Question: Can Mexico s Conditional Cash Transfer Program, Oportunidades, help reduce poverty and inequality in the long run for Mexico?

Leticia Corona Gómez Dr. Shirk POLS 557, Latin American Politics December 19, 2013 Question: Can Mexico s Conditional Cash Transfer Program, Oportunidades, help reduce poverty and inequality in the long run for Mexico? Introduction Poverty reduction has been a continuous challenge for Latin American countries suffering from large inequality gaps. More recently following the Global Financial Crisis of 2008 governments in Latin America began to implement safety net programs such as Conditional Cash Transfers to help alleviate extreme poverty. In the case of Mexico, its economy began to recover significantly between the years 2010, 2011, and 2012, reaching an average annual growth rate of 4.3% during the three-year period. Unfortunately, a decline of demand for Mexican goods from the United States and other leading consuming countries caused Mexico s annual GDP growth to decline to 3.9% in 2012, but it was still well above the United States annual GDP growth rate of 2.2% in the same year 1. Source: The World Bank 1 The World Bank. Data. GDP growth (annual %). Mexico. http://data.worldbank.org/indicator/ny.gdp.mktp.kd.zg/countries/mx-us?display=graph 1

As Mexico and other Latin American countries continue to struggle with economic stagnation they must create and implement effective and long-term social policies that are aimed towards alleviating poverty at home. A social policy response to reducing poverty in Latin America was the implementation of Conditional Cash Transfer programs (hereafter CCTs). The conditional component of the CCT programs differentiates it from other social welfare and in-kind distribution programs that exist throughout the world 2. Governments are turning more towards CCT programs as a social tool to improve the quality of life of their most marginalized and impoverished populations; some of the active programs include, Oportunidades in Mexico, Bolsa Escola in Brazil, Familias en Acción in Colombia, Subsidio Unico Familiar in Chile, Programa de Asignación Familial in Honduras, Red de Protección Social in Nicaragua, and the Program of Advancement through Health and Education in Jamaica 3. According to the Economic Commission for Latin America and the Caribbean s database titled Non-contributory social protection programs in Latin America and in the Caribbean, CCTs were adopted and used as a tool for poverty reduction in 18 different regions throughout Latin America. CCTs cover over 25 million poor families, accounting for 19% of the regions population 4. Nancy Birdsall, founding president the Center for Global Development, was quoted by the New York Times advocating for CCT programs, she stated, I think these programs are as close as you can come to a magic bullet in development. They're creating 2 Fernald, LiaCH, Gertler, Paul J, ad Neufeld, Lynnette M. Roles of Cash in Conditional Cash Transfer programmes for Child health, growth, and development: an analysis of Mexico s Oportunidades. The Lancet. Volume 371. March 8, 2008. Page 1. http://www.who.int/management/country/mex/roleofcashconditionalcashtransfermexicosoport unidades.pdf 3 Alain de Janvry and Elisabeth Sandoulet. Making Conditional Cash Transfer Programs more efficient. University of California, Berkeley. June 2004. Pages 2. 4 Aldo Madariaga and Simone Cechini. Social Development Division of the Economic Commission for Latin America and the Caribbean (ECLAC). United Nations Publication. Santiago, Chile, September 2011. Page 7. 2

