P>Situated more than 1000 km (650 miles) off the coast of the USA, Bermuda consists of a chain of over 150 coral islands. The Gulf Stream, flowing between Bermuda and the USA's eastern seaboard, keeps the climate mild and humid. Bermuda is racially mixed; some 60% of the population are of mostly European extraction. Racial tension has declined since the 1960s and 1970s. A more representative electoral system was established after a Royal Commission visited Bermuda in 1978.

For 30 years after the first general election, held in 1968, Bermuda was ruled by the conservative United Bermuda Party (UBP). Its veteran leader Sir John Swan, resigned as prime minister and party leader in 1995, when a referendum decisively rejected his campaign for independence from the UK. In a general election in November 1998 the UBP, now under the leadership of Pamela Gordon, was decisively defeated by the Progressive Labour Party, led by Jennifer Smith, who said that she had no plans to pursue her party's own pro-independence aspirations. Major issues are the social and economic challenges posed by the withdrawal in 1995 of both the US naval base and the British military base, environmental issues, and narcotics trafficking. Bermuda is overwhelmingly a service economy. Lilies are grown for export, but few other agricultural products are grown in sufficient quantity, and the islands are heavily dependent on food imports.

Tourist figures have been falling steadily, but tourism is still a significant industry, most visitors coming from the USA. However, financial services have become the most important sector of the economy, helping to maintain one of the highest per capita incomes in the world. The government has attempted to head off international criticism of its financial environment through a series of reforms. Bermuda also operates one of the world's largest flag-of-convenience shipping fleets.