Hope for cutting red tape in Costa Rica?

From the print edition

Costa Rica has had great success in attracting corporate foreign direct investment. FDI is projected by CINDE, the very successful nongovernmental organization in charge of investment promotion, to grow 7 percent in 2012 and fulfill the Central Bank’s target of $2.25 billion for this year. 

This country’s well-oiled FDI promotion machine is so successful that the Financial Times Group’s FDI Intelligence Unit named Costa Rica the “Best Country of the Future for Foreign Direct Investment in Central America and the Caribbean” in its “FDI Countries of the Future” report for 2011-2012. The bulk of corporate FDI investment is high-tech and in industrial parks, with favorable tax treatment and simplified regulatory requirements. 

This new business start-up success at the corporate-exporter level is all well and good. Unfortunately, there is a huge gap in Costa Rica between the well-paved regulatory highway that CINDE and the government have set up for deep-pocketed foreign companies, and the pothole-filled obstacle course that ordinary Costa Ricans who just want to start up a mechanic’s shop or a restaurant are forced to navigate. 

On the World Bank’s “Doing Business”  rankings, which measure the ease or difficulty of the nuts and bolts of starting and growing a business for ordinary citizens – things like legally incorporating, registering property, dealing with construction permits, enforcing contracts – Costa Rica ranks 121st of 183 countries. In Latin America and the Caribbean, Costa Rica ranks 25th out of 32 countries, behind every other Central American country except Honduras. 

These figures only confirm what is obvious to anyone who tries to get business done here: Costa Rica is drowning in red tape. So how can ordinary Ticos, as well as entrepreneurial expats, better deal with the maze of requirements that gets in the way of starting businesses and creating jobs?

Laura Chinchilla’s National Liberation Party administration has started a low-key project to apply technology to help get government off ordinary citizens’ and entrepreneurs’ backs. Called the Digital Government project, it is operationally a division of ICE, the country’s power and telecommunications utility, but answers to a government commission presided over by Chinchilla. 

The project seeks to leverage the information technology expertise of ICE to put as many government processes online as possible. The basic building block, the “digital signature,” is already developed. 

This is a card with a chip on it, which is inserted into a reader connected to a computer. Anyone who has downloaded pictures from a photo data card to a computer using a USB card reader will recognize the set-up. 

Although the card is called a “signature,” a “digital cédula” (the ubiquitous national ID card required for any transaction in Costa Rica) would be a more accurate description. Each digital cédula is unique and personal for its owner, whether a person or a company, and is protected by a pin number which must be typed in, along with the card computer connection, to log in and do online transactions. The cards are issued by banks, two state-owned (Banco Nacional and Banco Popular) and two private (BAC San José and Banco BCT).

Digital cédulas are already in use by banks for clients that move large amounts of money electronically. The most widespread application now implemented is MerLink (www.mer-link.co.cr), an online system for public purchases that incorporates 18 institutions that do 80 percent of government buying. 

For chartering companies, an online system for notaries (lawyers) is already being implemented, with the idea of future expansion so that ordinary citizens can track progress of their paperwork. The government’s goal is to set up and activate a company in 20 days. 

For individuals, no end of online transactions is planned: residence permits and cédulas, passports, drivers’ licenses. For municipal governments, ICE is working on putting construction permits, business permits (patentes) and activity zoning (uso de suelo) processes online. 

At the national level, Finance Ministry tax authorities are doing all they can to move tax declarations and collection online. So far, it’s a hybrid system in which declarations must be filled in online, but payments are the old-fashioned way, by printing out declarations and then going to a bank teller to pay. It’s a good bet that taxmen must be salivating at the prospect of having digital cédulas attached to as many taxpayers as possible. So far, the cards are not required for tax filings.

Digital technology has capacity for both empowering and enslaving. It is likely that many Costa Ricans will resist digital cédulas. What can the government do to try to entice people to sign up? 

One Digital Government project, On- Time Positive Silence, definitely cuts in favor of ordinary citizens and businesspersons. In March 2002, Costa Rica passed law 8,220, the Law for Protection of Citizens against Excessive Requirements and Administrative Processes. Article 7 of this law introduces the concept of Positive Silence: that once all paperwork is presented, the government authorization requested will be deemed granted if the government institution does not respond within three days. 

This potentially game-changing law, which makes approval the default outcome if the organization does not respond (Positive Silence), has been a dead letter because ordinary citizens cannot drag a notary around to certify presentation of every paper required in bureaucratic processes. But if presentation is online, digitally documented by means of a digital cédula, the government authorization game could change radically in favor of ordinary citizens.