Washington, June 2005

1. POVERTY REDUCTION IN THE XXI CENTURYDecentralized Poverty Reduction Strategies(The Bolivian Case)Alberto LeytonSr. Public Sector Specialist Washington, June 2005

2. AGENDA • Country Background • Results in 15 years • 1999-2000 Inflexion Point • Internal Crisis • External Opportunity • National Dialogue 2000 • The Poverty Reduction Strategy • Lessons learned and conclusions

3. COUNTRY BACKGROUND • Pop: 8 Million (5% Brazil) • GDP: $8 Billion (1.5% Brazil) • GDP Per capita: $1,000 (35% Brazil) • HDI: 0.658 / Ranking 174 (Brazil 79) • Stable democracy since 1982 • Decentralized to local Government (314 municipalities) in 1994 • Particular issues • Drug trafficking / Informality • High external dependency (Foreign aid = 10% PIB)

4. COUNTRY BACKGROUNDReforms Track Record 15 YEAR OF REFORMS (1985-2000) Leading country in: • GOVERNANCEREFORM • Electoral system • FM and control systems • Regulatory system • Decentralization • Judicial Reform • Civil Service Reform • Tax administration reform • ECONOMICREFORM • Fiscal deficit control • Subsidies elimination • Open markets • Foreign investment • Privatization / Capitalization • Pensions reform • Financial Sector reform

5. COUNTRY BACKGROUNDSocial Policy 1985 - 1994 Social Protection / Social Investment Funds 1991 - 2000 Sectoral Reforms • Education • Health 1994 - 2000 Local Decentralization • Non-conditional fiscal transfers (20% of revenues) • Institutional development at local level 1998 - 2000 PRSP • Debt relieve – HIPC • Poverty alleviation focus

6. 2. RESULTS IN 15 YEARS Economic volatility

7. 2. RESULTS IN 15 YEARS Poverty Reduction 98.6% 100% 95.3% 90.9% (0.21) (0.48) 85.5% 80% 70.9% (0.93) 58.6% Poverty incidence 66.3% (1.33) 60% (0.84) 53.1% (1.52) 40% Rural 39.0% Total Urban 20% 1976 1992 2001

8. 2. RESULTS IN 15 YEARS Public Investment • Decentralized Public Investment • 35% (1994)  64% (2000) • Municipal Public Investment • 5% (1994)  36% (2000) • Public Investment in social sectors • 21% (1994)  50% (2000) • Public investment in richer regions • 62% (1994)  49% (2000)

9. 2. RESULTS IN 15 YEARS • Economic stability with modest growth • Improvements in social indicators • Political stability with potential governance conflict • But... • Insufficient growing rate to impact poverty (1% per capita: 70 years to duplicate) • Growing sources based on foreign investment: very volatile • Poverty incidence still very high and higher in rural areas • Weak institutions and perception of corruption and misrepresentation

10. 3. 1999-2000 INFLEXION POINT Internal Crisis • Regional economic crisis • Coca crops eradication • Fiscal crisis due to pensions reform • Banking system contraction • Foreign investment contraction • Hydrocarbons international prices • Commodities (Agriculture / Mining) international prices 12% GDP contraction + political crisis and social unrest

11. 3. 1999-2000 INFLEXION POINT External Opportunity • Changes in IDIs • PRSP / PRGF • Debt relief: HIPC I and II • Harmonization of foreign aid • Access to markets in developed countries: FTAs  Debt service (HIPC) Sustainability = ---------------------  Exports (Markets)

12. 4. NATIONAL DIALOGUE 2000 Objectives and organization • National consultation to prepare PRSP • Local focus based on ongoing decentralization process: Municipality as the central player to combat poverty • Jubilee 2000 momentum • Four basic questions: • Who are the poor? • Which are the priority actions to reduce poverty? • How to distribute and who should administer HIPC funds? • Who should control the correct use of poverty reduction funds? • Participative bottom-up process from local to national levels • 9 Municipal Tables w/ 1256 part. (Mayor/VP Council/CV/woman) • 9 Regional Tables w/ 935 part. (regional organizations) • 1 National Table (Local and regional rep. / Gov. / Congress)

