Croatia
Once one of the wealthiest of the Yugoslav republics,
Croatia's economy suffered badly during the 1991-95 war as output
collapsed and the country missed the early waves of investment in
Central and Eastern Europe that followed the fall of the Berlin
Wall. Since 2000, however, Croatia's economic fortunes have begun to
improve slowly, with moderate but steady GDP growth between 4% and
6% led by a rebound in tourism and credit-driven consumer spending.
Inflation over the same period has remained tame and the currency,
the kuna, stable. Nevertheless, difficult problems still remain,
including a stubbornly high unemployment rate, a growing trade
deficit and uneven regional development. The state retains a large
role in the economy, as privatization efforts often meet stiff
public and political resistance. While macroeconomic stabilization
has largely been achieved, structural reforms lag because of deep
resistance on the part of the public and lack of strong support from
politicians. The EU accession process should accelerate fiscal and
structural reform.
Cuba
The government continues to balance the need for economic
loosening against a desire for firm political control. It has rolled
back limited reforms undertaken in the 1990s to increase enterprise
efficiency and alleviate serious shortages of food, consumer goods,
and services. The average Cuban's standard of living remains at a
lower level than before the downturn of the 1990s, which was caused
by the loss of Soviet aid and domestic inefficiencies. Since late
2000, Venezuela has been providing oil on preferential terms, and it
currently supplies about 100,000 barrels per day of petroleum
products. Cuba has been paying for the oil, in part, with the
services of Cuban personnel in Venezuela, including some 20,000
medical professionals. In 2007, high metals prices continued to
boost Cuban earnings from nickel and cobalt production. Havana
continued to invest in the country's energy sector to mitigate
electrical blackouts that had plagued the country since 2004.
Cyprus
The area of the Republic of Cyprus under government control
has a market economy dominated by the service sector, which accounts
for 78% of GDP. Tourism, financial services, and real estate are the
most important sectors. Erratic growth rates over the past decade
reflect the economy's reliance on tourism, which often fluctuates
with political instability in the region and economic conditions in
Western Europe. Nevertheless, the economy in the area under
government control grew by an average of 3.6% per year during the
period of 2000-06, well above the EU average. Cyprus joined the
European Exchange Rate Mechanism (ERM2) in May 2005 and adopted the
euro as its national currency on 1 January 2008. An aggressive
austerity program in the preceding years, aimed at paving the way
for the euro, helped turn a soaring fiscal deficit (6.3% in 2003)
into a surplus of 1.5% in 2007. As in the area administered by
Turkish Cypriots, water shortages are a perennial problem; a few
desalination plants are now on line. After 10 years of drought, the
country received substantial rainfall from 2001-04 alleviating
immediate concerns. Rainfall in 2005 and 2006, however, was well
below average, making water rationing a necessity in 2007.
Czech Republic
The Czech Republic is one of the most stable and
prosperous of the post-Communist states of Central and Eastern
Europe. Growth in 2000-07 was supported by exports to the EU,
primarily to Germany, and a strong recovery of foreign and domestic
investment. Domestic demand is playing an ever more important role
in underpinning growth as the availability of credit cards and
mortgages increases. The current account deficit has declined to
around 3.3% of GDP as demand for automotive and other products from
the Czech Republic remains strong in the European Union. Rising
inflation from higher food and energy prices are a risk to balanced
economic growth. Significant increases in social spending in the
run-up to June 2006 elections prevented, the government from meeting
its goal of reducing its budget deficit to 3% of GDP in 2007.
Negotiations on pension and additional healthcare reforms are
continuing without clear prospects for agreement and implementation.
Intensified restructuring among large enterprises, improvements in
the financial sector, and effective use of available EU funds should
strengthen output growth. The pro-business Civic Democratic
Party-led government approved reforms in 2007 designed to cut
spending on some social welfare benefits and reform the tax system
with the aim of eventually reducing the budget deficit to 2.3% of
GDP by 2010. Parliamentary approval for any additional reforms could
prove difficult, however, because of the parliament's even split.
The government withdrew a 2010 target date for euro adoption and
instead aims to meet the eurozone criteria around 2012.
Denmark
The Danish economy has in recent years undergone strong
expansion fueled primarily by private consumption growth, but also
supported by exports and investments. This thoroughly modern market
economy features high-tech agriculture, up-to-date small-scale and
corporate industry, extensive government welfare measures,
comfortable living standards, a stable currency, and high dependence
on foreign trade. Unemployment is low and capacity constraints are
limiting growth potential. Denmark is a net exporter of food and
energy and enjoys a comfortable balance of payments surplus.
Government objectives include streamlining the bureaucracy and
further privatization of state assets. The government has been
successful in meeting, and even exceeding, the economic convergence
criteria for participating in the third phase (a common European
currency) of the European Economic and Monetary Union (EMU), but so
far Denmark has decided not to join 15 other EU members in the euro.
