Introduction
I am very happy to be with you this afternoon, but a little nervous. I have been to many hotel conferences, but I have never spoken at one. I remember the first hotel conference I ever attended. It was the NYU Hotel Investors Conference at The Waldorf Astoria in 1988. It was at a time in my life when I was thinking about becoming involved in the industry. I had been a real estate lawyer for about 10 years and had studied all types of real estate investment and development. The hotel sector intrigued me.
The Keynote Speaker was the co-founder of VMS Realty. During the 1980’s VMS Realty was one of the biggest investors and developers of high end hotels and resorts in the US. His speech was an emotional apology for having lost hundreds of millions of dollars of his investor’s money in hotels. He went on to say it was a lousy business to be involved in with no end in sight for the massive losses and write downs that were to come. And the operating aspects of the business were a never ending nightmare. He was sorry he had ever gotten into the business. I dove right in.
I formed a partnership with a wonderful family, the Azcarragas from Mexico City. We bought bankrupt hotels from the government and lenders at very attractive discounts to replacement cost. It turned into a very good business. When the family took their hotel business public in Mexico in 1992, I became a shareholder and board member of Grupo Posadas. This was the same year that NAFTA started being implemented in Mexico. The company grew a lot, survived two devaluations and made a major investment in Brazil when we acquired the Cesar Park chain of hotels. Today Posadas is the largest hotel operator in Latin America.
President Bush has known of my involvement in Latin America for many years. I was honored when he asked me to join his Latin American foreign policy team as the U.S. Ambassador to Costa Rica. Central America is just now beginning to implement the CAFTA treaty and, in many ways, it is just now being looked upon in a new light as a preferred place to visit and to invest in. I do miss my friends at Posadas and the excitement of the hotel business, but I hope that my past experience will help facilitate, in a positive way, the process of change that is taking place now in this region.
Costa Rica - Successes of The Past 
I attended a very interesting presentation the other day that analyzed the disparity in compound annual growth in GDP between the U.S. and Central America over the past fifty years. Although the U.S. outperformed this region in every decade, this region produced solid growth in every decade since WWII, except the 1980’s. That decade was a disaster. It set the region back significantly. The point of the presentation was that stability was the key factor in long term sustainable growth and that the instability of the 1980’s was the main reason for current Central American poverty rates.
The one country that was not engulfed in the instability of the 1980’s was Costa Rica. Its long history of democracy and its historic investment in education, health and a national pension system paid off many times over. Costa Rica remained an island of stability in a region engulfed in conflict. This tradition of stability and democracy was tested again in the recent close elections for President. Costa Rica was, once again, an example of stable democracy for the region. After almost a month of uncertainty and recounting, Oscar Arias was acknowledged the winner and all Costa Rican have accepted this close result peacefully.
President-elect Arias was president of Costa Rica in the late 1980’s and won the Nobel peace Prize for bringing peace to the region then. The Central American region has changed a lot in these past 25 years. President-elect Arias faces a whole new set of challenges, and opportunities. He is assembling an experienced team to lead the country and the US is optimistic that he will again bring positive change to the region.
Growth of Tourism
Costa Rica has changed a lot in the past 25 years. For one thing, the population has grown from 2.5 million to 4.5 million people. And the economy has diversified away from coffee and bananas into a wider variety of agricultural products as well as microchips, medical devices, and tourism, which has become a major contributor to the economy. The recent growth in the tourism sector has been impressive. Since 2000 the number of tourists coming to Costa Rica has increased 45%. Tourism is now the #1 export of Costa Rica. The hospitality industry provides more jobs for Costa Ricans than any other sector and with anticipated growth will continue to be the greatest provider of new jobs for the economy for the foreseeable future. 
Over one million visitors came to Costa Rica last year. That’s over 20% of the population of the country. Most of them come from the US, and for good reason. Costa Rica is conveniently located in the U.S. Time Zone, about 4 hours or less from over half of the population of the U.S. This convenient location fits well into the travel trend patterns of shorter and more frequent vacations. And it has this reputation for peace and stability that I mentioned above that continues to pay dividends for the country.
But equally important, Costa Rica has taken its incredible array of natural resources and diversity and very successfully positioned itself as one of the premier destinations in the world for eco-tourism/ adventure tourism, the fastest growing segment of demand in the tourism industry. This was demonstrated loud and clear the past few weeks when Disney selected Costa Rica along with destinations such as London, Rome/Tuscany and Paris for its new launch into the family package tour business. 
Planned growth is vital for sustainable success.

So, more tourists are coming, lots of them. Sounds like good news, but is it? Is Costa Rica ready for its new found fame as a world class tourist destination? Is the current tourist experience sufficient to sustain long term growth of the sector? 
One of the fastest growing regions for tourism in Costa Rica today is Guanacaste. My family and I visited the surf town/boom town of Tamarindo there earlier this year. New real estate developments are popping up everywhere there. Vans of anxious northerners are shepherded around to snap up the latest real estate offering. The streets are almost all dirt. Basic sustainable sewer and water systems for the announced developments are yet to be built.
