 to 124% in 1997, and the government is trying to control its expenditures to bring the figure more into line with other industrialized countries. GDP growth of 2.5% is forecast for 1998.

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 80% from 1990 to 1995, unemployment to soar, and human misery to multiply. With an uneasy peace in place, output has recovered in 1996-97 at high percentage rates on a low base, but remains less than half the 1990 level. The country, especially in the Muslim-Croat area, 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 and individual families.

One of the poorest countries of central Europe, Bulgaria has slowly been moving from its old command economy towards a market-oriented economy. The economy faced a major crisis in 1996, marked by a banking system in turmoil, a depreciating currency, and contracting production and foreign trade. Foreign exchange reserves dwindled to $518 million, while dramatically hiked interest rates added to the domestic debt burden and stifled growth.

GDP fell by 11% in 1996, after experiencing 2.0% 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 1996. In November 1996, the IMF proposed a currency board as Bulgaria's best chance to restore confidence in the lev, eliminate unnecessary spending, and avoid hyperinflation.

The board was set up on 1 July 1997. Its establishment was followed by a reduction in inflation and interest rates and by a rise in foreign investment. Simultaneously the government pledged to sell off some of the most attractive state assets. GDP in 1997 dropped 7.4%, but is expected to rebound to an estimated 2% in 1998. Other

government objectives include:

the completion of land reform, the privatization and strengthening of the banking system, and the modernization of the legal environment of business.

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 and displaced 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.

Political and financial crises in 1997 shattered the Czech Republic's image as one of the most stable and prosperous of post-Communist states. Delays in enterprise restructuring and failure to develop a well-functioning capital market played major roles in Czech economic troubles, which culminated in a currency crisis in May. The currency was forced out of its fluctuation band as investors worried that the current account deficit, which reached about 8% of GDP in 1996, would become unsustainable.

After expending $3 billion in vain to support the currency, the central bank let it float. The growing current account imbalance reflected a surge in domestic demand and poor export performance, as wage increases outpaced productivity. The government was forced to introduce two austerity packages later in the spring which cut government spending by 2.5% of GDP. A tough 1998 budget continues the painful medicine. These problems were compounded in the summer of 1997 by unprecedented flooding which inundated much of the eastern part of the country.

Czech difficulties in 1997 contrast with earlier achievements of strong GDP growth, a balanced budget, and inflation and unemployment that were among the lowest in the region. The Czech economy's transition problems continue to be too much direct and indirect government influence on the privatized economy, the sometimes ineffective management of privatized firms, and a shortage of experienced financial analysts for the banking system. Prague forecasts a balanced budget, 2.2% GDP growth, 5.2% unemployment, and 10% inflation for 1998.

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. Growth may fall off slightly to 2.8% in 1998, and inflation may rise to 2.5%.

In 1997 Estonia's continued implementation of market economic reforms, disciplined fiscal and monetary policies, and a liberal free trade regime resulted in GDP growth of 10% and a drop in inflation to 11.2%. Estonia can point to its inclusion among the first group of Central and East European countries to begin EU accession talks in 1998 as its most significant economic achievement in 1997. Other economic strengths include solid investment grade rating from both Standard and Poors and Moody's, government revenue collection in excess of projections by more than 6%, growth in exports at a faster rate than imports, and record levels of foreign direct investment, among the highest per capita in Central and East Europe.

Estonia privatized its shipping company in 1997, but failed to make as much progress privatizing other large infrastructure/utility companies, such as Eesti Energia and the Oil Shale company, which it plans to privatize in the next two years. The growing current account deficit, which stood at nearly 10% of GDP at yearend 1997, remains a serious concern. In 1998, GDP is expected to grow by 5.5% and inflation to fall 10%.

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. The Faroese are supported by a substantial annual subsidy from Denmark.

Finland has a highly industrialized, largely free-market economy, with per capita output roughly that of the UK, France, Germany, 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. Despite high unemployment and moderate GDP growth of 3.9% anticipated for 1998, inflation is forecast to rise to 2.5%

One of the four West European trillion-dollar economies, France matches a growing services sector with a diversified industrial base and substantial agricultural resources. Services now account for more than 70% of GDP, while industry generates about one-quarter of GDP and more than 80% of export earnings. The government retains considerable influence over key segments of each sector, with majority ownership of railway, electricity, aircraft, and telecommunication firms.

It nevertheless has been slowly relaxing its control over these sectors since the early 1990s, most recently selling 23% of France Telecom. The government also plans to sell its stakes in Air France and in the insurance, banking, and defense industries. Meanwhile, large tracts of fertile land, the application of modern technology, and subsidies have combined to make France the leading agricultural producer in Western Europe.

