POVERTY REDUCTION POVERTY REDUCTION IN THE XXI CENTURYIN THE XXI CENTURY

Decentralized Poverty Reduction Decentralized Poverty Reduction StrategiesStrategies

(The Bolivian Case)(The Bolivian Case)

Alberto LeytonAlberto LeytonSr. Sr. Public Sector SpecialistPublic Sector Specialist

Washington, June 2005Washington, June 2005

AGENDAAGENDA

1.1. Country BackgroundCountry Background2.2. Results in 15 yearsResults in 15 years3.3. 1999-2000 Inflexion Point1999-2000 Inflexion Point

– Internal CrisisInternal Crisis– External OpportunityExternal Opportunity

4.4. National Dialogue 2000National Dialogue 20005.5. The Poverty Reduction StrategyThe Poverty Reduction Strategy6.6. Lessons learned and conclusionsLessons learned and conclusions

1.1. COUNTRY BACKGROUNDCOUNTRY BACKGROUND

• Pop: 8 Million (5% Brazil)Pop: 8 Million (5% Brazil)• GDP: $8 Billion (1.5% Brazil)GDP: $8 Billion (1.5% Brazil)• GDP Per capita: $1,000 (35% Brazil)GDP Per capita: $1,000 (35% Brazil)• HDI: 0.658 / Ranking 174 (Brazil 79)HDI: 0.658 / Ranking 174 (Brazil 79)

• Stable democracy since 1982Stable democracy since 1982• Decentralized to local Government (314 Decentralized to local Government (314

municipalities) in 1994municipalities) in 1994

• Particular issuesParticular issues– Drug trafficking / InformalityDrug trafficking / Informality– High external dependency (Foreign aid = 10% PIB)High external dependency (Foreign aid = 10% PIB)

1.1. COUNTRY BACKGROUNDCOUNTRY BACKGROUNDReforms Track RecordReforms Track Record

15 YEAR OF REFORMS (1985-2000)15 YEAR OF REFORMS (1985-2000)

Leading country in:Leading country in:

ECONOMICECONOMICREFORMREFORM

• Fiscal deficit controlFiscal deficit control• Subsidies eliminationSubsidies elimination• Open marketsOpen markets• Foreign investmentForeign investment• Privatization / CapitalizationPrivatization / Capitalization• Pensions reformPensions reform• Financial Sector reformFinancial Sector reform

GOVERNANCEGOVERNANCEREFORMREFORM

• Electoral systemElectoral system• FM and control systemsFM and control systems• Regulatory systemRegulatory system• DecentralizationDecentralization• Judicial ReformJudicial Reform• Civil Service ReformCivil Service Reform• Tax administration reformTax administration reform

Social Protection / Social Protection / Social Investment Social Investment FundsFunds

Sectoral ReformsSectoral Reforms• EducationEducation• HealthHealth

Local DecentralizationLocal Decentralization• Non-conditional fiscal transfers (20% of revenues)Non-conditional fiscal transfers (20% of revenues)• Institutional development at local levelInstitutional development at local level

PRSPPRSP• Debt relieve – HIPCDebt relieve – HIPC• Poverty alleviation focusPoverty alleviation focus

1985 - 19941985 - 1994

1991 - 20001991 - 2000

1994 - 20001994 - 2000

1998 - 20001998 - 2000

1.1. COUNTRY BACKGROUNDCOUNTRY BACKGROUNDSocial PolicySocial Policy

2. RESULTS IN 15 YEARS2. RESULTS IN 15 YEARSEconomic volatilityEconomic volatility

-3

-2

-1

0

1

2

3

4

5

6

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

% G

row

th

98.698.6%%95.395.3%%

90.990.9%%

66.366.3%%

39.039.0%%

53.53.1%1%

85.585.5%%

58.58.6%6%

70.970.9%%

2020%%

4040%%

6060%%

8080%%

100100%%

19761976 19921992 20012001

Pove

rty

inci

denc

ePo

vert

y in

cide

nce

(0.21)(0.21)

