Mexico
Mexico has a free market economy in the trillion dollar
class. It contains a mixture of modern and outmoded industry and
agriculture, increasingly dominated by the private sector. Recent
administrations have expanded competition in seaports, railroads,
telecommunications, electricity generation, natural gas
distribution, and airports. Per capita income is one-fourth that of
the US; income distribution remains highly unequal. Trade with the
US and Canada has tripled since the implementation of NAFTA in 1994.
Mexico has 12 free trade agreements with over 40 countries
including, Guatemala, Honduras, El Salvador, the European Free Trade
Area, and Japan, putting more than 90% of trade under free trade
agreements. In 2007, during his first year in office, the Felipe
CALDERON administration was able to garner support from the
opposition to successfully pass a pension and a fiscal reform. The
administration continues to face many economic challenges including
the need to upgrade infrastructure, modernize labor laws, and allow
private investment in the energy sector. CALDERON has stated that
his top economic priorities remain reducing poverty and creating
jobs.
Micronesia, Federated States of
Economic activity consists primarily
of subsistence farming and fishing. The islands have few mineral
deposits worth exploiting, except for high-grade phosphate. The
potential for a tourist industry exists, but the remote location, a
lack of adequate facilities, and limited air connections hinder
development. Under the original terms of the Compact of Free
Association, the US provided $1.3 billion in grant aid during the
period 1986-2001; the level of aid has been subsequently reduced.
The Amended Compact of Free Association with the US guarantees the
Federated States of Micronesia (FSM) millions of dollars in annual
aid through 2023, and establishes a Trust Fund into which the US and
the FSM make annual contributions in order to provide annual payouts
to the FSM in perpetuity after 2023. The country's medium-term
economic outlook appears fragile due not only to the reduction in US
assistance but also to the current slow growth of the private sector.
Moldova
Moldova remains one of the poorest countries in Europe
despite recent progress from its small economic base. It enjoys a
favorable climate and good farmland but has no major mineral
deposits. As a result, the economy depends heavily on agriculture,
featuring fruits, vegetables, wine, and tobacco. Moldova must import
almost all of its energy supplies. Moldova's dependence on Russian
energy was underscored at the end of 2005, when a Russian-owned
electrical station in Moldova's separatist Transnistria region cut
off power to Moldova and Russia's Gazprom cut off natural gas in
disputes over pricing. Russia's decision to ban Moldovan wine and
agricultural products, coupled with its decision to double the price
Moldova paid for Russian natural gas, slowed GDP growth in 2006.
However, in 2007 growth returned to the 6% level Moldova had
achieved in 2000-05, boosted by Russia's partial removal of the
bans, solid fixed capital investment, and strong domestic demand
driven by remittances from abroad. Economic reforms have been slow
because of corruption and strong political forces backing government
controls. Nevertheless, the government's primary goal of EU
integration has resulted in some market-oriented progress. The
granting of EU trade preferences and increased exports to Russia
will encourage higher growth rates in 2008, but the agreements are
unlikely to serve as a panacea, given the extent to which export
success depends on higher quality standards and other factors. The
economy remains vulnerable to higher fuel prices, poor agricultural
weather, and the skepticism of foreign investors. Also, the presence
of an illegal separatist regime in Moldova's Transnistria region
continues to be a drag on the Moldovan economy.
Monaco
Monaco, bordering France on the Mediterranean coast, is a
popular resort, attracting tourists to its casino and pleasant
climate. The principality also is a major banking center and has
successfully sought to diversify into services and small,
high-value-added, nonpolluting industries. The state has no income
tax and low business taxes and thrives as a tax haven both for
individuals who have established residence and for foreign companies
that have set up businesses and offices. The state retains
monopolies in a number of sectors, including tobacco, the telephone
network, and the postal service. Living standards are high, roughly
comparable to those in prosperous French metropolitan areas.
Mongolia
Economic activity in Mongolia has traditionally been based
on herding and agriculture. Mongolia has extensive mineral deposits.
Copper, coal, gold, molybdenum, fluorspar, uranium, tin, and
tungsten account for a large part of industrial production and
foreign direct investment. Soviet assistance, at its height
one-third of GDP, disappeared almost overnight in 1990 and 1991 at
the time of the dismantlement of the USSR. The following decade saw
Mongolia endure both deep recession because of political inaction
and natural disasters, as well as economic growth because of
reform-embracing, free-market economics and extensive privatization
of the formerly state-run economy. Severe winters and summer
droughts in 2000-02 resulted in massive livestock die-off and zero
or negative GDP growth. This was compounded by falling prices for
Mongolia's primary sector exports and widespread opposition to
privatization. Growth was 10.6% in 2004, 5.5% in 2005, 7.5% in 2006,
and 9.9% in 2007 largely because of high copper prices and new gold
production. Mongolia is experiencing its highest inflation rate in
over a decade as consumer prices in 2007 rose 15%, largely because
of increased fuel and food costs. Mongolia's economy continues to be
heavily influenced by its neighbors. For example, Mongolia purchases
95% of its petroleum products and a substantial amount of electric
power from Russia, leaving it vulnerable to price increases. Trade
with China represents more than half of Mongolia's total external
trade - China receives about 70% of Mongolia's exports. Remittances
from Mongolians working abroad both legally and illegally are
sizable, and money laundering is a growing concern. Mongolia settled
its $11 billion debt with Russia at the end of 2003 on favorable
terms. Mongolia, which joined the World Trade Organization in 1997,
seeks to expand its participation and integration into Asian
regional economic and trade regimes.
