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2011 Index of Economic Freedom

2011 Index of Economic Freedom

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Source: http://www.heritage.org/Index/
Source: http://www.heritage.org/Index/

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World Rank: 112

Regional Rank: 20

Vanuatu’s economic freedom score is 56.7, making its
economy the 112th freest in the 2011 Index. Its score has
increased by 0.3 point since last year, with notable improve-
ments in freedom from corruption and investment freedom.
Vanuatu is ranked 20th out of 41 countries in the Asia–Pacif-
ic region, and its overall score is below the world average.

Vanuatu has recorded strong economic performance over
the past five years, in part because of recent years’ reforms.
Stronger supervision and regulation of the financial sector
have improved access to credit, supporting the emergence
of entrepreneurial activity. Low taxes and ongoing macro-
economic stability have increased the economy’s interna-
tional competitiveness, although to a limited extent.

Despite progress in sustaining growth, Vanuatu needs a
stronger political commitment to institutional reforms to
spark development of a truly dynamic private sector. Prop-
erty rights are poorly protected, and inadequate physical
and legal infrastructure deters investment. High tariffs and
non-tariff barriers to trade have held back integration into
the global marketplace. Business activity is further limited
by rigid labor regulations and widespread corruption.

BACKGROUND: The Republic of Vanuatu is composed of 83
islands spread over 4,500 square miles of the South Pacific.
Formerly administered by a British–French condominium,
it achieved independence in 1980. Today, it is a parliamen-
tary democracy that remains divided between its English-
speaking and French-speaking citizens. Vanuatu has largely
avoided the political unrest experienced by several of its
neighbors in the South Pacific. Lolu Abil, who has served in
the government since independence, was elected president
by the electoral college in September 2009. The economy is
dominated by tourism and agriculture, and over 80 percent
of the population is involved in farming, which accounts for
roughly 73 percent of GDP. In the years since 2003, Vanuatu
has experienced relatively solid economic growth.

Quick Facts

Population: 0.2 million
GDP (PPP): $1.1 billion
3.3% growth in 2009
5.9% 5-year compound annual growth
$4,737 per capita
Unemployment: 1.7%
Inflation (CPI): 4.5%
FDI Inflow: $27 million

Economic Freedom Score

Country’s Score Over Time

Country Comparisons

Least Most
free free

50
25 75

0 100

56.7

1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011

30

40

50

60

70

0

20

40

60

80

100

56.7

Country

59.7

World
average

57.4

Regional
average

84.1

Free
economies

428

2011 Index of Economic Freedom

VANUATU (continued)

THE TEN ECONOMIC FREEDOMS

Business Freedom

No. 79

Trade Freedom

No. 170

Fiscal Freedom

No. 11
Government Spending No. 60
Monetary Freedom

No. 72

Investment Freedom

No. 134

Financial Freedom

No. 106

Property Rights

No. 73
Freedom from Corruption No. 95
Labor Freedom

No. 135

COUNTRY’S WORLD RANKINGS

BUSINESS FREEDOM: 68.8

+ 0.1

Despite some progress in recent years, the regulatory envi-
ronment places heavy burdens on entrepreneurial activity.
Bureaucratic procedures are complex and lack transpar-
ency. Starting up a business remains time-consuming and
costly. In the absence of modern and efficient bankruptcy
laws, closing a business is a cumbersome process.

TRADE FREEDOM: 55.1

no change

Vanuatu’s weighted average tariff rate was 15 percent
in 2008. High tariffs, services market access restrictions,
import permit requirements, inadequate infrastructure
and trade capacity, subsidies, underdeveloped private
markets, and state participation in the marketing board for
key agricultural exports add to the cost of trade. Fifteen
points were deducted from Vanuatu’s trade freedom score
to account for non-tariff barriers.

FISCAL FREEDOM: 96.1

+ 1.2

Vanuatu has low taxes. There is no individual or corporate
income tax. Other taxes include a value-added tax (VAT)
and import duties. In the most recent year, overall tax rev-
enue as a percentage of GDP was 19.7 percent. Compliance
has improved. Tax exemptions in the tourism sector are
widespread.

GOVERNMENT SPENDING: 79.1

5.2

In the most recent year, total government expenditures,
including consumption and transfer payments, rose slight-
ly to 26.4 percent of GDP. Vanuatu’s 24 state-owned enter-
prises are inefficient and need to be privatized. Divestment
of Air Vanuatu is being considered. Development expen-
ditures rose as donor-financing increased. Prioritization of
expenditures is poor: Allocations favor recurrent spend-
ing, 50 percent of which goes to wages, and designated
emergency funds have been diverted to election-related
spending. After years of decline, the debt-to-GDP ratio
has reached 14 percent. The fiscal surplus widened to 2.2
percent of GDP in 2008.