A major exporter of wheat and dairy products, France is virtually self-sufficient in agriculture. The economy expanded by 2.3% last year, following a 1.3% gain in 1996. Persistently high unemployment still poses a major problem for the government, however, as does the need to control government spending to keep the economy internationally competitive and meet membership qualifications for the European Economic and Monetary Union (EMU) which is slated to introduce a common European currency in January 1999.

Succeeding governments have shied away from cutting exceptionally generous social welfare benefits or the enormous state bureaucracy, preferring to pare defense spending and raise taxes to keep the deficit down. The JOSPIN administration has pledged both to lower unemployment and bring France into EMU, pinning its hopes for new jobs on economic growth and on legislation to gradually reduce the workweek from 39 to 35 hours by 2002.

In 1997 the German economy, the world's third most powerful, benefited from robust exports, particularly to other members of the EU and the US, as well as strengthening equipment investment. But anemic private consumption and a contraction in the construction industry limited the expansion. Unemployment continued to set post-war monthly records through the end of 1997 and averaged 4.3 million for the year. In preparation for the 1 January 1999 start of the European Monetary Union, the government has made major efforts in 1996-97 to reduce the fiscal deficit.

This effort has been complicated by growing unemployment, an erosion of the tax base, and the continuing transfer of roughly $100 billion a year to eastern Germany to refurbish this ex-communist area. In recent years business and political leaders have become increasingly concerned about Germany's decline in attractiveness as an investment target. They cite increasing preference by German companies to locate new manufacturing facilities in foreign countries, including the US, rather than in Germany, to be closer to the markets and to avoid Germany's high tax rates, high wage costs, rigid labor structures, and extensive regulations. For similar reasons foreign investment in Germany has been lagging in recent years.

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 (more than 5 million visitors in 1995), 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 provides a major portion of foreign exchange. Greece is among the poorest EU countries in terms of per capita income; Athens continues to rely heavily on EU aid, which currently amounts to about 4.5% of GDP. Macroeconomic problems include the huge public sector, substantial budget and balance of payments deficits, and 10% unemployment.

Economic growth is strengthening, and the government's strict fiscal and monetary policies are responsible for the decline in inflation and the budget deficit. Despite widespread protests from labor unions and farmers over austerity, the government is taking further steps to enhance revenue collection and reduce expenditures to prepare Greece for participation in the EU's single currency by 2001. Greece entered the exchange rate mechanism-a requirement for European Monetary Union (EMU) membership-in March 1998. GDP growth is projected at 3.5% for 1998, inflation at 4%, and unemployment at 8.5%

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. Light tax and death duties make the island a popular tax-haven.

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 has consolidated its March 1995 stabilization program and undergone enough restructuring to become an established market economy. The country appears to have entered a period of sustainable growth, gradually falling inflation, and stable external balances. The government's main economic priorities are to complete structural reforms, particularly the implementation of the 1997 pension reform act (the first in the region), taxation reform, and planning for comprehensive health care, local government finance reform, and the reform of education at all levels.

Foreign investment has totaled more than $17 billion through 1997. In recognition of Hungary's improved macro-economic situation, all major credit-rating agencies listed the country's foreign currency debt issuances as investment grade in 1996. The current IMF stand-by arrangement expired in February 1998, and Budapest and the IMF agree that there is no need to renew it. The OECD welcomed Hungary as a member in May 1996, and in December 1997 the EU invited Hungary to begin the accession process. Forecasters expect 4%-5% growth in 1998.

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 27% 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 and other services now contribute more than half 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 and more than 20% unemployment. 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 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. Light tax and death duties make the island a popular tax haven.

In 1997 Latvia scored the most impressive economic achievements since independence in 1991, with GDP growing by 6% and inflation at 7.4%. GDP is expected to grow 5% in 1998 and inflation to range between 6% and 7%. In 1997 Latvia continued its strict fiscal policy and apparently ended the year with a small fiscal surplus, reflecting higher-than-expected income from customs revenues, excise and business taxes, and restraints on government spending.

Foreign direct investment (FDI) in 1997 was a record $880 million by yearend. Prospects for increasing FDI in 1998 are good if Latvia privatizes at least some of its large companies, including Venspils Nafta (the state oil company). Although Latvia was disappointed that it was not included among the five Central and East European states invited to start EU accession talks in spring 1998, it is likely to join the WTrO in 1998. Latvia's growing current account and trade deficits remain a cause for concern, reaching nearly 10% by yearend. Latvia's trade deficit may even reach 22% of GDP in 1998.

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 73,700 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.

