It is an honor for me to open the Second Social Development Week, an opportunity to reflect and share lessons learned and innovative ideas in an area critical to our region’s development. Thank you all for being here, particularly those of you who have come from the region to share your experiences in the field, including our colleagues from the Bank’s Country Offices. I am certain that our discussions over the following days will be fundamental for building up the capacity of our region and the Bank to better respond to the challenges of exclusion and inequity that undermine the governance and cohesion of the countries of Latin America and the Caribbean.
Economic growth, but with equity
In its almost five decades of work, the IDB has supported political, economic, and social progress in Latin America and the Caribbean. Over that period, the region made considerable headway in the consolidation of democracy and in the implementation of economic, institutional, and social reforms that were crucial for ensuring economic stability and sustainable development.
But there can be no sustainable development without social justice and equity. The region is entering the twenty-first century with almost one third of its population—180 million people—living on less than two dollars a day, and its average income levels mask deep disparities in human capital, quality of life, and social conditions. At the end of the 1990s, for example, the wealthiest 20% of the population received 60% of the income, while the poorest 20% received just 3%; and there are inequalities in other aspects—between regions in a single country, between men and women, between different ethnic groups, between the urban and rural populations, and others.
Behind income inequality there is great inequality in the distribution of assets and opportunities, including education, health care, land, and credit. For example, the poorest 20% of the population attend school for an average of four years, while the wealthiest 20% do so for 10 years. And this when, in a globalized environment, education is increasingly a determinant of income in the region and the market rewards individuals with higher education.
The challenge of inequality is compounded by social exclusion, which is the cause and consequence of the disparities mentioned. Groups that are socially excluded based on their gender, race, ethnic origin, disability, HIV/AIDS, migratory status, etc., experience multiple disadvantages (normally they are the poorest of the poor), stigma, and discrimination, and they are frequently the hindmost in terms of progress toward the Millennium Development Goals. Inclusion of these groups is essential for enhancing equity and generating basic social consensuses, which are crucial to governance.
This situation of inequality and chronic exclusion, combined with the social aftermath of the economic crisis at the end of the century, left the social fabric in tatters. The informal sector grew in the 1990s in most countries of the region—accounting for over 50% in some. According to ECLAC estimates, the average unemployment rate in the region rose to its highest level in history—10.7%—in 2003. Today, despite three years of good growth with low inflation, we still have a long way to go to make good on our debt to the poorest and most excluded inhabitants of our region.
Social crisis and governance
Clearly there is a close connection between governance and social well-being. Economic reforms, social development, and modernization of the State are processes that mutually reinforce each other and are necessary if the market is to function properly. Democracy is based on civil, political, and social rights and, although the region has made demonstrable progress in political and institutional aspects, the democratic deficit, which sometimes translates into patronage, populism, and the capture of public institutions and policies by special interests, leads to institutional fragility and creates a context that is not conducive to investment or job creation.
A weak relationship between the State and the citizens, on the one hand, and between the State and the market, on the other, erodes the possibilities of achieving sustainable and equitable development. Without good institutions and good policies, there can be no enabling economic environment and, without the latter, there can be no sustained growth or benefits to share or social justice to guarantee.
For this reason, a comprehensive approach is needed to effectively address the social challenges. The approach is based on the following elements, among others: (i) sustained economic recovery coupled with efficient, sustainable, targeted, and progressive public spending; (ii) increased investment and access to opportunities and credit; (iii) strengthening of integration between countries and between regions within countries to address the challenges of globalization, while mitigating the impact of change on the poorest and most vulnerable; (iv) improved performance of the labor market; (v) the introduction of institutional mechanisms to reduce the vulnerability of the very poor to economic swings; and (vi) the active involvement of other stakeholders, such as the private sector and civil society, that can contribute synergies to social development.
Economic growth will not be possible without an increase in productive capacity. But to bring that about, the public agenda needs to comply with the basic requirement of fiscal sustainability. By implementing fair and efficient tax systems and using existing resources more effectively, more can be done with less. Effective, transparent, and democratic administration boosts the confidence of societies in their governments. This creates a propitious environment for an increase in social responsibility and, accordingly, for compliance with tax obligations, which are necessary for the implementation of sustainable policies.
At the same time, it is essential to boost the effectiveness and progressiveness of social spending to reach those who are most in need, invest in the most critical stages of the life cycle, and reduce inequity. This involves fine-tuning the systems and mechanisms used for targeting—such as poverty maps—and making additional efforts in specific areas—such as the pension system—to improve their distributional impacts. Social programs should go beyond universal access to services, to include objectives of equity and quality.
Increasing the investments needed to create jobs and wealth is grounded in improving confidence and the business climate. To that end, the rule of law needs to be strengthened through judicial system reforms, corruption control, and modernization of public administration. A transparent, efficient, and accessible government provides the climate needed for taking risks, making long-term investments, and increasing productivity.
Also, for the poorest and most excluded citizens to become engines of development, access to credit needs to be increased substantially so they will have the possibility of becoming small entrepreneurs and homeowners. This requires stronger legal and institutional frameworks to ensure respect for property rights and the rights of creditors.
Headway in the process of regional integration also creates opportunities for productive investment and jobs, by opening up new markets, spurring efficiency, and fostering new projects. In this context, the modernization of national and transnational infrastructures is crucial for improving integration between countries and between different regions in each country. At the same time, work needs to be done to distribute the benefits of trade liberalization more fairly. To this end, it is essential to complement investment and trade policies by enhancing local governments’ capacity for economic development and to design custom-made regional development strategies that benefit the least developed regions by strengthening the activities in which they have comparative advantages.