MONETARY FREEDOM: 76.5

0.3

Inflation has been relatively low, averaging 4.5 percent
between 2007 and 2009. Many of Vanuatu’s state-owned
enterprises are heavily subsidized, depleting budget
resources and distorting price-setting mechanisms that
would encourage private-sector development. Ten points
were deducted from Vanuatu’s monetary freedom score to
account for measures that distort domestic prices.

INVESTMENT FREEDOM: 30

+ 10.0

In general, foreign investors receive national treatment.
Foreign investments must be screened and approved, and
certain sectors are reserved for domestic investment. Bar-
riers to private-sector development are significant and
include inadequate infrastructure, a weak legal system,
and a large state presence in the economy. Access to and

use of foreign exchange may be subject to restrictions and
approvals. The government may not expropriate foreign
investments without providing compensation. Foreign
investors may repatriate capital but are not allowed to
own land.

FINANCIAL FREEDOM: 40

no change

Vanuatu’s small financial sector has undergone gradual
transformation. Supervision has been strengthened, facili-
tating efforts to improve the country’s reputation as a
sound financial center. A new commercial bank opened in
2007, and Vanuatu now has four commercial banks, three
of which are foreign-owned. The state-owned National
Bank of Vanuatu has the largest branch network in the
country. Bank lending has increased in recent years. Better
access to secure and convenient financial services is critical
to efforts to expand the entrepreneurial base. Non-resident
business activities dominate commercial banks’ transaction
services. Capital markets remain rudimentary.

PROPERTY RIGHTS: 40

no change

Vanuatu has a fairly efficient legal system based on British
common law, but the judicial process is extremely slow.
The constitution states that village or island courts, pre-
sided over by chiefs, should be established by parliament
to deal with questions of customary law. Land disputes
are a constant source of tension. All land is supposed to
belong to traditional customary owners, except for public
land. However, investors have acquired and subdivided
large parcels of land, angering locals who have lost not
only their control of the land, but also, in some cases, direct
access to the sea.

FREEDOM FROM CORRUPTION: 32

+ 3.0

Corruption is perceived as widespread. Vanuatu ranks
95th out of 180 countries in Transparency International’s
Corruption Perceptions Index for 2009, an improvement
from 2008. The law provides criminal penalties for official
corruption, but the government has not implemented the
law effectively, and officials engage in corrupt practices
with impunity.

LABOR FREEDOM: 49.8

5.2

Vanuatu’s labor regulations are relatively rigid, although
the formal labor market is not fully developed. The non-
salary cost of employing a worker is high, and dismissing
an employee is burdensome. A new Employment Act is
likely to increase labor costs considerably because of its
new severance pay scale.

429

How Do We Measure Economic Freedom?

See page 447 for an explanation of the methodology
or visit the Index Web site at heritage.org/index.

2009 data unless otherwise noted.
Data compiled as of September 2010.

Caracas

VENEZUELA

World Rank: 175

Regional Rank: 28

Venezuela’s economic freedom score is 37.6, making its
economy the 175th freest in the 2011 Index. Its score
remains essentially the same as last year, with a modest gain
in trade freedom offset by a drop in labor freedom. Ven-
. Ven-
ezuela is ranked 28th out of 29 countries in the South and
Central America/Caribbean region, and its overall score is
much lower than the world average.

Economic freedom in Venezuela has been severely ham-
pered by state interference, and the economy is increas-
ingly stagnant. The public sector is bloated and inefficient,
and the informal economy is growing. Monetary stability is
weak, and there are price controls on almost all goods and
services. Corruption is rampant under an inefficient judicial
system that is vulnerable to political influence.

The rule of law has been severely undermined in recent
years. Contracts and property rights are not well respected,
and government expropriations have been on the rise. The
government has nationalized a number of private enterpris-
es. Private investment has dropped significantly.

BACKGROUND: Heading a government that has abandoned
all but the trappings of democracy, President Hugo Chávez
has positioned himself as the leader of Latin America’s
anti–free market forces and has sought allies in China
and Russia, as well as Iran and other rogue states. He
has hobbled political opponents, undermined speech and
property rights, pursued a military buildup, and imposed
foreign exchange controls. In 2009, education “reform”
targeted religious educators and parochial school funding
and reduced the autonomy of university administrators.
A 2009 referendum removed term limits from Venezuela’s
constitution, likely permitting Chávez to rule as president
for life. In 2009–2010, Chávez continued aggressive nation-
alizations and launched a commercial blockade against
Colombia. Venezuela has Latin America’s highest infla-
tion rates, a chronic electricity crisis, and the lowest current
growth rate in the Americas.

