Exclusive Interview: New DNP Head Luis Fernando Mejía Works to Cut Regulation and Streamline Logistics in Odebrecht-Clouded Colombia

Luis Fernando Mejía became the head of Colombia’s National Planning Department (DNP) last month after Simón Gaviria Muñoz stepped down. Despite the new director’s young age, Colombian President Juan Manuel Santos was confident that the 38-year-old he called “a brilliant economist” has the experience and talent to oversee a department vital to government operations and intertwined in virtually every aspect of the country’s economy.

Given that the Santos administration will only be in power until after next May’s new presidential elections, there is much work to be done immediately. So Mejía hit the ground running in his first month and is staying very, very busy from both his Bogotá office and during trips around the country.

On top of the department’s role in planning infrastructure and the nation’s enormous 4G highway and road construction project — and the complications that the region-wide Odebrecht scandal present on that front — Mejía is leading DNP’s regulation overhaul.

Red tape in the country has grown unwieldy over the past two decades. So to cut through the brush, and in line with protocol guiding Colombia’s ambition to join the OECD, the department is evaluating key regulations to decide which can be abandoned due to ineffectiveness or onerous burdens placed on the private sector.

Trade logistics, particularly in terms of speeding up the time for goods through Colombia’s ports, are another high priority. Even compared to other Pacific Alliance countries — Mexico, Peru, and Chile — import and export times can take twice as long in Colombia.

To learn more about these and the DNP’s other objectives, Finance Colombia recently sat with Luis Fernando Mejia. He offered a candid view at the nation’s competitiveness challenges, the cloud of corruption that Odebrecht has created, and the future of regulations in Colombia.

Jared Wade: I know you have been in the agency for some time, but you just recently took over as the head. So to start, can you just explain a little bit about how the overall National Planning Department plan is progressing and what it is that you’re going to be focusing on for the next year?

Luis Fernando Mejía: So let me give you the overall vision of what we’re doing in here at DNP. We’re working on a series of strategies focused on increasing productivity — not only viewed as productivity from the private sector but from the public sector. How to more efficiently execute the budget, especially the investment budget, which is the one we’re in charge of.

Let me mention a few initiatives that are geared towards that main objective of increasing productivity. So first, for example, we have been working on regulation. Regulation impacts competitiveness in a very important way. We did a sweep of the regulations for the past 17 years, and we found that there were about 95,000 regulations issued by the national government.

Jared Wade: That’s 95,000 over 17 years?

Luis Fernando Mejía: Yes, 17 years. That’s about 15 regulations per day. Almost three decrees per day, which are the ones that are signed by the president.

So, that tells you that there is probably a problem of an “inflation in regulation.” And given the huge amount of regulation, there’s probably a question about the quality of the regulation.

“There is probably a problem of an ‘inflation in regulation.’ And given the huge amount of regulation, there’s probably a question about the quality of the regulation.” – Luis Fernando Mejía

So from the point of view of the private sector, having such a high number of regulations that have been issued is going to create a problem in terms of competitiveness. And in the process of ascension to the OECD, we are trying to implement something called a “regulatory impact assessment.”

This means not only looking from the legal point of view in terms of regulation — making sure that the things that we’re issuing are not unconstitutional or against another law — but also making sure that the economic point of view of the regulation is there. We need to make sure that the cost that is imposed upon the private sector is having a benefit.

Jared Wade: So this means looking at something that might have made sense in 1974 — but now there’s no reason for it to still be on the books?

Luis Fernando Mejía: Exactly. So we’re going to implement that starting next year. And in the process of that implementation we’re working with some committees — for example the energy and the water and sanitation commissions — and trying to think about how to implement this. Because, though it sounds very nice in theory, of course the devil is in the details.

So we have been working very closely with the commissions and with some of the ministries. We expect to have, in probably two or three months, the guidelines of how to implement our regulatory impact assessment in Colombia.

We had a white paper in 2014 that said that, by 2018, we have to implement this at the executive level, meaning ministries and commissions — and we’re going to be there. I think it’s very important in terms of increasing productivity.

Jared Wade: Right. I know this is something that the private sector talks about here — and everywhere. It’s something lots of people are talking about in Washington, too. They say this everyday there, right? But logistically, if there is a regulation on the books, how does it actually get repealed? Can the ministries do it or do you have to go to Congress? What’s the process?

Luis Fernando Mejía: It depends. So we’re not thinking about laws, which are Congress-mandated. We’re thinking about regulations, which are typically issued by either the president or by the ministries. It depends on the level. Decrees are signed by the president. Some resolutions, including technical resolutions, for example, are signed by the ministries. So it depends on who issued the regulations.

But what we’re going to do is not only think about the flow of the regulation, which is introducing the regulatory impact assessment, but also using the stock approach, meaning probably using a pareto of the most important regulations issued and thinking about their economic impact.

