Trade and Commercial Law Assessment - Honduras - Economic ...

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TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004 HONDURAS In response to these issues, major reforms in the area of real property are currently being implemented. The enactment of the Property Law, or Ley de Propiedad (LdP), which entered into force on June 29, 2004, and a $25 million interest-free loan from the World Bank to support real property rights, along with other initiatives geared at securing property rights, each warrant monitoring and support over the years to come. The primary purpose of the LdP is to rationalize the country’s property system by recognizing settlers’ rights, resolving title disputes, and modernizing the Property Registry. The law includes the creation of a new entity in charge of property matters, Instituto de Propiedad, which, as early as January 2005, will have authority over real property registration and the national cadastre map. This new law creates a transition period during which information from current registries will be transferred into the new system. The World Bank’s credit to Honduras was issued in February 2004 for the purpose of expanding access to formal land titling, surveying, registration, and conflict resolution mechanisms, as part of an integrated and decentralized land administration system. Called the Honduras Land Administration Program, the initiative is designed to support an integrated and decentralized land administration system that provides users with accurate information on urban and rural land parcels, as well as effective land administration services in a timely and cost-effective manner. The project specifically aims to benefit poor and non-poor urban and rural property owners in the departments of Choluteca, Comayagua, Cortés, and Francisco Morazán and to expand access to land titling and administration services to indigenous and Afro-Honduran populations on the Atlantic coast. Specifically, under the auspices of the World Bank, Honduras recently initiated a project to automate, consolidate, and make public all property information. The project, Proyecto de Administración de Tierras de Honduras (PATH), has a duration of 12 years. PATH is meant to strengthen the Instituto de Propiedad and contains an experimental project to create a unified system of registration. This system, called Sistema Unificado de Registro (SURE), will be accessible online. With the new system, a data query, which previously took 6 to 9 months, was completed in 1 minute. Under PATH, it is expected that property information, currently dispersed among 26 entities, will be consolidated and accessible through SURE within 4 years. The implementation of both the legislative reforms and the World Bank programs not only impact the real property market per se but also affect the extent to which businesses and individuals will be able to access capital in the future. The LdP aims to reform not only the Real Property Register and cadastre system but also the existing registry for movable property. Implementation of the LdP will make important demands on lawyers and the judiciary, who will need to recognize its authority and understand its provisions and impact. The willingness and ability of the judiciary to administer the LdP will directly affect the way that banks assess risk in the future, and thus will ultimately affect whether and to what extent capital is made more accessible in Honduras. Vigilant donor monitoring and support will contribute to the realization of the goals of these property reform initiatives. Indeed, new reform programs pertaining to commercial law, support for SMEs, or rule of law and governance generally should be fully in step with these propertyrelated initiatives already in progress. New programs should leverage resources and recognize II-2
TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004 HONDURAS the importance of avoiding duplication or conflict of effort. Properly implemented, these initiatives can serve as a model for other countries in the region and beyond. B. URGENT NEED FOR JUDICIAL REFORM In virtually every section of this report—contracts, collateral, real property, bankruptcy, flow of goods and services, and others—the difficulty of the Honduran courts to facilitate the prompt resolution of commercial disputes and the enforcement of its own judgments is identified as a problem. The many aspects of this issue include a low degree of confidence in judges, inefficiency and sluggishness of court processes, and a lack of significant automation in the courts. In Honduras, more resources should be devoted to improve training opportunities for judges. Further, the lack of a career judiciary makes it more difficult to develop competence over a significant period. There is a judicial school under the authority of the Supreme Court, but its courses need updating. Currently, reliable information transfer from local registries for use by the courts is relatively slow and bureaucratic. This impacts the degree of confidence that lenders will be able to enforce debts. In some instances, the use of collateral may be so restricted that even entrepreneurs with sound business plans could have difficulty finding access to capital. Until the commercial community in Honduras trusts that the courts are capable of affording remedies in the event of defaults on loans and breaches of contracts, there will be fewer loans and fewer contracts than the market could otherwise support. In short, the great risks involved in extending credit or engaging in an arms-length transaction will result in less economic activity and less growth. Even the development of ADR mechanisms will be affected if decisions are not handed down in a clear and efficient manner, and if such delays erode confidence that parties can enforce ADR agreements and awards. Thus, future programs in commercial legal and institutional reform need to address the judicial component of this issue. Addressing this element would include leveraging the resources of existing court reform programs to emphasize the relationship between court reform and economic growth and, where gaps remain, formulating technical assistance efforts that do the following: ♦ Develop a commitment to professionalism, competence, and integrity among judges through support for professional organizations, continuing education in skills pertaining to judging, and increased judicial independence ♦ Improve the commercial capacity of courts through administrative and automation processes that make the process of dispute resolution faster, more predictable, and more transparent ♦ Train judges in areas pertaining to commercial activity, particularly with respect to modern types of commerce and newer laws, such as competition law, potential laws pertaining to modern contracts or electronic commerce, and laws concerning money laundering II-3
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