POVERTY REDUCTION POVERTY REDUCTION IN THE XXI CENTURYIN THE XXI CENTURY
Decentralized Poverty Reduction Decentralized Poverty Reduction StrategiesStrategies
(The Bolivian Case)(The Bolivian Case)
Alberto LeytonAlberto LeytonSr. Sr. Public Sector SpecialistPublic Sector Specialist
Washington, June 2005Washington, June 2005
AGENDAAGENDA
1.1. Country BackgroundCountry Background2.2. Results in 15 yearsResults in 15 years3.3. 1999-2000 Inflexion Point1999-2000 Inflexion Point
– Internal CrisisInternal Crisis– External OpportunityExternal Opportunity
4.4. National Dialogue 2000National Dialogue 20005.5. The Poverty Reduction StrategyThe Poverty Reduction Strategy6.6. Lessons learned and conclusionsLessons learned and conclusions
1.1. COUNTRY BACKGROUNDCOUNTRY BACKGROUND
• Pop: 8 Million (5% Brazil)Pop: 8 Million (5% Brazil)• GDP: $8 Billion (1.5% Brazil)GDP: $8 Billion (1.5% Brazil)• GDP Per capita: $1,000 (35% Brazil)GDP Per capita: $1,000 (35% Brazil)• HDI: 0.658 / Ranking 174 (Brazil 79)HDI: 0.658 / Ranking 174 (Brazil 79)
• Stable democracy since 1982Stable democracy since 1982• Decentralized to local Government (314 Decentralized to local Government (314
municipalities) in 1994municipalities) in 1994
• Particular issuesParticular issues– Drug trafficking / InformalityDrug trafficking / Informality– High external dependency (Foreign aid = 10% PIB)High external dependency (Foreign aid = 10% PIB)
1.1. COUNTRY BACKGROUNDCOUNTRY BACKGROUNDReforms Track RecordReforms Track Record
15 YEAR OF REFORMS (1985-2000)15 YEAR OF REFORMS (1985-2000)
Leading country in:Leading country in:
ECONOMICECONOMICREFORMREFORM
• Fiscal deficit controlFiscal deficit control• Subsidies eliminationSubsidies elimination• Open marketsOpen markets• Foreign investmentForeign investment• Privatization / CapitalizationPrivatization / Capitalization• Pensions reformPensions reform• Financial Sector reformFinancial Sector reform
GOVERNANCEGOVERNANCEREFORMREFORM
• Electoral systemElectoral system• FM and control systemsFM and control systems• Regulatory systemRegulatory system• DecentralizationDecentralization• Judicial ReformJudicial Reform• Civil Service ReformCivil Service Reform• Tax administration reformTax administration reform
Social Protection / Social Protection / Social Investment Social Investment FundsFunds
Sectoral ReformsSectoral Reforms• EducationEducation• HealthHealth
Local DecentralizationLocal Decentralization• Non-conditional fiscal transfers (20% of revenues)Non-conditional fiscal transfers (20% of revenues)• Institutional development at local levelInstitutional development at local level
PRSPPRSP• Debt relieve – HIPCDebt relieve – HIPC• Poverty alleviation focusPoverty alleviation focus
1985 - 19941985 - 1994
1991 - 20001991 - 2000
1994 - 20001994 - 2000
1998 - 20001998 - 2000
1.1. COUNTRY BACKGROUNDCOUNTRY BACKGROUNDSocial PolicySocial Policy
2. RESULTS IN 15 YEARS2. RESULTS IN 15 YEARSEconomic volatilityEconomic volatility
-3
-2
-1
0
1
2
3
4
5
6
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
% G
row
th
98.698.6%%95.395.3%%
90.990.9%%
66.366.3%%
39.039.0%%
53.53.1%1%
85.585.5%%
58.58.6%6%
70.970.9%%
2020%%
4040%%
6060%%
8080%%
100100%%
19761976 19921992 20012001
Pove
rty
inci
denc
ePo
vert
y in
cide
nce
(0.21)(0.21)
(0.93)(0.93)
(0.48)(0.48)
(1.33)(1.33)(0.84)(0.84)
(1.52)(1.52)RuralRural
UrbanUrbanTotalTotal
2. RESULTS IN 15 YEARS2. RESULTS IN 15 YEARSPoverty ReductionPoverty Reduction
