Palau
The economy consists primarily of tourism, subsistence
agriculture, and fishing. The government is the major employer of
the work force relying heavily on financial assistance from the US.
The Compact of Free Association with the US, entered into after the
end of the UN trusteeship on 1 October 1994, provided Palau with up
to $700 million in US aid for the following 15 years in return for
furnishing military facilities. Business and tourist arrivals
numbered 85,000 in 2007. The population enjoys a per capita income
roughly 50% higher than that of the Philippines and much of
Micronesia. Long-run prospects for the key tourist sector have been
greatly bolstered by the expansion of air travel in the Pacific, the
rising prosperity of leading East Asian countries, and the
willingness of foreigners to finance infrastructure development.
Panama
Panama's dollarized economy rests primarily on a
well-developed services sector that accounts for three-quarters of
GDP. Services include operating the Panama Canal, banking, the Colon
Free Zone, insurance, container ports, flagship registry, and
tourism. Economic growth will be bolstered by the Panama Canal
expansion project that began in 2007 and is scheduled to be
completed by 2014 at a cost of $5.3 billion - about 25% of current
GDP. The expansion project will more than double the Canal's
capacity, enabling it to accommodate ships that are now too large to
transverse the transoceanic crossway, and should help to reduce the
unemployment rate. The United States and China are the top users of
the Canal. Panama also plans to construct a metro system in Panama
City, valued at $1.2 billion and scheduled to be completed by 2014.
Panama's aggressive infrastructure development projects will likely
lead the economy to continued growth in 2011. Strong economic
performance has not translated into broadly shared prosperity as
Panama has the second worst income distribution in Latin America.
About 30% of the population lives in poverty, however, during
TORRIJOS's term poverty was reduced from 40% to 30% and unemployment
dropped from 12% to 6%. Not a CAFTA signatory, Panama in December
2006 independently negotiated a free trade agreement with the US,
which, when implemented, will help promote the country's economic
growth. Seeking removal from the Organization of Economic
Development's gray-list of tax havens, Panama has also recently
signed various double taxation treaties with other nations.
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 copper, gold, and oil, account for nearly two-thirds of
export earnings. Natural gas reserves amount to an estimated 227
billion cubic meters. A consortium led by a major American oil
company is constructing a liquefied natural gas (LNG) production
facility that could begin exporting in 2013 or 2014. As the largest
investment project in the country's history, it has the potential to
double GDP in the near-term and triple Papua New Guinea's export
revenue. The government faces the challenge of ensuring transparency
and accountability for revenues flowing from this and other large
LNG projects. The government of Prime Minister SOMARE has expended
much of its energy remaining in power. He was the first prime
minister ever to serve a full five-year term. The government has
brought stability to the national budget, largely through
expenditure control; however, it relaxed spending constraints in
2006 and 2007 as elections approached. Numerous challenges still
face the government, including providing physical security for
foreign investors, regaining investor confidence, restoring
integrity to state institutions, promoting economic efficiency by
privatizing moribund state institutions, and balancing relations
with Australia, its former colonial ruler. Other socio-cultural
challenges could upend the economy including an HIV/AIDS epidemic,
with the highest infection rate in all of East Asia and the Pacific,
and chronic law and order and land tenure issues. The global
financial crisis had little impact because of continued high demand
for Papua New Guinea's commodities exports.
Paracel Islands
The islands have the potential for oil and gas
development. Waters around the islands support commercial fishing,
but the islands themselves are not populated on a permanent basis.
Paraguay
Landlocked Paraguay has a market economy distinguished by a
large informal sector, featuring re-export of imported consumer
goods to neighboring countries, as well as the activities of
thousands of microenterprises and urban street vendors. A large
percentage of the population, especially in rural areas, derives its
living from agricultural activity, often on a subsistence basis.
Because of the importance of the informal sector, accurate economic
measures are difficult to obtain. On a per capita basis, real income
has stagnated at 1980 levels. The economy grew rapidly between 2003
and 2008 as growing world demand for commodities combined with high
prices and favorable weather to support Paraguay's commodity-based
export expansion. Paraguay is the sixth largest soy producer in the
world. Drought hit in 2008, reducing agricultural exports and
slowing the economy even before the onset of the global recession.
The economy fell 3.8% in 2009, as lower world demand and commodity
prices caused exports to contract. The government reacted by
introducing fiscal and monetary stimulus packages. Growth resumed at
a 6.5% level in 2010. Political uncertainty, corruption, limited
progress on structural reform, and deficient infrastructure are the
main obstacles to growth.
