Latin America is a land of extreme contrasts. According to the World Bank (WB) poverty in Latin America has dropped significantly. The United Nations (UN) joins the flag waving celebrations for a major reduction in poverty between 1990 and 2010, down from 48% to 31%. That means there are only 177 million poor people in Latin America now. Figures of a similar nature allow the WB to claim, “Today we can safely say that moderate poverty in Latin America has dropped by 73 million since 2003.” The figure is significant and should be celebrated but with a dash of caution.
A few issues can be raised here; we already know that the $1 a-day threshold is, (upped to $1.25 in 2005) by the Bank’s own admission a ‘very frugal’ means of measuring poverty and, some would say quite unrealistic. Unfortunately, until we have a universally agreed criterion for measuring poverty all figures issued by the various bodies are suspect, or to be blunt, unbelievable. The second point to be raised here is the use of the term ‘moderate’. This differs from the WB usual catchphrase of ‘extreme’. The drop in poverty is good news and the Bank it would seem just wanted to join the party.
What constitutes ‘moderate’ poverty? By the WB own definition anyone living on less than $2 a-day, which contrasts with the less than $1.25 a-day threshold of ‘extreme’ poverty. The difference between the two figures is such a pittance that it is a concern that they are used to measure a person’s place in society. I am sure that in the ‘favelas’ of Brasil there are folks living side by side, sharing the desperate struggle to survive on slightly different incomes. I would surmise that in every shanty town and slum throughout the developing world and in slums everywhere a similar situation prevails. Does the extra few cents mean that those who have it get better access to health, education and a higher standard of living? They share the slum but statistically one is in a superior position vis-à-vis the other? Should I laugh or cry?
In Brasil the annual cost of living increase in the minimum wage contrasted with the static $1.25 a-day threshold raises a serious question:
2009 – R$ 465 2010 – R$ 545, 2012 – R$ 622, 2013 – R$675.
How realistic and reliable is the ‘threshold’? Surely over a period of time the minimum wage will surpass the $1.25 a-day? As the ‘threshold’ will remain constant until 2030, it’s inevitable that most will have moved above the threshold but not out of poverty because prices will have continued to rise. Nonetheless, statistically they will be out of poverty according to the World Bank. Go figure!! A further point needs to be considered and that is inflation; in 2009 you would get 60 centavos in exchange for the US$, in 2013 you only receive 45c.
Wealth distribution is a key element of many economies in Latin America. Whilst some nations may lay claim to a reduction in poverty rates the income disparity makes them divided societies. “Latin America is the most unequal region in the world.” (Wikipedia.org). In 2007 the WB itself pointed out that the richest 10% earn 48% of income whilst the lowest 10% manage 1.6% of the regions income.
A case in point is Chile, which according to the statistics is on an industrial surge. Unemployment is reported as 6.4% and the poverty rate as one of the lowest on the continent. Foreign investment of just over $28bn is a 60% increase on previous years. To add to the glowing picture the growth rate between 2003/ 2012 is a healthy 5% annually and inflation is presently at a low of 2.8%. (CIA)
The downside is the income distribution, with the lowest 10% earning 1.5% of the nation’s wealth, while the top 10% have 43% of income. This lead the Organisation for Economic Cooperation and Development (OECD) to remark that the, “severe income inequality ranks as the worst…” of its members. Access to education is just as unequal as the distribution in wealth. These two factors will in the long run prevent Chile from sustaining its growth. To survive the country will have to accept greater equality or widespread intellectual migration and pray that the export market remains buoyant.
In Argentina the situation has already reached catastrophe level for the poor. It is reported that the inflation rate has surpassed the 25% mark. Thus unless wages and other forms of income are keeping pace then survival has just got desperate. “Inflation and import taxes have rendered many goods in Argentina overpriced.” It does not help the situation when the government, “…doctors its official economic statistics.” www.economist.com/blogs/americasview
There is hardly any point trying to analyse economic data if it has been doctored!
