Part 333

Haiti Haiti is the poorest country in the Western Hemisphere with 80% of the population living under the poverty line and 54% in abject poverty. Two-thirds of all Haitians depend on the agricultural sector, mainly small-scale subsistence farming, and remain vulnerable to damage from frequent natural disasters, exacerbated by the country's widespread deforestation. While the economy has recovered in recent years, registering positive growth since 2005, four tropical storms in 2008 severely damaged the transportation infrastructure and agricultural sector. US economic engagement under the Haitian Hemispheric Opportunity through Partnership Encouragement (HOPE) Act, passed in December 2006, has boosted apparel exports and investment by providing tariff-free access to the US. HOPE II, passed in October 2008, has further improved the export environment for the apparel sector by extending preferences to 2018; the apparel sector accounts for two-thirds of Haitian exports and nearly one-tenth of GDP. Remittances are the primary source of foreign exchange, equaling nearly a quarter of GDP and more than twice the earnings from exports. Haiti suffers from high inflation, a lack of investment because of insecurity and limited infrastructure, and a severe trade deficit. In 2005, Haiti paid its arrears to the World Bank, paving the way for reengagement with the Bank. Haiti is expected to receive debt forgiveness for about $525 million of its debt through the Highly-Indebted Poor Country (HIPC) initiative by mid-2009. The government relies on formal international economic assistance for fiscal sustainability.

Heard Island and McDonald Islands The islands have no indigenous economic activity, but the Australian Government allows limited fishing in the surrounding waters.

Holy See (Vatican City) The Holy See is supported financially by a variety of sources, including investments, real estate income, and donations from Catholic individuals, dioceses, and institutions; these help fund the Roman Curia (Vatican bureaucracy), diplomatic missions, and media outlets. The separate Vatican City State budget includes the Vatican museums and post office and is supported financially by the sale of stamps, coins, medals, and tourist mementos; by fees for admission to museums; and by publications sales. Moreover, an annual collection taken up in dioceses and direct donations go to a non-budgetary fund known as Peter's Pence, which is used directly by the Pope for charity, disaster relief, and aid to churches in developing nations. The incomes and living standards of lay workers are comparable to those of counterparts who work in the city of Rome.

Honduras Honduras, the second poorest country in Central America, has an extraordinarily unequal distribution of income and high unemployment. The economy relies heavily on a narrow range of exports, notably bananas and coffee, making it vulnerable to natural disasters and shifts in commodity prices; however, investments in the maquila and non-traditional export sectors are slowly diversifying the economy. Economic growth remains dependent on the US economy its largest trading partner, and will decline in 2009 as a result of reduction in export demand and tightening global credit markets. Remittances represent over a quarter of GDP or nearly three-quarters of exports. The US-Central America Free Trade Agreement (CAFTA) came into force in 2006 and has helped foster investment. Despite improvements in tax collections, the government's fiscal deficit is growing due to increases in current expenditures and financial losses from the state energy and telephone companies.

Hong Kong Hong Kong has a free market economy highly dependent on international trade and finance, which has left it heavily exposed to the global economic slowdown that began in 2008. The total value of goods and services trade, including the sizable share of reexports, was equivalent to 404% of GDP in 2007. The territory has become increasingly integrated with mainland China over the past few years through trade, tourism, and financial links. The mainland has long been Hong Kong's largest trading partner, accounting for nearly 49% of Hong Kong's exports trade by value in 2008. As a result of China's easing of travel restrictions, the number of mainland tourists to the territory has surged from 4.5 million in 2001 to 16.9 million in 2008, when they outnumbered visitors from all other countries combined. Hong Kong has also established itself as the premier stock market for Chinese firms seeking to list abroad. More than one-third of the firms listed on the Hong Kong Stock Exchange are now mainland Chinese companies. They account for 60% of the Exchange's market capitalization. During the past decade, as Hong Kong's manufacturing industry moved to the mainland, its service industry has grown rapidly and now accounts for more than 90% of the territory's GDP. Hong Kong's natural resources are limited, and food and raw materials must be imported. GDP growth averaged a strong 5% from 1989 to 2007, but the global financial crisis caused a sharp slowdown in the second half of 2008, pushing the territory into recession. Hong Kong continues to link its currency closely to the US dollar, maintaining an arrangement established in 1983.

