Poverty Analysis Brief

POVERTY IN LATIN AMERICA AND THE CARIBBEAN

Out of 512 million people in the Latin America and Caribbean (LAC) region, nearly 43.5 million, or 8.5% of the population, live with under $1 per day in 2005 (SEDLAC, 2007)

According to the recent publication, Poverty Reduction and Growth: Virtuous and Vicious Circles (2005), while growth is key for poverty reduction, poverty itself is hampering the achievement of high and sustained growth rates in Latin America, which remains one of the most unequal regions in the world with close to a fourth of the population living on less than US$2.00 a day.

While China experienced annual per capita growth of about 8.5 percent between 1981 and 2000, reducing poverty by 42 percentage points, Latin America 's per capita GDP declined by 0.7 percent during the 1980s and increased by about 1.5 percent per year in the 1990s, with no significant changes in poverty levels.

A 10 percent drop in poverty levels, other things being equal, can increase economic growth by one percent. In turn, a 10 percent increase in poverty levels lowers the growth rate by one percent and reduces investment by up to eight percent of GDP, especially in countries with underdeveloped financial systems.

This is because the poor, who generally lack access to credit and insurance, are in no position to undertake many of the profitable activities that fuel investment and growth — creating a vicious circle in which low growth results in high poverty and high poverty in turn results in low growth.

The study notes that a pro-growth-poverty reduction strategy should aim to improve the quality of education, expand coverage at secondary and tertiary levels, and boost investment in infrastructure to benefit laggard regions and increase the access of the poor to public services.

In addition, such a strategy needs to extend access to credit and financial services, preserve macro-economic stability, and implement effective social policies, such as conditional cash-transfer programs that provide cash to poor families as long as they keep their children in school and take them to the doctor. Some examples are Bolsa Familia in Brazil, Oportunidades in Mexico, and Familias en Accion in Colombia.

Source: WDI (2006) and Millennium Development Goal. Projection is based on Global Economic Prospects (2006) and SEDLAC (2007)

POVERTY AND THE MILLENIUM DEVELOPMENT GOALS

In September of 2000, leaders from 189 member states of the United Nations reaffirmed their commitment to reduce poverty in the world by adopting eight goals for the new millennium. As an institution dedicated to fighting poverty, the World Bank and other development institutions are working together to meet the challenge of the Millennium Development Goals. Chief among those goals is to reduce the proportion of people in extreme poverty -that is people living on less than $1 per day- in the region to 24.7 million by the year 2015 from 49.4 million in 1990 (WDI and Millennium Development Goal).
 

STUDYING POVERTY

Effective poverty-reduction programs require cutting-edge analysis to understand the unique barriers that poor people in the LAC region face. Some examples of the World Bank's recent analytical work include country and regional poverty studies, and aggregate indicators like Socio-Economic Database for Latin America and the Caribbean.

Household surveys can be instrumental in determining where poverty exists, and thus can improve the effectiveness of social programs. At the same time, if household surveys are not properly executed, the resulting data can hinder social assistance programs. To improve the accuracy of poverty data utilized by borrowing countries and donors alike, the United Nations Economic Commission for Latin America and the Caribbean (UNECLAC), the Inter-American Development Bank (IDB), and the World Bank jointly finance MECOVI, a technical assistance program to strengthen the institutional capacity of statistical agencies in the LAC region to carry out household surveys.

Beyond quantifying the number of poor people, the Bank also invests resources to better understand the conditions under which poor people live. To this end, the Bank recently published a multi-volume study on the poor based on over 60,000 interviews with poor people in 60 countries around the world. Voices of the Poor chronicles the struggles and aspirations of poor people in search for a life of dignity.

For more information on World Bank assistance to poverty in Latin America and the Caribbean, visit:

http://www.worldbank.org/lacpoverty

Updated March, 2007