November 12, 2009

Economic Freedom Report Makes the Case for Market Economy

Despite the global economy suffering from its worst crisis since the Great Depression, economic freedom is still relevant. The Friedrich Naumann Foundation for Liberty, the Philippine Economic Society (PES), the Foundation for Economic Freedom (FEF) and the Center for Research and Communication (CRC) reaffirmed this with their launch of the Philippine edition of the Economic Freedom of the World: 2009 Annual Report (EFW) on 12 November 2009 in Makati City.

In his opening remarks, PES President Winfred Villamil, Ph.D., said that EFW report shows that economic freedom throughout the world continues to rise. Out of a score of 10, the index increased from 5.5 in 1980 to 6.7 in 2007 (the most recent year for which data is available). It also shows that nations that scored high in terms of economic freedom also scored high in many indicators of well-being. Nations with more economic freedom had less corruption, better performance in terms of environmental protection, enjoyed more political rights and civil liberties and lived longer.

Siegfried Herzog, FNF resident representative, hands over the first copy of the report to Cyd Tuaño-Amador.

However, Dr. Villamil pointed out that in next year’s report economic freedom may decline at least in the short run in response to the crisis. “The EFW report notes that, historically, it has always been the tendency of most countries to adopt restrictive policies … when faced with economic downturns,” he said

Dr. Villamil remains hopeful that countries will still embrace economic freedom despite the crisis. He noted that according to the IFC -World Bank Doing Business 2010 report, 131 worldwide economies adopted 287 reforms in business regulation from June 2008 – May 2009. Dr. Villamil explained that this is a 20 percent increase from the previous year. This indicates then that a growing number of countries are recognizing that in the face of shocks, economic resiliency is best achieved by enabling markets to flourish and do their job of allocating resources efficiently. When the EFW report is coupled with that of the IFC-World Bank, it reminds nations not to lose sight of their long term interests. “Economic freedom is not an end in itself but the best means to achieve prosperity for all in the long run.”

Ma. Cyd Tuaño-Amador, Ph.D., assistant governor in charge of monetary policy at the Central Bank of the Philippines (BSP) in her keynote speech remarked that the Philippine economy has not been severely affected by the global financial crisis. She pointed out that our financial system was not highly exposed to toxic assets as the more advance economies were. Despite this, she explained that the BSP continues to provide sound money through careful calibration of monetary policy settings to fight inflation. It also continues to promote exchange rate flexibility and foreign exchange liberalization.

Regarding government regulations, she argued “there needs to be a balance between openness and some role for government insofar as financial regulation is concerned. Financial markets should not be left totally unregulated.” Dr. Tuaño-Amador stressed the importance of finding this balance. On one hand, over reliance on private sector self-regulation may expose financial systems to risks, as what caused the current financial crisis. On the other hand, too much public sector regulation may stifle innovation, hamper the efficiency of the financial system and impede economic growth.

Sadly, despite the good performance of the BSP as outlined by Dr. Tuaño-Amador, Francisco Varela, Foundation for Economic Freedom president, pointed out that the Philippines’ rating in the EFW reports have steadily declined since 2000. He discussed how the current administration has done little towards economic freedom as demonstrated by the recent imposition of price controls on basic commodities. However, he ended on a positive note by pointing towards next year’s national elections as a real opportunity to reverse the negative trend. “We have to use the time we have between now and May 2010 to identify the critical policy reforms that we should advocate for early in the term of the next administration,” he said.