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Venezuela: no freedom and no investment

From Veneconomy

08.03.06 | Compared to last year, Venezuela’s score this year has worsened in the Index of Economic Freedom Index for 2006 published by The Heritage Foundation and The Wall Street Journal. It is ranked as one of the 12 “most repressed” economies in the world, with its rating dropping from 4.09 to 4.16.

Chávez’ country ranked 152 out of the 157 country’s analyzed, below Cuba and Haiti. The only countries with a worse rating are Libya, Zimbabwe, Burma, Iran, and North Korea.

This study takes a yearly look at the performance of countries in the areas of trade and monetary policy, fiscal burden of government, government intervention in the economy, capital flows and foreign investment, banking and finance, wages and prices, property rights, regulations, and informal market activity. It grades the economies numerically from 1 to 5, where 1 is the most desirable and 5 the least, and puts them into four categories: free, mostly free, mostly unfree, and repressed. Venezuela earned a score of 4 in seven of the 10 factors analyzed; in two (monetary policy and capital flows and foreign investment) it got the lowest score, i.e. 5; although, inexplicably, in the area of “government intervention in the economy” it was given a 3.5. Heaven knows why!

The reason why this study is important is because, according to monitoring by The Heritage Foundation, it has been shown that the greater a country’s economic freedom, the greater its economic growth and the greater the improvement in the standard of living of its citizens.

This creates what, on the surface, would seem to be a paradox, because the Bolivarian government has reported economic growth of 9.3% for 2005. But this is an illusion, as it is growth based on public spending generated by the windfall of oil revenues, which, in turn, has produced growth in consumption and imports, but not in production and employment.

If account is taken of this bonanza and the corresponding adjustment is made, Venezuela’s economy has suffered a terrible contraction, which is precisely what the Economic Freedom Index presages.


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