an incentive for families to invest in their own children's futures. Every decade or so, we see something that can really make a difference, and this is one of those things. 5 '' CCTs seek to reduce poverty through cash distribution and social benefits giving to poor families under the conditions that the parents, primary the mother who receives the cash, will invest in their children s wellbeing through educational, health, and nutritional means 6. The main purpose of these programs is to improve the quality of life of the most marginalized and impoverished populations through access to health and education. The idea is that healthier and well-educated children will have a better chance of obtaining higher paying jobs. Higher paying jobs, in turn, would provide these children with the social-insurance from which the poor are normally excluded and will reduce, over time, the need of their families to depend on social programs such as cash transfer programs, thus breaking the vicious cycle of poverty 7. CCT s have proven to be far more successful in holding the government accountable for the use of funds allocated for the program and away from the common clientalistic transfers that are affiliated with a particular party or interest group 8. In Mexico, the Institutional Revolutionary Party (hereafter PRI) ruled the country for 71 years and was notorious for using social welfare and social development programs, such as Mexico s National Solidarity Program, PRONASOL and Procampo, which were both created under 5 Dugger, Celia W. To Help Poor Be Pupils, Not Wage Earners, Brazil Pays Parents. The New York Times. January 3, 2004. The New York Times Company. New York. December 19, 2013. http://www.nytimes.com/2004/01/03/world/to- help- poor- be- pupils- not- wage- earners- brazil- pays- parents.html?pagewanted=all&src=pm 6 Emmanuel Skoufias and Vicenzo di Maro. Conditional Cash Transfers, Adult Work incentives, and Poverty. World Bank Policy Research Working Paper. World Bank. Washington, D.C, August 2006. Page 1. 7 Levy, Santiago. Good Intentions, Bad Outcomes: Social Policy, Informality, and Economic Growth in Mexico. Brookings Institute Press. Washington, D.C. 2008. Page 225. 8 Díaz-Cayeros, Alberto and Magaloni, Beatriz. Poverty, Inequality, and Democracy: Aiding Latin America s Poor. Journal of Democracy, Volume 20. Number 4. October 2009. National Endowment for Democracy and The Johns Hopkins University Press. Page 45. 3

the Salinas de Gortari administration in 1994, to buy voters loyalty in exchange for food or agriculture subsidies. In the case of PRONASOL, for example, cash and credit subsidies were provided to impoverished communities. The government, however, had control of not only selecting the beneficiaries of the funds but it also decided the extent of time the monetary aid or goods would be granted. PRONASOL was very much politicized by the Salinas administration, it did not reach all poor communities, the families covered by the program were specifically targeted from municipalities where Salinas and the PRI had lost support in the 1988 election to the leftists party PRD candidate, Cuauhtémoc Cárdenas and the National Democratic Front 9. Furthermore, Mexico s weak institutions and government corruption did not permit equal distribution of income and good quality education to all especially neglecting the most marginalized populations. The design and implementation of CCT s in Mexico has played a pivotal role in reaching to the most marginalized impoverished communities, thus making education and health benefits accessible to them. According to the Economic Commission for Latin America and the Caribbean report titled, Social Panorama of Latin America, equal access to education for all sectors of the population has not been taken upon as a key factor in reducing poverty and inequality in Latin America. Although inequality in Latin America remains high, recent social policies such as CCTs can bring about a more equal distribution of income 10. 9 La Botz, Dan. Democracy in Mexico: Peasant Rebellion and Political Reform. South End Press. Cambridge, Massachusetts. 1995. Page 108. 10 The Social Development Division and the Statistics and Economic Projections Division of the Economic Commission for Latin America and the Caribbean (ECLAC). Social Panorama of Latin America (2010). ECLAC. United Nations Publications. Santiago, Chile, March 2011. Page 51. 4

Historical Background of Progresa-Oportunidades From 1994 to1995 when Mexico was transitioning administrations from President Carlos Salinas de Gortari to President Ernesto Zedillo, the country was experiencing once again a macroeconomics crisis 11. Certain domestic political and social events took place, which caused foreign investors to pull their money out of Mexico s banks causing the peso devaluation and economic crisis. The internal events that took place from 1994 to 1995 included (1) the assassination of PRI s presidential candidate, Luis Donaldo Colosio Murrieta in Tijuana during a political rally, and (2) the uprising of the guerrilla group named the Zapatista Army of National Liberation (EZLN by its initials in Spanish) in the southern state of Chiapas. The EZLN declared war on Mexico s corrupt government and protested the implementation of NAFTA, which they believe increased the inequality and poverty gap especially in the countryside where the vast of its indigenous marginalized communities reside. These political uncertainties in Mexico made it difficult for the government to convince foreign investors to keep faith in the peso and not withdraw their capital. Consequently, the Mexican peso overvaluation, political uncertainties in Mexico mentioned above, and an increase in U.S. interest rates caused foreign investors to not only pull their money out of Mexico but also stop investing in the country 12. Mexico s economy once again found itself in crisis. As soon as President Ernest Zedillo took office on December 1, 1994, he let the peso devalue three weeks into office, this had devastating consequences for the Mexican peso which, lost 30 percent of its 11 Levy, Santiago. Progress Against Poverty: Sustaining Mexico s Progresa-Oportunidades Program. Brookings Institute Press. Washington, D.C. 2006. Page 13. 12 Edmonds-Poli, Emily and Shirk A., David. Contemporary Mexican Politics. Rowman and Littlefield Publishers, Inc. Lanham, Maryland. 2009. Page 257. 5

