Singapore: To Be a Free Economy

Hong Kong is the freest econmomy for a straight 16th year followed by Singapore.

Shrugging off the effects of the global crisis, Singapore kept its rank as the world’s second freest economy.

The United States dropped from sixth to eighth place in the wake of more interventionist policies, as economic freedoms fell across the globe last year on massive spending and bailouts during the crisis. This was announced by the Index of Economic Freedom yesterday.

Hong Kong recorded an overall economic freedom score of 89.7, with Singapore at 86.1 — one point lower than last year after faring worse in monetary and investment freedom.

The index, published by The Wall Street Journal and The Heritage Foundation, a conservative American think-tank, downgraded the country “for policies that distort domestic prices”.

But local economists were not concerned about the judgment.

DBS economist Irvin Seah said that it was probably referring to the Monetary Authority of Singapore’s control of the exchange rate as its monetary policy tool, which has kept the local currency from appreciating too much amid an uncertain recovery.

“We are a small and open economy dependent on imports, which highlights the importance of relying on exchange rate policies to control domestic prices,” he said.

The report praised economic strategy here, saying “flexibility and openness have been the foundation of Singapore’s transformation into one of the most competitive and prosperous economies in the world”.

Although growth here has slowed significantly due to the crisis, noted the report, “with strong fundamentals in place, the economy is likely to rebound quickly”.

Things were less rosy for the US, which responded to the downturn in ways that “have significantly undermined economic freedom and long-term prospects for economic growth”.

The report said measures such as fiscal stimulus spending, regulatory changes and bank bailouts have lowered entrepreneurship and job creation and enlarged deficits. The report also blamed the US for retreating on free trade.

But David Cohen of Action Economics said it was a little over-critical as “most people would agree that the US economy was depressed and fiscal stimulus was appropriate”.

The index ranks 179 economies based on 10 measures of economic openness, regulatory efficiency, the rule of law and competitiveness.

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