Part 341

Ukraine 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 the unique equipment (for example, large diameter pipes) and raw materials to industrial and mining sites (vertical drilling apparatus) in other regions of the former USSR. Shortly after independence was ratified 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 by 1999 had fallen to less than 40% of the 1991 level. Ukraine's dependence on Russia for energy supplies and the lack of significant structural reform have made the Ukrainian economy vulnerable to external shocks. Ukraine depends on imports to meet about three-fourths of its annual oil and natural gas requirements. Ukraine concluded a deal with Russia in January 2006 that almost doubled the price Ukraine pays for Russian gas. Disputes with Russia over pricing have led to periodic gas cut-offs. Outside institutions - particularly the IMF - have encouraged Ukraine to quicken the pace and scope of reforms. Ukrainian Government officials eliminated most tax and customs privileges in a March 2005 budget law, bringing more economic activity out of Ukraine's large shadow economy, but more improvements are needed, including fighting corruption, developing capital markets, and improving the legislative framework. Ukraine's economy was buoyant despite political turmoil between the prime minister and president until mid-2008. Real GDP growth exceeded 7% in 2006-07, fueled by high global prices for steel - Ukraine's top export - and by strong domestic consumption, spurred by rising pensions and wages. The drop in steel prices and Ukraine's exposure to the global financial crisis due to aggressive foreign borrowing has lowered growth in 2008 and the economy probably will contract in 2009. Ukraine reached an agreement with the IMF for a $16.5 billion standby arrangement in November 2008 to deal with the economic crisis. However, political turmoil in Ukraine as well as deteriorating external conditions are likely to hamper efforts for economic recovery.

United Arab Emirates The UAE has an open economy with a high per capita income and a sizable annual trade surplus. Successful efforts at economic diversification have reduced the portion of GDP based on oil and gas output to 25%. Since the discovery of oil in the UAE more than 30 years ago, the UAE has undergone a profound transformation from an impoverished region of small desert principalities to a modern state with a high standard of living. The government has increased spending on job creation and infrastructure expansion and is opening up utilities to greater private sector involvement. In April 2004, the UAE signed a Trade and Investment Framework Agreement with Washington and in November 2004 agreed to undertake negotiations toward a Free Trade Agreement with the US. The country's Free Trade Zones - offering 100% foreign ownership and zero taxes - are helping to attract foreign investors. Higher oil revenue, strong liquidity, housing shortages, and cheap credit in 2005-07 led to a surge in asset prices (shares and real estate) and consumer inflation. The global financial crisis and the resulting tight international credit market and falling oil prices have already begun to deflate asset prices and will result in slower economic growth for 2009. Dependence on oil and a large expatriate workforce are significant long-term challenges. The UAE's strategic plan for the next few years focuses on diversification and creating more opportunities for nationals through improved education and increased private sector employment.

United Kingdom The UK, a leading trading power and financial center, is one of the quintet of trillion dollar economies of 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 less than 2% of the labor force. The UK has large coal, natural gas, and oil resources, but its oil and natural gas reserves are declining and the UK became a net importer of energy in 2005; energy industries now contribute about 4% to GDP. Services, particularly banking, insurance, and business services, account by far for the largest proportion of GDP while industry continues to decline in importance. Since emerging from recession in 1992, Britain's economy enjoyed the longest period of expansion on record during which time growth outpaced most of Western Europe. The global economic slowdown, tight credit, and falling home prices, however, pushed Britain back into recession in the latter half of 2008 and prompted the BROWN government to implement a number of new measures to stimulate the economy and stabilize the financial markets; these include part-nationalizing the banking system, cutting taxes, suspending public sector borrowing rules, and bringing forward public spending on capital projects. The Bank of England periodically coordinates interest rate moves with the European Central Bank, but Britain remains outside the European Economic and Monetary Union (EMU), and opinion polls show a majority of Britons oppose joining the euro.

