November 1, 2000

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

Economic Freedom Declines in Asia-Pacific, Survey Shows

WASHINGTON, NOV. 1, 2000-The Asia and Pacific region became less economically free during the past year, The Heritage Foundation and The Wall Street Journal report today in their annual "Index of Economic Freedom."

Four of the world's freest economies are in this region: Hong Kong, Singapore, New Zealand and Australia, the survey showed. But it also has six of the most "repressed"- Laos, Burma, Vietnam, Turkmenistan, Uzbekistan and North Korea.

"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 Asia-Pacific 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.

Hong Kongretained its No. 1 ranking. Government spending rose in this "Special Administrative Region" of the People's Republic of China, but inflation declined, allowing its Index score to remain the same. Singapore held on to the No. 2 spot, but its overall score declined. The overall scores for New Zealand and Australia remained the same.

Nine Asia-Pacific countries improved, including Japan-which appears to be awakening from a nearly decade-long recession, the editors say-and South Korea, which lowered inflation enough to offset a recent increase in government spending and remain a "mostly free" nation. Cambodia's efforts to join the World Trade Organization helped it become "mostly free" as well. The world's single biggest improvement in economic freedom occurred in this region, as lower inflation, less government spending and reduced tariffs brought Thailand up from 46th to 27th place. Lower inflation caused Vietnam's score to rise as well.

But the scores for 17 Asia-Pacific countries fell, including Burma, Turkmenistan, Uzbekistan, and Laos. Taiwan remains "mostly free," but it slipped from 11th to 20th place. Its practice of intervening to prop up the stock market harmed its overall score, as did its level of government expenditures. China's score declined partly due to increased restrictions on banking and finance, while Malaysia fell from "mostly free" status to "mostly unfree" as growing government control of the economy and higher tariffs spooked foreign investors. India's efforts at reform have flagged, and it remains a "mostly unfree" economy.

Two former Soviet states, Azerbaijan and Tajikistan, moved from "repressed" to "mostly unfree." Azerbaijan's high oil prices have kept its economy growing, but its tariff rate, government spending and inflation rate kept it from growing more. Tajikistan's improving trade policy was able to offset increased government spending and market intervention.

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. "Countries with the most economic freedom also have higher rates of economic growth and are more prosperous than those with less economic freedom," the editors observe.

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