#DevTalks: Economic Policy During COVID-19 in Peru - Addressing Old and New Challenges

The Growth Lab's "Development Talks" is a series of conversations with policymakers and academics working in international development. The seminar provides a platform for practitioners and researchers to discuss both the practice of development and analytical work centered on policy. In this seminar, María Antonieta Alva, Former Minister of Economy and Finance in Peru, will discuss the challenges of implementing economic policy in Peru during the COVID-19 pandemic.
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Patricio Goldstein: [00:00:05] Hi, welcome, everybody, to the Growth Lab's new Development Talks series, thank you all for being here. My name is Patricio Goldstein and I'm a research manager at the Growth Lab program at the Harvard Kennedy School. And I'll be moderating this session called Economic Policy During COVID-19: Addressing Old and New Challenges with Maria Antonieta Alva, Former Minister of Economy and Finance of Peru. We're very happy to have Maria Antonieta with us today. But just before I introduce her, let me tell you a bit about where we are today for those that joined us from the web. Development Talks is a series of conversations with policymakers and academics working in international development, organized by the Harvard Growth Lab. In case you didn't know us, the Growth Lab, based at Harvard University's Center for International Development, is a research program led by Professor Ricardo Hausmann, who is also joining us in this session, working to understand the dynamics of economic growth and to translate those insights into more effective policymaking in developing countries. This Development Talks seminar provides a platform for practitioners and researchers to discuss the practice of development or analytical work centered on policy. The seminars take place on a bi-weekly basis. If you want to stay up to date with our research and then you can visit our website or follow us on social media or sign up to our quarterly newsletter. More information can be found at www.growthlab.cid.harvard.edu. Also would like to invite you to attend our next Development Talks seminar in two weeks time with Dr. Antoinette Sayeh, deputy managing director of the IMF. [00:01:37][91.7]

Patricio Goldstein: [00:01:37] Now, without further ado, I would like to introduce today's speaker. Maria Antonieta Alva served as Minister of Economy and Finance of Peru from 2019-2020. Before Maria Antonieta served as minister she had worked in public administration for more than 10 years. She was Director General of Public Budget at the Ministry. And before that she worked in various positions not only in the Ministry of Economy and Finance, but also in the Ministry of Education and the Ministry of Development and Social Inclusion. Also worth noting for our Kennedy School audience, Maria Antonieta has not only BA in Economics from Universidad Pacifico, but is also a graduate from the Master of Public Administration and International Development at the Harvard Kennedy School. We are honored to have her today. [00:02:21][43.8]

Patricio Goldstein: [00:02:22] The format for today will be the following: I have a couple of questions here to kickstart the conversation and then we will take some questions from the Growth Lab team. And finally, if we have some time, we will open up for questions from the broader audience. If you have questions you would like to ask Maria Antonieta and I will ask you to please sign them in this Q&A button that appears right below in the Zoom window as well as your name, affiliation, and country so we read it out loud and we'll keep some of these and ask Maria Antonieta. [00:02:50][27.7]

Patricio Goldstein: [00:02:51] So now that we have a full house, let me just start. So Maria Antonieta, Peru has shown an exceptional economic performance over the last two decades, resilient to global headwinds such as the global financial crisis and the end of the commodity supercycle. Nevertheless, as the COVID-19 crisis hit Peru, the country has suffered major economic losses amongst the highest in the Latin America region and has particularly struggled containing the spread of the virus. More recently, the recent polarized election after four presidents in the last five years has shown significant democratic malaise. I want to take this opportunity to ask in this context my first question. Do you think the Peruvian economic model has been a success so far? [00:03:38][47.4]