Lithuania has benefited from its disciplined approach to market reform and its adherence to strict fiscal and monetary policies imposed by the IMF, measures that have helped constrain the growth of the money supply, reduce inflation to 8.6%, and support GDP growth of 6% in 1997. Inflation is expected to fall in 1998 to 6% and GDP to grow at close to 7%. Foreign direct investment in 1997 of some $430 million pushed the country over the $1 billion mark, the first Baltic state to reach this milestone. However, the current account deficit has hovered around 8% to 10% of GDP annually since 1995-the result of greater demand for consumer goods and falling growth in exports.

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, manufacturing (especially electronics and textiles), and tourism; the state-owned Malta drydocks employs about 3,800 people. In 1996, approximately 1 million tourists visited the island. Per capita GDP of $12,900 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.

As part of its reform efforts, Moldova introduced a stable convertible currency, freed all prices, stopped issuing preferential credits to state enterprises and backed steady land privatization, removed export controls, and freed interest rates. The IMF has suspended payment on Moldova's Extended Fund Facility since November 1997, due to concerns about the budget deficit and money supply growth. In late December Parliament agreed to a lower 1998 budget deficit to address IMF and World Bank concerns.

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. 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 2% 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. Growth in 1998 should be a brisk 3.5%. The Dutch will almost certainly qualify for the first wave of countries entering the European 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 1996-97 after years of recession. Continued recovery depends on Macedonia's ability to attract investment, to redevelop trade ties with Greece and Serbia and Montenegro, and to maintain its 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.

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. Oslo opted to stay out of the EU during a referendum in November 1994. Economic growth in 1998 should be about the same as in 1997. Inflation probably will move up toward 3% because of tightness in labor markets. Despite their high per capita income-outstripped among major nations only by the US-and their generous welfare benefits, Norwegians worry about that time in the 21st century when the oil and gas run out.

Poland today stands out as one of the most successful and open transition economies. The privatization of small and medium state-owned companies and a liberal law on establishing new firms marked the rapid development of a private sector now responsible for at least two-thirds of economic activity. In contrast to the vibrant expansion of private non-farm activity, the large agriculture component remains handicapped by structural problems, surplus labor, inefficient small farms, and lack of investment.

The government's determination to enter the EU as soon as possible affects all aspects of its economic policies. Improving Poland's worsening current account deficit also is a priority. To date, the government has resisted pressure for protectionist solutions and continues to support regional free trade initiatives. The government export strategy emphasizes a more aggressive export assistance program. Warsaw continues to hold the budget deficit to less than 2% of GDP. Further progress on public finance depends mainly on comprehensive reform of the social welfare system and privatization of Poland's remaining state sector. Restructuring and privatization of "sensitive sectors" (e.g., coal, steel) has been delayed. Long-awaited privatizations in aviation, energy, and telecommunications are scheduled for 1998.

Portugal's short-term economic fundamentals remain

strong:

1997 was marked by a reduction in inflation, a rise in the GDP growth rate, a reduction in the fiscal deficit, and a lowering of interest rates. The Socialist government's primary economic goal is to place Portugal in the initial group of countries adopting the single European currency; Lisbon looks well positioned to be in the first tranche of EMU countries. As for the long run, Portugal is increasing its infrastructure spending, in anticipation of hosting the world's International Exposition, which began in May 1998. Lisbon also is working to modernize its capital plant and increase competitiveness in hope of moving up closer to the EU average.

Romania, one of the poorer countries in the region, is continuing its difficult transition to a market-based economy. After the collapse of the Soviet Bloc in 1989-91, Romania was left with an obsolete industrial base and a pattern of industrial capacity wholly unsuited to its needs. For the next few years the country lagged behind most of its neighbors in the pace of restructuring. Then in February 1997, Romania embarked on a comprehensive macroeconomic stabilization and structural reform program.

The domestic foreign exchange market was freed, and controls on current-account convertibility were removed in October. Restructuring programs include liquidating large energy-intensive industries, and agricultural and financial sector reform. The private sector share of GDP rose to an estimated 58% in 1997, however, this total includes firms with government-held minority stakes. Although progress has been made in privatizing small- and medium-sized firms, delays in structural reforms-including the postponement of sales of large state-owned enterprises - threaten plans to revive GDP growth. In 1998, GDP will likely be unchanged; and inflation is projected to fall to 45% from 151% in 1997.

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 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 have been relatively stable since 1995. Reliable statistics continue to be hard to come by, and the GDP estimate is extremely rough. The economic boom anticipated by the government after the suspension of UN sanctions in December 1995 has failed to materialize. Until the government cooperates on such matters as human rights and war criminals, it will lack full support from international financial institutions.

