been stimulated, in part, through high fiscal deficits
and rapid credit growth. 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. In 2006, 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 have plagued the
country since 2004.

Cyprus
The Republic of Cyprus has a market economy dominated by the
service sector, which accounts for 76% of GDP. Tourism and financial
services 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
grew a healthy 3.7% per year in 2004 and 2005, well above the EU
average. Cyprus joined the European Exchange Rate Mechanism (ERM2)
in May 2005. The government has initiated an aggressive austerity
program, which has cut the budget deficit to below 3% but continued
fiscal discipline is necessary if Cyprus is to meet its goal of
adopting the euro on 1 January 2008. 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 2001-03 alleviating
immediate concerns. The Turkish Cypriot economy has roughly
one-third of the per capita GDP of the south, and economic growth
tends to be volatile, given north Cyprus's relative isolation,
bloated public sector, reliance on the Turkish lira, and small
market size. The Turkish Cypriot economy grew 15.4% in 2004, fueled
by growth in the construction and education sectors, as well as
increased employment of Turkish Cypriots in the Republic of Cyprus.
The Turkish Cypriots are heavily dependent on transfers from the
Turkish Government. Under the 2003-0