Part 351

Luxembourg This small, stable, high-income economy - benefiting from its proximity to France, Belgium, and Germany - has historically featured solid growth, low inflation, and low unemployment. The industrial sector, initially dominated by steel, has become increasingly diversified to include chemicals, rubber, and other products. Growth in the financial sector, which now accounts for about 28% of GDP, has more than compensated for the decline in steel. Most banks are foreign owned and have extensive foreign dealings, but Luxembourg has lost some of its advantages as a tax haven because of OECD and EU pressure. The economy depends on foreign and cross-border workers for about 60% of its labor force. Luxembourg, like all EU members, suffered from the global economic crisis that began in late 2008, but unemployment has trended below the EU average. Following strong expansion from 2004 to 2007, Luxembourg's economy contracted and 3.4% in 2009, but rebounded 2.6% in 2010. The country continues to enjoy an extraordinarily high standard of living - GDP per capita ranks third in the world, after Liechtenstein and Qatar, and is the highest in the EU. Turmoil in the world financial markets and lower global demand during 2008-09 prompted the government to inject capital into the banking sector and implement stimulus measures to boost the economy. Government stimulus measures and support for the banking sector, however, led to a 5% government budget deficit in 2009, however, the deficit was cut below 3% in 2010.

Macau Macau's economy slowed dramatically in 2009 as a result of the global economic slowdown, but strong growth resumed in 2010, largely on the back of strong tourism and gaming sectors. After opening up its locally-controlled casino industry to foreign competition in 2001, the territory attracted tens of billions of dollars in foreign investment, transforming Macau into one of the world's largest gaming center. Macau's gaming and tourism businesses were fueled by China's decision to relax travel restrictions on Chinese citizens wishing to visit Macau. By 2006, Macau's gaming revenue surpassed that of the Las Vegas strip, and gaming-related taxes accounted for more than 70% of total government revenue. In 2008, Macau introduced measures to cool the rapidly developing sector. This city of nearly 570,000 hosted more than 21 million visitors in 2009. Almost 51% came from mainland China. Macau's traditional manufacturing industry has virtually disappeared since the termination of the Multi-Fiber Agreement in 2005. In 2009, total exports were less than US$1 billion, while gaming receipts were almost US$15 billion. By October 2010, gross gaming revenue had already reached US$19 billion for the year. The Macau government plans to tighten control over the opening of new casinos and strengthen supervision of local casino operations in 2011 and has introduced measures to diversify the economy. The Closer Economic Partnership Agreement (CEPA) between Macau and mainland China that came into effect on 1 January 2004 offers Macau-made products tariff-free access to the mainland; nevertheless, China remains Macau's third largest goods export market, behind Hong Kong and the United States. Macau's currency, the Pataca, is closely tied to the Hong Kong dollar, which is also freely accepted in the territory.

Macedonia Having a small, open economy makes Macedonia vulnerable to economic developments in Europe and dependent on regional integration and progress toward EU membership for continued economic growth. At independence in September 1991, Macedonia was the least developed of the Yugoslav republics, producing a mere 5% of the total federal output of goods and services. The collapse of Yugoslavia ended transfer payments from the central government and eliminated advantages from inclusion in a de facto free trade area. An absence of infrastructure, UN sanctions on the downsized Yugoslavia, and a Greek economic embargo over a dispute about the country's constitutional name and flag hindered economic growth until 1996. Since then, Macedonia has maintained macroeconomic stability with low inflation, but it has so far lagged the region in attracting foreign investment and creating jobs, despite making extensive fiscal and business sector reforms. Official unemployment remains high at 33%, but may be overstated based on the existence of an extensive gray market, estimated to be more than 20% of GDP, that is not captured by official statistics. In the wake of the global economic downturn, Macedonia has experienced decreased foreign direct investment, lowered credit, and a large trade deficit, but the financial system remained sound. Macroeconomic stability was maintained by a prudent monetary policy, which kept the domestic currency at the pegged level against the euro, at the expense of raising interest rates. As a result, GDP fell in 2009. but returned to positive in 2010.