Luis Fernando Mejia, a 38-year-old who Colombia’s president called a “brilliant economist,” now has his hands full leading one of the government’s most complex departments through a regulation assessment. (Photo credit: Departamento Nacional de Planeación)

Jared Wade: What other areas are you looking at in terms of increasing productivity?

Luis Fernando Mejía: The other thing is that we launched a mission around one year ago about logistics. Logistics is a very “horizontal” issue where a lot of ministries are involved, including the Ministry of Trade, the Ministry of Finance, DIAN, and the police. The police have to control the ports and airports, for example.

“We have complaints from the private sector. For example, DIAN makes an inspection of a container and then the ICA and then the INVIMA. But there’s no coordination, so this is a lot of time wasted in customs.” – Luis Fernando Mejía

There are a lot of institutions involved, but there is not a very coordinated approach. For example, when it comes to risk assessment: What type of merchandise or container are you going to be inspecting? Each institution is thinking about their problem and thinking about how to approach the risk assessment in their own ways.

You have to change the way that the process is being done and thinking in a centralized way — risk assessment in an integral way — to make sure that all the parts involved in the chain are working together. Because we have complaints from the private sector. For example, DIAN makes an inspection of a container and then the ICA and then the INVIMA. But there’s no coordination, so this is a lot of time wasted in customs.

Jared Wade: Is that something that has just kind of developed over time as these agencies have been tasked with new responsibilities? They get tangled over time?

Luis Fernando Mejía: Yes, exactly. It’s just a problem of coordinating and mainly because those institutions are not linked to a particular sector. One of those is in the Ministry of Trade, another is in the Ministry of Finance, and another in the Ministry of Transport.

So, here at DNP, given that we have relationships with all of them, we are in charge of coordinating this mission to have some specific recommendations and guidelines about how to improve the process of logistics. And this is not only thinking about the ports and airports, but also thinking about transportation — all of the logistics chain from the exit point of the manufacturing plant to the port or the airport or wherever the merchandise is sold.

“The estimated time for handling either imports or exports throughout the Pacific Alliance is about three days. In Colombia, that’s almost six days — so double our peers.” – Luis Fernando Mejía

We think that that is going to improve competitiveness a lot. Just to give you a figure, the estimated time for handling either imports or exports throughout the Pacific Alliance is about three days. That’s what it takes for the merchandise to go through the ports. In Colombia, that’s almost six days — so double our peers. I’m not thinking about the U.S. or the European Union. We’re thinking about our peers.

We know we have to make sure that we’re in line with our peers. That’s what I think we’re going to help: making sure that that process is a lot smoother.

Jared Wade: The efficiency of moving goods and transportation is always highlighted negatively when you read reports from the World Economic Forum or the International Monetary Fund. Obviously, in terms of the road infrastructure in Colombia, it is just a difficult country to get around. I think that’s one thing that people do miss when they look from Washington or Brussels. There are 20,000-foot mountains here that make moving around problematic. But the 4G road construction plan is aiming to make improvements. Where are we in that undertaking and how is everything progressing?

Luis Fernando Mejía: Yes, at DNP we’re very involved in some of the steps before the approval of these initiatives. In the 4G, as you probably know, there are three waves with probably around nine initiatives per wave. There are close to 30 initiatives in all, and a little bit more when you include the private initiatives.

I think the first wave has already moved forward in a very important way. It’s not only about making sure that we have the construction sites finalized but also the financing side, which is key for the projects to get started.

“We are making sure that the Odebrecht stuff doesn’t add a lot of noise to the financial closure of the second and third waves [of 4G]. We’re working very closely with the banks and with the investors to leave a message of tranquility.” – Luis Fernando Mejía

We are making sure that the Odebrecht stuff doesn’t add a lot of noise to the financial closure of the second and third waves. We’re working very closely with the banks and with the investors to leave a message of tranquility. There are not going to be any issues at all. Everyone is going to get paid.

The Odebrecht stuff actually was not involved in any of the auctions for 4G. They tried to get some of the auctions but they didn’t win anything. So we’re making sure that the second wave and the third wave have financial closure.

The first wave already had financial closure. The works have already started. We estimate that the three waves are going to each add around a half percentage point of additional growth. So these are very important investments.

Jared Wade: Each adding a half point to annual GDP? So 1.5% by the end?

Luis Fernando Mejía: Exactly, 1.5% by the end. And mainly we’re going to have two impacts. The direct impact — which is the brute force construction that is going add a half point of additional growth.

But we’re also going to have the more long-term, or medium-term, impact of increased competitiveness. This means reduced times of transportation for the container or the merchandise. That’s going to be very important and, I think, that will have an important impact in terms of our rankings in competitiveness from the World Economic Forum and so forth.