2. RESULTS IN 15 YEARS2. RESULTS IN 15 YEARSPublic InvestmentPublic Investment
• Decentralized Public InvestmentDecentralized Public Investment35% (1994) 35% (1994) 64% (2000) 64% (2000)
• Municipal Public InvestmentMunicipal Public Investment5% (1994) 5% (1994) 36% (2000) 36% (2000)
• Public Investment in social sectorsPublic Investment in social sectors21% (1994) 21% (1994) 50% (2000) 50% (2000)
• Public investment in richer regionsPublic investment in richer regions62% (1994) 62% (1994) 49% (2000) 49% (2000)
• Economic stability with modest growthEconomic stability with modest growth• Improvements in social indicatorsImprovements in social indicators• Political stability with potential governance conflictPolitical stability with potential governance conflict
But...But...• Insufficient growing rate to impact poverty (1% per capita: 70 Insufficient growing rate to impact poverty (1% per capita: 70
years to duplicate)years to duplicate)• Growing sources based on foreign investment: very volatileGrowing sources based on foreign investment: very volatile• Poverty incidence still very high and higher in rural areasPoverty incidence still very high and higher in rural areas• Weak institutions and perception of corruption and Weak institutions and perception of corruption and
misrepresentationmisrepresentation
22. RESULTS IN 15 YEARS. RESULTS IN 15 YEARS
3. 1999-2000 INFLEXION POINT3. 1999-2000 INFLEXION POINTInternal CrisisInternal Crisis
• Regional economic crisisRegional economic crisis• Coca crops eradicationCoca crops eradication• Fiscal crisis due to pensions reformFiscal crisis due to pensions reform• Banking system contractionBanking system contraction• Foreign investment contractionForeign investment contraction• Hydrocarbons international pricesHydrocarbons international prices• Commodities (Agriculture / Mining) international Commodities (Agriculture / Mining) international
pricesprices
12% GDP contraction +12% GDP contraction +political crisis and social unrestpolitical crisis and social unrest
• Changes in IDIsChanges in IDIs– PRSP / PRGFPRSP / PRGF– Debt relief: HIPC I and IIDebt relief: HIPC I and II– Harmonization of foreign aidHarmonization of foreign aid
• Access to markets in developed countries: FTAsAccess to markets in developed countries: FTAs
Debt service (HIPC)Debt service (HIPC)Sustainability = --------------------- Sustainability = --------------------- Exports (Markets) Exports (Markets)
3. 1999-2000 INFLEXION POINT3. 1999-2000 INFLEXION POINTExternal OpportunityExternal Opportunity
4. NATIONAL DIALOGUE 20004. NATIONAL DIALOGUE 2000Objectives and organizationObjectives and organization
• National consultation to prepare PRSPNational consultation to prepare PRSP• Local focus based on ongoing decentralization process: Municipality Local focus based on ongoing decentralization process: Municipality
as the central player to combat povertyas the central player to combat poverty• Jubilee 2000 momentumJubilee 2000 momentum• Four basic questions:Four basic questions:
– Who are the poor?Who are the poor?– Which are the priority actions to reduce poverty?Which are the priority actions to reduce poverty?– How to distribute and who should administer HIPC funds?How to distribute and who should administer HIPC funds?– Who should control the correct use of poverty reduction funds?Who should control the correct use of poverty reduction funds?
