Malaysia has been categorised as "mostly unfree" by a United States public policy research organisation in its statistical ranking of a number of countries worldwide based on their levels of economic openness.

The survey, titled "2004 Index of Economic Freedom", was conducted by The Heritage Foundation and The Wall Street Journal.

It ranked Malaysia 87 in a list of 155 countries, a position which represents a fall of 15 notches compared to the country's performance last year. Correspondingly, Malaysia made an average index score of 3.2 as compared to last year's 3.0 in a scale between 1.0 (best) and 5.0 (worst).

Clinching the top spot in the index is Hong Kong, followed by Singapore and New Zealand. Bringing up the rear, however, is North Korea, the only country to score a full 5.0.

The ratings reflect the foundation's analysis of 50 different economic variables, grouped into 10 categories: banking and finance; capital flows and foreign investment; monetary policy; fiscal burden of government; trade policy; wages and prices; government intervention in the economy; property rights; regulation; and informal (or black) market activity.

Capital restrictions

According to the country-specific report published on the foundation website , Malaysia received average and below average scores in all categories listed above except for one.

The survey allotted Malaysia top marks for its monetary policy for the "very low level of inflation" recorded between 1993 to 2002 of an average 1.77 percent.

Conversely, Malaysia scored below average at 4.0 for its lack of openness in the banking and finance sector and stilted capital movements.

In the former category, the report said heavy involvement of the government in financial markets through direct policies to strengthen local institutions have reduced competition from foreign banks.

The report also said the government has affected the allocation of credit through its bumiputera policy which provides loans "at reasonable cost" to priority groups.

In assessing capital trends, the report said while Malaysia encourages foreign investment in some sectors - such as high-technology and export-oriented manufacturing, the government "retains considerable discretionary authority in approving individual investment projects".

"Malaysia restricts foreign participation in such sectors as banking, telecommunications and media and requires foreign-owned manufacturing firms with licenses issued before June 17, 2003, to export a certain percentage of their products. The decision-making process in granting foreign investment often lacks transparency."

The report also said that although the government has abolished many "onerous restrictions" on foreign capital flows, all capital transactions are still subject to various limitations and approval requirements.

The single category where Malaysia performed markedly poorer than last year (a drop in score from 3.0 to 5.0) is in the assessment of the government's fiscal burden which measures how much a government taxes and spends.

The key reason for this, said the report, is the large jump in government expenditure between 2001 and 2000 and the fact that the country recorded last year its sixth straight year of budget deficits.

Asia less free

Meanwhile, compared to other countries in Southeast Asia, Malaysia is ranked below Singapore (2), Cambodia (35), Thailand (40) and the Philippines (62).

"The Asia Pacific region became less economically free over the last year. The number of countries placing restrictions on their economies outnumbered those that granted their citizens more liberty.

"Indonesia is among the 10 nations globally where the score has worsened most since the 2003 Index. Its citizens struggle with a heavy burden of government and excessive government intervention, and the government continues to wall off foreign investment and impose wage and price controls," said the heritage foundation in a press release.

On a worldwide level, the survey found 75 countries with better scores, 69 with worse scores and 11 with unchanged scores from last year. Of the 155 countries surveyed. 16 are classified as "free", 55 are "mostly free", 72 are "mostly unfree" and 12 are "repressed".

The foundation also said that in general, countries with the highest levels of economic freedom are also those with the highest living standards.