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The end of inherited poverty

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In early July 2009, a group of government officials from India came to the headquarters of the Inter-American Development Bank in Washington, D.C., to meet with Santiago Levy, a Mexican national who is the Bank’s vice president for sectors and knowledge.

They came to grill Levy about conditional cash transfer programs,  a social assistance concept that Levy helped to pioneer, and one in which the IDB has invested nearly $8 billion in the past 10 years.

A few days before, during her first official visit to Brazil, Philippine president Gloria Macapagal Arroyo had praised that country’s conditional cash transfer program, which serves almost 12 million families. Macapagal Arroyo has announced plans to create a similar program in the Philippines.

The first conditional cash transfer programs (CCTs) were created in Mexico and Brazil in 1997. A dozen years later, they’ve become one of Latin America’s public policy “exports.”

A Latin American idea.  CCTs provide direct subsidies to poor families, sending them a small amount of money every month on the condition that they meet certain health and education goals, such as taking their children to medical appointments and making sure they attend school.

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Nutrition, health and education indicators improve with CCT programs.

Mexico’s program, initially called “Progresa” and today known as “Oportunidades,” showed such good results so quickly that before long several other Latin American governments decided to imitate it. Social policy experts at the IDB and other multilateral development entities were also impressed, and soon began to provide financing to help replicate the concept.

Today, most Latin American countries have conditional cash transfer programs (see table below), and the model has been adopted by countries and societies as diverse as Indonesia and Mozambique, Pakistan and Bangladesh, Malawi, Algeria and Palestine. Even New York City has a Mexican-model cash transfer program, Opportunity NYC, launched in 2007.

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CCTs have gotten such good press that some people tend to minimize the difficulties involved in successfully implementing them. These include identifying the population that should receive benefits, defining how much money to give out per family, coordinating among the various government branches responsible for the program, ensuring the quality of education, health and nutrition services, and devising an effective “exit strategy” to keep the programs from generating a permanent dependency.

It can also be tricky to expand CCTs, and to run them effectively during times of economic crisis. “They started out as basically rural programs, and expanding them to urban areas is complicated,” adds IDB social programs expert Amanda Glassman. “It’s not clear what kind of role they should play during a recession.”

Moreover, CCTs should not be expected to fix underlying problems in public services. “CCTs don’t solve the problem of quality of education, and they don’t improve the kinds of health services that are available, either,” says Hugo Florez, a social programs specialist at the IDB. “You have to be clear about your objective, which is to break the intergenerational transmission of poverty.”

Though both Glassman and Florez are careful not to describe CCTs as a cure-all, they are emphatically enthusiastic about the concept. The IDB has monitored Mexico’s and Brazil’s experiences from the beginning. In 1999, after the Bank’s experts studied the first rigorous assessment of the impact Mexico’s program, they knew they were looking at a powerful tool that could help reduce poverty in nearly every country in the region.

When the IDB started to finance existing conditional cash transfer programs in 2001, it decided to do so on a large scale: it approved a $500 million loan to help strengthen Brazil’s program, quickly followed by a $1 billion loan to help expand Mexico’s program. At the time, this was the largest loan the IDB had ever approved.

At the same time, the Bank helped launch similar programs in Honduras, Nicaragua and Colombia, and eventually supported the same type of initiatives in several other Latin American countries.

The IDB’s commitment to CCTs continues today. In late August 2009, the Bank approved the first phase in a $300 million multiphase loan for conditional cash transfers in the Dominican Republic. In late June 2009, the Bank approved an $850 million loan for a similar CCT program in Argentina. And earlier in the same month the Bank approved $600 for to strengthen Mexico’s Oportunidades program.

In 10 years, the Bank has lent over $8 billion to these programs throughout the region. “But it was the countries that were the innovators,” Glassman says. “Then we got on board, and the other multinationals followed.”

A model to follow. The Indian delegation that visited IDB vice president Levy in July 2009 could not have found anyone better qualified to discuss Mexico’s conditional cash transfer program—Levy himself helped to invent it.

Mexico’s 1995 “Tequila crisis”—touched off by a devaluation of the peso—caused a tremendous rise in unemployment in Mexico, worsening the problem of extreme poverty. At that time, Levy was the deputy minister for budgetary affairs in the Ministry of Finance, and President Ernesto Zedillo asked him to design a program to respond to the situation.

