San José, Costa Rica, since 1956

Costa Rica economy ‘on track,’ Vice President Liberman says

From the print edition

Luis Liberman came to the second vice presidency of Costa Rica by an unusual route: an outstanding banking career in the private sector. 

Liberman, 65, started from scratch in the late 1970s by getting a group of prominent businessmen to invest in Banco Interfin, a finance company that he ran as general manager. Under Liberman’s leadership, Banco Interfin grew during three decades into Costa Rica’s biggest private bank. 

In June 2006, Scotiabank bought Banco Interfin, which had $1.6 billion in assets. Liberman continued as general manager of Scotiabank for another year, and then resigned to join Laura Chinchilla’s successful presidential run. 

With a doctorate in economics from the University of Illinois, Vice President Liberman coordinates President Chinchilla’s economic team. He is married with three adult children and a grandfather, and lives in the southwestern suburb of Escazú.

The Tico Times caught up with Liberman Monday at Casa Presidencial to talk about job creation, the fiscal deficit and challenges facing the Chinchilla administration.

Excerpts follow:

TT: Mr. Liberman, my point of departure is that Costa Rica is economically stable and should continue with stability until the end of the Chinchilla administration.

LL: I hope this is so. Unfortunately, with Costa Rica so dependent on its export markets, we are very vulnerable to world economic stability, which right now depends on how the euro, and to a lesser extent the dollar, evolve. If the euro muddles through without major market disruptions, then yes, we should have continued stability. But this situation is out of our control, and I won’t venture a guess as to what will happen with the euro.

So aside from the euro threat that Costa Rica can do nothing about, how do you see the economy?

We are on track for the economy to grow 4.5 percent this year, which is pretty good. Exports are up 12 percent, and service exports [increased by] 15 percent on a year ago. I’m especially encouraged that construction is coming back on a much healthier basis than in the 2006-2007 bubble years. Back then construction was driven by foreign sales, with developers building based on foreign commitments to buy Costa Rican properties. Now, there are several big hotel projects funded the old-fashioned way, with developers bringing their own money in and not dependent on foreign-purchase commitments. 

Construction is only growing at about a 4 percent rate, but it has all kinds of linkages to suppliers and tourism, which make it a very high-powered employment generator. Employment is something we really focus on in the government. Last year, we generated 90,000 new jobs, but a lot of that went to offset the 80,000 jobs we lost in the 2009-2010 crisis. 

Employment is a permanent challenge, because Costa Rica needs to generate 95,000 new jobs every year just to keep up with the number of young people who enter the workforce. So, even though I’ll take a 4.5 percent [gross domestic product] growth rate, I’d like to bump that up another point or point and a half to generate all the jobs we need.

What will be this government’s way forward on the fiscal deficit front, in view of the tax-increase bill that’s now dead in Congress?

There’s a misperception that the fiscal reform we attempted consisted only of the tax package. That was one of four reforms we presented, and we are going ahead with hopes for success with the other three. The first of these is a law to rationalize and contain public spending, the second is a law to strengthen income tax and customs tax administration, and the third is an authorization for U.S. dollar international bond market issues as a tool for managing the government’s debt.

A recent Bloomberg-Newsweek article stated that you were leading the government team to put together a bond issue for $4 billion.

Yes, that is falling into place surprisingly quickly. Two weeks ago, I made a presentation on Costa Rica at a meeting of the Emerging Markets Trade Association and was surprised by the interest in a Costa Rican issue. Costa Rica has not sold international market bonds since 2004.

$4 billion is really big for Costa Rica. Doesn’t this present potential problems of downward pressure on the colón-dollar exchange rate?

Not really. What we are proposing to the Legislative Assembly and to investment bankers for the bond issue is an authorization for up to $4 billion, but for bonds to be issued over a 10-year period with a maximum of $1 billion in any given year. The minimum practical amount for any single sale of bonds will be around $500 million, so if the government wants to stretch the issuance out, they could do eight $500 million bond issues over the next 10 years. 

I don’t anticipate significant funds from sale of these bonds being changed into colones, so they shouldn’t generate exchange-rate pressure. Bond-sale proceeds mostly will be applied to refinance existing foreign debt. International bond market rates are very low right now, and Costa Rica qualifies to issue in a favorable emerging-market bond sector rather than as a high-rate “exotic.” The rate for 10-year emerging-market bonds is now around 5 percent, so under present market conditions Costa Rica has a chance to lock in a very favorable rate for 10 years.

Focusing on a very prominent problem for this government, what is being done about the 1856 Road project [the problematic highway paralleling Costa Rica’s San Juan River and northern border, started under presidential emergency decree in March 2011]?

The big change is that the project is now being built by MOPT [Public Works and Transport Ministry]. MOPT will contract

some of that work with private construction companies, but now under full government tendering procedures. There’s something the public is unaware of regarding this project, which is that it’s not just the 160 kilometer parallel to the river. An integral part of the project has been the rehabilitation of more than 400 kilometers of access roads to the river highway itself. So the project is really an opening of access to the entire northern quadrant of Costa Rica.

What about the crisis at the Costa Rican Social Security System, or Caja, which with 45,000 employees and more than $4 billion in assets is the largest company in Central America?

The Caja has its own funding and administration and is very autonomous from the central government in how it is run. Fixing it will be a long-term proposition. They’ll have to start with controlling costs and implementing more effective collection of their payroll taxes. 

The Costa Rican Electricity Institute, or ICE, has just shown operational losses. How concerned are government officials?

I think ICE can handle its problems. They have strain on their cash flow because they are investing in big projects. The Reventazón Hydroelectric Project alone is $1-1.4 billion, and they also have the Diquís project and a lot of expansion of the power grid.

Where they have had most difficulty is with the cellular phone [market], which has recently been opened up to competition. But in ICE’s case, I am heartened by the experience of the Costa Rican state banks. Remember, they once had a monopoly on deposits. When this was abolished and private banks started to compete, state banks went through some rough years. But they adapted to the competition, and today are much better banks as a result. I think ICE will go through a similar process with cellphones.

What accomplishments can the Chinchilla administration point to on the social font?

First of all, security. Despite all of the media’s crime coverage that leads people to think otherwise, we have brought down crime rates where crime used to hit hardest: poor, urban neighborhoods. Nothing fancy, just more cops on the beat, and more and better equipment. Under our FODESAF payroll tax social fund, we continue to develop our care network for children and elderly people at risk. 

In education, we are on track to develop 90 vocational high schools over four years of this government. We consider these as very good social-development tools because they make young people immediately employable without a college degree. Our AVANCEMOS program of subsidizing poor students to keep them from dropping out of school is making headway on that problem. 

And, finally, we are building 10,000 homes for poor people per year, which we consider a good contribution under a program that we wish was much bigger.

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