RIO DE JANEIRO, BRAZIL – Emerging from the current deep recession caused by Covid-19 will call for a stronger productivity growth in Brazil, and reducing judicial inefficiency and uncertainty is key to boosting business activity in the country, suggests a study published by the Organization for Economic Cooperation and Development (OECD).
The study conducted by economists Jens Matthias Arnold and Robert Grundke emphasizes the need for Brazil to increase competition, achieve greater integration with the global economy, improve financial intermediation structure, simplify the tax system, solve infrastructure bottlenecks, and improve the efficiency of the judiciary.
Lengthy proceedings
In the case of the judiciary, the study notes that the length of proceedings is strongly linked to economic growth. A judicial system that functions effectively is key to boosting economic activity and productivity. In this context, it confirms that the average time required to settle civil and commercial cases in Brazil is 900 days, compared to less than 100 in the Netherlands, for instance. The law is often considered overly complex in Brazil.
Brazilian companies face challenges in enforcing contracts due to judges’ significant discretionary power and great heterogeneity in judicial rulings. This translates into considerable legal uncertainty and creates deterrents for investment, adds the study.
Insolvency proceedings in the country are also considered less efficient and more costly than in OECD members. A typical insolvency takes 4 years in Brazil, compared to 1.8 years in developed countries. Given that the assets of failing companies tend to quickly lose value, the debt recovery rate in Brazil with insolvencies is only 18 cents per dollar, compared to 68 cents in rich countries.
High spending vs. slow solution
Another finding is that Brazil spends more on its judiciary than other countries, but the resolution of cases is slower. In Brazil, almost 80% of the judiciary expenses are related to personnel, compared to 65% in developed countries. Spending on information and communication technology has decreased in Brazil and increased in other countries.
Salaries, benefits, and other perks are high in the judiciary, leading to an average monthly cost of US$12,000 (R$66,700) per judge in 2018, plus 70 vacation days. Concurrently, accountability in the case of poor performance or misconduct is almost non-existent.
According to the document, a solution to improve the efficiency of the Brazilian judiciary may be to link promotions and salaries with their alignment with prior case law, that is, by following precedents from similar cases. It also considers that the possibility of enforcing judgements after the first appeal would reduce the bottleneck in the system.
Brazil also seems to have far more litigation than developed countries. The number of attorneys in the country has increased 400% since 1991. There were 5 attorneys per 1,000 inhabitants in 2017, compared to 1 per 1,000 in France. This is attributed to the profession’s “high privileges” in Brazil.
Source: Valor