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New Thinking About an Old Problem

The Economist

Mexico and Brazil

September 15, 2005

Cash transfers, with strings attached, are a better way of helping the poor than many previous social programmes, as experience in Brazil and Mexico shows
PLENTY is a seasonal crop in Ocara, a parched district of Ceará, a state in Brazil's north-east. Most of its inhabitants piece together a living from odd jobs and family gardens until September, when the annual harvest of cashew nuts brings relief like a long-awaited rain. Recently, the contrast between fat months and lean ones has become less marked, for Ocara's poorest citizens are now drawing a year-round stipend from the government. It is not much, 120 reais ($52) a month at most for a family of five or more. But for Maria Rita Albino da Silva, a "farmer" and cheerful mother of two, it makes the difference between too little food and enough.

Mrs da Silva, along with most of Ocara's population, is a beneficiary of Bolsa Família ("family fund"), a scheme set up in 2003 that provides a basic income to 7.5m of Brazil's poorest families, or 30m people. The goal is to reach all with a monthly income per head of less than 100 reais-11.2m families, or about a quarter of the population-by the end of next year. The success of Bolsa Família is almost as vital to Brazil's left-wing president, Luiz Inácio Lula da Silva, as the cash is to Mrs da Silva (no relation). Lula, himself born poor in the north-east, casts himself as a crusader against poverty and corruption. But his government is mired in a party-financing scandal and its first stab at fighting poverty was "Zero Hunger", a feeding programme ridiculed as outmoded and inefficient. Bolsa Família, officially part of Zero Hunger, is a chance for redemption.


It is the biggest of a new generation of social programmes across Latin America, known as "conditional cash transfer" schemes (CCTs). The aim is to alleviate today's poverty, in Brazil's case by transferring up to 95 reais a month to poor families (which states and districts can top up, as Ceará does), and to short-circuit tomorrow's, by making the transfers conditional: beneficiaries must have their children vaccinated, and their health monitored, and keep them in school. 

Although CCTs are a Brazilian invention, the first large-scale programme began in Mexico. Originally called Progresa and now Oportunidades, it now provides government cash transfers to 5m Mexican families, or nearly a quarter of the population. As in Brazil, there are conditions attached. The payments are made every two months, to female heads of household. One element, of around $10 per month, is to help with food. A larger element is to help buy school supplies and pay for transport to and from school. If a child misses more than 15% of class days, or fails a grade twice, these payments are suspended. The payments are also made conditional on the family's regular visits to health clinics.


Spending better on the poor


Similar schemes now exist in half a dozen Latin American countries, though the details vary. For example, Argentina's programme, expanded to cope with mass unemployment that followed the economy's collapse in 2001-02, has fewer conditions, higher benefits and has been in part sub-contracted to political leaders. By contrast, the Chilean scheme is the only one to focus specifically on the very poorest, and involves much input from social workers who try to ensure that beneficiaries make use of a range of social programmes.

Some Latin American governments spend too little to make any serious dent in poverty and social disadvantage (Brazil and Uruguay are exceptions). Worse, most of what they have spent has been on social insurance (see chart 1). This goes disproportionately to the better off. Compared even with most social assistance schemes, the CCTs are much more closely targeted to the poor (see chart 2). They are not confined to those with formal-sector jobs, which would largely exclude the poor, says Kathy Lindert of the World Bank. The fiscal cost is relatively modest: Brazil's Bolsa Família costs the federal government 0.36% of GDP, far less than social insurance schemes. Not only do the poor get cash, but an incentive to use government services. Prior to Oportunidades, says John Scott of CIDE, a university in Mexico City, it was the middle class that would take advantage of health services, rather than the poor. Now poor people go to the doctor more than in the past.

Traditionally, too, each government in Latin America has torn up its predecessor's social programmes. No longer. In Mexico, when Vicente Fox's government took office in 2000, its officials were sceptical of Progresa, which covered 2m rural families that year. But the politicians were convinced by the technocrats-whom Gladys López Acevedo of the World Bank describes as exceptionally skilled. The programme not only survived, but was expanded, both to urban areas and in size. This new social safety-net has thus been "successfully institutionalised", as Ms López Acevedo notes.

In Brazil, when Lula took office in 2003 he inherited a clutch of CCTs spread across various ministries, with different lists of beneficiaries and conditions. His accomplishment has been to turn these into a single, expanded programme while improving their quality. "We didn't start from zero," says Patrus Ananias, the minister of social development, giving the previous government more credit than is customary among Lula's officials. "We integrated and consolidated" the earlier CCTs and pushed up the value of the benefit. 

The success of the new schemes turns on effective administration. In Mexico, a visit to a government office is normally a far from efficient process. Simple tasks, like getting a driving licence, can take hours in apparently overstaffed offices. By contrast, in an Oportunidades regional office in Apan, a town of 40,000 people in the state of Hidalgo, it takes less than ten seconds for each woman in a queue which snakes out into the street to pick up her allotment of cash. Communities line up in turn. As names are called, each woman appears before the window with an identity card and a difficult-to-forge holographic stamp. All this would have been impossible without computerisation, notes Rodrigo García-Verdú, a researcher at Mexico's central bank. The ability to crunch numbers on a massive scale, he says, is part of what has allowed the programme to be better than any previous social spending in reaching the people it is intended to reach. It also has made it possible to evaluate the effects. 


