Latvia
Latvia's transitional economy recovered from the 1998 Russian
financial crisis, largely due to the government's budget stringency
and a gradual reorientation of exports toward EU countries,
lessening Latvia's trade dependency on Russia. The majority of
companies, banks, and real estate have been privatized, although the
state still holds sizable stakes in a few large enterprises. Latvia
officially joined the World Trade Organization in February 1999. EU
membership, a top foreign policy goal, came in May 2004. The current
account and internal government deficits remain major concerns, but
the government's efforts to increase efficiency in revenue
collection may lessen the budget deficit. A growing perception that
many of Latvia's banks facilitate illicit activity could damage the
country's vibrant financial sector.
Lebanon
The 1975-91 civil war seriously damaged Lebanon's economic
infrastructure, cut national output by half, and all but ended
Lebanon's position as a Middle Eastern entrepot and banking hub. In
the years since, Lebanon has rebuilt much of its war-torn physical
and financial infrastructure by borrowing heavily - mostly from
domestic banks. In an attempt to reduce the ballooning national
debt, the HARIRI government began an austerity program, reining in
government expenditures, increasing revenue collection, and
privatizing state enterprises. In November 2002, the government met
with international donors at the Paris II conference to seek
bilateral assistance in restructuring its massive domestic debt at
lower rates of interest. Substantial receipts from donor nations
stabilized government finances in 2003, but did little to reduce the
debt, which stood at nearly 180% of GDP. In 2004 the HARIRI
government issued Eurobonds in an effort to manage maturing debt,
and the KARAMI government has continued this practice. However,
privatization of state-owned enterprises had not occurred by the end
of 2004, as promised during the Paris II conference.
Lesotho
Small, landlocked, and mountainous, Lesotho relies on
remittances from miners employed in South Africa and customs duties
from the Southern Africa Customs Union for the majority of
government revenue, but the government has strengthened its tax
system to reduce dependency on customs duties. Completion of a major
hydropower facility in January 1998 now permits the sale of water to
South Africa, also generating royalties for Lesotho. As the number
of mineworkers has declined steadily over the past several years, a
small manufacturing base has developed based on farm products that
support the milling, canning, leather, and jute industries and a
rapidly growing apparel-assembly sector. The garment industry has
grown significantly, mainly due to Lesotho qualifying for the trade
benefits contained in the Africa Growth and Opportunity Act. The
economy is still primarily based on subsistence agriculture,
especially livestock, although drought has decreased agricultural
activity. The extreme inequality in the distribution of income
remains a major drawback. Lesotho has signed an Interim Poverty
Reduction and Growth Facility with the IMF.
Liberia
Civil war and government mismanagement have destroyed much
of Liberia's economy, especially the infrastructure in and around
Monrovia, while continued international sanctions on diamonds and
timber exports will limit growth prospects for the foreseeable
future. Many businessmen have fled the country, taking capital and
expertise with them. Some have returned, but many will not. Richly
endowed with water, mineral resources, forests, and a climate
favorable to agriculture, Liberia had been a producer and exporter
of basic products - primarily raw timber and rubber. Local
manufacturing, mainly foreign owned, had been small in scope. The
departure of the former president, Charles TAYLOR, to Nigeria in
August 2003, the establishment of the all-inclusive Transitional
Government, and the arrival of a UN mission are all necessary for
the eventual end of the political crisis, but thus far have done
little to encourage economic development. The reconstruction of
infrastructure and the raising of incomes in this ravaged economy
will largely depend on generous financial support and technical
assistance from donor countries.
Libya
The Libyan economy depends primarily upon revenues from the
oil sector, which contribute practically all export earnings and
about one-quarter of GDP. These oil revenues and a small population
give Libya one of the highest per capita GDPs in Africa, but little
of this income flows down to the lower orders of society. Libyan
officials in the past four years have made progress on economic
reforms as part of a broader campaign to reintegrate the country
into the international fold. This effort picked up steam after UN
sanctions were lifted in September 2003 and as Libya announced in
December 2003 that it would abandon programs to build weapons of
mass destruction. Almost all US unilateral sanctions against Libya
were removed in April 2004. Libya faces a long road ahead in
liberalizing the socialist-oriented economy, but initial steps -
including applying for WTO membership, reducing some subsidies, and
announcing plans for privatization - are laying the groundwork for a
transition to a more market-based economy. The non-oil 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. Climatic
conditions and poor soils severely limit agricultural output, and
Libya imports about 75% of its food.
