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Colombia: Poverty Assessment Report

 

Colombia FY95 PA

Main Report (15.96Mb PDF)

Annexes (8.05Mb PDF)

Poverty Profile

During the past few decades, the living conditions of the average Colombian have improved substantially. Poverty has declined steadily from an estimated 50 percent of the population in 1964 to 19 percent in 1992. Since the early 1950s, life expectancy at birth—now at 69 years—has risen by almost two decades, while infant mortality rates—now 30 per 1,000 live births—have been slashed by a factor of four. Indeed, Colombia has better social indicators than the average for countries at its level of development.

While Colombia's overall poverty picture has generally improved, striking disparities in income, wealth, and living standards remain among regions and socioeconomic groups. The challenge of reducing poverty remains significant. It is estimated that in 1992 more than 6 million Colombians had incomes below a commonly accepted subsistence level, with three out of four of these poor people living in rural areas. Furthermore, the rural poor are poorer than the urban poor. On average, their incomes are 43.3 percent below the subsistence level. The same deficit is only 31.3 percent for the urban poor.

Significantly, child malnutrition and infant mortality remain high despite the fact that continuous progress has been made for several years. Regional differences in most indicators suggest that the efforts required to surmount gaps in income and social well-being are enormous for some areas. Infant mortality rates in Chocó, the department with the worst social indicators, are similar to the national average 20 years ago. The incidence of child malnutrition is 50 percent higher in households in which the mother has no education than in those in which she has primary education. Overall, the sustained improvement in the main social indicators of the last decades should not divert attention from those Colombians still experiencing conditions that the country, as a whole, left behind 10 or 20 years ago. The experience of other countries in Latin America suggests that faster rates of improvement in living conditions can be achieved.

Incentive and Regulatory Framework

Colombia's excellent record in macroeconomic management has provided a solid basis for continuous progress in reducing poverty. Colombia's competent management, based on the government's continuous commitment to correcting internal and external imbalances, is best evidenced by its enviable growth record during the 1980s. During the "lost decade" in Latin America, Colombia maintained an average annual growth rate of 3.5 percent while adjusting to a worldwide recession and to coffee and oil price swings. Economic growth was positive in every year of the decade. Although Colombia's economic growth in the 1980s was not as rapid as in the previous decade, stability was maintained and a recession was avoided, which provided the basis for continued success in reducing both poverty and inequality.

The 1991–92 crisis in the agriculture sector—related to both internal and external shocks—led to significant reductions in rural incomes and a corresponding increase in poverty indicators. Based on the results presented in the poverty assessment report, one concludes that—in terms of reducing poverty—the efforts to respond to the crisis in the agriculture sector were partly misguided. Because the government lacked the instruments to address temporary shocks in the rural sector properly, it relied on policy options that, in retrospect, were inadequate. Most of the measures were in effect a temporary regression of trade liberalization and domestic agriculture pricing policies. As was shown, the trade liberalization program is estimated to have had a positive effect on rural incomes and domestic support mechanisms to have been an inefficient instrument for protecting the rural poor. In terms of credit policies, access to rather than the price of credit is the main constraint to lending in rural areas. For the purposes of reducing poverty, therefore, the government moved in the wrong direction. Unfortunately, the authorities were unable to resist the pressure of interest groups that used the deterioration of rural incomes to pursue their own objectives. By doing so, the government not only sent the wrong signals but jeopardized the success of its own structural reform efforts. Taking advantage of the recent increase in international commodity prices and the good performance of the agriculture sector during 1994-95 (3-4 percent real growth), the government should move away from crisis management and should define a medium-term strategy in the sector and take corrective measures to be better prepared for any future shocks. In this context, the government should be developing two important instruments: putting in place emergency rural employment programs and restructuring rural government expenditures. Government efforts in this direction would probably have a considerable payoff, as both of these instruments are suitable for targeting and should prove to be cost-effective in helping the poor.