From confusion to consolidation


In Brazil-whose unruly federal structure encompasses 5,561 autonomous municipal districts, ranging from rural outposts like Ocara to the metropolis of São Paulo-setting up Bolsa Família has been far from simple. At first Lula produced confusion rather than consolidation. He created two anti-poverty ministries and yet another CCT. Under a storm of criticism, the government rethought. Four CCTs were merged into Bolsa Família (a fifth is soon to join). Mr Ananias's ministry was created to run it, replacing the two stillborn ministries. The transition, unsurprisingly, was "chaotic", says an official involved. Quality control was forgotten. Government auditors and the media found fraud in the distribution of benefits and laxity in the monitoring of conditions. With millions of beneficiaries joining the rolls and benefits tripling to an average of 65 reais, Bolsa Família looked like a blatant bid for popularity rather than serious social policy. 

With a new team of career bureaucrats in charge and advice from the World Bank, which is lending $572m to help expand and improve the programme, Bolsa Família is righting itself. That means fine-tuning an elaborate system in which federal agencies, municipalities, NGOs and the beneficiaries themselves all play a part. 

The task starts with accurate targeting and identification of the beneficiaries. At a church hall in Ocara on a recent Friday the pews were filled with women. They came to enrol in the "single registry" of potential beneficiaries, which replaces the separate rolls of earlier schemes. Three registrars hired by the municipality asked each of the women their family incomes and details such as whether or not their houses had plumbing. But it is the ministry in Brasília that will decide which of them deserves Bolsa Família. As in Mexico, women are preferred because they are more likely than their husbands to spend the money on their children. Those who qualify draw benefits from the local branch of a government bank through an electronic card. 

With a single registry of potential beneficiaries, the government can check them against its data on employees in the formal sector of the economy. That exercise, conducted for the first time this year, will result in 50,000 people losing their benefits, says Rosani Cunha, who manages Bolsa Família. District quotas for beneficiaries, which fostered favouritism, have been dropped; now anyone below a certain income level can register, though they may not qualify for a benefit. Under new contracts with the federal government, municipalities must establish "social councils" composed of local officials and representatives of NGOs to monitor implementation. They will also gain more leeway to block and unblock benefits. Municipalities will get federal money to keep the register up to date. 


Incentives and evaluations


The government is driving a harder bargain with beneficiaries, as well. An earlier programme, Bolsa Escola, offered families 15 reais per child for keeping up to three children in school; now all of a family's children must attend classes. Under Bolsa Escola, just 19% of schools reported that children from beneficiary families were regularly attending classes; now 79% do, according to Ms Cunha. The ministry is readying a scale of sanctions, culminating in the total withdrawal of benefits, to promote compliance. 

Another advantage of Bolsa Família, say its boosters, is that objective criteria for conceding benefits are supplanting what Brazilians call "clientelism"-the doling out of favours by local potentates in return for political loyalty. In Ocara, these claims ring true, partly because the long-time mayor, who had governed for most of the district's 19-year history, lost an election last year. According to the local manager of Bolsa Família, Maria de Sousa Brasil, the re-registration at the church hall will weed out the 20-30% of beneficiaries who were enrolled undeservedly by the old regime. 

The evidence from Mexico, where more evaluation has been done, is that CCTs do work. A June 2004 paper in the Journal of the American Medical Association found improvements in the size and health of children participating in the programme. Drop-out rates among secondary-school students are also down-by roughly 5% for boys and 8% for girls, according to a study by Paul Schultz of Yale University. That may be an underestimate: a simulation done by Jere Behrman and his colleagues at the Penn Institute for Economic Research in Philadelphia suggests that Oportunidades could increase secondary-school enrolment by 19%.

On their own, the cash-transfer schemes can alleviate but not abolish poverty. Even Oportunidades does not reach the poorest of Mexico's rural poor, who live in communities so small that they do not have schools or health clinics within reach-a number that Mr Scott estimates at 500,000 people. Secondly, getting more children to attend school is only as effective as the schools themselves. Mexico spends a fairly large percentage of GDP on education, but its students still lag badly on standardised tests. The same goes for Brazil. Schools that Ocara's education secretary calls "apathetic" are unlikely to teach much, even if students stay until age 15, as Bolsa Família requires. 

Thirdly, cash transfers might generate some jobs, but in Ocara locals say that employment will come only when water does, and that depends on investment by the hard-pressed federal government. Indeed, according to Ms de Sousa Brasil, some beneficiaries stop working entirely, content to live off the benefit, meagre though it is. Avoiding such dependence will require further changes to Bolsa Família. There is talk of "complementary programmes" to shepherd people into productive work, a strong point of Chile's programme. Teenagers could get bonuses for graduating from school, as they do in Mexico, rather than dropping out after their benefits expire, as happens now. There is more to be done in co-ordinating federal, state and local programmes. It will be a long time before Ocara blooms year-round. But a start has been made. 



Related Items

Websites

The United Nations Development Programme provides information about poverty reduction in Latin America. The Brazilian government's Zero Hunger programme provides information about Bolsa Família (site in Portuguese). The Mexican government gives details about Oportunidades (site in Spanish). John Scott is a professor at CIDE (site in Spanish). See also the Brazilian presidency (site in Portuguese), the Mexican presidency and the World Bank.


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