Economic freedom: RP ranks 109th

MANILA, Philippines – The Philippines continues to suffer from weak freedom in business, investment, property rights, and even in fighting corruption.

In its 2010 Index of Economic Freedom, Washington-based think tank Heritage Foundation put the country in 109th place.

The 2010 Index covers 183 countries, ranking 179 of them with an economic freedom score based on 10 measures of economic openness, regulatory efficiency, rule of law, and competitiveness. The basic principles of economic freedom emphasized in the Index are individual empowerment, equitable treatment, and the promotion of competition.

The Philippines ranked 20th among 41 countries in the Asia-Pacific region, and its overall score is slightly below the world and regional averages.

With an economic freedom score of 56.3, the Philippine economy is the 109th freest in the 2010 Index.

Its score is 0.4 point lower than last year’s, reflecting small reductions in monetary freedom and freedom from corruption.

“The government’s failure to do anything substantial to liberalize the economy has set back efforts to attract much-needed foreign investment in basic industries and infrastructure, and the Philippines continues a long slide from being one of Asia’s richest economies to being one of its poorest. The economy relies heavily on emigrants’ remittances equivalent to about 10 percent of GDP,” the 2010 Index said.

The index also showed a weak judicial system vulnerable to political influence.

“The judicial system is weak. Judges are nominally independent, but some are corrupt or have been appointed strictly for political reasons. Organized crime is a serious problem. Despite some progress, enforcement of intellectual property rights remains problematic,” it said.

It added that the overall freedom to start, operate, and close a business is limited under the Philippines’ regulatory environment. Starting a business takes an average of 52 days, compared to the world average of 35 days. Closing a business can be a difficult and lengthy process, it said.

The Philippines has relatively high tax rates. The top income tax rate is 32 percent. The top corporate tax rate is 30 percent, down from 35 percent as of Jan. 1, 2009.

Overall tax revenue as a percentage of GDP was 14.0 percent. Despite domestic political pressure, authorities did not repeal the value added tax on petroleum products during the financial crisis.

The report also said that inflation has been moderately high, averaging 7.4 percent between 2006 and 2008.

The government influences prices through state-owned enterprises and utilities and controls the prices of electricity distribution, water, telecommunications, and most transportation services, the report said. Price ceilings are usually imposed on basic commodities only in emergencies, and presidential authority to impose controls to check inflation or ease social tension is rarely exercised.

Ten points were deducted from the Philippines’ monetary freedom score to account for policies that distort domestic prices.

Foreign investment is restricted in a number of sectors. All foreign investments are screened and must be registered with the government. Regulatory inconsistency and lack of transparency, corruption, and inadequate infrastructure hinder investment, the report showed.

Dispute resolution can be cumbersome and complex, and the enforcement of contracts is weak. Residents and non-residents may hold foreign exchange accounts. Payments, capital transactions, and transfers are subject to some restrictions, controls, quantitative limits, and authorizations. Foreign investors may lease but not own land, it added.

Corruption is perceived as pervasive. The Philippines ranked 141st out of 179 countries in Transparency International’s Corruption Perceptions Index for 2008, a decline from 2007. A culture of corruption is long-standing, and enforcement of anti-corruption laws is inconsistent, the report pointed out. –Pia Lee-Brago (The Philippine Star)