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US think tank: Corruption makes PHL economy 'unfree'

UPDATED 5:00 p.m. Pervasive corruption in the government, the weak judicial system, and unsound economic policies make the Philippines one of the "mostly unfree" economies in the world, a think tank in the United States said.
"A culture of corruption is long-standing. The government has worked to reinvigorate its anti-corruption drive, but these efforts have been inconsistent," said the policy institute "The Heritage Foundation." Heritage noted that reforms have not improved the public's perception of the government because these are overshadowed by high-profile cases frequently reported in the Philippine media. According to the 2011 Index of Economic Freedom compiled by Heritage together with "The Wall Street Journal," “The Philippines ranks 21st out of 41 countries in the Asia–Pacific region, and its overall score is slightly below the world and regional averages." The Philippines received a lower rank than its Asian counterparts such as Cambodia, Hong Kong, Japan, Macau, Malaysia, Singapore, South Korea, Taiwan, and Thailand. Not under Aquino's term In Malacañang, presidential spokesman Edwin Lacierda pointed out that the period covered by the Heritage report was from the second half of 2009 to the first half of 2010. President Benigno Simeon "Noynoy" Aquino III assumed office on June 30, 2010. "This is a study on the Philippines based on the previous administration," Lacierda said in a press briefing on Thursday. He said the Aquino administration continues to be committed to reducing poverty and eradicating corruption by leveling the playing field for all businessmen. He said the Palace takes the 2011 Index of Economic Freedom as a challenge to introduce more reforms. "That's our challenge and we hope to see the country improve in its ranking," he said. Lower ranking The index shows that the Philippines’ freedom score of 56.2 this year is 0.2 point lower than its ranking in 2010. “Its score is 0.2 point lower than last year, with small reductions in business and labor freedom offsetting modest gains in monetary freedom and freedom from corruption," Heritage said. The Philippines received the lowest grade, 24, on the “Freedom from Corruption" category. Mixed progress on reforms Heritage noted that progress on reforms has been “mixed." Although some fiscal reforms have been implemented, “deeper institutional reforms are required in four interrelated areas: business freedom, investment freedom, property rights and freedom from corruption," Heritage observed. The Philippine government also imposes formal and non-formal barriers to foreign investments, and foreign remittances, thus hindering economic growth, Heritage said. The think tank also criticized the Philippine government for its “relatively high tax rates." Its regulatory inconsistency and lack of transparency, corruption, and inadequate infrastructure also hinder investment, Heritage said. “The top income tax rate is 32 percent. The top corporate tax rate is 30 percent. Other taxes include a value-added tax (VAT), a real property tax, and an inheritance tax. In the most recent year, overall tax revenue as a percentage of GDP was 14.1 percent," it said. “Foreign investment is restricted in several sectors of the economy. In many industries where foreign investment is allowed, the level of foreign ownership is capped," it added. Heritage noted that the Philippine's system of dispute resolution “can be cumbersome and complex" and its enforcement of contracts was weak. Weak judicial system Heritage said the Philippines has a weak judicial system that is vulnerable to political influence and corruption. On the issue of property rights, the country received a low grade of 30. Although the Philippines has procedures and systems for registering claims on property, including intellectual property and chattel or mortgages, investors are dismayed because of the delays and uncertainty associated with a cumbersome court system. Heritage noted that “organized crime is a serious problem. Despite some progress, enforcement of intellectual property rights remains problematic." The think tank said questions on the general sanctity of contracts and property rights cloud the investment climate. President Benigno Simeon Aquino III recently disputed a recent World Bank agency ruling that allowed German airport operator Fraport AG and its local partner, Piatco, to pursue claims against the Philippine government for the expropriation of the almost $500 million Ninoy Aquino International Airport (NAIA) Terminal 3 project. High score on govt spending Meanwhile, the Philippines received its highest score of 91 on government spending. The survey stated that total government expenditures in 2010, including consumption and transfer payments, remained steady at 17.3 percent of gross domestic product (GDP). “Fiscal stimulus and restructuring of public enterprises have widened the fiscal deficit, which had almost reached balance in 2007," Heritage noted. It added that the Philippines has continued its slide from being one of Asia’s richest economies to being one of its poorest. Heritage said the economy relies heavily on the remittances of overseas Filipino workers (OFWs), equivalent to more than 10 percent of gross domestic product (GDP). World's freest place for business Meanwhile, Hong Kong remained the world’s freest place to do business for the 17th year in a row, the annual survey said. Hong Kong, a former British colony that was returned to China in 1997, edged out regional rival Singapore to claim top spot in the index. The United States lost points while mainland China came 135th in the table. Australia and New Zealand took third and fourth spots respectively. Switzerland, Canada, Ireland, Denmark, the United States and Bahrain rounded out the top 10 freest economies. The criteria for the ranking included economic openness, trade, the efficiency of domestic regulators, and the rule of law. Cuba, Zimbabwe and North Korea were at the bottom of the list. – with Jam Sisante, VVP, GMANews.TV