Hospitals & Asylums
A. US $400 micro-enterprise credit limit for Latin America and the Caribbean HA-13-12-04
1. The mission of the
Inter-American Development Bank (IDB) is to
reduce poverty, foster economic and social development, and strengthen
democratic institutions in the countries of Latin America and the Caribbean. An
international organization with a world-wide membership of 46 nations, the IDB
provides financing to the developing nations of the Americas to carry out
investment projects in a wide variety of areas. In its 40 years of operations,
the IDB has mobilized financing for projects that represent a total investment
of $255 billion through 1999. The Board of
Governors has delegated many of its operational powers to the Board of
Executive Directors, which is responsible for the conduct of the Bank's
operations. In August
2003 the Magazine of the IDB wrote, “the IDB’s managers and its Board of
Directors are constantly re-evaluating the Bank’s role and its services in the
light of the latest economic realities”.
Since 1962 the IDB has issued triple-A rated bonds on international
markets to help finance its programs for economic and social development in
Latin America and the Caribbean. On April 7, for the first time, the IDB issued
a bond in a Latin American currency. The bond, denominated in Mexican pesos,
was for the equivalent of US$269 million. Twenty days later, the Bank issued a
US$94.5 million bond denominated in Brazilian reais, and in June it issued a
$43.78 million bond in Colombian pesos. The three transactions were made
possible by a new flexibility in the global financial system and growing
sophistication and depth of many of Latin America’s financial markets.
a.
IDB International Trade
Finance Reactivation Program is designed to correct a serious shortage of
credit for exporters, importers and other agents in the international trade
sector through reciprocal or unilateral
trade arrangements.. The program
has a $1 billion cap on the total amount the IDB can lend for this purpose to
the private sector in the region. However, countries that rely on official
institutions for trade financing may receive financing for amounts above the
ceiling. The first loan under this new
trade facility was approved on March 17, 2003, for Brazil: $110 million to
Banco Bradesco S.A. to finance pre-shipment and post-shipment export financing
for local companies and their subsidiaries abroad.
b. Sovereign Bond Guarantees
are available to countries that borrow internationally, and it will enable them
to convert loan disbursements into guarantees for up to $250 million. Like the trade facility, the guarantee program
has a cap of $1 billion, but, by making the original guarantee rolling and
reinstatable, this amount can be leveraged to guarantee as much as $4 billion
in bonds or similar instruments. The Bank’s Private Sector Department,
meanwhile, is making increasing use of its guarantees for private sector bond
issues. The first operation in this area was carried out in April 2002, when
the Bank guaranteed $75 million of a $300 million bond issue in Chile in
national currency to support the upgrading of a toll road linking Santiago with
the port of Valparaíso.
c. The IDB Board of Governors in
2002 expanded the allowable amounts of the Bank’s portfolio for so-called
Policy-Based Loans, which are used to support macroeconomic reforms.
Policy-Based Loans have several advantages for countries attempting to
stabilize their macroeconomic framework: they can be quickly prepared, they are
fast disbursing and they do not require local counterpart funds. At the same
time the governors voted to add emergency loans to the Bank’s permanent list of
financial instruments. These special five-year loans, designed to counteract a
temporary economic crisis, were used only in 1998 and 1999. In March of 2000
the Bank’s Board of Executive Directors approved several mechanisms to put certain
types of loans on a fast track for approval. Among them were innovation loans
for up to $10 million for projects that pioneer new approaches and
policies. The new mechanisms also apply
to sector loans in the areas of education, health, and commerce
2. Enrique V.
Iglesias was re-elected president of the Inter-American Development Bank on
November 8, 2002. He began his fourth five-year term on April 1, 2003. In June 2004 Eloy
García, the IDB treasurer was asked, “IDB bond sales used to be almost
exclusively denominated in U.S. dollars, British pounds, Swiss francs, Japanese
yen or a few other hard currencies. Why is the Bank only now issuing bonds in
Latin American currencies?”. Garcia
responded, “The fundamental change has been the creation of a highly liquid
international market in which many currencies, including some local currencies,
can be freely exchanged, or “swapped” for hard currencies”. In November 2004
it was reported that an IDB research team led by Guillermo Calvo, the Bank’s
chief economist, has published a report titled “Unlocking Credit: The Quest for
Deep and Stable Bank Lending,” the result of two years of research by dozens of
experts that found among many things, “A current account deficit and liability
dollarization can be dangerous. A country that has heavily dollarized
liabilities can become subject to additional financial stress when it devalues
its currency, because it has to pay the exchange rate differential on its debt.
