Ukraine After Russia, the Ukrainian republic was far and away the most important economic component of the former Soviet Union, producing about four times the output of the next-ranking republic. Its fertile black soil generated more than one-fourth of Soviet agricultural output, and its farms provided substantial quantities of meat, milk, grain, and vegetables to other republics. Likewise, its diversified heavy industry supplied the unique equipment (for example, large diameter pipes) and raw materials to industrial and mining sites (vertical drilling apparatus) in other regions of the former USSR. Ukraine depends on imports of energy, especially natural gas, to meet some 85% of its annual energy requirements. Shortly after independence was ratified in December 1991, the Ukrainian Government liberalized most prices and erected a legal framework for privatization, but widespread resistance to reform within the government and the legislature soon stalled reform efforts and led to some backtracking. Output by 1999 had fallen to less than 40% of the 1991 level. Loose monetary policies pushed inflation to hyperinflationary levels in late 1993. Ukraine's dependence on Russia for energy supplies and the lack of significant structural reform have made the Ukrainian economy vulnerable to external shocks. A dispute with Russia over pricing in late 2005 and early 2006 led to a temporary gas cut-off; Ukraine concluded a deal with Russia in January 2006 that almost doubled the price Ukraine pays for Russian gas, and could cost the Ukrainian economy $1.4-2.2 billion. Ukrainian Government officials eliminated most tax and customs privileges in a March 2005 budget law, bringing more economic activity out of Ukraine's large shadow economy, but more improvements are needed, including fighting corruption, developing capital markets, and improving the legislative framework for businesses. Reforms in the more politically sensitive areas of structural reform and land privatization are still lagging. Outside institutions - particularly the IMF - have encouraged Ukraine to quicken the pace and scope of reforms. GDP growth was 6% in 2006, up from 2.4% in 2005 mainly because of high steel prices worldwide and strong demand for Ukrainian goods. The privatization of the Kryvoryzhstal steelworks in late 2005 produced $4.8 billion in windfall revenue for the government. Some of the proceeds were used to finance the budget deficit, some to recapitalize two state banks, some to retire public debt, and the rest may be used to finance future deficits. Although the economy is likely to expand in 2007, long-term growth could be threatened by the government's plans to reinstate tax, trade, and customs privileges and to maintain restrictive grain export quotas.
United Arab Emirates
The UAE has an open economy with a high per
capita income and a sizable annual trade surplus. Its wealth is
based on oil and gas output (about 30% of GDP), and the fortunes of
the economy fluctuate with the prices of those commodities. Since
the discovery of oil in the UAE more than 30 years ago, the UAE has
undergone a profound transformation from an impoverished region of
small desert principalities to a modern state with a high standard
of living. The government has increased spending on job creation and
infrastructure expansion and is opening up its utilities to greater
private sector involvement. In April 2004, the UAE signed a Trade
and Investment Framework Agreement (TIFA) with Washington and in
November 2004 agreed to undertake negotiations toward a Free Trade
Agreement (FTA) with the US. Higher oil revenue, strong liquidity,
and cheap credit in 2005-06 led to a surge in asset prices (shares
and real estate) and consumer inflation. Rising prices are
increasing the operating costs for businesses in the UAE and
degrading the UAE's allure to foreign investors. Dependence on a
large expatriate workforce and oil are significant long-term
challenges to the UAE's economy.
United Kingdom
The UK, a leading trading power and financial center,
is one of the quintet of trillion dollar economies of Western
Europe. Over the past two decades, the government has greatly
reduced public ownership and contained the growth of social welfare
programs. Agriculture is intensive, highly mechanized, and efficient
by European standards, producing about 60% of food needs with less
than 2% of the labor force. The UK has large coal, natural gas, and
oil reserves; primary energy production accounts for 10% of GDP, one
of the highest shares of any industrial nation. Services,
particularly banking, insurance, and business services, account by
far for the largest proportion of GDP while industry continues to
decline in importance. GDP growth slipped in 2001-03 as the global
downturn, the high value of the pound, and the bursting of the "new
economy" bubble hurt manufacturing and exports. Output recovered in
2004, to 3.2% growth, then slowed to 1.7% in 2005 and 2.6% in 2006.