Jared Wade: So there will be a short-term boom — at a time when Colombia could use it, with the price of oil being down and things being a little rockier here — and then really we’re looking way ahead to 2030 and 2040 as when the country will still continue to reap more and more benefits of a virtuous cycle?  

Luis Fernando Mejía: Exactly. Exactly. And let me comment again now on the importance of the logistics mission. Because when you think about the 4G, of course this is very important. But the time saved, for example, for a container that goes from Bogotá to Buenaventura or to Cartagena, is about eight to 10 hours. Which is a lot. It’s a lot in terms of gas saved, in times of time saved.

But think again about the number I gave you before of additional time it takes for imports and exports. We’re talking about two or three days of additional time compared to our peers. So the marginal gains of generating more efficiency in the customs process I think are very, very important to close all these 4G and customs processes.

Jared Wade: Right. I mean, you can get from Bogotá to Buenaventura in one day or three days — but if it sits in port for four days, what’s the gain?

Luis Fernando Mejía: Exactly. That’s why we think the logistics mission is very important.

Jared Wade: Getting back to Odebrecht, is that still holding a cloud over some of this stuff, with 4G and just some of the general planning and the concept of corruption and the budget in general? How much is that really impacting you on the ground here?

Luis Fernando Mejía: So let me be very concrete on this. The issue here is more about how the investors and the financiers are going to end up in a contract that is cancelled because of the corruption scandal. So, for example, in Ruta del Sol or the Magdalena River, which still hasn’t been completely proven that there was corruption there, but there’s some cloud about that.

So, when the worker decides to undo the contract, there are some questions from private financiers and private investors about who, and when, is going to get paid. Because they were not involved in any corruption on their part. It was just Odebrecht over there and there were other good-faith financiers that were bringing some resources to give the financial closure. But they did not have anything to do with the corruption.

“The Ministry of Finance is working very closely with the banks in making sure that their process is in order and that any good-faith investor is not going to lose any money. The bad guy has to be punished but the good guys have to get their resources back.” – Luis Fernando Mejía

So once these contracts are undone, there is a question about who is going to get paid and when. And that implies some clarifications in terms of the contract and in terms of the regulation.

The Ministry of Finance is working very closely with the banks in making sure that their process is in order and that any good-faith investor is not going to lose any money. Because, again, good faith should prevail and if any contract is undone because of corruption scandals, well, the bad guy has to be punished but the good guys have to get their resources back.

We’re working on that. I think that’s the thing that’s adding noise to the process, but we’re going to have some very good news on that very soon.

Jared Wade: As far as foreign investment — the banks in New York and Europe — are you still seeing people very interested in getting involved in these kinds of projects?

Luis Fernando Mejía: Yes. Definitely. And that’s part of the job of the Financiera de Desarrollo Nacional (FDN), which is kind of the financing arm from the point of view of the government. The FDN gives some credit enhancements to make sure that, for example, some bond issuances are easier. And what the FDN is telling us is that there is still a lot of appetite from the point of view of private and foreign investors to continue to invest in these 4G projects.

“There is still a lot of appetite from the point of view of private and foreign investors to continue to invest in these 4G projects.” – Luis Fernando Mejía

I think it will actually depend on that. Let me be very frank, because the big magnitude of this 4G investment implies that there are no sufficient allocations of funds from local banks to satisfy the financing needs. So we need the foreign banks and that’s, for example, why have some provisions in dollars to cover for the exchange-rate risk. And again we still see some appetite from foreign investors.

Jared Wade: Yes, as I understand it that one of the reasons why the 4G was structured to have such a public/private-partnership focus. That was very appealing because — and this is not a Colombian thing, but any government that’s leading an infrastructure project — it gets bogged down by schedules and overruns. But when you have these large banks, they tend to be more efficient about things and they’ve done it before in various countries.

One last thing that I wanted to touch on is that obviously things are probably going to change quite a bit in 2018 with President Santos leaving office. So you’re just stepping into this office now and you have about a year. How much of a task is all this? Not everything can done before then, right? Is there an understanding that these initiatives are going to continue into the next administration, no matter which side wins?

Luis Fernando Mejía: Definitely. One of the things about DNP, which is very different from the ministries, is that we have the benefit about thinking long term. The ministries have to think about the new minister who comes in with new initiatives.

DNP has always been a very technical institution thinking about long term. One of the things, and I have to be frank with you, that I may have to do is write down and leave some drafts about the new plan for the new government. That is kinds of what the DNP does. That has always been the case.

We have to make sure the main initiatives are there for the new government plan, and I don’t think the new government is going to renege on things as important as these. These are structural things that we’re thinking about: infrastructure, logistics, plans about land-zone use. Those are things that are completely structural that I don’t think any government is going to consider removing.

Again, DNP has always been a very stable institution, thinking about the long term, and we’re very sure that the new government, whoever it is, will continue these initiatives.

Photo credit: Departamento Nacional de Planeación