In Brazil, with senator Calheiros’ scandal still hanging over it, an
increasingly tarnished Lula administration cannot afford to lose the one social
program that has brought it a modicum of luster, the Bolsa Família (Family
Voucher). Thanksgiving arrived the other day, but 36.1 million Brazilians would
not have been at the table.
The Getúlio Vargas Foundation reported last September that the income of 19.3% of all Brazilians is so low that they can’t afford to maintain the minimum 2,288 daily dose of calories recommended by the World Health The government’s formula is to put children in school as a means of putting food on the table.
Now that the Provisory Contribution over Financial Movements (CPMF) tax is at risk, the funds for social programs might be equally endangered. This would be a catastrophe and would knock out Lula’s only clearly successful major social justice program since he became president.
Can the new trend in international development – microfinancing – complement Lula’s social flagship, the Bolsa Família program?
In the last few weeks, social reforms intended by Latin America’s “New Left,” to enhance the social content of their legislative programs, have been overshadowed by challenges to their political agenda.
Not only have Venezuelans voted “no” to the constitutional reforms that would have expanded Venezuelan President Hugo Chávez’s power, but in an attack against President Evo Morales Bolivia’s rich provinces have decided to draft a local applicable constitution that, if achieved, would claim more autonomy from the central government.
However, this new counter-trend is not unique to Latin America’s “New Left.” Brazil and its centrist government are also in the midst of a considerable political challenge, as Lula’s main social program, the Bolsa Família, is threatened by a killer tax-cut, and his ruling party-alliance is in a free-fall.
His comrade-in-arm and president of the Senate, Renan Calheiros has just been forced to give up his post on the basis of corruption charges that have been lodged against him.
With Christmas on the horizon, the hot debate in Brazilian domestic politics has been whether cutting taxes would be tantamount to allowing the Trojan gift to be handed to the state. In the last few months the government and the opposition have been struggling over whether to continue the CPMF, a tax charged on check transactions.
If on one hand tax relief sounds like a blessing to a Brazilian middle-class that has seen its income squeezed during the last decade, on the other hand the poor are still heavily dependent on governmental social programs that are funded by taxes. Now the clock is ticking and a divided Senate needs to decide before the year ends whether the tax is to remain in place next year.
CPMF and Bolsa Família
Created in 1997, the CPMF is a tax on financial transactions that, if retained, is expected to bring in to the government around US$ 20 billion in revenue next year. President Lula claims that “everybody knows that the Brazilian state cannot live without both the CPMF and the DRU [which allows the Government to freely spend 20% of the taxes].”
To the President, ending the CPMF means slashing the budget, which would endanger both the government’s social flagship program, the Bolsa Família, and the 11.1 million families that receive its benefits. This according to the SENARC information system from the Ministry of Social Development and Hunger Combat.
In support of President Lula, the Minister of Social Development and Hunger Combat, Patrus Ananias, released the following figures: In 2007, US$ 3.75 billion of Bolsa Família program’s US$ 4.3 billion came from funds obtained through the CPMF. That means that nowadays the Bolsa Família program derives 87% of its budget from the CPMF.
As a result of this heavy dependence on the CPMF, the Minister voiced the following concerns last September: “If the CPMF ends, the Bolsa Família might end. (…) We certainly would look for other sources, but we would certainly see a visible loss to the Bolsa Família.” Thus, it is clear that for the Lula administration, cuts in the Bolsa Família would jeopardize their plans for creating a national safety net and promoting anti-poverty measures.
The emphasis on the Bolsa Família program, a national conditional cash transfer (CCT) scheme that rewards families with a micro-grant for sending their children to school and fulfilling a few other healthcare conditions, makes it clear that the government’s main long-term strategy for reducing poverty also has been notably successful in increasing primary-education attendance.
Thus, the two main issues being brought to the table are whether using taxes to fund education attendance makes sense, and whether the government could minimize its expenditure and still run a successful program.
Education as the Way Out
Among the several possible remedies for reducing poverty, the Brazilian government in the last decade has been strongly emphasizing education, especially tackling problems with a demand-side strategy. This strategy draws on evidence that improving education attendance promotes development.
The Academy for Educational Development has observed that, not only does one year of additional education increase individual output by 4 to 7%, but improvements in the literacy rate of 20-30% have been related to increases in GDP of 8 to 16% percent.