Improved performance of the labor market should also be a core objective of a sustainable and inclusive socioeconomic policy. This calls for immediate improvements in job training, intermediation systems, and worker registration practices, with a view to increasing the productive employment of members of excluded groups and combatting discrimination. While the struggle to expand the formal sector is under way—with the social benefits this entails—government intervention is necessary to guarantee the welfare benefits and the social protection that informal workers lack.
Promoting social inclusion starts with reducing the vulnerabilities linked to poverty. The economic crises of the end of the century, for example, reversed many of the gains made in the preceding years, by leaving a significant part of the population without jobs and without the capacity to accumulate and invest in human capital. The intrinsic volatility of the financial markets and the economic cycle underscore the need for social safety nets. The region needs to redouble its efforts to establish institutional mechanisms that can cushion the negative impacts of different kinds of crises on the poor and excluded. In addition to improving equity, social protection can foster growth if it enables the poor to become involved in productive activities and labor markets that pose higher risks but that also offer better opportunities.
Inclusive policies not only entail redirecting existing resources, but also call for finding new ways to generate resources to increase social dividends. Both public and private sources should be used to finance social spending. The private sector can and should play a key role in generating resources for social investment, not out of charity, but because it has real incentives for doing so. Social stability is good business. Good business for everyone.
The initiatives in question will not achieve their objective unless they are promoted by transparent governments, with the capacity for accountability, that have the promotion of equity and inclusion front and center on their agendas. The challenge is to work to promote a new political culture, a cohesive society, governed by an explicit social contract between citizens with rights and duties and a State that is effective, transparent, just, and humane.
The institutional strategy
The Bank seeks to respond to these and other challenges through its institutional strategies and financial and nonfinancial instruments. The social development strategy, which is of particular interest in this context, places emphasis, inter alia, on tailoring the application of social reforms to the needs of each country; making social spending efficient in sectors such as housing, education, and health care; promoting social inclusion and the exercise of rights and citizenship; and providing comprehensive services based on a territorial approach. The strategy recognizes that social development can be strengthened through linkage between different levels of government, with decentralization and local management, with the creation of information systems, and with adequate processes for citizen participation, transparency, and accountability.
The Bank’s institutional strategies are reinforced by the instruments developed for their implementation. Under the mandate of the new lending framework, the Bank’s instruments and resources are in the service of the country focus to support programming and the design and implementation of its financial and nonfinancial products.
Monitoring the effectiveness of the instruments and programs designed to promote development is fundamental and requires reliable, timely, and accessible statistical information that should be continuously generated by the appropriate institutions. To that end, it is necessary to invest in the gathering of data on living conditions and to build up the technical capacity, funding, and political independence of the institutions that are responsible for generating statistical information in our countries. The Millennium Development Goals offer a framework for analysis and results that is important for guiding and informing the monitoring and evaluation efforts.
The Second Social Development Week, focused on the topic of Social Contract and Development: Toward More Equitable and Cohesive Societies, seeks to promote reflection on the need to visualize a comprehensive and inclusive development process for Latin America and the Caribbean which, if effectively and transparently managed, can help to build more equitable, cohesive, and responsible societies.
Over these last years, Latin America and the Caribbean have broken new ground and found creative solutions for acting on poverty and expanding access by the needy to social services. The conditional cash transfer programs, for example, have been able to establish direct links with human development policies and have begun to break down the mechanisms behind the intergenerational transmission of poverty.
The Bank is an important player in this process. More than 50% of the amount of the portfolio approved cumulatively since 1999 involved the social sector, thereby exceeding the Eighth Replenishment target. With loans for two programs alone—Oportunidades in Mexico and Bolsa Familia in Brazil—the Bank is contributing to the well-being of 15% of the region’s population, with many more people benefiting from other initiatives.
This morning we have the privilege of signing the loan contract that will support the expansion of the Bolsa Familia program in Brazil. I would like to extend a very special welcome to Mr. Patrus Ananias, that country’s Minister of Social Development, who honors us with his presence. Mr. Ananias has been a torch bearer for the Bolsa Familia program and other innovative strategies of President Lula’s government to improve quality of life and opportunities for all Brazilians.
The program was created at the end of 2003 by combining several subsidy programs, including Bolsa Escola, Bolsa Alimentação, Cartão Alimentar, and Auxilio Gas. With the unification of these programs, aside from achieving a significant reduction in administrative costs, social protection policy took on an integrated vision of the needs of poor families. Bolsa Familia now covers nearly 8 million families, with a goal of 11.2 million (reaching nearly one third of the Brazilian population). Bolsa Familia is present in all the country’s municípios, including the poorest municípios of the northeast, and more than 40% of the total population receives the benefit, creating considerable economic impacts at the local level.
This kind of strategy with a comprehensive, long-term vision, that links the efforts of local and national agencies, that has the cooperation and backing of international institutions, that is concerned with continuous and effective measurement of results, and that reflects positive experiences in Brazil and in other countries, serves as a model for our joint action in the crucial area of social development.
Before moving on to the signing of this important program of support for social development in Brazil, I would like to wish you all every success in this Second Social Development Week. The opportunity to take up the great challenge of comprehensive and inclusive development is in our hands. I am convinced that we will know how to meet this challenge to the benefit of our region.