Two in every 5 Latin Americans risk falling back into poverty. What can be done to prevent it? | George Gray Molina, Eduardo Ortiz-Juárez and Alejandro Pacheco
27 Oct 2017
Towards the end of the recent commodity boom four years ago, Latin America had achieved the lowest level of income inequality and poverty. The region added more than 90 million people to a rising middle class that in just ten years, reaching 35% of population. The economic growth was transcendental in those results, both because it promoted a real increase in wages, and because it facilitated a greater volume of social spending. In both cases, the main beneficiaries were low income women, men and children.
With the recent regional economic slowdown and contraction, there was a generalized expectation that several of these achievements would reverse or, at least, slow down. Were these fears confirmed? Looking at the overall regional average, the answer is yes. After the boom, a new UNDP study shows that the proportion of people in poverty stagnated between 2013 and 2015—for the first time in more than a decade—and in absolute terms the incidence registered a marginal increase. Given the economic contraction and its influence on poverty, why was the result not as drastic as expected?
This question can only be answered if we break down the regional aggregate. For example, a slight increase in poverty figures was only experienced in the whole of South America. In contrast, poverty continued to decline in the Andean countries, albeit at a slower pace, and actually accelerated in Central America, which is significant considering that poverty rates had remained almost stagnant since 2007.
These results seem to reflect very different economic performances. Only the economies of Argentina and Brazil have contracted, while the majority of those in Central America grew by more than 4 percent annually on average, and the rest did so between 2 percent and 4 percent. Then, the apparent negative balance in the regional figure responds to a disproportionate burden imposed by the only two economies in recession. In the rest, social reconfiguration continued after the boom.
But is Latin America still a mobile region in individual incomes, as it proved to be during the boom? To explore the dynamics of mobility at the individual level (i.e., the simultaneous transit of people between different groups), we resort to synthetic panels built in 15 countries for the period 2013-2015. The most conservative results show the existence of income mobility trajectories upwards in the vast majority of countries. This is significant because on the one hand they had outperformed the trajectories downward; and, on the other hand, the magnitude of the rise was especially greater in those countries whose very trajectories during the boom had been rather modest. Revenue mobility in a good part of the region, therefore, has continued to occur.
Despite the positive trajectories, adding the “ups and downs” for the region as a whole will show that 7 million people would have fallen into poverty from vulnerability—those considered to be in a limbo, not poor, but not having risen fully to the middle class. These are the most succesible women and men to fall back into poverty when shock hits, like a hurricane, an economic crisis, a death or illness in the family, to name a few. This does not mean that poverty has increased by 7 million, since we already saw that the aggregate incidence remained almost stagnant, the stagnation results from the fact that, while 7 million people fell, a similar number emerged from poverty.
This showcases the urgent need to boost equate protection policies, especially considering that, at present, 40 percent of the regional population is vulnerable to falling into poverty. It also highlights that little more than 6 million people have gone from the middle class to vulnerability, which is a further concern for the public agendas of the region that has been spoken of only in an incipient way: the apparent fragility of the middle class.
During the boom, the region lost the opportunity to launch investments and aggressive reforms of social protection systems, beyond conditional cash transfers that, despite their undeniable positive results, were insufficient in a context in which the majority of the population had already left poverty—although many were vulnerable to falling back. This expansion of the population located in the middle demanded greater stability and quality of work, as well as access to equitable systems of pension, health and care. It also demanded more and better educational services, which constituted a natural bridge of transition to the labor market and that were coherent with the productive needs of the countries of the region.
The next years will be critical for the region. Addressing these major challenges will not be easy, since it requires large investments, coherent with the financing possibilities and an unprecedented need for institutional strengthening. All of this demands coordination of actions between different levels and government functions establishing political agreements aimed at the long term sustainable development seeking to end poverty in all its forms by 2030. The clock is ticking to leave no one behind.