November 1, 2000

November 1, 2000 | News Releases on Foreign Aid and Development

Economic Freedom Advances in Latin America, Survey Shows

WASHINGTON, NOV. 1, 2000-Latin America became economically freer during the past year, The Heritage Foundation and The Wall Street Journal report today in their annual "Index of Economic Freedom," though the pace of improvement appears to be slowing.

The survey showed 12 of the 26 Latin American countries rated granted their citizens more economic liberty, while 10 imposed new restrictions, and four- Chile, Cuba, Guatemala and Honduras-stayed the same. Latin America posted the third biggest gain of the five regions graded in the 2001 Index, behind North America/Europe and Sub-Saharan Africa.

"Every year, the Index shows that the countries with the most economic freedom have higher rates of economic growth and are more prosperous than those with less economic freedom-and Latin America is no exception," note Index editors Gerald P. O'Driscoll Jr., director of Heritage's Center for International Trade and Economics, Kim R. Holmes, a Heritage vice president and director of the think tank's Davis International Studies Institute, and Melanie Kirkpatrick, assistant editorial page editor of The Wall Street Journal.

The 2001 Index of Economic Freedom is the seventh edition of the popular guidebook. For the first time, the full text, as well as all charts and graphs, will be available via the Internet at index.heritage.org. A Spanish-language edition is being co-published with five independent Latin American foundations: Centro de Estudios en Educación y Economía (CEEE), based in Monterrey, Mexico; Centro de Investigación y Estudios Legales (CITEL), in Lima, Perú; Libertad y Desarrollo, in Santiago de Chile; Fundación Libertad, in Rosario Argentina, and Centro de Divulgación del Conocimiento Económico (CEDICE) in Caracas, Venezuela.

Many Latin American nations saw their scores rise because of their success at lowering inflation, the editors note. The most dramatic example is Uruguay (from 112.5 percent in 1990 to 5.6 percent in 1999), but others managed to stabilize their currencies as well, including Barbados, Bolivia, Costa Rica, El Salvador and Peru. Even Brazil, a country with a chronic inflation problem, improved in this area last year. Lower inflation also helped move Haiti from the "repressed" category to "mostly unfree."

El Salvadorleads the region, improving enough to be labeled "free" for the first time. Dubbed "the Hong Kong of Latin America" in last year's Index, El Salvador continues to cut regulatory burdens on businesses and reduce corruption. But its protection of private property declined, and recent policy moves threaten its position as a "free" economy.

Uruguay, which cut its average tariff rate and lowered inflation, improved its score by continuing a "slow but steady course" away from the "cradle-to-grave socialism." Bolivia moved up in the global ranks by reducing government spending, lowering inflation, and removing restrictions on foreign investment. Brazil reversed last year's decline by cutting inflation and tariff rates.

Rising tariff rates, increasing restrictions on foreign investment, and more government activity in the economy combined to knock Paraguay into the "mostly unfree" category, tying Europe's Moldova for the biggest global drop in economic freedom. Argentina is still "mostly free," but lost ground due to a decline in property rights, as did Venezuela, where tariff rates are up, regulations on businesses are growing, and protection of private property is declining.

The Index ratings reflect an analysis of 50 different economic variables, grouped into 10 categories: banking and finance; capital flows and foreign investment; monetary policy; fiscal burden of government; trade policy; wages and prices; government intervention in the economy; property rights; regulation; and black-market activity. Countries are rated one to five in each category, one being the best, five the worst. These ratings are then averaged to produce the overall Index score.

Over the years, the Index of Economic Freedom has emerged as a reliable indicator of national prosperity. The report notes a strong relationship between economic freedom and per capita income. World Bank data show that per capita income for "mostly unfree" or "repressed" economies averaged about $2,800 in 1998-a figure that quadruples to $11,054 for "mostly free" economies and doubles again (to $21,206) for "free" economies.

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