(0.93)(0.93)

(0.48)(0.48)

(1.33)(1.33)(0.84)(0.84)

(1.52)(1.52)RuralRural

UrbanUrbanTotalTotal

2. RESULTS IN 15 YEARS2. RESULTS IN 15 YEARSPoverty ReductionPoverty Reduction

2. RESULTS IN 15 YEARS2. RESULTS IN 15 YEARSPublic InvestmentPublic Investment

• Decentralized Public InvestmentDecentralized Public Investment35% (1994) 35% (1994) 64% (2000) 64% (2000)

• Municipal Public InvestmentMunicipal Public Investment5% (1994) 5% (1994) 36% (2000) 36% (2000)

• Public Investment in social sectorsPublic Investment in social sectors21% (1994) 21% (1994) 50% (2000) 50% (2000)

• Public investment in richer regionsPublic investment in richer regions62% (1994) 62% (1994) 49% (2000) 49% (2000)

• Economic stability with modest growthEconomic stability with modest growth• Improvements in social indicatorsImprovements in social indicators• Political stability with potential governance conflictPolitical stability with potential governance conflict

But...But...• Insufficient growing rate to impact poverty (1% per capita: 70 Insufficient growing rate to impact poverty (1% per capita: 70

years to duplicate)years to duplicate)• Growing sources based on foreign investment: very volatileGrowing sources based on foreign investment: very volatile• Poverty incidence still very high and higher in rural areasPoverty incidence still very high and higher in rural areas• Weak institutions and perception of corruption and Weak institutions and perception of corruption and

misrepresentationmisrepresentation

22. RESULTS IN 15 YEARS. RESULTS IN 15 YEARS

3. 1999-2000 INFLEXION POINT3. 1999-2000 INFLEXION POINTInternal CrisisInternal Crisis

• Regional economic crisisRegional economic crisis• Coca crops eradicationCoca crops eradication• Fiscal crisis due to pensions reformFiscal crisis due to pensions reform• Banking system contractionBanking system contraction• Foreign investment contractionForeign investment contraction• Hydrocarbons international pricesHydrocarbons international prices• Commodities (Agriculture / Mining) international Commodities (Agriculture / Mining) international

pricesprices

12% GDP contraction +12% GDP contraction +political crisis and social unrestpolitical crisis and social unrest

• Changes in IDIsChanges in IDIs– PRSP / PRGFPRSP / PRGF– Debt relief: HIPC I and IIDebt relief: HIPC I and II– Harmonization of foreign aidHarmonization of foreign aid

• Access to markets in developed countries: FTAsAccess to markets in developed countries: FTAs

Debt service (HIPC)Debt service (HIPC)Sustainability = --------------------- Sustainability = --------------------- Exports (Markets) Exports (Markets)

3. 1999-2000 INFLEXION POINT3. 1999-2000 INFLEXION POINTExternal OpportunityExternal Opportunity

4. NATIONAL DIALOGUE 20004. NATIONAL DIALOGUE 2000Objectives and organizationObjectives and organization

• National consultation to prepare PRSPNational consultation to prepare PRSP• Local focus based on ongoing decentralization process: Municipality Local focus based on ongoing decentralization process: Municipality

as the central player to combat povertyas the central player to combat poverty• Jubilee 2000 momentumJubilee 2000 momentum• Four basic questions:Four basic questions:

– Who are the poor?Who are the poor?– Which are the priority actions to reduce poverty?Which are the priority actions to reduce poverty?– How to distribute and who should administer HIPC funds?How to distribute and who should administer HIPC funds?– Who should control the correct use of poverty reduction funds?Who should control the correct use of poverty reduction funds?

