Households are classified as poor if their total expenditures are lower than the cost of a basic food basket plus an estimate of nonfood expenditures. Households are classified as extremely poor if their total expenditures are lower than the cost of a basic food basket. About half of the population surveyed in 1991 fell below the higher of the two poverty lines, and a fifth fell below the lower cutoff. Among the four regions sampled, the incidence of poverty is highest in the rural sierra. About 66 percent of the households in that area are poor, and 47 percent are extremely poor. The typical poor person lives in a larger household than a typical nonpoor person, as each worker in a poor household supports four family members while for the nonpoor, the equivalent number is three. Poverty is particularly high among the indigenous population. The poor are found largely among two occupational groups -- the self-employed and private sector workers. Working in agriculture is positively associated with poverty. The relatively high incidence of poverty in Peru has been a chronic problem for some time, and the situation deteriorat-ed further during the latter part of the 1980s because of the economic crisis.
Incentive and Regulatory Framework
One of the legacies of Peru's poor economic performance is the persistence of high poverty levels in some regions and among some ethnic groups and the decline in the living standards of others. Until now, the macroeconomic stability, administrative framework, and incentive structure that are conducive to growth were absent. In August 1990, the Fujimori administration launched an orthodox and sweeping stabilization and structural reform program. These reforms aim to promote competitiveness by deregulating economic activity, and several are crucial to reducing poverty. Reversing the sharp decline in tax revenues will be vital for fiscal balance to be restored, as will continuing to provide basic services in the long run. Growth in urban employment and wages is a major determinant of the pace of poverty reduction. Greater neutrality in the trade regime can support a more labor-intensive pattern of industry. The government has moved quickly and boldly to liberalize the trade regime, but additional actions are needed to ensure that factors of production are able to respond to market forces.
Spending on the social services has decreased with the sharp drop in overall government expenditures during the last five years. The decline is explained by several factors, including the severe recession and the near disappearance of the country's tax system. Although the social sectors have been protected from the more extreme reductions experienced in other sectors, Peru still spends less than its neighbors in these areas. In education, there has been an impressive expansion in primary enrollments. However, this was coupled with a decline in expenditure per student and an exodus of trained teachers. Internal efficiency is low as is the quality of pre-primary education. In addition, there are wide disparities in educational attainment and efficiency within the country. The lack of supplies and poor teaching practices are particular problems in multigrade schools in rural areas. Another concern is the persistence of a relatively high rate of illiteracy because little progress has been made in rural areas and among women. Data show that children of poor families begin school at a later age than children of nonpoor families. Also, a larger proportion of the children of the poorest families never attend school or drop out early. One of the factors behind the relatively high repetition rates for children from poorer households is lower attendance at kindergarten. In health, in spite of an expansion in primary care infrastructure, Peru has some of the worst indicators on the continent. Many could be improved if a more concerted effort were made to provide primary health care. The full benefits of the network of primary care facilities are not being realized because of a scarcity of equipment, poor distribution of personnel, and low expenditures on the programs. Thus, the quality of services provided is not adequate. Vaccination coverage among children is low, particularly among the poor and in the rural sierra.
Food assistance to the urban poor is widespread and generally well-targeted in Lima, and represents an important source of consumption for poor households. In other areas of the country, however -- where most of the extremely poor live -- these transfers account for a negligible percentage of the household expenditures of the poor. Also, it is likely that the absence of complementary health and nutrition education lessens the nutritional impact of the food assistance that is provided. Nongovernmental organizations play an important role in Peru in providing social assistance.
Increasing access to and improving the quality of public services, particularly education, are needed to reduce extreme poverty. These programs should target the rural sierra and the indigenous population. These households are also at greater risk for poor health because they lack clean water and sanitation. Nevertheless, the poor (as opposed to the extremely poor) have relatively good access to public services. They are poor because they are in low-paying, low-productivity jobs in the private or informal sector or are unemployed. Thus, they need more productive jobs to raise their expenditures above the poverty level, and they are relatively well-equipped to take advantage of employment opportunities. The implementation of the economic reform program and the liberalization of the labor market are the most important measures to take to reduce poverty for this group.
The quality of data in Peru is relatively good. There is capacity and experience in both the public and private sector to carry out and analyze household expenditure surveys. Since 1985-86, four Living Standards Measurement Study surveys have been carried out, although two covered only Lima.
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