Maria Antonieta Alva: [00:03:41] Hi, I'm very glad to be here, so first I want to... because what we have here, people from different countries, when we talk about the Peruvian economic model, maybe I am oversimplifying but I think that we need to consider that this model has three major components. First is the macroeconomic stability management, a huge compromise with discipline in the public finance management. The second is an open economy to trade, and the third is a proactive promotion to private activity. So I think that to be fair, I think that the model has concrete results, but the results of the last elections show that the model has its limits. If we just think about economic growth, I think that it's a model very dependent on commodity price and we have not fostered sectors with high value added. So, for instance, in Peru, the agro-experts boom this miracle that they call about the export sector is more an exception than a rule. To the model, I think that there are three major limitations. First is that notion and this really probably is not specific to the model but I think to the common understanding that we have to advance I think that's the first a limitation is that there is an idea that economic growth was sufficient. What we goal in Spanish 'el chorreo economico'. Definitely the economic growth of the country in the last years has not been inclusive and there was a huge incapacity of the state to distribute wealth. We always see that we have this circle where you have economic growth that brings high tax revenue and this should be translated into better public services for citizens. But that is not the reality in Peru because the state has a huge incapacity to deliver concrete results to the citizens and think that's what we have seen in the last COVID crisis. How can this economic star of Latin America have less than 100 intensive care beds for 3,000,000 Peruvians when the COVID started? So this is just is an example that basic services has been neglected for the majority of Peruvians. This is the first limitation I see. The second is, I think that there is a lack of a real commitment with regulating markets. So sometimes when we say that we embrace the free market, but we haven't built the institutions and the tools for ensuring competitiveness in the market and for sanctioning the cases that we have power abuse of this dominant position in the market. And also during the COVID crisis, we saw how concentrated markets such as the Oxygen market or the pharmaceutical market generated a lot of frustrations in citizens so, in fact, I think that in last Christmas we had collusion in the price for turkey in the supermarkets where you have a lot of these abuses of dominant positions in the market. We say we love the market, but in practice, there is no free markets in many markets that are relevant for the citizens. And the third one, I think that there is an absence of institutions that represent the vast majority of Peruvians, that represent their concerns, that put their concerns in the agenda, but also that intermediate every time that we have social conflicts. I don't know if this happens in other countries, but the office of the Prime Minister in Peru has a big social conflict office. Most of the most troubling times the Prime Minister has is because of the social conflicts. And here I am not just talking about political parties. These political parties is just a feature. We have lots, for instance, of informal workers than in other countries. And Argentina, they have like a body that represents them. So, I think that this is also a major problem - not being able to represent the majority of Peruvians in the agenda. So I think that's... the results of these elections, as you already mentioned, has shown these problems and the limits of the model. [00:08:00][259.2]

Patricio Goldstein: [00:08:01] I think that's extremely interesting. And I think the three points that you bring up: both in capacity for the state to manage wealth and provide public services, for the lack of commitment to regulate the markets, and the absence of institutions to represent the mass majority. We can only link them to the provision of quality public services such as health and education vis a vis in this tool. So on a prospective basis, what do you think could be done differently to improve the quality of health, education, public or private? [00:08:32][30.6]

Maria Antonieta Alva: [00:08:35] I have thought a lot about this in the last year, I think that if we review what has happened in the last decades in Peru within public sector institutions, let's think, for instance, about macroeconomic stability and fiscal management, we decided after this huge crisis by the end of the 80s that we wanted stability and we build those institutions that bring us stability. We have a central bank. And in fact, Julio Velarde has for many years been considered the best central banker of the world. We put some rules and laws for compliance with fiscal rules within the Ministry of Finance. We also built Superintendencia de Bancos y Seguros, is the agency that oversees the financial services. I have been thinking a lot about this, we build these institutions, these strong institutions because I think that the establishment needed those institutions. So they generated a lot of pressure to have these and create these institutions because there is a simple notion that you cannot privatize those services. You cannot ask the private sector to give you policy or monetary policy, or you can't ask the private sector to bring you fiscal policy. So there is no coincidence that we have these institutions that provide services that cannot be provided by the private sector. We generated really, really good institutions. We generated all the conditions to have the best civil service. So the central bank and the SBS have special regimens that are there are OK, there are meritocratic, they have better salaries. They are some stability. So this is not bad. This is just understanding that in order to provide good public services, you need the best people there. But what happens with other services? I will say that in comparison to these ones that bring you macroeconomic stability. What happens to those services that bring you like, social stability or social development? What happened with education, what happened with health, even security? I think that the establishment realized that they can consume those services in the private sector. So we have no pressure in the public sector to deliver good public education, good private education. But we went to the private sector and now you have a huge segmentation when you have families that can really buy very good education, but very expensive and you have families that do huge efforts to pay $20 or $30 each month for a school fee. And they have really, really bad education because these are schools that work really good for the elite they decided, "OK, we are fine like that. We don't want you state." And every time the state wants to improve the agenda of regulating the private services, the private provision of schools, we have huge problems there because the elite doesn't want them to be regulated. So I think that we are in a very, very terrible equilibrium where we have normalized privilege. We have normalized the fact that if you want to have really good education and you want to have really good health, you need to have money and consume that in the private sector. So I think that the government in some point or the public sector has resigned to provide good public services, but it has also resigned to supervise the quality of the private sector. So I think that we are stagnating in this equilibrium and we need to get out of there. [00:12:25][229.4]

Patricio Goldstein: [00:12:27] And do you think we're heading to a political moment where change can happen better? [00:12:30][3.2]

Maria Antonieta Alva: [00:12:34] To be honest, I think that my huge concern is that improving living conditions for Peruvians is never in the agenda, never. I don't know, like we are stuck in the last, I think, month about elections and a lot of fragmentation. But nobody is very conscious about what is happening with the anemia, what is happening with learning outcomes. So I think that the population is very frustrated with the outcomes, but I don't see really a commitment to improve significantly the delivery of public services. [00:13:21][46.5]

