Unit 4 Macro: Poverty Reduction Strategies in Brazil

The Brazilian government has invested heavily in anti-poverty programmes over the last ten to fifteen years and has lauded as an example of a country where a well designed combination of policies can have a significant effect. The percentage of the Brazilian population in extreme poverty has fallen from 23% in 1993 to 8.3% in 2009, and Brazil has achieved its own Millennium Development Goal to cut back extreme poverty in 2015 to ¼ of the level experienced in 1990 – this target was achieved in 2007. Much remains to be done for despite sustained economic growth, Brazil remains a highly unequal country and sixteen million people continue to experience extreme poverty living below the $1.25 per day UN benchmark. That said Brazil has seen their Gini coefficient fall by 9% between 2011 and 2009.

The poverty-reduction programme has been built around focusing on:

1. Increasing the percentage of adults in formal employment

2. Raising incomes for people in work

3. Boosting the non-labour income of Brazil’s poorest through an ambitious income transfer scheme known as Bolsa Familia

Bolsa Familia – conditional benefits targeting the poorest families

Bolsa Familia is an income transfer (or Family Benefit) programme established in 2003 which in 2011 reached more than a quarter of Brazil’s 190 million population. It provides small conditional cash transfers to families, the payments are conditional on families sending their children to school, completing immunisation schemes and attending post-natal care services. Total benefits amount to slightly more than 0.4 per cent of Brazil’s GDP and slightly less than 0.7 per cent of household income. This is a key point; the benefits paid are small which makes them less open to fraud.

Bolsa Familia targets poorer families, provides transfer payments for older people and has been extended to paying rural pensions. This programme is an example of targeting cash transfers to those in greatest need, but linking payments to families engaging with educational and other social policies.

The Brazilian Minimum Wage

Brazil has a legal pay floor for workers in the formal labour market and at present around 11 per cent of the labour force receives the minimum wage. Many countries have wage protection for vulnerable workers, but Brazil is different in that the government and trade unions have reached an agreement about a formula for annual changes in the minimum wage rate.

The yearly change in the wage = the previous year’s inflation rate + the GDP growth rate of the year before last. This helps to protect workers against the effects of inflation but also takes into account the overall strength of the economy. In 2012, the Brazilian minimum wage is $344 a month.

Productive Inclusion of the Poor

A third key part of the poverty-reduction policy in Brazil is to invest in education and training to build up human capital. Secondly to offer guaranteed minimum working conditions for people who work in formal labour markets. The government also provides subsidies to certain groups, for example subsidies to rural farmers to encourage production and exporting their surplus production to Brazilian urban areas.

Lifting educational outcomes is crucial to this long term anti-poverty strategy and some progress is being made. Illiteracy rates within young people aged 15-24 has fallen from 7.1% in 1995 to 1.9% in 2009. Attendance rates for children aged 6-14 years have grown from 88.7% in 1995 to 97.6% in 2009, and 85.2% of youths aged 15-17 remain in education. 62% of children complete primary education, 44% finishes their secondary schooling and 10% get through tertiary courses.

According to the World Bank

“Between 2001 and 2009, the income growth rate of the poorest 10% of the population was 7% per year, while that of the richest 10% was 1.7%. This helped decrease income inequality (measured by the Gini index) to reach a 50-year low of 0.519 in 2011.”

Ultimately the success of poverty-reduction programmes depends on an economy continuing to grow and create enough new jobs to meet the demands and expectations of an expanding labour force. Fears that cash transfers might create disincentives for people to look for work appear to be unfounded, indeed there is some evidence that the Brazilian benefit programme has boosted self-employment.

The new Brazilian President Dilma Rousseff has launched a new plan to eliminate dire poverty in Brazil within four years by lifting more than 16 million people from conditions of “misery. Bolsa Familia is being extended – cash transfers will be increased to poor rural farmers who benefit from government food purchases and payments of up to 2,400 reais every six months to improve their productivity.

A separate Bolsa Verde (Green Stipend) program will hand out 300 reais every three months to families who help to preserve forests where they live – an example of using conditional cash transfers to address the critical environmental and economic issue of deforestation. For many, this kind of policy has been a long time coming as this video below indicates:

Marginal Revolution University - Conditional Cash Transfers

World Bank - the rising middle class in Brazil

video platformvideo managementvideo solutionsvideo player

Brazil - video report from the Economist (June 2014)