Bolivia and the 2012 Index of Economic Freedom

I praise The Wall Street Journal and The Heritage Foundation for this wonderful information about Bolivia, for the full report and access to their website, please use the link provided below, thank you.

When institutions protect the liberty of individuals, greater prosperity results for all.

Economist Adam Smith formed this theory in his influential work, The Wealth of Nations, in 1776. In 2012, his theory is measured – and proven – in the Index of Economic Freedom, an annual guide published by The Wall Street Journal and The Heritage Foundation, Washington’s No. 1 think tank.

For over a decade, The Wall Street Journal and The Heritage Foundation, Washington’s preeminent think tank, have tracked the march of economic freedom around the world with the influential Index of Economic Freedom. Since 1995, the Index has brought Smith’s theories about liberty, prosperity and economic freedom to life by creating 10 benchmarks that gauge the economic success of 184 countries around the world. With its user-friendly format, readers can see how 18th century theories on prosperity and economic freedom are realities in the 21st century.

The Index covers 10 freedoms – from property rights to entrepreneurship – in 184 countries.

Bolivia’s economic freedom score is 50.2, making its economy the 146th freest in the 2012 Index. Its overall score is 0.2 point better than last year, with some improvements in three of the 10 economic freedoms, including freedom from corruption. Bolivia is ranked 25th out of 29 countries in the South and Central America/Caribbean region, and its overall score is below the world and regional averages.

The foundations of economic freedom in Bolivia remain fragile, severely hampered by structural and institutional problems. With the judicial system becoming more vulnerable to political interference, corruption is prevalent, and the rule of law is weak across the country.

The state’s presence in economic activity is gradually increasing through nationalization of industry, moving the Bolivian economy ever further from free-market openness and flexibility. Heavily dependent on the hydrocarbon sector, the economy suffers from a lack of dynamism. Poor economic infrastructure and weak regulatory and judicial frameworks impede expansion and diversification of the productive base. The lack of access to financing precludes entrepreneurial growth, and the investment regime lacks transparency.

Rule of Law: The judicial process is subject to political influence and corruption. Enforcement of intellectual property rights is erratic and largely ineffective. Competing claims to land titles and the absence of reliable dispute resolution make acquisition of real property risky. Expropriation is a problem, as is illegal squatting on rural private property. Anti-corruption measures are poorly enforced, and corruption is growing.

Limited Government: The top income tax rate is 13 percent, and the corporate tax rate is 25 percent. Other taxes include a value-added tax (VAT) and a transactions tax, with the overall tax burden equivalent to 22.6 percent of GDP. Government spending amounts to 35.5 percent of GDP, and budget surpluses have been narrowing in recent years. Public debt has dropped to below 40 percent of GDP.

Regulatory Efficiency: The regulatory environment is burdened with red tape and inconsistent enforcement of commercial regulations. With 15 procedures required, on average, it takes 50 days to start a company. The labor market is not fully developed, and employment regulations are not conducive to productivity growth. A series of public protests and strikes in early 2011 forced the government to backtrack on a much-needed reduction of fuel price subsidies.

Open Markets: The trade weighted tariff rate is 5.4 percent, with myriad non-tariff barriers raising the cost of trade. Bolivia’s 2009 constitution allows only investment that “fulfills a social function” and “is not detrimental to the collective interest” and specifically gives domestic investment priority over foreign investment. The financial sector is vulnerable to state interference and remains poorly developed, although it has grown and become more open.

This website has an interesting feature, it can compare data among countries, so if you are interested in comparing Bolivia with another country, use the link above.

Conclusions of this report are self-explanatory and hope both public and private sector acknowledge it and adjust their actions accordingly. We rank 146 among 179 countries, so… there is room for improvement!!!

Published by Bolivian Thoughts

Senior managerial experience on sustainable development projects.

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