In the medium term, the oil discoveries in Cusiana and Cupiagua provide an excellent opportunity to increase growth and to raise more resources that can be spent on much-needed infrastructure and social services that will directly benefit the poor. Good macroeconomic policy is essential if Colombia is to realize these potential benefits. The appropriate macroeconomic policy framework should be based on a prudent fiscal policy that ensures continuous gains in the fight against inflation and investment in projects with high economic and social returns.

Public Expenditures

During the past several decades, Colombia has made important gains in extending educational opportunities and increasing the average schooling of the population. This was made possible by steady and substantial increases in national spending on education up to the mid-1980s, which were not sustained in the latter part of the decade. There remain considerable inequities in the provision of education both among income groups and between urban and rural areas. The overall quality and efficiency of public education at both the primary and secondary levels are extremely poor. Students from the lowest income quintiles are most seriously affected. Selected national government programs, particularly the Escuela Nueva, have made significant contributions to extending education to the poor. However, Colombia will need to reorient its policies and make major new investments in primary and secondary education and preschool programs if the poor are to gain access to quality public education. The government will also have to increase recurrent expenditures that cover basic operating costs of school systems if performance is to improve.

Overall, public spending on education is distributed in a mildly progressive fashion. As Colombia moves toward universal primary schooling, low-income households are receiving a larger share of expenditures than richer ones. Likewise, the distribution of education spending is now more progressive than two decades ago. As coverage increases, public education has reached more disadvantaged groups, though not always the poorest. In 1992, the poorest 20 percent of households accounted for 40 percent of enrollments in public primary schools and received 39.4 percent of public expenditures at that level. This dynamic is particularly relevant to secondary education, which is bound to expand in the next decade. Today, the second and third quintiles of the distribution benefit the most from public expenditure at that level. If current expansion plans are successfully implemented, secondary education spending in 10 years will be as progressive as spending in primary education is today.

In contrast, public spending on higher education is regressive. Households in the bottom 20 percent of the income distribution account for only 5.5 percent of enrollments and 5.1 percent of subsidies. Although this is a much larger share than the group received in 1974, the poor still do not benefit from public expenditures on higher education. If public actions are to reduce poverty effectively, the heavy subsidization of programs that reach only the wealthy households should be eliminated. The high levels of private spending on higher education indicate users' willingness to pay. Thus, an education strategy oriented towards reducing poverty will require increased cost recovery in higher education and the reallocation of government resources to the primary and secondary levels.

Colombia spends about 6 percent of its GDP on health services. This share is at the high end of the range for middle-income countries. Yet the profile by type of expenditure fits that of low-income countries (a high share of private spending on drugs, a modest share of public spending on direct services, and limited insurance coverage). Private expenditures (about 4 percent of GDP) account for the largest share of health spending. Public expenditures—excluding the social security system (SSS)—constitute 1 percent of GDP. Social security programs in health represent 1.4 percent of GDP. The public health system (PHS) is marred by limited coverage. Only 40 to 50 percent of health services are delivered by the PHS and the SSS. A significant number of Colombians are left without access to basic health care. In 1992, almost 20 percent of individuals in need of medical assistance did not attend a health center because it was too expensive or too far from their home. Among the poorest 10 percent of the population, this share was 36 percent. Differences exist between areas of the country, with rural areas experiencing the highest incidence of non-attendance.

Comparing the distribution of subsidies for the PHS and SSS in 1974 and in 1992 shows the Colombian health system's lack of emphasis on basic and preventive care. Both the PHS and the SSS allocate more than half of total subsidies for hospitalization and surgery, which are the services least used by the poor. Compared with 1974, the PHS has somewhat corrected this orientation, now allocating a smaller share to those two services. The opposite trend is found for the SSS—the share of subsidies allocated to surgery and hospitalization has increased since 1974.