• Participative bottom-up process from local to national levelsParticipative bottom-up process from local to national levels– 9 Municipal Tables w/ 1256 part. (Mayor/VP Council/CV/woman)9 Municipal Tables w/ 1256 part. (Mayor/VP Council/CV/woman)– 9 Regional Tables w/ 935 part. (regional organizations)9 Regional Tables w/ 935 part. (regional organizations)– 1 National Table (Local and regional rep. / Gov. / Congress)1 National Table (Local and regional rep. / Gov. / Congress)
• Agreements on:Agreements on:– Target groups: IndigenousTarget groups: Indigenous– Priority areas: Production and basic servicesPriority areas: Production and basic services– HIPC funds to municipalities HIPC funds to municipalities – Criteria for progressive distribution of fundsCriteria for progressive distribution of funds– Social control mechanismSocial control mechanism
• 3 months of broad discussion on poverty within public agenda3 months of broad discussion on poverty within public agenda• Specific commitments from the Government and CongressSpecific commitments from the Government and Congress• Deepening of the decentralization processDeepening of the decentralization process• Alternative vehicle to social conflictAlternative vehicle to social conflict• Risks: High expectationsRisks: High expectations
4. NATIONAL DIALOGUE 20004. NATIONAL DIALOGUE 2000ResultsResults
After Economic / Political / Anti-Narcotics reforms ..... After Economic / Political / Anti-Narcotics reforms ..... make fight against poverty the main thrust of future public policiesmake fight against poverty the main thrust of future public policies
• Long-term and sustainable principles:Long-term and sustainable principles:– PARTICIPATIONPARTICIPATION for poverty reduction policies design (Ownership) for poverty reduction policies design (Ownership)– DECENTRALIZATIONDECENTRALIZATION of social and productive services close to the of social and productive services close to the
beneficiariesbeneficiaries– PROGRESSIVEPROGRESSIVE resource allocation criteria (more $$ for poor) resource allocation criteria (more $$ for poor)– SOCIAL CONTROLSOCIAL CONTROL by beneficiaries / civil society to ensure by beneficiaries / civil society to ensure
effectiveness and impacteffectiveness and impact– INSTITUTIONALINSTITUTIONAL strengthening at all levels of government strengthening at all levels of government
• Adjustable instrumentsAdjustable instruments– PRSPPRSP– National Dialogue LawNational Dialogue Law
5. THE POVERTY REDUCTION STRATEGY5. THE POVERTY REDUCTION STRATEGYPrinciples and InstrumentsPrinciples and Instruments
• Shared poverty diagnosisShared poverty diagnosis– Unemployment / Sub-employmentUnemployment / Sub-employment– Low quality in social services provision (education & health)Low quality in social services provision (education & health)– Low level of productivityLow level of productivity– Lack of property rights Lack of property rights – Social exclusionSocial exclusion
• Strategic actionsStrategic actions– Increase Opportunities (Productive infrastructure & technology)Increase Opportunities (Productive infrastructure & technology)– Enhance Capabilities (Education / health / services)Enhance Capabilities (Education / health / services)– Reduce vulnerability (Security and Social Protection)Reduce vulnerability (Security and Social Protection)– Promote Social IntegrationPromote Social Integration
• Two structural conditionsTwo structural conditions– Decentralized & corruption-free institutional frameworkDecentralized & corruption-free institutional framework– Stable macroeconomic frameworkStable macroeconomic framework
5. THE POVERTY REDUCTION STRATEGY5. THE POVERTY REDUCTION STRATEGYPrinciples and InstrumentsPrinciples and Instruments
• Cost & FinancingCost & Financing– Within PRGF constraintsWithin PRGF constraints– 10% of GDP of Public Investment per year10% of GDP of Public Investment per year– Financed with: Increased tax collection / Private participation / Financed with: Increased tax collection / Private participation /