Columbia is similar to Chile in its income disparity. The World Bank warns that the country’s Gini coefficient at 0.587 in 2000 and 0.559 in 2010 gives it the dubious honour of being one of the most unequal places in Latin America by wealth distribution. A Gini coefficient of above 0.4 was deemed a dangerous level.
While Chile is experiencing a growth spurt, Brasil is having a bit of a downturn. The industrial growth rate for 2012 was -0.3%. However, a more telling point economically comes from the figures for GDP, 2010 = 7.5% 2011 = 2.7% 2012 = 1.3%. The trend is notably downward. Another damning figure is the one for people living below the poverty line given as 21.5%. That is a high number by any standards. The situation is chronic in the north-eastern region with a reported 60% in poverty.
Official government figures take a more positive approach by suggesting that only 4.2% of the population live in ‘extreme’ poverty. Furthermore, a study by the Strategic Affairs Secretariat (SAE) in September 2012 maintains that 50% of Brasilians are now middle class. This is based on an income of: R$ 291 – R$1019, with the basic minimum wage running at R$675 it’s hardly surprising.
In contrast, a study by the Department of Statistics and Socioeconomics Studies makes the point that an income of R$2825 or 4 times the minimum wage is the minimum required for a basic living standard in Sao Paulo. It is also pointed out that food and drink prices increased by 13.5% between March 2011 & March 2012. Another increase was reported on the ‘basic basket’ in all but two cities. And to add salt to the wound industrial prices rose by6.8% over the past year. Fuel costs are also up.
Which study would you believe? Herein lies the problem with statistics and with government spin. Politicians can make statistics dance like a puppet at the hands of a master puppeteer. Every country can and do set their own poverty line. Our dilemma is who do we believe? What we can say is that millions of people are still living in poverty in Latin America and it does not look likely that their situation will change any time soon. That leaves the question as to how the WB will achieve its target of 3% or less living in ‘extreme’ poverty by 2030.
Brasil is renowned for the Mardi Gras and its football; both great to watch. Only a few years ago the future looked ever so bright as the country rose to be the sixth largest economy in the world. From the outside there was great expectations of Brasil, now it seems to have floundered somewhat. With such a high poverty level Brasil is going to find it very hard to grow its economy and for that growth to be sustained. Without a strong home base for its goods the country becomes more dependent on the export market.
The riots currently taking place throughout the country, with an estimated 1 million participating indicates just how fragile the situation is. A 20 centavo (6p) rise in bus fare was the decisive slap in the face for the people, who watched R$ millions being spent on prestigious programmes such as stadia for the world cup 2014. In 2007 the government promised that “…not a cent…” of public money would be spent on such projects, then changed tact and tried to force the people to pick up the tab.
It did not take long for the Government to reverse the transport price increase but this has not stopped the protests. The dam has broken and the peoples’ pent up anger lets the government know that the electorate want a better standard of living. There is a panic in the Brasilian government, evidenced by how quickly they responded to the bus fare hike and now promises of better transport throughout the country. More promises will follow if the protesters continue with their action.
Demands for better health care, better education, an end to corruption and greater transparency in government all point to a society of much higher standards of living and a democracy where people count. That is how Brasil will solve its long term economic problems; not by adhering to the narrow vision of the wealthy few. Listen! The protesters are speaking for the poor of the world.
The protests fit in with the Gini coefficient of the country which stands at 0.543, which takes it into the danger zone. Not only is Brasil unequal in wealth distribution but is also a much divided society racially. Of those earning on or below the minimum wage 63% are black and 34% are white, this is also a considerable disparity. Unless significant changes are honed from the present demonstrations then it would seem that the favelas that surround all the major centres will be with us for a long time to come.
Based on the figures that have emerged, Latin America, it would seem, is more likely to explode in revolution than have a massive industrial surge that will slash poverty on a sustainable basis. The World Bank may be hopeful that their figure of 3% or below living in ‘extreme’ poverty can be achieved by 2030 but will life be any better for those in the poverty trap? The demands of the protesters in Brasil are the demands that should be universal for all people and until we achieve that goal world poverty will remain a plague!