LTC 14: Budgeting in Times of Crisis: Interview with Sandra Naranjo

In this BSC podcast, Salimah Samji interviews Sandra Naranjo, Former Minister of Planning Development in Ecuador, who was in government when an earthquake of historic magnitude struck the country in 2016. Sandra shares how she contributed to the country's response and recovery and what she learned about public budgeting during times of crisis.

Read Sandra Naranjo's BSC blog on Public policy during a crisis: 3 Lessons learned from Ecuador’s earthquake

Transcript

Budgeting in Times of Crisis Transcript

Katya Gonzalez-Willette Hello and welcome to Building State Capability at Harvard’s podcast series. 

Salimah Samji Today, I have the honor of speaking with Sandra Naranjo, who served as minister of planning and development when an earthquake of magnitude 7.8 struck Ecuador on the 16th of April 2016. Welcome, Sandra. And thank you for making the time for this interview. 

Sandra Naranjo Hi, Salimah. Thank you so much for having me today. 

Salimah Samji So Ecuador suffered its strongest earthquake in more than 70 years. Homes, businesses, schools, hospitals and all sorts of infrastructure was leveled. More than 600 lives were lost and damages amounted to three billion dollars. How did you determine the budgetary implications of this crisis? 

Sandra Naranjo Well there was a very like a big strike for Ecuador, but also it came at a difficult moment, if you remember, by the time the price of oil, for example, was in one of the lowest in histories. I think it hit around 30 dollars in February. In Ecuador, like the economy of the country is still dependent on oil. So it was already a particularly hard time for Ecuador. And then when the earthquake like struck, it was very hard for us. I think, two things I think help us instruct in this time, the first one was having, like, clear our priorities. And I felt that when the earthquake first happened, everyone was focused on the main priority, which was the humanitarian response. Right? Saving lives and trying to work with as much people as possible and making sure that those that survived had everything they needed was their first priority. And I felt everyone in the country, not only the government, but like the citizens, everyone, had this feeling that we needed to do something and like everyone wanted to help. And so I remember many people in my team say like, oh, we should go there, like, what do we do? And I remember thinking, well, the best way we can help is to do our job. And so we have to be thinking one step ahead. And so then the very first thing we did was to talk with international organizations so that they would help us do a proper post-disaster needs assessment or PDNA. So there is already a methodology that has been set in place by the U.N. and development partners. And so we wanted to make sure that we would have their technical assurance and to do this properly. So that was one of the first things we coordinate. And our objective was to have it done in six weeks, which was a major challenge to basically assess all the damages, losses and recovery needs from the, from the earthquake. So that was the very first thing. At least to have a clear idea of what were the implications of what was happening. And I think... 

Salimah Samji Six weeks sounds like a short amount of time. 

Sandra Naranjo Yeah, it was! It was. We were basically running, but we wanted to, to have that so that then can organize, you know, how we were doing everything. And I think it was also important to think of the, we kind of divided that crisis in three phases. So the phase one was the emergency. And in that sense, the minister of planning didn't have much to do, really, was more than ministries of you know like health and education that were like kind of like embedded in the, in the response of the emergency. The second phase was the recovery, which was for me, it was kind of like the transition period. And then the third phase was the reconstruction, which was basically setting structure for the long term. And I think having these three phases and having an overall assessment of what's going on, it help us prioritize and declaring what we needed. 

Salimah Samji Great. So after you set priorities, what did you do next? 

Sandra Naranjo So then, I would say in the next phase was like, OK, so how are we going to finance these, right? And as I mentioned at the beginning, Ecuador was in a particularly hard situation. So the budget wasn't really high. It was the last year of the government which also had an on implication in in terms of like what we were doing. So I think the first, the very first step was like how we're going to rearrange the budget so that we can attend to the emergency, because it was not only what happened in like, you know, the damages and like the reconstruction itself, but it was also the economic lows that it was coming for because of what happened. Right. So there was a very big hit in the particularly in exports, which, again, are very important for our, for our country that is dollarized. And so the first one was, OK, how are we going to rearrange everything to respond to this crisis? The second one was to kind of like activate the mechanism we had in place for the emergency. We had some contingency lines for the specific purpose, that was around six hundred million. And so that was activated really quickly. In particularly the one with the Inter-American Development Bank work really well. And so they were basically able to release the funds as it was designed to attend both the emergency and the recovery, so that worked out well. And then approach the development partners when we realize we didn't have much space in the budget. And the IMF, for example, was also very, very quickly to react and help us in that sense, in terms of the flow for the, for the impact it was going to have on them and on exports and in the kind of like in the trade sector. And then the third one was, OK. So we have kind of like rearranged the budget. We have approached development partners and there was still a gap and sort of like, what do we do next? And it was like rethinking, like, how are we gonna increase the revenue effectively so that we could cover the gap of what was happening. 