Madagascar After discarding socialist economic policies in the mid-1990s, Madagascar followed a World Bank- and IMF-led policy of privatization and liberalization that has been undermined since the start of the political crisis. This strategy placed the country on a slow and steady growth path from an extremely low level. Agriculture, including fishing and forestry, is a mainstay of the economy, accounting for more than one-fourth of GDP and employing 80% of the population. Exports of apparel have boomed in recent years primarily due to duty-free access to the US. However, Madagascar's failure to comply with the requirements of the African Growth and Opportunity Act (AGOA) led to the termination of the country's duty-free access in January 2010. Deforestation and erosion, aggravated by the use of firewood as the primary source of fuel, are serious concerns. Former President RAVALOMANANA worked aggressively to revive the economy following the 2002 political crisis, which triggered a 12% drop in GDP that year. The current political crisis which began in early 2009 has dealt additional blows to the economy. Tourism dropped more than 50% in 2009, compared with the previous year, and many investors are wary of entering the uncertain investment environment.

Malawi Landlocked Malawi ranks among the world's most densely populated and least developed countries. The economy is predominately agricultural with about 80% of the population living in rural areas. Agriculture, which has benefited from fertilizer subsidies since 2006, accounts for more than one-third of GDP and 90% of export revenues. The performance of the tobacco sector is key to short-term growth as tobacco accounts for more than half of exports. The economy depends on substantial inflows of economic assistance from the IMF, the World Bank, and individual donor nations. In 2006, Malawi was approved for relief under the Heavily Indebted Poor Countries (HIPC) program. In December 2007, the US granted Malawi eligibility status to receive financial support within the Millennium Challenge Corporation (MCC) initiative. The government faces many challenges including developing a market economy, improving educational facilities, facing up to environmental problems, dealing with the rapidly growing problem of HIV/AIDS, and satisfying foreign donors that fiscal discipline is being tightened. Since 2005 President MUTHARIKA'S government has exhibited improved financial discipline under the guidance of Finance Minister Goodall GONDWE and signed a three year Poverty Reduction and Growth Facility worth $56 million with the IMF. Improved relations with the IMF lead other international donors to resume aid as well. The government has announced infrastructure projects that could yield improvements, such as a new oil pipeline, for better fuel access, and the potential for a waterway link through Mozambican rivers to the ocean, for better transportation options. Since 2009, however, Malawi experienced some setbacks, including a general shortage of foreign exchange, which has damaged its ability to pay for imports, and fuel shortages that hinder transportation and productivity. Investment fell 23% in 2009. The government has failed to address barriers to investment such as unreliable power, water shortages, poor telecommunications infrastructure, and the high costs of services.

Malaysia Malaysia, a middle-income country, has transformed itself since the 1970s from a producer of raw materials into an emerging multi-sector economy. Under current Prime Minister NAJIB, Malaysia is attempting to achieve high-income status by 2020 and to move farther up the value-added production chain by attracting investments in Islamic finance, high technology industries, medical technology, and pharmaceuticals. The NAJIB administration also is continuing efforts to boost domestic demand and to wean the economy off of its dependence on exports. Nevertheless, exports - particularly of electronics - remain a significant driver of the economy. As an oil and gas exporter, Malaysia has profited from higher world energy prices, although the rising cost of domestic gasoline and diesel fuel, combined with strained government finances, has forced Kuala Lumpur to reduce government subsidies. The government is also trying to lessen its dependence on state oil producer Petronas, which supplies at least 40% of government revenue. The central bank maintains healthy foreign exchange reserves and its well-developed regulatory regime has limited Malaysia's exposure to riskier financial instruments and the global financial crisis. Nevertheless, decreasing worldwide demand for consumer goods hurt Malaysia's exports and economic growth in 2009, although both showed signs of recovery in 2010. In order to attract increased investment, NAJIB has also sought to revise the special economic and social preferences accorded to ethnic Malays under the New Economic Policy of 1970, but he has encountered significant opposition, especially from Malay nationalists.

