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Contributions from
the Column
Monitor
No universal blueprint
Growing support for
taxing airline tickets
Avian flu lessons from Europe
“Alternative development”
often stops short
Wolrd Bank proposes active
poverty reduction
Zimbabwean success in
fighting HIV/AIDS
Nature conservation fund for
the South Caucasus
German development budget
expected to rise in 2006
DAC publishes
Annual Report 2005
Wold Food Programme buys
drought insurance for Ethiopia
04/2006
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[ Latin America ]
World Bank proposes active poverty reduction
In the past twenty years, Latin America has made very little progress in the fight against poverty. According to a
recent World Bank report, the share of poor people who live on less than two US dollars a day fell from almost 60%
in the 1950s to 20% by 1980. It has stagnated since at this level. In China, the World Bank maintains, the per capita
income rose by 8.5% a year from 1981 to 2000, and poverty declined by 42%. In Latin America, on the other hand,
the economy actually shrunk slightly in the 1980s and only grew by an annual 1.5% in the 1990s.
The report claims that Latin America is caught in a vicious circle. Growth is too low to reduce poverty. In turn, poverty
and the deep gulf between the rich and the poor population in many countries have hindered stronger economic growth.
Improving macro-economic conditions and hoping for more growth is therefore not enough. Rather, governments should
directly support the poor for them both to improve their personal situation and contribute to economic development.
“The issue of ‘pro-growth poverty reduction’ should perhaps be as important a policy concern as traditional concerns
with ‘pro-poor growth’,” states the World Bank report.
Latin America provides no empirical evidence for the “convergence thesis”, according to which the gap between
poor and rich countries is closed in the long-term by the invisible hand of the market. In the early 1960s, the
average income in Latin America amounted to just under a third of the average income in an OECD country, the
report states. Today’s ratio is less than a fifth. There is also no trend towards convergence within most Latin
American countries. Someone who is born into a poor family in a country like Brazil or Peru is far more likely
to remain poor for the rest of their life than similar persons in OECD countries. Chile provides an important
exception to this rule.
According to the report, valuable growth potential is being squandered because of poverty. Poor people
have no access to capital and therefore cannot invest. The poor get sick more often, and they are less educated.
Therefore, they only develop their productive potential to a limited extent. They are more averse to taking risks and,
in doubt, are more likely to refrain from implementing potentially lucrative business ideas. Aside from government
investments in education, health and infrastructure, the report also recommends making payments to the poor, on
condition of them taking advantage of educational programmes or health services. Furthermore, the poor in Latin America
should be enabled to insure themselves better against risks such as unemployment or illness.
On the one hand, the money for these kinds of programmes could be raised through more efficient tax collection. On the
other hand, governments have to reorganise state funding. The report claims that it is the well off who benefit most from
subsidies many Latin American countries pay for retirement pensions, higher education, fuel and electricity. “Converting
the state into an agent that promotes equality of opportunities and practices efficient redistribution is, perhaps, the most
critical challenge Latin America faces in implementing better policies that simultaneously stimulate growth and reduce
inequality and poverty.”
(ell)<
Reference:
Guillermo E. Perry et al.: Poverty Reduction and Growth:
Virtuous and Vicious Circles. World Bank Latin American and Caribbean Studies
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