The natural beauty around Tamarindo is stunning. Like all of Costa Rica, that is why tourists and investors are attracted to it. One of Tamarindo’s key natural assets is Playa Grande, a nesting ground of the endangered Pacific leatherback turtle. We had the privilege of visiting Playa Grande as a guest of The Leatherback Trust, a non-profit organization dedicated to saving the leatherback turtle from extinction. This group has worked closely with Parque National Marino Las Baulas to gain the support and trust of the local community by having them help manage the park and protect the turtles. These are people that used to make their living digging up and selling the turtle eggs. It is a marvelous success story of how you achieve your conservation goals by having the local community benefit from the conservation plan. The local community now makes its living guarding and giving tours of the nesting site.
The Trust has also spent a lot of time trying to consolidate the property ownership around the park so that the turtles will continue to come back. This year 2,500 turtles returned to lay their eggs, a meaningful increase from last year. The turtles always come back to the beach where they were hatched. The current theory on how they find their way from around Tahiti back to Playa Grande is that they navigate via starlight through a light sensor in the top of their head. Light pollution from beachfront development can disorient them and cause them to never make it back. I saw a lost turtle just last week in the Port of Moin. It was bumping up against the side of a banana boat. It was kind of sad.
The point of this turtle story is that the next morning I was reading The Beach Times and there was an ad in there for a big real estate development right in front of Playa Grande; 100 homes, condos, a hotel, etc. The tag line was “Live where the leatherback turtles nest.” But if the development is successful, the turtles won’t find their way back. It was the perfect example of the tension between “eco” and “tourism”.
How many more tourists and haphazard developments does it take to destroy the natural environment that is the very thing that makes Costa Rica a world class ecological destination? One has only to review the new Disney destination list to see how unique Costa Rica is. It is not a major urban destination capable of handling millions of visitors like Paris or London; nor is it a developed agrarian area like Tuscany or the cattle ranches of Wyoming. It is cloud forests with sensitive wildlife and fauna; tree frogs, ancient ferns and lichens. Nesting beaches for endangered turtles. It is the adventure of this natural setting that has made Costa Rica so popular.
Because of its geographic position as a land bridge linking North and South America, Costa Rica is one of the most biologically diverse countries in the world. Although the country covers only .003% of the earth’s area, Costa Rica contains 4% of the world’s species. Varying levels of altitude and rainfall make for 12 distinctive tropical zones, a treasure trove of flora and fauna. With priceless foresight, the country has preserved over 25% of its land area in 27 national parks, 8 biological reserves, 63 public wildlife refuges and 27 private ones. This national park and reserve system is one of the main reasons people come to Costa Rica.
But, the capacity and infrastructure of this wonderful park system to handle an onslaught of new visitors is limited. There are already warning signs of problems ahead beyond the leather back turtle story I told you. The Ministry of Environment already lists 43 species in danger of extinction, including all of the country’s wildcats, 3 of the 4 monkey species and both the Green and Scarlet Macaw, the stars of the souvenir T-shirts sold in the airport. Costa Rica needs to be very proactive to insure the long term health of the ecological gallina that it delivering the “huevos del oro” of the current tourism boom.
Plan Desarrollo 2002-2010
The Costa Rican Ministry of Tourism has been working on a plan to address this concern. It is called “Plan Nacional de Desarrollo Turistico Sostenible 2002-2010”. It is a well thought out plan of action.
The document describes the spontaneous way that tourism development has evolved in Costa Rica to date. What has been developed is an eclectic array of mostly small individually run establishments of low to moderate quality and service levels. Based upon current levels of inbound tourism, this infrastructure is more or less at capacity. Public infrastructure to support this type of tourism development has either followed slowly or not at all. The current development model provides little regulation and, if continued indefinitely, has a low probability of preserving the natural resources that makes Costa Rica such an attractive destination today. 
An alternative development model that is considered is a model of concentrated development zones. This scenario is based on the successes that FONATUR in Mexico has had in tourism developments like Cancun and Cabo San Lucas. In some respects one can see a version of this model already happening in the Guanacaste region, but without the government planned infrastructure being put in place to support it. This development model can create the ability to rapidly expand the number of inbound tourists that can be accommodated here in Costa Rica. It is a model that may work in parts of the beach areas of Guanacaste, but, it is hard to square this development model with the current positioning that Costa Rica enjoys in the global market as an eco-tourist destination and the need to preserve and protect it’s sensitive environmental assets. This development model also runs the risk of commoditizing Costa Rica as just another beach destination, with the resulting pricing powers consequences. 
What the report proposes is the promotion of the development of centers of tourism positioned around the country based upon a sustainable development model that is enforced by a strengthened planning mechanism. This model allows for the development of higher quality assets with globally competitive service levels while at the same time maximizing the ability to regulate and preserve the country’s sensitive natural resources. It also gives the national government the ability to plan for and rationalize investment in the public infrastructure that is so desperately needed today. 