With most of Colombia's poor having to rely on the PHS for services, sufficient services of appropriate quality are not reaching this group. The PHS reaches only 35 percent of the population, compared with a target of about 60 percent. Overall, PHS expenditure is not sufficiently well-targeted toward the poor—the richest 40 percent of households receive almost one-third of the PHS's expenditures. In addition, the health services to which the poor do have access are characterized by low average quality and efficiency, high private costs, and management weaknesses.

The strategy of the Colombian government for providing energy, water, and sewerage to the poor has been based on the belief that, by maintaining low corresponding prices, poor households would have access to these basic services. However, the resulting massive subsidies have not been well-targeted. Therefore, the poor population have not benefited from them. The main factors explaining this outcome are: (i) regressive service coverage; (ii) poorly designed tariff structures; and (iii) an ineffective stratification scheme. The strategy has resulted in sector-wide financial crisis and inefficient resource allocation. To ensure that future efforts to provide basic services to the poor are successful, sector-wide reforms should be implemented. For energy, water, and sewerage, stratification should be simplified or eliminated to allow better targeting of subsidies to the poor. Alternative modes of provision (such as isolated generating units for energy or tanker trucks for water) should be used for residents in inaccessible or very poor areas, whether peripheral settlements near urban centers or remote rural areas. Housing policy should meet the needs of residents in inaccessible nonserviced areas without creating incentives for others to settle in even more difficult terrain. This framework should provide shelter to the poor and, more important, should increase their access to basic services. The direct subsidy approach the government has recently adopted for home purchase and improvement, land titling, and accessing sanitation services is a step in the right direction. The government should consider directing more of the program's resources to maintain and upgrade existing houses and neighborhoods properly rather than financing new units.

Social Safety Net

Colombia does not have an integrated social safety net for the poor. It does have three broad programs of social assistance. The Institute of Family Welfare (ICBF) manages 60,000 family welfare centers that operate in periurban areas, providing daycare and nutrition assistance for preschool children. Various programs of the Office of the President, including a social fund, a program for youth, women, and poor families, and specialized human rights and development programs in Medellín also provide innovative approaches to social assistance. A larger program, the social security system, lacks any poverty focus, though it may be changed to provide basic assistance to Colombia's disabled and elderly. These programs, along with new initiatives such as a food stamp program or a rural employment program, could become parts of an integrated approach to social protection. Before committing further resources to existing programs, their effectiveness needs to be assessed and strengthened. To improve social assistance, Colombia must introduce fresh approaches that do not expand the bureaucracy but transfer real resources to those families—especially children—in greatest need. It has proven to be difficult to reach the rural poor with assistance programs. Reaching them in the future will be a major challenge.

Poverty Strategy

The poverty reduction strategy needs to focus on three priority areas: (i) rural development, (ii) social and infrastructural services, and (iii) decentralization, capacity building, and institutional strengthening. It will also be important to improve the monitoring and evaluation of all poverty reduction programs. With the expected oil revenues from Cusiana and Cupiagua, the time is ripe for Colombia to embark on a renewed effort to reduce poverty.

Consistent with a more comprehensive and coordinated rural development strategy, the government needs to provide adequate incentives for the agriculture sector, to invest in economically attractive rural infrastructure projects and services to support production, and to eliminate the urban bias in the delivery of social services by providing high-quality basic rural education and health care.

Resources should be channeled away from existing subsidies for energy, housing, and agricultural price support systems toward basic education, health care, rural infrastructure, and social assistance to the most vulnerable.

With decentralization, poverty reduction and institutional development have become inseparable. Two critical elements in the effort to improve the provision of services will be holding local officials accountable for the effectiveness of services and strengthening user demand.

Statistical System

A clear limitation in assessing the effectiveness of expenditures and programs has been the lack of pre-established monitoring and evaluation systems to measure the impact and cost effectiveness of poverty reduction programs. The development of such information systems is essential, and evaluation modules should be incorporated in all pilot projects of social assistance programs.

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