Sunday, January 27, 2008

Latin Economic Freedom Declines

Latin Economic Freedom Declines

Latin Business Chronicle - Special Reports


January 15, 2008

Economic freedom in Latin America is declining, according to a new survey by the Heritage Foundation and Dow Jones.

"The lack—and in some cases, erosion—of economic freedom in the Americas reflects reversals of free-market policies and a failure by some governments to persevere in pursuing economic freedom," say the editors of the 2008 Index of Economic Freedom, which was released today.

11 of 20 Latin American nations surveyed saw a decline in their scores compared to the 2007 index, according to a Latin Business Chronicle analysis of the data.


Brazil, Latin America's largest economy, saw its overall score fall by 0.8, while Mexico - the region's second-largest economy - boosted its score by 1.2. Heritage classifies both economies as "Moderately Free."

Chile is still ranked as the freest economy in Latin America, followed by El Salvador and Uruguay. Meanwhile, Cuba is ranked as the most repressed economy, followed by Venezuela and Haiti.

Corruption, inflation and weak property rights are the major trouble areas for regional economies, they say. "The recent rise of populists like Evo Morales and Hugo Chávez threatens to widen the freedom gap in the Americas even more," the report says.


Measured by trade groups, CAFTA is the freest and ALBA the most repressed, a Latin Business Chronicle analysis shows. CAFTA's average score was 62.72 points. Mercosur had the second-best result, with an average score of 61.13 points. The Andean Community followed, with 58.22 points. ALBA had 48.78 points. However, within ALBA there are big differences, with Nicaragua's score of 62.7 points considerably higher than that of Cuba, 29.7 points.

Among nations that saw declining economic freedom were Chile, Colombia and Costa Rica - typically seen as investor-friendly nations - and Bolivia, Cuba, Ecuador and Nicaragua - which are run by investor-hostile governments.

And - despite increased moves curtailing private enterprise - Venezuela actually boosted its score compared to last year. Other nations that improved their score include Uruguay, Peru, Paraguay and Haiti.

"The typical ...Central/South American nation stands out positively in terms of limited government taxation and expenditures, as well as strong labor freedoms. The other five freedoms are also slightly stronger in the Americas than they are elsewhere, with lighter trade, investment, financial, and regulatory burdens," the report says.


The Dominican Republic improved its score, but continues to be ranked among the worst countries in Latin America despite having a government widely seen as pro-business. The low score is mainly due to weak property rights and widespread corruption, but also still-high inflation.

"The court system is inefficient, and red tape is common," the report says. "The government can expropriate property arbitrarily. Most confiscated property has been used for infrastructure or commercial development. Although the government has slowly improved its patent and trademark laws, the enforcement of intellectual property rights remains poor."

And corruption is perceived as significant, it points out. "Official corruption is pervasive," it says. "Despite recent reforms, Dominican and foreign business leaders complain that judicial and administrative corruption affects the settlement of business disputes."

The Dominican Republic received a low score in the monetary freedom category thanks to inflation still being too high (averaging 10.7 percent between 2004 and 2006) and price controls to electricity and fuel, subsidies of some agricultural products and electricity generation. "An additional 10 percentage points is deducted from the Dominican Republic’s monetary freedom score to account for policies that distort domestic prices," the report says.

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