News Release No. 2006/June 8/DR LAC
Contacts:
In Santo Domingo: Alejandra De La Paz (809) 566-6815, ext. 256
adelapaz@worldbank.org
In Washington: Alejando Cedeno (202) 473-3477
acedeno@worldbank.org
SANTO DOMINGO, June 8, 2006 –One and a half million Dominicans fell into poverty as a result of the financial crisis of 2003-2004 and 700,000 were forced to reduce their consumption of basic food below minimum subsistence levels, according to a new report released today in the country. By the first half of 2004, 42 out of 100 Dominicans were poor and 16 of them were living in extreme poverty, according to the Report on Poverty in the Dominican Republic: Achieving More Pro-poor Growth, prepared by the World Bank and the Inter-American Development Bank, in collaboration with staff from the Technical Secretariat of the Presidency, the National Planning Office, and the Central Bank. “The Dominican Republic has not been able to translate its stellar growth performance into more equitable social progress, and the country has remained an underperformer in its efforts to combat poverty and improve human development indicators,” said Caroline Anstey, World Bank’s Country Director for the Caribbean. “This report proposes specific public policies to ensure that economic growth can be effectively translated into poverty reduction, equal opportunities and social development in the Dominican Republic with reforms to enhance the employment and productivity of the poor, and improve the quality and impact of social spending on the poor.” “This report presents a series of policy options with the potential to speed up poverty reduction and achieve higher equity within a framework of sustainable economic growth and macroeconomic stability,” said Máximo Jeria, Inter-American Development Bank’s Manager of the Regional Operations Department for Belize, Central America, Haiti, Mexico, Panama and the Dominican Republic. “These options seek to promote economic opportunities for the poor as well as increase their access to better jobs, strengthen the delivery of quality basic services, such as secondary education and the second cycle of primary education, and improve the spending targeted towards the most vulnerable.” The country has made some improvements in education, health and other indicators related to the Millennium Development Goals (MDGs), but these indicators continued to be below the expected levels given the country’s economic development, while access to reliable and quality basic services continued to be deficient. The report points to five principal factors behind the country’s disappointing performance in poverty reduction and social equity improvement:
I. Growth during 1997-2002 was unequal, largely benefiting the more affluent regions and workers with a university education. Workers in agriculture and low-productivity services and in micro enterprises lost out by comparison. Remittances had only a small direct positive impact on poverty since the poor receive lower absolute amounts than the rich (about 80 percent go to urban areas, 40 percent to the richest families).
II. The 2003-2004 crisis eroded the purchasing power of Dominicans by about one third largely due to an 86 percent rise in the prices of food and other wage goods, with relatively larger losses for middle and upper income families.
III. The low incomes of the poor result largely from low labor productivity rather than from their inability to leverage their skills into better-paying jobs. Informality is not a direct main cause of low earnings, but a result of low skills and the low productivity of many micro-enterprises. Unemployment affects mostly young people and women entering the labor force with incomplete secondary education. Internal migration and non-farm employment offer access to better paying jobs for the skills of Dominican workers, but many farmers remain trapped in poverty in light of low education, and inadequate infrastructure levels.
IV. The poor’s low labor productivity results from the lack of minimum level of skills demanded by the labor market (at least secondary education completion in urban areas and complete primary education in rural areas). This is also the result of low levels of spending in the education sector, bottlenecks in the supply of secondary schools, and great management inefficiencies. The Dominican education system performs successfully in terms of student registration, but this does not correspond to the schooling years and qualifications reached by the labor force. Moreover, the lack of proper documentation significantly limits the normal school progression of hundreds of thousands of Dominican poor children.
V. The Dominican Republic is also an underperformer in its fiscal policies to aid the accumulation of human capital and provide short-term income support for the poor. A legacy of highly centralized resource allocation and administration, program duplication, poor targeting, inadequate monitoring of public expenditures, and outdated procurement practices has greatly reduced the impact of transfer and subsidy programs. For instance, a better targeting of the school lunch program (PAE) and the School Attendance Incentive (ILAE) would achieve a 20 percent budget savings with the same impact, while benefiting poor families the most. Universal subsidies for the consumption of electricity and propane gas are estimated at 2.5 percent of GDP in 2005 (more than two thirds of the combined public expenditure on education and health). Finally, the tax system maintains many provisions that favor the rich more than the poor. For example, more than half of ITBIS exemptions go to the rich, and tax loopholes on property and interest savings also benefit the richest groups.
The report concludes with a series of recommendations to accelerate poverty reduction and achieve higher equity. In addition to maintaining sustainable economic growth with prudent macroeconomic policies, the report proposes the following 10 main actions:
i) A sustainable increase in education expenditures to improve the poor’s access to good-quality education and ease supply bottlenecks in pre-school education, the second cycle of primary education and in secondary education in rural and urban marginal areas, coupled with merit-based university scholarships for low income students.
ii) Advance the health sector and social security reform agenda to ensure sustainable access of the most vulnerable to subsidized health insurance.
iii) Implement effective mechanisms to increase the productivity of small and medium enterprises, as well as training programs for youth dropouts, employment intermediation services, and improvements in urban transportation.
iv) Expand the access to physical assets and basic services through territorial programs focused on the rural poor and in urban slums, improving local government expenditure and reorienting rural investment towards basic infrastructure.
v) Consolidate the Sistema de Identificación de Beneficiarios Sociales (SIUBEN), ensuring that poor Dominican families are not excluded due to lack of proper documentation.
vi) Reorient social assistance towards better targeted, “smart” conditional cash transfers tied to families who send their children to school and obtain preventive health assistance for pregnant women and infants. This must be accompanied by the rationalization of existing social assistance programs and in line with the necessary investments to improve access and quality of health and education services.
vii) Reform the propane gas subsidy program by, for example, putting a cap to unit transfers per family and excluding the richest households through the SIUBEN, and implementing mechanisms to target electricity subsidies to the poor and increase payment among the richest.
viii) Reform the ITBIS tax to broaden its base and eliminate pro-rich exemptions, excluding or putting a lower levy on basic food, and reforms to raise taxes on property and interest savings of the rich. It is essential that future efforts adopt a broader view of fiscal reform that includes different sources of collection as well as the level and quality of social expenditure.
ix) Adapt labor legislation to the new context of international trade, and assess the impact of Haitian labor migration with aim to regularize it according to the labor market’s mid-to-long term absorptive capacity.
x) Provide the long over due attention to strengthening the national statistical system in order to improve the systematic use of impact monitoring and evaluation in the design of public policy and the allocation of budgetary resources. The World Bank and the Inter-American Development Bank stand ready to support the Dominican government in implementing these reforms and programs. |
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