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Economic freedom in Asia-Pacific drops, Heritage says.

Economic freedom in the Asia-Pacific region dropped in the past year, countering the general global trend, according to an annual survey released Tuesday by the Wall Street Journal and the conservative Washington think tank the Heritage Foundation.

Of the 32 Asia-Pacific countries and territories rated in the 2000 Index of Economic Freedom, only five -- China, Kazakstan, Mongolia, Pakistan and Papua New Guinea -- were judged by the right-wing group to have improved their economic freedom scores from a year earlier.

Nine -- Indonesia, Japan, South Korea, Malaysia, Nepal, Singapore, Sri Lanka, Taiwan and Thailand -- were judged to have become less friendly to the foundation's stated goal of "rolling back the liberal welfare state."

Among the countries rated, the survey said four of the 10 freest economies in the world, according to the foundation's criteria, are Hong Kong, Singapore, New Zealand and Australia.

"The decline in economic freedom in Asia was due largely to increased government intervention in the economy and increased inflation," the survey said.

The study, the sixth by the newspaper and the foundation, found Indonesia, Japan, South Korea and Thailand slid in their estimation of economic freedom because of government polices adopted in the wake of the Asian financial crisis that began in July 1997.

The rankings are based on a foundation analysis of 50 economic variables in categories of banking, 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 black market activity.

Hong Kong, Singapore and New Zealand secured the first, second and third positions, respectively, while Australia places eighth in the global survey.

"Hong Kong's more laissez-faire policy has made the economy once again the freest in the world," the report said. "Hong Kong has achieved enviable economic growth without compulsory saving, industrial targeting, or other policies that not only impinge on economic freedom but also do nothing in the long run to foster growth," it said.

Singapore's score was slightly lowered in the latest survey, however, because of an increase in the marginal tax rate paid by the average taxpayer, the report said.

Japan's index score worsened due to higher inflation and what the surveyors judged government involvement in the economy. The report said that government intervention in Japan's banking system is likely to remain high for the next several years as the country struggles to emerge from recession.

China moved up to 100th place from 116th a year earlier.

Heritage Foundation President Edwin Feulner told a press conference China may be judged higher next year if the country abides by international trading rules following its forthcoming entry into the World Trade Organization.

Asia also has some of the world's most repressed economies, according to foundation criteria, with North Korea judged dead last at 161st.

Laos, Uzbekistan, Vietnam and Turkmenistan are the other four Asian economies judged near the bottom of the table.

Elsewhere, the United States and Luxembourg are considered the most economically free countries in North America and Europe, respectively.

The survey showed that Wall Street Journal-Heritage-defined economic freedom improved most in Latin America, with 13 of 26 countries in region advancing their scores and only three having declines.

Analyzing the survey findings, the organizers argued the rule of law and respect for property rights are the key factors for strengthening a country's economic growth.

Yet the overall relation between economic improvement and democracy is statistically weak, according to Robert Barro, a professor at Harvard University, who participated in the study. The findings also showed economic freedom leads to higher growth, which in turn may bring better investment return.

In addition, the survey's researchers said economic freedom discourages corruption by providing fewer opportunities for intervention and control.
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Publication:Asian Economic News
Date:Dec 6, 1999
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