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This year's World Trade Magazine annual Top 30 Countries for Trade & Expansion report yielded two significant developments: the competition amongst the highest ranking countries is continuing to get even more intense as differences are flattening, while the rankings themselves showed dramatic changes on a regional level with Asian countries generally pulling ahead, while much of Western Europe dropped behind.

The criteria of investment risk are diverse and, in the final analysis, more subjective than some might contend. The World Trade Magazine Top 30 list provides a comprehensive overview of a number of factors that, taken together, suggest a country's national investment climate. This is our own proprietary index, which has proven to be a reliable predictor in the past of the return of investment capital in one country relative to another. The composite puts a premium on such objective measures as the size and trend of the domestic economy, consumer demand potential, currency stability and exchange value, and corporate lending standards.

In addition to these empirical measures, less tangible considerations are weighed. These include a country's economic competitiveness, its 'economic freedom' and rule of law. This year for the first time we have included consideration of the internet into the process with an 'e-Readiness' ranking. As Thomas Friedman has observed in The Lexus and the Olive Tree, an increasingly relevant measure of potential for economic progress is PCs per household amped up by connectivity to the internet ("the mantra of the network era is 'You can never have too much brandwidth in your country").

In addition, The Heritage Foundation's 2004 Index of Economic Freedom is also new for 2004. The index, published by The Heritage Foundation and The Wall Street Journal, has steadily documented that the nations with the most economic freedom are also the most prosperous. According to the editors of the index, there is a trend toward declining protection of property rights. Specifically, seven nations weakened their safeguards of such rights and none-out of all 155 surveyed-strengthened them. "Without strong property rights, an investor cannot be sure of his ability to lay claim in a business he builds," the index emphasizes. "As the risk involved in a business venture increases, investors and entrepreneurs are left reluctant and likely to put their money elsewhere."

Asia's 'other' rising stars

One of the most significant trends of this year's Top 30 report is the rise of Asian economies-and we're not talking about China. Taiwan, Singapore, and Hong Kong all made dramatic advances in the rankings. Singapore's "Percent Change in Domestic Demand" improved more than any other country, while Hong Kong and Taiwan also did very well in this category. Japan had the lowest inflation of any country, and indeed is finally breaking away from years of economic stagnation (see the following article in this special report, "Japan Comes Back".).

China, on the other hand, remained towards the bottom of the Top 30 report this year, which confirms what World Trade and others, such as political risk consultant Marvin Zonis (see sidebar) have cautioned for some time. Namely, that despite the mad dash into China, the country still possesses a considerable amount of risk.

"I think there's a kind of herd mentality going on in China. Everyone's competitor's there, so they think they have to be there," says Zonis. Regarding those companies who are already invested in China, he says: "There are two kinds of investments that have been going on in China. One is investments which are meant to produce goods for export, and the other is investments to produce goods for the internal Chinese market. My sense is that making a bet on the internal Chinese market is a mistaken idea. Making a bet for exports is a better idea; there's still some political risk because what we know about China is that the government has really been hammering on Chinese nationalism. I think what's replaced the ideology of Communism for the government of China is nationalism. What we saw when the U.S. bombed the China embassy in Belgrade, back when we had the war against Slobodan Milosevic, was that they really whipped up the nationalism against the United States. Therefore, it's entirely plausible to imagine that if things really go wrong in China, that they would turn on the foreigners as a way to explain why things went wrong. This would put foreign companies in a difficult position." Zonis says flatly, "I'm not bullish on China."

Zonis may be on to something. In early April, Chinese lawmakers passed binding "interpretations" of two annexes in Hong Kong's Basic Law, or constitution. The latest development means Beijing will give the public a more significant role in picking Hong Kong's lawmakers and chief executive, but Beijing alone has the right to determine when the changes may occur. This was the latest in a series of blows to Hong Kong's pro-democracy movement. Two months earlier, China accused Hong Kong opposition lawmakers and pro-democracy activists of being "unpatriotic." These accusations are hardly much different from those China has delivered to Taiwan for years, and exactly the kinds of red flags that Zonis warns about.

What's happening in Europe?

Collectively, the biggest drops in this year's Top 30 were experienced in Europe, with Austria leading the fall from 7th place last year to 18th place in 2004. Austria's decline was not entirely surprising-the country has been repeatedly warned that its economic model was outdated and that its high reliance on trade with non-market economies, such as the communist states of Eastern Europe, was not conducive to economic growth. Yet, with enlargement of the EU, Austria is actually in a good position to improve its prospects if it decides to pursue public sector reforms, especially the pension system, reduce barriers to labor force participation, and improve the education system, for starters.

