oys 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 two-thirds 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 should be completed by 2014 at a cost
of $5.3 billion (about 30% 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 high
unemployment rate. The government has implemented tax reforms, as
well as social security reforms, and backs regional trade agreements
and development of tourism. 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.

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. 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
also 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 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 a
worsening HIV/AIDS epide