Sandra Naranjo And I think in a way, the fact that the government was finishing, it puts a lot of pressure and not only in terms of like, you know, like we were literally leaving government, but when there is that transition in government. Things like tend to go as lower for a period of time. It doesn't matter who wins, but it does take a while to adjust. And so we were very conscious of the time to be very, perhaps graphic. If you had people in temporary shelters, if we didn't finish their houses on time. We couldn't close, like take them out of the shelters because they literally didn't have a place to go. But if we didn't finish on time, then it probably would have been for them, I don't know how, how long. Right. And so I think that put an extra pressure on us because we couldn't fail. 

Salimah Samji You know, the urgency of human life and taking care of them became... 

Sandra Naranjo Yes. I think that for me, for me in particular, for example, of the earthquake, you know, when you work in the public sector like, you know, you work to improve the lives of people. But I feel that some things, if you are injured, that can feel so away. And I think one of them hardest and most rewarding experience. At the same time for me was serving during this time because in my day to day job, I would say that I always had this feeling that I was doing something for the good of the country and the people. But like, I think it put in some level of you know reality because you could, you could see that direct impact and the consequences of doing or not doing something. So for me, it was like a transformational experience, I would say, to leave that process when it happened. 

Salimah Samji So you talked about how you had a gap in the financing. What are some measures you took to actually mobilize these gap resources? 

Sandra Naranjo So in order to, to go in order we did a PDNA. We estimated how much we would need effectively, and then we decided how much of that it was going to be covered by the public sector because there was public infrastructure in things like it's the responsibility of the government. But the houses, for example, it was private infrastructure, but because of the area where the disaster happened, many of the houses that were lost were from people that were poor. And so we knew that they didn't have the resources to build a new one and they didn't have insurance and so basically effectively that the government decided that the public sector would take part of those private losses, if you want, because it was required. So once we said, OK, this is the - it was around $3.3 billion dollars of the like you know the losses, what we need how much was going to be covered by the public sector? Which was around 60-70% if my memory is right. And then we knew what we had in the contingency lines, we knew how much we had from the rearrangement of the budget and there was the financing gap. And so what we had to do was effectively pass a law that was called the Law of Solidarity and Social Co-responsibility, or Citizens Co-responsibility to finance that gap. And so they had different components. It was a contribution from people that earned over $1,000. And so depending on how much you earned, you would contribute from one up to eight months, one day of your salary. And so that that was a part of it. There was also an increase in the income tax for the businesses that had profits from the year before. And one of the big ones was the increase in the BAT for a period of up to a year of two percentage points, except in the provinces where that disaster happened. And so, yeah, it was, you know, increasing taxes, it's never fun, it's never expected by anyone. It's probably something you would never think about it in the final year, a year coming into elections. People would say that it's a political suicide. But I think at the end of the day, weighed the most was doing the right thing. And we knew that that necessary to do, we wanted to do something. And as I told you before, we knew that if we didn't do things on time before the government finished, the probability of them taking longer in that transition, if happening at all, was very big. And we didn't wanna risk that. We knew we needed the resources, but we also knew we needed to address the, I'll say the legitimate concerns of citizens of saying, like, how do we know that we are actually going to use the money for this and not to finance the next campaign, for example? 

Salimah Samji Exactly. So how did you manage the politics of something like this and the social, you know, the citizens, the social dimension? 