value and the value of the Mexican stock market was cut in half. Foreign reserves dropped by $4 billion and Mexico once again found itself on the verge of economic collapse. 13 With Mexico facing an economic crisis and a GDP drop of roughly 6 percent, the inequality and poverty gap widened. The new administration of President Zedillo (year-year) created social policy reforms and poverty alleviation programs, including Progresa (presently known as Oportunidades). Progresa was first created in 1997 with the purpose of helping poor rural families survive the extreme poverty conditions under which they lived by providing them with cash transfers to increase (a) education retention rates, (b) health clinic visits, and (3) nutritional intake 14. When the program was first launched, it only covered the twelve states with the largest percentage of their rural population living in extreme poverty, and it had a budget of USD $58.8 million, benefiting 300,000 families in 6,344 different households 15. The program continued to gain momentum and support from Congress as its well-documented and transparent tracking system showed the positive effects the program had on poverty reduction. The program continued under the administration of President Vicente Fox in 2000, which changed its name to Oportunidades and extended its coverage to the urban poor. By the end of 2005, five million families were being covered under Oportunidades, the majority of these households were still from rural areas, where most marginalized communities are located 16. Currently, Oportunidades is present in all states and municipalities across the 13 Edmonds-Poli, Emily and Shirk A., David. Contemporary Mexican Politics. Rowman and Littlefield Publishers, Inc. Lanham, Maryland. 2009. Page 258. 14 Pablo Villatoro. Conditional Cash Transfer Programs: experiences from Latin America. CEPAL, Review 86, August 2005. Page 91. 15 Levy, Santiago. Progress Against Poverty: Sustaining Mexico s Progresa-Oportunidades Program. Brookings Institute Press. Washington, D.C. 2006. Page 2. 16 Díaz-Cayeros, Alberto and Magaloni, Beatriz. Poverty, Inequality, and Democracy: Aiding Latin America s Poor. Journal of Democracy, Volume 20. Number 4. October 2009. National Endowment for Democracy and The Johns Hopkins University Press. Page 43. 6

country and covers 6.5 million families (in about 187,000 localities), of 99% are from rural and semi-urban areas 17. Case Studies and Beneficiaries Identification Behind the Oportunidades program is a well-designed and transparent system for selecting its beneficiaries, primarily focusing on two main indicators of poverty: socioeconomic factors and demographics. The selected families are referred to as beneficiaries and they receive the cash transfer from the program in two manners (1) a monthly stipend is given to families for medical care costs and be able to afford healthier foods, the intention is for poor families to improve both their health and nutrition (2) the second stipend is a monetary grant in the form of a scholarship for help families pay for their children s education, families receive the scholarship once their child begins the third grade in elementary school through the last year of high school 18. Later, in the paper I will give in great detail the requirements and conditions the beneficiary families of Oportunidades must comply with in order to continue receiving the cash transfers and remain eligible for the program. As long as the families are responsible and meet the required conditions of the program, making sure their children between the grades of third and last year of high school attend school on a regular basis and they take their children to health clinics for medical appointments consistently, they can remain in the program 19. 17 Programa de Desarrollo Humano Oportunidades-SEDESOL. http://www.oportunidades.gob.mx/portal/wb/web/oportunidades_a_human_development_program 18 Fernald, LiaCH, Gertler, Paul J, ad Neufeld, Lynnette M. Roles of Cash in Conditional Cash Transfer programmes for Child health, growth, and development: an analysis of Mexico s Oportunidades. The Lancet. Volume 371. March 8, 2008. Page 2. 19 Programa de Desarrollo Humano Oportunidades-SEDESOL. http://www.oportunidades.gob.mx/portal/wb/web/oportunidades_a_human_development_program 7

