January 4, 2006
Latin America and the Caribbean became economically freer last year, according to the 2006 "Index of Economic Freedom"-a welcome change from the 2005 Index, which found that economic freedom remained static.
Still, the improvement is marginal. The Index, published annually by The Wall Street Journal and The Heritage Foundation and edited by Marc Miles, Kim Holmes and Mary Anastasia O'Grady, shows that 15 countries in the region improved, while 10 declined and one (Jamaica) stayed the same.
The region's average score on the Index's 1-5 scale-with one being best-has improved by just 0.09 over the last decade, and the median score has worsened by 0.03. The countries that best represent the median-Guatemala and Nicaragua-are right on the line between "mostly free" and "mostly unfree" ratings. The same goes for its average score (3.02, an improvement over last year's 3.06) and median score (3.03, versus 2.99 last year).
Three countries from the region are among the 10 worldwide whose commitment to economic freedom decreased the most in the last year-Bolivia (0.21 worse), El Salvador (0.15 worse) and Nicaragua (0.15 worse). Just one, Suriname, ranks among the 10 most improved. But its 0.33 improvement-fourth best in the world-still leaves it at 3.60, well into the "mostly unfree" category.
Chile remains the region's lone "free" economy, but even its 1.88 score is 0.02 worse than last year's. Barbados, Bahamas, El Salvador, Costa Rica, Uruguay, Panama, Jamaica, Belize, Peru and Bolivia qualify as "mostly free" economies. Guatemala, Nicaragua, Brazil and Guyana are rated among the "mostly unfree" economies, while Haiti, Cuba and Venezuela are rated "repressed." The editors single out Haiti as a "case study of how inept, corrupt governance can destroy an economy," while noting that Cuba (despite a slight improvement this year) remains weighted down by a wide array of economic anchors, including high non-tariff barriers to trade, high taxes, weak property rights and wage and price controls.
El Salvador, although still ranked "mostly free," has fallen behind Barbados and the Bahamas, while Nicaragua declined enough to fall from "mostly free" to "mostly unfree." But Argentina reversed its slide of recent years due to lower inflation (10-year average) and tariff rates (weighted average).
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 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 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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