2006 Index of Economic Freedom

The Heritage Foundation
www.heritage.org
May 31, 2006

SECCIONES

Economic freedom is defined as the absence of government coercion or constraint on the production, distribution, or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty itself. In other words, people are free to work, produce, consume, and invest in the ways they feel are most productive. The 2006 Index of Economic Freedom measures 161 countries against a list of 50 independent variables divided into 10 broad factors of economic freedom. Low scores are more desirable. The higher the score on a factor, the greater the level of government interference in the economy and the less economic freedom a country enjoys. Venezuela In the wake of a failed—and hotly contested—2004 recall attempt, Venezuelan President Hugo Chávez Frías has clamped down on civil liberties, property rights, and Western foreign oil companies that are still operating in this impoverished South American country. He has decreed new laws that define public protest as a crime, has imposed media restrictions that encourage substantial self-censorship under threat of operating license confiscation, and has begun to seize large rural farms and ranches that he claims are not sufficiently productive. Energy and Petroleum Minister Rafael Ramírez announced in May 2005 that income taxes on the handful of foreign firms pumping oil in Venezuela would be raised to 50 percent from 34 percent, retroactive to 2001. Energy experts reportedly believe that Venezuela is shipping less oil than it claims as a result of lagging maintenance at the state-owned Petróleos de Venezuela S.A., the internal resources of which allegedly have been sapped by corruption, mismanagement, and the diversion of profits to social programs and government officials. To the alarm of neighbors and internal opponents, the government has announced the purchase of 100,000 assault rifles, a number of Russian combat helicopters, and possibly MiG-29 jet fighters, as well as a reserve-force buildup to some 1.5 million cadres. Venezuela’s fiscal burden of government is 0.7 point worse this year. As a result, its overall score is 0.07 point worse this year. • 2006 Index Overview Release (In English) • Index 2006 Latin America Release (In English) • Venezuela (In English) - Rank: 152 / Score: 4.16 / Category: Repressed (PDF) • Venezuela (En Español) - Posición: 152 / Puntaje: 4.16 / Categoría: Reprimida (PDF) • Distribution of Economic Freedom (PDF) • Artículo "La libertad económica en Venezuela entre las más deterioradas según The Heritage Foundation y el Wall Street Journal" (Descifrado - 30 de Mayo de 2006)

• 2006 Index Overview Release
For Immediate Release
U.S. Contacts: Jim Weidman, (202) 675-1761, jim.weidman@heritage.org
Robert Christie, (212) 416-2636, robert.christie@dowjones.com
Europe Contact: Melanie Spencer, 44 20 7842 9685, melanie.spencer@dowjones.com
Asia Contact: Joe Spitzer, 852-2831-6482, joe.spitzer@dowjones.com

ECONOMIC FREEDOM ADVANCES, 2006 “INDEX OF ECONOMIC FREEDOM” SHOWS
In Heritage Foundation/Wall Street Journal Report,
North America/Europe, Asia-Pacific, Sub-Saharan Africa Post Gains;
Middle East, Latin America Show Declines

WASHINGTON, JAN. 4, 2006—The world is economically freer today than it was a year ago, according to the 12th annual Index of Economic Freedom, released today by The Heritage Foundation and The Wall Street Journal—and that means greater prosperity for those countries that embrace open markets.

The Index findings are straightforward, according to editors Marc A. Miles, Kim R. Holmes and Mary Anastasia O’Grady. “The countries with the most economic freedom also have higher rates of long-term economic growth and are more prosperous than are those with less economic freedom,” the report says.

Of the 157 countries graded in the 2006 Index, 99 improved their overall scores, compared to 51 whose scores worsened and five that remained unchanged. Overall, 20 are classified as “free,” 52 as “mostly free,” 73 as “mostly unfree” and 12 as “repressed.”

Countries receive a 1-5 rating—with one being the best—on 10 broad measures of economic freedom: trade policy, fiscal burden of government, government intervention in the economy, monetary policy, capital flows and foreign investment, banking and finance, wages and prices, property rights, regulation and informal (or black) market activity. Those scores are averaged to create an overall score. The top finishers are classified as free economies, followed by mostly free, mostly unfree and repressed economies.

