Share This Page

Latin America's contracts lament

| Saturday, Nov. 9, 2013, 9:00 p.m.

There are many reasons why potentially rich Latin American nations are growing at a slower pace than their Asian counterparts. But one of the least-noticed factors is that residents might grow old before being able to enforce a business contract in many countries of the region.

A new study by the World Bank and the International Financial Corp. provides a ranking of the world's countries with the most cumbersome litigation systems. It shows that it's easier to enforce a contract between two domestic private businesses in Communist China or corruption-ridden Russia than in Brazil, Mexico, Colombia, Argentina and virtually any other Latin American country.

And judging from what its authors told me recently, that's one of the key reasons why many Latin Americans refrain from doing business or why they choose to do business in the underground economy. Court proceedings in commercial disputes are so lengthy, complicated and costly that they discourage business, they said.

Consider some of the findings:

• When it comes to ease of enforcing contracts, the survey ranks Russia as number 10, China 19, Argentina 57, Chile 64, Mexico 71, Venezuela 92, Ecuador 99, Peru and Uruguay 105, Panama 127, Brazil 121, Colombia 155 and Honduras 182.

• The average time it takes to enforce a contract is 270 days in Russia, 406 days in China, 426 days in Peru, 480 days in Chile, 590 days in Argentina, 610 days in Venezuela, 725 days in Uruguay, 731 days in Brazil, 1,288 days in Colombia, and 1,402 days in Guatemala. The exception to the rule is Mexico, where it takes 400 days, it says.

• The average legal fees to enforce a contract amount to 11 percent of the contract's total value in China, 13 percent in Russia, 16 percent in Brazil, 20 percent in Argentina, 29 percent in Chile, 31 percent in Mexico, 36 percent in Peru, 44 percent in Venezuela, 48 percent in Colombia, and 50 percent in Panama.

The cost and length of settling commercial disputes is not only slowing down economic growth in Latin America but is also pushing millions of entrepreneurs into the shadow economy.

It's no coincidence that 56 percent of Latin America's people work in the underground economy and don't pay taxes, according to Inter-American Bank figures. If a contract can't be enforced, why bother signing one?

Perhaps several Latin American leaders should send their justice ministers to visit Singapore, South Korea and Malaysia, and see what these countries have done lately to shorten their commercial litigation backlogs.

Andres Oppenheimer is a Latin America correspondent for The Miami Herald.

TribLIVE commenting policy

You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.

We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.

While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.

We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers

We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.

We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.

We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.

We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.