San José, Costa Rica, since 1956

Academic Heads Government’s ‘Think Tank’

The appointment of a young Harvard Business School professor to the helm of Costa Rica’s Planning Ministry in April surprised many, who questioned whether an Ivy League academic is ready for the real-world rough and tumble of a key cabinet post.

But the new planning minister, Laura Alfaro, who stepped into office in late May after finishing grading the semester’s student papers, has set high goals for her ministry, aiming to impose greater rigor and efficiency on the public sector. 

In doing so, she’ll aim to streamline processes and work with different entities to push ahead the president’s four-year plan. At the same time, she’s inherited the task of moving the country toward decentralization and preparing for a tax reform. 

The 38-year-old, who grew up in the eastern San José suburb of Moravia, earned a Ph.D. in economics from the University of California in Los Angeles and has taught as an associate professor at Harvard Business School since 1999. In 2008, she was recognized as Young Global Leader by the World Economic Forum.

She sat down with The Tico Times in late September to speak about her decision to return to Costa Rica, her vision for the next four years and why she is convinced that Costa Rica can be Latin America’s first developed country.

TT: Why did you decide to leave your position at Harvard for this post?

LA: I am generalizing, but I don’t think that people from Costa Rica leave (the country) thinking that they will never return. I finished a degree at University of Costa Rica and I was lucky enough to get a scholarship to pursue doctoral studies. … My idea was always to return. This opportunity (to become planning minister) came along and it was an honor to be asked to work for my country and its first female president. I couldn’t say no.

After working in academia, what’s it like shifting to the public sector?

It’s a big transition. I am not going to deny that. This ministry is supposed to be the think tank for the government. So it’s not strange to have an academic (in this role). And if you were to think of an academic in a leadership position, this would be the one.

Is the job what you expected?

I was positively surprised. I think there is a cliché that no one (in government) wants to work. But the quality of the public servants in this ministry has surprised me. They are hard working and motivated. They want to do more. The truth is, they work more than what we pay them for … to the point where I think it’s unfair to have these preconceptions.

Do you find academic ideas applicable here?

There is some academic research that (tells us which) would be the right way to go, but politics get in the way. One example is the decentralization law. Another is the issue with rice subsidies. … You often see that the structures are not the right ones, but the inflexibility of rules in the public sector makes it very hard to fix them.

Do you think that some of these issues are fixable?

Yes, but some will require changing the rules. Some of the structures we have in the central government make it very hard for us to make decisions, and in order to resolve that, you have to change laws. You don’t see that in the private sector.

Do you expect to work on an initiative to change the laws?

We can’t change everything. We need to focus on two or three things that we think are important. At the government level, we need to move toward a tax reform. I think that everything else should take a back seat.

At the ministry level, if you could see one thing through, if you could look back and have one accomplishment, what would that be?

I want to ensure that this ministry is doing more of what it should be doing, which is planning, coordinating and serving as a think tank for the government. Article 16 of this ministry’s constitution says that all ministries should push for efficiency. This is a task that is never done. You never stop being inefficient; you should always aspire to be more efficient. At least if we get a little of that mentality … that we are never done … I would be happy. The problem with this goal is that it is never (accomplished).

How will we know whether the country has become more efficient?

If we go up in the rankings (in the World Economic Forum). What I like about the ranking is that it is relative. If we do nothing, we fall. If we do something, we can still fall. We need to do more than the rest. With this challenge comes a change in mentality. It is not enough that we stay the same. Sometimes it is not even enough to do more.

In what area do you see Costa Rica becoming more efficient?

Making more things digital. Fewer steps. Less paperwork.

What does Costa Rica need to do to become a developed country?

All of the countries that have managed to become developed in one generation have invested a significant amount, not only in infrastructure and education, but also in research and development. We need to increase our capital investment and we also need to become more efficient.

How would you evaluate how things have gone in the past four months?

I was in the United States when the recession hit and I remember going to the shopping malls in Boston and finding them empty. It was somewhat surreal because in Latin America we were accustomed to having these crises, not the U.S. Because some of the policies which the previous government (in Costa Rica) undertook, I think people here didn’t realize the crisis was as bad as it was.

There was a lot of talk when the government’s budget proposal came out about how Costa Rica is in trouble and it will never get back on track, in terms of spending within its means. Do you think that is true?

