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Social Protection, Economic Growth, Poverty and Inequality in Brazil?


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Presentation by Fabio Veras Soares (IPC-IG) at the Conference on Social Protection, Economic Growth, Poverty and Inequality in South Africa: Lessons from the BRICS- UNDP and National Planning Commission of South Africa. September 2011.

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Social Protection, Economic Growth, Poverty and Inequality in Brazil?

  1. 1. <ul><ul><li>Social Protection, Economic Growth, Poverty and Inequality in Brazil? </li></ul></ul><ul><ul><li>Conference on Social Protection, Economic Growth, Poverty and Inequality in South Africa: Lessons from the BRICS – UNDP and National Planning Commission of South Africa </li></ul></ul><ul><ul><li>September 2011 </li></ul></ul><ul><ul><li>Fabio Veras Soares – IPC-IG (UNDP/SAE/IPEA) </li></ul></ul>
  2. 2. Social Protection and Inclusive Growth <ul><li>Expansion of Social Protection Programmes in Brazil </li></ul><ul><li>Late 1920’s and early 1930’s: Social Protection as social insurance. Dual welfare system: formal/urban versus informal/rural sector workers. </li></ul><ul><li>Social assistance – philanthropic. </li></ul><ul><li>1971 – income support for elderly rural workers </li></ul><ul><li>1974 – social assistance benefit for the elderly and the disabled living in poverty (RMV) </li></ul><ul><li>1988 – New constitution: non-contributory universal rural pension and social benefit for the elderly and the disabled living in extreme poverty (BPC). Constitutional right. Amount: 1 minimum wage. Actual implementation from 1996 onwards. </li></ul><ul><li>1988 - Universal Health System </li></ul><ul><li>Early 1990’s - Universalization of Primary education (school meals) </li></ul>
  3. 3. Social Protection and Inclusive Growth <ul><li>Expansion of Social Protection Programmes in Brazil </li></ul><ul><li>Mid 1990’s: first experiences with CCT programmes at state and municipal (local government) level. </li></ul><ul><li>1999: Federal government co-finances municipal CCTs </li></ul><ul><li>2001: Federal CCTs (Bolsa Escola, Bolsa Alimentação, PETI) </li></ul><ul><li>2003: Expansion of the CCTs programmes and consolidation of them under Bolsa Família (current coverage: 25% of the population) </li></ul><ul><li>2003-2012: From hunger zero to Brazil sem miseria . </li></ul><ul><li>Social assistance expenditure increases from 0.7% (0.08%) of the total social expenditure of the federal government (GDP) in 1995 to 6.8% (1.09%) in 2009. </li></ul><ul><li>Social security (including rural pensions) increased from 5% of the GDP to 7.28% in the same period. </li></ul><ul><li>Tax burden: 26% of the GDP to 35% (1998-2008). </li></ul>
  4. 4. Features of the recent growth process in Brazil <ul><li>Growth Rates: bottom of the table of the BRICS: 4.4% between 2004-2010. Higher than the 2% observed between 1981-2002, but well below of the one observed during ISI years: 7.5% (1947-1980) </li></ul><ul><li>In Brazil, the poorest households have experienced a much faster increase in their income than the richest; the increase in the real income of the poor was higher than the GDP growth rates for India. Bringing both poverty and inequality down. Household income growing 2 p.p more than GDP rates according to household survey. </li></ul><ul><li>The internal consumption fueled by the emergence of a large lower middle class and the expansion of (expensive) consumption credit jointly with the anti-cyclical measures adopted in 2008-9 explains why the crisis was relatively mild in Brazil (-0.8% in 2008) and why growth bounced back so vigorously in the following year (7.5% in 2009). </li></ul>
  5. 5. Features of the recent fall in inequality and poverty in Brazil <ul><li>According to Soares et al. (2010) income inequality as measured by the Gini Coefficient fell from 0.591 in 1999 to 0.538 in 2009. </li></ul><ul><li>Bolsa Familia was responsible for 16% of this fall, despite representing only 0.8% of the families’ income; </li></ul><ul><li>Pensions indexed to the minimum wage (including rural pension and BPC) were responsible for 15% of the fall and represented 6.4% of the families income. </li></ul><ul><li>The major drive of the fall in income inequality has been the labour income since it represents 76.2% of the families income, this large share was responsible for 59% of the fall in inequality. </li></ul><ul><li>A combination of several factors has triggered this inequality-decreasing performance of the labour market: increases in the minimum wage, expansion of formal sector jobs, reduction in the returns to education as supply of more-educated labour force increases and fall in unemployment. </li></ul>
