The Safety Nets which are not Safety Nets: Social Investment Funds in Latin America
By Nora Lustig (10/97, En) See also Poverty and Inequality
There is evidence that income variability can have a more devastating impact on the poor than on the rich. For one thing, poorer people face higher risks to infant life from a fall in consumption. It has been found that fluctuations in agricultural output or prices have adverse effects on nutrition. In times of economic stress, households often discriminate against the more vulnerable. Also, bad things tend to happen simultaneously for the poor. Seasons with bad weather (or changes in water temperatures in the case of fishermen) tend to bring low employment and low wage-rates at the same time. Often, disease incidence rises too, affecting the ability of household members to work. Although much less researched, the urban poor's plight might not be substantially different when their loss of employment or falling real wages are the result of a macroeconomic shock or the transient costs of economic reforms.
The risk-prone poor tend to set up informal arrangements to defend themselves from fluctuations in consumption. However, community-based risk sharing arrangements can have serious limitations. In particular, they break down when adverse shocks affect the community, region, or country as a whole. This may justify public actions to partly insure or subsidize poor people's production, employment and price risks. Several mechanisms have been tried with mixed results. Relief work schemes have proven less prone to negative consequences.
When Latin America was undergoing the painful consequences of adjustment and short-term costs of reforms, most countries did not have safety nets to smooth the impact on the poor. There is widespread perception that social funds were put in place for precisely that purpose. For example, the World Bank argues that "social funds are an increasingly common instrument through which the Bank has supported safety net interventions to protect specific vulnerable groups from the short-term adverse impact of adjustment programs (Honduras, Bolivia)." A portfolio improvement program review by the World Bank sustains that "those Social Funds that have the objective of responding to emergency situations through the rapid creation of employment opportunities are likely to achieve their objective."
In practice, however, most SIF's were introduced several years after incomes and wages fell as a result of adjustment. Although the region was hit by a macroeconomic crisis in the early part of the 1980s, most Social Investment Funds were introduced in the 1990s. The first Fund was implemented in Bolivia in 1986--with the reform package--"only" after six years of consecutive negative growth rate. Moreover, Funds did not necessarily reach the population hurt by adjustment and by virtue of their characteristics often the poorest communities were left out. Although the first set of SIF's were supposed to respond to emergency situations, a closer examination reveals that most Social Investment Funds were not effective in creating employment opportunities for those hurt by the emergency: i.e., they were not consumption-smoothing safety nets. An important implication of these findings is that many countries in the region seem to lack an effective mechanism to protect the poor from output, employment and price risks. Correcting this might require to redress the SIF's project menu and modes of operation. Or, if the Funds turn out to be the wrong instrument, other mechanisms will have to be sought to address the problem of income variability for the poor.
Last updated: 05/08/07
