59434 November 2010 Wo r l d B a n k B ra z i l Quarterly Knowledge Report INTERVIEWS BRAZIL'S MISSING MIDDLE 5 World Bank's Augusto de la Torre urges Bra- EDITORIAL BY MAKHTAR DIOP zil to make the most of good times. W ith the presidential elec- tion over, Brazil has re- doubled its focus on the future. its more basic social and eco- nomic challenges, common to many countries. It has univer- These are great achievements. But Brazil now faces a more complex agenda going forward, In many ways, the Government salized basic education, se- with different, and in many 18 David Fleischer analyses Dilma of Dilma Rousseff faces a very different development context cured the fiscal foundations for growth, investment and job cases tougher, development challenges, uniquely related to than her predecessors. generation, and has reduced the country. Central to this Rousseff's eco- poverty by the tens of millions. agenda is Brazil`s unequal nomic and politi- Brazil has left behind many of cal prospects. (Continued on page 20 ) INSIDE THIS ISSUE BECOMING OLD IN AN OLDER BRAZIL Editorial 1 Anna Rigato Implications of aging on grow- Becoming Old in an th, public finance, services, Economic Growth 1 Older Brazil poverty and inequality Brazil has histori- cally enjoyed a very Brazil's Hour 5 By Michele Gragnolati favorable demo- Multimensional Poverty When South Meets 8 B razil is in the middle of a profound socioeconomic transformation driven by graphic structure, with a large share of the population in 12 South demographic change. On the working ages. This is one side, the demographic often referred to as Rural Credit, Agricul- transition in Brazil has re- Demographic Bo- tural Production and 14 sulted in very rapid population nus. Over the me- aging. While it took France dium-term, however, Productivity more than a century to double the expected Opportunities in Brazil 16 its population aged 65 and changes in the labor above (from 7 to 14 percent of force, due to the Rousseff's Challenges 18 the total), Brazil will achieve aging of the popula- that in the next two decades tion, will pose chal- In the Loop 20 (Figure 1). lenges to economic growth (Figure 2). KEY DATES On the other side, demo- After the mid- graphic change is one of the · Dilma Rousseff's Presis- 2020s, the growth most important forces shaping rate of the 15-59 ential Inauguration-- the outcome of social and January 1 age group will turn economic policy, but it cannot negative. A shrink- be observed in the short term. it will face over the next dec- · Brazil Knowledge Day ing labor force means that ades. This short article touches on Brazil will have to rely more on --Washington, December 7 the main findings of a World productivity improvements Among the priorities is the · Brazil Country Partner- Bank study by Gragnolati, than on new entrants in the creation of enough opportuni- ship Strategy consulta- Jorgensen, Rocha and Frut- labor market to sustain aggre- ties for the growing working tions--January-February tero, that investigates the gate output growth. The coun- age population in the short- socioeconomic impacts of term. Moreover, to boost the 2011 try will thus need to seize the demographic change in Brazil productivity potential of future current opportunity and pre- under a longer time perspec- pare for the structural changes generations, it would be impor- tive. tant to invest in better public Printed on recycled paper Page 2 November 2010 Figure 1--The Speed of Population Aging--Number of years for population aged 65+ to grow from 7 per- cent to 14 percent of total Developed Countries Developing Countries Source: National Institutes of Health, 2009 education, as well as on incen- ing on the potentially increas- education investment in youth tives and retraining of mature ing saving rates in the future, a (9.8 percent of average wages workers. key driver of growth is the en- in Brazil vs. 15.5 percent in dogenous accumulation of OECD) and markedly higher "A policy of keeping The pension system also needs capital. The economic behavior average public pension bene- adjustments to address distor- related to consumption and fits (66.5 percent of average taxes and debt tive effects on the labor mar- savings over the life-cycle is wages in Brazil vs. 30.4 per- ket. For example, the length of constant and allowing service and lack of minimum directly affected by taxes, cent in OECD.) Aggregate public transfers and debt dynamics. In health care expenditures in pension to adjust age result in incentives for order to analyze the implica- Brazil are much below the early retirement. This implies tions for capital accumulation OECD average ­ and average downwards is likely to that a portion of the productive and growth, it is therefore cru- health benefits are somewhat labor force is not being used or cial to take into account the promote a second that they continue working in financing choices for the aging- lower. the informal sector. The avail- In Education, the decreasing demographic dividend ability of a non-contributory induced fiscal costs that the size of school-age population government has at its disposal. and economic program, that transfers a bene- According to our estimates, a provides a unique opportunity fit equal to the minimum wage, policy response of keeping to increase investment per growth" reduces the incentives for low taxes and debt