PH slips in economic freedom ranking

By Cai U. Ordinario, Business Mirror

Posted at Jun 15 2011 07:01 AM | Updated as of Jun 15 2011 07:54 PM

MANILA, Philippines - Despite the country’s positive economic performance after the global financial crisis, it slipped in its ranking in the 2011 Index of Economic Freedom released by Washington-based think tank the Heritage Foundation Inc.

The Philippines is now ranked the 115th “freest economy” out of 183 economies worldwide; it is also the 21st freest economy in Asia, a region with 41 countries.

The country’s worldwide ranking was a decline from last year’s 114th place. It was largely due to the 0.2-point decline in its overall score to 56.2 points out of the perfect score of 100 points.

The Philippines’ score is also below the world average of 59.7 points and the regional average of 57.4 points.

“Despite the challenging global economic environment, the Philippines has made a notable recovery since mid-2009, driven mainly by strong export performance. The absence of entrepreneurial dynamism, however, still makes long-term economic development a difficult task,” the foundation said.

The 2011 Index of Economic Freedom covers economic policy developments since the second half of 2009 in 183 economies. The overall country scores are based on 10 measures that evaluate openness, the rule of law and competitiveness.

The 10 measures are business freedom where the Philippines ranked 152nd; trade freedom, 86th; fiscal freedom, 84th; government spending, 10th; monetary freedom, 77th; investment freedom, 117th; financial freedom, 70th; property rights, 99th; freedom from corruption, 141st; and labor freedom, 128th.

“It’s [the Philippines’] score is 0.2 point lower than last year, with small reductions in business and labor freedom offsetting modest gains in monetary freedom and freedom from corruption,” the think tank explained.

The country scored 43.4 points in business freedom, which is a reduction of 4.7 points from 2010.

The other areas where the country had a reduced score were in labor freedom, 50.7 points (a reduction of 1.2 points); and government spending, 91 points (a reduction of 0.2 points).

The reduction in the country’s score in business freedom was attributed to “severe challenges” faced by potential entrepreneurs, such as a “burdensome” regulatory framework and “ineffective” legal framework. These, the Heritage Foundation said, prevented expansion by the private sector.

In terms of labor freedom, the think tank said the Philippines’ labor market “remains structurally rigid” and many of the country’s skilled workers still needed to migrate to advanced economies to find decent employment.

For government spending, the think tank said that while the government’s public spending was steady at 17.3% of gross domestic product, the fiscal-stimulus program and “restructuring of public enterprises” increased the country’s deficit.

“Deeper institutional reforms are required in four interrelated areas: business freedom, investment freedom, property rights and freedom from corruption. The government imposes formal and nonformal barriers to foreign investment, and foreign remittances do little to promote sustainable growth. The judicial system remains weak and vulnerable to political influence and corruption,” the think tank said.

The think tank said the biggest gain in all measures was seen in the country’s score in monetary freedom, which gained 3.6 points to score 76.3. This was largely due to the government’s efforts to keep inflation steady at 4.7%.

The think tank said the country’s score in monetary freedom would have been higher if there weren’t government policies that distorted domestic prices.

“The government influences prices through State-owned enterprises and utilities and controls the prices of electricity distribution, water, telecommunications and most transportation services. Price ceilings are usually imposed on basic commodities only in emergencies, and presidential authority to impose controls to check inflation or ease social tension is rarely exercised. Ten points were deducted from the Philippines’ monetary freedom score to account for measures that distort domestic prices,” the think tank said.

The Philippines gained one point to score 24 in freedom from corruption. While there are efforts to improve the anticorruption drive under the new administration, the country still had a “long-standing” culture of corruption.

The think tank said corruption in the country is “perceived as pervasive” because efforts to curb it have been inconsistent and the reforms have been overshadowed by high-profile corruption cases reported in the media.

“President Benigno Aquino III took office in 2010 with a mandate to address rampant government corruption. The previous government’s failure to do anything substantial to liberalize the economy set back efforts to attract much-needed foreign investment in basic industries and infrastructure, and the Philippines has continued its long slide from being one of Asia’s richest economies to being one of its poorest,” the think tank said.

The country’s score has been unchanged in several measures. These are in trade freedom with a score of 77.8 points; fiscal freedom, 78.8; investment freedom, 40; financial freedom, 50; and property rights, 30 points.

The Heritage Foundation said the global average economic freedom score for the 2011 Index is 59.7, a 0.3-point increase from last year. Data showed that there was an improvement in the scores of 117 economies, a decline in the scores of 58 economies, and unchanged scores for four other economies.

The world’s Top 5 freest economies are Hong Kong, Singapore, Australia, New Zealand and Switzerland with scores of 89.7 points, 87.2 points, 82.5 points, 82.3 points and 81.9 points, respectively.