Can Mexico’s Social Programs Help Reduce Poverty?

by Alain de Janvry UC Berkeley January 31, 2005 1

Outline of presentation I. Context of the study II. What can be expected from public spending for poverty 1) reduction? A conceptual framework III. Data on the evolution of poverty and basic needs in Mexico Evolution of poverty 2) Evolution in the satisfaction of Basic Needs IV. Mexico’s social programs: the Contigo strategy V. Analysis: Why a lag in poverty reduction relative to progress in social development, especially for the extreme poor?

VI. Conclusions

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I.

Context of the study

Work with Sedesol and the World Bank-Mexico Office on social programs and poverty in Mexico.

Reports: - Assessment of the Contigo strategy (for Miguel Székely, Sedesol) - Poverty in Mexico (Michael Walton and Gladys Acevedo) www.worldbank.org/mx - Mexico: A Study of Rural Poverty (José Maria Caballero) 3

II. What can be expected from public spending for poverty reduction? A conceptual framework 1) Social development expenditures Social assistance Social protection

programs.

: Increase the assets of the poor: health, education, food and nutrition, access to land.

: Reduce vulnerability, social insurance (transfers): old age pensions, health insurance, employment

2) Economic sector expenditures

Improve the quality of the context where the assets are used: infrastructure, agriculture, rural development, energy, transport, communication.

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3) Conceptual framework to explain well-being: role of complementarity between social and economic expenditures Determinants of well-being Contigo programs Household assets positions

Education Health Nutrition Land Physical capital

Opportunities (context)

Markets Institutions Public goods Policies Local governance

Livelihood strategies Transfers and protection Well-being outcomes

Poverty, basic needs, Security, empowerment

Feedbacks on policies

Social incorporation

Social development exp.

Oportunidades, DIF Seguro social (SSA, IMSS) Diconsa, Liconsa Procede Habitat, Credito a la palabra

Economic sector exp.

Infrastructure Fonart, Firco, IncaRural Impulso, Microregions Ley de Desarrollo Social Ley de DR Sustentable Procampo, PET, IMSS, Fonden Indesol 5

III. Data on the evolution of poverty and basic needs in Mexico 1) Evolution of poverty:

Little decline in the incidence of extreme poverty 1992-2002 and rise in the number of poor. 60.0

50.0

40.0

30.0

20.0

10.0

0.0

199 2 199 4 199 6 National 199 8

Yea rs

Rural 200 0 Urban 200 2 6

90.0

80.0

70.0

60.0

50.0

40.0

30.0

20.0

10.0

0.0

1992 High and resilient moderate poverty 1994 1996 Nati onal

Years

Rural 1998 Urban 2000 2002 7

Sensitivity of poverty to growth and macroeconomic cycles (debt and peso crises)

Incidence of rural and urban poverty in Mexico

30 25 20 55 50 45 40 35 Deb t crisis Peso crisis Po rural Po urban 1984 1989 1994 1996 1998 8

Figure 3. Mexico: Poverty (Po) and the ratchet effect of economic crises

45 40 55 50

Rural Po

Po rural Po urban 35 30 25 3050

Peso crisis 94-96 Debt crisis 84-89 Urban Po

3100 3150 3200 3450 3500 3250 3300 3350

GDP per capita in 1995 US$

3400 Importance of economic cycles on poverty 3550 3600 9

The poverty hard cores: geography and ethnicity

- Regions: South (Oaxaca, Puebla, Guerrero, Quintana Roo, Chiapas) - Indigenous populations: 44% of indigenous are in the bottom 20% of the distribution of income 10

Role of changing income structure for the rural poor in explaining poverty reduction. Sharp increases in: Non-agricultural sources of income (pluriactivity).

Remittances, transfers, decline in the urban-rural wage gap.

60 50 40 30 20 10 0

Share of Agriculture in Rural Family Income by Definition of Rural

1992 1994 1996 1998 2000 2002

Years

Rural < 2,500 Rural <15,000 Role of a territorial approach that integrates rural-urban locally 11

International comparisons: Mexico’s lack of growth performance compared to East Asia… 12

…with corresponding lack of success in reducing poverty 13

Inequality is very high, stagnant overall, and rising in rural areas, limiting the ability of growth to reduce poverty 14

2) Evolution in the satisfaction of Basic Needs (social development)

International comparisons: Catching up. Strong progress in health, education, and nutrition 15

Note: Mexico’s vertical path indicates gain in BN with modest gain in GDPpc 16

Success in basic needs compared to other regions, even with failure in income growth.

