Chile Falls to Lowest Economic Freedom Ranking in Decades

Chile has descended to its lowest position in the Economic Freedom Ranking since 1990, as reported by the Fraser Institute in collaboration with Libertad y Desarrollo (LyD).

The country now occupies the 39th spot among 165 nations, dropping six places from last year’s assessment. This decline reflects a decrease in its score from 7.52 in 2022 to 7.45 in the current report.

Since 2018, Chile’s standing has been deteriorating, moving away from its peak in 2010, when it ranked as the seventh most economically free country globally.

The current ranking uses data from two years prior, capturing conditions in 2022, the first year of President Gabriel Boric’s administration.

The 2024 report evaluated factors such as government size, legal structure and property rights, and currency stability. It also assessed freedom to trade internationally and regulation.

According to LyD’s analysis, Chile regressed in three of the five attributes measured by the Economic Freedom Index. The first concern is the perception that the police have a decreasing ability to combat crime, significantly affecting the business environment.

The second issue involves the costs generated by permitting processes, not only due to delays in granting permits. It also stems from perceived arbitrariness by public agencies like the Environmental Assessment Service and the National Monuments Council.

Chile’s Economic Competitiveness

In credit, labor, and business regulation, Chile showed the most significant decline, dropping from 71st to 81st place. The report notes that this deterioration stems mainly from extensive bureaucracy and delays in approving new investment projects.

Currency stability is another area where Chile fell, slipping four places to rank 62nd. The country also saw a score decrease due to rising inflation in 2022, which reached 14.1% in August over a 12-month period.

This inflation was driven mainly by increased liquidity from fiscal aid and substantial pension fund withdrawals. In legal structure and security of private property, Chile moved from 31st to 33rd place, with its score decreasing from 7.53 to 7.47.

This drop is attributed to a decline in the perception of the country’s ability to fight crime. Tomás Flores, an economist at LyD, explained that public safety considers the perception of the police’s capacity to maintain order.

Challenges and Improvements

The 2024 report indicates that people believe this capacity is diminishing in Chile, affecting the freedom to conduct business. On a positive note, Chile improved in government size, obtaining 7.2 points and moving from 55th to 52nd place.

This improvement is due to the moderation of fiscal spending as a percentage of GDP in 2022 compared to the previous year, which was marked by fiscal aid to address the pandemic.

In terms of freedom to trade internationally, Chile scored 8.56, advancing from 53rd to 31st place. The report mentions that this improvement is due to the removal of travel restrictions for foreigners, initially established because of the pandemic that began in 2020.

Globally, Hong Kong leads the ranking among 165 countries and territories with a score of 8.58. It is followed by Singapore, Switzerland, New Zealand, and the United States.

In Latin America, Panama tops the ranking, followed by Costa Rica and Chile. The countries with the poorest performance are Venezuela (3.02; No. 165) and Argentina (4.55; No. 159).