Sam Vaknin ( articles at LA Chronicle)
Written July 6, 2008
The Heritage Foundation and the Wall Street Journal are the joint publishers of the much-vaunted "Index of Economic Freedom". The annual publication purports to measure and compare the level of economic freedoms in 155 countries.
In 2001, Macedonia's GDP was $3.4 billion and not $2.7 billion as the index states. Macedonia's GDP exceeded $3 billion in the 4 years prior to 2001.
Nor has GDP grown by 2.7 percent in 2001: it has actually declined by 4.3 percent . As a result, GDP per capita was wrongly computed in the index.
The trade deficit was not $300 million, as the index states - but double that. It has been above $500 ever since the mid-1990s.
Net foreign direct investment has been closer to $100 million in 1999-2000 (excluding extraordinary privatizations, such as Makedonski Telekom) - rather than the paltry $29 million the index misreports.
The index made rice one of Macedonia's "major" agricultural products. It was, actually, first on its list. Alas, little rice was grown in Macedonia in 2001. Nor did the country produce noticeable quantities of citrus, or grains, as the index would have us believe.
The authoritative-sounding introduction to the 2002 index informed us that Macedonia maintained a budget surplus "from the sale of state-owned telecommunications". Yet, in its first decade of existence, Macedonia enjoyed a budget surplus only in 2000 and it had nothing to do with the sale of its telecom to the German-Hungarian MATAV. The proceeds of this privatization were kept in a separate bank account. Only a small part was used for budgetary and balance of payment purposes.
The index stated that Ljubco Georgievski had "privatized approximately 90 percent of (the country's) state-owned firms". These were actually privatized by the SDSM when it was in power until 1998. It is true that major assets, such as Macedonia's refinery and its leading bank were privatized under Georgievski. It is also true that the bulk of state-owned loss making enterprises were either sold or shut. But these constituted less than 15 percent of the number of companies the state owned in 1992.
The fiscal burden of Macedonia was 34 percent of GDP in 2001 - not 23 percent as the index stated. It has surpassed 30 percent of GDP years before. Moreover, in the sub-chapter titled "Fiscal Burden of the Government" the authors contended that "government expenditures equaled 23.3 percent of GDP". A mere three lines later they contradicted themselves: "the government consumes 19 percent of GDP". Which is it?
The "monetary policy" segment of the index is a misleading one-liner: "Between 1993 and 2000, Macedonia's weighted annual average rate of inflation was 7.15 percent." The term "weighted annual average rate of inflation" is not explained. Whatever happened to the hyperinflation followed by near-deflation of Macedonia's first decade? The straight average in this period was 56 percent, not 7 percent.
The index says that "the country's political instability has had a debilitating effect on foreign investment". It sounds logical but does not stand up to scrutiny. Investment flows actually increased in the conflict year 2001 as bargain hunters from Greece, Slovenia, Germany, and other countries converged on Macedonia.
And so this list of errors and misrepresentations continues.
Macedonia is a tiny and unimportant country. But many of the erroneous data used by the index could have been avoided merely by using Google! Sloppy editing, internal contradictions, and outdated information regarding one country, regardless of how inconsequential it is, render the entire index suspicious.
Unfortunately, indices such as these affect both portfolio and direct investment flows, the country's rating, its image in the international media, and the government's standing domestically. The golden rule with such indexes is: "handle with care".