The Cato and Frazer Institute released their yearly report about Economic Freedom, which ranks countries based on “the degree on which institutions and policies of each country are consistent with economic freedom”, with both institutes considering personal choice, voluntary exchange, open markets, and property rights as the key components of economic freedom. In the 2021 edition, which measures the economic freedom datapoints of 2019, many of the most important countries in Latin America had a significant fall in the ranking.
The report calculates each country’s rating by evaluating the nation’s level of economic freedom in five specific areas: the size of government, legal system and property rights, the stability of the currency (what the report calls “sound money”), freedom to trade internationally, and the size of regulations. Each component has a list of subcomponents, with the report having a total of 24 subcomponents and more than 50 measurable variables.
The Cato/Frazer report is not the only one of its kind to get published every year, with the Heritage Foundation releasing a similar yearly report measuring economic freedom and the World Bank also publishing their Doing Business report, which the latter one being recently caught on a massive scandal as it was revealed that the former Chief-Executive of the World Bank inflated China’s numbers in the 2018 report.
Latin America, a region that has historically struggled with chronic economic and political instability saw many of its countries decreasing their ranking in the Economic freedom index. With countries like Chile and Peru suffering a significant decrease in their ratings, while the region has the “honor” of being home to the least economically free country in the world, Venezuela.
Chile and Peru suffer in their ratings, but remain very economically free
Peru and Chile have experienced a significant rise in their level of economic freedom over the last few decades. While Peru was down at the bottom of the index in 1980, with an average score of 3.56 (out of 10) occupying 108th place, hardly an enviable place in the list. However, by 2019 Peru had climbed to claim the 35th position and have an average score of 7.78. Chile followed a similar path, as it had the 72nd position in 1980 (with a 4.84 score) and went to be the 13th most economically free country in the world, a position that has fallen ever since.
While both countries maintained their position as two of the most economically free countries in the region, they suffered a decrease in their rating compared to their evaluations in 2018. Peru went from being the 29th country in the rating to 35th, despite its overall rating being relatively the same (7.76 in 2018 and 7.78 in 2019). Peru’s weakest point, according to the report, is its legal system which has a rating of only 5.3, while its strongest point is its “sound money” which is rated at an almost perfect 9.7.
Chile remains the most economically free country of Latin America, occupying the 29th position in the global ranking, with an average rating of 7.85 points. However, the country saw a steep fall of 15 places in the rating compared to 2018 with the rating on the first area (size of the government) suffering the deepest fall from 8.21 points to 7.83.
Both countries have suffered much political instability, with Peru having four different presidents serving one single term and eventually electing this year a far-left politician as their new president, while Chile is embroiled in the process of drafting a new Constitution and is facing a presidential election later this year.
Brazil and Colombia maintain their position in the lower tier of the index
While Chile and Peru have suffered a decrease in their degree of economic freedom yet maintained their positions in the top-tier of the list of most economically free countries, Brazil and Colombia have had the opposite story, as both countries have either maintained or slightly decreased their ranking but are still in the lower tier of the freedom index.
Brazil, one of the largest countries in the region, had a slight increase in its rating, which went from 6.56 in 2018 to 6.63 in 2019. However, its overall position in the rank fell slightly from 105th to 109th most economically free country in the world, with the Brazilian regulatory regime being the worst graded of its subcomponents.
Colombia also increased its rating, going from 6.71 in 2018 to 6.82 in 2019, however that did not translate in its position in the global list, as Colombia has remained as the 92nd most economically free country in the world. Colombia has suffered a steady decline in its standing in the ranking, with the country going from the 71st spot in the list in 1980 to hover between the 80-90 spot in the list since the beginning of the 21st century.
Argentina and Venezuela have the least economic freedom
Unsurprisingly Argentina and Venezuela occupy the spots of the less economically free countries not only in the region but in the world. With the former being the 153rd most economically free country in the world and the latter being the less economically free country in the world by occupying the 165th position.
Argentina suffered a nine-place drop in the index since 2018, with its ranking going from 144rd to 153th and its ranting going from 5.78 to 5.5 points. Argentina has suffered a constant and very steep fall in the economic freedom index, with the country going from an all-time high of being the 37th most economically free country in the world in 2000 to be just a few positions ahead of the least economically free country in the world.
Venezuela, which suffers one of the worst humanitarian disasters in the history of the Americas, had a further decrease in both its overall ranking and rating with the country going from occupying the 162nd position in the list to getting into the last spot this year as its rating went from 3.34 to 2.83 in a year.
Venezuela’s decline in economic freedom during Chavista rule has been staggering, with the country going from the 88th position in 2000 to occupy the last spot in 2019. The decline in economic freedom in both countries has been followed by the economic crisis, with Venezuela reaching four digits inflation rates while Argentina is in the third year of an economic recession.