However, education does more than just increase income; it also can transform a life, exposing one to a background of knowledge on such issues as health and sanitation, food security and family planning, which can significantly improve quality of life.
OXFAM has established that adolescents who have completed four years of primary education are less than half as likely to contract HIV as those deprived of it. UNICEF has reported that children of mothers with no education are more than twice as likely to die or to be malnourished, compared with children of those with a secondary or higher-level of education.
The Turn-around
In the beginning of the 1990s only 85.8% of Brazil’s children were enrolled in primary education according to data from the World Bank, in its 2004 Brazil Education Profile.
Professors Eliana Cardoso and André Souza shed some light on the roots of the problem: “The combination of high opportunity-costs of school attendance and an educational system with low quality education will result in the low valuation of the returns of education, and thus low school attendance and high participation of children in the labor market”
The federal government’s solution was to adopt a national CCT scheme that rewarded the families with a grant for sending their children to school, in addition to fulfilling a few other healthcare conditions. This program, currently called Bolsa Família, evolved throughout the decade and today Brazil seems to be on track to achieve universal primary education: in 2004, only 6% of the children of primary-school age were out of school.
Despite its success in improving primary school attendance, the CCT scheme used in Brazil is not shatterproof. The Bolsa Família budget during 2004-2006 was on the order of US$ 9.9 billion, and its estimated annual budget for this year reached US$ 4.3 billion.
The program’s heavy dependence on the federal government may make it inherently unstable. As already charged by the program’s founder, Senator Cristovam Buarque, in a Brazzil article (“Brazil’s Bolsa Família: A Good Intention Gone Astray”) on September 2002, the potential politicalization of the program can lead it to go astray whenever an administration changes. Finally, the reliance of the programs on grants might encourage government dependency instead of promoting people’s self-empowerment.
Room for Micro-lending
The problems discussed above, which arise when one relies solely on the federal government’s Bolsa Família program to solve the demand side problems of primary education, should encourage a search for alternatives to the CCT scheme. One way out could be to turn to micro-lending.
In a recent donors’ brief, CGAP indicated that access to financial services fostered new income in such a way that the poor could invest in their children’s future.
In Bangladesh in 2002, figures show that nearly all girls in Grameen Bank client households received schooling, compared with only 60% of girls in non-client households, and BRAC reported that basic educational competency among 11-14 year-old children in client households doubled in 3 years, from 12% in 1992 to 24% in 1995.
Not advocating the termination of CCT schemes such as the Bolsa Família, which is a key program for those who otherwise have no economic opportunity, and acknowledging a private sector potential for fostering school enrollment among those hovering around the poverty line could be of great benefit to governments like Brazil’s.
First, as microfinance institutions (MFIs) may allow low-income households theoretically to move up on the social ladder, the opportunity cost of sending their children to school rather than to work will decrease, and the federal government can ease its expenditures on the demand side of education, leaving more leverage to focus on the supply-side problems, which would include the low-quality of public education.
Second, MFIs represent an opportunity for CCT beneficiaries to become MFI clients. In this way, low-income households would have an alternative available, allowing them to better cope with the potential political shocks which so frequently accompany changes of administrations in Brasília. The inclusion of MFIs might even signify a change in mentality, from a traditional government-dependent approach based on grants to a more self-reliant approach based on small but frequent loan re-payments.
Although microfinance is not without its critics, combining micro-lending with the Bolsa Família micro-grants could help to produce development through education in Brazil, with more children attending better quality schools. Therefore, it might be wise for the Brazilian federal government to start exploring the possibility of a seesaw relationship with the private sector, retreating as the expansion of the latter makes publicly funded programs less necessary.
This would provide Brasília with the opportunity to steer more resources toward improving the quality of public education, thus re-focusing the government’s education strategy from the demand to the supply side. Furthermore, this strategy would provide the Bolsa Família with a way to cope with the potential phasing out of the CPMF and the implications of such a development on the program’s poor beneficiaries.
Analysis prepared by COHA Research Fellow Thomaz Alvares de Azevedo e Almeida. The Council on Hemispheric Affairs (COHA) – www.coha.org – is a think tank established in 1975 to discuss and promote inter-American relationship. Email: coha@coha.org.
