Iceland Iceland's Scandinavian-type social-market economy combines a capitalist structure and free-market principles with an extensive welfare system. Prior to the 2008 crisis, Iceland had achieved high growth, low unemployment, and a remarkably even distribution of income. The economy depends heavily on the fishing industry, which provides 40% of export earnings, more than 12% of GDP, and employs 7% of the work force. It remains sensitive to declining fish stocks as well as to fluctuations in world prices for its main exports: fish and fish products, aluminum, and ferrosilicon. Iceland's economy has been diversifying into manufacturing and service industries in the last decade, particularly within the fields of software production, biotechnology, and tourism. Abundant geothermal and hydropower sources have attracted substantial foreign investment in the aluminum sector and boosted economic growth, although the financial crisis has put several investment projects on hold. Much of Iceland's economic growth in recent years came as the result of a boom in domestic demand following the rapid expansion of the country's financial sector. Domestic banks expanded aggressively in foreign markets, and consumers and businesses borrowed heavily in foreign currencies, following the privatization of the banking sector in the early 2000s. Worsening global financial conditions throughout 2008 resulted in a sharp depreciation of the krona vis-a-vis other major currencies. The foreign exposure of Icelandic banks, whose loans and other assets totaled more than 10 times the country's GDP, became unsustainable. Iceland's three largest banks collapsed in late 2008. The country secured over $10 billion in loans from the IMF and other countries to stabilize its currency and financial sector, and to back government guarantees for foreign deposits in Icelandic banks. GDP fell 6.8% in 2009, and unemployment peaked at 9.4% in February 2009. GDP fell 3.4% in 2010. Since the collapse of Iceland's financial sector, government economic priorities have included: stabilizing the krona, reducing Iceland's high budget deficit, containing inflation, restructuring the financial sector, and diversifying the economy. Three new banks were established to take over the domestic assets of the collapsed banks. Two of them have foreign majority ownership, while the State holds a majority of the shares of the third. British and Dutch authorities have pressed claims totaling over $5 billion against Iceland to compensate their citizens for losses suffered on deposits held in the failed Icelandic bank, Landsbanki Islands. Iceland agreed to new terms with the UK and the Netherlands to compensate British and Dutch depositors, but the agreement must first be approved by the Icelandic President. Iceland began EU accession negotiations with the EU in July 2010, however, public support has dropped substantially because of concern about losing control over fishing resources and in reaction to measures taken by Brussels during the ongoing Eurozone crisis.
India
India is developing into an open-market economy, yet traces of
its past autarkic policies remain. Economic liberalization,
including industrial deregulation, privatization of state-owned
enterprises, and reduced controls on foreign trade and investment,
began in the early 1990s and has served to accelerate the country's
growth, which has averaged more than 7% per year since 1997. India's
diverse economy encompasses traditional village farming, modern
agriculture, handicrafts, a wide range of modern industries, and a
multitude of services. Slightly more than half of the work force is
in agriculture, but services are the major source of economic
growth, accounting for more than half of India's output, with only
one-third of its labor force. India has capitalized on its large
educated English-speaking population to become a major exporter of
information technology services and software workers. In 2010, the
Indian economy rebounded robustly from the global financial crisis -
in large part because of strong domestic demand - and growth
exceeded 8% year-on-year in real terms. Merchandise exports, which
account for about 15% of GDP, returned to pre-financial crisis
levels. An industrial expansion and high food prices, resulting from
the combined effects of the weak 2009 monsoon and inefficiencies in
the government's food distribution system, fueled inflation which
peaked at about 11% in the first half fo 2010, but has gradually
decreased to single digits following a series of central bank
interest rate hikes. New Delhi in 2010 reduced subsidies in fuel and
fertilizers, sold a small percentage of its shares in some
state-owned enterprises and auctioned off rights to radio bandwidth
for 3G telecommunications in part to lower the government's deficit.
The Indian Government seeks to reduce its deficit to 5.5% of GDP in
FY 2010-11, down from 6.8% in the previous fiscal year. India's long
term challenges include widespread poverty, inadequate physical and
social infrastructure, limited non-agricultural employment
opportunities, insufficient access to quality basic and higher
education, and accommodiating rual-to-urban migration.
Indian Ocean
The Indian Ocean provides major sea routes connecting
the Middle East, Africa, and East Asia with Europe and the Americas.
It carries a particularly heavy traffic of petroleum and petroleum
products from the oilfields of the Persian Gulf and Indonesia. Its
fish are of great and growing importance to the bordering countries
for domestic consumption and export. Fishing fleets from Russia,
Japan, South Korea, and Taiwan also exploit the Indian Ocean, mainly
for shrimp and tuna. Large reserves of hydrocarbons are being tapped
in the offshore areas of Saudi Arabia, Iran, India, and western
Australia. An estimated 40% of the world's offshore oil production
comes from the Indian Ocean. Beach sands rich in heavy minerals and
offshore placer deposits are actively exploited by bordering
countries, particularly India, South Africa, Indonesia, Sri Lanka,
and Thailand.