United States The US has the largest and most technologically powerful economy in the world, with a per capita GDP of $46,900. In this market-oriented economy, private individuals and business firms make most of the decisions, and the federal and state governments buy needed goods and services predominantly in the private marketplace. US business firms enjoy greater flexibility than their counterparts in Western Europe and Japan in decisions to expand capital plant, to lay off surplus workers, and to develop new products. At the same time, they face higher barriers to enter their rivals' home markets than foreign firms face entering US markets. US firms are at or near the forefront in technological advances, especially in computers and in medical, aerospace, and military equipment; their advantage has narrowed since the end of World War II. The onrush of technology largely explains the gradual development of a "two-tier labor market" in which those at the bottom lack the education and the professional/technical skills of those at the top and, more and more, fail to get comparable pay raises, health insurance coverage, and other benefits. Since 1975, practically all the gains in household income have gone to the top 20% of households. The war in March-April 2003 between a US-led coalition and Iraq, and the subsequent occupation of Iraq, required major shifts in national resources to the military. Hurricane Katrina caused extensive damage in the Gulf Coast region in August 2005, but had a small impact on overall GDP growth for the year. Soaring oil prices between 2005 and the first half of 2008 threatened inflation and unemployment, as higher gasoline prices ate into consumers' budgets. Imported oil accounts for about two-thirds of US consumption. Long-term problems include inadequate investment in economic infrastructure, rapidly rising medical and pension costs of an aging population, sizable trade and budget deficits, and stagnation of family income in the lower economic groups. The merchandise trade deficit reached a record $819 billion in 2007 and $821 billion in 2008. The global economic downturn, the sub-prime mortgage crisis, investment bank failures, falling home prices, and tight credit pushed the United States into a recession by mid-2008. To help stabilize financial markets, the US Congress established a $700 billion Troubled Asset Relief Program (TARP) in October 2008. The government used some of these funds to purchase equity in US banks and other industrial corporations. In January 2009 the US Congress passed and President Barack OBAMA signed a bill providing an additional $787 billion fiscal stimulus - two-thirds on additional spending and one-third on tax cuts - to create jobs and to help the economy recover.

United States Pacific Island Wildlife Refuges no economic activity

Uruguay Uruguay's economy is characterized by an export-oriented agricultural sector, a well-educated work force, and high levels of social spending. After averaging growth of 5% annually during 1996-98, in 1999-2002 the economy suffered a major downturn, stemming largely from the spillover effects of the economic problems of its large neighbors, Argentina and Brazil. In 2001-02, Argentine citizens made massive withdrawals of dollars deposited in Uruguayan banks after bank deposits in Argentina were frozen, which led to a plunge in the Uruguayan peso, a banking crisis, and a sharp economic contraction. Real GDP fell in four years by nearly 20%, with 2002 the worst year. The unemployment rate rose, inflation surged, and the burden of external debt doubled. Financial assistance from the IMF helped stem the damage. Uruguay restructured its external debt in 2003 without asking creditors to accept a reduction on the principal. Economic growth for Uruguay resumed, and averaged 8% annually during the period 2004-08.

Uzbekistan Uzbekistan is a dry, landlocked country of which 11% consists of intensely cultivated, irrigated river valleys. More than 60% of its population lives in densely populated rural communities. Uzbekistan is now the world's second-largest cotton exporter and fifth largest producer; it relies heavily on cotton production as the major source of export earnings and has come under increasing international criticism for the use of child labor in its annual cotton harvest. Other major export earners include gold, natural gas, and oil. Following independence in September 1991, the government sought to prop up its Soviet-style command economy with subsidies and tight controls on production and prices. While aware of the need to improve the investment climate, the government still sponsors measures that often increase, not decrease, its control over business decisions. A sharp increase in the inequality of income distribution has hurt the lower ranks of society since independence. In 2003, the government accepted Article VIII obligations under the IMF, providing for full currency convertibility. However, strict currency controls and tightening of borders have lessened the effects of convertibility and have also led to some shortages that have further stifled economic activity. The Central Bank often delays or restricts convertibility, especially for consumer goods. Potential investment by Russia and China in Uzbekistan's gas and oil industry, as well as increased cooperation with South Korea in the realm of civil aviation, may boost growth prospects. In November 2005, Russian President Vladimir PUTIN and Uzbekistan President KARIMOV signed an "alliance," which included provisions for economic and business cooperation. Russian businesses have shown increased interest in Uzbekistan, especially in mining, telecom, and oil and gas. In 2006, Uzbekistan took steps to rejoin the Collective Security Treaty Organization (CSTO) and the Eurasian Economic Community (EurASEC), which it subsequently left in 2008, both organizations dominated by Russia. Uzbek authorities have accused US and other foreign companies operating in Uzbekistan of violating Uzbek tax laws and have frozen their assets.