Other European countries that were hit hard this year include Spain, the Netherlands, France, and Italy, while Germany remained in the number 12 spot. While each have specific economic reasons for their performance, it's fair to say that Europe as a whole is undergoing considerable challenges.

The European Commission predicts that half of the countries using the euro will break budget deficit rules this year and the Continent's economic growth will lag behind much of the world. One EU official blames Europe's poor performance on "deep-seated structural problems," such as government's inability to control spending on health care and pensions. In turn, European consumers worry that taxes will be raised to support budget gaps, and are more concerned now with saving than spending.

Belgian Prime Minister Guy Verhofstadt told the Brussels-based Lisbon Council recently that European countries need to start benchmarking themselves against other global economies rather than looking only to other European countries for comparative measures. He emphasized that Europe must "finish the job of building an internal market. More than 15 years after the Single European Act and more than 12 years after 'Europe 1992,' we still face obstacles to free movement of persons, goods, services, and capital."

Although some European economies are showing sparks of life, overall growth in Europe is averaging 0.6 percent, the prime minister said. "We comfort ourselves with the thought that we have just been through a tough economic period and that things should start getting better this year. But if we look at the growth centers outside the EU, then we get a different perspective. Economic growth is 3.6 percent in the United States, 2.3 percent in Japan, and nearly 10 percent in China." Verhofstadt concluded that if Europe doesn't tackle reforms, "then we risk turning Europe into a social and economic museum. If we continue to hesitate, then in the short term the costs of an aging population, health care, and unemployment will become impossibly high."

Sidebar: Evaluating Potential in Emerging Markets

Deciding where to place foreign investment bets-choosing which countries to 'buy' for the long-term--is a lot tougher in the age of globalization. Traditional metrics of economic development, such as those used in the World Trade Top 30, are less reliable markers when it comes to emerging markets. Yet, this is precisely where some of the highest returns, and the highest risks, lie!

In order to shed some light on how to read the indicators in emerging markets, World Trade spoke with Marvin Zonis. A professor of international political economy at the University of Chicago Graduate School of Business, Zonis specializes in identifying the intersections of politics, economics, and emergent technologies. In addition to providing political risk consultation to private clients, he recently co-authored The Kimchi Matters: Global Business and Local Politics in a Crisis-Driven World.

"What we've tried to do in the latest book is come up with principles for getting globalization right. In other words, what a company needs to think about then they go into emerging markets and the most important factors that really contribute to political stability. The level of corruption, for example, is something we've always found to be very important as a negative indicator of political stability. It's tough to get a good measure of that, however. The best thing around is the Transparency International index."

"Another powerful insight into the relationship between economic growth and political stability is the work of Peruvian economist Hernando de Soto," Zonis adds. "In his latest book, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, de Soto develops his essential thesis that there are tremendous amounts of capital available in emerging markets, which don't get used for development purposes, because the people who own the capital (such as their homes) can never get legal title to it. You can't prove that you own it. The result is that in many countries, as much as three-quarters of an economy is in the informal or 'gray' economy, which means it doesn't exist legally and can't provide access to capital."

The global real estate firm Jones Lang LaSalle is also a valuable resource, according to Zonis. "They have created an interesting measure of transparency for real estate investment. They've come up with five key aspects including availability of accurate financial and market information." The six countries deemed 'highly transparent' in the most recent index are Australia, New Zealand, United States, the U.K., Canada and the Netherlands, respectively.

"Rental income is something that is very important to us as a negative indicator," he says. "We always think that countries which have a lot of rental income, or 'free money', are going to fail."

The J-Curve, or the shape of the trend of a country's trade balance following a devaluation, is a factor in the analysis Zonis conducts. "We've done a lot of research on the J-Curve, which is how we describe the economic graph of countries that have grown for a long time and then have a sharp fall-off in growth. These are the ones where political instability is most likely to occur. A country that is in the leading position to be characterized as in such a state is, of course, China."

"In terms of specific countries and areas, I think that India is a safer bet than China because it has demonstrated extraordinary political stability even though it has a suffocating bureaucracy and high levels of corruption. I think we're going to see the India model will be more successful than the Chinese model. There are certainly indications that people have learned how to work the Indian market, especially for outsourcing."