• Participative bottom-up process from local to national levelsParticipative bottom-up process from local to national levels– 9 Municipal Tables w/ 1256 part. (Mayor/VP Council/CV/woman)9 Municipal Tables w/ 1256 part. (Mayor/VP Council/CV/woman)– 9 Regional Tables w/ 935 part. (regional organizations)9 Regional Tables w/ 935 part. (regional organizations)– 1 National Table (Local and regional rep. / Gov. / Congress)1 National Table (Local and regional rep. / Gov. / Congress)

• Agreements on:Agreements on:– Target groups: IndigenousTarget groups: Indigenous– Priority areas: Production and basic servicesPriority areas: Production and basic services– HIPC funds to municipalities HIPC funds to municipalities – Criteria for progressive distribution of fundsCriteria for progressive distribution of funds– Social control mechanismSocial control mechanism

• 3 months of broad discussion on poverty within public agenda3 months of broad discussion on poverty within public agenda• Specific commitments from the Government and CongressSpecific commitments from the Government and Congress• Deepening of the decentralization processDeepening of the decentralization process• Alternative vehicle to social conflictAlternative vehicle to social conflict• Risks: High expectationsRisks: High expectations

4. NATIONAL DIALOGUE 20004. NATIONAL DIALOGUE 2000ResultsResults

After Economic / Political / Anti-Narcotics reforms ..... After Economic / Political / Anti-Narcotics reforms ..... make fight against poverty the main thrust of future public policiesmake fight against poverty the main thrust of future public policies

• Long-term and sustainable principles:Long-term and sustainable principles:– PARTICIPATIONPARTICIPATION for poverty reduction policies design (Ownership) for poverty reduction policies design (Ownership)– DECENTRALIZATIONDECENTRALIZATION of social and productive services close to the of social and productive services close to the

beneficiariesbeneficiaries– PROGRESSIVEPROGRESSIVE resource allocation criteria (more $$ for poor) resource allocation criteria (more $$ for poor)– SOCIAL CONTROLSOCIAL CONTROL by beneficiaries / civil society to ensure by beneficiaries / civil society to ensure

effectiveness and impacteffectiveness and impact– INSTITUTIONALINSTITUTIONAL strengthening at all levels of government strengthening at all levels of government

• Adjustable instrumentsAdjustable instruments– PRSPPRSP– National Dialogue LawNational Dialogue Law

5. THE POVERTY REDUCTION STRATEGY5. THE POVERTY REDUCTION STRATEGYPrinciples and InstrumentsPrinciples and Instruments

• Shared poverty diagnosisShared poverty diagnosis– Unemployment / Sub-employmentUnemployment / Sub-employment– Low quality in social services provision (education & health)Low quality in social services provision (education & health)– Low level of productivityLow level of productivity– Lack of property rights Lack of property rights – Social exclusionSocial exclusion

• Strategic actionsStrategic actions– Increase Opportunities (Productive infrastructure & technology)Increase Opportunities (Productive infrastructure & technology)– Enhance Capabilities (Education / health / services)Enhance Capabilities (Education / health / services)– Reduce vulnerability (Security and Social Protection)Reduce vulnerability (Security and Social Protection)– Promote Social IntegrationPromote Social Integration

• Two structural conditionsTwo structural conditions– Decentralized & corruption-free institutional frameworkDecentralized & corruption-free institutional framework– Stable macroeconomic frameworkStable macroeconomic framework

5. THE POVERTY REDUCTION STRATEGY5. THE POVERTY REDUCTION STRATEGYPrinciples and InstrumentsPrinciples and Instruments

• Cost & FinancingCost & Financing– Within PRGF constraintsWithin PRGF constraints– 10% of GDP of Public Investment per year10% of GDP of Public Investment per year– Financed with: Increased tax collection / Private participation / Financed with: Increased tax collection / Private participation /

Foreign aid / HIPC IIForeign aid / HIPC II

• Impact indicators (15 years)Impact indicators (15 years)– Reduce poverty by 1/3Reduce poverty by 1/3– Reduce extreme poverty by 50%Reduce extreme poverty by 50%– Increase life-expectancy from 62 to 69 yearsIncrease life-expectancy from 62 to 69 years– Increase basic education coverageIncrease basic education coverage

from 51% to 67% from 51% to 67%

ImpactImpact

ResultsResults

IntermediateIntermediate(Short-term)(Short-term)