Quick Facts

Population: 28.6 million
GDP (PPP): $349.1 billion
–3.3% growth in 2009
4.8% 5-year compound annual growth
$12,201 per capita
Unemployment: 7.9%
Inflation (CPI): 27.1%
FDI Inflow: –$3.1 billion

Economic Freedom Score

Country’s Score Over Time

Country Comparisons

Least Most
free free

50
25 75

0 100

37.6

1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011

30

40

50

60

70

0

20

40

60

80

100

37.6

Country

59.7

World
average

60.2

Regional
average

84.1

Free
economies

430

2011 Index of Economic Freedom

VENEZUELA (continued)

THE TEN ECONOMIC FREEDOMS

Business Freedom

No. 146

Trade Freedom

No. 155

Fiscal Freedom

No. 106
Government Spending No. 99
Monetary Freedom No. 175

Investment Freedom

No. 170

Financial Freedom

No. 159

Property Rights

No. 176
Freedom from Corruption No. 164
Labor Freedom

No. 170

COUNTRY’S WORLD RANKINGS

BUSINESS FREEDOM: 47.8

2.5

The overall freedom to engage in entrepreneurial activities
is restricted by heavy government control and inconsistent
enforcement of regulations. There is little transparency in
decision-making, and most contracts are awarded without
competition.

TRADE FREEDOM: 61.2

+ 4.0

Venezuela’s weighted average tariff rate was 9.4 percent
in 2009. Import bans and restrictions, price bands for
certain products, services market access barriers, import
fees, import licensing requirements, non-transparent and
discriminatory administration of tariff rate quotas, non-
transparent government procurement, non-transparent
standards and labeling regulations, export subsidies, weak
enforcement of intellectual property rights, and burden-
some and inefficient customs implementation add to the
cost of trade. Twenty points were deducted from Venezu-
ela’s trade freedom score to account for non-tariff barriers.

FISCAL FREEDOM: 75

+ 1.0

Venezuela has burdensome tax rates. The top income and
corporate tax rates are 34 percent. Certain oil companies,
except those determined to be central to the “national inter-
est,” are subject to a 50 percent tax on net income. Other
taxes include a value-added tax (VAT), a property tax, and
an inheritance tax. In the most recent year, overall tax rev-
enue as a percentage of GDP was 13.6 percent.

GOVERNMENT SPENDING: 65.3

+ 3.5

In the most recent year, total government expenditures,
including consumption and transfer payments, decreased
slightly to 34 percent of GDP. Oil wealth accounts for half
of the central government’s income and leaves the stabil-
ity of public finances vulnerable to changes in price and
output.

MONETARY FREEDOM: 47

0.7

Inflation is nearly out of control. Official statistics have
it averaging 27.1 percent between 2007 and 2009, but the
actual rate is probably much higher. Real interest rates
remain negative, giving depositors little incentive to save.
The government controls almost all prices through regula-
tion, subsidies, and numerous state-owned enterprises and
utilities and uses a non-legislated system of guaranteed
minimum prices to protect agricultural producers. Twenty
points were deducted from Venezuela’s monetary freedom
score to account for measures that distort domestic prices.

INVESTMENT FREEDOM: 5

no change

Although Venezuela’s 1999 constitution generally provides
equal treatment for foreign and domestic investors, the
government restricts investment in certain sectors. Invest-
ment laws and bureaucracy are non-transparent and bur-
densome, the legal system is slow and corrupt, and state
domination of the economy continues to increase. In 2008,
the government expropriated key companies and assets in

the cement, dairy, steel, and banking industries. In 2009, it
expropriated investments in the petroleum, tourism, agri-
business, and banking industries. The government controls
foreign exchange and fixes the exchange rate. Repatriation
of capital, dividends, or profits at the official rate requires
authorization.

FINANCIAL FREEDOM: 20

no change

Venezuela’s financial system is subject to growing gov-
ernment control and has suffered recent takeovers and
nationalizations. Assets are heavily concentrated in the
four largest banks. Financial institutions are increasingly
directed to provide credit in accordance with government
requirements. The central bank’s independence has deteri-
orated, and decisions are now controlled by the president.
Foreign presence in the financial sector has diminished
rapidly. Since early 2009, the government has taken control
of or shut down a number of banks. Capital markets are
small, and the stock market has been further downsized,
with more firms delisted due to nationalization. State-
owned institutions hold about 30 percent of banking assets.