Vanuatu This South Pacific island economy is based primarily on small-scale agriculture, which provides a living for over 70% of the population. Fishing, offshore financial services, and tourism, with more than 167,000 visitors in 2007 are other mainstays of the economy. Mineral deposits are negligible; the country has no known petroleum deposits. A small light industry sector caters to the local market. Tax revenues come mainly from import duties. Economic development is hindered by dependence on relatively few commodity exports, vulnerability to natural disasters, and long distances from main markets and between constituent islands. In response to foreign concerns, the government has promised to tighten regulation of its offshore financial center. In mid-2002, the government stepped up efforts to boost tourism through improved air connections, resort development, and cruise ship facilities. Agriculture, especially livestock farming, is a second target for growth. Australia and New Zealand are the main suppliers of tourists and foreign aid.

Venezuela Venezuela remains highly dependent on oil revenues, which account for roughly 90% of export earnings, about 50% of the federal budget revenues, and around 30% of GDP. A nationwide strike between December 2002 and February 2003 had far-reaching economic consequences - real GDP declined by around 9% in 2002 and 8% in 2003 - but economic output since then has recovered strongly. Fueled by high oil prices, record government spending helped to boost GDP by about 10% in 2006, 8% in 2007, and nearly 5% in 2008. This spending, combined with recent minimum wage hikes and improved access to domestic credit, has created a consumption boom but has come at the cost of higher inflation - roughly 20% in 2007 and more than 30% in 2008. Imports also have jumped significantly. Declining oil prices in the latter part of 2008 are expected to undermine the govenment's ability to continue the high rate of spending. President Hugo CHAVEZ in 2008 continued efforts to increase the government's contol of the economy by nationalizing firms in the cement and steel sectors. In 2007, he nationalized firms in the petroleum, communications, and electricity sectors. In July 2008, CHAVEZ implemented by decree a number of laws that further consolidate and centralize authority over the economy through his plan for "21st Century Socialism."

Vietnam Vietnam is a densely-populated developing country that in the last 30 years has had to recover from the ravages of war, the loss of financial support from the old Soviet Bloc, and the rigidities of a centrally-planned economy. Since 2001, Vietnamese authorities have reaffirmed their commitment to economic liberalization and international integration. They have moved to implement the structural reforms needed to modernize the economy and to produce more competitive export-driven industries. Vietnam's membership in the ASEAN Free Trade Area (AFTA) and entry into force of the US-Vietnam Bilateral Trade Agreement in December 2001 have led to even more rapid changes in Vietnam's trade and economic regime. Vietnam's exports to the US increased 900% from 2001 to 2007. Vietnam joined the WTO in January 2007 following over a decade long negotiation process. WTO membership has provided Vietnam an anchor to the global market and reinforced the domestic economic reform process. Among other benefits, accession allows Vietnam to take advantage of the phase-out of the Agreement on Textiles and Clothing, which eliminated quotas on textiles and clothing for WTO partners on 1 January 2005. Agriculture's share of economic output has continued to shrink from about 25% in 2000 to less than 20% in 2008. Deep poverty has declined significantly and is now smaller than that of China, India, and the Philippines. Vietnam is working to create jobs to meet the challenge of a labor force that is growing by more than one-and-a-half million people every year. The global financial crisis, however, will constrain Vietnam's ability to create jobs and further reduce poverty. As global growth sharply drops in 2009, Vietnam's export-oriented economy - exports were 68% of GDP in 2007 - will suffer from lower exports, higher unemployment and corporate bankruptcies, and decreased foreign investment.

Virgin Islands Tourism is the primary economic activity, accounting for 80% of GDP and employment. The islands hosted 2.6 million visitors in 2005. The manufacturing sector consists of petroleum refining, rum distilling, textiles, electronics, pharmaceuticals, and watch assembly. One of the world's largest petroleum refineries is at Saint Croix. The agricultural sector is small, with most food being imported. International business and financial services are small but growing components of the economy. The islands are vulnerable to substantial damage from storms. The government is working to improve fiscal discipline, to support construction projects in the private sector, to expand tourist facilities, to reduce crime, and to protect the environment.

Wake Island Economic activity is limited to providing services to military personnel and contractors located on the island. All food and manufactured goods must be imported.