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. The Peruvian economy grew by more than 4% per year
during the period 2002-06, with a stable exchange rate and low
inflation. Growth jumped to 9% per year in 2007 and 2008, driven by
higher world prices for minerals and metals and the government's
aggressive trade liberalization strategies, but then fell to less
than 1% in 2009 in the face of the world recession and lower
commodity export prices. Growth resumed in 2010 at nearly 8%, due
partly to increased exports. Peru's rapid expansion has helped to
reduce the national poverty rate by about 15% since 2002, though
underemployment remains high; inflation has trended downward in
2009, to below the Central Bank's 1-3% target. Despite Peru's strong
macroeconomic performance, overdependence on minerals and metals
subjects the economy to fluctuations in world prices, and poor
infrastructure precludes the spread of growth to Peru's non-coastal
areas. Not all Peruvians therefore have shared in the benefits of
growth and despite President GARCIA's pursuit of sound trade and
macroeconomic policies, persistent inequality has cost him political
support. Nevertheless, he remains committed to Peru's free-trade
path. Since 2006, Peru has signed trade deals with the United
States, Canada, Singapore, and China, concluded negotiations with
the European Union, and begun trade talks with Korea, Japan, and
others. The US-Peru Trade Promotion Agreement (PTPA) entered into
force 1 February 2009, opening the way to greater trade and
investment between the two economies.
Philippines
Philippine GDP grew nearly 7% in 2010. The economy
weathered the 2008-09 global recession better than its regional
peers due to minimal exposure to securities issued by troubled
global financial institutions; lower dependence on exports;
relatively resilient domestic consumption, supported by large
remittances from four-to five-million overseas Filipino workers; and
a growing business process outsourcing industry. Economic growth in
the Philippines has averaged 4.5% per year since 2001, when former
President MACAPAGAL-ARROYO took office. Despite this growth, poverty
worsened during the term of MACAPAGAL-ARROYO, because of a high
population growth rate and inequitable distribution of income.
MACAPAGAL-ARROYO averted a fiscal crisis by pushing for new revenue
measures and, until recently, tightening expenditures to address the
government's yawning budget deficit and to reduce high debt and debt
service ratios. But the government abandoned its 2008
balanced-budget goal in order to help the economy weather the global
financial and economic storm. The economy under AQUINO faces budget
shortfalls in the near term, but has had little difficulty issuing
debt both locally and internationally to finance the deficits.
AQUINO's first budget emphasizes education and other social spending
programs, relying on the private sector to finance important
infrastructure projects. Weak tax collection in recent years limits
the government's ability to address major challenges.
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 pursued a policy of economic liberalization since
1990 and today stands out as a success story among transition
economies. Before 2009, GDP had grown about 5% annually, based on
rising private consumption, a jump in corporate investment, and EU
funds inflows. GDP per capita is still much below the EU average,
but is similar to that of the three Baltic states. Since 2004, EU
membership and access to EU structural funds have provided a major
boost to the economy. Unemployment fell rapidly to 6.4% in October
2008, but climbed back to 11.8% for the year 2010, exceeding the EU
average by more than 2%. In 2008 inflation reached 4.2%, more than
the upper limit of the National Bank of Poland's target range, but
fell to 2.4% in 2010 due to global economic slowdown. Poland's
economic performance could improve over the longer term if the
country addresses some of the remaining deficiencies in its road and
rail infrastructure and its business environment. An inefficient
commercial court system, a rigid labor code, bureaucratic red tape,
burdensome tax system, and persistent low-level corruption keep the
private sector from performing up to its full potential. Rising
demands to fund health care, education, and the state pension system
caused the public sector budget deficit to rise to 7.9% of GDP in
2010. The PO/PSL coalition government, which came to power in
November 2007, plans to reduce the budget deficit in 2011 and has
also announced its intention to enact business-friendly reforms,
increase workforce participation, reduce public sector spending
growth, lower taxes, and accelerate privatization. The government,
however, has moved slowly on major reforms. The legislature passed a
law significantly limiting early retirement benefits. A health-care
bill also passed through the legislature, but the legislature failed
to overturn a presidential veto.
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 2001-08, shrank 2.6% in 2009,
before growing 1% in 2010. GDP per capita stands at roughly
two-thirds of the EU-27 average. A poor educational system and a
rigid labor market have been obstacles to greater productivity and
growth. Portugal also has been increasingly overshadowed by
lower-cost producers in Central Europe and Asia as a target for
foreign direct investment. Portugal's competitiveness problems, low
growth prospects, and high levels of public debt have made it
vulnerable to bond market turbulence. Lisbon is implementing
austerity measures to reduce the budget deficit from 9.4% of GDP in
2009 to 4.6% of GDP in 2011, but some investors have expressed
concern about Portugal's ability to achieve these targets and cover
its sovereign debt. Without the option for stimulus measures, the
government is focusing instead on boosting exports and implementing
labor market reforms to try to raise GDP growth and tackle
Portugal's competitiveness problems, which may help mitigate
investor concerns over time.