Patricio Goldstein: [00:13:23] Definitely. I want to change the topic to COVID-19 since its the title of the conversation, and you took over office in the Ministry of Economics and Finance in October 2019 and five months later, we have the first confirmed COVID-19 case in Peru. And then suddenly the entire policy world and our teams at the Growth Lab really know this. And it's not just health ministers, the finance ministers, pretty much everybody. We're all forced to learn an entire new vocabulary. We learned what a lockdown was, what a non pharmaceutical intervention was, what flattening the curve, and testing and tracing. And I wonder, as a Finance Minister, you also have to adapt to this new reality. So I wonder, what was the hardest thing about it? How did you go through it? [00:14:10][47.2]

Maria Antonieta Alva: [00:14:11] Yes, I think that we need to remember or understand the nature of this economic crisis. Usually as the Minister of Finance you face economic crises that are related to economic variables, such as an acquisition of a crisis of debt in another country or overheating of the economy. In this case, the origin of the crisis was tentary and in front of the impossibility of the health system or the sanitary system to address this crisis, you came to an instrument of economics to try to help in the response to this crisis and to be like numbers in Peru were really, really tough. As I already mentioned, by the beginning of March, we had less than 100 intensive care beds for 33 million of Peruvians. So we implemented this very aggressive lockdown in order to avoid a collapse in the health system, but also to provide some, of course, resources. And the idea was that in doing this, lock down the health system was able to strength and to avoid collapse. So in this context, when you ask the Minister of Finance face a crisis that doesn't have origin in economic variable but in a sanitary crisis, I think that I have two reflections there. The first is that there was not a manual, there was not literature. There was a lot of uncertainty. People doesn't remember this, but the first case that we have in Peru was March 6, at least the first formal case. But in a press conference in March 30, WHO was saying that the face masks were not recommended. So imagine that, like policymakers, we didn't have so much information. So lots of uncertainties. And the second reflection is the errors that happens here are paid human lives. So as Minister of Finance, you understand that your field of experience is not enough in this context, like closing or opening the economy again. So I think that ministers of health played a key role now in the management of this crisis. You really need to work very close together with them. And I know that in some countries was discussed about this paradigm between health versus economy. And I think that for us in the government, what was clear is that we wanted to avoid the most human losses. So we didn't face really like this huge paradigm. We didn't have a huge fight between the ministry of finance and the ministry of health. But we had very, very difficult structural conditions because of a very, very weak health system. [00:17:20][188.2]

Patricio Goldstein: [00:17:23] That's very interesting, and we heard from our work at the Growth Lab with all our counterparts, a lot of countries have very similar conditions in the developing world. I was wondering, particularly regarding lockdown's and I know that lockdown's and non pharmaceutical interventions such as closure of borders and schools have been a big part of Peru's mitigation strategy, as you say, in order to avoid a collapse in health system. And given low numbers of beds and doctors to begin with. Peru was effectively the first country in Latin America to implement a lockdown that was followed by others, Argentina, Chile, etc. And I wonder, what do you think, one year later, about how lockdowns have worked? Do you think they worked in practice? Do you think something could have been done differently? [00:18:11][48.1]

Maria Antonieta Alva: [00:18:14] Yes, I think that there is lots of diversity within countries and it's difficult to identify common trends. And also another important feature here is the counterfactual that is very difficult to measure. Like in Peru, with this lockdown we had two waves. Maybe without a lockdown, we won't have two waves but we have a tsunami. But it's very complicated, this idea of the counterfactuals and this idea of identifying trends. I think that in order for the lockdown's to be effective. I think that there are three important variables here. The first is early detection. You need to implement the lockdown at the earliest stage of the infection. And even though we were the first country to do this lockdown, I was reviewing some experts... this was... we gave the lockdown by the mid-March. I was reviewing some documentations and some papers that are from some experts that they suggest that in Peru probably the infection started before that. Before that, the Ministry of Health, really say this is the first case on March 6. So this is something about early detection and having a lockdown timely. At that time, we had a very quick response, but some initial analysis reflect that probably that the virus was there many weeks ago. The second is about the intensity of the lockdown and this is related to whether or not you almost close the territory, you close airports, you close interprovincial transportation. And I think that in the case of Peru, we can say that when we implemented that lockdown, we like blocked the virus in Lima and we delay the infection in other regions. And this is very important because if you had the levels of infection that you had in Lima, that is a city that has a third part of the population, and the system was already collapsed. At the same time, you had that infection in eight major cities. I really don't know what will happen. Like we had Lima and then we had Loreto and then we had, like, regions started. So I think that... I haven't checked evidence or have a regression on this. But I think that we were able to delay the infection in different regions because it was impossible for the system to handle infections in major cities at the same time. And then the third component is about enforcement, whether or not there is a system and whether or not the culture of your citizens really, really respect the law. And you can also see that in Peru in the first week, the mobility index really, really was stagnating in low levels. But then you can see that people start moving around. So I think that these three things are important in the moment of deciding a lockdown. [00:21:24][190.4]