Maldives Tourism, Maldives' largest economic activity, accounts for 28% of GDP and more than 60% of foreign exchange receipts. Over 90% of government tax revenue comes from import duties and tourism-related taxes. Fishing is the second leading sector. Agriculture and manufacturing continue to play a lesser role in the economy, constrained by the limited availability of cultivable land and the shortage of domestic labor. Most staple foods must be imported. The Maldivian Government implemented economic reforms, beginning in 1989 that initially lifted import quotas, opened some exports to the private sector, and liberalized regulations to allow more foreign investment. Real GDP growth averaged over 7.5% per year for more than a decade, and registered 18% in 2006, due to a rebound in tourism and reconstruction following the tsunami of December 2004. GDP slowed in 2007-08, then contracted in 2009 due to the global recession. Falling tourist arrivals and fish exports, combined with high government spending on social needs, subsidies, and civil servant salaries contributed to a balance of payments crisis, which was eased with a December 2009, $79.3 million dollar IMF standby agreement. Diversifying the economy beyond tourism and fishing, reforming public finance, and increasing employment opportunities are major challenges facing the government. Over the longer term Maldivian authorities worry about the impact of erosion and possible global warming on their low-lying country; 80% of the area is 1 meter or less above sea level.

Mali Among the 25 poorest countries in the world, Mali is a landlocked country highly dependent on gold mining and agricultural exports for revenue. The country's fiscal status fluctuates with gold and agricultural commodity prices and the harvest. Mali remains dependent on foreign aid. Economic activity is largely confined to the riverine area irrigated by the Niger River and about 65% of its land area is desert or semidesert. 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. The government has continued an IMF-recommended structural adjustment program that has helped the economy grow, diversify, and attract foreign investment. Mali is developing its cotton and iron ore extraction industries to diversify its revenue sources because gold production has started to fall. Mali has invested in tourism but security issues are hurting the industry. Mali's adherence to economic reform and the 50% devaluation of the CFA franc in January 1994 have pushed up economic growth to a 5% average in 1996-2010. Worker remittances and external trade routes for the landlocked country have been jeopardized by continued unrest in neighboring Cote d'Ivoire, however, Mali is building a road network that will connect it to all adjacent countries and it has a railway line to Senegal. In 2010, Mali experienced a regional drought that hurt livestock and livelihoods.

Malta Malta produces only about 20% of its food needs, has limited fresh water supplies, and has few domestic energy sources. Malta's geographic position between the EU and Africa makes it a target for illegal immigration, which has strained Malta's political and economic resources. Malta adopted the euro on 1 January 2008. Malta's financial services industry has grown in recent years and in 2008-09 it escaped significant damage from the international financial crisis, largely because the sector is centered on the indigenous real estate market and is not highly leveraged. Locally, the restricted damage from the financial crisis has been attributed to the stability of the Maltese banking system and to its prudent risk-management practices. The global economic downturn and high electricity and water prices hurt Malta's real economy, which is dependent on foreign trade, manufacturing - especially electronics and pharmaceuticals - and tourism, but growth bounced back as the global economy recovered in 2010. Following a 1.2% contraction in 2009, GDP grew 2% in 2010.

Marshall Islands US Government assistance is the mainstay of this tiny island economy. The Marshall Islands received more than $1 billion in aid from the US from 1986-2002. Agricultural production, primarily subsistence, is concentrated on small farms; the most important commercial crops are coconuts and breadfruit. Small-scale industry is limited to handicrafts, tuna processing, and copra. The tourist industry, now a small source of foreign exchange employing less than 10% of the labor force, remains the best hope for future added income. The islands have few natural resources, and imports far exceed exports. Under the terms of the Amended Compact of Free Association, the US will provide millions of dollars per year to the Marshall Islands (RMI) through 2023, at which time a Trust Fund made up of US and RMI contributions will begin perpetual annual payouts. Government downsizing, drought, a drop in construction, the decline in tourism, and less income from the renewal of fishing vessel licenses have held GDP growth to an average of 1% over the past decade.