Indonesia
Indonesia, a vast polyglot nation, has weathered the
global financial crisis relatively smoothly because of its heavy
reliance on domestic consumption as the driver of economic growth.
Although the economy slowed significantly in 2009 from the 6%-plus
growth rate recorded in 2007 and 2008, by 2010 growth returned to a
6% rate. During the recession, Indonesia outperformed its regional
neighbors and joined China and India as the only G20 members posting
growth. The government made economic advances under the first
administration of President YUDHOYONO, introducing significant
reforms in the financial sector, including tax and customs reforms,
the use of Treasury bills, and capital market development and
supervision. Indonesia's debt-to-GDP ratio in recent years has
declined steadily because of increasingly robust GDP growth and
sound fiscal stewardship. Indonesia still struggles with poverty and
unemployment, inadequate infrastructure, corruption, a complex
regulatory environment, and unequal resource distribution among
regions. YUDHOYONO's reelection, with respected economist BOEDIONO
as his vice president, suggests broad continuity of economic policy,
although the start of their term has been marred by corruption
scandals and the departure of an internationally respected finance
minister. The government in 2010 faces the ongoing challenge of
improving Indonesia's insufficient infrastructure to remove
impediments to economic growth, while addressing climate change
mitigation and adaptation needs, particularly with regard to
conserving Indonesia's forests and peatlands, the focus of a
potentially trailblazing $1 billion REDD+ pilot project.
Iran
Iran's economy is marked by an inefficient state sector,
reliance on the oil sector, which provides the majority of
government revenues, and statist policies, which create major
distortions throughout the system. Private sector activity is
typically limited to small-scale workshops, farming, and services.
Price controls, subsidies, and other rigidities weigh down the
economy, undermining the potential for private-sector-led growth.
Significant informal market activity flourishes. The legislature in
late 2009 passed President Mahmud AHMADI-NEJAD's bill to reduce
subsidies, particularly on food and energy. The bill would phase out
subsidies - which benefit Iran's upper and middle classes the most -
over three to five years and replace them with cash payments to
Iran's lower classes. However, the start of the program was delayed
repeatedly throughout 2010 over fears of public reaction to higher
prices. This is the most extensive economic reform since the
government implemented gasoline rationing in 2007. The recovery of
world oil prices in the last year increased Iran's oil export
revenue by at least $10 billion over 2009, easing some of the
financial impact of the newest round of international sanctions.
Although inflation has fallen substantially since the mid-2000s,
Iran continues to suffer from double-digit unemployment and
underemployment. Underemployment among Iran's educated youth has
convinced many to seek jobs overseas, resulting in a significant
"brain drain."
Iraq An improved security environment and an initial wave of foreign investment are helping to spur economic activity, particularly in the energy, construction, and retail sectors. Broader economic improvement, long-term fiscal health, and sustained increases in the standard of living still depend on the government passing major policy reforms and on continued development of Iraq's massive oil reserves. Although foreign investors viewed Iraq with increasing interest in 2010, most are still hampered by difficulties in acquiring land for projects and by other regulatory impediments. Iraq's economy is dominated by the oil sector, which provides over 90% of government revenue and 80% of foreign exchange earnings. Since mid-2009, oil export earnings have returned to levels seen before Operation Iraqi Freedom and government revenues have rebounded, along with global oil prices. In 2011 Baghdad probably will increase oil exports above the current level of 1.9 million barrels per day (bbl/day) as a result of new contracts with international oil companies, but is likely to fall short of the 2.4 million bbl/day it is forecasting in its budget. Iraq is making modest progress in building the institutions needed to implement economic policy. In 2010, Bagdad signed a new agreement with both the IMF and World Bank for conditional aid programs that will help strengthen Iraq's economic institutions. Some reform-minded leaders within the Iraqi government are seeking to pass laws to strengthen the economy. This legislation includes a package of laws to establish a modern legal framework for the oil sector and a mechanism to equitably divide oil revenues within the nation, although these and other important reforms are still under contentious and sporadic negotiation. Iraq's recent contracts with major oil companies have the potential to greatly expand oil revenues, but Iraq will need to upgrade its oil processing, pipeling, and export infrastructure to enable these deals to reach their potential. The Government of Iraq is pursuing a strategy to gain additional foreign investment in Iraq's economy. This includes an amendment to the National Investment Law, multiple international trade and investment events, as well as potential participation in joint ventures with state-owned enterprises. Provincial Councils also are using their own budgets to promote and facilitate investment at the local level. However, widespread corruption, inadequate infrastructure, insufficient essential services, and antiquated commercial laws and regulations stifle investment and continue to constrain the growth of private, non-energy sectors. The Central Bank has successfully held the exchange rate at approximately 1,170 Iraqi dinar/US dollar since January 2009. Inflation has decreased consistently since 2006 as the security situation has improved. However, Iraqi leaders remain hard pressed to translate macroeconomic gains into improved lives for ordinary Iraqis. Unemployment remains a problem throughout the country. Reducing corruption and implementing reforms - such as bank restructuring and developing the private sector - would be important steps in this direction.
