Ukraine is ranked last out of the 43 countries in the Europe region, in bottom 20% of overall world rankings

U.S.-Ukraine Business Council (USUBC)
Washington, D.C., Wednesday, January 25, 2012

WASHINGTON, D.C. -- For over a decade, The Wall Street Journal and The Heritage Foundation, one of Washington’s preeminent think tanks, have tracked the march of economic freedom around the world with the influential annual "Index of Economic Freedom."

Based on 10 measures that evaluate openness, the rule of law, and competitiveness, the 2012 Index of Economic Freedom ranks economies according to their economic freedom. The principles of economic freedom emphasized in the Index are individual empowerment, non-discrimination, and the promotion of competition.

WHAT IS ECONOMIC FREEDOM?
According to the Index of Economic Freedom publication economic freedom is the fundamental right of every human to control his or her own labor and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please, with that freedom both protected by the state and unconstrained by the state. In economically free societies, governments allow labor, capital and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself.

HOW DO YOU MEASURE ECONOMIC FREEDOM?
The Index measures ten components of economic freedom (see additional listing at end of article), assigning a grade in each using a scale from 0 to 100, where 100 represents the maximum freedom. The ten component scores are then averaged to give an overall economic freedom score for each country.

The ten components of economic freedom are: (1) Business Freedom; (2) Trade Freedom; (3) Fiscal Freedom; (4) Government Spending; (5) Monetary Freedom; (6) Investment Freedom; (7) Financial Freedom; (8) Property Rights (9) Freedom from Corruption; (10) Labor Freedom (see additional information about the ten components below.)

The annual Index also has traditional country pages, so that each freedom in every economy is explained in detail. Every country page includes new charts highlighting the strengths and weaknesses of each economy. Information on Ukraine can be found at (http://www.heritage.org/index/Country/Ukraine).

UKRAINE’S ECONOMIC FREEDOM SCORE FOR 2012
Ukraine’s economic freedom score for 2012 is 46.1, making its economy the 163rd freest [OUT OF 183] in the 2012 Index. Its score is 0.3 point higher than last year, reflecting modest gains in monetary freedom and freedom from corruption. Ukraine is ranked last out of 43 countries in the Europe region, and its overall score is lower than the world average.

According to The Wall Street Journal/The Heritage Foundation 2012 Index the foundations of economic freedom are fragile in Ukraine and unevenly established across the country. Poor protection of property rights and widespread corruption discourage entrepreneurial activity, severely undermining prospects for long-term economic expansion. The rule of law is weak, and the judicial system remains susceptible to substantial political interference.

The report says after several years of strong growth, Ukraine’s economic vitality has deteriorated, partly because of the global economic slowdown and also because of the generally sluggish pace of efforts to improve regulatory efficiency and open markets to international investment. The financial sector is not developed enough to provide the necessary credit for private-sector expansion, and the regulatory environment remains opaque and burdensome. Recent large fiscal deficits have strained public finances, forcing Ukraine to confront the challenge of restoring sustainable levels of public spending.

The various rankings given Ukraine in the 2012 Index of Economic Freedom are as follows:

RULE OF LAW
Property Rights 30.0 (no change)
Freedom From Corruption 24.0 ( +2.0)

According to the 2012 Index the rule of law is uneven across the country, and protection of property rights is weak. The judiciary is subject to executive branch and criminal pressure, and judicial corruption is significant. Contracts are not well enforced, and expropriation is a threat. Ukraine is a major transshipment point, storage location, and market for illegal optical media produced in Russia and elsewhere. Corruption pervades all levels of the executive branch.

LIMITED GOVERNMENT
Fiscal Freedom 78.2 (+0.9)
Government Spending 29.4 (-3.5)

The standard income tax rate is 17 percent, and the standard corporate tax rate is 23 percent. Other taxes include a value-added tax (VAT) and a property tax, and the overall tax burden amounts to 36.9 percent of total domestic income. Government spending has risen to a level equivalent to 48.5 percent of GDP. The budget deficit has been over 3 percent of GDP in recent years, and public debt has reached 40 percent of total domestic output.

