Doing Business Blog - The World Bank Group

Panama: Modernizing the Judicial System

Panama's economy grew by a historical 11.2% in 2007 (according to the Economist Intelligence Unit). This is mainly due to a boost in the financial and construction sectors, tourism and the commercial expectations placed in the ongoing expansion of the Canal. The institutional framework, nonetheless, still lacks efficiency. It takes 686 days to solve a simple commercial dispute in court in Panama, in line with the backlog observed in the Latin America & Caribbean region. One might think that, with strong economic activity, the number of disputes would increase in Panama, leading to an even longer delay in the judicial system.

But Law 15 of 2008 might easily reverse this assumption. It all started 2 years ago with a devastating fire in the Maritime Courts in Panama City, where thousands of files were destroyed. Since every cloud has a silver lining, a discussion started to install a more efficient and secure judicial system. The result is Law 15, which introduces several important developments.

Honduras: Modern Property Registry System

Let’s imagine that you want to buy and register a warehouse in the industrial area of the city of Comayagua, in the north-west of Tegucigalpa, Honduras. Suppose that you have identified the owner.

First, you have to travel to Comayagua and visit the registry’s office. You have to check if the house is registered under the name of the person who claims to be the owner. It is also recommendable to check for any encumbrances (lien or restriction on use).

Second, you might also visit the office of the cadaster located at the Municipality to check the map of the property and cross-check its size and boundaries with the information obtained at the registry.

This is a costly process. But luckily, this is no longer necessary. Due diligence can now be done on-line from any computer in the world. The city of Comayagua was a pioneer in integrating the register and cadastral information on a single digital support ten years ago. The same reform is currently being introduced in Tegucigalpa.

Oral Justice

I just came back from a visit to Bogota. The Doing Business reform team (see picture) was there this week to learn about progress with business regulatory reforms in Colombia. Several positive reforms are taking place: in trading across borders, in registering property, in taxes, and in enforcing contracts.

The most impressive reform is happening in the courts. The main feature is moving to oral presentation of evidence in commercial (and other civil) disputes. This is done to reduce delays. If reforms in other countries like Mexico (2005) and Georgia (2007) are any indication, Colombian litigants are in for a major improvement.

What's the big deal? Well, now every piece of evidence has to be presented to the judge in writing. Each party to the commercial dispute writes and submits to the judge and their opponent. They, in turn, take time to read and respond. And so it goes.

Who came up with such crazy system? The Spanish colonizers. But that's another story.

Chinese Tales

Andres Oppenheimer's latest book, Chinese Tales, advances a basic proposition: Latin America is falling behind the rest of the world in competitiveness. He gives many examples, from the declining share in global trade to the rapid relocation of the headquarters of many Latin American businesses to Miami.

I am reading the book while on vacation in Fort Lauderdale, Florida. Oppenheimer's argument is especially obvious in this city. Here is how.

This is my first visit to Fort Lauderdale and I was surprised to see the big build-up in hotels and housing. Ever the economist, I have been asking around why. The answer: Miami is getting very expensive and vacationers and retirees are moving looking further north. Only a 20-minute drive from Miami, Fort Lauderdale is benefiting from this migration. There is a new Hilton (I am staying here and like it), new Sheraton, and a nearly-completed Trump Tower. Many new condo buildings too.

What’s the Best Minimum?

It depends. However, when it comes to paid-in capital requirement the best minimum is zero. 75 economies in the Doing Business sample of 178 agree with this statement. Nevertheless, the rest do not and impose minimum paid-in capital requirement of up to 36 times the income per capita of the country. However, at least one of those 75 economies is now considering imposing a minimum paid-in capital requirement – Antigua and Barbuda.

Antigua and Barbuda currently has no minimum capital requirement. That is, the shareholders decide on how much to invest initially in the business, depending on the industry and banking financing requirements. However, the Company Registrar feels this solution is not optimal because it promotes the creation of fake companies and it does not provide enough protection to creditors. Consequently, there is a request from the registrar to raise the paid-in minimum capital requirement to EC$ 100,000 (over USD37,000 and over 3 times Antigua and Barbuda’s income per capita). Will this be a step forward?

Colombia: “We Can Do Better”

“We can do better” was Colombian President Alvaro Uribe’s favorite phrase during the launch of Doing Business Colombia 2008 on January 30 in Bogota.

He is right. During the event, the results of the sub-national study that compared the ease of doing business in 13 cities in Colombia showed that smaller municipalities like Pereira, Manizales or Bucaramanga are doing better than Bogota, the city that represents Colombia in the global ranking.

Bogota does not lead in any of the 5 indicators covered in the Colombian study (starting a business, registering property, paying taxes, trading across borders and enforcing contracts). And, in the case of enforcing contracts it ranks last. For example, in Bogota 1,354 days are needed to resolve a commercial dispute, whereas only 422 days are required in Villavicencio.

This is why, encouraged by the findings of this report, the Colombian government started an initiative lead by the National Planning Department, the office of the High Commissioner for Competitiveness and the Ministry of Commerce, Industry and Tourism, to improve the business environment across the country.

Wiring Willingness With Results

Russell “Stringer” Bell was a kingpin who after amassing a considerable fortune from drug trafficking wanted to start a legal business. He decided to become a real estate developer. However, he was very surprised –and upset- when it become clear to him that dealing with the local authorities was even harder, more time consuming and inefficient than dealing with his former cronies. Although this story is from the acclaimed HBO series “The Wire,” complicated bureaucracies in the construction sector are not something found exclusively on TV.

In June 2006 the Personería Urbana (an independent local agency that protects “public interests”) of Bogota had a meeting with all the urban curators (private functionaries with public responsibilities -i.e. dealing with construction licenses) of the city. After the gathering, the curators committed to a 6-month timeline for increasing the efficiency of the services they provide.

The Argentine Opportunity

On Monday December 10th Cristina Fernandez de Kirchner took office in Argentina as the first directly elected female president of the country. This event marks the first of many. It is one of the few times, since democracy was restored in 1983, that the presidential transfer is done at the set time. On most other occasions, the leaving President resigned before the end of his mandate. It is also the first time ever that the power transfer occurs between a husband and wife.

After an impressive economic and social recovery only a few years after the 2001 crisis that hit the country hard, Argentina’s agenda is still a laundry list of to do items. The big question on many Argentine minds is: will Cristina represent lackluster continuity or will she push the country forward, closer to that ever-lasting dream of fulfilling Argentina’s grand potential?

Who Wouldn't Want a 6 Hour Work Day?

On Sunday, December 2nd, 8.8 million Venezuelans were out voting to decide whether to change 69 of the constitution’s 350 articles. 4.5 million people, or 50.7 % of voters rejected this proposal. Some of these proposals related to employment.

Venezuela has been a negative reformer for the second year in a row according to the Doing Business report. Its regulatory changes have made it more complicated to do business. Venezuela dropped 10 positions in the 2008 Doing Business rankings, now at 172. After having delayed the importation process last year by 16 days, this year Venezuela added documentation requirements to export leading to an increase in time from 18 to 30 days; in addition they increased the number of payments and total tax rate.

Already one of the countries with the most rigid employment regulations, Venezuela extended its prohibition on dismissals to workers earning up to 3 times the minimum wage. The result is a loss of job opportunities: the Venezuelan economy has lost about 850,000 jobs in small businesses since 2002.