Ireland
Ireland is a small, modern, trade-dependent economy. Ireland
joined 11 other EU nations in circulating the euro on 1 January
2002. GDP growth averaged 6% in 1995-2007, but economic activity has
dropped sharply since 2008 with GDP falling by over 3% in 2008,
nearly 8% in 2009, and 1% in 2010, and further contraction is
expectd in 2011. Ireland entered into a recession for the first time
in more than a decade with the onset of the world financial crisis
and subsequent severe slowdown in its domestic property and
construction markets. Agriculture, once the most important sector,
is now dwarfed by industry and services. Although the export sector,
dominated by foreign multinationals, remains a key component of
Ireland's economy, construction most recently fueled economic growth
along with strong consumer spending and business investment.
Property prices rose more rapidly in Ireland in the decade up to
2007 than in any other developed economy. However, average home
prices have fallen 50% from the 2007 peak. In 2008 the COWEN
government moved to guarantee all bank deposits, recapitalize the
banking system, and establish partly-public venture capital funds in
response to the country's economic downturn. In 2009, in an effort
to stabilize the banking sector, the Irish Government established
the National Asset Management Agency (NAMA) to acquire problem
commercial property and development loans from Irish banks. Faced
with sharply reduced revenues and a burgeoning budget deficit, the
Irish Government introduced the first in a series of draconian
budgets in 2009. In addition to across-the-board cuts in spending,
the 2009 budget included wage reductions for all public servants.
These measures were not sufficient. The budget deficit reached
nearly 38% of GDP in 2010 because of additional government support
for the banking sector. In late 2010, the COWEN Government agreed to
a $112 billion loan package from the EU and IMF to help Dublin
recapitalize its banking sector and avoid defaulting on its
sovereign debt, and initiated a four-year austerity plan to cut an
additional $20 billion from its budget.
Isle of Man
Offshore banking, manufacturing, and tourism are key
sectors of the economy. The government offers low taxes and other
incentives to high-technology companies and financial institutions
to locate on the island; this has paid off in expanding employment
opportunities in high-income industries. As a result, agriculture
and fishing, once the mainstays of the economy, have declined in
their contributions to GDP. The Isle of Man also attracts online
gambling sites and the film industry. Trade is mostly with the UK.
The Isle of Man enjoys free access to EU markets.
Israel
Israel has a technologically advanced market economy. It
depends on imports of crude oil, grains, raw materials, and military
equipment. Despite limited natural resources, Israel has intensively
developed its agricultural and industrial sectors over the past 20
years. Cut diamonds, high-technology equipment, and agricultural
products (fruits and vegetables) are the leading exports. Israel
usually posts sizable trade deficits, which are covered by large
transfer payments from abroad and by foreign loans. Roughly half of
the government's external debt is owed to the US, its major source
of economic and military aid. Israel's GDP, after contracting
slightly in 2001 and 2002 due to the Palestinian conflict and
troubles in the high-technology sector, grew about 5% per year from
2004-07. The global financial crisis of 2008-09 spurred a brief
recession in Israel, but the country entered the crisis with solid
fundamentals - following years of prudent fiscal policy and a series
of liberalizing reforms - and a resilient banking sector, and the
economy has shown signs of an early recovery. Following GDP growth
of 4% in 2008, Israel's GDP slipped to 0.2% in 2009, but reached
3.4% in 2010, as exports rebounded. The global economic downturn
affected Israel's economy primarily through reduced demand for
Israel's exports in the United States and EU, Israel's top trading
partners. Exports account for about 25% of the country's GDP. The
Israeli Government responded to the recession by implementing a
modest fiscal stimulus package and an aggressive expansionary
monetary policy - including cutting interest rates to record lows,
purchasing government bonds, and intervening in the foreign currency
market. The Bank of Israel began raising interest rates in the
summer of 2009 when inflation rose above the upper end of the Bank's
target and the economy began to show signs of recovery.
Italy Italy has a diversified industrial economy, which is divided into a developed industrial north, dominated by private companies, and a less-developed, welfare-dependent, agricultural south, with high unemployment. The Italian economy is driven in large part by the manufacture of high-quality consumer goods produced by small and medium-sized enterprises, many of them family owned. Italy also has a sizable underground economy, which by some estimates accounts for as much as 15% of GDP. These activities are most common within the agriculture, construction, and service sectors. Italy has moved slowly on implementing needed structural reforms, such as reducing graft, overhauling costly entitlement programs, and increasing employment opportunities for young workers, particularly women. The international financial crisis worsened conditions in Italy's labor market, with unemployment rising from 6.2% in 2007 to 8.4% in 2010, but in the longer-term Italy's low fertility rate and quota-driven immigration policies will increasingly strain its economy. A rise in exports and investment driven by the global economic recovery nevertheless helped the economy grow by about 1% in 2010 following a 5% contraction in 2009. The Italian government has struggled to limit government spending, but Italy's exceedingly high public debt remains above 115% of GDP, and its fiscal deficit - just 1.5% of GDP in 2007 - exceeded 5% in 2009 and 2010, as the costs of servicing the country's debt rose.