Dec 17, 2008
IDB approves $2 billion to fight poverty in Mexico
.Resources to be channeled through Oportunidades, a program that seeks to stop intergenerational poverty with education, health and nutrition services
.The program includes a pilot plan that will bring innovations to tackle needs of urban populations
.This year the IDB has supported Mexico with $6 billion in diverse programs
Mexico will receive a $2 billion credit line from the Inter-American Development Bank for Oportunidades, one of the pioneer conditional cash transfer programs that has been replicated in other countries in Latin America and beyond.
Under conditional cash transfers, parents must keep children in school and provide healthcare to receive payments. The programs are a way for governments to respond to financial and economic uncertainties and at the same time tackle some of the root causes of poverty.
A first $200 million loan within the conditional credit line for investment projects (known as CCLIP) seeks to improve education, health and nutrition among the poor. A pilot program within Oportunidades will incorporate new initiatives especially adapted to the needs of the urban poor, as well as the indigenous population.
The IDB board approved the CCLIP and the first loan today. This operation is the third to Mexico for Oportunidades since it was launched in 1997. Two previous IDB loans totaled $2.2 billion, the largest amount the IDB has ever lent for a single social program in Mexico. These operations were not only significant financially but also because the Bank supported Mexico in developing rigorous independent evaluation mechanisms and constant program design improvements during these years. Building on this experience, the IDB is also financing similar conditional cash transfer programs in 15 Latin American and Caribbean countries.
The IDB has approved in 2008 lines of credit to Mexico for around $6 billion, including $2.5 billion to Sociedad Hipotecaria Federal for housing programs, $2 billion for Oportunidades, and $1.2 billion for Banobras for infrastructure and public services. The IDB also approved other operations to support the climate change agenda, including a first $200 million loan.
“The $2 billion Oportunidades line of credit is one of several IDB operations that support Mexico’s efforts to strengthen life conditions for the poor, usually the sector most affected and left behind in times of economic difficulties,” said IDB President Luis Alberto Moreno. “In this case, Mexico is not only bolstering its programs to reduce the impact of global economic troubles on the weakest sectors of society, but also improving the capacity of the Oportunidades program to build human capital for the future.”
“An important difference over previous financial crises is that the social programs are already in place that could be reinforced and improved to help poor families cope through difficult times,” added Moreno. “Even more important is that Mexico has the political will to empower its most vulnerable sectors to grow through this conditional cash transfer program. The IDB has always been supporting these efforts since their inception and will provide the additional resources necessary to improve results.”
Oportunidades delivers cash transfers directly to beneficiary families contingent on school attendance, use of preventive healthcare services and self-care workshops. The goal of this program is to stop transmitting poverty from one generation to another and it includes rigorous evaluation methods and focuses on increasing primary and secondary education completion rates and reduction of chronic child malnutrition.
The program now covers five million families, representing almost a quarter of the Mexican population and all homes living in extreme poverty. In 2008 its budget was $3.8 billion.
Extreme poverty in Mexico fell by nearly one third between 2000 and 2006 and the poverty gap was reduced by 3 percentage points. It is estimated that without the Oportunidades program the poverty rate would have increased by 1.3 percentage points.
Innovative Pilot Program
Oportunidades initially focused on rural areas, where poverty is two and a half times higher than in urban areas. Later it was also implemented in urban areas. Poor city dwellers present policymakers with the unique challenge of identifying the structurally poor compared to the circumstantially poor because of employment volatility and dynamic urban conditions.
For this reason, financing from the first loan approved today will support a pilot program covering 50,000 urban families – in Puebla, Ciudad Juárez and Ecatepec.
Among innovations, the program will identify beneficiaries by rates such as malnutrition, school failure or health problems, more than by the more traditional measure of income. Income is a constantly changing measure in a volatile urban context. A new multidimensional methodology will target the extreme poor.
Scholarships will focus on youth 14 to 18 years old, the most difficult age to ensure school attendance, with incentives to the family as well as to the youth themselves.
Regarding health, services will be adapted to focus on hectic urban schedules by letting families request their preferred health units, extending service hours and giving appointments to the family’s convenience. Age specific educational workshops will focus on urban health problems.
Payments will be made more through banks, which will allow clients to access additional financial services, such as savings accounts and debit cards.
The program will also study better ways to reach the indigenous people that account for 20% of the population in urban areas.
The Department of Social Development (SEDESOL) will carry out the program through the National Oportunidades Coordination Board. The first loan is for a 25-year term with a two-year grace period, at an adjustable interest rate based on LIBOR.
IDB Team Leader
- Christina MacCulloch