Thu, Jan 18, 2007 - Page 11 News List

Financial controls harm rating

GOOD AND BAD Taiwan was rated 26th out of 157 countries in an economic survey, scoring highly on fiscal freedom but less well on freedom from corruption

By Charles Snyder  /  STAFF REPORTER IN WASHINGTON

Despite a generally free economy, Taiwan's rating in a respected global gauge of economic freedom was dragged down by corruption, onerous labor laws and the government's continued heavy role in the financial sector last year.

The report, the 2007 Index of Economic Freedom, was released on Tuesday by the Heritage Foundation and the newspaper, the Wall Street Journal.

The rating of 157 countries put Taiwan 26th in the world and 6th among 30 countries in the Asia-Pacific region. The previous year, Taiwan ranked 37th.

For the 13th consecutive year since the index was first published in 1995, Hong Kong was rated the world's freest economy. Singapore was number two.

Taiwan's overall score was 71.1 percent, a shade higher than the previous index, but much of that improvement reflected a change in methodology, the Foundation and the newspaper said.

While the editors commented that corruption in Taiwan is relatively low, the nation received a score of only 59 percent in the "freedom from corruption" category. The score was largely influenced by a corruption index published by, Transparency International, which ranked Taiwan at 32nd among 158 countries for 2005.

The editors of the Heritage-Journal index noted that their data dated generally from last June, well before the latest cascade of corruption and embezzlement scandals hit the headlines in Taiwan.

This seems to indicate that the corruption score would have been lower if the data went through the end of the year, the Transparency International report covering last year.

The government's continued ownership of banks and financial controls hurt Taiwan's score even more than corruption.

In the financial freedom category, Taiwan scored 50 percent. The Foundation and Journal noted that while nine banks were privatized between 1998 and 2005, the government still controls four banks, including two of the three largest domestic banks. The report also cites restrictions on foreign financial operations in Taiwan.

In a new category, covering labor regulations, the authors gave Taiwan a score of only 56.7 percent, in view of the perceived negative impact of labor laws on businesses.

"The labor market operates under inflexible employment regulations that hinder overall productivity growth," the generally pro-business Foundation and Journal said. "The non-salary cost of employing a worker is moderate, but dismissing a redundant employee is relatively costly," the index said.

China gained a higher score than Taiwan in the labor category. While China ranked only 119th of the 157 countries covered with a score of 54 percent, it received a "labor freedom" score of 63.5 percent.

It earned the score even though its labor market "operates under restrictive employment regulations that hinder employment and productivity growth. The non-salary cost of employing a worker is very high, and dismissing a redundant employee can be relatively costly," according to the index.

Taiwan received its highest scores in the categories of fiscal freedom, 84.7 percent, thanks to a relatively low corporate tax and overall tax burden; in "freedom from government," 89.8 percent, because government expenditures are "moderate" as a percentage of GDP; and "monetary freedom," 81.3 percent, as a result of low inflation.

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