January 4, 2006
HONG KONG , JAN. 4, 2006 -Economic freedom continued to grow in the majority of countries in the Asia-Pacific region, according to the 2006 "Index of Economic Freedom," published annually by The Wall Street Journal and The Heritage Foundation.
The scores of 19 Asia-Pacific countries improved this year, and just nine lost ground, according to the Index editors, Marc Miles, Kim Holmes and Mary Anastasia O'Grady. This 10-country net improvement betters last year's seven-country improvement.
Asia remains a study in contrasts, the Index notes. The region is home to the two freest economies in the world, Hong Kong and Singapore, as well as two others in the top 10, New Zealand and Australia, which are tied for ninth with the United States. Still, most countries in the region are rated "mostly unfree," and this region includes the world's two most repressed economies, Burma (Myanmar) and North Korea, and seven of the 16 least free.
Hong Kong, which the editors call the "poster economy for economic freedom around the world," improved its score again this year. It decreased government spending as a percentage of gross domestic product (GDP) to 20.7 percent, which helped lower its "fiscal burden of government" rating to 1.8-0.2 better than last year. Hong Kong also has a lower "government intervention in the economy" score.
China lopped an impressive 0.17 off its total Index score this year and now stands at 3.34-good, though, only for 111th of the 157 countries evaluated and still well into the "mostly unfree" category. Inflation is low, but taxes and barriers to foreign investment are high, and the most important banks are state-owned.
Meanwhile, Singapore, ranked second in the world again, continues to improve. It cut corporate tax rates from 22 percent to 20 percent, began to divest non-strategic government-linked companies and cut the percentage of government expenditures as a share of GDP by 1.2 percentage points to 15.7. Also, its judicial system was rated the best in Asia in 2005 by Hong Kong-based Political and Economic Risk Consultancy.
Elsewhere in the region, New Zealand and Australia continued their strong showings, despite a slight decline for the former. New Zealand cut government spending but lost ground in the "capital flows and foreign investment" category because of proposed legislation that would toughen restrictions on foreign ownership of land.
At the other end of the scale, North Korea scored poorly on every factor and is again ranked last in the world in economic freedom. It has taken some baby steps toward reform in recent years-allowing some semi-private markets, shops and small businesses, abandoning its old food-distribution system and letting prices and exchange rates float. As a result, it enjoyed its highest level of trade volume since 1991-US$2.85 billion.
As in previous years, 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 informal (or black) market activity. Countries are rated one to five in each category, one being the best and five the worst. These ratings are then averaged to produce the overall Index score.
Worldwide, the scores of 99 countries improved, 51 declined and the scores of five, including Australia, are unchanged from last year's Index. Of the 157 countries ranked, 20 are classified as "free," 52 as "mostly free," 73 as "mostly unfree," and 12 as "repressed." Four countries-Congo, Iraq, Serbia-Montenegro and Sudan-were not ranked because the data was not deemed reliable. Two that had been suspended from the rankings-Angola and Burundi-were again ranked this year because of returning stability.
This is the 12th consecutive year The Heritage Foundation and The Wall Street Journal have published the Index. Marc Miles is director of Heritage's Center for International Trade and Economics, Kim Holmes is Heritage's vice president for foreign affairs, and Mary Anastasia O'Grady, who is a member of the Journal's editorial board and edits the "Americas" column.
Print versions of the 2006 Index of Economic Freedom (422 pp., US$24.95) can be ordered by calling 1-800-975-8625 and are available in English or Spanish. Additionally the full text, along with all charts and graphs, will be available via the Internet at www.heritage.org/index.
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