ANDRES OPPENHEIMER Red tape undermining Brazil's economy

If you ever wondered why Brazil -- one of the world's dozen largest econo-mies -- remains stuck in poverty, a new study by the World Bank offers an explanation as good as any: It's one of the most business-unfriendly countries anywhere.
The study, Doing Business in 2005, released last week, ranks Brazil as one of the countries where it is most difficult for investors to open a business, hire and fire employees, or enforce contracts because of excessive government regulation. In general, this scares away investors, pushes up unemployment rates and promotes corruption, the 145-country study says.
Consider:
UIn Brazil, it takes 152 calendar days to do the legal paperwork necessary to start a business. By comparison, it takes 28 days in Chile, five days in the United States and two days in Australia.
UBrazil, alongside Mexico, is one of the two Latin American countries where it is most difficult to hire or fire employees, which is a major reason cited by companies for not hiring more people. A company in Brazil pays an average of 165 weeks' salary to fire an employee, whereas one in Mexico pays the equivalent of 83 weeks, one in Belgium or the United States eight weeks and one in New Zealand nothing.
UIn Brazil, it takes an average of 566 calendar days to enforce a contract in court proceedings, whereas it takes 305 days in Chile, 250 days in the United States and 60 days in Japan.
UTo close a business through bankruptcy, you need 10 years of court proceedings in Brazil. By comparison, you need six years in Haiti, three years in the United States, one year in Britain and only four months in Ireland.
UIf a business goes bankrupt, creditors in Brazil can only expect to recover an average of two cents on the dollar. By comparison, creditors in Mexico can expect to collect 65 cents on the dollar, in the United States 68 cents, in Britain 86 cents and in Japan 92 cents.
From most charts in the study, it becomes apparent that the countries with the highest standards of living are the ones that are most business-friendly. New Zealand, the United States, Singapore, Hong Kong, Australia and Norway are the world's most business-friendly countries, with the most flexible regulations, the study says.
"This anti-business culture has been one of the biggest obstacles to the country's economic development," Brazil's weekly magazine Veja said in a cover story earlier this year. The cover's title, reflecting the seriousness of the country's red tape epidemic, read: "Why Brazil is not No. 1 in the World."
To be fair, one can't blame Brazil's left-of-center President Luiz Inacio Lula da Silva for his country's red tape. Brazil has been a bureaucratic nightmare for as long as people remember.
Simeon Djankov, the economist in charge of the new World Bank report, told me in a telephone interview last week that much of Brazil's over-regulation may have to do with the country's Portuguese heritage.
"If you look at all the former Portuguese colonies, such as Angola, Mozambique or Brazil, you'll see that the Portuguese administrative and legal systems they inherited are uniformly worse than those of their neighbors," Djankov said.
The Lula government, while over-bureaucratic on other fronts, has submitted a bankruptcy reform bill to Congress that is scheduled to be voted on this month. If approved, "it would be a huge improvement because it can open the doors to a number of other reforms," Djankov says.
The World Bank study makes a good point. While poverty-stricken countries in Latin America need worker protections -- we should not welcome child labor or slave-work conditions -- there is no question that Brazil and many of its neighbors are falling behind Asia and Eastern Europe because of over-regulation.
In the name of workers' rights, populist governments have increased unemployment and poverty. As long as wealthy Latin Americans keep buying condos in Miami or opening bank accounts overseas because they don't dare invest in a big way in their own countries, Latin America will not take off.
X Andres Oppenheimer is a Latin America correspondent for the Miami Herald.