Mexico Makes Progress And Faces Challenges In Poverty Reduction Efforts

MEXICO CITY, July 28, 2004 – Between 1996 and 2002, Mexico made progress in its poverty reduction efforts, particularly on extreme poverty, but poverty remains a basic challenge for the country's development. In 2002, half of the population lived in poverty and one fifth in extreme poverty, and the current level of poverty is only slightly lower than the levels existing before the 1994-1995 crisis, according to a new World Bank report.

The study, Poverty in Mexico: an assessment of conditions, trends and government strategy, notes that Mexico has achieved progress in terms of the human capacities of the population, including health, nutrition and education.  For both health and educational status and levels of service provision, Mexico is reasonably close to where it might be expected to be for its income level.  However, certain groups and geographical areas are lagging behind for these indicators.

“The report's statistics on extreme poverty issues show that there has in fact been a reduction from 24.2 percent to 20.3 percent in the number of persons living in extreme poverty in Mexico,” said James Wolfensohn, President of the World Bank.  “Moderate poverty has also been reduced from 53.7 percent to 51.7 percent. These are important movements at a time when economic growth poses a significant challenge.”

The study notes that in the last decade, the pattern of poverty changes has closely followed the macroeconomic cycle and the rhythm associated with the labor market.  It notes that the 1994-1995 crisis was a huge setback:  extreme poverty increased from 21 percent of the population in 1994 to 37 percent in 1996.  Between 1996 and 2002, extreme poverty decreased by 17 percentage points to 20 percent, which is only one percentage point below the level prior to the 1994 crisis.

According to the report, trends in the period 2000-2002 are encouraging, since there was a significant decline in extreme poverty, despite the stagnation of average incomes.  However, the reduction in moderate and extreme poverty in urban areas was not significant.

“The reduction of extreme poverty at the rural and national levels between 2000 and 2002 is indeed statistically significant,” said Michael Walton, the World Bank's Regional Advisor for Poverty Reduction and Human Development. “Some of the factors contributing to the reduction were the growth in international remittances for the extreme poor in rural areas and the increase in government transfers targeted to the extreme poor through Oportunidades,” added Walton, the co-author of the study.

Other reasons contributing to the decline in poverty were: the real growth in labor incomes for unskilled activities; a reduction in the wage premium to college graduates since 1997; and a narrowing of the salary differential between rural and urban areas.

The report considers that poverty in Mexico is an important challenge that is linked to the considerable inequality, which is still widespread especially in rural areas and remains at the Latin American average and at pre-crisis levels, even if it declined by almost two percentage points.  Poverty is also associated with social exclusion, especially of indigenous groups.

According to the report, 44 percent of the indigenous population is in the bottom income quintile;  these groups account for 20 percent of the extreme poor and are the most disadvantaged in terms of health, education and access to basic services.

“There is considerable heterogeneity of poverty across and within states of Mexico,” said Gladys Lopez-Acevedo, Senior Economist and co-author of the study.  “The indicators of basic social infrastructure and income show that, even within the richest states, there are considerable differences in the levels of well-being of the population.”

Lopez-Acevedo explained that, although the social infrastructure disparity between the country's poorest and richest states has lessened, much still remains to be done, especially in the monetary and income area.  For example, in the south of the country there has been progress as regards the provision of basic social infrastructure, but this is still one of the poorest areas in the country.

GOVERNMENT STRATEGY: SUCCESSES AND CHALLENGES

Regarding the government strategy, the report finds that, as a conceptual framework, CONTIGO --President Vicente Fox's poverty reduction strategy-- is excellent, because it recognizes the multiple dimensions of poverty, emphasizes the complementary areas of public action and adopts a life-cycle approach.  However, its implementation is facing challenges, such as the need to enhance interagency coordination, improve the quality of services at the federal, state and municipal levels and strengthen monitoring and impact evaluation.

The study notes that social spending has grown in real terms, especially on education, social protection and programs targeting the poor, on which it increased by 8.4 percent annually in the 1990s and by 9.8 percent annually since 2000.  However, there are differences in growth rates for the various items, and a huge variation  in the progress of programs, and the capacity of the State to take redistributive action is limited by the low level of tax revenue.

On social protection, the report states that the system has limited coverage for households in extreme and moderate poverty.  It notes that Oportunidades, which provides conditional cash transfers for child health and school attendance, is a model program at the international level.  Its impact evaluations show positive effects on school attendance, nutritional status and other indicators of well-being, since one of the challenges is to ensure the supply and improve the quality of its services, to strengthen social oversight and to adapt to a dynamic population.

For its part, Seguro Popular is an innovative program that can reduce health risks for extreme and moderate poor not covered by social security.  The challenges are to create an instrument for improving performance at the state level and to provide a careful evaluation of its impact on families and on service providers.

“In order to improve its poverty reduction efforts, Mexico needs to achieve growth linked to the competitiveness agenda to generate quality jobs, as well as redistribution. The investment in the human capital of the poor is part of a competitiveness strategy,” said Isabel Guerrero, World Bank Country Director for Mexico and Colombia. “It is also necessary to consolidate infrastructure investment and strategies in the rural and informal sectors.”

Isabel Guerrero explained that currently rural policies are more consolidated in the social area than in the productive sphere and that many agricultural programs are more geared to large producers, so that more options are needed for marginalized groups. “The poverty strategy must have a component specifically designed to include the indigenous groups in rural areas, since they are suffering disproportionately in terms of income and social inputs.”

“Nobody in the Bank and nobody in the Mexican Government is declaring victory in the war on poverty,” said  James Wolfensohn, who acknowledged the efforts of the Mexican Government and the will of the World Bank to support Mexico in its poverty reduction efforts.

For more information on the report, see
 Poverty in Mexico: an assessment of conditions, trends and government strategy

To learn more about the work of the World Bank in Mexico, visit:
http://www.worldbank.org/mx