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One-third in LatAm faces poverty risk

Approximately 59 percent of gains made in poverty reduction in Argentina can be attributed to economic redistribution policies

UNDP study suggests 38 percent of gains in terms of poverty due to resdistributive policies

Around 56 million people in Latin America escaped poverty between 2000 and 2012, according to a new United Nations Development Programme (UNDP) report that nevertheless warns that nearly 200 million, or over a third of the continent, remains vulnerable to economic shocks.

The drop in the percentage of people considered poor (41.7 percent in 2000 to 25.3 percent in 2013) has been distributed unevenly between an increase in the size of the middle class and the population considered vulnerable. Even so, there are approximatley 134 million people still living on less than US$ 4 a day in Latin America.

For the UNDP, vulnerable populations are those who have made it out of poverty but do not enjoy economic security like the middle class does. They live on an average US$4 to US$10 a day and risk being clawed back under the poverty line by economic turmoil, recession or volatility.

“Vulnerability” has become a key concept for social planning as governments are increasingly mindful of the capacity of economic downturns and price volatility as well as that of natural disasters to undermine gains made after years of hard work.

Simply put, the gains made in the last decade in the region have yet to be consolidated and social programmes must continue to address the needs of this sector of the population, the UNDP concluded.

Yet in order to solidify those gains, governments in the region must move past conditional cash transfer programmes that have been implemented with success, UNDP Director for Latin America and the Caribbean Jessica Faieta noted.

“It is very clear that using the same policies will not provide the same results. More than ever, the region must invest in universal social protection, particularly in the most critical phases of life, as is the case with children, the elderly and youth entering the labour market,” Faieta said at the report’s launch in El Salvador this week alongside Salvadoran President Salvador Sánchez Céren.

The report released this week is complementary to the 2014 Human Development Report, which focused on stalling social development in the region and the gender and income inequalities that persist in the region.

Argentina in numbers

Argentina received relatively good marks from the United Nations development body, cementing its place along with Uruguay and Chile as part of a group that has more successfully reduced poverty by creating a solid middle class.

This same group, along with Brazil, were recognized for their near-universal social insurance coverage, which is in marked contrast with the coverage in Peru, where about 21.5 percent of the population receives pensions.

As has been borne out in various studies, social indicators in Argentina have improved drastically since the early 2000s, and the most recent report lends more support to that trend.

Twenty-five percent of the population was considered poor in 2000, before the brunt of the 2001-2002 economic crisis sent the number to over 50 percent.

That number was reduced to 10 percent by 2012. Similarly, the middle class increased by 17.5 percentage points and the “vulnerable” population was reduced, but still remains high at 31.4 percent.

As the official inflation index was falsified between 2007 and 2013, there is a wide range of estimates on the poverty rate. These begin at five percent according to the government to more than 30 percent as estimated by the Argentine Catholic University (UCA). The consensus among national universities marks an estimation of about 15 percent.

Sifting through the data

Bolivia, Peru and Venezuela earn the highest marks from the UNDP for poverty reduction efforts: a respective 32.2, 26.3 and 22.7 percent reduction in the percentage of the population considered poor from 2000 to 2012.

This rate is far greater than the Latin American average of 16.3 and Argentina’s 14.2 percent. Uruguay recorded almost no change in the same period whereas Honduras and the Dominican Republic recorded small increases in the poverty rate and Guatemala a concerning 6.8 percent increase in the proportion of the population considered to be poor.

Tellingly, in Guatemala the proportion of people who fell out of the middle and vulnerable segment corresponds with the increase in the poverty rate.

It is precisely the possibility of a backwards slide that has alerted the UNDP. Its data shows that the growth rate of social progress in the region has slowed in the second half of the period under review and that gains made in Bolivia and Venezuela were also accompanied by a significant increase in the vulnerable population.

Bolivia also earned top spot for the country with the greatest increase in that sector of the population with only about half of those lifted out of poverty making it to the economic safety of the middle class.

In comparison, Argentina in the same period reduced its vulnerable population by four percent and recorded a 17.4 percent increase in those considered to be in the middle class.

Peru took the top spot for increases in the middle class, with a 19.1 increase and a much smaller 6.2 percent increase in the vulnerable population.

Despite the generally positive results for the region’s poverty reduction efforts, the Southern Cone remains the only sub-region with a large middle class.

Uruguay (60.2 percent of the total population) and Argentina (54.4 percent) are the only countries with more than half of the population considered to be in the middle class and Chile comes in next with 44 percent of the population.

Known for being the most unequal in terms of income, this inequality is also evident when comparing social data among countries. For example, the UNDP reported that the the Uruguayan middle class is seven times that of Nicaragua and Guatemala.

Furtheremore, the UNDP reports that less than 10 percent of the population in Chile and Uruguay can be consdiered poor, whereas the poverty rate is over 50 percent in Honduras.

Redistribution or growth

A great deal of the political discourse in the last decade has centred on the relative importance of economic distribution or economic growth as the best way to break the poverty trap. Redistribution of wealth has been at the forefront of the so-called ALBA countries (Venezuela, Bolivia, Ecuador, among others.)

In turn Peru, Chile and Colombia generally adopted policies that favour economic growth. Argentina has taken a middle of the road approach in terms of its policy choices.

However, those policy choices have not been absolute and there has been a mix and match of initiatives evident in these two blocs, a trend that appears in the UNDP data.

As noted in the chart, breaking down the relative importance of economic growth or redistribution can lead to some surprises.

The report released this week suggests that on average in Latin America 62 percent of poverty reduction can be attributed to growth and 38 to redistributive effects.

A whopping 80 percent of Venezuela’s poverty reduction success, the UNDP surprisingly suggests, can be attributed to the impact of economic growth, topped by Colombia which owes all of its more modest poverty reduction to economic growth rather than redistribution.

At the other end of the spectrum, 84 percent of Mexico’s poverty reduction (8.8 percentage points) is attributable to economic redistribution.

According to the UNDP, 59 percent of the reduction in poverty in Argentina can be traced back to the redistribution programmes instead of general economic growth.

The estimates are based on stastistical analyses and are not based on an methodological evaluation of the specific policies implemented by each country to reduce poverty.

Data for the UNDP report was taken from the World Bank and the Centro de Estudios Distributivos Laborales y Sociales (CEDLAS) at the La Plata National University.

Herald staff

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