Economists have coined the term “twin crisis” to describe a situation in which
we have a balance of payments crisis and a banking crisis simultaneously. There
is less probability of a “sudden stop” in foreign capital inflows when there
are low levels of dollarization. Sixty percent of the time “sudden stops” are
associated with high levels of dollarization.
3. Friday, January 7, 2005 the Magazine of the Inter-American Development Bank wrote, “Trust the people, test the program” wrote, Miguel Székely, an Oxford-trained economist, left the Inter-American Development Bank in 2001 to return to his homeland, Mexico, and work as an advisor to President Vicente Fox. As a researcher at the IDB, he had done extensive work on the economics of poverty and inequality, looking at issues such as the obstacles poor people face in accumulating human capital and assets. In 2002 he was appointed undersecretary for planning and evaluation at Mexico’s Social Development Ministry (SEDESOL) and charged with ensuring that its poverty reduction programs were congruent with Mexico’s national development plan. He spoke to IDBAmérica in October about Oportunidades, one of Mexico’s most successful and celebrated social programs.
2. Peter Bate from Tlicalco, Veracruz, Mexico wrote. “A different kind of opportunity”. Launched in 1997, the program provides aid to indigent families to improve their nutrition and keep their children healthy and in school. Its quick and encouraging results led the IDB to grant the program a US$1 billion loan—so far the largest investment loan in the Bank’s history. In May 2004 the Mexican program was one of two Latin American initiatives showcased at a World Bank conference in Shanghai on proven means of breaking the cycle of poverty in developing countries. The other one was Rio de Janeiro’s Favela–Bairro, an IDB-supported program that has turned slums into livable neighborhoods. The Mexican program has grown from 300,000 families in 1997 to 5 million in 2004, covering virtually the entire population threatened by hunger. The closely monitored and meticulously evaluated initiative has quickly shown impressive improvements in beneficiary families’ food consumption, infant weight and height growth, use of preventive medical services, prenatal care and contraception, school enrollment and retention and a reduction of the incidence of child labor. the rapid expansion of Oportunidades helped Mexico reduce poverty levels even during the economic doldrums of 2000–2002. According to the UN Economic Commission on Latin America and the Caribbean’s indicators, in that period extreme poverty dropped from 15.2 percent to 12.6 percent of the population. Around 1 million families receive their bimonthly stipends in bank accounts created by Oportunidades. Some of these families have even started to build up savings, as mothers and fathers salt away a few pesos they would have otherwise spent or stuffed under a mattress. A family with young children will receive the equivalent of about US$15 a month. There are larger incentives to keep children in school, including aid for supplies and uniforms, and amounts increase as students pass to upper grades. Payments for girls are higher than allotments for boys—a form of affirmative discrimination designed to close the gender gap in education among the poor. The stipends have ceilings (no family can receive more than US$150 a month) so there is no reward for having more and more children. Families can remain in the program for three years, as long as they fulfill their co-responsibilities. Those who fail may be suspended or even dropped from the roster. After three years, families can re-enroll, provided they still meet the program’s criteria.
4. PROGRESA started under former
president Ernesto Zedillo, whose Institutional Revolution Party (PRI) governed
Mexico for seven decades until 2000. Zedillo’s successor was Vicente Fox, a
leader of the National Action Party (PAN).
Instead of gutting the program, the Fox administration decided to expand
it under a new name. PROGRESA had targeted rural areas, where extreme poverty
was concentrated. As Oportunidades , it set out to reach indigent
people in urban areas as well, and extended its education subsidies to cover
high school. As a further incentive for students to graduate, the program now
contributes to individual savings accounts that help its young beneficiaries
accumulate some money to pay for higher education, start a small business or
buy a home. The program has several features that distinguish it from previous
poverty reduction initiatives. Aid is delivered in cash rather than in kind,
and is given directly to the female head of household. Payments continue to
flow as long as beneficiaries comply with a series of requirements known as
“co-responsibilities”—namely keeping their children in school, taking them to
see a doctor regularly and getting their shots, and attending periodic
discussions on topics such as health, nutrition, hygiene, domestic violence and
family planning. Pregnant women and lactating mothers and their infants are
also provided an iron-fortified formula that helps prevent infant malnutrition.
