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Costa Rica: Identifying the Social Needs of the Poor: An Update

 

Costa Rica FY97 PA

Main Report (5.95Mb PDF)

Poverty Profile

Costa Rica has had notable success in reducing poverty and improving social welfare. Poverty affected 48 percent of households in 1982; gradually, by 1994, only 15.8 percent of households were estimated to be living in poverty. The poverty profile below is based primarily on a Social Investment Household Survey ENISO — Encuesta de Inversion Social, conducted between December 1992 and February 1993. Questions related to demographic variables involving health, education, nutrition, incomes, expenditures, and labor market characteristics. The survey comprised 2,490 households and 10,550 individuals. Designed by the Government of Costa Rica, its purpose was to collect statistical information suitable for analyzing and appraising the effectiveness of social policies.

General characteristics. About 159,000 households are poor, nearly one-third of whom have incomes below the poverty level and exhibit unsatisfied basic needs (UBN). The poor tend to have less schooling and thus are more likely to be illiterate than the non-poor; are often found among female-headed households; often live in rural areas, which have twice the poverty headcount as the national average; are mostly self-employed, and are less likely to be among the economically active population; and have larger households, with more children, and a higher percentage of children 12 years old and younger.

Unsatisfied basic needs are more common among rural households. The structural poor comprise over half the female population, both rural and urban. Moreover, female heads of households tend to be poor and show double the unemployment rate of male counterparts. The urban poor are characterized by substantially higher rates of open unemployment, especially among heads of households. Higher unemployment is exhibited in female household heads among the structural poor and in the poverty-line poor of both urban and rural areas.

Education. As much as 30 percent of school-age children do not attend school; and among the unsatisfied basic needs (UBN) poor, about 20 percent of children ages 7 to 10 are not in school. These are significantly higher rates than for the poverty-line poor and non-poor. Access to education is low in rural areas, and school attendance is much lower after age 10 than in urban areas. This contributes to a significant difference in average years of schooling for family heads of households by sector of employment: for agriculture it is only 4.7 years, whereas in non-agricultural sectors it is 7.4 years.

A high proportion of structural poor and UBN poor use public health services due to good coverage by the social security system and guaranteed access to subsidized health services. On the other hand, participation rates in all poverty categories is low compared to the non-poor, since the poor are much less likely to participate in formal social security programs. This helps to explain why there is lower coverage for the urban structural poor than for any rural poverty category. Access and participation of the non-poor to public health services subsidized by the social security system appear the same as that of the poor; however, the treatment of poor clients by public health service personnel is an issue. Users must wait for extended periods to receive treatment and are commonly treated rudely by health workers. Among the structural poor, attendance of pregnant women at medical control centers was comparatively low, while a greater proportion of those women who do go to control centers, only see a nurse and not a medical doctor.

As for regional differences, the highest aggregate poverty levels and also the highest numbers of poor in the structural poverty and poverty line categories live in regions outside the Central Valley. In the Metropolitan Area, the structural poor, poverty line poor, and the UBN poor constitute 24.8 percent of total households. On the other hand, structural, poverty line, and UBN poor comprise nearly 40 percent of households in the "rest of urban" areas, and 45 percent of the households in the "rest of rural" areas. This is also true for structural poverty, for which the "rest of urban" and "rest of rural" areas represent more than twice that observed in the Metropolitan Area. A concentration of poor agricultural workers live in the Brunca and Chorotega regions, both of which are outside the Central Valley.

Incentive and Regulatory Framework

Costa Rica's success in carrying out a process of structural transformation while continuing the fight against poverty has occurred due to several interrelated factors. The structural adjustment process initiated in the mid-1980s succeeded in reorienting the development strategy toward export- and private-sector-led growth, which allowed the economy to maintain relatively high growth during the process of adjustment. The recovery of growth has supported a large increase in employment and limited the fall in real wages commonly associated with the adjustment process — both of which had a powerful impact on poverty.

There is a strong link between economic growth and poverty in most countries. This is especially true in Costa Rica. First, much of this growth has been based on sectors that employed a large number of the poor, mainly in agriculture. Over more than a decade, growth has contributed to the narrowing of the rural-urban wage differential and has led to reduced poverty. Second, Costa Rica's long tradition of investing in education was maintained from the 1980s to the present. Despite a decline in education expenditures due to fiscal pressures, there have been significant improvements in educational attainment. In 1981, three-fourths of families were headed by someone with primary education. As better educated young people entered the labor force, this percentage declined to 65 percent by 1992, and the supply of unskilled labor began to diminish as well. Growth did the rest. The current pattern of growth — based on tourism, nontraditional agricultural exports, and urban services — has pulled labor out of low wage agriculture and into higher-paying occupations.

