By Nora Lustig

Evidence from the "lost decade" of the 1980s suggests that economic shocks in Latin Amer ica often have a disproportionate impact on the poor. Even when the effect is not disproportionate, the poor cannot afford any further erosion in their standard of living, no matter how slight.

The debt crisis of the 1980s led to a worsening of income distribution throughout Latin America. Even more distressing for future growth and employment opportunities, the pace of improvement for social indicators slowed, especially for the poor and vulnerable. The social sectors bore the brunt of fiscal retrenchment, and investment in human capital became more skewed, which exacerbated an already yawning gap between rich and poor.

Social indicators in Mexico and Argentina showed similar trends following the 1995 financial crisis. Preliminary data from countries hit with natural disasters last year also show that the poor and vulnerable--those least able to cope with economic setbacks¯have been the ones most heavily hit.

Although economic shocks and natural disasters are recurrent phenomena, most of the region's countries still lack the safety nets needed to protect the poor during times of crisis. Formal insurance mechanisms remain beyond the reach of most low-income people. Moreover, informal insurance mechanisms, such as reliance on family and other community members, tend to break down during severe natural disasters or economic downturns that leave thousands of breadwinners out of work.

When governments have acted, they have done too little, too late. With few exceptions, macroeconomic stability and structural reforms have taken precedence over the social agenda.

Today, as voters in many countries assess the impact of a decade of economic and structural reforms, policymakers and politicians are increasingly aware that their ability to sustain such reforms depends on promoting shared development. In a few cases, this awareness is starting to be seen in more vigorous efforts to help the poor deal with unemployment, lower incomes, destroyed infrastructure and degraded land. Governments have learned the hard way that the scramble to improvise social protection policies during times of crisis tends to produce costly and disorganized band-aid solutions that anger voters. The problems experienced in Honduras and Nicaragua during early efforts to deliver relief to hurricane-affected regions provide a poignant example of the great need for adequate social protection mechanisms.

Among the policy instruments that belong on a social protection agenda are emergency employment programs, social investment funds to provide infrastructure and employment to poor communities, microcredit programs to help make up for lost jobs, and scholarship programs to prevent families from pulling their children out of school. Governments can use these policies to reduce suffering while at the same time safeguarding their countries' future.

Social protection for the poor should not be limited to short-term crisis response. Rather, it must form the core of a long-term strategy for poverty reduction and economic stability in Latin America and the Caribbean. Given the growing likelihood of economic shocks in an increasingly global world, the limited resources available to those particularly vulnerable to such shocks, and the threat that increasing poverty and inequality pose to sustainable development, it is not enough to merely cope with risks. Governments must move from reactive, last-minute crisis management to longer-term risk-reduction and risk-mitigation strategies.

By taking a systematic approach to social protection, the region's countries will be turning recent setbacks into opportunities for building a stronger and more equitable economic and social base.

--The author heads the Poverty and Inequality Advisory Unit of the IDB's Sustainable Development Department.