Hong Kong and Singapore, the economic jewels of Asia, finished 1st and 2nd in the rankings for the 12th straight year. Ireland overtook Luxembourg and Estonia and moved up to No. 3, and Iceland moved up three spaces to No. 5, where it is tied with the United Kingdom. The United States improved enough to re-enter the top 10 after falling out last year for the first time ever. It’s tied for 9th worldwide with Australia and New Zealand.

The Most Free
Hong Kong (1st)
Singapore (2nd)
Ireland (3rd)
Luxembourg (4th)
Iceland (5th)
United Kingdom (5th)
Estonia (7th)
Denmark (8th)
Australia (9th)
New Zealand (9th)
United States (9th)

The Least Free
Turkmenistan (148th)
Laos (149th)
Cuba (150th)
Belarus (151st)
Libya (152nd)
Venezuela (152nd)
Zimbabwe (154th)
Burma (155th)
Iran (156th)
North Korea (157th)


The links between countries that embrace economic freedom and prosperity are long established. Those in countries with “mostly unfree” or “repressed” economies earn 70 percent less than those in countries with “mostly free” economies, the Index editors say. And those in “free” economies enjoy a per capita income more than twice what those in “mostly free” economies earn.
Here are the economies that have made the greatest changes since the 2005 Index:

Top 10 Improved (Score Change)
Pakistan (0.40)
Romania (0.39)
Kyrgyz Republic (0.35)
Suriname (0.33)
Armenia (0.32)
Turkmenistan (0.32)
Georgia (0.31)
Turkey (0.30)
Tajikistan (0.29)
Kazakhstan (0.26)

Top 10 Worsened (Score Change)
Iran (0.30)
Italy (0.22)
Guinea (0.22)
Bolivia (0.21)
United Arab Emirates (0.20)
Oman (0.20)
Equatorial Guinea (0.16)
Sri Lanka (0.16)
Egypt (0.16)
El Salvador (0.15)
Nicaragua (0.15)


Over the last 10 years, more and more countries have embraced policies that promote economic freedom. As a result, this year the average Index score falls into the “mostly free” (2.98; the cutoff is 3) category for the first time—although the median score (3.04) remains just over the line in the “mostly unfree” category.

Sadly, this message doesn’t seem to get through where it’s needed most. The prosperous countries of the North America/Europe region—spurred by rapid moves toward economic freedom by the former Soviet republics—show consistent improvement. But regions such as Latin America, the Middle East and Sub-Saharan Africa, which, to its credit, continues to improve on its Index scores—continue to lag behind in prosperity because of the protectionist economic policies of their governments.

North America and Europe
The world’s most economically open region holds seven of the world’s 11 freest economies and 15 of the top 20. Thirty-three countries, led by Austria, Germany and Cyprus, which joined the ranks of “free” economies, improved their scores; only 10 declined. Romania was the region’s most improved country and the world’s second most improved, and Georgia joined the ranks of “mostly free” economies for the first time. The region received a boost when the 10 eastern European countries that joined the European Union in May 2004 adopted its more open trade policies (albeit unevenly) and improved as a result. Belarus remained last in the region in economic freedom.

Latin America and the Caribbean
Economic freedom improved marginally this year with 15 countries improving on their Index scores and only 10 declining. Chile, the region’s most dynamic economy, remains its only member of “free” economic club. The region also includes three “repressed” economies—Cuba (which showed some improvement), Haiti and Venezuela. It also includes three countries among the 10 that showed the biggest declines this year—Bolivia, El Salvador and Nicaragua, which slipped from the “mostly free” to the “mostly unfree” category.

North Africa and the Middle East
The only region to experience a net decline in economic freedom in last year’s Index, North Africa and the Middle East saw another decline this year as seven of 11 countries recorded worse scores. Bahrain declined for the second straight year but remained the freest in the region despite deriving 80 percent of its revenues from the state-controlled oil company. Iran and Libya remain the two least-free economies, but they’re moving in different directions. Libya is still consider “repressed” due to state-dominated industry, trade protectionism and heavy regulation, but it was the most improved in the region for the second straight year, thanks to better scores in fiscal burden of government, capital flows and foreign investment and banking and finance. Iran, meanwhile, continued its downward spiral—it recorded its lowest score since 2002—because entrenched bureaucrats and Islamic hard-liners continue to conspire against reform.