Sandra Naranjo So I think in terms of the politics, it helped to include the mechanism in the law, the mechanism that would address those concerns from the people. So, for example, one of the things that law included was that the Ministry of Finance had to activate in their Website a portal where you could see how much money was being spent. There was a restriction that those resources could only be used for Manabi and Miranda which were the two provinces that were affected by the earthquake. The Minister of Finance had to go to the National Assembly and report, I don't remember exactly, it was like every month or every three months. But he basically had to go in and give basically to be accountable for the money. How was it being spent? I think also it was this social pressure like when people don't have houses and, you know, you have everything that has been destroyed, it's very difficult when you don't do something like it's one of those things that you say, like, oh, I don't know say increase sales. Like, it was very obvious if the house wasn't built or if the hospital wasn't working or if you have people in like temporary shelters. Or if the kids were not going to school like you could see it. And I think that also put a lot of the pressure and the, you know, the accountability of making things work. So that was that. And then in terms of this social dimension, I think again like you knew that those people need it, that you couldn't fail. I remember I was Acting Vice President for like the second phase, say, like around between January and March 2017. And so that was after the earthquake. My priority at that time was to finish the houses to make sure that we close all the temporary shelters by the end of the government, that was the goal. So I used to go every week to all the reconstruction sites to see how things were going. And so I remember when I would sit with the families and talk to them and see how things were going. So I remember someone saying, look, I know that Correa, the President at the time, would give me my house like I know that. I am certain that the government will fulfill their word. But I don't know who's going to win, and I'm not sure if the next government will do that so you have to help me. So she was saying it to me because for her I was the face of the government. But I think I think that reflected what was going on. And I think her concern was a major concern and was something that we were aware of because first, we didn't know who was going to win. And then if they won, even if they had the best intentions of the world, we knew that a transition was coming. And so we knew that, well we perhaps that we didn't know what it was going to happen. Like, how long would it take? Like, if if they would do it in the same way, like it would take longer. And so I think that put an extra pressure. But also, I think at the end of the day, worked work well in terms of like driving us faster, even in doing the impossible, if possible. Yeah. 

Salimah Samji And were you able to finish all of that on time? 

Sandra Naranjo Yes, I think that is one of the things that make me proud and one of those things that I take with me, because it was very hard. I remember when I started going to the construction sites like I would go and say, "OK, so how many houses are like in this complex?" And they say, "50." OK, how many are you going to have next week? Yeah, like you know for next week we're going to do this and that. And so I think by next week or like by a month, like they would tell me, like I would have 10. "OK. Perfect. I'll be here in two weeks to see that then." And so then I think they thought that I would never go back. When I went back a week later and I'm like where are my ten houses? They're like, "What do you mean?" Like I came here and you told me you were doing this and this and this. Where are my houses? At some point I remember one of the you know, the managers of the construction companies told to the Minister of Housing he was like, "Look, I'll finish, but please, please don't bring her yet. Let me show something like I'll do it. I'm working on it. Please give me one more day or like one or two days." I think it was important because they knew that someone was coming. I think when you're in government and when you're in a position of power, you have to use the power for the greater good. And you have to be, to know how to use that kind of like authorization that you have. And as I said, to use it for the, like for the good of others. Of course not to serve yourself, but to use it well, to use it wisely, because I think that's sometimes when you say like, oh, you have to use your power, it can be misunderstood. But I think that if you use it right, you can actually do something and enable things. And I think for me, the earthquake was a clear, like example of that for me, I was like so alive. Like I remember when we finished one of the houses I went to help move people from the shelter to the houses. I was literally helping them, you know like take their stuff and like move their bikes. I remember there was a guy who was a bit old and he had his bike and so when I would visit the shelter you know the tent, and he would have his bike inside, parked inside, and it was so precious for him. And so I was like, "Oh I saw you had your own garage, like, you know, it was the tent." And so he had his things and he's like "Yeah, it's important." And he's like, "And when we get the house, I'm going to show you where I am going to park it." And so when we went and give him the house, he took me to see the bike and I thought you know, those are those things that you take with you and I think that people that are in government have to realize how much power they have to do something right, particularly in a time of crisis where your roles and responsibilities and what you have to do. People count on you, basically, and you cannot fail. We owe them. And that's why we're here. We were like, you know, when you are in government. That's why governments are for. 

Salimah Samji This must have been hard for you, right? What would you say was the hardest part of this whole crisis response that you had? 