The government currently faces the dilemma of maintaining its commitment to social welfare in the face of political realities and fiscal constraints, as well as competing priorities. Infrastructure investment, postponed during the last decade (mainly maintenance) needs to be expanded. If the poor are to continue to be served by social policies at acceptable levels, then a redirection of public expenditures will be required, especially towards services for the poorest groups.

Public Expenditure

The share of national wealth devoted to social expenditures in Costa Rica has been among the highest in the LAC region at levels between 15 and 18 percent of GDP over the last 20 years. This underscores both the commitment and cost of building the country's commendable level of social infrastructure. However, the fiscal effort implemented in connection with the stabilization and adjustment of programs of the 1980s and 1990s kept the level of social expenditures below the level of that of the seventies. Recovery of 1985 levels of per capita expenditures occurred by 1993 in priority social areas; however, at about 19 percent of GDP in the 1992-95 period, social expenditures are slightly under their mid-seventies level. Since the eighties, there have been important expenditure reductions in education and health. Unless the pension system is rationalized and more carefully targeted and administered, it will continue to be a drain on public expenditures and constrain policy efforts to increase flows to social programs directed to the needs of the poor. Other than social security, the only notable increase in terms of per capita expenditures after 1990 occurred in housing, where the redistributive impact of social policy is difficult to assess.

Safety Net

There is still a strong commitment on the part of the Government of Costa Rica to provide a wide range of social services to all segments of the population. Its social indicators in the aggregate remain among the best in Latin America and in the developing world. However, findings also suggest that there still is need for a much better concentration of social benefits on the poor. This is true despite a generally lower incidence of poverty in the mid-1990s than during the early to mid-1980s stemming from the economic turnaround.

In essence, the broadly-based welfare concept has not allowed sufficient resources to reach the poor and has limited their access to education, training, and employment that could help them exit poverty. What will be needed — in consonance with the recommendations of the 1990 World Bank Social Sector Spending report — is better targeting and a commensurate reduction of expenditures for benefits going to groups who are among the non-poor.

The main impediment to the Government of Costa Rica in meeting the needs of the poorest are: an inappropriate institutional environment that interferes with the efficient delivery of social services to the poor (over 31 programs accounting for 12 percent of social expenditures); fiscal unsustainability of social policies caused by rigidities in the structure of employment and salaries in the public sector, as well as growth of pension payments, tax subsidies, and the service of domestic public debt.

Poverty Strategy

Traditionally, social policies — and policies and programs to assist the poor — have not concentrated resources on primary health care, basic education and nutrition. Thus, during the recessionary early 1980s, there was an increasing inability of the government to handle urgent social issues. An approach to target the poor, under the Fondo de Desarrollo y Asignaciones Familiares (FODESAF) was progressively eroded in the absence of specific policy guidelines; instead of becoming an instrument for transferring resources among the multifarious government institutions.

Social programs that continued to receive assistance in the mid-1980s included the National Social Compensation Program, which sought to alleviate the impact of the fiscal crisis on the poor. However, the combination of inefficient targeting, inadequate financing, and weak executing agencies resulted in a low impact of social policies directed to the poor and to social areas such as general education, primary health care, and nutrition. The government, in response, put great emphasis on price supports for basic grains and placed controls on food-basket items, supplemented by substantial real wage increases (mainly in the public sector). These actions only complicated the supply response of the economy and deepened the financial dilemma.

The government's most recent initiative, the national Anti-Poverty Program, was instituted in 1995 under the direction of the Office of the Vice Presidency. It consists of a series of actions targeted to the poorest and most vulnerable groups, and involved women, the unemployed, the disabled, children's development, and community development. While some funding from FODESAF is available to finance these programs, increased impact in the medium-term can be achieved only to the extent that these activities are better integrated into the regular actions that the various government agencies undertake in the social sectors.

Statistical System

Periodic household surveys have been conducted by the government since 1976. Starting in 1987, methodological changes were introduced to improve income data (Encuesta de Hogares de Propositos Multiples, EHPM). Between December 1992 and February 1993, the government administered another instrument, the Social Investment Survey (Encuesta Inversion Social, ENISO), specifically designed to collect information suitable for analyzing and appraising the effectiveness of social policies. The ENISO survey methodology permits a combination of the conventional poverty line approach with the notion of Unsatisfied Basic Needs (UBN). The UBN approach uses a Basic Food Basket (BFB) that distinguishes between urban and rural areas, and allows the factoring of price differences by region.

Although different methodologies have been used in Costa Rican household surveys, the current measurement of poverty gives relatively robust results compared to earlier approaches. Nevertheless, to generate consistent, internationally comparable time-series estimates of the status of the poor, will require a more complete data set than currently captured by the EHPM's poverty line. This is important, given that the needs of the structural poor are apparently not being met adequately and that the overall distributional effect of social benefits has remained.

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