Montenegro
Montenegro severed its economy from federal control and
from Serbia during the MILOSEVIC era and maintained its own central
bank, used the euro instead of the Yugoslav dinar as official
currency, collected customs tariffs, and managed its own budget. The
dissolution of the loose political union between Serbia and
Montenegro in 2006 led to separate membership in several
international financial institutions, such as the European Bank for
Reconstruction and Development. On 18 January 2007, Montenegro
joined the World Bank and IMF. Montenegro is pursuing its own
membership in the World Trade Organization as well as negotiating a
Stabilization and Association agreement with the European Union in
anticipation of eventual membership. Severe unemployment remains a
key political and economic problem for this entire region.
Montenegro has privatized its large aluminum complex - the dominant
industry - as well as most of its financial sector, and has begun to
attract foreign direct investment in the tourism sector.
Montserrat
Severe volcanic activity, which began in July 1995, has
put a damper on this small, open economy. A catastrophic eruption in
June 1997 closed the airports and seaports, causing further economic
and social dislocation. Two-thirds of the 12,000 inhabitants fled
the island. Some began to return in 1998, but lack of housing
limited the number. The agriculture sector continued to be affected
by the lack of suitable land for farming and the destruction of
crops. Prospects for the economy depend largely on developments in
relation to the volcanic activity and on public sector construction
activity. The UK has launched a three-year $122.8 million aid
program to help reconstruct the economy. Half of the island is
expected to remain uninhabitable for another decade.
Morocco
Moroccan economic policies brought macroeconomic stability
to the country in the early 1990s but have not spurred growth
sufficient to reduce unemployment - nearing 20% in urban areas -
despite the Moroccan Government's ongoing efforts to diversify the
economy. Morocco's GDP growth rate slowed to 2.1% in 2007 as a
result of a draught that severely reduced agricultural output and
necessitated wheat imports at rising world prices. Continued
dependence on foreign energy and Morocco's inability to develop
small and medium size enterprises also contributed to the slowdown.
Moroccan authorities understand that reducing poverty and providing
jobs are key to domestic security and development. In 2005, Morocco
launched the National Initiative for Human Development (INDH), a $2
billion social development plan to address poverty and unemployment
and to improve the living conditions of the country's urban slums.
Moroccan authorities are implementing reform efforts to open the
economy to international investors. Despite structural adjustment
programs supported by the IMF, the World Bank, and the Paris Club,
the dirham is only fully convertible for current account
transactions. In 2000, Morocco entered an Association Agreement with
the EU and, in 2006, entered a Free Trade Agreement (FTA) with the
US. Long-term challenges include improving education and job
prospects for Morocco's youth, and closing the income gap between
the rich and the poor, which the government hopes to achieve by
increasing tourist arrivals and boosting competitiveness in textiles.
Mozambique
At independence in 1975, Mozambique was one of the
world's poorest countries. Socialist mismanagement and a brutal
civil war from 1977-92 exacerbated the situation. In 1987, the
government embarked on a series of macroeconomic reforms designed to
stabilize the economy. These steps, combined with donor assistance
and with political stability since the multi-party elections in
1994, have led to dramatic improvements in the country's growth
rate. Inflation was reduced to single digits during the late 1990s,
and although it returned to double digits in 2000-06, in 2007
inflation had slowed to 8%, while GDP growth reached 7.5%. Fiscal
reforms, including the introduction of a value-added tax and reform
of the customs service, have improved the government's revenue
collection abilities. In spite of these gains, Mozambique remains
dependent upon foreign assistance for much of its annual budget, and
the majority of the population remains below the poverty line.
Subsistence agriculture continues to employ the vast majority of the
country's work force. A substantial trade imbalance persists
although the opening of the Mozal aluminum smelter, the country's
largest foreign investment project to date, has increased export
earnings. At the end of 2007, and after years of negotiations, the
government took over Portugal's majority share of the Cahora Bassa
Hydroelectricity (HCB) company, a dam that was not transferred to
Mozambique at independence because of the ensuing civil war and
unpaid debts. More power is needed for additional investment
projects in titanium extraction and processing and garment
manufacturing that could further close the import/export gap.
Mozambique's once substantial foreign debt has been reduced through
forgiveness and rescheduling under the IMF's Heavily Indebted Poor
Countries (HIPC) and Enhanced HIPC initiatives, and is now at a
manageable level. In July 2007 the Millennium Challenge Corporation
(MCC) signed a Compact with Mozambique; the Mozambican government
moved rapidly to ratify the Compact and propose a plan for funding.
Namibia
The economy is heavily dependent on the extraction and
processing of minerals for export. Mining accounts for 8% of GDP,
but provides more than 50% of foreign exchange earnings. Rich
alluvial diamond deposits make Namibia a primary source for
gem-quality diamonds. Namibia is the fourth-largest exporter of
nonfuel minerals in Africa, the world's fifth-largest producer of
uranium, and the producer of large quantities of lead, zinc, tin,
silver, and tungsten. The mining sector employs only about 3% of the
population while about half of the population depends on subsistence
agriculture for its livelihood. Namibia normally imports about 50%
of its cereal requirements; in drought years food shortages are a
major problem in rural areas. A high per capita GDP, relative to the
region, hides one of the world's most unequal income distributions.
The Namibian economy is closely linked to South Africa with the
Namibian dollar pegged one-to-one to the South African rand.
Increased payments from the Southern African Customs Union (SACU)
put Namibia's budget into surplus in 2007 for the first time since
independence, but SACU payments will decline after 2008 as part of a
new revenue sharing formula. Increased fish production and mining of
zinc, copper, uranium, and silver spurred growth in 2003-07, but
growth in recent years was undercut by poor fish catches and high
costs for metal inputs.