On Saturday, Jan. 13, 2001, an earthquake measuring 7.6 on the Richter Scale rocked El Salvador to its very foundation, swallowing entire neighborhoods, shattering families and destroying lives. In its wake, 1,900 aftershocks compounded the misery, terrifying survivors and further destabilizing the shifting terrain. Far from an anomaly in the region, this latest natural disaster left an estimated 46,000 homeless and almost 700 dead.
When disaster strikes, a nation’s poor and near poor are the hardest hit. Even in the best of times, those who live on the fringes of society barely sustain their tenuous hold on the basic human needs. When calamity hits—either through economic crisis or natural disaster—the least secure are likely to lose their grip completely. As a larger percentage of a country’s population falls below the poverty line, an already overwhelmed society spirals further into a cycle of negative economic growth and massive societal troubles.
This problem is illustrated in Social Protection for Equity and Growth, a compelling new book written by members of the IDB’s Poverty and Inequality Advisory Unit, under the direction of Nora Lustig, Bank senior advisor on poverty and inequality.
In a matter-of-fact tone, the chapter authors discuss the effects of natural disaster, financial instability, unemployment, and aging on the disadvantaged of Latin America, where an estimated one-third of the population lives beneath the poverty line. Leaving hyperbolae aside, the book cites stark numbers that eloquently tell this sobering story. One statistic: In Central America, 68 percent of the population lived below the poverty line even before Hurricane Mitch pummeled the region in 1998. Following Mitch, according to sources cited in the book, an astounding 80 percent of Guatemala’s citizens were destitute.
Along with the region’s vulnerability to natural disaster, the authors note that economic downturns continue to plague many Latin American countries. The combination creates a disastrous long-term impact. “Economic crises and natural disasters are, unfortunately, quite frequent in Latin America and often felt across many borders,” writes the IDB’s Lustig in the introduction. “In the last 20 years, Latin America has faced sharp economic downturns due to a combination of unsound macroeconomic policies, declines in terms of trade, volatility of capital flows and environmental instability.” Indeed, the authors estimate that with each percentage point drop in economic growth, the incidence of poverty in the region rises by two percent.
But Social Protection for Equity and Growth is not just another review of Latin America’s difficult lot. Instead, the slim, well-organized volume offers a toolkit for positive action, calling on governments to create a “social protection strategy” to reduce the likelihood of adverse events and to mitigate the impact of catastrophic events on the poor and to encourage economic growth. “The first step to avoid the vicious circle of adverse shocks and rising poverty is to prevent future crises through improved macroeconomic management and natural disaster risk-reduction strategies,” Lustig writes. “Governments also need to introduce safety nets targeted to those most in needs…these safety nets should be designed to help households build the human and physical capital assets they need to pull themselves permanently out of poverty,” she adds.
One of the book’s central arguments concerns the way governments handle economic downturns. The authors contend that when a financial crisis requires national belt-tightening to avert fiscal disaster, governments tend toward a knee-jerk reaction: slashing social spending programs to help balance the budget. They argue that such measures are usually counter-productive. First, they worsen the immediate circumstances of the poor, and second, they have a negative impact on a country’s human capital, an asset that is essential for growth. In fact, the ultimate cost of redlining those budget items outweighs the expense of maintaining them.
A better approach, according to the authors, is to institutionalize social protection schemes on a permanent basis, thus safeguarding the policies and programs that benefit the poor even in the midst of a financial crisis. Case-in-point: Trabajar, Argentina’s successful workfare program, costs one-quarter of one percent of GDP, while reaching 350,000 unemployed. The estimated cost to expand the program nationwide amounts to less than one percent of GDP.
The authors of Social Protection for Equity and Growth demonstrate that a complex set of circumstances—some macroeconomic, some societal and cultural, some geographic—conspires against those most vulnerable in Latin America. Similarly, they suggest that a successful path toward poverty alleviation must weigh all the factors, including root causes that can be changed (such as irresponsible fiscal policy and environmental degradation) and those that cannot (the region’s inherent vulnerability to natural hazards). Furthermore, they argue that existing social protection programs must be evaluated for efficacy and abuse in a clear-eyed manner before progress can be made.
The authors make a strong case that the impact of disasters in Latin American can be mitigated by instituting financial and land-use reforms, developing social systems, encouraging entrepreneurship, and creating “rainy day” funds. They argue convincingly that a coherent social protection strategy will improve a nation’s overall economic status after a crisis and better equip a country to deal with inevitable future disasters. Well-managed, accurately targeted social safety nets will prevent those teetering on the brink before a crisis from losing everything as a result, thus swelling the ranks of the most destitute and adding to a country’s long-term burden.