As for other promising candidates for growth and expansion, Zonis believes that "some of the eastern European countries look as if they will succeed. The Czech Republic and countries like Poland and Hungary are going to be pretty good places."

Furthermore, he says, "I can understand why Africa hasn't gotten itself on the World Trade Top 30. Frankly, the reason I think is the fear that the disintegration of certain African states is going to contribute to the 'al Qaedaization' of the continent. Any major American initiative is a long way off."

At the same time, he says, "Qatar and the United Arab Emirates are very interesting places. They have a free trade zone in the U.A.E., in which there are vast numbers of workers from Sri Lanka working in factories to produce goods for export to the U.S. and Europe. It's also pretty stable in both of those countries."

Sidebar: Japan Comes Back
By Joshua Kurlantzick, Contributing Editor

In the first quarter of 2004, one of Asia's largest economies grew by nearly seven percent. Unemployment is shrinking, and consumer confidence is up. The capital city boasts a flashy $4 billion new shopping complex, where hip twenty- and thirtysomethings dine at hip restaurants and drink at ultra-stylish bars.

China? Try Japan.

Once written off as an economic basket case in terminal decline, over the past two years Japan has begun to right its ship, with reformist and highly charismatic Prime Minister Junichiro Koizumi forcing a clean-up of the country's ailing bank sector and prompting politicians to become more responsive to the public. Just as important, Koizumi, who won a new mandate in last fall's parliamentary elections, has thrown open Japan's historically closed market to foreign direct investment (his goal is to double the amount of foreign investment into Japan by 2008).

Several factors have combined to turn around Japan's economy, which struggled through a decade of minimal growth during the 1990s, and to make the country more attractive for world traders. Tsuneo Watanabe, a Japan expert at the Center for Strategic and International Studies, a Washington think-tank, believes Koizumi is the first Japanese politicians in years to attack the status quo - the entrenched web of connections between Japanese corporations, politicians, and banks that can be hard for foreign firms to battle. "Koizumi actually made the major Japanese commercial banks tackle bad loans, and they did - that's been very successful ... The more bad loans are tackled, the more money will go to the private sector," says Watanabe. In addition, the poor economic climate of the 90s finally forced leading Japanese companies to go through a process of painful corporate restructuring, shedding unnecessary subsidiaries and outsourcing work to lower-wage countries like China.

Koizumi has made other important changes as well. He has slashed wasteful public spending, particularly on construction projects. Though Japan traditionally shied away from bilateral trade agreements, Koizumi, recognizing that multilateral trade talks conducted through the WTO were breaking down, has inked landmark free trade agreements with Singapore and Mexico, and is considering other, similar deals with Thailand, Malaysia, and the Philippines. All these agreements help in opening Japan's markets to foreigners. Koizumi is so personally popular across the political spectrum that he has not had to cater to Japanese farmers, historically the main supporters of his Liberal Democratic Party, Koizumi's political party and traditionally opposed to trade deals.

The prime minister also has been the first Japanese leader in years to seriously encourage foreign investment. He has gone so far as to appear in commercials in English that air on international business and news channels like CNN and CNBC advertising Japan's attractions - strong consumer spending, increasingly open markets.

Koizumi's efforts have trickled down, and now individual regions of Japan, like Shizuoka, the prefecture around Mount Fuji, have mounted campaigns to woo foreign investors, offering subsidies and other financial incentives.

In addition, Koizumi has pledged to strengthen Japan's anti-monopoly legislation, a change that would help foreign companies, and has signed a new tax treaty scheduled to go into effect next year with the United States that will simplify taxation for world traders with operations in both America and Japan.

These reforms appear to be working. Japanese corporate debts have been slashed by nearly two trillion dollars since the mid-1990s, and domestic business investment is rising again. Not only did Japan's economy grow by more than six percent in the final quarter of 2003, which capped nearly two years of economic expansion, but a poll of forecasters commissioned by The Economist earlier this year suggested that Japan would grow by nearly three percent for 2004 - solid growth for a mature, $4.5 trillion economy.

Foreign Direct Investment into Japan is rising, with the United States by far the biggest investor. Japan's largest banking groups all are returning to the black, in March Japanese stocks rose to their highest level in nearly two years, and unemployment in Japan fell in December 2003 to less than five percent, its lowest figure in more than two years. No wonder surveys show that Japan's executives are more confident about the future than any time in the past six years.