  6. 6. Souza (2011)
  7. 7. (Souza, 2011)
  8. 8. World Bank (2011)
  9. 9. World Bank (2011)
  10. 10. Souza (2011)
  11. 11. Stability and Growth <ul><li>Economic Stability </li></ul><ul><li>1980’s and 1990’s: low and volatile growth rates combined, successive failure of stabilization plans and hyperinflation – widespread indexation of contracts. </li></ul><ul><li>1994: Plan Real – monetary reform (monetary anchor and overvalued exchange rate) </li></ul><ul><li>Institutional reform. </li></ul><ul><li>1999: inflation targeting and fiscal surplus targets </li></ul><ul><li>2000: Law of fiscal responsibility. </li></ul><ul><li>Continuity between Cardoso (1995-2002) and Lula’s terms (2003-2010) </li></ul><ul><li>Response to the 2008-9 crisis – fiscal stimulus package (minimum wages, credit expansion and Bolsa Família expansion. </li></ul><ul><li>Recent fiscal consolidation. </li></ul>
  12. 12. Challenges of this growth process <ul><li>Constraints: </li></ul><ul><li>a) Highest interest rate in the world; b) overvalued exchange rate and its impact on the manufacturing sector; c) lack of private funds to finance long-term investment (increasing the fiscal burden for government); d) lack of domestic savings in an a credit-based mass consumption economy. </li></ul><ul><li>New policies: </li></ul><ul><li>a) Reduction of interest rates to ease private investment (specially in long term); b) reduce leakages – consumption credit without hindering redistributive policies; c) active industrial policy (innovation) to avoid specialization in the commodity sector; d) emphasis on less fiscal sensitive redistributive mechanisms like more progressive taxation and improving quality and distribution of social expenditure. </li></ul>
  13. 13. Some interesting experiences for the South African context <ul><li>Potential beneficiaries need to have their information stored in the Singe Registry of Targeted Social Programmes. </li></ul><ul><li>Municipalities are responsible for identifying the potential eligible of Bolsa Família . Disaggregated poverty estimates are used as a guidance by the Ministry of Social Development and local governments to guide the registration process in the Single Registry </li></ul><ul><li>Municipalities are also responsible for monitoring co-responsibilities in health and education. </li></ul><ul><li>Incentives based on monthly transfers to local government to help them coping with the duties of the programme are based on a Managerial Performance Index (IGD) that takes into account the quality of information in the registry as well as the local government performance in monitoring co-responsibilities. </li></ul><ul><li>Single registry is central to the new Brasil sem Miséria strategy </li></ul>
  14. 14. References <ul><li>Ipea (2011) “15 Anos de Gasto Social Federal – Notas sobre o period de 1995 a 2009”. Comunicados do Ipea N. 98. Brasília-DF. </li></ul><ul><li>Jaccoud, L.; Hadjab, P. D; & Chaibub, J. R. (2010) “The consolidation of Social Assistance in Brazil and its Challenges, 1988-2008”. International Policy Centre for Inclusive Growth Working Paper N.76. Brasília-DF. </li></ul><ul><li>Neri, M. (2011) “Os Emergentes dos Emergentes: Reflexões Globais e Ações Locais para a Nova Classe Média Brasileira”. CPS/FGV. Rio de Janeiro-RJ. </li></ul><ul><li>Santos, C. H. M. (2011) “Contribuição da DIMAC para o texto/diagnostico inicial da equipe do IPEA encarregada de contribuir para o PPA 2012/2015”. Mimeo. </li></ul><ul><li>Soares, S., Souza, Ferreira, P. H., Osório, R.G.; Silveira, F.G. (2010) Os Impactos do Benefício do Programa Bolsa Família sobre a Desigualdade e a Pobreza. (Impacts of Bolsa Família on Inequality and Poverty) In Castro, J.A.; Modesto, L. Bolsa Família 2003-2010: Avanços e desafios. Vol. 2. Chapter 1. Ipea. Brasília-DF. </li></ul><ul><li>Souza, Ferreira, P. H. (2011) “Poverty, Inequality and Social Policies in Brazil, 1995-2009. Mimeo. </li></ul><ul><li>World Bank (2011) “Brazil: Labor Market Dynamics and Job Quality: An operational approach and key policies issues. Mimeo </li></ul>
  15. 15. <ul><li>Many Thanks </li></ul>