Can Mexico’s Social Programs Help Reduce Poverty? by Alain de Janvry UC Berkeley January 31, 2005

1. Can Mexico’s Social Programs Help Reduce Poverty? by Alain de Janvry UC Berkeley January 31, 2005

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

3. 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)

4. II. What can be expected from public spending for poverty reduction? A conceptual framework 1) Social development expenditures Social assistance: Increase the assets of the poor: health, education, food and nutrition, access to land. Social protection: Reduce vulnerability, social insurance (transfers): old age pensions, health insurance, employment programs. 2) Economic sector expenditures Improve the quality of the context where the assets are used: infrastructure, agriculture, rural development, energy, transport, communication.

5. 3) Conceptual framework to explain well-being: role of complementarity between social and economic expenditures

6. 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.

7. High and resilient moderate poverty

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

9. Importance of economic cycles on poverty

10. 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

11. 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. Role of a territorial approach that integrates rural-urban locally

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

13. …with corresponding lack of success in reducing poverty

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

15. 2) Evolution in the satisfaction of Basic Needs (social development) International comparisons: Catching up. Strong progress in health, education, and nutrition

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

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

18. 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.

19. Low capacity of state to redistribute due to weak fiscal capacity: Low and stagnant public spending due to failed fiscal reforms

20. 3) Lack of investment in economic sector, e.g., infrastructure

21. 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 (80% of social protection budget) Old age pensions (IMSS, ISSSTE) Health insurance (IMSS, ISSSTE, SSA) Social assistance (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

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

24. 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)  weak redistribution capacity: social expenditures are a high and rising share of public spending, but at the cost of falling economic sector expenditures. Key role of success in tax reform.

25. 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).

26. 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).

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

28. 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).

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

30. 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. End