Hungary Hungary has made the transition from a centrally planned to a market economy, with a per capita income nearly two-thirds that of the EU-25 average. The private sector accounts for more than 80% of GDP. Foreign ownership of and investment in Hungarian firms is widespread, with cumulative foreign direct investment totaling more than $200 billion since 1989. The government's IMF-mandated austerity measures, imposed since late 2006, have reduced the budget deficit from over 9% of GDP in 2006 to 3.3% in 2008. Hungary's impending inability to service its short-term debt - brought on by the global credit crunch in late 2008 - led Budapest to seek and receive an IMF-arranged financial assistance package worth over $25 billion. The global financial crisis, declining exports, and low domestic consumption and fixed asset accumulation, dampened by government austerity measures, will result in a negative growth rate of about -1.5% to -2.5% in 2009.

Iceland Iceland's Scandinavian-type social-market economy combines a capitalist structure and free-market principles with an extensive welfare system, including generous housing subsidies. Prior to the 2008 crisis, Iceland had achieved high growth, low unemployment, and a remarkably even distribution of income. Government economic priorities have included stabilizing the krona, reducing the current account deficit, containing inflation, restructuring the financial sector, and diversifying the economy. The economy depends heavily on the fishing industry, which provides 40% of export earnings, more than 12% of GDP, and employs 7% of the work force. It remains sensitive to declining fish stocks as well as to fluctuations in world prices for its main exports: fish and fish products, aluminum, and ferrosilicon. Iceland's economy has been diversifying into manufacturing and service industries in the last decade, with new developments in software production, biotechnology, and tourism. Abundant geothermal sources have attracted substantial foreign investment in the aluminum and hydropower sectors and boosted economic growth, although the financial crisis has put several investment projects on hold. Much of Iceland's economic growth in recent years came as the result of a boom in domestic demand following the rapid expansion of the country's financial sector. Domestic banks expanded aggressively in foreign markets, and consumers and businesses borrowed heavily in foreign-currency loans, following the privatization of the sector in the early 2000s. Worsening global financial conditions throughout 2008 resulted in a sharp depreciation of the krona vis-a-vis other major currencies. The foreign exposure of Icelandic banks, whose loans and other assets totaled more than 10 times the country's GDP, became unsustainable. Iceland's three largest banks collapsed in late 2008. The country negotiated over $10 billion in loans from the IMF and other countries to stabilize its currency and financial sector, and to guarantee foreign deposits in Icelandic banks. A protracted recession is expected in 2009 and 2010 with GDP likely to contract and unemployment likely to surpass 10%. The collapse of the financial system has led to a major shift in opinion in favor of joining the EU and adopting the euro. Previous opposition to this move stemmed from Icelanders' concern about losing control of their fishing resources. Iceland's coalition government collapsed in January 2009 following protests over growing joblessness and losses to personal savings.

India India's diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. Services are the major source of economic growth, accounting for more than half of India's output with less than one third of its labor force. Slightly more than half of the work force is in agriculture, leading the United Progressive Alliance (UPA) government to articulate a rural economic development program that includes creating basic infrastructure to improve the lives of the rural poor and boost economic performance. The government has reduced controls on foreign trade and investment. Higher limits on foreign direct investment were permitted in a few key sectors, such as telecommunications. However, tariff spikes in sensitive categories, including agriculture, and incremental progress on economic reforms still hinder foreign access to India's vast and growing market. Privatization of government-owned industries remains stalled and continues to generate political debate; populist pressure from within the UPA government had restrained needed initiatives. The economy has posted an average growth rate of more than 7% in the decade since 1997, reducing poverty by about 10 percentage points. India achieved 9.6% GDP growth in 2006, 9.0% in 2007, and 6.6% in 2008, significantly expanding manufactures through late 2008. India also is capitalizing on its large numbers of well-educated people skilled in the English language to become a major exporter of software services and software workers. Strong growth combined with easy consumer credit, a real estate boom, and fast-rising commodity prices fueled inflation concerns from mid-2006 to August 2008. Rising tax revenues from better tax administration and economic expansion helped New Delhi make progress in reducing its fiscal deficit for three straight years before skyrocketing global commodity prices more than doubled the cost of government energy and fertilizer subsidies. The ballooning subsidies, amidst slowing growth, brought the return of a large fiscal deficit in 2008. In the long run, the huge and growing population is the fundamental social, economic, and environmental problem.

