mproved over the past three years
because of high commodity prices following a prolonged period of
instability. The government of Prime Minister SOMARE has expended
much of its energy remaining in power and should be the first
government in decades to serve a full five-year term. The government
has also brought stability to the national budget thus far, largely
through expenditure control. Numerous challenges still face the
government including regaining investor confidence, restoring
integrity to state institutions, promoting economic efficiency by
privatizing moribund state institutions, and balancing relations
with Australia, the former colonial ruler. Other socio-cultural
challenges could upend the economy including a worsening HIV/Aids
epidemic and chronic law and order and land tenure issues. Australia
annually supplies $240 million in aid, which accounts for nearly 20%
of the national budget.

Paracel Islands
China announced plans in 1997 to open the islands
for tourism.

Paraguay
Landlocked Paraguay has a market economy marked by a large
informal sector. This sector features both reexport of imported
consumer goods to neighboring countries, as well as the activities
of thousands of microenterprises and urban street vendors. Because
of the importance of the informal sector, accurate economic measures
are difficult to obtain. A large percentage of the population
derives its living from agricultural activity, often on a
subsistence basis. The formal economy grew by an average of about 3%
annually in 1995-97, but averaged near-zero growth in 1998-2001 and
contracted by 2.3 percent in 2002, in response to regional contagion
and an outbreak of hoof-and-mouth disease. On a per capita basis,
real income has stagnated at 1980 levels. Most observers attribute
Paraguay's poor economic performance to political uncertainty,
corruption, lack of progress on structural reform, substantial
internal and external debt, and deficient infrastructure. Aided by a
firmer exchange rate and perhaps a greater confidence in the
economic policy of the DUARTE FRUTOS administration, the economy
rebounded between 2003 and 2006, posting modest growth each year.

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
mountain