Economic Freedom and Transparency in Latin America

The relationship between a higher level of economic freedom and a lower level of corruption in Latin America is problem-like and its analysis will have to be deepened. As regards that, it is important to point out that the difficulties shown by the indexes are closely related with the strange attitude that many defenders of the market economy had when insisting on presenting as positive certain reform process, such as those implemented by Salinas de Gortari’s administration in Mexico (1988 - 1994), Menem’s administration in Argentina (1989 – 1999), Fujimori’s administration in Peru (1990 – 2001), Collor de Mello’s administration in Brazil (1990 – 1993) among others. It is understandable therefore that those who has helped to spread the idea that a corruptive reform was better than a non reform, are seen now as the causes not only of the failure of reforms, but also of their relations with high levels of corruption.

Introduction
Is there a relationship between a higher level of economic freedom and a lower level of corruption? Transparency International (TI) and Heritage Foundation – Wall Street Journal make annual measurements about corruption and economic freedom, respectively, which can be compared since 1995. When contrasting both indexes throughout the years, a positive correlation is found. However, in 1995 there is a higher correlation than in 2000 and in 2000 it is higher than in 2003. What would help to explain this increasing divorce between the indicators? Probably, as it will be seen thereafter, this was due to an observers’ late perception of the negative incidence that the little transparent reform process happening in most of the countries of the region would have on the quality and stability of the assumed way towards a higher economic freedom.

Methodology
The methodology of this report consists in taking as an independent variable the results of the Index of Economic Freedom made by the Heritage Foundation-Wall Street Journal and correlating them with the results of the Index of Corruption Perception elaborated by Transparency International, which is the dependent variable. The Heritage Foundation-Wall Street Journal Index defines economic freedom as “the absence of government restriction to the production, distribution or consumption of goods and services” and qualifies between one and five the performance of countries, being one the score for the country with most freedom and five for the closest or most “oppressive”1 one. In this proportion, a country is free if it registers between 1 and 1,99; mostly free between 2 and 2,99; mostly non free between 3 and 3,99; and non free between 4 and 5. The definition of this index is based on ten indicators which are averaged. These are: 1) commercial politic, 2) fiscal pressure, 3) government intervention, 4) monetary politic, 5) foreign inversion, 6) bank and finance, 7) prices and salaries, 8) property rights, 9) regulations and 10) informal market. According to the definition given by Transparency International, “The Index for Corruption Perception (IPC) establishes each year a ranking of countries based on their levels of corruption in the public sector perceived by businessmen, risk analysts and ordinary citizens”. In the index, ten is the best score that a country could reach being zero the worst one.

Pedro Isern is President of the Centre for the Opening and Development of Latin America (CADAL). He has a Master in Political Philosophy (London School of Economics and Political Sciences), a Master in Economics and Political Science (ESEADE, Argentina) and he is a Licentiate in Political Sciences (San Andres University). He contributed with the book “Mitos del Milenio. El fin del trabajo y los nuevos profetas del Apocalipsis” (March 2004, CADAL / TIMBRO).