Panama
Panama's dollarised economy rests primarily on a
well-developed services sector that accounts for three-fourths of
GDP. Services include operating the Panama Canal, banking, the Colon
Free Zone, insurance, container ports, flagship registry, and
tourism. A slump in the Colon Free Zone and agricultural exports,
the global slowdown, and the withdrawal of US military forces held
back economic growth in 2000-03; growth picked up in 2004-06 led by
export-oriented services and a construction boom stimulated by tax
incentives. The government has implemented tax reforms, as well as
social security reforms, and backs regional trade agreements and
development of tourism. Unemployment remains high. In October 2006,
voters passed a referendum to expand the Panama Canal to accommodate
ships that are now too large to cross the transoceanic crossway. Not
a CAFTA signatory, Panama in December 2006 independently negotiated
a free trade agreement with the United States, which, when
implemented, will help promote the country's economic growth.
Papua New Guinea
Papua New Guinea is richly endowed with natural
resources, but exploitation has been hampered by rugged terrain and
the high cost of developing infrastructure. Agriculture provides a
subsistence livelihood for 85% of the population. Mineral deposits,
including oil, copper, and gold, account for nearly two-thirds of
export earnings. The economy has improved over the past three years
because of high commodity prices following a prolonged period of
instability. The government of Prime Minister SOMARE has expended
much of its energy remaining in power and should be the first
government in decades to serve a full five-year term. The government
has also brought stability to the national budget thus far, largely
through expenditure control. Numerous challenges still face the
government including regaining investor confidence, restoring
integrity to state institutions, promoting economic efficiency by
privatizing moribund state institutions, and balancing relations
with Australia, the former colonial ruler. Other socio-cultural
challenges could upend the economy including a worsening HIV/Aids
epidemic and chronic law and order and land tenure issues. Australia
annually supplies $240 million in aid, which accounts for nearly 20%
of the national budget.
Paracel Islands
China announced plans in 1997 to open the islands
for tourism.
Paraguay
Landlocked Paraguay has a market economy marked by a large
informal sector. This sector features both reexport of imported
consumer goods to neighboring countries, as well as the activities
of thousands of microenterprises and urban street vendors. Because
of the importance of the informal sector, accurate economic measures
are difficult to obtain. A large percentage of the population
derives its living from agricultural activity, often on a
subsistence basis. The formal economy grew by an average of about 3%
annually in 1995-97, but averaged near-zero growth in 1998-2001 and
contracted by 2.3 percent in 2002, in response to regional contagion
and an outbreak of hoof-and-mouth disease. On a per capita basis,
real income has stagnated at 1980 levels. Most observers attribute
Paraguay's poor economic performance to political uncertainty,
corruption, lack of progress on structural reform, substantial
internal and external debt, and deficient infrastructure. Aided by a
firmer exchange rate and perhaps a greater confidence in the
economic policy of the DUARTE FRUTOS administration, the economy
rebounded between 2003 and 2006, posting modest growth each year.
Peru
Peru's economy reflects its varied geography - an arid coastal
region, the Andes further inland, and tropical lands bordering
Colombia and Brazil. Abundant mineral resources are found in the
mountainous areas, and Peru's coastal waters provide excellent
fishing grounds. However, overdependence on minerals and metals
subjects the economy to fluctuations in world prices, and a lack of
infrastructure deters trade and investment. After several years of
inconsistent economic performance, the Peruvian economy grew by more
than 4 percent per year during the period 2002-2006, with a stable
exchange rate and low inflation. Risk premiums on Peruvian bonds on
secondary markets reached historically low levels in late 2004,
reflecting investor optimism regarding the government's prudent
fiscal policies and openness to trade and investment. Despite the
strong macroeconomic performance, underemployment and poverty have
stayed persistently high. Economic growth continues to be driven by
the Camisea natural gas megaproject and by exports of minerals,
textiles, and agricultural products. Upon taking office, President
GARCIA announced the formation of Sierria Exportadora, a program
aimed at promoting economic growth in Southern Peru and the
highlands.