constant and student to OECD levels without earners to contribute. Not con- allowing pension to adjust burdening public finance. An sidering its extremely important (downwards) is likely to pro- ambitious expansion of educa- social dimension, the scheme mote a second demographic tional spending to reach OECD is damaging from a purely actu- levels of investment per stu- dividend and economic growth. ary and sustainability perspec- dent within a decade would tive, as a large proportion of Public Finance and Service require an increase of educa- the population does not con- Delivery tion spending of less than 1 tribute to the social security percent of GDP by 2020. After system during the working age, The impact of population aging that, the share of GDP devoted while benefiting in old age. As is clear in long-term projections to education would follow the the population in Brazil ages, of public spending on educa- decline in the school-aged the need to ensure that a lar- tion, health care and pension: population ­ while maintaining ger part of the population con- the product of the average investment per student at tributes to the system will be- benefits received by individuals OECD levels. and the age structure of the come more and more pressing. population. In 2005, total pub- One of the key findings of our Economic behavior and macro- lic spending on education, projections is that Heath Care economic outcomes also pensions and health care expenditures are likely to in- change both systematically and amounted to 17.7 percent of crease substantially in Brazil. endogenously with population Brazil`s GDP, similar to OECD Indeed, health care is likely to aging. The impact on savings countries, although its popula- emerge as a major fiscal chal- (and consequently on growth) tion is much younger. This re- lenge in the coming decades in is particularly important. Build- sults in markedly lower public Brazil. We project an increase Qua r te r l y K n o w l e d g e R e po r t Page 3 of more than 4 percentage avoidable tension from increas- in human capital can offset points of GDP by 2050. There ing social expenditures driven the costs of population aging. are two driving forces behind by rapid population aging in A second area is the urgent this: the growing proportion of Brazil? As more resources be- adaptation of the health care the elderly, and the corre- come available per student, it system to the different demo- sponding increase in demand is important that such re- graphic and epidemiological for health care from that age sources are used to improve profile of the increasing older group. the effectiveness of the educa- population. Although Brazil tion system. The United States, In terms of public pensions, has left behind the first stages Japan, Korea, and European without the recent reforms of the epidemiological transi- countries used declines in stu- (1999 and 2003), spending in tion, medical schools are still dent numbers to shift re- pensions would have risen training doctors for the re- sources towards quality. In from 10 percent of GDP in quirements of the 20th cen- Brazil, some of the resources 2005 to an astounding 37 tury. Students are schooled in saved from primary education percent of GDP, just from the child care and reproductive could support the expansion of increased number of pension- health but are presented with day-care and pre-school, which ers due to population aging. little about aging-related is- are still far from universal and Clearly, the old support system sues. A doctor graduating in are among the best strategies would have been very difficult 2010, with an average 40 for ensuring that children arrive to afford. Our model of the years of medical practice in primary school ready to recent set of reforms reveals ahead, will witness a three- learn. It could substantially that they more than halved the fold increase in the elderly help finance the expansion of projected costs. However, the population ­ to 63 million higher quality, full-day school- problem of affordability of pen- people. In whatever specialty, ing at the secondary level. The sion expenditures has not yet she will be increasingly con- seven million empty seats in been solved, and pension ex- fronted with older patients. penditures are projected to primary school could also fi- Curriculum reform in medical "As aging frees more nance investments in quality double to 22.4 percent of GDP schools reflecting Brazil`s by 2050. In an alternative sce- for the 24 million primary stu- changing epidemiological resources per student, dents who will remain (World nario, we model a series of Bank, forthcoming)1. Moreover, situation is critical. As non- it is important that reforms that could gradually communicable diseases such an ambitious increase in bring Brazil`s pension benefits educational investment would emerge as the leading cause they are used to in line with those of OECD of morbidity, disability and countries. However, even in likely have profound implica- mortality, effective programs improve the tions for both economic growth this scenario the increases in need to address their main effectiveness of the and inequality in Brazil. Indeed, pension expenditures dominate risk-factors: smoking, physical Lee and Mason (2010)2 pre- the fiscal outlook for Brazil. sent simulation results which inactivity, alcohol consump- education