Patricio Goldstein: [00:21:26] If I could just follow up, like I think it's interesting that it happens in a lot of countries where we work where there's high degrees of informality, so like curfews generally are not as effective in preventing people who need to make a day to day living particularly high levels of self employment, or people need to go to something everyday. I think I saw a question in the Q&A about that. How do you think this interacted in Peru's case, with Peru's high levels of informality? [00:21:49][22.6]

Maria Antonieta Alva: [00:21:55] I think that the most important tools that the government designed for reacting to the crisis. Were not like that. In respect of 100 percent of effectiveness, we didn't get that because of informality. As an example, for instance, because of this informality, we decided to implement a massive program of cash transfers to households. And when we approved very quickly all the laws that were required for that. When you start with the implementation, you face these structural barriers, such as like in Peru, only four of ten adults have a bank account. The infrastructure of the National Bank had less than 1,000 ATMs at that moment for all the country. So even though we had this idea of giving liquidity to the households, it was very slow because of these structural problems, informality here, we didn't have even the data sets, we don't have any information of the citizens. We have to build a data set on that. So I think that yes, informality was a huge barrier for implementing all our tools and all our response to the crisis. [00:23:18][83.3]

Patricio Goldstein: [00:23:21] You mentioned that the transfer to households, I think for some of our non-Peruvian audience might not know this, but Peru has one of the largest fiscal packages in the region. And I understand there's long discussions about the implementations of some of these programs within the public sector, within the private sector, particularly regarding the loan guarantee. But even with all these as we are going through these discussions, I wonder if you could tell us a little bit for the audience, what measures did the government when you were Finance Minister took in response to a pandemic, economic or social? And I even have like a question here that ask about what did Peru do to improve public services during the pandemic? And is there anything that you think that could have been done differently as well to minimize the effects of the crisis? So two parts first informative just to get us all up to speed and second what do you think about that? [00:24:13][51.8]