Japanese exports accordingly grew by nearly five percent last year - leading to higher corporate profits. Profits are putting more money in the pockets of Japanese consumers, whose spending is increasing for the first time in years. Sales at department stores increased by more than two percent year-on-year in February, the most recent month for which data was available, and Roppongi Hills, a flashy new shopping and entertainment complex in downtown Tokyo, has become extraordinarily popular. New construction projects are going up all over Tokyo.

This growth is also driving the yen up - Merrill Lynch estimates that it will rise by 12 percent against the dollar between fall 2003 and summer 2004. Toshio Nishi, a Japan specialist at the Hoover Institution at Stanford, says that this stronger yen, in addition to Koizumi's reforms, will help American companies, whose products will thus be cheaper in Japan.

Quantum Dot Corporation, a Northern California-based nanotechnology company, is reaping the benefits of these changes. According to Andy Watson, vice president of Quantum Dot, the company has launched a strategic partnership with two subsidiaries of Matsushita, one of the largest Japanese conglomerates. Together, the American and Japanese companies are developing an optical scanner, which will revolutionize pharmaceutical companies' drug delivery techniques.

Like other world traders, Watson has been impressed with Japanese firms' skill level. "They have some of the best optical engineers in the world," he says. "We could have partnered with a German company, but we thought Matsushita had much more skill."

What's more, Watson, the point person for Quantum Dot Corporation's dealings with Matsushita, says that he's been impressed by how open the Japanese company has been to incorporating American ideas. "Matsushita has been extremely diligent about amassing US knowledge,"- they've sent tens of people over to California to understand Quantum Dot's working style, he says.

Quantum Dot Corporation is hardly alone. Snap-On Tools, an American manufacturer of hand and power tools, has significantly increased its penetration into the Japanese market. Color Kinetics, a Boston-based lighting company, has grown its business in Japan, and now sells roughly 35 percent of its overseas product there. Goldman Sachs has made major investments in SFMG, a leading Japanese bank, and Cerebrus, an American private equity firm, has purchased Aozora, one of Japan's biggest banks. American hotel chains are furiously opening new properties in Tokyo, and last year, Ripplewood, another American private equity firm, bought part of Japan Telecom, one of Japan's oldest, most blue chip companies.

What's more, in an ironic reversal of the 1980s, when Japanese companies bought up US icons like Rockefeller Center, an American real estate company, Colony Capital, has even signed a deal to buy the Fukouka Dome, one of Japan's most famous baseball stadiums.

Although Japan appears to have turned the corner, it's not necessarily ready for long-term growth. Many smaller banks are still weighed down by bad loans, and the enormity of the bad loan problem can be overwhelming.

Still, says Nishi, "Koizumi is threatening vested interests." That's a huge start.

Joshua Kurlantzick is Foreign Editor of The New Republic

Strengths and Weaknesses of the Global Leaders

The Coface Group evaluates country assets and risks.

The leaders in World Trade's Top 30 report for 2004 have attained their high scores by performing well on a comprehensive survey of economic indicators. But savvy traders understand that sound investment decisions are determined by taking into account a country's weaknesses just as much, if not more, than its strengths.

For further insight, World Trade turned to the Coface Group, a global leader in trade-risk management, for their expertise in country risk assessments.

#1 United Kingdom
In 2003, growth held up well, fuelled by dynamic private and public consumption. Households benefited from the creation of public-sector jobs and concomitant rise of wages. Moreover, continued low interest rates, by fostering property market dynamism and higher housing prices, generated an increase in mortgage loans that further stimulated consumption. Conversely, despite resumption of strong growth in the United States, exports continued to decline, which has tended to impede industrial production and investment.

In 2004, growth should accelerate amid a sharp industrial export recovery, spurred by improved world economic conditions and delayed effects of the pound's weakening against the euro. Despite a still-low unemployment rate, household spending and especially residential investment should stabilise. Rising interest rates could strongly contribute to that result considering the extent of variable-rate household debt.

The slight improvement registered by the Coface payment-incident index in 2003, borne out by an approximately 10% drop in bankruptcies, would tend to suggest that the difficulties endured by British industry have been progressively easing, even if the situation has remained difficult in textiles, clothing, metals, furniture, printing, and mechanical engineering. Metal, paper, alcohol, and fruit and vegetables wholesalers, electrical installation, as well as hotels and food service have also been causing problems.

