ained its reputation for strong
financial institutions and sound policy that have given it the
strongest sovereign bond rating in South America. By the end of
1999, exports and economic activity had begun to recover, and growth
rebounded to 4.2% in 2000. Growth fell back to 3.1% in 2001 and 2.1%
in 2002, largely due to lackluster global growth and the devaluation
of the Argentine peso, but recovered to 3.2% in 2003. Unemployment,
although declining over the past year, remains stubbornly high,
putting pressure on President LAGOS to improve living standards. One
bright spot was the signing of a free trade agreement with the US,
which took effect on 1 January 2004. In 2004, GDP growth is set to
accelerate to more than 4% as copper prices rise, export earnings
grow, and foreign direct investment picks up.

China
In late 1978 the Chinese leadership began moving the economy
from a sluggish, inefficient, Soviet-style centrally planned economy
to a more market-oriented system. Whereas the system operates within
a political framework of strict Communist control, the economic
influence of non-state organizations and individual citizens has
been steadily increasing. The authorities switched to a system of
household and village responsibility in agriculture in place of the
old collectivization, increased the authority of local officials and
plant managers in industry, permitted a wide variety of small-scale
enterprises in services and light manufacturing, and opened the
economy to increased foreign trade and investment. The result has
been a quadrupling of GDP since 1978. Measured on a purchasing power
parity (PPP) basis, China in 2003 stood as the second-largest
economy in the world after the US, although in per capita terms the
country is still poor. Agriculture and industry have posted major
gains especially in coastal areas near Hong Kong, opposite Taiwan,
and in Shanghai, where foreign investment has helped spur output of
both domestic and export goods. The leadership, however, often has
experienced - as a result of its hybrid system - the worst results
of socialism (bureaucracy and lassitude) and of capitalism (growing
income disparities and rising unemployment). China thus has
periodically backtracked, retightening central controls at
intervals. The government has struggled to (a) sustain adequate jobs
growth for tens of millions of workers laid off fro