Maria Antonieta Alva: [00:24:15] Yes, I want to also tell this story that the first day that we were supposed to have a cabinet of ministers to approve that the supreme decree of the lockdown that day at 7:00 a.m., I had this meeting with the former president and Julio Velarde the president of the central bank. We were very early with there talking about this lockdown and Julio told me something that was really important. He told me like, "Toni, your best economic plan is to support the Ministry of Health to contain the virus that you need to get rid of this virus that is your most effective economic plan now." So we decided on an economic plan. And I also have to say that Professor Ricardo Hausmann, Professor Andres Velasco, they were really, really important for us. We have several discussions with them. Our plan has two phases a containment phase and an economic reactivation. Of course, in our minds, we wanted the containment phase to finish the earliest possible to start with the economic reactivation. Going in these two phases, of course, depended at that time a lot in sanitary variables. The plan was 20 points of the GDP, around eight points is public budget then and the other big chunk is 11 points of the guarantee for credit loans this very famous program, Reactiva, that for me is the best example of the combination and interaction between fiscal policy and monetary policy. And within the plan I think that we define three major priorities. First was strengthening the health system. The second was to protect enterprises and households. So in the first, you have all the money that we gave to the sector to improve their capacity. Then the second was protect enterprises and households. And then we have this cash transfer program. And the third was liquidity measures like a massive injection of liquidity in the economy to avoid a collapse in the payment chain and enact Reactiva. And as I already mentioned, I think that the main takeaway is that the structural gaps in the country were huge barriers to deploy the instruments in the way that we designed them. That's what I already talk about with the cash transfer program. So in the first one, and this is related to the question about strengthening the health system and this is related to this idea of how we build capacity. At that time, we had two big issues, like we have all the issues of the clinical aspects of the pandemic, and then we had to build capacity, we needed more intensive care beds. We need more hospitals. So what we did and the Ministry of Health was really collapsed by the clinical and the sanitary issue. What we did is we generated a legal, a special legal framework and bring to the table the most effective units of the government in executing budget and implementing procurement process and in fact, implementing things. I don't know if you remember about two years ago of that we had the Panamerican Games in Lima and the unit in charge of all the implementation was very, very effective. They have a huge reputation of being very, very good deliverers. We built all the legal framework and we brought to the table like three or four special units to help the Minister of Health, to build temporary hospitals, to buy all the equipment required for intensive care beds, even an agency independent from the Ministry of Finance supported that the Ministry of Health in buying rapid and molecular tests. So we just bring to the table very, very effective agencies to help with all the implementation. And so the Minister of Health can focus on the clinical and we had to generate urgent decrees to do all of that. Then we have this massive cash transfer. It was to 8.1 million households. That is almost 60 percent of Peruvian households. And as already mentioned, we have huge barriers for giving quickly the liquidity to the families, not only because the low levels of social or financial inclusion, but also the national bank didn't have so much ATMs. Going to the bank you have this population that really wants to go to the bank and take out the money from there, so that was also a point of spreading of the virus, so we had huge challenges on that and we don't even have a complete registry of citizens. So we had really to build like almost like a new registry where you can tell that we had a huge problem with having the information of our citizens that can really tell you how much the state is connected to citizens. Then we have Reactiva Peru that was this a program where we gave loans to enterprises. The money, the liquidity was from the central bank. The Treasury guaranteed these loans. And I think that a very important innovation... we had this... we wanted to really have very low interest rates for this program. So the central bank the way they allocated these funds within the banks and the financial institutions was through auctions. So each one in this auction, the money was given to the financial institutions that presented the lowest interest rate. So the impact there was really, really important, for instance, in Peru in a regular moment the interest rate that small enterprise face in the financial system can be 40% of interest rate. In Reactiva, it was less than 2%. So it was really, really a very innovative program. And I think that Reactiva may have customized a very similar program, for instance, customized to agriculture. I think that at the end we gave these loans for almost 800,000 enterprises. And then this was part of the contention and during the reactivation that that was by the second part of the year, in addition to opening the economy, and that was also a political economic process, when you have to select what to do with the casinos, what you will do with the charges, it was also like a political economic situation there. We decided on specific public investment interventions. As Minister of Finance, we worked really close with ministers of transport, with these ministers that were supposed to design... we designed a massive program for fixing roads, for instance, and we developed a standardized terms of reference for local governments for all the procurement process of the system. And then we had daily monitoring of the execution of the funds and and in the middle of the crisis. That was a complicated crisis. I had also to do damage controls in some populist laws from the Congress. There is, in fact, one journalist that referred to the situation as Peru was facing two pandemics, the coronavirus and the populism from the Congress. This Congress was a Congress that had only 18 months to deliver results. I don't know if you know, but the Congress was closed by the President they called for a new Congress. So you had new Congress that has 18 months to deliver results in a pre-electoral moment because the political parties were going to participate in the electoral process for the next year. So I had to do a lot of damage control there. I invested a huge amount of my time going to the Congress. And not only I had to go to explain why I always tell them, like you know, Peru doesn't end with a pandemic or with the elections, we have a country to build, we have to think about new generations. And these laws that you are proposing will generate more problems than solutions. So that was a very important part of my time. And in fact, I was also interpelled twice by the Congress. So it was really, really difficult times. What I should have done a better? I think that we had a huge issue about the pension funds. Finally, the Congress approved a law that was declared unconstitutional by the highest body that interprets the constitution. So maybe there I think that I had to react on time. I took a while to send up counterproposal of this law, to the Congress. And the other was about the narrative. I think that also I was very criticized by the Congress because of not helping the small and medium enterprises. And that speech was already in the minds of everybody, even though Reactiva, most more than 90% of the loans were given to these enterprises. Like what? This speech was already there. So I think that I should have been more like better communicating what we are doing with small and medium enterprises. [00:34:41][626.1]

Patricio Goldstein: [00:34:42] I think we can take up that point because I have two questions in the Q&A exactly about small and medium enterprises. So maybe I'll just read I have one from Andrea R. who asks us, "The Reactiva program... some people criticize the program because it mainly benefitted big business and there was little to no support of small or medium enterprise, what do you do to support businesses who are not benefiting from Reactiva?" And I have another anonymous question that talks about the high tax burden for small businesses and also what has been done for small businesses? So perhaps just spend a minute or two talking about what was done for small business. [00:35:16][34.1]

Maria Antonieta Alva: [00:35:18] Yeah, that is part of... there is this narrative about Reactiva and the small and medium enterprises, and the fact is that the numbers are there like more than 90% of the enterprises that receive the loans were small enterprises. Of course, when you think about the amounts, the numbers are reduced because you are giving them to pay off the payroll for three months or to pay for expenses for three months. So, of course, their expenses were lower than huge enterprises. But I think that the problem that we faced was informality again. Most of the information to identify these enterprises was from the tax administration. So what we have in Peru you have small enterprises that half of them are formal and the other half is informal, so that information that we had at the moment didn't allow us to help all of them because they were informal. So they didn't appear like the amount of the money they need or how much they sell their sales were not reported in the system. So knowing about that, knowing about Reactiva and that problem we generated other programs like FAI - Fondo Apoyo Impresarial where we at some point were much more flexible about the requisites for receiving the loans. But I think that in general there is a huge problem of productivity with small enterprises that explains informality. What I was also very conscious about was that during a crisis like we saw the crisis, the small and medium enterprises, only 5% had loans in the financial system. So I knew that in a crisis it was impossible to solve on the structural problem. I was conscious about that. I couldn't during the crisis solve that. But I think that what we gain in reduction of interest rates, the example that I gave you from 40% to less than 2% was really impressive. [00:37:38][139.8]

