Brazil: Sacrificing Anti-Poverty Success?

By Hayley Jones*

Bolsa Familia

Photo Credit: Senado Federal / Flickr / Creative Commons

Brazil’s flagship antipoverty program, the Bolsa Família, faces an uncertain future as the government of Interim President Michel Temer confronts adverse economic and political circumstances.  The program, which provides direct cash benefits to poor households on the condition that children fulfill education and health-related targets, was an important factor in Brazil’s progress on poverty and inequality since the early 2000s – between 2001 and 2013 the poverty headcount ratio declined from 24.7 percent to 8.9 percent, and the Gini coefficient declined from 59.3 to 52.9.  The Bolsa Família (formerly called Bolsa Escola) was a pioneer in the use of cash transfers in social policy in the 1990s.  The idea is enticingly simple: the cash allows families to meet immediate needs, while the education and health conditions ensure poor children are better equipped to lift themselves out of poverty in the long run.  Under Presidents Lula and Dilma, the Partido dos Trabalhadores (PT) put the policy at the heart of its platform, and reaped advantages at the polls with the expansion of coverage and benefits.  The program now reaches about one-quarter of the population.

The social gains made in part thanks to the Bolsa Família may now be at risk.  Brazil has been hit hard by the collapse of commodity and oil prices over the last two years and is currently experiencing what is predicted to be the country’s worst recession since the 1930s.  GDP fell by roughly 4 percent in 2015 and is expected to do the same in 2016.  The deep political crisis gripping the country since earlier this year further threatens the program.  Temer, his party (PMDB), and Finance Minister Henrique Meirelles have stressed the need to cut spending to reduce the deficit.  While many areas of social spending, such as pensions and education, are protected in the budget under the 1988 Constitution,  the Bolsa Família is not.  With the large political constituency benefitting from the program, there is likely little appetite in the interim government to ax the program altogether.  In fact, at the end of June Temer announced a 12.5 percent increase to the Bolsa Família – more than the 9 percent promised by Dilma – to compensate for inflation.  But he also emphasized that benefits should be temporary and that there is a need to focus on exit doors from the program.  Social Development Minister, Osmar Terra, has suggested that the program could be made more efficient and costs cut by 10 percent.

Temer may not be entirely wrong to highlight the need for exit strategies, but they should be exit strategies from poverty rather than from the Bolsa Família itself.  There is so far little evidence that it has done much to change the life trajectories of poor young people that would allow them to move out of poverty. The emphasis on increased school enrollment and attendance as transformative obscures much deeper problems, including poor school progression and completion rates in low-quality schools, a lack of educational infrastructure and resources, poorly trained teachers, and outdated curricula, among others.  If Temer is serious about moving beneficiaries out of poverty and the program, priority will have to be given to correcting regressive spending in public education (which prioritizes higher over basic education); better aligning curricula with labor market demand; and addressing the poor job opportunities for low- and semi-skilled workers. Economic realities and the rhetoric on efficiency and exit strategies do not bode well for such changes.  Under Temer, the Bolsa Família seems likely be limited to a policy tool for risk insurance and meeting basic needs rather than a platform for extending the social gains of the last decade.

July 12, 2016

*Hayley Jones is a DPhil (PhD) Candidate in the Department of International Development at the University of Oxford, United Kingdom.  Her thesis examines long-term poverty reduction in the Bolsa Família program.

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  1. Haley Jones’ piece on the important social program, Bolsa Familia, is very timely.

    However, she makes a common mistake in attributing the causes of Brazil’s current problems to the global economy, when much of it resulted from poor governance under the last administration. That is, it may be useful to clarify the causes of the macroeconomic situation that the Temer administration has inherited. Brazil’s current terrible economic situation is not primarily due to international factors such as the commodity price cycle or low world petroleum prices. Compared to most peer emerging economies, Brazil doesn’t trade very much, so is less affected by the commodity super-cycle: in 2014 Brazil’s trade/GDP ratio was only 19%. This is lower than other large Latin American countries. Even relatively closed Argentina’s trade/GDP that year was 26%, and the Pacific Alliance countries ranged from Mexico’s 63% to Colombia’s 31%. Brazil’s BRICS partners also trade more: also in 2014, China’s trade/GDP was 42% and India’s 38%. And the consequences of low world oil prices have both positive and negative implications for Brazil, which is not a large net exporter.

    Instead, Brazil’s current economic crisis is mostly self-inflicted. It is partly due to well-intended but stunningly ineffective developmentalist industrial policies, including supporting national champions. Loans from the national development bank (BNDES) rose fourfold from about $50 billion reais annually in 2006 to $190 billion reais in 2013 and 2014. Most of the expansion was funded by direct transfers from the National Treasury, which lost money on the deal, and paid for these cheap loans to big business by expanding the public debt. BNDES lending subsequently had to fall, beginning in 2015 and now continuing, and the effects have been recessionary. Meanwhile, the fall in world oil prices of course hasn’t been great for Petrobras, the state oil firm and long Brazil’s largest company and largest employer. But most of Petrobras’ problems are due to the Lava Jato (Car Wash) corruption scandal. It had to write off some $20 billion USD in 2015. Its share prices are now about 1/7 of their mid-2008 value. Petrobras’ problems have directly contributed to worsening public finances, and to Brazil losing its investment-grade international credit rating in late 2015, which also has hit public finances and private firms’ ability to borrow and willingness to invest.

    So it is correct to highlight important social programs that should be protected. But it also is necessary to recognize that the new center-right government, if it is to restart growth and expand jobs, must make some large policy changes, and fast. The macroeconomic legacies of the PT center-left governments, after 14 odd years in office, are by no means as good as its social legacies.

  2. Hayley Jones

     /  July 13, 2016

    Thanks very much for your comments, Leslie. Certainly, I agree that the current economic crisis also reflects much deeper problems than simply the global downturn in commodities, and this is something the interim government will need to address. In particular, as you say, the PT administrations largely failed to capitalize on the commodity boom of the last decade or so to invest in more effective industrial policies that would have led to greater economic diversification. At the same time, it is also clear that the Lula and Dilma governments were able to use the commodity boom to support more generous social spending, including the expansion of coverage and benefits in the Bolsa Família program. Indeed, Dilma explicitly linked high oil prices and future revenues with social spending in response to the protests ahead of the World Cup, promising to dedicate a portion of future oil revenues to education spending. In my own research with policymakers in Brazil, the link between the commodity boom and social spending was also often explicitly made — i.e., the commodity boom represented an opportunity to make unprecedented social investments. This is no longer a viable option, and so, in the context of the current economic crisis, the new government will face difficult budgetary choices. What the government chooses to prioritize in social spending (whether in the Bolsa Família, or in complementary areas such as education and jobs creation) will have important consequences for both the Bolsa Família program itself and for building on the social gains it has helped to secure over the past decade. Extending these gains in a way that leads to sustainable, long-term, intergenerational poverty reduction (i.e., breaking the cycle of poverty) — as opposed to the approach that has been pursued under the PT administrations, which has been much more about poverty alleviation (i.e., meeting immediate basic needs) — will require rethinking the allocation of social spending and developing a more comprehensive policy framework for poverty reduction (one that moves beyond seeing the Bolsa Família in insolation from education and labour and industrial policies, for instance). Based on the current rhetoric, however, it appears unlikely that the new government will do that. It seems far more likely, unfortunately, that the current economic crisis will become the justification for limiting the role of the Bolsa Família program to one of poverty alleviation, and possibly in a diminished capacity.


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