Sandra Naranjo When the earthquake happened in Ecuador, in Spanish, we have two words, we say, "sismo" when it's minor. And when you say an earthquake, it's like a big thing, right? Like the one we had, that's an earthquake. And that doesn't happen frequently. So when it, when we felt it in Quito, in the capital, I thought it was 'sismo' like the first one, it was mild. You know, business as usual, just a bit stronger. But fine. When the reports starting coming in and then the emergency body activated. And so all the ministers were told to go to 9-1-1, to emergency mode. You feel that weight on your shoulders, because generally if an earthquake happens in normal life, I would go to my family and make sure that everyone is fine. And then you probably turn on the news. You see what's going on, etc. When you're in government, that responsibility is on you, right? And so I remember, I called my family, made sure everyone was OK, and then immediately we go to the emergency location and to see what's going on. And then you feel it. You know what's coming. And so, I think it was very good. Of course, like personal growth. But also, I think that's what I prepared for when I entered the public sector. I very quickly understood that you have the power to transform lives and to do things well and that if you are thinking about in terms of public policy, a budget in particular, for example, you know that if you do things right, it has an impact. That you can make a difference. And so I was trained for that. And so when it happens, you know, well this is the moment, you know you have to show up. And so it was hard and it was challenging. And I remember, sometimes I couldn't sleep and I would be thinking about this all the time. I think I stretched myself, physically, to the maximum. I would sleep very few hours, traveling to these reconstruction sites. It was hard. But it was so worth it because I think that's why you work in the public sector. I felt that in a way, it's like a mission. It's a lot more than just a job.

Salimah Samji If you were able to go back in time, what would you do differently than what you did? 

Sandra Naranjo I think in general, I would say the response was a good one. And I think we probably surpassed many of the expectations. When the earthquake first happened, I remembered I contacted a couple of friends. I talked with someone that was minister in Chile when the earthquake happened. And so he actually, it was very helpful to have the first conversation, so that was two days after the earthquake, because he was telling us his experience and how hard it was to finish the houses. And I think it took them like three years to finish everything. And so every time another winter came, it was an extra challenge. In our cases, we didn't have snow and all that hard weather you have in Boston, for example. But we did have a rainy season and all the implications, like diseases, etc. And so I think it was very good having those initial conversations to put things in perspective. I think in general the response was good. I think we struggled at the beginning in the emergency. I mean, we got things going. But I think it reflected the weaknesses of not having protocols and mechanisms in place for an emergency. Because for me, when an emergency happens, you need to have certain structures that allows you to kind of like run more or less in auto-pilot. So there are things you start doing automatically. You're not thinking like, you know, that when this happens, something activates and x-ministry is going to do this, and x-minister is going to be in charge of, like, say buying water and making sure that the food, that there's that mechanism in place. And I think we didn't realize because you don't have these disasters every, like think of up in the... you have one of those things every hundred years, right? And so I think having a protocol that says A-B-C, unless you are actually aware of everything in play, it doesn't serve its purpose. And I think in a way, that's what happened with us. So if I could go back, I think that's something I would have liked to have because I think it would have made our response even better. And we could have saved time at the beginning, especially to do things faster. And I think that's a big lesson also. Because in a way, these origins in an emergency create, last as much as the attention of the emergency, right. So in the example of the earthquake, you do feel it and you're like, oh, we should be better and we should like, you know, be compliant with the construction norms and things like that. And it lasts for a period of time. But then people forget. And then everyone--everything's business as usual. And so I think and if you see the examples of countries that have been able to kind of maintain or sustain the memory of the disaster. They have been successful in their responses in an emergency. So, for example, if you see Argentina and Sante Fe, they had this problem with floods. And so they were very good at managing these communications strategy to mobilize people and to make them aware of the disaster. So when they were doing the changes in like how--how, where people could leave and how they were going to do it, and if something happened, like whether they should evacuate and how to do it and stuff, they were able to sustain that momentum. And so I think that was important. Korea, for example, they learned from the disaster. They had their protocols in place when they, when MERS happened the first time they failed. They didn't have a good response. And so they went on and changed the law, they adjusted the systems and so they respond, they have now with COVID. In a way, it's pain of those things that they learned from their past failure that allows them to change and adapt so that they can respond better this time. And so I do think that having these, like protocols or these ways to activate in emergencies are important. And that's something we could have definitely done better. 

Salimah Samji Thanks. What advice would you give those who are dealing with budgeting in a crisis? It could be COVID right now. It could be another type of crisis. What are some things that you would tell them that they should think about? 