REGULATORY EFFICIENCY
Business Freedom 46.2 (-0.9)
Labor Freedom 51.2 (+1.2)
Monetary Freedom 67.7 (+4.5)

Despite progress in regulatory reform, complexity often creates uncertainty in commercial transactions. The business start-up process has been streamlined, but completing licensing requirements is still time-consuming and costs more than 10 times the level of average annual income. The labor code is outmoded and lacks flexibility. The government influences prices through state-owned enterprises. Monetary stability remains weak.

OPEN MARKET
Trade Freedom 84.4 (-0.8)
Investment Freedom 20.0 (no change)
Financial Freedom 30.0 (no change)

The trade weighted average tariff rate is low at 2.8 percent, but non-tariff barriers severely constrain freedom to trade. The investment framework remains underdeveloped, and bureaucratic requirements deter much-needed growth in private investment. The primarily cash-based economy is plagued by a lack of sufficient capitalization. The large number of non-performing loans continues to be a drag on the banking system.

BACKGROUND FACTS - UKRAINE
Ukraine has been independent since the col­lapse of the Soviet Union in 1991. President Victor Yanukovych of the Party of Regions, elected in January 2010, has fast-tracked rapprochement with Russia, harassed the political opposition, and impeded freedom of the press. Russia’s Black Sea Fleet’s naval base lease has been extended until 2042 in exchange for discounted Russian gas.

Parliament has rejected plans to join NATO, but Ukraine joined the World Trade Organization in 2008 and the European Union’s Eastern Partnership in 2009. Ukraine has well-developed indus­try, rich agricultural lands, and significant natural resources. It is also an important route for oil and gas exports from Russia to Western Europe. Corruption and government intervention in the economy continue to undermine economic growth.

Population: 45.5 million
GDP (PPP): $305.2 billion; 4.2% growth; 1.0% 5-year compound annual growth; $6,712 per capita
Unemployment: 8.4%
Inflation (CPI): 9.4%
FDI Inflow: $6.5 billion

THE ROLE OF ECONOMIC FREEDOM
To ready more about what economic freedom means in America and around the world: http://www.heritage.org/multimedia/video/2012/01/the-role-of-economic-freedom.

The Heritage Foundation/U.S.-Ukraine Business Council Report on economic freedom in Ukraine: http://www.heritage.org/research/reports/2011/09/ukraine-needs-an-economic-freedom-reset.

ABOUT THE INDEX OF ECONOMIC FREEDOM
The annual Index of Economic Freedom published by The Wall Street Journal and The Heritage Foundation measures the degree of economic freedom in 183 countries by the following 10 criteria of economic freedom:

• Business Freedom - Business freedom is a quantitative measure of the ability to start, operate, and close a business that represents the overall burden of regulation as well as the efficiency of government in the regulatory process.
• Trade Freedom - Trade freedom is a composite measure of the absence of tariff and non-tariff barriers that affect imports and exports of goods and services. Different imports entering a country can, and often do, face different tariffs.
• Monetary Freedom - Monetary freedom combines a measure of price stability with an assessment of price controls. Both inflation and price controls distort market activity. Price stability without microeconomic intervention is the ideal state for the free market.
• Government Size/Spending - This component considers the level of government expenditures as a percentage of GDP. Government expenditures, including consumption and transfers, account for the entire score.
• Fiscal Freedom - Fiscal freedom is a measure of the tax burden imposed by government.
• Property Rights - The property rights component is an assessment of the ability of individuals to accumulate private property, secured by clear laws that are fully enforced by the state.
• Investment Freedom - In an economically free country, there would be no constraints on the flow of investment capital. Individuals and firms would be allowed to move their resources into and out of specific activities both internally and across the country’s borders without restriction.
• Financial Freedom - Financial freedom is a measure of banking efficiency as well as a measure of independence from government control and interference in the financial sector.
• Freedom from Corruption - Corruption erodes economic freedom by introducing insecurity and uncertainty into economic relationships. The higher the level of corruption, the lower the level of overall economic freedom and the lower a country’s score.
• Labor Freedom - The labor freedom component is a quantitative measure that looks into various aspects of the legal and regulatory framework of a country’s labor market.

The Index of Economic Freedom can be found at: http://www.heritage.org/Index.

The website offers an interactive edition of the Index rankings and scores allowing to rank countries by a specific factor (e.g. how well does one country scores solely in terms of its trade policy); it also allows users to see how economic freedom changed in a particular country or particular region since 1995, when the Index started.