Indian Ocean The Indian Ocean provides major sea routes connecting the Middle East, Africa, and East Asia with Europe and the Americas. It carries a particularly heavy traffic of petroleum and petroleum products from the oilfields of the Persian Gulf and Indonesia. Its fish are of great and growing importance to the bordering countries for domestic consumption and export. Fishing fleets from Russia, Japan, South Korea, and Taiwan also exploit the Indian Ocean, mainly for shrimp and tuna. Large reserves of hydrocarbons are being tapped in the offshore areas of Saudi Arabia, Iran, India, and western Australia. An estimated 40% of the world's offshore oil production comes from the Indian Ocean. Beach sands rich in heavy minerals and offshore placer deposits are actively exploited by bordering countries, particularly India, South Africa, Indonesia, Sri Lanka, and Thailand.

Indonesia Indonesia, a vast polyglot nation, has made significant economic advances under the administration of President YUDHOYONO but faces challenges stemming from the global financial crisis and world economic downturn. Indonesia's debt-to-GDP ratio in recent years has declined steadily because of increasingly robust GDP growth and sound fiscal stewardship. The government has introduced significant reforms in the financial sector, including in the areas of tax and customs, the use of Treasury bills, and capital market supervision. Indonesia's investment law, passed in March 2007, seeks to address some of the concerns of foreign and domestic investors. Indonesia still struggles with poverty and unemployment, inadequate infrastructure, corruption, a complex regulatory environment, and unequal resource distribution among regions. The non-bank financial sector, including pension funds and insurance, remains weak. Despite efforts to broaden and deepen capital markets, they remain underdeveloped. Economic difficulties in early 2008 centered on high global food and oil prices and their impact on Indonesia's poor and on the budget. The onset of the global financial crisis dampened inflationary pressures, but increased risk aversion for emerging market assets resulted in large losses in the stock market, significant depreciation of the rupiah, and a difficult environment for bond issuance. As global demand has slowed and prices for Indonesia's commodity exports have fallen, Indonesia faces the prospect of growth significantly below the 6-plus percent recorded in 2007 and 2008.

Iran Iran's economy is marked by an inefficient state sector, reliance on the oil sector, which provides the majority of government revenues, and statist policies, which create major distortions throughout the system. Most economic activity is controlled by the state. Private sector activity is typically limited to small-scale workshops, farming, and services. Price controls, subsidies, and other rigidities weigh down the economy, undermining the potential for private-sector-led growth. Significant informal market activity flourishes. Corruption and shortages of goods are widespread. President Mahmud AHMADI-NEJAD has proposed reforms to Iran's system of price controls and subsidies, particularly on food and energy. However, previous government-led efforts at reform - such as fuel rationing in July 2007 and the imposition of the Value-Added Tax (VAT) in October 2008 - were met with stiff resistance and violent protests. High oil prices in recent years allowed Iran to greatly increase its export earnings and amass nearly $100 billion in foreign exchange reserves. But with oil prices currently below $40 per barrel, the Iranian government is facing difficulties. Tehran has formulated a 2009 budget that anticipates lower oil prices. The government has drawn down the country's Oil Stabilization Fund, and may be dipping into foreign exchange reserves. Iran continues to suffer from double-digit unemployment and inflation - inflation climbed to a 28% annual rate in 2008. Underemployment among Iran's educated youth has convinced many to seek jobs overseas, resulting in a significant "brain drain."

Iraq Decreasing insurgent attacks and an improving security environment in many parts of the country are helping to spur economic activity. Iraq's economy is dominated by the oil sector, which has traditionally provided over 90% of foreign exchange earnings. Oil exports are around levels seen before Operation Iraqi Freedom. Total government revenues have benefited from high oil prices in recent years; however, revenues have declined significantly since the oil price drop in fall 2008. Iraq is making some progress in building the institutions needed to implement economic policy. In March 2009 Iraq concluded a Stand-By Arrangement (SBA) with the IMF that details economic reforms. The SBA allows an 80% reduction of the debt owed to Paris Club creditor nations. The International Compact with Iraq was established in May 2007 to integrate Iraq into the regional and global economy, and the Iraqi government is seeking to pass laws to strengthen its economy. This legislation includes a hydrocarbon law to establish a modern legal framework to allow Iraq to develop its resources and a revenue sharing law to equitably divide oil revenues within the nation, although both are still under contentious political negotiation. Some foreign entities have expressed interest in reinvigorating Iraq's industrial sector. The government of Iraq is pursuing a strategy to gain foreign participation in joint ventures with State-owned enterprises. Provincial Councils are also using their own budgets to promote and facilitate investment at the local level. The Central Bank has been successful in controlling inflation through appreciation of the dinar against the US dollar. However, Iraq's challenge will be to use macroeconomic gains to improve the lives of ordinary Iraqis. Reducing corruption and implementing structural reforms, such as bank restructuring and developing the private sector, will be key to Iraq's economic success.

