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Mediocre marks for economic freedom in Central America

Tuesday, January 28, 2014

The degree of of economic freedom in Central America and Mexico continues to be modest, while Colombia gets a relatively high rating in the 2014 Index of Economic Freedom, published last month by the Heritage Foundation.

Corruption and poor administration have offset other achievements in most of the countries of the region, according to the Foundation.

The Index divides the economies of 178 countries into five categories – Free, Mostly Free, Moderately Free, Mostly Unfree, and Repressed.
Colombia, ranked 34th in the world, is considered mostly free.

In Central America, four economies fall into the “Moderately Free” category, as does Mexico.

In Costa Rica, the judicial system is vulnerable to political interference, and property rights are not strongly protected, according to the Heritage Foundation.

Costa Rica is ranked 53rd, followed closely by Mexico, where reform of a paternalistic state is considered slow.

At number 59, El Salvador is at its lowest level ever in the Index.

Until 2005, El Salvador was rated as a "mostly free" economy.

Panama is ranked 70th, as anti-corruption laws are considered to have little impact, and the judicial system remains vulnerable to political interference.

On the other hand, Panama gained more than a full point in the Index, compared to last year, thanks to its continuing evolution as a business and banking hub.

Guatemala likewise lags in promoting the rule of law, while “serious corruption undermines the emergence of a vibrant private sector".

Nicaragua and Honduras are in the "mainly unfree" category.

At number 102 in the list, Nicaragua faces "anti–free market policies, bolstered by economic and political populism that drives class warfare" says the foundation.

Honduras, at number 112, is criticized for poor management of public spending and low levels of rule of law.

By far the highest-ranked Latin America country is Chile.

In seventh position, Chile leads the group of "Mostly Free" countries, and is only one position below the “Free” category.

Hong Kong leads the list, followed in the top group by Singapore, Australia, Switzerland, New Zealand and Canada.

The four main issues involved in determining the degree of a country’s economic freedom are rule of law, extent of government intervention, regulatory efficiency, and openness of markets.

Based in Washington DC, the Heritage Foundation is a thinktank, which favors a combination of free markets and limited government, as the best way to promote economic growth.