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OECD links growth to judicial efficiency in Brazil

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A study by the Organization for Economic Cooperation and Development (OECD) suggests that Brazil needs to reduce judicial inefficiency and uncertainty in order to boost economic activity and overcome the current deep recession caused by Covid-19.

The survey conducted by economists Jens Matthias Arnold and Robert Grundke emphasizes the need for Brazil to increase competition, further integrate into the world economy, improve the structure of financial intermediation, simplify the tax system, solve infrastructure bottlenecks, and improve the efficiency of the justice system.

In the case of the judiciary system, the study notes that the duration of proceedings has strong links with economic growth. A well-functioning judicial system is key to economic activity and productivity. It points out that the average time required to resolve civil and commercial cases in Brazil is 900 days compared to less than 100 in the Netherlands, for example. The law is often considered overly complex in Brazil.

Brazilian companies face difficulties in enforcing contracts because of the significant discretionary power of judges and the great heterogeneity of judicial decisions. This translates into high legal uncertainty and creates disincentives for investment, the study adds.

Bankruptcy proceeding are also considered less efficient and more costly than in OECD members. A typical insolvency case takes four years in Brazil compared to 1.8 year in developed countries. Since the assets of companies in bad shape tend to lose value quickly, the debt recovery rate in Brazil with bankruptcies is only 18 cents per dollar, compared to 68 cents in rich countries.

Another finding is that Brazil spends more money on its Judiciary branch than other countries, while the...

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