Institutional quality index 2018

Since the beginning of the current government, the country has climbed 23 places in total, and can continue to climb the table, according to experts; the fight against corruption, an important factor in institutional quality.

After years of losing by a landslide, and a shy resurrection last year, Argentina is again in the race to play in a world cup. And we do not talk about the football championship, which has the Argentinians on the edge of their chairs, but a much more important competition for the future of the country and investments: the World Cup of Institutional Quality, which is the Institutional Quality Index 2018, developed by the economist Martín Krause for Libertad y Progreso, with support from the Naumann and Relial Foundations. The Index, presented in, for the whole region, by Krause, the economist Agustín Etchebarne, the secretary of Institutional Strengthening Fernando Sanchez and the journalist Ricardo Bindi.

After 20 years of decline and a lukewarm recovery in 2017, Argentina recovered 19 positions in the ranking of institutional quality in one year, remaining in 2018 in the position 119. In 2017, the country had already gained four places, which gives Macri the virtue of having won 23 positions in the world ranking of Institutional Quality since he took office in December 2015. Before his arrival, the country had lost 94 positions in 20 years, a record only surpassed by Bolivia, which fell 105 positions in the same period.

“Among the most important positive changes of this year, Argentina reappears, with an improvement of 19 positions, after having left behind the Bolivian model promoted by Cristina Kirchner, which is equivalent to the destruction of institutions, as can be seen in Venezuela, a country that suffers not only from the violation of the most basic rights but also from the democratic principle of choosing a government”, said Krause.

Argentina is the country that best performed in all of Latin America, improving 19 positions, given the lag of the indicators considered, this result reflects the changes that occurred with the new government during 2016. But it is still in position 119, of 191 countries. The quality of political institutions (0.5337) is still higher than that of market institutions (0.2490), having improved almost 0.10 points compared to the previous year in the former, but only 0.06 in the latter. The main improvement has been in the Rule of Law, with 0.18 and the best score among the selected indicators is obtained in Voice and Accountability, an indicator that evaluates the functioning of the democratic system, followed by Freedom of Press”, explained the author of the ICI. Gradualism in economic policy does not yet allow to observe important improvements in the quality of market institutions, although there were some, the persistence of the fiscal deficit, high inflation, high tax pressure and an economy that it’s still quite close to international trade, stops for the moment a greater improvement”, he said.

The Index of Institutional Quality, developed by Libertad y Progreso since 2007 and covering up to 1996, measures the quality of the countries’ institutions, a factor of vital interest for investors. It is prepared by computing in turn eight other renowned indicators that measure Legal Security (Rule of Law), Voice and Accountability, Freedom of Press, Perception of Corruption (of Transparency International), Global Competitiveness, Economic Freedom (indexes of Heritage and Fraser) and Ease of Doing Business (World Bank Doing Business).

In 2018 Index, the first places were for New Zealand, Switzerland, Denmark, Sweden, Norway and Finland, countries that occupy the podium of the quality of institutions for some years. Of this super league of serious countries, Sweden and Norway stand out having gone from 13 and 14 to the first five places. The rest of the club members from the countries with the best institutions and ergo, most attractive when deciding on an investment, are the Netherlands, Canada, the United Kingdom, Australia, Ireland, the United States, Germany, Estonia, Luxembourg and Austria.

According to Krause and Etchebarne, director of Libertad y Progreso, Institutional Quality is not a cute slogan: good institutions translate into better quality of life and wages for the inhabitants of a nation and that is measurable. “There is a clear link between Institutional Quality and quality of life (measured according to the UN Human Development Index), Institutional Quality and income level (measured as GDP per capita), investments, innovation and even environmental quality and Institutional Quality. In all cases it can be seen that the countries with the worst institutional quality are also those that provide the worst opportunities to their citizens and have the worst performance in terms of poverty, education, health or the indicator that wants to look at themselves”, they said.

The fight against corruption improves the quality of institutions

Krause commented on the analysis attached to the Institutional Quality Index 2018, referring to the relationship between Institutional Quality and combating corruption. “Regarding the advances in the Index, the judicial processes in cases related to corruption, now present throughout the Latin American region, could improve the situation of some countries in the raking and, if they do, also impact on the indicator of Respect for the Law; but surely this will take time and the results can also be debatable”, said Krause.

Regarding the best and worst performances in the history of the Institutional Quality Index, Estonia is perhaps the best example of a great rise in the table. After having separated from the Soviet Union and put aside the communist regime, he improved 25 positions to reach the 14th place at the moment. Other stories of positive changes are the Czech Republic (ranked 23, gaining 16 places), Costa Rica (35th, up 19), Poland (36th, up 24), Georgia (38th, grew 87), Slovakia (39th, grew 27), Romania (43th, rose 60), Bulgaria (48th, grew 47).

On the side of the worst students of institutional quality, North Korea repeats the last place, like last year, accompanied by Somalia, Eritrea, Syria, Turkmenistan, South Sudan and, just a little above, one of the black sheep of the American continent, Venezuela.

For Krause Argentina and Ecuador appear as candidates to continue their improvements in institutional quality in the region, as they reflect the changes already made in each indicator and, this being a year of intense electoral activity, there could be other changes that modify the course of certain countries, although, unfortunately, there are no signs that it will be the case of those who are worse off, particularly Venezuela and Cuba. “The case of Venezuela is the most pressing in the entire region. The situation, in terms of quality of life, is almost untenable for the vast majority of the population and the regime is directed to manipulate elections that are an institutional farce that does not hide the true intention of continuing an authoritarian and dictatorial regime that violates the most basic human rights,” said Krause.

According to Krause, you can also see a relationship between the good performance between the political and the economic part of the Index. In other words, countries that have economic and commercial freedom tend to be those that respect individual liberties, freedom of the press and fight corruption more. “The Nordic countries of Europe occupy the first positions in terms of political institutions. Many believe that these are countries with democratic-socialist systems. But it arises from the analysis that is also in the top positions in terms of the quality of their market institutions. For example, the four that lead the political quality, occupy those positions in market institutions: Norway (16), Sweden (11), Finland (12), Denmark (7). The socialism of these countries is a myth, although it is true that they have great welfare states, but also that their cost is a high individual tax burden, but also that the tax burden on companies is lower than in many Latin American countries”, explained Krause.


Full analysis Institutional Quality Index 2018

All historical data from IQI