Condition: Education As an incentive for the mothers to send their children to school instead of work, Oportunidades distributes payments to the mothers with the condition that their children attend school at least 85% of the month per year and cannot repeat a grade more than two times. In addition two times per year, the children are granted stipends to purchase school supplies such as uniforms, books, and notebooks 20. If the child does not comply with this condition, the families will not receive their monthly payment from Oportunidades. The payments increase as the child advances grade levels, with girls receiving a larger cash transfer as an incentive for parents to keep their daughters longer in school and give them an equal opportunity to an education as their sons, and inflation changes are accounted for every six months 21. The cash transfers compensates for the working income the child would be contributing to their family s household. Furthermore, these cash transfers account for about 22% of the child s household income and have reached roughly about 40% of the rural population living in extreme poverty. This is especially significant considering children in rural poor communities have a higher tendency of dropping out of school to work at a very young age. 22 Condition: Health In addition to the educational component Oportunidades has both a health and nutritional component, extending primary care to every member of the family in local clinics which is directed by the Security of Health and the Mexican Social Security 20 Fernald, LiaCH, Gertler, Paul J, ad Neufeld, Lynnette M. Roles of Cash in Conditional Cash Transfer programmes for Child health, growth, and development: an analysis of Mexico s Oportunidades. The Lancet. Volume 371. March 8, 2008. Page 2. 21 Pablo Villatoro. Conditional Cash Transfer Programs: experiences from Latin America. CEPAL, Review 86, August 2005. Page 91. 22 Alain de Janvry, Elisabeth Sandoulet, Pierre Dubois. Effects on School Enrollment and Performance of a Conditional Transfers Program in Mexico. University of California, Berkeley. July 2004. Pages 5. 8

Institute, El Instituto Mexicano del Seguro Social, IMSS. As for the nutritional component, families are provided with extra cash payments to help them diversify their diet and ensure they receive their daily nutritional value. 23 They also receive, food supplements for children aged 4 months to 2 years, unweaned babies and breastfeeding mothers. These supplements are also given to children aged 2 to 5 who are at risk of malnutrition or are poorly nourished. To continue qualifying for the benefits, families have to visit health clinics regularly. 24 A study conducted in 2008, by scholars Lia Fernald from the School of Public Health, Paul Gertler from the Hass School of Business School at the University of California, Berkeley, and Lynnette Neufeld from the National Institute for Public Health in Cuernavaca, Mexico examined the effects Oportunidades cash transfers had on improving the health of beneficiary families. Using empirical data they ran linear and logistic regressions to assess a variety of outcomes that were associated with the doubling of cash transfers granted to beneficiary babies from the time they were 24-68 months and remained in the program. Their study revealed that the doubling in cash transfers the mothers received were invested in their babies health and resulted in better health then the babies who did not receive Oportunidades during that time period. They concluded that the beneficiary babies grew up with better cognitive and language development, increase in height-for-age, lower prevalence of stunting, lower prevalence of being overweight, and a decrease in BMI for age percentage. 25 23 Pablo Villatoro. Conditional Cash Transfer Programs: experiences from Latin America. CEPAL, Review 86, August 2005. Page 91. 24 Pablo Villatoro. Conditional Cash Transfer Programs: experiences from Latin America. CEPAL, Review 86, August 2005. Page 91. 25 Fernald, LiaCH, Gertler, Paul J, ad Neufeld, Lynnette M. Roles of Cash in Conditional Cash Transfer programmes for Child health, growth, and development: an analysis of Mexico s Oportunidades. The Lancet. Volume 371. March 8, 2008. Pages 8 and 9. 9