PROPERTY RIGHTS: 5

+ 5.0

The judiciary is completely controlled by the executive,
politically inconvenient contracts are abrogated, and the
legal system discriminates against or in favor of investors
from certain foreign countries. Land and other private
holdings are expropriated by the government arbitrarily
and without compensation. Pirated music, movies, and
software are readily available. The Chávez administration
has enacted laws to centralize control of ports, roads, and
airports as well as to nationalize major industries.

FREEDOM FROM CORRUPTION: 19

no change

Corruption is perceived as rampant. Venezuela ranks
162nd out of 180 countries in Transparency International’s
Corruption Perceptions Index for 2009. Government ten-
ders are vulnerable because the process frequently lacks
transparency. Critics allege that price and exchange con-
trols, government and military officials’ involvement in
narcotics trafficking, and kickbacks on major weapons
purchases are sources of corruption.

LABOR FREEDOM: 31.1

5.1

Venezuela’s labor market is controlled by the government.
Labor regulations are outdated and not applied consistent-
ly. The non-salary cost of employing a worker is moder-
ate, but an efficient and flexible labor market has not been
developed.

431

How Do We Measure Economic Freedom?

See page 447 for an explanation of the methodology
or visit the Index Web site at heritage.org/index.

2009 data unless otherwise noted.
Data compiled as of September 2010.

Hanoi

VIETNAM

World Rank: 139

Regional Rank: 30

Vietnam’s economic freedom score is 51.6, making its
economy the 139th freest in the 2011 Index. Its score is 1.8
points better than last year, mainly reflecting higher scores
in monetary freedom and business freedom. Vietnam is
ranked 30th out of 41 countries in the Asia–Pacific region,
and its overall score is lower than the world and regional
averages.

Capitalizing on its gradual integration into the global trade
and investment system, Vietnam has been transforming
itself into a more market-oriented economy. Reforms have
included partial privatization of state-owned enterprises,
liberalization of the trade regime, and increasing recognition
of private property rights. Despite the challenging global
economic environment, the economy has registered annual
growth rates averaging about 7 percent over the past five
years.

Vietnam’s overall economic freedom, however, is limited
by several key institutional factors. Despite ongoing reform
efforts, the regulatory environment is not particularly effi-
cient or transparent. Investment is hindered by opaque
bureaucracy and an unreliable legal system. State owned-
enterprises still account for about 40 percent of GDP, ham-
pering the emergence of a more dynamic private sector. The
judiciary remains weak and vulnerable to political influ-
ence, and corruption is widespread.

BACKGROUND: The Socialist Republic of Vietnam is governed
by a one-party authoritarian regime that has embarked on
the path of economic liberalization only recently, starting
with its doi moi reforms in 1986. In 2007, the country joined
the World Trade Organization. Vietnam now boasts one of
Southeast Asia’s fastest-growing economies, which is driven
primarily by tourism and exports, but it also has a serious
inflation problem and has struggled to attract more invest-
ment. The government is slowly liberalizing key economic
sectors, including financial institutions, but political repres-
sion and the lack of respect for basic human rights remain
serious concerns.

Quick Facts

Population: 87.2 million
GDP (PPP): $256.6 billion
5.3% growth in 2009
7.0% 5-year compound annual growth
$2,942 per capita
Unemployment: 6.5%
Inflation (CPI): 6.7%
FDI Inflow: $4.5 billion

Economic Freedom Score

Country’s Score Over Time

Country Comparisons

Least Most
free free

50
25 75

0 100

51.6

1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011

30

40

50

60

70

0

20

40

60

80

100

51.6

Country

59.7

World
average

57.4

Regional
average

84.1

Free
economies

432

2011 Index of Economic Freedom

VIETNAM (continued)

THE TEN ECONOMIC FREEDOMS

Business Freedom

No. 109

Trade Freedom

No. 132

Fiscal Freedom

No. 101
Government Spending No. 77
Monetary Freedom

No. 45

Investment Freedom

No. 164

Financial Freedom

No. 133

Property Rights

No. 164
Freedom from Corruption No. 122
Labor Freedom

No. 63

COUNTRY’S WORLD RANKINGS

BUSINESS FREEDOM: 61.6

+ 0.9

Vietnam’s pursuit of more comprehensive business reform
has progressed in recent years. Administrative procedures
have been streamlined, and the regulatory framework for
smaller businesses has been improved.