Nonetheless, the Danish krone remains pegged to the euro. Economic
growth gained momentum in 2004 and the upturn continued through
2007. The controversy over caricatures of the Prophet Muhammad
printed in a Danish newspaper in September 2005 led to boycotts of
some Danish exports to the Muslim world, especially exports of dairy
products, but the boycotts did not have a significant impact on the
overall Danish economy. Because of high GDP per capita, welfare
benefits, a low Gini index, and political stability, the Danish
living standards are among the highest in the world. A major
long-term issue will be the sharp decline in the ratio of workers to
retirees.
Dhekelia
Economic activity is limited to providing services to the
military and their families located in Dhekelia. All food and
manufactured goods must be imported.
Djibouti
The economy is based on service activities connected with
the country's strategic location and status as a free trade zone in
the Horn of Africa. Two-thirds of Djibouti's inhabitants live in the
capital city; the remainder are mostly nomadic herders. Scanty
rainfall limits crop production to fruits and vegetables, and most
food must be imported. Djibouti provides services as both a transit
port for the region and an international transshipment and refueling
center. Imports and exports from landlocked neighbor Ethiopia
represent 85% of port activity at Djibouti's container terminal.
Djibouti has few natural resources and little industry. The nation
is, therefore, heavily dependent on foreign assistance to help
support its balance of payments and to finance development projects.
An unemployment rate of nearly 60% continues to be a major problem.
While inflation is not a concern, due to the fixed tie of the
Djiboutian franc to the US dollar, the artificially high value of
the Djiboutian franc adversely affects Djibouti's balance of
payments. Per capita consumption dropped an estimated 35% between
1999 and 2006 because of recession, civil war, and a high population
growth rate (including immigrants and refugees). Faced with a
multitude of economic difficulties, the government has fallen in
arrears on long-term external debt and has been struggling to meet
the stipulations of foreign aid donors.
Dominica
The Dominican economy depends on agriculture, primarily
bananas, and remains highly vulnerable to climatic conditions and
international economic developments. Tourism has increased as the
government seeks to promote Dominica as an "ecotourism" destination.
In 2003, the government began a comprehensive restructuring of the
economy - including elimination of price controls, privatization of
the state banana company, and tax increases - to address Dominica's
economic and financial crisis of 2001-02 and to meet IMF targets.
This restructuring paved the way for the current economic recovery -
real growth for 2006 reached a two-decade high - and will help to
reduce the debt burden, which remains at about 100% of GDP. In order
to diversify the island's production base, the government is
attempting to develop an offshore financial sector and is
researching Dominica's capability to export geothermal energy.
Dominican Republic
The Dominican Republic has enjoyed strong GDP
growth since 2005, with double digit growth in 2006. In 2007,
exports were bolstered by the nearly 50% increase in nickel prices;
however, prices are expected to fall in 2008, contributing to a
slowdown in GDP growth for the year. Although the country has long
been viewed primarily as an exporter of sugar, coffee, and tobacco,
in recent years the service sector has overtaken agriculture as the
economy's largest employer due to growth in tourism and free trade
zones. The economy is highly dependent upon the US, the source of
nearly three-fourths of exports, and remittances represent about a
tenth of GDP, equivalent to almost half of exports and
three-quarters of tourism receipts. With the help of strict fiscal
targets agreed to in the 2004 renegotiation of an IMF standby loan,
President FERNANDEZ has stabilized the country's financial
situation, lowering inflation to less than 6%. A fiscal expansion is
expected for 2008 prior to the elections in May and for Tropical
Storm Noel reconstruction. Although the economy is growing at a
respectable rate, high unemployment and underemployment remains an
important challenge. The country suffers from marked income
inequality; the poorest half of the population receives less than
one-fifth of GNP, while the richest 10% enjoys nearly 40% of
national income. The Central America-Dominican Republic Free Trade
Agreement (CAFTA-DR) came into force in March 2007, which should
boost investment and exports and reduce losses to the Asian garment
industry.
Ecuador
Ecuador is substantially dependent on its petroleum
resources, which have accounted for more than half of the country's
export earnings and one-fourth of public sector revenues in recent
years. In 1999/2000, Ecuador suffered a severe economic crisis, with
GDP contracted by more than 6%, with a significant increase in
poverty. The banking system also collapsed, and Ecuador defaulted on
its external debt later that year. In March 2000, Congress approved
a series of structural reforms that also provided for the adoption
of the US dollar as legal tender. Dollarization stabilized the
economy, and positive growth returned in the years that followed,
helped by high oil prices, remittances, and increased
non-traditional exports. From 2002-06 the economy grew 5.5%, the
highest five-year average in 25 years. The poverty rate declined but
remained high at 38% in 2006. In 2006 the government of Alfredo
PALACIO (2005-07) seized the assets of Occidental Petroleum for
alleged contract violations and imposed a windfall revenue tax on
foreign oil companies, leading to the suspension of free trade
negotiations with the US. These measures, combined with chronic
underinvestment in the state oil company, Petroecuador, led to a
drop in petroleum production in 2007. PALACIO's successor, Rafael
CORREA, raised the specter of debt default - but Ecuador has paid
its debt on time. He also decreed a higher windfall revenue tax on
private oil companies, then sought to renegotiate their contracts to
overcome the debilitating effect of the tax. This generated economic
uncertainty; private investment has dropped and economic growth has
slowed significantly.