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 deficit - 15.7% of GDP in 2006 - remains a major concern.
The 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 Rafiq HARIRI government began an austerity program,
reining in government expenditures, increasing revenue collection,
and privatizing state enterprises, but economic and financial reform
initiatives stalled and public debt continued to grow despite
receipt of more than $2 billion in bilateral assistance at the Paris
II Donors Conference. The Israeli-Hizballah conflict caused an
estimated $3.6 billion in infrastructure damage in July and August
2006, and internal Lebanese political tension continues to hamper
economic activity.
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. However, the government has recently
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, as well as a rapidly expanding apparel-assembly
sector. The latter 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. 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.
President JOHNSON SIRLEAF, a Harvard-trained economist, has taken
steps to reduce corruption, build support from international donors,
and encourage private investment. An embargo on timber exports has
been lifted, opening a source of revenue for the government, but
diamonds remain under UN sanctions. 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 about 95% of export earnings, about
one-quarter of GDP, and 60% of public sector wages. Substantial
revenues from the energy sector coupled with 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, helping Libya attract more foreign
direct investment, mostly in the energy sector. Libyan oil and gas
licensing rounds continue to draw high international interest. 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 more than 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 4.5% in
2006. 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 - benefitting from its
proximity to 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 28% 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 about 60% 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 - GDP per capita ranks first in the world.
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 1997-98 Asian financial crisis and the global
downturn in 2001, its economy grew 10.1% in 2002, 14.2% in 2003, and
28.6% in 2004 before slowing to 6.7% in 2005. The economic boom was
powered by gambling, tourism, and the construction necessary to
support such endeavours. China's decision to ease travel
restrictions led to a rapid rise in the number of mainland visitors.
The opening of Macau's gaming industry to foreign access in 2001
spurred an increase in public works expenditures. 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. Much of Macau's textile industry may move
to the mainland due to the termination in 2005 of the Multi-Fiber
Agreement, which provided a near guarantee of export markets,
leaving the territory more dependant on gambling and trade-related
services to generate growth. 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. The range of products covered by CEPA was
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 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. 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 averaged 4% per year during 2003-06. Macedonia
has maintained macroeconomic stability with low inflation, but it
has lagged the region in attracting foreign investment and job
growth has been anemic. Macedonia has an extensive grey market,
estimated to be more than 20 percent of GDP, that falls outside
official statistics.