#2 Japan
The recovery has been firming up. Like last year, and despite the yen appreciating against the dollar by over 10% in a year, robust exports to Asia, notably China, have been mainly driving growth. That dynamic external demand, in conjunction with the net improvement in company profitability, has been responsible for an industrial production recovery and investment boom in export sectors. Household spending, which has only given timid signs of recovering thus far, should gain momentum amid favourable employment and wage trends and easing deflationary pressures.

In this favourable context, the Coface payment incident index has stabilised at a low level. Moreover, bankruptcies and the corresponding amount of claims have continued to decline. Continued progress on structural reforms and consolidation of financial system accounts and persistence of strong Asian demand should further contribute to consolidating and improving the business climate for the remainder of the year.

#3 Singapore
After enduring an economic slowdown in 2003, partly attributable to the SARS pandemic's negative impact on sectors involved in distribution or linked to tourism, Singapore has been benefiting from more sustained growth. The economic recovery has been depending on growing international demand for pharmaceutical and petrochemical products and an upturn in the electronics sector, which represents two-thirds of exports. In that framework, the Coface payment experience on most companies has remained satisfactory with the only incidents registered remaining concentrated in small trading companies.

The accumulation of fiscal surpluses has afforded the country considerable leverage in spurring domestic demand via stimulatory policy. External accounts have continued to post large surpluses with foreign debt remaining very low and foreign currency reserves ample. The banking system has remained the soundest in the region, especially with banks continuing to reduce their non performing loans.

With its extreme sectoral specialisation, Singapore has been diversifying its economy focusing on biotechnologies and high value-added services. Moreover, it has been reducing tax levies to offset a loss of competitiveness in relation to other countries in the region as well as to China and India. However, it re-exporter role has been diminishing and its regional financial-centre from has been suffering from the region's persistent political tensions. In the face of those developments, Singapore has been adapting its positioning and concluding numerous trade agreements with major industrialised countries.

#4 Canada
Growth sagged in 2003 due to a series of negative shocks including the SARS pandemic, fires, and electricity breakdowns. Moreover, both the sluggishness of the American economy during the first half and the Canadian dollar's appreciation, spurred by the rise of raw material prices, impeded expansion of trade with the United States, which absorbs over 80% of Canadian exports. However, very steady private spending, buoyed by the decline of interest rates starting last summer and accommodating tax policy facilitated by the equilibrium of public finances, limited the extent of the slowdown.

Growth should accelerate again in 2004 due notably to the dynamism of the American economy, which will fuel exports despite probable continuation of the Canadian dollar's appreciation. Company investment should continue to expand thanks to an expected profit increase linked to the likely rise of export revenues. Despite continued high unemployment and progressive saturation of automobile and housing needs, household spending should remain buoyant.

The Coface company payment-incident index began to deteriorate in the 2003-second quarter, concomitantly with the economic slowdown. That deterioration should only be temporary due to the expected recovery. The clothing, wood, aviation, and automobile sectors have weaknesses that an export upturn will only attenuate.

#5 Sweden
Although only moderate in 2003, the growth rate again exceeded the European average. Despite slight improvement, consumer spending remained insufficient to stimulate the economy with rising unemployment undermining consumer morale. Company investment declined again. Conversely, exports remained relatively robust despite a sluggish European context.

The situation should be brighter in 2004. Improved business conditions in the paper and telecommunications sectors should drive the economy. Exports will thus be more dynamic, confirming the mild impact of the failure of Sweden's euro-adoption referendum. Meanwhile, the continuous fiscal surpluses posted since 1998 will permit pursuing accommodating economic policy. That environment will thus be conducive to a household spending recovery.

Although generally sound and competitive, Swedish companies suffered from the economic slowdown in 2003 with the bankruptcy rate increasing by 5% over the year. Although the situation has already begun to improve in the wood pulp, telecommunications equipment, automobile, and retail sectors, it has nonetheless remained difficult in construction, wood, and metals. However, the expected economic expansion should benefit all branches with the Coface payment-incident index remaining substantially below the world average.

#6 Taiwan
Taiwan has been benefiting from a domestic consumer spending recovery, buoyed by low interest rates, firm stock market prices, and declining unemployment. Exports have also continued to fuel growth with their dynamism largely depending on an upturn in the electronics sector. Moreover, the economy has been benefiting from the dynamism of companies able to adapt rapidly to changing regional and world conditions. By preserving their technological lead and delocalising their production to China, those companies have been able to develop their turnover, generate profits, and consolidate their solvency.