Sandra Naranjo For me, the first one and most important is to have their priorities clear. Sounds obvious, like you say, oh, of course, we have our objectives clear. But it it's so important to have them clear that everyone understands them in the same way that because that's going to be your... that squad, you are going to go, you know, you're going to go back for it. And when you're making a budget, then your budget has to reflect those priorities because it doesn't matter if you say that your priority is X. If X doesn't receive resources into budget, it is not a priority. You are not giving it the mechanics for that to happen. Right. And so having the priorities clear. I think it, it makes a difference because you know how you're going to locate your resources, when you need them, when do you have your gap. In our example of the earthquake, we knew where with the three phases, what were the priorities. And so even in terms of like assigning the resources as they come, you know, because it's not only important to have the budget, but also the flow like how how is the money going to go in, the cash flow. And so having those priorities and those timings help a lot also to say, OK, I have to make sure that I have enough for this phase, you know, for this phase, this is what I need. Or it might be like, yes, sure I need, I don't know, say 100 for the houses, but I don't need 100 today. I need 20. And so I can I can use these, like it helps you prioritize. It helps you plan. It helps you reshuffle your priorities if needed. It helps you also be creative and mindful of how you're going to allocate your resources that are always scarce. To make sure that you're achieving your goals. 

Sandra Naranjo The other one, I think that there are always going to be unexpected outcomes. So you have that's something you have to think of. I think it's important also to understand the citizens needs. I feel that sometimes people aren't exactly sure, now like you have to understand the context. But like, what does it really mean? And how do you... you basically have to meet them where they are. And so in the case of the earthquake, for example, we were like ah, but why, why are these people don't want to leave this island? That is obviously dangerous. Like we had the risk of the tsunami, we had the risk of the earthquake. Like, why don't they want to leave? And so then we understood, they don't want to leave because they need, they go there to fish. And that's how they survive. So we're going to move them and then we're going to create a bridge so that they can cross to fish, because that's that's the livelihood, basically. And like oh but why these people going after the house, like we're giving them a new house and it's free, like and the it's safe. It has all the  basic services. Like they don't like it because they can not store anywhere their boats and they need their boats because they are, you know, they have to go out and fish. And so it doesn't work for them. OK. So how do we redesign the house to make sure that we are covering their needs and so go always. I always go back to your main purpose, and the purpose of the working in the public sector is to serve the citizens. So listen to them, talk to them, perhaps the conditions now of like moving are different. But you still need to talk to them. You need to understand why they're doing what they doing and how what you want to do needs to adapt to meet them where they are, basically. And I would say the other one is take time to reflect. As I said, we have seen it that countries that take the time to learn of their past failures are able to move forward, then do it better. Korea. It's a really great example of that in these crises, for example, all the things they did wrong in MERS are the things that are now in the pillars of their success if you want, in the way they have been able to respond during this crisis. And so I think it is important to set a time, aside some time to reflect on what's going on. I'm not sure when when is the right time to do that in this particular crisis. But I do think it's important. Take notes, like how are we going to do it? And also how you are going to institutionalize those things that you have learned. Like those gains from the emergency. In Peru, for example, they didn't have a mechanism to address, like the social protection system was not designed do attend people, poor people in urban areas. It was Phuket and rural areas. So when the pandemic happened, they didn't know how to reach them. They they didn't have a mechanism in place to reach the informal sector. So they were going back and forth trying to design their cash transfers to attend the population. When they finally got it and they they got a system in place. And so then you have to make sure, like, how do you institutionalize that system to make sure that all of that learning that you gained can be used for future emergencies, for future things. So I think that one is important. And don't forget who you are working for. 

Salimah Samji Thank you very much. That's a, that's a really profound ending. I really like the common thread that's run through this entire interview has been don't forget who you're working for. And that's something that's so important to keep in mind. And I love all the advice that you've given from creating clear priorities to learning, meet people where they're at, not where you want them to be. And this whole idea of learning and then iterating and adapting and expecting that some things will not work out because there are unknowns, the unknown unknowns, and they will remain no matter what. So thank you very much for taking the time and doing this interview. I really appreciate and it has been a delight. Thank you very much. 

Sandra Naranjo My pleasure. Thank you so much too.

Katya Gonzalez-Willette To learn more about Building State Capability visit www.bsc.cid.harvard.edu