Oportunidades Impact on Improving Quality of Life for its Beneficiaries Oportunidades has significantly excelled in its performance and has become a model for other Latin American and underdeveloped counties across the world. The most significant attribute of the program is its incredible ability to reach the most impoverished and marginalized indigenous and rural communities in the southern states of Mexico, families that otherwise would not have received social services or educational opportunities. As table 1 illustrates, the vast majority of Oportunidades beneficiaries are from the most impoverished states, with Chiapas having more than half of its state population in the program. Table 1. Human Development Index and families incorporated to Oportunidades State Number of HumanDevelopment Beneficiary as percentage of beneficiary Index* total population** families** Chiapas 0.7469 618,795 59.60% Oaxaca 0.7610 456,421 47.70% Guerrero 0.7672 392,863 52.70% Michoacán 0.7885 284,208 29.20% Veracruz 0.7897 670,659 36.00% Hidalgo 0.7974 225,356 36.20% Tlaxcala 0.8002 73,620 29.70% Puebla 0.8070 485,040 36.30% Nayarit 0.8118 44,372 17.90% Zacatecas 0.8123 101,965 30.10% Source:SEDESOL-Oportunidades, http://www.oportunidades.gob.mx/portal/wb/web/oportunidades_a_human_development_program With a large percentage of its population being Mayan, Chiapas continues to be the most marginalized state in Mexico. In fact, Chiapas is the poorest state in the country with about seventy-seven percent of its population in multidimensional poverty and some of the highest incidences of social depravation 26. Social depravation refers to the lack of 26 Consejo Nacional de Evaluación de la Politica de Desarrollo Social (CONEVAL). http://ophi.org.uk/wp- content/uploads/english- press- release- CONEVAL.pdf?cda6cl 10

access to basic human needs such as education, healthcare, health insurance and food security (see table A.1). Historically, Chiapas poverty is embedded in its agrarian problems, government s discrimination against indigenous peoples, and its growing population with limited available resources including quality education, and large percentage (47.2%) of its peoples still living in the countryside. Consequently, these rural indigenous populations are the most marginalized, live in extreme poverty, and are vulnerable to government exploitation 27. The Ejército Zapatista de Liberación Nacional (EZLN) confronted the government in 1994, demanding justice, liberty, and an end to the corrupt and racist policies that took their land and neglected their rights as indigenous peoples. Chiapas indigenous campesinos continue to face extreme poverty and suffer from bad policies that only exploit them and their lands setting the stage for a poverty trap. This has made them greatly dependent on social welfare programs like Oportunidades to survive and meet their basic living needs. Santiago Levy, a former deputy minister of finance in Mexico and the main architect of Progresa-Oportunidades, addressed this issue of lasting dependency on income transfers in this book, Progress Against Poverty: Sustaining Mexico s Progresa- Oportunidades Program, he argues that, making pure income transfers just because the recipients were poor could reduce their incentives to work and invest, inadvertently leading citizens to permanent dependence on public welfare. To avoid that outcome, income transfers should be designed to be transitory investments in the human capital of 27 Villafuerte, Solis, Daniel. La Tierra En Chiapas: Viejos Problemas Nuevos. Fondo De Cultura Económica. México, D.F. 2002. 11

the poor. 28 It is important for government to not neglect the investment of basic infrastructure such as roads, schools, and clinics in marginalized communities, which is one of the main critics against cash conditional transfer programs. Governments need to continue investing heavily in public capital and work towards fostering long-term economic growth, which is a major component for reducing poverty 29. Mexico continues to confront both political and social instability, this has been a product of several factors such as its weak political institutions and rule of law, government instability and unequal structures of fiscal policy, which have all lead to suboptimal development for the country. Unequal structures have caused inefficiencies for its market; concentrated corruption in business contracts, and political tight control of one single party (PRI) has over time increased the inequality gap between the poor and the rich, and unable to reduce poverty at a faster rate for being a middle income country. Among all the political, economic, and social problems, the country continues to face, Oportunidades has become a model for other countries and the most successful poverty-alleviation program in Latin American history. Several studies that have been conducted by government, academic, and non-profit research institutions such as the Center for Global Development, the World Bank, the Organisation for Economic Co-operation and Development (OECD), the Economic Commission for Latin America and the Caribbean (ECLAC), and renowned scholars, have shown that if children stay in school longer their opportunities of going to college and obtaining a professional degree will increase thus gaining human capital. 28 Levy, Santiago. Progress Against Poverty: Sustaining Mexico s Progresa-Oportunidades Program. Brookings Institute Press. Washington, D.C. 2006. Page 12. 29 Fiszbein, Ariel and Schady, Norbert. Conditional Cash Transfers: Reducing Present and Future Poverty. The International Bank for Reconstruction and Development/the World Bank. Washington DC. 2009. Pages 46 and 12