13. 4. NATIONAL DIALOGUE 2000 Results • Agreements on: • Target groups: Indigenous • Priority areas: Production and basic services • HIPC funds to municipalities • Criteria for progressive distribution of funds • Social control mechanism • 3 months of broad discussion on poverty within public agenda • Specific commitments from the Government and Congress • Deepening of the decentralization process • Alternative vehicle to social conflict • Risks: High expectations

14. 5. THE POVERTY REDUCTION STRATEGY Principles and Instruments After Economic / Political / Anti-Narcotics reforms ..... make fight against poverty the main thrust of future public policies • Long-term and sustainable principles: • PARTICIPATION for poverty reduction policies design (Ownership) • DECENTRALIZATION of social and productive services close to the beneficiaries • PROGRESSIVE resource allocation criteria (more $$ for poor) • SOCIAL CONTROL by beneficiaries / civil society to ensure effectiveness and impact • INSTITUTIONAL strengthening at all levels of government • Adjustable instruments • PRSP • National Dialogue Law

15. 5. THE POVERTY REDUCTION STRATEGY Principles and Instruments • Shared poverty diagnosis • Unemployment / Sub-employment • Low quality in social services provision (education & health) • Low level of productivity • Lack of property rights • Social exclusion • Strategic actions • Increase Opportunities (Productive infrastructure & technology) • Enhance Capabilities (Education / health / services) • Reduce vulnerability (Security and Social Protection) • Promote Social Integration • Two structural conditions • Decentralized & corruption-free institutional framework • Stable macroeconomic framework

16. 5. THE POVERTY REDUCTION STRATEGY Costs and Impacts • Cost & Financing • Within PRGF constraints • 10% of GDP of Public Investment per year • Financed with: Increased tax collection / Private participation / Foreign aid / HIPC II • Impact indicators (15 years) • Reduce poverty by 1/3 • Reduce extreme poverty by 50% • Increase life-expectancy from 62 to 69 years • Increase basic education coveragefrom 51% to 67% 5 Impact 7 Results 40 Intermediate (Short-term)

17. 5. THE POVERTY REDUCTION STRATEGY National Dialogue Law • Institutionalize social Participation through National / Local Dialogues (every 3 years) • Deepen down Decentralization by increasing transfers for poverty reduction • Establish Progressive resource allocation criteria for poverty reduction funds • Operationalize Social Control Mechanism

18. 5. THE POVERTY REDUCTION STRATEGY National Dialogue Law • Resources allocation formula (HIPC and Social Funds): • Population recalculation w/ poverty criteria 30% Equal byDepartment By population & poverty Municipalities 70% By population & poverty X (-1) 5% Non poor X (0) 16% “Umbral” poor “New” Population for each municipality X (1) 14% Moderate poor X (2) 34% Indigents X (3) 31% Marginal

19. 5. THE POVERTY REDUCTION STRATEGY National Dialogue Law

20. 5. THE POVERTY REDUCTION STRATEGY National Dialogue Law 121% 45% 11% ( ) = IDH Ranking from 1 to 314

21. 6. LESSONS LEARNED AND CONCLUSIONS • 15 years of successful reforms in Bolivia w/ positive results: Economic and stability partial institutional development • Economic Stability / Growth does not imply poverty reduction • Institutional weaknesses (corruption) and uneven power distribution threat political stability • Economic crisis increases public frustration and questions efficacy of reform program • Public policies need to focus more in reducing poverty and strengthening institutional framework • Four principles for PRSPs: Participation / Decentralization / Progressivity / Social Control • Long-term process needs ownership and empowerment: Dialogue and consensus are necessary to manage expectations and reduce frustration