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Puerto Rico No. 31 Among Countries in Economic Freedom Index

By on March 7, 2016

SAN JUAN – Puerto Rico occupies the 31st spot among 186 countries in the Economic Freedom Index developed by the Center for Economic Renewal, Growth and Excellence (Crece by its Spanish acronym), a foundation established by Fortuño in 2014 and based at the Metropolitan University, in San Juan’s Cupey sector.

The announcement was made Monday by former Gov. Luis Fortuño, alongside local economists Carlos Colón de Armas and Gustavo Vélez.

The focus of the research was to assess and determine the island’s position in comparison with other countries using the parameters established for the 2016 Index of Economic Freedom published annually by The Heritage Foundation and the Wall Street Journal.

“My concern is that public policy has nothing to do with parties,” Fortuño told Caribbean Business in an interview. “For the economy to grow and for us to be responsible with our finances, public policy must have the support of academia and the private sector, because if not, we won’t be able to move forward.”

He said that public policy in Puerto Rico has to emphasize three basic pillars: individual freedom, personal responsibility and opportunity. “With that in mind, we looked at the many indexes available and the one we liked the most is the Index of Economic Freedom, published annually by the Wall Street Journal and the Heritage Foundation [a conservative think-tank].”

Conversations with people from Heritage Foundation followed. “I contacted one of [the analysts] who worked previously with the Wall Street Journal and was working at the time with the Heritage Foundation, and brought him to the Metropolitan University, where my library is located.”

Using all the documentation on hand at the university, Fortuño hopes to release the index, every year, taking the methodology used by Heritage and the Wall Street Journal and applying it to Puerto Rico. “They do it in 186 countries; there is no reason why we cannot carry it out in Puerto Rico and measure how we compare in different areas.”

The aim was twofold: Compile the scattered data on Puerto Rico to better understand the current fiscal situation and identify opportunities to improve economic freedom in Puerto Rico.

The index evaluates countries in four broad policy areas that affect economic freedom: rule of law; limited government; regulatory efficiency; and open markets. There are 10 specific categories: property rights, freedom from corruption, fiscal freedom, government spending, business freedom, labor freedom, monetary freedom, trade freedom, investment freedom, and financial freedom. Scores in these categories are averaged to create an overall score.

According to Crece’s index, Puerto Rico gets a rating of 71, or classified as “mostly free,” placing it 31st, just below Botswana. On property rights, the island is rated 70; in freedom of corruption 63; fiscal freedom, 61; government spending, 77, business freedom, 63; labor freedom, 79; monetary freedom, 77; free trade, 80 investment freedom, 70; and financial freedom, 70.

The former governor said, “Economic freedom is not an abstract concept. It is a socioeconomic model proven to produce direct benefits for people and their communities. As we promote a society based on the principles of economic freedom, doors to opportunity and growth open.”

Fortuño described the index as an effective tool to assess the strengths and weaknesses of the economy in order to maximize economic freedom and promote growth.

“The index is an X-ray. It provides an objective picture, with clear and measurable parameters that allow governments to develop public policy focused on expanding economic opportunity and prosperity. Therefore, it is not an exercise to be conducted only in times of crisis as we live in today, but consistently so we can yield positive results for the people.”

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According to the 2016 Index of Economic Freedom by the Heritage Foundation and The Wall Street Journal, the world average score of 60.7 is the highest recorded in the 22-year history of the index. Thirty-two countries, including Burma, Germany, India, Israel, Lithuania, the Philippines, Poland and Vietnam, achieved their highest-ever index scores. Among the 178 countries it ranks, scores improved for 97 countries and declined for 74.

Over the period covered by the 2016 index (mid-2014 to mid-2015), scores improved in half of the categories measured, most notably in investment freedom. Five economies earned the index’s designation of “free” (scores of 80 or above), while the next 87 are classified as “mostly free” (70-79.9) or “moderately free” (60-69.9). Yet the number of economically “unfree” economies remains high: 62 are considered “mostly unfree” (50-59.9) and 24 are “repressed” (scores below 50).

Economies rated “free” or “mostly free” enjoy incomes that are over twice the average in all other countries and more than four times higher than the average incomes of “repressed” economies. “Nations with higher degrees of economic freedom prosper because they capitalize more fully on the ability of the market to generate and reinforce dynamic growth through efficient resource allocation, value creation and innovation,” according to the Heritage Foundation.

The South and Central America/Caribbean region became less economically free last year, making it one of three regions to post a loss in the Index of Economic Freedom. This year, 12 of the 29 countries in the region recorded better scores in the index, while 16 countries charted declines (and one, Dominican Republic, stayed the same).

“The stark common reality across the region is that the foundations of well-functioning free-market democracy remain fragile,” the editors wrote. “With widespread corruption and the weak protection of property rights aggravating systemic shortcomings such as regulatory inefficiency and monetary instability caused by various market distortions, the region as a whole has become increasingly vulnerable to deceptive models of populist governance.”

No economy in South and Central America/Caribbean ranks as “free”, but four “mostly free” economies lead the region: Chile, Saint Lucia, Colombia and Bahamas, whose regional best improvement of 2.2 points raised it to that category for the first time. Thirteen economies fall into the “moderately free” category, seven are “mostly unfree,” and five are “repressed”: Ecuador, Bolivia, Argentina, Venezuela and Cuba. Chile remains the regional leader, but several policies threaten its well-established tradition of economic freedom.

“Along with the introduction of redistributive tax measures, the corporate tax rate has been raised and is slated to rise further in coming years,” the editors wrote. “Ongoing labor reforms have focused on increasing the minimum wage and strengthening union bargaining. At the other end of the scale, Argentina—hampered by what the editors call a “blatant disregard for the basic foundations of the rule of law and limited government”—recorded its lowest Index score ever. And in Venezuela, President Nicolás Maduro has pushed government spending to the brink, resulting in harmful increases in inflation and public debt.

The most free countries: Hong Kong, Singapore, New Zealand, Switzerland, Australia, Canada, Chile, Ireland, Estonia, and United Kingdom.

The least free: North Korea, Cuba, Venezuela, Zimbabwe, Turkmenistan, Eritrea, Rep. of Congo, Iran, Equatorial Guinea and Argentina.


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