The poverty alert
FOR many Latin Americans the 21st century has been a time of unprecedented progress. Between 2002 and 2013, 60m people in the region moved out of poverty. The poverty rate—the share of people living on less that $4 a day—fell steadily. Now the progress has stopped (see chart). For the past three years, the poverty rate has stayed stubbornly at around 28% of the population, according to household surveys collated by the UN Economic Commission for Latin America and the Caribbean (ECLAC). The proportion that is extremely poor (with a daily income of less than $2.50) has edged up, to 12%.
These figures are worrying. Income inequality has declined somewhat over the past decade, but it remains extreme. As a result, Latin America, an upper-middle-income region (with an income per person equivalent in purchasing power to $13,500 a year), still has a strikingly large number of poor people. The trend varies slightly from country to country. Poverty has continued to fall since 2012 in Paraguay, El Salvador, Colombia, Peru and Chile, but has risen sharply in Venezuela, according to ECLAC.
One reason progress has stalled is that economic growth has slowed with the end of the commodity boom. An increase in government transfers explains some of the previous fall in poverty, but a bigger factor was the labour market, which produced more jobs and higher wages. After growing by an annual average of 4.3% in 2004-11, the region’s economies have expanded by just 2.1% a year since 2012.
A second factor is also at work. A large core of Latin Americans have not benefited much from growth. These people may lack the skills, motivation or contacts to get employment or make the most of social programmes. A forthcoming study* by researchers at the World Bank finds that 130m Latin Americans, or around 21% of the total, have remained constantly poor since 2004. In Colombia the figure is over 30%, and in Guatemala it is a “shocking” 50%, the study finds.
Chronically poor people tend to be concentrated in remote areas or on the peripheries of the big cities. As a group, they started off in worse shape than those who subsequently escaped poverty; they are less likely to have basic services, such as clean water and sewerage. Their children are more likely to drop out of school. In other words, these people are poor not just in income but also in housing and assets.
Offering opportunities to the chronically poor requires a more active and co-ordinated approach than that provided by conditional cash-transfer schemes, such as Brazil’s Bolsa Família, which now benefit some 129m people in the region. Chile Solidario, a pioneering programme, gave social workers the job of seeking out such people and of encouraging them to enrol in training schemes, take up social benefits and raise their aspirations.
The second big challenge for the region is to prevent those who left poverty from falling back into it in the bleaker economic climate. The largest single population group, sandwiched between the poor and the middle class, is what researchers call the “vulnerable”—those who have an income of between $4 and $10 a day but lack education, savings and other assets to provide them with economic security or protect them if they lose their jobs.
Returning to faster growth is thus a necessary, but probably not sufficient, condition for the fall in poverty to resume. This will also require both policy choices and better co-ordination. Public investment in roads, better policing and schools, and clean water may sometimes help the chronically poor more than social programmes would.
Schemes like Chile Solidario are promising, but require careful design and implementation. Training in skills is vital and neglected. So is extending social insurance—against health emergencies, unemployment and natural disasters, all of which can destroy meagre savings and push the vulnerable back into poverty.
Some Latin American countries have scope to raise income and property taxes on the better-off to pay for all this. But in others, taxes are already close to their upper limits. The steady expansion of social programmes over the past decade may not continue. Social spending as a percentage of GDP rose from 15% in 2000 to 19% in 2013, but that is now levelling off. Poverty remains unacceptably high in Latin America’s democracies. Bringing it down has become harder. It will require more astute politics and policies.
*Left Behind: Chronic Poverty in Latin America and the Caribbean, by Renos Vakis, Jamele Rigolini and Leonardo Lucchetti, World Bank, to be published in March 2015.