Patricio Goldstein: [00:37:40] Thank you. And so eventually vaccination will advance and Peru and the rest of the world will all reach herd immunity and the COVID-19 crisis will be left behind, hopefully for everybody. Nevertheless, there are enormous challenges ahead for the rest of the world, for pretty much everybody. In the case of Peru, we know at least from private and multinational projections, that Peru is not expected to recover its 2019 income per capita until 2023. And of course, the current election leaves a lot of uncertainty about the country's political future. So I was wondering in this context, what do you think will be the most important political and/or economic challenges in the year ahead? [00:38:24][44.4]

Maria Antonieta Alva: [00:38:27] Yes, I see like when we see the results of this election and when you see social media, when you see what is happening in the country, I see that we have two extremes. The first extreme is defense of the status quo, that for me, it doesn't make sense. The actual system is functional for only a minority of Peruvians. So defending the status quo is not a possibility. But you have some one extreme that wants that and then you have the other extreme radical change that they don't even want to maintain what already works like the country has demonstrated that we know how to be disciplinary in our public finances. Of course, that has enormous good results every time we want to issue bonds in international markets. So there are things that we have done right that we have learned how to do. So you cannot just destroy that so my real concern is that the country, politically and economically, I think that is part of the discussion. I always remember Andres Velasco saying that economy and policy go down the same road. I think that the huge challenge for Peru now is to reach growth and development that includes the population and not only work in that line, but I also think that we need to build a political party that represents responsible change, that represents the middle, like you have extremes. But I think that we don't have institutions or spaces that represent what most of us think, because if you see like numbers, I think that less than four million Peruvians voted for one option or the other. So I think that's the challenge for next year is to build on this story about responsible change, about development that really includes much more people and also to build a political force that represents that. And the political force that values pluralism, and I think that this is very relevant in Latin America because we are seeing lots and lots of populism, and I think that populism sometimes wants to sell themselves as they are pursuing the public interest, but they are not. So I think that and to be honest, it's very difficult. And it was a position I had sometimes, like there are these popular laws, for instance, getting money from your pension fund. That sounds amazing. That sounds very popular. And you have to be the one that stands there and says, "No, this is not good. I am not going to support this initiative." So I think that it also takes having a political representation that really thinks about the center and really things about, "OK, let's do a responsible change." [00:41:35][187.5]

Patricio Goldstein: [00:41:37] Thank you, Maria Antonieta. I would change a bit the topic and ask you one question and then I'll open up for Q&A. If anybody wants to start writing down questions, we will get to them in just a few minutes. So you became Minister of Economy and Finance with more than 10 years of experience in the public sector. But you are still the youngest person to be in this position. You are also the third woman in the Finance Ministry in a country that had 270 Finance Ministers (I had to check that out). I wanted to ask did ageism or sexism ever come into play during your time as Minister? [00:42:14][36.8]

Maria Antonieta Alva: [00:42:16] Yes, yes, I think that definitely. When I was appointed Minister, I was already working more than 10 years in the government and I had a position really relevant at the Ministry of Finance that I was the General Director of the National Bureau of Public Budget of that country. So I was in charge of this office that is for me is the heart of the Peruvian government. I was appointed at 34 years old. In fact, there was some years ago a man that was also appointed at that age, but nobody said anything about he was like a star you know. Nobody when he was appointed Minister at my same age and nobody talks about his age. Now, I think that there was a part of the population that was trying to understand why I was appointed Minister. So they came with the first reason is that my father was supposed to be friends to the president. That was one explanation. That is not true. To be honest, my dad has been professor of I can say decades of civil engineers in Peru. He's a professor and most of civil engineers that went to this university, my dad has taught them. So the former president was his former student and that's... but with this I explained that my dad was a very close friend of the president. And because of that, I was appointed. That was not true. But the second explanation was that because of my age, because I was a woman, I was going to be like a puppet for the president. And I wouldn't be able to say a no to him, but they didn't realize, if you know, a little bit about the government. You realize that a General Director of Budget, you have to say a lot of no's because lots of people, lots of ministries, level of mayors will ask you for money. And then so that was the first reaction. And then when I was Minister, sometimes they talk about how I was dressed. I didn't wear makeup. Sometimes I had a I don't remember how you say, ojeras, and sometimes they appeared in the media like, you know, the Minister has eye bags. And I think that for a guy, I don't think that is a case for a man. But, yeah, it was difficult also in that sense. [00:45:06][170.0]