Mauritania Half the population still depends on agriculture and livestock for a livelihood, even though many of the nomads and 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 nearly 40% of total exports. 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. Before 2000, drought and economic mismanagement resulted in a buildup of foreign debt. In February 2000, Mauritania qualified for debt relief under the Heavily Indebted Poor Countries (HIPC) initiative and nearly all of its foreign debt has since been forgiven. A new investment code approved in December 2001 improved the opportunities for direct foreign investment. Mauritania and the IMF agreed to a three-year Poverty Reduction and Growth Facility (PRGF) arrangement in 2006. Mauritania made satisfactory progress, but the IMF, World Bank, and other international actors suspended assistance and investment in Mauritania after the August 2008 coup. Since the presidential election in July 2009, donors have resumed assistance. Oil prospects, while initially promising, have largely failed to materialize, and the government has placed a priority on attracting private investment to spur economic growth. The Government also emphasizes reduction of poverty, improvement of health and education, and privatization of the economy.

Mauritius Since independence in 1968, Mauritius has developed from a low-income, agriculturally based economy to a middle-income diversified economy with growing industrial, financial, and tourist sectors. For most of the period, annual growth has been in the order of 5% to 6%. This remarkable achievement has been reflected in more equitable income distribution, increased life expectancy, lowered infant mortality, and a much-improved infrastructure. The economy rests on sugar, tourism, textiles and apparel, and financial services, and is expanding into fish processing, information and communications technology, and hospitality and property development. Sugarcane is grown on about 90% of the cultivated land area and accounts for 15% of export earnings. The government's development strategy centers on creating vertical and horizontal clusters of development in these sectors. Mauritius has attracted more than 32,000 offshore entities, many aimed at commerce in India, South Africa, and China. Investment in the banking sector alone has reached over $1 billion. Mauritius, with its strong textile sector, has been well poised to take advantage of the Africa Growth and Opportunity Act (AGOA). Mauritius' sound economic policies and prudent banking practices helped to mitigate negative effects from the global financial crisis in 2008-09. GDP grew 3.6% in 2010 and the country continues to expand its trade and investment outreach around the globe.

Mayotte 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.

Mexico Mexico has a free market economy in the trillion dollar class. It contains a mixture of modern and outmoded industry and agriculture, increasingly dominated by the private sector. Recent administrations have expanded competition in seaports, railroads, telecommunications, electricity generation, natural gas distribution, and airports. Per capita income is roughly one-third that of the US; income distribution remains highly unequal. Since the implementation of the North American Free Trade Agreement (NAFTA) in 1994, Mexico's share of US imports has increased from 7% to 12%, and its share of Canadian imports has doubled to 5%. Mexico has free trade agreements with over 50 countries including, Guatemala, Honduras, El Salvador, the European Free Trade Area, and Japan, putting more than 90% of trade under free trade agreements. In 2007, during its first year in office, the Felipe CALDERON administration was able to garner support from the opposition to successfully pass pension and fiscal reforms. The administration passed an energy reform measure in 2008, and another fiscal reform in 2009. Mexico's GDP plunged 6.5% in 2009 as world demand for exports dropped and asset prices tumbled, but GDP posted positive growth of 5% in 2010, with export growth leading the way. The administration continues to face many economic challenges, including improving the public education system, upgrading infrastructure, modernizing labor laws, and fostering private investment in the energy sector. CALDERON has stated that his top economic priorities remain reducing poverty and creating jobs.

Micronesia, Federated States of Economic activity consists primarily of subsistence farming and fishing. The islands have few mineral deposits worth exploiting, except for high-grade phosphate. The potential for a tourist industry exists, but the remote location, a lack of adequate facilities, and limited air connections hinder development. Under the original terms of the Compact of Free Association, the US provided $1.3 billion in grant aid during the period 1986-2001; the level of aid has been subsequently reduced. The Amended Compact of Free Association with the US guarantees the Federated States of Micronesia (FSM) millions of dollars in annual aid through 2023, and establishes a Trust Fund into which the US and the FSM make annual contributions in order to provide annual payouts to the FSM in perpetuity after 2023. The country's medium-term economic outlook appears fragile due not only to the reduction in US assistance but also to the current slow growth of the private sector.