5. The program started by using
census and household survey data to identify the rural areas with the highest
levels of indigence and worst living conditions. Once priority communities were
pinpointed, house-by-house polls ascertained which families should receive aid
through use of a points system based on criteria such as income and education
levels, occupation, housing conditions, land and cattle ownership and access to
clean water and electricity. As a final filter, the lists of potential
beneficiaries were presented in community meetings so neighbors could validate
the candidates. The same steps were followed as the program expanded, except
that mobile polling units are used in urban areas. Several firewalls guard
against political manipulation and corruption. Oportunidades staff does
not handle money. The tasks of stuffing, sorting and delivering cash envelopes
to beneficiaries is outsourced to commercial banks, a state-owned regulating
agency and the telegraph company. Prior to elections there are “blackout
periods” during which no payments may be made and no families may be added to
the roster. With a core staff of around 630 people, Oportunidades spends
only about 6 cents out of every peso on administrative expenses. Up to 12,000
people are employed as temporary workers to conduct house-by-house surveys and
to input data during enrollment periods. Part of the clerical work is done by
university students who must meet a required number of hours of social work
before they graduate.
6. Emphasis on evaluation has
gradually spread to other Mexican social programs, including some that had not
been examined in decades. As a result, some programs have been shut down and
others have been streamlined. Nowadays all of the Ministry of Social
Development (SEDESOL) programs are subject to evaluation.The data supports its
administrators when they appear before Mexico’s Congress to report on Oportunidades’
impact. As a consequence to the evaluation, the program’s operating budget has
risen from 600 million pesos in 1997 to 30,000 million in 2004, making Oportunidades
the largest social program in Mexico’s history. Oportunidades has also
been scrutinized by international institutions. Before approving its loan in
2001, the IDB helped the program to organize a thorough evaluation by the
International Food Policy Research Institute.
Oportunidades also moved the IDB to encourage other Latin
American countries to study the Mexican model and adapt it to their particular
needs. Carola Álvarez, who led the IDB project team for the US$1 billion loan,
lists Argentina, Brazil, Colombia, Ecuador, Honduras and Nicaragua among the
countries that have drawn from Mexico’s experience in their implementation of
social programs in education, health and nutrition.
7. At the October interview
Székely said, the Opportunidades program started in 1997 to create a welfare
system founded in the principle of co-responsibility, which was one of the
innovations in the program’s design. You would give people cash transfers, but
on condition that they assume responsibilities for a series of requirements. A
scholarship tied to school attendance, for example. It’s hard to believe now,
but the scholarships the government used to grant were not linked to academic
performance or even to attendance. [In Oportunidades] the co-responsibilities
concern nutrition, health and education. These are things families do in order
to maximize the impact of the support they receive. If you only give them
money, but their children don’t go to school, the impact you achieve is lesser
than if you link them. And the third paradigm shift was evaluation. Oportunidades covered 150 thousand families
in 1997. By the year 2000 it had reached 2 million families. It now serves 5
million households. This is the largest
social program in Mexico’s history. We’ve never had a single program in which we
have invested 30 billion pesos (about $2.7 billion) a year.
8. Most of the benefits of the
Oportunidades program are derived from evaluation of other social programs. The
tortilla subsidy is an example. It was a coupon that people received to buy
tortillas at reduced prices. Let’s say tortillas cost one peso; using the
coupons you could buy them for 50 cents. There were several problems. To
mention one, tortilla vendors would buy coupons at a discount. This isn’t
something that only happens in Mexico, it happens everywhere you have this sort
of program. When we started to make a database of that program we realized that
more than half of its beneficiaries did not exist. There were names and
addresses, but when you checked it turned out families had moved years ago or
lived in high-income areas. Once you started to generate such evidence, and
compared it with the information of how this other program was working, it was
easy to reorient resources. Evaluations were first considered for this program
because its design was so harshly questioned. First, because it proposed to
give people cash, when the state was supposed to provide them goods or services
to ensure that they received the right things. Second, the idea of
co-responsibility also drew fire because it was seen as a condition. How are
you going to force poor people to meet a requirement? To a certain degree,
evaluation would respond to the need to generate evidence to prove whether this
strategy really made sense. And what was found, to many people’s surprise, was
that the poor were spending the money on food, school supplies, transportation
to get to school and medicines. The second finding was that people did not view
co-responsibilities as negative impositions but rather as something positive.
