The Use of Social Investment Funds as an Instrument for Combating Poverty
By Poverty and Inequality Unit (12/98, POV-104, En, Es) See also Poverty and Inequality
This strategy (GN-1930-2)was formally considered by the Board of Executive Directors and the management of the IDB on September 30, 1998.
Abstract
At present, all the countries in Latin America and several in the Caribbean are home to Social Investment Funds. The Funds have proven to be effective in rapidly channeling external funding to small projects in poverty-stricken areas. Through their closer contact with poor communities they have opened new avenues for social action and have played a catalytic role in increasing public awareness of poverty issues. Over time their original emergency rationale was replaced by longer-term objectives and the Funds have effectively become the primary means by which many Latin American and Caribbean governments undertake actions in poor communities. The Inter-American Development Bank has been the principal external backer of the Funds in the region, and a major force in providing technical assistance and expertise.
This strategy report provides a summary overview of the Funds' experience and reviews the information available regarding their impact. The paper also discusses the questions raised by the move toward permanence of these instruments (which originally had temporary mandates), and examines the implications of continuing Bank support to subsequent generations of Funds (including a discussion of the kinds of activities and funding criteria that would be most appropriate). The report raises a series of operational issues that have received inadequate attention and need to be better addressed in the future, and considers the role of the Funds within the larger polity, focusing on organizational issues. The paper concludes with a series of specific recommendations for the Bank to implement in its future support of Social Investment Funds.
The entire report is available in PDF format and in printed form. The report's Introduction is reproduced below.
Introduction
The emergence of Social Investment Funds during the past ten years in most Latin American countries constitutes an important development in the field of social policy that has proven to be effective in rapidly channeling external funding to small projects in poverty-stricken areas. The Funds represent a significant institutional and operational improvement over the traditional government programs. They have developed improved systems of targeting so that their projects are better able to reach the poor than those of the traditional line ministries. As the choice of Fund projects is demand driven, this implies that for the most part they reflect the priorities of poor recipients. The Funds have successfully applied the procurement practices of the private sector, and have become efficient, low-cost providers of social infrastructure. They have been instrumental in altering the climate of apathy towards social policies and have shown that government programs can work. Moreover, through their closer contact with poor communities the Funds have opened new avenues for social action and have played a catalytic role in increasing public awareness of poverty issues. Social Investment Funds are perhaps one of the Region's, and the Bank's, most important contributions to development.
One of the first Social Investment Funds in the region, the Bolivian FES, established in 1986, represented an ad hoc attempt to provide employment and income support for people driven into poverty during the economic crisis of the 1980's. It was designed to do this primarily by building small unsophisticated projects of social and economic infrastructure in poor areas. As they evolved, employment creation was not the main channel by which the Bolivian Fund, or subsequent Funds, helped the poor. Rather it was the projects themselves that made a difference. Poor communities that never before had a decent school or safe water now had both, thanks to Fund projects. Communities that never before had seen a representative of the Central Government now were able to formulate projects of their own choosing, present them to the government and help in their implementation. These are important activities, and help explain why the Funds have expanded in the region and why they have been so strongly supported by international financial institutions, particularly the Inter-American Development Bank.
At present, all of the countries in Latin America and several in the Caribbean are home to Social Investment Funds. Over time the original "emergency" rationale for the Funds has been replaced by longer term objectives and the Funds have effectively become the primary means by which many governments in Latin America and the Caribbean undertake actions in poor communities.
The Inter-American Development Bank has been the principal external backer of the Funds in the region. Its contributions represent about half of all the external financing that the Social Investment Funds have received. The IDB has financed Funds in 16 countries, largely through concessional loans, for a total of $1.3 billion. (See Annex table A-1) All of these loans were made in the present decade (with the sole exception of the loan to the emergency Fund in Bolivia). It is also important to note that Bank support to the Social Investment Funds has gone far beyond the mere provision of financing. The IDB was a major force in the building of these institutions, providing technical assistance and expertise to assist in the creation of many of the Funds which received financing in the 1990's. The IDB's efforts have played a central role in contributing to the development and dissemination of this model throughout the Region.
The need for a Bank strategy document is justified on several counts. The Funds offer a potentially powerful instrument to aid in achieving the Bank's Eighth Replenishment mandates of poverty reduction and modernization of the state. The moment is ripe for a reevaluation of the role of the Funds, as it has become evident within the region that their longevity far exceeds original expectations. The Funds have organically evolved over time, and almost by default have become permanent instruments of government policy. If the Funds are to remain in place for the longer term, a series of questions then emerges as to their past effectiveness and future roles. As the major provider of financing to the Social Investment Funds, the Bank must have a response to these questions. Furthermore, the Bank is in an excellent position to distill experiences across countries, and to learn from the wide variety of different examples in the region what the relative strengths and weaknesses of the Funds are. This strategy paper attempts to summarize the current thinking on these issues, as well as to point the way towards IDB support for a new generation of Social Investment Funds.
Section II provides a summary overview of the Funds' experience in the Region. It answers the questions: "What is a Fund?" and "What do the Funds do?". It also reviews the limited information available regarding the Funds' impact. This section draws heavily upon the background document previously cited. Section III addresses the questions raised by the move toward permanence of these instruments which originally had temporary mandates, while the rest of the document goes on to examine the implications of continuing Bank support to subsequent generations of Funds. Section IV discusses the kinds of activities and funding criteria which would be most appropriate for future Funds. A series of operational issues which have received inadequate attention in the present generation of Funds and need to be better addressed in the future are raised in Section V. In Section VI, the role of the Funds within the larger polity is considered, focusing on organizational issues regarding the Funds' relationships with line ministries and local governments. The paper concludes in Section VII with a series of specific recommendations for the Bank to implement in its future support of Social Investment Funds.
Last updated: 05/08/07