The island's two main weaknesses derive from shaky public finances in need of tax reform and a banking sector hampered by too many institutions. Taiwan has nonetheless remained sheltered from financial turbulence thanks to its very substantial currency reserves exceeding its foreign debt by a wide margin.

President Chen Shui-bian has narrowly been re-elected in the March 2004 election (the result being challenged by the opposition), while Taiwan's relations with Mainland China will remain the main source of uncertainty. However, the island's growing economic ties with the continent have reduced risks of conflict. Moreover, the backing of the United States and pragmatism of People's Republic of China's new leadership will be conducive to maintaining the status quo.

#7 Denmark
Growth slowed in 2003 with exports rising only slightly, hampered by sluggish European demand. Increased unemployment had a negative impact on household spending and with weak demand, investment declined.

Growth should accelerate in 2004 with tax reductions and low interest rates buoying domestic demand. Furthermore, progressive easing of unemployment should in turn contribute to stimulating household consumption. Exports will grow at a more sustained pace spurred by the European demand recovery and good levels of productivity and competitiveness.

The Coface default index for Danish companies has been reflecting a default frequency substantially below the world average and consistent with an estimated 4 percent decline in bankruptcies in 2003. That situation should persist in 2004.

#8 Ireland
Ireland's growth has been flagging, posting its lowest level in over a decade in 2003. Exports have suffered both from the depressed technology sector - which has constituted the country's main activity and remained very dependent on decisions by foreign companies, notably North American - and a loss of competitiveness due to the euro's sharp appreciation. The consequent weakness of foreign demand has caused a sharp cutback in investments. A slight household-spending slowdown, attributable to slower wage growth, and a higher savings rate have contributed to easing inflationary pressures, which have nonetheless remained significant.

In 2004, growth acceleration will rest on joint recovery of exports buoyed by a favourable international context and foreign investment inflows sustained by low interest rates. Moreover, private consumption should strengthen, benefiting from both higher wages and resumption of job creation. Conversely, budget restrictions imposed by deterioration of public accounts should continue to impede public sector demand.

The Coface payment-incident index has remained generally below the European average. However, disparities between sectors have increased. With pharmaceuticals, medical equipment, and high technology driving the economy, other, more traditional, sectors like clothing, metals, transportation, and food service have become more risky.

#9 Finland
The moderate expansion registered in 2003 is attributable to the strong euro and difficult world economic conditions, which have limited export growth, particularly in the wood sector and new information and communication technologies. The export slowdown has caused a slight deterioration of the current account balance, which has nonetheless remained substantially positive. Investment has declined with existing production capacity under-utilised. In that difficult context, the main growth driver has been private consumption stimulated by tax cuts. Despite those recent tax cuts, however, public accounts have continued to post large surpluses and inflation has remained moderate - below 2 percent.

Considering the Finnish economy's openness, GDP growth in 2004 will be very dependent on the world economic recovery, particularly in the telecommunications sector, which represents 28 percent of exports. Exports should grow faster thereby permitting GDP growth to accelerate. Although the unemployment rate has remained high despite government job-creation measures, domestic consumption should remain steady thanks to the new tax reductions announced.

The economic slowdown has not undermined company solvency with payment incidents remaining rare. The decline of bankruptcies (a 5.5 percent drop expected in 2003) reflects the strength of Finnish companies in the face of unfavourable economic conditions.

#10 Australia
Despite sagging exports affected by the strong Australian dollar and sluggish world economic conditions, growth has remained robust this year buoyed by dynamic household consumption, company investment, and public spending. Benefiting from historically low unemployment, and notwithstanding the constant high interest rates in response to inflationary pressures, households have been financing their consumer spending and housing investments on credit, which has made them vulnerable to an economic downturn. Enjoying good financial health, companies have been eager to invest, notably in mining development or energy projects, whereas the government has been undertaking infrastructure projects.

An acceleration of growth in 2004 would depend on export recovery spurred by improvement in the international context with demand needing to steady at a more sustainable level for the economy in the wake of continued interest-rate hikes. The fiscal surplus should prompt the government to cut taxes.

This favourable economic environment will not preclude the occurrence of payment incidents, notably in distribution of telecommunications equipment to business customers, as evidenced by the increase in bankruptcies with an 11 percent rise expected this year.