Liechtenstein
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 its large European
neighbors. The Liechtenstein economy is widely diversified with a
large number of small businesses. Low business taxes - the maximum
tax rate is 20% - and easy incorporation rules have induced many
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 has been a member of the
European Economic Area (an organization serving as a bridge between
the European Free Trade Association (EFTA) and the EU) since May
1995. The government is working to harmonize its economic policies
with those of an integrated Europe.
Lithuania
Lithuania, the Baltic state that has conducted the most
trade with Russia, has slowly rebounded from the 1998 Russian
financial crisis. Unemployment dropped from 11% in 2003 to 8% in
2004. Growing domestic consumption and increased investment have
furthered recovery. Trade has been increasingly oriented toward the
West. Lithuania has gained membership in the World Trade
Organization and joined the EU in May 2004. Privatization of the
large, state-owned utilities, particularly in the energy sector, is
nearing completion. Overall, more than 80% of enterprises have been
privatized. Foreign government and business support have helped in
the transition from the old command economy to a market economy.
Luxembourg
This stable, high-income economy - in between France,
Belgium, and Germany - features 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 22% of GDP, has more than compensated for the
decline in steel. Most banks are foreign-owned and have extensive
foreign dealings. Agriculture is based on small family-owned farms.
The economy depends on foreign and cross-border workers for more
than 30% of its labor force. Although Luxembourg, like all EU
members, has suffered from the global economic slump, the country
enjoys an extraordinarily high standard of living.
Macau
Macau's well-to-do economy has remained one of the most open
in the world since its reversion to China in 1999. Apparel exports
and tourism are mainstays of the economy. Although the territory was
hit hard by the 1998 Asian financial crisis and the global downturn
in 2001, its economy grew 9.5% in 2002 and 15.6% in 2003. During the
first three quarters of 2004, Macau registered year-on-year GDP
increases of more than 20 percent. A rapid rise in the number of
mainland visitors because of China's easing of restrictions on
travel, increased public works expenditures, and significant
investment inflows associated with the liberalization of Macau's
gaming industry drove the recovery. The budget also returned to
surplus in 2002 because of the surge in visitors from China and a
hike in taxes on gambling profits, which generated about 70% of
government revenue. The three companies awarded gambling licenses
have pledged to invest $2.2 billion in the territory, which will
boost GDP growth. Much of Macau's textile industry may move to the
mainland as the Multi-Fiber Agreement is phased out. The territory
may have to rely more on gambling and trade-related services to
generate growth. Two new casinos were opened by new foreign gambling
licensees in 2004; development of new infrastructure and facilities
in preparation for Macau's hosting of the 2005 East Asian Games will
bolster the construction sector. The Closer Economic Partnership
Agreement (CEPA) between Macau and mainland China that came into
effect on 1 January 2004 offers many Macau-made products tariff-free
access to the mainland, and the range of products covered by CEPA
was to be expanded on 1 January 2005.
Macedonia
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 center and eliminated
advantages from inclusion in a de facto free trade area. An absence
of infrastructure, UN sanctions on the down-sized Yugoslavia, one of
its largest markets, and a Greek economic embargo over a dispute
about the country's constitutional name and flag hindered economic
growth until 1996. GDP subsequently rose each year through 2000.
However, the leadership's commitment to economic reform, free trade,
and regional integration was undermined by the ethnic Albanian
insurgency of 2001. The economy shrank 4.5% because of decreased
trade, intermittent border closures, increased deficit spending on
security needs, and investor uncertainty. Growth barely recovered in
2002 to 0.9%, then rose by a moderate 3.4% in 2003, and is estimated
at 1.3% in 2004. Unemployment at one-third of the workforce remains
a critical economic problem. Much of the extensive grey market
activity falls outside official statistics.