1

Social Protection, Economic Growth, Poverty and Inequality

in Brazil?Conference on Social Protection, Economic Growth, Poverty and Inequality in South Africa: Lessons from the BRICS – UNDP and National

Planning Commission of South AfricaSeptember 2011

Fabio Veras Soares – IPC-IG (UNDP/SAE/IPEA)

Social Protection and Inclusive Growth

Expansion of Social Protection Programmes in Brazil

o Late 1920’s and early 1930’s: Social Protection as social insurance. Dual welfare system: formal/urban versus informal/rural sector workers.

o Social assistance – philanthropic. o 1971 – income support for elderly rural workers o 1974 – social assistance benefit for the elderly and the disabled

living in poverty (RMV)o 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.

o 1988 - Universal Health Systemo Early 1990’s - Universalization of Primary education (school meals)

2

Social Protection and Inclusive Growth

Expansion of Social Protection Programmes in Brazil

o Mid 1990’s: first experiences with CCT programmes at state and municipal (local government) level.

o 1999: Federal government co-finances municipal CCTso 2001: Federal CCTs (Bolsa Escola, Bolsa Alimentação, PETI)o 2003: Expansion of the CCTs programmes and consolidation of them

under Bolsa Família (current coverage: 25% of the population)o 2003-2012: From hunger zero to Brazil sem miseria.o 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.

o Social security (including rural pensions) increased from 5% of the GDP to 7.28% in the same period.

o Tax burden: 26% of the GDP to 35% (1998-2008).

3

Features of the recent growth process in Brazil

o 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)

o 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.

o 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).

4

Features of the recent fall in inequality and poverty in Brazil

o 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.

o Bolsa Familia was responsible for 16% of this fall, despite representing only 0.8% of the families’ income;

o 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.

o 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.

o 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.5

Souza (2011)

6

(Souza, 2011)

7

World Bank (2011)

8

World Bank (2011)

9

Souza (2011)

10

Stability and Growth

Economic Stability

o 1980’s and 1990’s: low and volatile growth rates combined, successive failure of stabilization plans and hyperinflation – widespread indexation of contracts.

o 1994: Plan Real – monetary reform (monetary anchor and overvalued exchange rate)

o Institutional reform.o 1999: inflation targeting and fiscal surplus targetso 2000: Law of fiscal responsibility.o Continuity between Cardoso (1995-2002) and Lula’s terms

(2003-2010)o Response to the 2008-9 crisis – fiscal stimulus package (minimum

wages, credit expansion and Bolsa Família expansion.o Recent fiscal consolidation.

11

Challenges of this growth process

Constraints: 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.

New policies: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.

12

Some interesting experiences for the South African context

Potential beneficiaries need to have their information stored in the Singe Registry of Targeted Social Programmes.

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

Municipalities are also responsible for monitoring co-responsibilities in health and education.

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.

Single registry is central to the new Brasil sem Miséria strategy13

References

• Ipea (2011) “15 Anos de Gasto Social Federal – Notas sobre o period de 1995 a 2009”. Comunicados do Ipea N. 98. Brasília-DF.

• 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.

• Neri, M. (2011) “Os Emergentes dos Emergentes: Reflexões Globais e Ações Locais para a Nova Classe Média Brasileira”. CPS/FGV. Rio de Janeiro-RJ.

• 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.

• 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.

• Souza, Ferreira, P. H. (2011) “Poverty, Inequality and Social Policies in Brazil, 1995-2009. Mimeo.

• World Bank (2011) “Brazil: Labor Market Dynamics and Job Quality: An operational approach and key policies issues. Mimeo

14

Many Thanks

15