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IV. Mexico’s social programs: the Contigo strategy

1)

Mexico’s public spending

: Stagnant. Rising expenditures on social development, but at cost of decline in economic sector expenditures due to overall constraint.

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2) Low capacity of state to redistribute due to weak fiscal capacity

: Low and stagnant public spending due to failed fiscal reforms 19

3) Lack of investment in economic sector

, e.g., infrastructure 20

3) The Contigo strategy in design: an impressive project

Multidimenionality of well-being: BN and income Seeks complementarities between programs: coordination Follows life-cycle needs: prenatal, childhood, youth, adults, elderly

Social insurance Social assistance

(80% of social protection budget) Old age pensions (IMSS, ISSSTE) Health insurance (IMSS, ISSSTE, SSA) (20% of social protection budget) Education and health: Oportunidades (6%) Food and nutrition: Liconsa, Diconsa Housing: Habitat, Tu Casa Income generation: PET, Impulso Transfers: Procampo Social infrastructure (water, sanitation, roads): Microregions.

Access to land: Procede 21

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Social insurance for the moderate poor could be improved by using conditional cash transfers as a safety net to protect child education from shocks 23

V. Analysis: Why a lag in poverty reduction relative to progress in social development, especially for the extreme poor? Ten answers: 1. Weak and unstable growth performance in context of high inequality



low employment creation and high poverty cost of macroeconomic instability



lack of income gains for the poor

Need growth, macroeconomic stability, and policies to reduce inequality.

2. Low level of tax revenues (Fox’s failed fiscal reform) economic sector expenditures.

Key role of success in tax reform.



weak redistribution capacity: social expenditures are a high and rising share of public spending, but at the cost of falling

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3. Lack of cordination between social and economic investments

- Ministerial parallelism: lack of coordination, separation between Social Cabinet (dominated by Health and Education) and Economic Cabinet.

- Contigo strategy mainly owned by the Ministries Health and Education.

- Territorial approaches separate social expenditure (SEDESOL’s Microregions) and productive expenditures (SAGARPA’s Sustainable Rural Development).

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4. Public programs in support of income generation and competitiveness (economic sector spending) do not reach the poor: benefit large producers, do not reach SME, small farmers, especially indigenous

Alianza para el Campo: co-investments oriented at large producers.

Procampo: progressive, but not complemented by investments in support of smallholder competitiveness.

Procede: access to land, but no support to competitiveness (incomplete land reform).

5. Integration of economic and social expenditures at the local level through decentralization is held back by:

Lack of accountability of municipal expenditures (Ramo 33) to the national level.

Federal transfers are not related to local performance (vs. results-based management).

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6. Low quality of public services: need increase efficiency, reduce biases

Improve supply side of school and health services.

Critical in context of decentralization (Ley de Desarrollo Social) with little accountability and short run municipal political cycle w/o re-election.

Social development agenda for the moderate poor is not well defined (potential role of IMPULSO).

7. Poor not much covered by social insurance programs

unemployment insurance.

: Highly regressive programs for health, old age pensions, and Exposure to risk of moderate poor is a source of new poor.

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8. Lack of assistance to social incorporation of the poor

Weak civil society organizations (strong state, anticlerical/NGO).

Lack of stakeholder representation/empowerment in guiding and monitoring local expenditures: centralized decision-making (Oportunidades, Alianza, Procampo).

The Indesol exception: is it effective? No evaluation.

9. Lack of monitoring and evaluation, impact analysis, and results-based management

Needed for accountability, at national, state, and municipal levels.

Needed to engage in results-based management (Oportunidades impact analysis effective for accountability, but not for results-based management).

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10. Bias for hope: Progress in Seguro Popular

(SSA) for the uninsured poor: free for poorest 20%.

IMPULSO

: support to productivity and formalization of SMF (moderate poor).

Ley de Desarrollo Social

: from government to state social policies and role of municipalities.

Ley de Desarrollo Rural Sustentable

Congressional mandate for : role of municipal, district, state, and national rural development councils.

annual evaluations

of federal programs and

Manual Ciudadano.

INDESOL

: assistance to social incorporation.

Continuity

of civil service appointments: continuity of programs beyond the political cycle?

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VI. Conclusions

Persistence of “too much” poverty, vulnerability, and inequality, in a context of improving social development.

A poverty reduction strategy cannot be limited to a social development strategy.

To be effective in reducing poverty, social programs need to be complemented by an income generation strategy for the poor.

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