Patricio Goldstein: [00:45:08] And I guess given all that we talked about like the experience through COVID-19 it must have been incredible work hours and presented challenges. So I have to ask this: would you go back to public office in Peru? [00:45:19][11.5]

Maria Antonieta Alva: [00:45:23] Yes, yes, I think that's my vocation was to be a public servant, I am trained for that. And in fact, since I started my professional career, the only two opportunities I have not been serving in the public sector was my two years at the Kennedy School. And now that I as you know, I had to leave office because the president was impeached. I really and I have two reflections here. The first is that I really think that more ministers in the country have to have to come from the public sector. In the public sector, you are trained to stand after the country's interest and you are trained to look for the common interests. And if you compare this to experience in the private sector, imagine like the most important bank of the country in order to select their CFO, they will never think about someone that has never work in the financial system. So I really don't understand why when we sometimes appoint ministers, we think, like in the private sector, will never put someone that doesn't have experience there. Why when you have to appoint a minister, you need to put someone from there? And I have a lot of critics. In Spanish we say like revolving doors. I am very critical about those people that is minister then goes to the private sector, to the bank and then come back. I really think that the government needs ministers that are trained in the public sector. And the other important thing that I have to tell also is that it's very difficult nowadays to be a public servant in Peru. I think that there is a huge disincentive because sometimes you are dealing with a judicial system that is not necessarily operational. You don't know how they're going to react so you have lots of preventive operations to former presidents, not necessarily with all the reasons. And I think that we are also in a very perverse equilibrium where you have media that reproduces fake news and sometimes disinformation is used by the prosecutor of the government. So you have there a lot of things that you can be acting right. But you don't know at the end of the day what the judiciary system, how they will react. And I think that is really relevant. I was thinking the other day that, of course, in doing the crisis, public servant had to take risks. For instance, in Chile, they bought cineback that I am sure that when they bought it, they really wanted to ensure that the country had the most amount of vaccines. And then you have that is not as effective... If you do that in Peru, I am sure that the Minister that was part of that decision will have the prosecutor attorney of the government. So I think that it's very risky now for a public servant to take decisions because you have this perverse incentive. [00:48:46][203.6]

Patricio Goldstein: [00:48:48] I think both comments are extremely accurate for many of the countries we work with. I have a last question and then I'll give Ricardo the microphone but I have to ask this because we are at the Harvard Kennedy School, at least virtually right now. And you were a graduate of the MPA/ID, the International Development Program at the Harvard Kennedy School in 2014. And I wanted to ask, how did your experience in this program prepare you for the challenge of public office? [00:49:14][26.2]

Maria Antonieta Alva: [00:49:17] I think that there are three important things. The first is this idea that the trinity of public policy. Each good public policy needs to have a technical, rigorous design, then thinking about how feasible it is in the territory and then the political decision and be able to transmit why this is important. I think that this triangle was really, really important for me. Of course, depending on the position that you are in the government, you need to build your gaps. As minister, the communication part I had to invest many hours in training every time I went to interviews. But I think that this idea of being conscience about these three important factors and also this triangle also tells you that you need to work with teams in the government because one person doesn't have all the competence to develop all these three things. The second is what our Professor Dan Levy always told us, that we had to be smart consumers of data. And when I was a Minister, even though I came like, if you are Minister of Finance, you can come from the economic side or from the Treasury side. I came from the Treasury side and most of my training was there. So now, as Minister, I had to deal with eight or 10 General Directors of different topics. And I remember my basic econometrics class was really, really important to try to follow, even though some topics were new to me I think that that was really fundamental. And the third is the network like it was amazing during the crisis. I would just send a chat to my WhatsApp group of my friends from Kennedy School and ask them, what are you doing in this issue in Colombia, in Chile, in Mexico? And they will just answer to me. And the other are the professors, like Michael Walton, Ricardo Hausmann, Lant Pritchett that they were after being a sort of finishing my master they were always available there to help you in different situations. I don't recall all the Sundays that Ricardo invested in meetings with my team in the Ministry of Finance, so I am very grateful about that. [00:52:00][163.2]

Patricio Goldstein: [00:52:05] OK, let's try then using this opportunity to try and get Ricardo online to make some comments. [00:52:10][5.0]