The economy is one of the strongest in Europe; inflation, interest
rates, and unemployment remain low. The relatively good economic
performance has complicated the BLAIR government's efforts to make a
case for Britain to join the European Economic and Monetary Union
(EMU). Critics point out that the economy is doing well outside of
EMU, and public opinion polls show a majority of Britons are opposed
to the euro. Meantime, the government has been speeding up the
improvement of education, transport, and health services, at a cost
in higher taxes and a widening public deficit.
United States
The US has the largest and most technologically
powerful economy in the world, with a per capita GDP of $43,500. In
this market-oriented economy, private individuals and business firms
make most of the decisions, and the federal and state governments
buy needed goods and services predominantly in the private
marketplace. US business firms enjoy greater flexibility than their
counterparts in Western Europe and Japan in decisions to expand
capital plant, to lay off surplus workers, and to develop new
products. At the same time, they face higher barriers to enter their
rivals' home markets than foreign firms face entering US markets. US
firms are at or near the forefront in technological advances,
especially in computers and in medical, aerospace, and military
equipment; their advantage has narrowed since the end of World War
II. The onrush of technology largely explains the gradual
development of a "two-tier labor market" in which those at the
bottom lack the education and the professional/technical skills of
those at the top and, more and more, fail to get comparable pay
raises, health insurance coverage, and other benefits. Since 1975,
practically all the gains in household income have gone to the top
20% of households. The response to the terrorist attacks of 11
September 2001 showed the remarkable resilience of the economy. The
war in March-April 2003 between a US-led coalition and Iraq, and the
subsequent occupation of Iraq, required major shifts in national
resources to the military. The rise in GDP in 2004-06 was
undergirded by substantial gains in labor productivity. Hurricane
Katrina caused extensive damage in the Gulf Coast region in August
2005, but had a small impact on overall GDP growth for the year.
Soaring oil prices in 2005 and 2006 threatened inflation and
unemployment, yet the economy continued to grow through year-end
2006. Imported oil accounts for about two-thirds of US consumption.
Long-term problems include inadequate investment in economic
infrastructure, rapidly rising medical and pension costs of an aging
population, sizable trade and budget deficits, and stagnation of
family income in the lower economic groups.
United States Pacific Island Wildlife Refuges
no economic activity
Uruguay
Uruguay's well-to-do economy is characterized by an
export-oriented agricultural sector, a well-educated work force, and
high levels of social spending. After averaging growth of 5%
annually during 1996-98, in 1999-2002 the economy suffered a major
downturn, stemming largely from the spillover effects of the
economic problems of its large neighbors, Argentina and Brazil. For
instance, in 2001-02 Argentina made massive withdrawals of dollars
deposited in Uruguayan banks, which led to a plunge in the Uruguayan
peso and a massive rise in unemployment. Total GDP in these four
years dropped by nearly 20%, with 2002 the worst year due to the
banking crisis. The unemployment rate rose to nearly 20% in 2002,
inflation surged, and the burden of external debt doubled.
Cooperation with the IMF helped stem the damage. A debt swap with
private-sector creditors in 2003 extended the maturity dates on
nearly half of Uruguay's then $11.3 billion of public debt and
helped restore public confidence. The economy grew about 12% in 2004
as a result of high commodity prices for Uruguayan exports, a
competitive peso, growth in the region, and low international
interest rates, and it continued to grow nearly 7% annually in 2005
and 2006.
Uzbekistan
Uzbekistan is a dry, landlocked country of which 11%
consists of intensely cultivated, irrigated river valleys. More than
60% of its population lives in densely populated rural communities.
Uzbekistan is now the world's second-largest cotton exporter and
fifth largest producer; it relies heavily on cotton production as
the major source of export earnings. Other major export earners
include gold, natural gas, and oil. Following independence in
September 1991, the government sought to prop up its Soviet-style
command economy with subsidies and tight controls on production and
prices. While aware of the need to improve the investment climate,
the government still sponsors measures that often increase, not
decrease, its control over business decisions. A sharp increase in
the inequality of income distribution has hurt the lower ranks of
society since independence. In 2003, the government accepted the
obligations of Article VIII under the International Monetary Fund
(IMF), providing for full currency convertibility. However, strict
currency controls and tightening of borders have lessened the
effects of convertibility and have also led to some shortages that
have further stifled economic activity. The Central Bank often
delays or restricts convertibility, especially for consumer goods.