What’s Good for the Tourism Sector Is Good for All of Costa Rica
What is so interesting in reading the conclusions of the Plan Desarrollo and the list of strategic steps recommended to be taken by the new Costa Rican government is how much they line up with what needs to be done for the general health and progress of all Costa Ricans, whether they are in the tourism sector or not. The interests of the tourism sector are completely intertwined with the interests of all Costa Ricans.
For example, domestic security was the #1 issue on voter’s minds in the last election according to post election analysis by the Cid-Gallup Organization. The job of a US Ambassador is to look after the safety and security of U.S. citizens in country, and I am concerned about the rising tide of armed property crime in Costa Rica. We all know that if a destination is perceived to be unsafe that tourists will go elsewhere. One has only to look at the passenger traffic in San Salvador versus San José to see the stark difference. Costa Rica needs to invest more in the area of domestic security and also develop a national strategy on how it can effectively participate within the region on security issues such as the fight against organized drug trafficking and money laundering.
An issue that all candidates agreed on was the need to improve the education system in Costa Rica. What makes a good employee in the tourism sector are the same things that make good employees in most sectors. Toward the top of that list is English proficiency, which I assure you is a priority at our Embassy.
Infrastructure investment is also critical to the future of the tourism sector. The sad state of the infrastructure in Costa Rica is also one of the biggest drags on productivity and global competitiveness of the whole economy. It is a priority of the incoming administration to fix the current concessions law and that will be absolutely necessary if Costa Rica intends to rely on outside foreign investment to help pay for upgrading the current infrastructure. 
Another example is fiscal reform. All of the items discussed above require investment. According to the World Bank rankings of 155 countries Costa Rica ranked 129th in “Paying Taxes”. Citizens need to pay taxes. And examples effective tax collection systems around the world have demonstrated that people will pay if the system is fair, simple and the proceeds are transparently reinvested in things that help the country. And simple and fair tax systems have the added benefit of attracting foreign investment, especially in the tourism sector.
And a final example is the strengthening of the rule of law. And in this category I would include the ratification and implementation of CAFTA because CAFTA is more than the reduction of tariffs and other trade barriers between the U.S. market and the Costa Rican market. It is an entire set of commonly applied rules and regulations on how trade and investment will be conducted and treated in the entire region among and between all 7 participating countries. Costa Rica needs improvement in these areas. In the same World Bank rankings, Costa Rica ranked 134th out of 155 countries in ‘Protecting Investors” and 141st in “Enforcement of Contracts”. Costa Rica’s participation in CAFTA will be essential for it to be able to continue to attract foreign investment at the level it has done in the past.
I would be remiss if, while mentioning the CAFTA issue, I did not repeat my previous point about the importance of stability when thinking about how to grow a countries economy. I have been surprised at some of the hot rhetoric from some camps when debating CAFTA. Mention of the risk of “violent confrontations in the streets”, etc., etc. This is irresponsible. Costa Rica has a well earned reputation as a peaceful democracy. Everyone in Costa Rica should insist that all citizens respect the decisions of the countries democratic institutions in resolving controversial issues.
What’s This Got to Do With Yield Management?
There are two ways to rationalize development to sustain and preserve “the commons” - regulation and pricing. And probably the best solution is to use a little bit of both. If you look over the list of global destinations that the travel gurus at Disney have selected, the destination that most compares to Costa Rica is Hawaii. I am not saying that Costa Rica should develop the same way Hawaii did. The mega resorts of Hawaii would be terribly out of place in Costa Rica. But in Hawaii, regulation and pricing have effectively protected the precious natural resources of that destination.
My first official duty as US Ambassador to Costa Rica was to participate in the Secretary of State’s “Awards for Corporate Excellence”. One large U.S. corporation and one small company from around the world are selected each year by the Secretary and honored for conducting their business overseas in a manner that is an example for all companies. Secretary Rice gave the small company award to the Lapa Rios Lodge in the Osa for their sustainable tourism model. Costa Rica has long been a pioneer in the sustainable tourism movement. Their focus on this is the main reason the country is so well positioned as a world class travel destination. But to do it right, sustainable tourism development is expensive. Only two lodging properties in Costa Rica have received the highest level of recognition for their commitment to the sustainable tourism model; and both of these properties are luxury hotels. Yield management of demand is going to be a necessary part of insulating the delicate natural resources of Costa Rica from the inevitable consequences of unchecked development.
The tourism industry in Costa Rica is at a critical crossroads in its evolution into a world class destination. People today are giddy with the current land prices in places like Guanacaste. In some instances they are approaching Hawaii levels. Sustainability of these prices and the attractiveness of Costa Rica as a world class tourist destination over the long term are going to be directly related to the sustainability of the unique natural environment that Costa Rica currently has.
And like the tourism sector, all of Costa Rica is at a crossroads on the path to its future. Reinvesting in education and infrastructure, creating a new fiscal reform system that will pay for it, whether Costa Rica will join the rest of the region in the common rules of free trade agreed upon in CAFTA, are crucial steps in keeping Costa Rica on the path of continued success.

Thank you.