TRADE FREEDOM: 68.9

no change

Vietnam’s weighted average tariff rate was 10.6 percent in
2007. The government has made progress in liberalizing its
trade regime since joining the World Trade Organization
in 2007, but some import bans and restrictions, services
market access barriers, import licensing requirements, non-
transparent regulations, state trade in some commodities,
weak enforcement of intellectual property rights, corrup-
tion, and customs inconsistencies add to the cost of trade.
Ten points were deducted from Vietnam’s trade freedom
score to account for non-tariff barriers.

FISCAL FREEDOM: 75.9

0.2

Vietnam implemented tax reforms in January 2009. The top
income tax rate is now 35 percent, and the top corporate tax
rate is 25 percent. Oil and gas are subject to a separate taxa-
tion scheme with rates ranging from 32 percent to 50 per-
cent. No taxes are levied at the state or local levels. Other
taxes include a value-added tax (VAT), an inheritance tax,
and a property tax. In the most recent year, overall tax rev-
enue as a percentage of GDP was 23.6 percent.

GOVERNMENT SPENDING: 75.1

+ 1.7

In the most recent year, total government expenditures,
including consumption and transfer payments, dipped
slightly to 28.8 percent of GDP. The global crisis exposed
some structural vulnerabilities and forced authorities to
reconsider their budget plan to hold down the deficit.
Progress in the privatization or restructuring of state-
owned enterprises is needed to help increase fiscal stability.

MONETARY FREEDOM: 79.1

+ 21.0

Inflation has been high, averaging 10.9 percent between
2007 and 2009. The government influences prices through
regulation, subsidies, state-owned enterprises, banks, and
utilities. Fifteen points were deducted from Vietnam’s
monetary freedom score to account for measures that dis-
tort domestic prices.

INVESTMENT FREEDOM: 15

5.0

Foreign investment in many sectors of the economy is
either prohibited or requires government approval. Deter-
rents to investment include unwieldy bureaucracy, non-
transparent regulations, corruption, and an unreliable and
cumbersome legal system. Residents and non-residents
may hold foreign exchange accounts, subject to restrictions
and government approvals. Payments and transfers are
subject to restrictions. Most transactions in money market
and capital instruments, derivatives, commercial credits,

and direct investments require government approval. All
land is owned by the state.

FINANCIAL FREEDOM: 30

no change

The state remains heavily involved in Vietnam’s underde-
veloped financial sector. Less than 20 percent of the popula-
tion has a bank account. Lending by state banks is focused
on large state-owned enterprises, and interest rates may
be subsidized. Despite the large number of small banks,
the four primary state-owned banks control most lending.
Regulation, supervision, and transparency fall short of
international standards, and the share of non-performing
loans is estimated to be far higher than the reported rate
of about 2 percent. The stock market is gradually expand-
ing. In 2008, four foreign banks were permitted to launch
fully owned subsidiaries, and partial privatization of state-
owned VietinBank was completed in 2009.

PROPERTY RIGHTS: 15

no change

Only the rudiments of a system to protect property rights
have been established. The judiciary is not independent,
and corruption is common. Contracts are weakly enforced,
and resolution of disputes can take years. All land belongs
to the state, but foreigners can conduct real estate transac-
tions. Foreign investors may lease land for periods of 50
years, or up to 70 years in some poor areas. Infringement
of intellectual property rights is common.

FREEDOM FROM CORRUPTION: 27

no change

Corruption is perceived as widespread. Vietnam ranks
120th out of 180 countries in Transparency Internation-
al’s Corruption Perceptions Index for 2009. Corruption
in Vietnam is due in large part to a lack of transparency,
accountability, and media freedom as well as low pay for
government officials and inadequate systems for holding
officials accountable for their actions. A confused overlap-
ping of regulatory jurisdictions and bureaucratic proce-
dures creates opportunities for corruption.

LABOR FREEDOM: 68.2

0.2

Vietnam’s labor market remains relatively rigid. The
non-salary cost of employing a worker is moderate, but
dismissing an employee is difficult. In recent years, the
government has increased the minimum wage in domes-
tic and foreign-invested enterprises, partly to ease labor
unrest. Beginning in 2010, a single nationwide minimum
wage will be applied for all businesses.

433

How Do We Measure Economic Freedom?

See page 447 for an explanation of the methodology
or visit the Index Web site at heritage.org/index.

2009 data unless otherwise noted.
Data compiled as of September 2010.

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