Potential investment by Russia and China in Uzbekistan's gas and oil
industry would increase economic growth prospects. In November 2005,
Russian President Vladimir PUTIN and Uzbekistan President KARIMOV
signed an "alliance" treaty, which included provisions for economic
and business cooperation. Russian businesses have shown increased
interest in Uzbekistan, especially in mining, telecom, and oil and
gas. In December 2005, the Russians opened a "Trade House" to
support and develop Russian-Uzbek business and economic ties.
Vanuatu
This South Pacific island economy is based primarily on
small-scale agriculture, which provides a living for 65% of the
population. Fishing, offshore financial services, and tourism, with
more than 60,000 visitors in 2005, are other mainstays of the
economy. Mineral deposits are negligible; the country has no known
petroleum deposits. A small light industry sector caters to the
local market. Tax revenues come mainly from import duties. Economic
development is hindered by dependence on relatively few commodity
exports, vulnerability to natural disasters, and long distances from
main markets and between constituent islands. GDP growth rose less
than 3% on average in the 1990s. In response to foreign concerns,
the government has promised to tighten regulation of its offshore
financial center. In mid-2002 the government stepped up efforts to
boost tourism through improved air connections, resort development,
and cruise ship facilities. Agriculture, especially livestock
farming, is a second target for growth. Australia and New Zealand
are the main suppliers of tourists and foreign aid.
Venezuela
Venezuela remains highly dependent on oil revenues, which
account for roughly 90% of export earnings, more than 50% of the
federal budget revenues, and around 30% of GDP. Tax
collection-Venezuela's primary source of non-oil revenue-is expected
to surpass $23 billion in 2006, exceeding the yearend collection
goal by more than 20%. A nationwide strike between December 2002 and
February 2003 had far-reaching economic consequences - real GDP
declined by around 9% in 2002 and 8% in 2003 - but economic output
since then has recovered strongly. Fueled by higher oil prices,
record government spending helped to boost GDP growth in 2004 and
2005 to approximately 18% and 11%, respectively. Economic growth in
2006 reached around 9%. This spending, combined with recent minimum
wage hikes and improved access to domestic credit, has fueled a
consumption boom - car sales in 2006 increased by around 70% - but
has come at the cost of higher inflation. Despite government
attempts to withdraw liquidity from the economy, Venezuela's money
supply set a record in June 2006, approximately 70% higher than the
previous year. Imports have also jumped significantly.
Vietnam
Vietnam is a densely-populated, developing country that in
the last 30 years has had to recover from the ravages of war, the
loss of financial support from the old Soviet Bloc, and the
rigidities of a centrally-planned economy. Substantial progress was
achieved from 1986 to 1997 in moving forward from an extremely low
level of development and significantly reducing poverty. Growth
averaged around 9% per year from 1993 to 1997. The 1997 Asian
financial crisis highlighted the problems in the Vietnamese economy
and temporarily allowed opponents of reform to slow progress toward
a market-oriented economy. GDP growth averaged 6.8% per year from
1997 to 2004 even against the background of the Asian financial
crisis and a global recession, and growth hit 8% in 2005 and 7.8% in
2006. Since 2001, however, Vietnamese authorities have reaffirmed
their commitment to economic liberalization and international
integration. They have moved to implement the structural reforms
needed to modernize the economy and to produce more competitive,
export-driven industries. Vietnam's membership in the ASEAN Free
Trade Area (AFTA) and entry into force of the US-Vietnam Bilateral
Trade Agreement in December 2001 have led to even more rapid changes
in Vietnam's trade and economic regime. Vietnam's exports to the US
doubled in 2002 and again in 2003. Vietnam joined the World Trade
Organization in January 2007. This should provide an important boost
to the economy and should help to ensure the continuation of
liberalizing reforms. Among other benefits, accession will allow
Vietnam to take advantage of the phase out of the Agreement on
Textiles and Clothing, which eliminated quotas on textiles and
clothing for WTO partners on 1 January 2005. Agriculture's share of
economic output has continued to shrink, from about 25% in 2000 to
20% in 2006. Deep poverty, defined as a percent of the population
living under $1 per day, has declined significantly and is now
smaller than that of China, India, and the Philippines. Vietnam is
working to promote job creation to keep up with the country's high
population growth rate. However, high levels of inflation have
prompted Vietnamese authorities to tighten monetary and fiscal
policies. Hanoi is targeting an economic growth rate between 7.5 and
8% over the next five years.