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 4.9% in 1994 after a four-year decline. GDP then rose by 6.8% in 1995, 7% in 1996, and 5.9% in 1997, rates among the highest in Central and Eastern Europe.

Inflation dropped from 26% in 1993 to 6% annually in 1996-97, the lowest rate in the region. Private activity now makes up more than two-thirds of GDP. 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. Continuing economic recovery in western Europe should boost exports and production, but Slovakia's position with foreign creditors and investors could suffer setbacks in 1998 if progress on privatization and restructuring stalls and if domestic political problems continue to tarnish its international image.

Today, Slovenia exhibits the highest per capita GDP of all the transition economies of the region, fairly moderate inflation, and a comfortable level of international reserves. However, GDP has posted slower growth since reaching a zenith of 5.5% in 1994. Growth declined to 3.5% in 1995 and 3.2% in 1996 and in 1997. Exports in 1997 benefited from economic recovery abroad-especially of Slovenia's main trading partners of the EU, which take 70% of Slovene exports.

This export-led trend is predicted to continue, with an expected GDP growth rate of 3.8% for 1998. Slovenia received an invitation in 1997 to begin accession negotiations with the EU-a further reflection of Slovenia's sound economic footing. Slovenia must press on with privatization, enterprise restructuring, institution reform, and liberalization of financial markets, thereby creating conditions conducive to foreign investment, and maintaining a stable tolar.

Spain's mixed capitalist economy supports a GDP that on a per capita basis is 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 and, based on economic indicators, Madrid appears poised to be in EMU from the outset. The deficit-to-GDP ratio is 2.3%, the debt-to-GDP ratio is expected to be around 68%, and inflation is approximately 2%. Moreover, the AZNAR administration has continued to advocate liberalization, privatization, and deregulation of the economy, and has introduced some tax reforms to that end.

Unemployment, nonetheless, remains the highest in the EU at 21%. 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 both Spain's internal economic advances and its competitiveness in a single currency area.

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, high 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. Sweden has decided not to join the EMU (European Monetary Union). Annual GDP growth should edge up to 2.5% in 1998-99.

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 growth was a minus 0.2% in 1996 and a weak plus 0.4% in 1997. Weak domestic consumer demand is partly at fault; stagnating real disposable income combines 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, therefore are more reliant on export markets. Exports should lead an upturn in Swiss economic performance in 1998-99, provided the franc does not appreciate substantially as a result of Swiss monetary policy or instability in the run up to EMU.

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. Ukraine depends on imports of energy, especially natural gas.

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 1992-97 fell 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 economic reforms, 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; and an environment of corruption continues to discourage foreign investors. One signal achievement has been the reduction of the inflation rate to 10% by yearend 1997. If KUCHMA succeeds in implementing aggressive market reforms during 1998, the economy should reverse its downward trend, with real growth occurring by late 1998 and into 1999.

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 two decades the government has 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 18% of the work force. Exports and manufacturing output have been the primary engines of growth.

Unemployment is gradually falling. Inflation is a moderate 3.1%. 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 22% to GDP and employs 25% of the labor force, while the service sector contributes 73% 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 political instability on the island and fluctuations in economic conditions in Western Europe.

The Turkish Cypriot economy has about 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 have 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 redeployment of Israeli forces in 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. Newly elected President KHATAMI has continued to follow the market reform plans of former President RAFSANJANI and has indicated that he will pursue diversification of Iran's oil-reliant economy. In the early 1990s, Iran experienced a financial crisis and was forced to reschedule $15 billion in debt.

The strong oil market in 1996 helped ease financial pressures on Iran and allowed for Tehran's timely debt service payments. Iran's financial situation tightened in 1997 and early 1998 because of lower oil prices. Iran may be forced to decrease imports and slow debt repayments if the oil market worsens further.

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.

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. Industrial and transportation facilities, which suffered severe damage, have been partially restored.

At current prices, oil exports are about one-third of their prewar level because of the implementation of UN Security Council Resolution 986-the UN's oil-for-goods program-in December 1996. Shortages of spare parts continue. In accord with the oil-for-goods deal, Iraq is allowed to 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 arrived in April 1997. Per capita output for 1995-97 and living standards are well below the 1989-90 level, but any estimates have a wide range of error.

Israel has a technologically advanced 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 28% of Israeli workers; agriculture, forestry, and fishing only 2.6%; 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 topped 750,000 during the period 1989-97, bringing the population of Israel from the former Soviet Union to one million, or one-sixth of the total population. Initially this great influx increased unemployment, intensified housing problems, and strained the government budget. At the same time, the immigrants bring to the economy scientific and professional expertise of substantial value for the future.