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Presidents Enrique Peña Nieto of Mexico and Juan Manuel Santos of Colombia lead the way in improved economic freedom amidst a general decline in Latin America. (Photo: Andres Piscov/SIG)
Monday, January 14, 2013
Special Reports

Economic Freedom: Mexico, Colombia Improve


Mexico and Colombia improve, while Venezuela and Haiti worsen in economic freedom.

BY LATINVEX STAFF

Amidst a general decline in economic freedom in Latin America, Mexico and Colombia led the four countries that improved, according to the 2013 Index of Economic Freedom from the Heritage Foundation and The Wall Street Journal. The index looks at ten different freedoms in 185 countries worldwide. The ten are property rights, freedom from corruption, fiscal freedom, government spending, business freedom, labor freedom, monetary freedom, trade freedom, investment freedom and financial freedom.

Mexico’s increased economic freedom is due to notable improvements in investment freedom, trade freedom and monetary freedom.

“Reform efforts have continued in many areas related to economic freedom,” the report says. “Implementation of policies intended to support open markets and encourage a vibrant private sector has enhanced investment flows and the vitality of entrepreneurship, although growth remains sluggish.”

COLOMBIAN REFORMS

Colombia also saw a significant improvement thanks to improvements in half of the 10 economic freedoms including investment freedom, financial freedom, and the management of public spending

“Colombia’s government has undertaken wide-ranging reforms to address structural weaknesses and improve competitiveness, notably in the context of various free trade agreements,” the report says. “Resilient economic growth has averaged over 4 percent during the past five years. Recent reforms have put greater emphasis on improving regulatory efficiency and enhancing financial-sector competitiveness. Management of public finance has been relatively prudent, and debt has been kept under control.”

Two other countries – Chile and Cuba – also saw more economic freedom, albeit not as much as Mexico and Colombia.

Chile remains the freest economy in Latin America and the only country in the region that ranks among the “mostly free” economies in the world, according to the index.  In fact, it ranks seventh on the index, ahead of countries like the United States and the United Kingdom and only slightly behind Canada.

“Chile continues to be a global leader in economic freedom,” the report says. “With the rule of law strongly maintained by an independent and efficient judicial system, prudent public finance management has kept public debt and recent budget deficits under control.”

VENEZUELA: THE CHAVEZ LEGACY

The countries that saw the worst declines in economic freedom the past year include Panama, Haiti, Bolivia, El Salvador and Venezuela.

Venezuela ranks as the second-worst country in Latin America after Cuba in economic freedom and worldwide it ranks as the fourth-worst (after North Korea, Cuba and Zimbabwe).

“Its score has decreased by 2.0 points since last year, reflecting deteriorations in business freedom, labor freedom, and freedom from corruption and an explosive increase in government spending in the run-up to 2012 elections,” the Heritage/Wall Street Journal report says. “The foundations of economic freedom in Venezuela continue to deteriorate, severely hampered by structural and institutional problems.”

The situation in Venezuela has deteriorated significantly during President Hugo Chavez, who was re-elected in October but is currently in a Cuban hospital after his fourth cancer-relkated surgery in December. In 1998, the last year before Chavez assumed the presidency, Venezuela ranked 98th out of 155 countries, or slightly under average, on the Index of Economic Freedom.  Venezuela then ranked ahead of regional neighbors like Haiti, Brazil and Nicaragua and foreign countries like China and Russia. Today, all of those countries have more economic freedom than Venezuela. 

Pulling down Venezuela’s score in this year’s ranking are factors like nearly non-existent property rights, widespread corruption and low investment, financial and labor freedom. “The government expropriates land and other private holdings across the economy arbitrarily and without compensation,” the report says. “Corruption, exacerbated by cronyism and nepotism, is rampant at all level of government.”

PANAMA AND HAITI DECLINE

Panama’s score fell the most due to substantial deteriorations in six of the 10 economic freedoms including property rights and control of government spending. “Panama’s overall economic freedom has been undercut by institutional shortcomings that weaken the rule of law and undermine prospects for dynamic long-term economic expansion,” Heritage and The Wall Street Journal say in their report. “Anti-corruption laws seem to have little impact, and the judicial system remains vulnerable to political interference.”

Panama’s economy remains “moderately free” and in Latin America ranks in 8th place out of 20 countries in Latin America.

Haiti’s economy saw the second-worst decline and went from being “Mostly Unfree” to “Repressed.”

“Declines in the management of government spending, freedom from corruption, and labor freedom make its overall score 2.6 points lower than last year,” Heritage and The Wall Street Journal say. “The effectiveness of public spending has been severely undermined by ongoing political volatility that undercuts the already weak foundations of the rule of law. Reforms to improve the business and investment climates have had little effect because of pervasive corruption and the inefficient judicial framework. Limited efforts to liberalize trade have been undermined by bureaucracy and red tape that continue to deter much-needed new investment.”

Haiti is among the six worst countries in Latin America in economic freedom.

Apart from Cuba and Venezuela, the five worst countries include Argentina, Ecuador and Bolivia, according to the 2013 Index of Economic Freedom from the Heritage Foundation and The Wall Street Journal.

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