Ireland Ireland is a small, modern, trade-dependent economy. GDP growth averaged 6% in 1995-2007, but economic activity dropped sharply in 2008 and Ireland entered into a recession for the first time in more than a decade with the onset of the world financial crisis and subsequent severe slowdown in the property and construction markets. Agriculture, once the most important sector, is now dwarfed by industry and services. Although the export sector, dominated by foreign multinationals, remains a key component of Ireland's economy, construction most recently fueled economic growth along with strong consumer spending and business investment. Property prices rose more rapidly in Ireland in the decade up to 2006 than in any other developed world economy. Per capita GDP also surged during Ireland's high-growth years, and in 2007 surpassed that of the United States. The Irish Government has implemented a series of national economic programs designed to curb price and wage inflation, invest in infrastructure, increase labor force skills, and promote foreign investment. In 2008 the COWEN government moved to guarantee all bank deposits, recapitalize the banking system, and establish partly-public venture capital funds in response to the country's economic downturn. Ireland joined in circulating the euro on 1 January 2002 along with 11 other EU nations.

Isle of Man Offshore banking, manufacturing, and tourism are key sectors of the economy. The government offers incentives to high-technology companies and financial institutions to locate on the island; this 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 contributions to GDP. The Isle of Man also attracts online gambling sites and the film industry. Trade is mostly with the UK. The Isle of Man enjoys free access to EU markets.

Israel Israel has a technologically advanced market economy with substantial, though diminishing, 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. Israel imports substantial quantities of grain but is largely self-sufficient in other agricultural products. Cut diamonds, high-technology equipment, and agricultural products (fruits and vegetables) are the leading exports. Israel usually posts sizable trade 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, its major source of economic and military aid. Israel's GDP, after contracting slightly in 2001 and 2002 due to the Palestinian conflict and troubles in the high-technology sector, has grown by about 5% per year since 2003. The economy grew an estimated 3.9% in 2008, slowed by the global financial crisis. The government's prudent fiscal policy and structural reforms over the past few years have helped to induce strong foreign investment, tax revenues, and private consumption, setting the economy on a solid growth path.

Italy Italy has a diversified industrial economy, which is divided into a developed industrial north, dominated by private companies, and a less-developed, welfare-dependent, agricultural south, with high unemployment. The Italian economy is driven in large part by the manufacture of high-quality consumer goods produced by small and medium-sized enterprises. Italy also has a sizable underground economy, which by some estimates accounts for as much as 15% of GDP. These activities are most common within the agriculture, construction, and service sectors. Italy has moved slowly on implementing needed structural reforms, such as lightening the high tax burden and overhauling Italy's rigid labor market and over-generous pension system and these conditions will be exacerbated by the recent global financial crisis. The Italian government is seeking to rein in government spending, but the leadership faces a severe economic constraint: Italy's official debt remains above 100% of GDP, and the fiscal deficit - 1.5% of GDP in 2007 - could approach 3% in 2009 as political pressure to stimulate the economy and the costs of servicing Italy's debt rise. The economy will continue to contract through 2009 as the global demand for exports drop.

Jamaica The Jamaican economy is heavily dependent on services, which now account for more than 60% of GDP. The country continues to derive most of its foreign exchange from tourism, remittances, and bauxite/alumina. Remittances account for nearly 20% of GDP and are equivalent to tourism revenues. Jamaica's economy, already saddled with the lowest economic growth in Latin America, will face increasing difficulties as the global economy slows. The economy faces serious long-term problems: a sizable merchandise trade deficit, large-scale unemployment and underemployment, and a debt-to-GDP ratio of almost 130%. Jamaica's onerous debt burden - the fourth highest per capita - is the result of government bailouts to ailing sectors of the economy, most notably the financial sector in the mid-to-late 1990s. It hinders government spending on infrastructure and social programs as debt servicing accounts for nearly half of government expenditures. Inflation rose sharply in 2008 as a result of high prices for imported food and oil and should fall in 2009 with the decline in international oil prices. High unemployment exacerbates the serious crime problem, including gang violence that is fueled by the drug trade. The GOLDING administration faces the difficult prospect of having to achieve fiscal discipline in order to maintain debt payments while simultaneously attacking a serious and growing crime problem that is hampering economic growth.

Jan Mayen 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 on the island.