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The East: March Toward Economic Freedom Suffers Setback

Washington, 4 December 1998 (RFE/RL) -- A five year long global march toward more economic freedom suffered a setback during the past year, according to the latest annual report by the Heritage Foundation and the Wall Street Journal.

While the study found that for the first time since 1995, more nations (29) had curtailed economic freedom than had expanded it (27), it also significantly found a close correlation between economic freedom and long-term economic growth.

Even more, said the study, it found that the countries with the freest economies "almost invariably" were the same countries that have the freest political system. Conversely, it found that countries with the least political freedom invariably provide the least economic freedom.

The Czech Republic got the highest rating of all the nations in Central and Eastern Europe and Central Asia, tied for 12th place with Japan. Estonia was not far behind, however, tied at 18th place with the Netherlands and Chile.

Among the other nations of the region, Moldova was rated the most improved since the first survey in 1995, while Belarus, Albania and the Slovak Republic were rated as the "most declined" since the first study. Several countries just added to the survey last year showed some slight improvements this year. These included Kazakhstan, Azerbaijan, Uzbekistan and Turkmenistan. Bulgaria and Croatia also recorded a slight increase from last year.

Russia remained unchanged in 106th position, but study co-author Bryan Johnson of the Heritage Foundation says Moscow would have had a much worse score if it's actions in and after the August financial crisis had been included in the study.

Iran and Iraq continued among the "least free" economies in the world. Iran is tied in 153rd place with the Congo while Iraq is in 157th place, tied with Laos and Libya. Only Cuba and North Korea are rated less free at the bottom position of 160th.

Johnson says the reversal of the broad movement toward more economic freedom was caused by the reaction of many countries to the financial crisis which started in Asia and spread around the world.

"Rather than responding to the economic challenge of promoting greater growth with greater economic freedom," he said, "a lot of countries responded to this problem by imposing greater restrictions on economic freedom."

He said the study found that the global financial crisis was not the result of too much economic freedom, but of too little.

The annual report has consistently shown that to grow their countries out of recession, countries need more economic freedom, not less, said Heritage Foundation Vice President Kim Holmes. He spoke earlier this week in Hong Kong.

It shows that countries with the freest economies (ranks 1-7) have had average annual growth of 2.9 percent from 1980 to 1993, while those countries ranked as "mostly free" (ranked 11-65) have averaged just under one percent while the "mostly unfree" (ranked 72-134) countries have actually contracted over this period by 0.3 percent. The very most repressive economies (ranked 135-160) shrank by an average of 1.4 percent per year, it says.

The rankings are determined by analyzing 50 different economic variables grouped into 10 broad categories -- banking, foreign investment, monetary policy, taxation, trade policy, wage and price policies, the size of government, property rights, regulatory restrictions and black-market activity. Countries are rated one to five in each category with one being the best and five the worst.

The numerical scores are then added up and countries are ranked from lowest to highest numbers. The lowest score on this year's index was 1.25 for Hong Kong, which made it number one ranking, although it would have lost first place if it's actions in intervening in the stock markets had been counted.

Following is the ranking and numerical score of the countries of the region. Those followed by an (*) improved over last year, those followed by a (#) got worse compared to last year. Those without marks are unchanged from last year.

12 Czech Republic 2.05* 18 Estonia 2.15 61 Latvia 2.85 65 Poland 2.95 72 Lithuania 3.00 75 Slovak Republic 3.05 81 Slovenia 3.10 95 Romania 3.30 97 Moldova 3.35 106 Bulgaria 3.45* 106 Russia 3.45 116 Croatia 3.65* 124 Ukraine 3.80 129 Albania 3.85# 135 Kyrgyz Republic 4.00 137 Kazakhstan 4.05* 140 Belarus 4.15# 143 Azerbaijan 4.30* 147 Tajikistan 4.40 147 Uzbekistan 4.40* 149 Turkmenistan 4.45* 153 Iran 4.70 157 Iraq 4.90