It was quite clear in the case of health. When people start to receive
preventive care, and their children do not fall ill, they are the first ones to
recognize the benefits.
9. In the United States the
welfare system linked to the fiscal system. There is a range of programs that
kick in automatically if your income falls below certain levels, offering you a
series of benefits. When your income rises, you deactivate these benefits on
your own. It’s a whole system of incentives, rights and penalties that works automatically.
And it’s well designed because it takes into account the short term and the
long term. It’s not just social policy but also fiscal policy, because the only
way you can tell how people’s situations vary is precisely because both systems
are linked. In Mexico, we’re missing two pieces. The first one is that our
fiscal and social systems are not connected. We also have a very large informal
sector, so because our target population is not registered in the fiscal
system, we can’t obtain information on how their situation varies. The second
missing piece is that the social programs we have are designed to deal with
structural poverty. They are static programs. The question is how, when and
even whether you should take someone off a program. What we have to do is to
start thinking of these programs as dynamic programs with appropriate
incentives so that people themselves will leave the programs when they no
longer require assistance. It’s a complex issue, but if we establish the right
incentives, we can arrive at a better design, but we would still be lacking a
connection to the fiscal system.
10. Jovenes con Oportunidades
was started in 2003. This year’s graduates will have two years of savings.
Currently there are some 40 thousand people with accounts. Eventually we’ll
have 1 million. Oportunidades
had no other goal than building human capital. The new component in
Oportunidades is aimed at the patrimonial aspect. It works this way: starting
in the 9th grade, savings accounts are opened for students. As they
meet the co-responsibility requirements, deposits are made in their name. When
they graduate, they can access those savings. The interesting point is that if
it were only a question of freeing up money, it would only be an incentive to
finish high school. But when you obtain your diploma, you have five options:
you can use the money immediately to continue studying and build up your human
capital. You can use the money to exercise your income-generation capabilities,
employing it as collateral for a loan to start a business or invest in a
productive project. You can use the money to buy health insurance for you and
your family, an option linked to social protection. The money can also be used
as down payment for a housing loan, which addresses the asset accumulation
aspect. Finally, if you simply want the money, you’ll have to save for a couple
of years. These options are an incentive to graduate from high school and from
the program. When you leave, there are other programs for you. Oportunidades
is like a first rung. Many of its beneficiaries would otherwise never have a
chance to accumulate assets. For the first time in their lives they’ll have an
option to climb to another level.
11. There is some evidence in Mexico’s case - that a lack of access to the financial market is one of the great obstacles to overcoming poverty. This is important for three reasons: first, because it’s necessary to generate productive options. Poor people can be very productive, but they can’t invest to expand their businesses and boost their incomes. Second, there are many people who would like to invest in their human capital but cannot do it. You could get a loan to finance your education, but if you have no access to the financial system, you won’t get one. Finally, without access to a financial market your chances of financing the purchase of durable goods are limited, therefore the chores of running a home remain less efficient. Why do we buy clothes washers? Because it’s much cheaper to use a machine than to it is to hire a person to do the wash. When a financial system allows you to buy in monthly installments, it opens up a range of options. I think that the microfinance institutions that are being opened in Mexico tend to these three aspects, among others. And these three aspects can change people’s lives for generations. On the contrary, when you don’t have these options you’re stuck in poverty. I’m convinced that creating a financial market is one of the best social development policies.
12. We’re in the final stage of designing a new microcredit program. The natural exit would be higher education, and there’s a quite well established scholarship program. But many young people do not want to continue studying and need another option. We’re reviewing our microcredit mechanisms so Oportunidades families may be able to access the financial system, opening up a whole range of possibilities. Its spirit is similar to Oportunidades, which marked a great change because it started to invest on the demand side. Before, when the government invested in health or education it invested on the supply side by building schools and hospitals or hiring teachers and doctors. Oportunidades invests in families so they may be able to use the services offered. We’re thinking along the same lines. Loans offered by governments are usually subsidized or given as grants, which means that they address the supply side. The idea is to address the demand side with instruments that will improve people’s credit profile so they may access the financial system. You’d help Oportunidades families acquire collateral, provide them training to run a business and link them to the financial system. At the same time we’re overhauling the whole financial system in order to favor the proliferation of microfinance institutions and credit unions under new regulations. A new supply is being created not using subsidies but with a regulatory framework that will enable them to emerge. And we’re also investing on the demand side to create more good credit histories.