You can run a fiscal deficit for a period … but you can’t have fiscal deficits forever. There is a point where you need to be a little more prudent. No one lends us developing countries as much as they do to Japan or the U.S., so Japan can have a deficit of 100 percent GDP; developing countries can’t. We are running a deficit, but I think we need to be prudent. Because people didn’t realize how bad the crisis was, it’s a shock to them and they need to adjust. And I think that is the hardest part, asking people to adjust to a crisis they didn’t feel, and they are making sacrifices without understanding why they have to. The other problem is that fiscal deficits are hard to explain. People think that once you are in negative, you can go on forever. But you can’t. You need to be careful because you might find that investors (whose money you are spending) won’t trust you anymore. And where that fine line is can be very hard to know for sure.

And why invest in Costa Rica when it is experiencing a fiscal deficit?

Ironically, when we used to have fiscal deficits, we would collapse, which was the (situation in the) 1980s. This time we didn’t collapse. I think we have learned to manage the fiscal cycles better. This was not a fiscal crisis. We didn’t have the exchange rate collapse and inflation.

How do you respond to accusations that you are blocking efforts to decentralize?

The law that mandates decentralization in the management of the state’s resources is complicated because it is asking us to reform the way that the state works. I think it has been sold as just more money for the municipalities. It’s not. It also includes more responsibilities. And with these responsibilities, we would give money. But we have to give these responsibilities to all the municipalities, not just some, and we have to stop doing those things in the central government. The moment you put it into action, you realize it is very complex because not all municipalities have the same capacities.

We need to find that responsibility that all municipalities need to take at the same time and the central government can stop doing. With the additional fact that we need to get rid of the workers in the central government, and those numbers are huge. And this is the part that complicated things a little more: we are supposed to start by giving municipalities 1.5 percent of the (government’s) budget until we arrive at 10 percent. Just to give you a sense, my ministry’s budget is 0.1 percent.

Since there are municipalities like San Antonio de Belén that are far ahead of others such as Siquirres or Guápiles, why can’t decentralization start with those that are more advanced?

I think this is why people thought this would be easy. The law mentions that you can do it gradually, taking into account differences. However, there have been pronouncements by the Constitutional Chamber of the Supreme Court, which says this is a true reform of the state. You have to stop providing government services in the central government and you have to start doing it with the municipalities. But there is another reason you can’t (continue to provide services) at the central government. You are giving away the money. … If you give the municipalities all the money, but you also continue to do it in the central government, you are going to have serious fiscal chaos because you are going to start duplicating spending. And these levels of spending aren’t trivial; 1.5 percent of the budget is the Foreign Trade Ministry, Foreign Ministry, the Economy Ministry and my ministry, combined. If you add them up, you don’t get to 1.4 percent. The moment you realize this is what the reform is really about, (then) you realize why it cannot be done.

So decentralization can’t be done?

We need to find that responsibility that (the municipalities) can all take at the same time. Because if we don’t think this process through, we are going to reduce the quality of public goods to the people in Costa Rica. We are doing studies. We asked for information from the municipalities, asking them what they think they can do. And we are getting some very honest feedback. I think it needs to be done the way we say in Spanish, “The way you eat fish … very carefully.”

What would you like our readers to know about Costa Rica and the next four years?

That we are investment grade (laughing).

No, maybe that this ministry is a little hard to understand. It cuts across other ministries, but it has an important role. If we do a little more of what we should be doing, we can help in improving efficiency, planning and getting things done a little more efficiently. There is a saying that goes, you only miss oxygen when it is not there. This ministry is like oxygen. It is very hard to see how it works, but it is easy to see when it is not working.

With everything that is going on in Costa Rica – with it making the U.S. list of drug nations and issues with security – why is it still a good place to invest?

Relatively speaking, we are less violent than some countries. And the list is interesting because most of the drugs are going to the U.S., but it doesn’t make the list. Some drugs do stay here, but the aim (of the traffickers) is not Costa Rica, the drugs are going to the true drug (consuming) country, which is the U.S.

If I can send a message to the Gringo community, I think it would be that the U.S. needs to come to terms with the way they are trying to solve (the drug problem). The only thing they are doing now is moving the drugs to another country. If you help Colombia, they are going to move to Mexico, and if you help Mexico, where are they going to move next? And why do they move? Because the demand is still there. And the fact is, when you are successful, it makes it even more worthwhile for distributors to get in the business. Because when you are successful, what happens to the price? It goes up. This is Economics 101. If you go after production, price goes up. If you go after consumption, price goes down.

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