SDS/POV has placed particular emphasis on the issue of providing social protection for the poor in a developing country context. In general, the poor in developing countries: (i) have little or no access to either state-sponsored social insurance schemes (because they do not participate in a contributory system owing to legal or de facto restrictions) or private market insurance or credit mechanisms (because of "cream skimming" practices and moral hazard issues); (ii) cannot save in adequate amounts precisely because they are poor; and (iii) have little or no voice to demand protection of pro-poor programs and the implementation of safety nets in times of fiscal retrenchment.

Social protection for the poor is an important area of concern for policy makers for several reasons: (i) because policy interventions can improve the well being of the poor simply by preventing sharp downfalls in income or consumption (poor people in the developing world give high priority to economic security); (ii) because social protection for the poor can also be growth-enhancing by enabling the poor to undertake riskier initiatives in the production and labor market spheres and by preventing (or at least mitigating) irreversible damage to the accumulation of human capital after an adverse shock. Finally, if the poor are protected from the income variability associated with trade openness and flexible labor markets, they are more likely to support macroeconomic stabilization programs and growth-enhancing reforms.

Social protection provides a thematic focus for our efforts on a set of issues that are key in the fight against poverty because the region has yet to develop an adequate institutional response for mitigating the impact of adverse shocks on the poor. Knowledge building in this area is needed, since social protection and safety nets are likely to be a high-growth sector for the Bank?s portfolio, particularly given the plethora of natural disasters and the threat of financial crises in recent years. Most Latin American and Caribbean countries currently do not have robust mechanisms in place to protect the poor from economic downturns and respond in an improvised fashion, if at all, when adverse shocks do occur. Most countries in the region lack consumption-smoothing safety nets that could serve to protect the poor from output, employment and price risks that arise from the wide array of possible adverse shocks. Further, there is a need for greater understanding of the tradeoffs involved in the design of social programs, such as the costs and benefits of different targeting schemes, the fiscal and institutional effects of different assistance mechanisms, and the moral hazard and adverse selection attributes of social insurance programs.

Last updated: 04/26/07