Wallis and Futuna The economy is limited to traditional subsistence agriculture, with about 80% of labor force earnings from agriculture (coconuts and vegetables), livestock (mostly pigs), and fishing. About 4% of the population is employed in government. Revenues come from French Government subsidies, licensing of fishing rights to Japan and South Korea, import taxes, and remittances from expatriate workers in New Caledonia.

West Bank The West Bank - the larger of the two areas comprising the Palestinian Authority (PA) - has experienced a general decline in economic conditions since the second intifada began in September 2000. The downturn has been largely a result of Israeli closure policies - the imposition of closures and access restrictions in response to security concerns in Israel - which disrupted labor and trading relationships. In 2001, and even more severely in 2002, Israeli military measures in PA areas resulted in the destruction of capital, the disruption of administrative structures, and widespread business closures. International aid of at least $1.14 billion to the West Bank and Gaza Strip in 2004 prevented the complete collapse of the economy and allowed some reforms in the government's financial operations. In 2005, high unemployment and limited trade opportunities - due to continued closures both within the West Bank and externally - stymied growth. Israel's and the international community's financial embargo of the PA when HAMAS ran the PA during March 2006 - June 2007 interrupted the provision of PA social services and the payment of PA salaries. Since then the FAYYAD government in the West Bank has restarted salary payments and the provision of services but would be unable to operate absent high levels of international assistance.

Western Sahara Western Sahara depends on pastoral nomadism, fishing, and phosphate mining as the principal sources of income for the population. The territory lacks sufficient rainfall for sustainable agricultural production, and most of the food for the urban population must be imported. Incomes in Western Sahara are substantially below the Moroccan level. The Moroccan Government controls all trade and other economic activities in Western Sahara. Morocco and the EU signed a four-year agreement in July 2006 allowing European vessels to fish off the coast of Morocco, including the disputed waters off the coast of Western Sahara. Moroccan energy interests in 2001 signed contracts to explore for oil off the coast of Western Sahara, which has angered the Polisario. However, in 2006 the Polisario awarded similar exploration licenses in the disputed territory, which would come into force if Morocco and the Polisario resolve their dispute over Western Sahara.

World Global output rose by 3.8% in 2008, down from 5.2% in 2007. Among major economies, growth was led by China (9.8%), Russia (7.4%), and India (7.3%). Worldwide, nations varied widely in their growth results, with Macau (15%), Azerbaijan (13.2%), and Angola (11.6%), registering the highest. Growth rates slowed in all the major industrial countries and most developing countries, because of uncertainties in the financial markets and lowered consumer confidence. 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 often finds its control over resources slipping as separatist regional movements - typically based on ethnicity - gain momentum, e.g., in many of the successor states of the former Soviet Union, in the former Yugoslavia, in India, in Iraq, in Indonesia, and in Canada. Externally, the central government is losing decisionmaking powers to international bodies, notably the EU. 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 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 and priorities, the industrialized countries devote insufficient resources to deal effectively with the poorer areas of the world, which, at least from an economic point of view, are becoming further marginalized. The introduction of the euro as the common currency of much of Western Europe in January 1999, while paving the way for an integrated economic powerhouse, poses economic risks because of varying levels of income and cultural and political differences among the participating nations. The terrorist attacks on the US on 11 September 2001 accentuated a growing risk to global prosperity, illustrated, for example, by the reallocation of resources away from investment to anti-terrorist programs. The opening of war in March 2003 between a US-led coalition and Iraq added new uncertainties to global economic prospects. The complex political difficulties and the high economic cost of establishing domestic order in Iraq became major global problems that continued through 2008.

Yemen Yemen, one of the poorest countries in the Arab world, reported average annual growth in the range of 3-4% from 2000 through 2007. In 2008, growth declined slightly as the price of oil dropped and the slowing global economy reduced demand for oil. Yemen's economic fortunes depend mostly on declining oil resources, but the country is trying to diversify its earnings. In 2006, Yemen began an economic reform program designed to bolster non-oil sectors of the economy and foreign investment. As a result of the program, international donors pledged about $5 billion for development projects. A liquefied natural gas facility is scheduled to open in 2009. Yemen has limited exposure to the international financial system and no capital markets, however, the global financial crisis probably will reduce international aid in 2009.