55

77

4040

5. THE POVERTY REDUCTION STRATEGY5. THE POVERTY REDUCTION STRATEGYCosts and ImpactsCosts and Impacts

• Institutionalize social Participation through Institutionalize social Participation through National / Local Dialogues (every 3 years)National / Local Dialogues (every 3 years)

• Deepen down Decentralization by increasing Deepen down Decentralization by increasing transfers for poverty reductiontransfers for poverty reduction

• Establish Progressive resource allocation criteria for Establish Progressive resource allocation criteria for poverty reduction fundspoverty reduction funds

• Operationalize Social Control MechanismOperationalize Social Control Mechanism

5. THE POVERTY REDUCTION STRATEGY5. THE POVERTY REDUCTION STRATEGYNational Dialogue LawNational Dialogue Law

5. THE POVERTY REDUCTION STRATEGY5. THE POVERTY REDUCTION STRATEGYNational Dialogue LawNational Dialogue Law

• Resources allocation formula (HIPC and Social Funds):Resources allocation formula (HIPC and Social Funds):

• Population recalculation w/ poverty criteriaPopulation recalculation w/ poverty criteria

30%

30%

70%

70%

By population & poverty

Equal byDepartment

Municipalities

MunicipalitiesBy population

& poverty

Non poorNon poor

““Umbral” poorUmbral” poor

Moderate poorModerate poor

IndigentsIndigents

MarginalMarginal

X X (-1)(-1)X X (0)(0)X X (1)(1)X X (2)(2)X X (3)(3)

““New” New” Population Population

for each for each municipalitymunicipality

5%5%

16%16%

14%14%

34%34%

31%31%

5. THE POVERTY REDUCTION STRATEGY5. THE POVERTY REDUCTION STRATEGYNational Dialogue LawNational Dialogue Law

Regular Municipal Transfers Distribution (2.3% GDP)

Capitals45%

Others (Rural)

55%

DN2000 (HIPC) Resources Distribution (1% GDP initially)

Capitals11,8%Others

88,2%

New Total Transfers

Capitals36%

Others64%

5. THE POVERTY REDUCTION STRATEGY5. THE POVERTY REDUCTION STRATEGYNational Dialogue LawNational Dialogue Law

050

100150200250

% In

crea

se

La Paz (4) El Alto (34) Curva (309)

Increasing Municipal Revenue

PP PP + HIPC II

11%11%

45%45%

121%121%

( ) = IDH Ranking from 1 to 314

6. 6. LESSONS LEARNED AND LESSONS LEARNED AND CONCLUSIONSCONCLUSIONS

• 15 years of successful reforms in Bolivia w/ positive results: Economic 15 years of successful reforms in Bolivia w/ positive results: Economic and stability partial institutional developmentand stability partial institutional development

• Economic Stability / Growth does not imply poverty reduction Economic Stability / Growth does not imply poverty reduction • Institutional weaknesses (corruption) and uneven power distribution threat Institutional weaknesses (corruption) and uneven power distribution threat

political stabilitypolitical stability• Economic crisis increases public frustration and questions efficacy of Economic crisis increases public frustration and questions efficacy of

reform programreform program• Public policies need to focus more in reducing poverty and strengthening Public policies need to focus more in reducing poverty and strengthening

institutional frameworkinstitutional framework• Four principles for PRSPs: Participation / Decentralization / Progressivity / Four principles for PRSPs: Participation / Decentralization / Progressivity /

Social ControlSocial Control• Long-term process needs ownership and empowerment: Dialogue and Long-term process needs ownership and empowerment: Dialogue and

consensus are necessary to manage expectations and reduce frustrationconsensus are necessary to manage expectations and reduce frustration