Hungary
Hungary has made the transition from a centrally planned to
a market economy, with a per capita income one-half that of the Big
Four European nations. Hungary continues to demonstrate strong
economic growth and joined the European Union in May 2004. The
private sector accounts for over 80% of GDP. Foreign ownership of
and investment in Hungarian firms are widespread, with cumulative
foreign direct investment totaling more than $23 billion since 1989.
Hungarian sovereign debt was upgraded in 2000 to the second-highest
rating among all the Central European transition economies.
Inflation has declined substantially, from 14% in 1998 to 4.7% in
2003; unemployment has persisted around the 6% level. Germany is by
far Hungary's largest economic partner. Short-term issues include
the reduction of the public sector deficit and further increasing
the flexibility of the labor markets.
Iceland
Iceland's Scandinavian-type economy is basically
capitalistic, yet with an extensive welfare system (including
generous housing subsidies), low unemployment, and remarkably even
distribution of income. In the absence of other natural resources
(except for abundant geothermal power), the economy depends heavily
on the fishing industry, which provides 70% of export earnings and
employs 12% of the work force. The economy 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. Government policies include 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. Iceland's
economy has been diversifying into manufacturing and service
industries in the last decade, and new developments in software
production, biotechnology, and financial services are taking place.
The tourism sector is also expanding, with the recent trends in
ecotourism and whale watching. Growth had been remarkably steady in
1996-2001 at 3%-5%, but could not be sustained in 2002 in an
environment of global recession. Growth resumed in 2003, and
inflation dropped back from 5% to 2%.
India
India's economy encompasses traditional village farming,
modern agriculture, handicrafts, a wide range of modern industries,
and a multitude of support services. Government controls have been
reduced on foreign trade and investment, and privatization of
domestic output has proceeded slowly. The economy has posted an
excellent average growth rate of 6% since 1990, reducing poverty by
about 10 percentage points. India 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.
Despite strong growth, the World Bank and others worry about the
continuing public-sector budget deficit, running at approximately
60% of GDP.
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, faces economic
development problems stemming from recent acts of terrorism, unequal
resource distribution among regions, endemic corruption, the lack of
reliable legal recourse in contract disputes, weaknesses in the
banking system, and a generally poor climate for foreign investment.
Indonesia withdrew from its IMF program at the end of 2003, but
issued a "White Paper" that commits the government to maintaining
fundamentally sound macroeconomic policies previously established
under IMF guidelines. Investors, however, continued to face a host
of on-the-ground microeconomic problems and an inadequate judicial
system. Keys to future growth remain internal reform, building up
the confidence of international and domestic investors, and strong
global economic growth.
Iran
Iran's economy is marked by a bloated, inefficient state
sector, over reliance on the oil sector, and statist policies that
create major distortions throughout. Most economic activity is
controlled by the state. Private sector activity is typically
small-scale - workshops, farming, and services. President KHATAMI
has continued to follow the market reform plans of former President
RAFSANJANI, with limited progress. Relatively high oil prices in
recent years have enabled Iran to amass some $22 billion in foreign
exchange reserves, but have not eased economic hardships such as
high unemployment and inflation. In December 2003 a major earthquake
devastated the city of Bam in southeastern Iran, killing more than
30,000 people.
Iraq
Iraq's economy is 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, borrow heavily,
and later reschedule foreign debt payments; Iraq suffered economic
losses from that war of at least $100 billion. After hostilities
ended in 1988, oil exports gradually increased with the construction
of new pipelines and restoration of damaged facilities. Iraq's
seizure of Kuwait in August 1990, subsequent international economic
sanctions, and damage from military action by an international
coalition beginning in January 1991 drastically reduced economic
activity. Although government policies supporting large military and
internal security forces and allocating resources to key supporters
of the regime have hurt the economy, implementation of the UN's
oil-for-food program beginning in December 1996 helped improve
conditions for the average Iraqi citizen. Iraq was allowed to export
limited amounts of oil in exchange for food, medicine, and some
infrastructure spare parts. In December 1999, the UN Security
Council authorized Iraq to export under the program as much oil as
required to meet humanitarian needs. The drop in GDP in 2001-02 was
largely the result of the global economic slowdown and lower oil
prices. Per capita food imports increased significantly, while
medical supplies and health care services steadily improved. Per
capita output and living standards were still well below the
pre-1991 level, but any estimates have a wide range of error. The
military victory of the US-led coalition in March-April 2003
resulted in the shutdown of much of the central economic
administrative structure, but with the loss of a comparatively small
amount of capital plant. The rebuilding of oil, electricity, and
other production is proceeding steadily at the start of 2004 with
foreign support and despite the continuation of severe internal
strife. A joint UN and World Bank report released in the fall of
2003 estimated that Iraq's key reconstruction needs through 2007
would cost $55 billion. In October 2003, international donors
pledged assistance worth more than $33 billion toward this
rebuilding effort.
Ireland
Ireland is a small, modern, trade-dependent economy with
growth averaging a robust 8% in 1995-2002. The global slowdown,
especially in the information technology sector, pressed growth down
to 2.1% in 2003. Agriculture, once the most important sector, is now
dwarfed by industry and services. Industry accounts for 46% of GDP
and about 80% of exports and employs 28% of the labor force.
Although exports remain the primary engine for Ireland's growth, the
economy has also benefited from a rise in consumer spending,
construction, and business investment. Per capita GDP is 10% above
that of the four big European economies and the second highest in
the sEU, behind Luxembourg. Over the past decade, the Irish
Government has implemented a series of national economic programs
designed to curb price and wage inflation, reduce government
spending, increase labor force skills, and promote foreign
investment. Ireland joined in launching the euro currency system in
January 1999 along with 10 other EU nations.
Israel
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. 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 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. The bitter Israeli-Palestinian conflict; difficulties
in the high-technology, construction, and tourist sectors; and
fiscal austerity in the face of growing inflation led to small
declines in GDP in 2001 and 2002. The economy grew at 1% in 2003,
with improvements in tourism and foreign direct investment. In 2004,
rising business and consumer confidence - as well as higher demand
for Israeli exports - boosted GDP by 2.7%.
Italy
Italy has a diversified industrial economy with roughly the
same total and per capita output as France and the UK. This
capitalistic economy remains divided into a developed industrial
north, dominated by private companies, and a less developed,
welfare-dependent agricultural south, with 20% unemployment. Most
raw materials needed by industry and more than 75% of energy
requirements are imported. Over the past decade, Italy has pursued a
tight fiscal policy in order to meet the requirements of the
Economic and Monetary Unions and has benefited from lower interest
and inflation rates. The current government has enacted numerous
short-term reforms aimed at improving competitiveness and long-term
growth. Italy has moved slowly, however, on implementing needed
structural reforms, such as lightening the high tax burden and
overhauling Italy's rigid labor market and over-generous pension
system, because of the current economic slowdown and opposition from
labor unions.