November 1, 2000

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

Estonia Still Boasts Freest Economy of Former Soviet States, Study Finds

MOSCOW, NOV. 1, 2000- Estonia still offers the most liberated economy of all former Soviet states, according to the "2001 Index of Economic Freedom" issued today by The Heritage Foundation and The Wall Street Journal.

The new report credits Estonia with having the 14th freest economy in the world-up eight places since last year's report, and the best rating ever logged by a former Soviet state. The Index has ranked Estonia highest among all former Soviet republics every year since its first edition in 1995.

Though average ratings and rankings of former Soviet states remained essentially unchanged from last year's report, several nations saw dramatic shifts in their status. Successful efforts to control inflation, rein in government spending, and liberalize wages and prices allowed Lithuania to vault into 42nd place in the global rankings-19 positions higher than last year.

Armenia also logged a double-digit jump in rankings, moving to 68th from last year's 84th place finish. This advance was fueled largely by its expansion of market-based pricing and a more welcoming environment for foreign investment. The improvements moved Armenia from the "mostly unfree" category to the "mostly free" group of nations which includes Estonia, Lithuania and Latvia.

At the opposite extreme, Moldova's ranking plunged 30 spots, to 120th place on the list of nations. Rising inflation, increased government spending and regulation, and growing black market activities combined to register the biggest decline in economic freedom (matched only by Paraguay) recorded in this year's Index.

The Ukraine also experienced a big drop in the rankings, tumbling 17 slots to 133rd. The deterioration there reflected worsening assessments of its trade policy, fiscal burden of government and government intervention in the economy.

Overall economic freedom increased in six former Soviet states and decreased in seven others. Azerbaijan, Georgia and Tajikistan joined Estonia, Lithuania and Armenia in the improving group. The advance in Azerbaijan and Tajikistan lifted them from the economically "repressed" category to that of "mostly unfree."

Belarus, Turkmenistan, the Kyrgyz Republic, Kazakhstan and Uzbekistan received worse scores than last year, but the declines were more modest than those in Moldova and the Ukraine. Scores for Latvia and Russia remained unchanged, allowing some improving countries to surpass them in the global rankings. Latvia slipped two spots in the rankings (to 46th), while Russia fell five places, to 127th.

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.

Russia's score was unchanged in each category. But, the Index editors warn, President Putin's efforts to "re-examine" privatization is leading foreign investors "to question the extent of Russia's commitment to open and transparent markets based on the rule of law."

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 report observes.

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