Oportunidades has as one of its main objectives to increase school enrollment by decreasing the outcomes that they will join the unskilled labor force at an early age 30. Although Oportunidades has been successful in increasing the number of poor children attending school the quality of education they receive has not improved. A study conducted in 2004, by University of California, Berkeley distinguished scholars, Elisabeth Sadoulet and Alain de Janvry, analyzed the effects that cash transfers had on student s continuation of school and overall performance. Utilizing empirical analysis, the authors concluded that the students receiving Oportunidad s cash transfers were enrolling longer in school but there performance was not improving in most of the cases they repeated grades and had low overall performance. This can be attributed to the following: The major breaking point in school attendance occurs at entry in secondary school. In primary school, continuation rates reach at least 95% in every grade, with the result that 85% of the children that start primary school complete the cycle. However, only 72.4% of the children that successfully complete primary school enroll in the first year of secondary school. The gender difference is very pronounced at this decisive step, with 75.1% of the boys entering secondary school and only 69.4% of the girls 31. - Alain de Janvry, Elisabeth Sandoulet, Pierre Dubois. Effects on School Enrollment and Performance of a Conditional Transfers Program in Mexico. University of California, Berkeley. July 2004. Pages 5-6. In primary school performance plays a crucial role in determining whether a student will continue his or her studies or drop out and go into the labor force. The study showed that more students were continuing to secondary school with very little success. The rates of grade failure increased the last year of secondary school this is perhaps correlated to the fact that students were failing in order to receive one more year of cash transfers from 30 Alain de Janvry, Elisabeth Sandoulet, Pierre Dubois. Effects on School Enrollment and Performance of a Conditional Transfers Program in Mexico. University of California, Berkeley. July 2004. Page 2. 31 Alain de Janvry, Elisabeth Sandoulet, Pierre Dubois. Effects on School Enrollment and Performance of a Conditional Transfers Program in Mexico. University of California, Berkeley. July 2004. Pages 5-6. 13

Oportunidades. Furthermore, an article written in 2005 by, Pablo Villatoro, a consultant with the Social Development Division of The United Nations Economic Commission for Latin America and the Caribbean, analyzed the impact of Cash Conditional Transfer Programs, among them was Oportunidades, one of the studies he covered, revealed that the program had a positive effect on students staying longer in school but found that parents had a very low perception towards their children receiving an education beyond a certain level and did not see paid child labor as being harmful for their child s future. As a potential solution, the study suggested the program to implement an educational component for parents to better understand the importance of their children remaining in school and receiving an education, otherwise, children may be very likely to leave school and resume work once programs have ended, which would jeopardize the sustainability of the changes. 32 Both studies concluded that although school enrollment rates were significantly increasing and students were remaining in school longer their performance was not improving but rather it was showing an increase in grade failure in secondary school 33. If Oportunidades is to have a long-term impact on education it needs to work closely with the Educational Department in Mexico in addressing ways of improving the quality of education and teacher performance in order to guarantee that poor children will be able to increase their human capital and gain better opportunities in life. 32 Pablo Villatoro. Conditional Cash Transfer Programs: experiences from Latin America. CEPAL, Review 86, August 2005. Pages 93 and 94. 33 Alain de Janvry, Elisabeth Sandoulet, Pierre Dubois. Effects on School Enrollment and Performance of a Conditional Transfers Program in Mexico. University of California, Berkeley. July 2004. Page 27. 14

Conclusion In conclusion, Oportunidades in Mexico has shown to have positive results in increasing school retention rates among its beneficiaries but much work needs to be done on an administrative level to improve the quality of education and access to key resources that will allow these students be more successful in passing on to the next school year. Equal access to education is fundamental in fighting inequality and poverty. Although Oportunidades, has helped reduce poverty by improving access to health and education to the poor, the government should not rely only on the program it must continue to invest in infrastructure, build more schools and clinics in marginalized communities, ensure all communities have access to portable clean water, build better roads, in addition to other social goods required for development. Lastly, Oportunidades will not be able to pave the path for social mobility, especially in a country like Mexico which has high inequality and poverty rates, without effective implementation of policies that promote sustainable long-term economic growth, a pragmatic taxing system, strong institutions and anti-corrupt government, the creation of a more competitive workforce, better wages and employment opportunities, and investing in teacher evaluations and capability test, improve the quality of education and health care services that are available to the poor. 15