Sub-Saharan Africa
The region still lacks a free economy, but one, Botswana, did vault into the world’s top 30, with improved scores on government intervention and fiscal burden of government. Regional improvement did continue, with economic freedom advancing in 25 countries and declining in just 12. Angola and Burundi were ranked in the Index for the first time. Benin was the region’s most improved, while Guinea suffered the biggest decline.

Asia-Pacific
This region remains a study in contrast. Hong Kong and Singapore continue to lead the world in economic freedom, and the region includes four of the nine freest economies. In all, 19 countries in the region improved their Index scores from 2005, and just nine declined. Also, four Asia-Pacific countries—Pakistan, Kyrgyz Republic, Turkmenistan and Kazakhstan—are among the 10 most improved. Uzbekistan and Tajikistan no longer qualify as “repressed.” But the region also is home to more “repressed” economies than any other, including last-place-finisher North Korea.

The Index was edited by Marc Miles, director of the Center for International Trade and Economics at The Heritage Foundation, Kim Holmes, 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. Copies of the 2006 Index (422 pp., $24.95) can be ordered at heritage.org/index or by calling 1-800-975-8625.

About The Wall Street Journal
The Wall Street Journal, the flagship publication of Dow Jones & Company (NYSE: DJ; www.dowjones.com), is the world's leading business publication. Founded in 1889, The Wall Street Journal has a print and online circulation of nearly 2.1 million, reaching the nation's top business and political leaders, as well as investors across the country. Holding 31 Pulitzer Prizes for outstanding journalism, the Journal seeks to help its readers succeed by providing essential and relevant information, presented accurately and fairly, from an authoritative and trusted source. The Wall Street Journal print franchise has more than 600 journalists worldwide, part of the Dow Jones network of more than 1,800 business and financial news staff. Other publications that are part of The Wall Street Journal franchise, with total circulation of 2.7 million, include The Wall Street Journal Asia, The Wall Street Journal Europe and The Wall Street Journal Online at WSJ.com, the largest paid subscription news site on the Web. In 2005, the Journal was ranked No. 1 in BtoB's Media Power 50 for the sixth consecutive year.

#01-06: McNICOLL


• Index 2006 Latin America Release
For Immediate Release
Contacts: Jim Weidman, (202) 675-1761, Jim.Weidman@heritage.org
Robert Christie, (212) 416-2636, Robert.Christie@dowjones.com

ECONOMIC FREEDOM RISES SLIGHTLY IN LATIN AMERICA, STUDY SHOWS
WASHINGTON, JAN. 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.

About The Wall Street Journal
The Wall Street Journal, the flagship publication of Dow Jones & Company (NYSE: DJ; www.dowjones.com), is the world's leading business publication. Founded in 1889, The Wall Street Journal has a print and online circulation of nearly 2.1 million, reaching the nation's top business and political leaders, as well as investors across the country. Holding 31 Pulitzer Prizes for outstanding journalism, the Journal seeks to help its readers succeed by providing essential and relevant information, presented accurately and fairly, from an authoritative and trusted source. The Wall Street Journal print franchise has more than 600 journalists worldwide, part of the Dow Jones network of more than 1,800 business and financial news staff. Other publications that are part of The Wall Street Journal franchise, with total circulation of 2.7 million, include The Wall Street Journal Asia, The Wall Street Journal Europe and The Wall Street Journal Online at WSJ.com, the largest paid subscription news site on the Web. In 2005, the Journal was ranked No. 1 in BtoB's Media Power 50 for the sixth consecutive year.

#01C-06: McNICOLL


• Artículo "La libertad económica en Venezuela entre las más deterioradas según The Heritage Foundation y el Wall Street Journal" (Descifrado - 30 de Mayo de 2006)
De acuerdo con el Índice de Libertad Económica para el año 2006, elaborado por The Heritage Foundation y el diario estadounidense The Wall Street Journal, la economía venezolana se encuentra en la categoría de “reprimida”, pues ocupa el lugar 152 entre los 157 países evaluados para la elaboración del indicador.

Según este trabajo, Venezuela se encuentra entre los países que han experimentado mayor grado de deterioro de sus libertades económicas en los últimos 12 años. Los países incluidos en el análisis reciben una calificación que va de 1 a 5 puntos donde 1 es la mejor y 5 la peor. El país recibió 4,16 puntos.