Philippines
The Philippines was less severely affected by the Asian
financial crisis of 1998 than its neighbors, aided in part by its
high level of annual remittances from overseas workers, and no
sustained runup in asset prices or foreign borrowing prior to the
crisis. From a 0.6% decline in 1998, GDP expanded by 2.4% in 1999,
and 4.4% in 2000, but slowed to 3.2% in 2001 in the context of a
global economic slowdown, an export slump, and political and
security concerns. GDP growth accelerated to about 5% between 2002
and 2006 reflecting the continued resilience of the service sector,
and improved exports and agricultural output. Nonetheless, it will
take a higher, sustained growth path to make appreciable progress in
the alleviation of poverty given the Philippines' high annual
population growth rate and unequal distribution of income. The
Philippines also faces higher oil prices, higher interest rates on
its dollar borrowings, and higher inflation. Fiscal constraints
limit Manila's ability to finance infrastructure and social
spending. The Philippines' consistently large budget deficit has
produced a high debt level, and this situation has forced Manila to
spend a large portion of the national government budget on debt
service. Large unprofitable public enterprises, especially in the
energy sector, contribute to the government's debt because of slow
progress on privatization. Credit rating agencies have at times
expressed concern about the Philippines' ability to service the
debt, though central bank reserves appear adequate and large
remittance inflows appear stable. The implementation of the expanded
Value Added Tax (VAT) in November 2005 boosted confidence in the
government's fiscal capacity and helped to strengthen the peso,
making it East Asia's best performing currency in 2005-06. Investors
and credit rating institutions will continue to look for effective
implementation of the new VAT and continued improvement in the
government's overall fiscal capacity in the coming year.
Pitcairn Islands
The inhabitants of this tiny isolated economy exist
on fishing, subsistence farming, handicrafts, and postage stamps.
The fertile soil of the valleys produces a wide variety of fruits
and vegetables, including citrus, sugarcane, watermelons, bananas,
yams, and beans. Bartering is an important part of the economy. The
major sources of revenue are the sale of postage stamps to
collectors and the sale of handicrafts to passing ships. In October
2004, more than one-quarter of Pitcairn's small labor force was
arrested, putting the economy in a bind, since their services were
required as lighter crew to load or unload passing ships.
Poland
Poland has steadfastly pursued a policy of economic
liberalization since 1990 and today stands out as a success story
among transition economies. Even so, much remains to be done,
especially in bringing down the unemployment rate - still the
highest in the EU despite recent improvement. The privatization of
small- and medium-sized state-owned companies and a liberal law on
establishing new firms has encouraged the development of the private
business sector, but legal and bureaucratic obstacles alongside
persistent corruption are hampering its further development.
Poland's agricultural sector remains handicapped by surplus labor,
inefficient small farms, and lack of investment. Restructuring and
privatization of "sensitive sectors" (e.g., coal, steel, railroads,
and energy), while recently initiated, have stalled. Reforms in
health care, education, the pension system, and state administration
have resulted in larger-than-expected fiscal pressures. Further
progress in public finance depends mainly on reducing losses in
Polish state enterprises, restraining entitlements, and overhauling
the tax code to incorporate the growing gray economy and farmers,
most of whom pay no tax. The previous Socialist-led government
introduced a package of social and administrative spending cuts to
reduce public spending by about $17 billion through 2007, but full
implementation of the plan was trumped by election-year politics in
2005. The right-wing Law and Justice party won parliamentary
elections in September, and Lech KACZYNSKI won the presidential
election in October 2005, running on a state-interventionist fiscal
and monetary platform. Poland joined the EU in May 2004, and surging
exports to the EU contributed to Poland's strong growth in 2004,
though its competitiveness could be threatened by the zloty's
appreciation. GDP per capita roughly equals that of the three Baltic
states. Poland benefited from nearly $23.2 billion in EU funds,
which were available through 2006. Farmers have already begun to
reap the rewards of membership via booming exports, higher food
prices, and EU agricultural subsidies.
Portugal
Portugal has become a diversified and increasingly
service-based economy since joining the European Community in 1986.
Over the past two decades, successive governments have privatized
many state-controlled firms and liberalized key areas of the
economy, including the financial and telecommunications sectors. The
country qualified for the European Monetary Union (EMU) in 1998 and
began circulating the euro on 1 January 2002 along with 11 other EU
member economies. Economic growth had been above the EU average for
much of the 1990s, but fell back in 2001-06. GDP per capita stands
at roughly 70% of the EU-25 average. A poor educational system, in
particular, has been an obstacle to greater productivity and growth.
Portugal has been increasingly overshadowed by lower-cost producers
in Central Europe and Asia as a target for foreign direct
investment. The budget deficit surged to an all-time high of 6% of
GDP in 2005 but was reduced to 4.6% in 2006. The government faces
tough choices in its attempts to boost Portugal's economic
competitiveness while keeping the budget deficit within the
eurozone's 3%-of-GDP ceiling.
Puerto Rico
Puerto Rico has one of the most dynamic economies in the
Caribbean region. A diverse industrial sector has far surpassed
agriculture as the primary locus of economic activity and income.
Encouraged by duty-free access to the US and by tax incentives, US
firms have invested heavily in Puerto Rico since the 1950s. US
minimum wage laws apply. Sugar production has lost out to dairy
production and other livestock products as the main source of income
in the agricultural sector. Tourism has traditionally been an
important source of income, with estimated arrivals of nearly 5
million tourists in 2004. Growth fell off in 2001-03, largely due to
the slowdown in the US economy, recovered in 2004-05, but declined
again in 2006.