What Levy designed had two elements that had never been tried before. One involved giving money to poor families instead of giving them food, and the other made the money conditional on meeting specific health and education goals that were easy to measure: pregnant women and nursing mothers (as well as their babies) would have to go for regular medical checkups, children’s vaccinations would have to be kept up to date and school-age children would actually have to go to school.

In 1997, when Levy’s plan became a pilot program, it had a third innovation as well: an impact assessment to measure its effectiveness. The results of the study, published in 1999, were what caught the attention of Latin American social policy makers and multilateral banks.

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The IDB has helped Brazil consolidate the Bolsa Família program.

“We got in after we saw that impact assessment,” Glassman says. In addition to making a strategic decision to support Mexico’s program, the IDB decided to help Brazil consolidate a variety of subsidies for the poor into one conditional cash transfer program to be called Bolsa Familia.

The impact assessment was also instrumental in persuading the administration of Mexican President Vicente Fox to continue and expand Oportunidades. Today, the program covers 5 million families—one out of every four Mexican households—and has an annual budget of nearly $4 billion. 

“This showed that a program to fight extreme poverty can be passed from one administration to another, and that it can even grow if it is based on systematic evaluations of empirical evidence and transparent, nonpartisan operations,” writes Levy in his book Sin herencia de pobreza – El programa Progresa-Oportunidades de México.

Today, thanks to Oportunidades, the Mexican government can make direct cash transfers to nearly all of the population living in extreme poverty, he adds.

 

The impact of evaluation. Oportunidades is arguably the most scrutinized and evaluated social programs in the world.  “And it is the one with the most impressive results,” says IDB social programs expert Ferdinando Regalía, who provided support for the CCT programs in El Salvador, Honduras, Nicaragua, Panama and Mexico, and today works closely with Levy in the Bank’s Office of the Vice President of Sectors and Knowledge.

These analyses have helped improve the program and enabled it to increase its budget, while making it easier to replicate in other countries. They have also made it possible for Oportunidades to serve as a model for incorporating impact evaluation studies into other social programs.

In fact, the results of these impact assessments in Mexico and other countries have become the chief selling point for CCT programs. Among the key results revealed by the assessments are increased rates of enrollment and progression through school, improved use of preventive health services, better nutrition and lower malnutrition, and a decrease in infant morbidity among participating children. A study by the United Nations Development Programme (UNDP) concludes that in recent years, CCT programs have been fundamental—at least in Mexico and Brazil—in reducing income inequality among the richest and poorest residents.

In August 2003, the World Bank published its analysis of the impact of CCTs in Mexico, Brazil, Honduras, Jamaica and Nicaragua that concluded that they are “an effective means for promoting human capital accumulation among poor households” and that they show “clear evidence of success in increasing enrollment rates, improving preventive health care and raising household consumption

 

And IDB study published in 2006 concluded that conditional transfers “can be very effective tools for reducing poverty and inequality in the long term.”

 

Two sides of a coin. CCTs have even been shown to help prevent the corruption that often afflicts social programs.  Since the money is not transferred through intermediaries or huge purchasing offices, there are fewer opportunities for the bribes or negotiated prices that can plague direct food distribution programs. Instead, in a CCT program the beneficiaries themselves monitor whether the correct amount of money arrives at its destination every month.

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The results of the impact assessments show improved use of preventive health services.

But even the best-designed programs must contend with the low quality of health and education services in the region. CCTs are good at attacking the problem of poverty from the demand side, but in some countries, such as Argentina, the increased demand has not been enough of an incentive to boost the supply of quality services, according to the IDB’s Florez.

Today’s global financial crisis is leading some governments to expand their CCT programs. But this could have unintended consequences, as the IDB’s Glassman explains. Some analysts fear that the pressure to expand these programs during the crisis may lead officials to relax the the objectivity and transparency of the criteria for identifying beneficiaries, potentially undermining a critical condition for the success and credibility of CCTs.   

Another risk is that CCTs will end up being confused with emergency programs, which are temporary “crisis relief” programs,. By definition  these programs should be discontinued once economic conditions improve.  

“We have to be clear on a social program’s objective before we start to think that the solution is a conditional cash transfer,” Florez emphasizes. “If the program seeks to break the intergenerational transmission of poverty, then a CCT makes sense, but it shouldn’t replace social programs that have other objectives.”

In other words, the very success of CCT programs could become a weakness, if governments begin to expand them indiscriminately. “Let’s not create an octopus that will end up not being able to move,” warns Florez.

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