Foreign aid / HIPC IIForeign aid / HIPC II
• Impact indicators (15 years)Impact indicators (15 years)– Reduce poverty by 1/3Reduce poverty by 1/3– Reduce extreme poverty by 50%Reduce extreme poverty by 50%– Increase life-expectancy from 62 to 69 yearsIncrease life-expectancy from 62 to 69 years– Increase basic education coverageIncrease basic education coverage
from 51% to 67% from 51% to 67%
ImpactImpact
ResultsResults
IntermediateIntermediate(Short-term)(Short-term)
55
77
4040
5. THE POVERTY REDUCTION STRATEGY5. THE POVERTY REDUCTION STRATEGYCosts and ImpactsCosts and Impacts
• Institutionalize social Participation through Institutionalize social Participation through National / Local Dialogues (every 3 years)National / Local Dialogues (every 3 years)
• Deepen down Decentralization by increasing Deepen down Decentralization by increasing transfers for poverty reductiontransfers for poverty reduction
• Establish Progressive resource allocation criteria for Establish Progressive resource allocation criteria for poverty reduction fundspoverty reduction funds
• Operationalize Social Control MechanismOperationalize Social Control Mechanism
5. THE POVERTY REDUCTION STRATEGY5. THE POVERTY REDUCTION STRATEGYNational Dialogue LawNational Dialogue Law
5. THE POVERTY REDUCTION STRATEGY5. THE POVERTY REDUCTION STRATEGYNational Dialogue LawNational Dialogue Law
• Resources allocation formula (HIPC and Social Funds):Resources allocation formula (HIPC and Social Funds):
• Population recalculation w/ poverty criteriaPopulation recalculation w/ poverty criteria
30%
30%
70%
70%
By population & poverty
Equal byDepartment
Municipalities
MunicipalitiesBy population
& poverty
Non poorNon poor
““Umbral” poorUmbral” poor
Moderate poorModerate poor
IndigentsIndigents
MarginalMarginal
X X (-1)(-1)X X (0)(0)X X (1)(1)X X (2)(2)X X (3)(3)
““New” New” Population Population
for each for each municipalitymunicipality
5%5%
16%16%
14%14%
34%34%
31%31%
5. THE POVERTY REDUCTION STRATEGY5. THE POVERTY REDUCTION STRATEGYNational Dialogue LawNational Dialogue Law
Regular Municipal Transfers Distribution (2.3% GDP)
Capitals45%
Others (Rural)
55%
DN2000 (HIPC) Resources Distribution (1% GDP initially)
Capitals11,8%Others
88,2%
New Total Transfers
Capitals36%
Others64%
5. THE POVERTY REDUCTION STRATEGY5. THE POVERTY REDUCTION STRATEGYNational Dialogue LawNational Dialogue Law
050
100150200250
% In
crea
se
La Paz (4) El Alto (34) Curva (309)
Increasing Municipal Revenue
PP PP + HIPC II
11%11%
45%45%
121%121%
( ) = IDH Ranking from 1 to 314
6. 6. LESSONS LEARNED AND LESSONS LEARNED AND CONCLUSIONSCONCLUSIONS
• 15 years of successful reforms in Bolivia w/ positive results: Economic 15 years of successful reforms in Bolivia w/ positive results: Economic and stability partial institutional developmentand stability partial institutional development
• Economic Stability / Growth does not imply poverty reduction Economic Stability / Growth does not imply poverty reduction • Institutional weaknesses (corruption) and uneven power distribution threat Institutional weaknesses (corruption) and uneven power distribution threat
political stabilitypolitical stability• Economic crisis increases public frustration and questions efficacy of Economic crisis increases public frustration and questions efficacy of
reform programreform program• Public policies need to focus more in reducing poverty and strengthening Public policies need to focus more in reducing poverty and strengthening
institutional frameworkinstitutional framework• Four principles for PRSPs: Participation / Decentralization / Progressivity / Four principles for PRSPs: Participation / Decentralization / Progressivity /
Social ControlSocial Control• Long-term process needs ownership and empowerment: Dialogue and Long-term process needs ownership and empowerment: Dialogue and
consensus are necessary to manage expectations and reduce frustrationconsensus are necessary to manage expectations and reduce frustration