Ricardo Hausmann: [00:52:15] Thank you very much, Toni, for this splendid and frank conversation. I have two questions for you. The first one has to do with you know, what are the lessons in terms of setting in the government itself up to learn from its own actions. That is, we know at the beginning that we didn't know much about the pandemic and we didn't know much about these non pharmaceutical interventions that had to be made and so on. But you know, when looking at the data what's amazing about Peru is that you have these peaks, but in many countries these peaks are followed by a trough. But in Peru, it's these peaks are followed by a highland before they come down so they're very long these peaks. And I was wondering if there's anything about having mechanisms for the government to learn from its own actions. And I don't know if there was an adequate interaction between, say, the health ministry and so on and the rest of government in terms of thinking through what was working and what was not working, that's with respect to covid. But I was really impressed by what you said at the beginning about the fact that there's very little a commitment from, say, the establishment for basic services like education and so on, and some things that came back to haunt you in terms of the systems that were not there when you needed them, but in particular in education, you spent some time in the Ministry of Education. I believe that was when Minister Jaime Savedra was there and that that ended up being sort of like rejected by the political system. When there was a real attempt at improving education it kind of backfired. What can we learn from that backfire? What defends lousy, lousy education? [00:54:38][142.5]

Maria Antonieta Alva: [00:54:41] OK. The first question, I think that in some way like many tools that we implemented were done from scratch. For instance, Reactiva, FAI, the lockdown and opening the economy. So I think that within the government we have learned from... I don't know in what process probably is less important to have public servants there always that are able to stay for a long time. I think that, for instance, programs like Reactiva, we invested in all of this time and now the transition government is able to like re-program the loans or think about other sectors. And also I think even if the lockdown of the economy and opening the economy, we learned a lot. And you have now that... I think that at the beginning we didn't have much more information because also I think of the informality. For instance,we also locked down mining, but I think that in Peru and mining really explains like 10% of your income, it's a huge part of your GDP, but it also... We have a lot of social conflicts with mining. So it was difficult for us at the beginning to ask for sacrifice to everybody and not to ask for the mine. But I think that at the end of the day, what I think that's really like my experience on the Ministry of Finance, most of the important part of the things, especially like for instance the Chief Economist of the country, Alex Contreras, that he was with me at the beginning of the crisis and he's still there. So I think that's what I really think about having the body of public servants that are there. So I think that the knowledge transmits between people. We have a huge crisis. I don't know if you remember about the Vacuna-gate. And they think that lots of people changed in the Ministry of Health. But I think that I have come to the conclusion that having public servants with lots of technical experience that are able to learn from the experience and using it in different situations, I think that having a body of public servants is really important, that are always in government. And the second, it's very interesting what happened with Jaime. I think that what have happened in the education system is that because of this lack of supervision. We have private universities that are really, really a huge business, and I can say that in some cases there are suspects that they are laundry machines, like there's money from narco-traffickers. So every time Jaime... so usually these corrupted groups usually fund politicians, usually fund campaigns. So I think that even though this idea of being transparent with how you fund political campaigns, it is really relevant because I think that's what happened with Jaime is that because he wanted to really improve learning outcomes in university and do a reform, he was blocked. He was, in fact, impeached by Congress because he was touching too many interests as we say. So what is interesting, I was part of Jaime's team and then I was when the next minister was there. So the first during Jaime's term, he had to he was defeated by Keiko Fujimori right. The political party that was led by Keiko Fujimori. And he was impeached by that. But then the next minister that came, he had to face these massive protests were Pedro Castillo was the leader. So you can see how Pedro Castillo was the leader because there was this massive protest. They didn't want this performance evaluation within the system. So I think that what we really need is some pressure from the citizens and for me the best example of this is what happened with intensive care beds in the country. Like you have during years you don't have capacity. When the crisis has started, you had 100 intensive care beds and then after six months, you had more than 1,000 like you did in five or six months what the country was not able to do in decades because population was pressuring. So I really think that we have to make citizens pressure more for improving the learning outcomes in education that I am. Especially... Personally, I have some doubts whether or not the potential for new president of the country will really support the reform and this career of teachers and performance evaluations. So I really think that for me, what happened with intensive care beds is an example that if citizens put something on the agenda, the government moves towards that. [01:00:57][375.5]

Patricio Goldstein: [01:01:00] Thank you very much, Toni. I think that's it in terms of questions, so I think I would just want to reiterate that we're very, very grateful to have had you. This has been amazing that we've had about a 100 people at the peak listening from all over the world, Kennedy School, Peru and pretty much everywhere else. And we learned a lot. And we hope to have, you know, sometime again. Thank you very much. [01:01:28][27.3]

Maria Antonieta Alva: [01:01:29] Thank you. [01:01:29][0.1]

Patricio Goldstein: [01:01:29] And thank you, everyone, for listening today. Again, as we said, you can stay up to date with our research and events by following us on social media and online. Thank you. [01:01:29][0.0]