system" suggest that such investments tion and unhealthy diet. So what policy actions could be taken to help mitigate the un- Finally, the pension system calls for strengthening to be- come more efficient. The sys- Figure 2--Brazilian Population by Age Group--1950 to 2050 tem extends benefit coverage to most of the old age popula- tion and provides protection to the poorest segments of soci- ety. Programs have contrib- uted to reducing poverty and inequality, particularly in rural areas, but this has been asso- ciated with sharp increases in expenditures. These are, to a large extent, a consequence of some characteristics of the pension programs, that lead to early retirement, high re- placement ratios and multiple receipts of benefits. The survi- vors` pension system, meant to ensure that the dependants of the deceased do not fall in poverty, represents an ex- Source: IBGE 2008 tremely high share of old-age Page 4 November 2010 Figure 3--Poverty rates bt age, with and without transfers (%), 2008 Source: PNAD 2008 pension expenditures, with capita public transfers to chil- administered as part of the benefits being accumulated dren are much larger in Brazil general social assistance sys- and paid to young individuals than in any other LAC and tem. Although social assis- with a long life expectancy. The OECD country with similar wel- tance expenditures (mostly on "Brazil cannot afford aging of the population will put fare systems. At the same the Benefício de Prestação additional pressure on the time, quality of public educa- Continuada and Bolsa Família) to simply emulate the system, with consequences on tion in Brazil is worse than in are larger in Brazil than in policies of richer growth prospects. This makes other LAC and OECD countries. other LAC countries, resources it very important to address Bolsa Família, a federal CCT available are not enough to countries, which have these issues as soon as possi- program, has improved chil- reach all poor groups. Thus, as ble. dren`s social protection, with in other countries, using an aged over a much positive effects on child health integrated framework to ad- Poverty and Redistribution and education attainment, but minister all resources for social longer period and it is insufficient to reduce the assistance in Brazil would al- Brazil has made huge progress within a context of in reducing poverty and ine- gap between human capital low policy decisions to reflect quality. Public transfers have outcomes of richer and poorer explicit trade-offs among com- relative wealth played a significant role in children and contribute to in- peting priorities and possible these achievements. The es- clude the latter group in the groups of beneficiaries. tablishment of a non- most productive sectors of the Brazil cannot afford simply to contributory program and of a economy. emulate the policies adopted program for rural workers has A very important concern is the by richer countries which have extended coverage to a highly need to maintain horizontal aged over a much longer pe- vulnerable part of the popula- equity by giving equal impor- riod of time, within a context of tion. Moreover, the fast growth tance to the needs of all relative wealth and which are in the minimum benefit has groups in poverty--the elderly, themselves still struggling to resulted in an increase of the children, persons with disabili- address the same issues. Solu- income floor for the elderly ties, and working families with tions will have to be developed faster than the growth of the low earnings. Grosh and Leite from within the Brazilian soci- higher retirement benefits, (2009) observe that in many ety resulting in a reduction in ine- LAC countries the total alloca- quality. The pension system is tion to non-contributory social responsible for the almost assistance programs is under complete eradication of old- 1. World Bank (forthcoming). Achi- 1 percent of GDP, so they em- eving World Class Education in age poverty (Figure 3). How- phasize the need to be very Brazil: The Next Agenda. Washing- ever, this has come at a high cautious before defining poli- ton, DC. cost and has resulted in a cies that would allocate a simi- system with regressive incen- 2. Lee, Ronald and Andrew Mason. lar or greater amount to a sub- (2010). "Fertility, Human Capital, tives and distortions, as men- group of the poor. This concern and Economic Growth over the tioned earlier. leads to the possibility that Demographic Transition." Europe- payments to the elderly be an Journal of Population. May Per capita public transfers to 2010, 26(2), pp. 159-182. the elderly compared to per Qua r te r l y K n o w l e d g e R e po r t Page 5 B RAZ IL ' S H O U R By Mauro Azeredo other hand there are a number of things that are really leaning Augusto de la Torre, the World in favor of Brazil. The improved Bank`s Chief Economist for macro framework, which has Latin America and the Carib- become a national point of bean, is bullish about Brazil`s consensus; the improved social future economic prospects. The policy, which has become an country has weathered the inter- example around the world; and national financial crisis well, the prospects of fast growth and and thanks to the recent Pre-Sal fast increases in investment oil reserves discoveries, it may rates; and the challenge as well become an energy giant. as the opportunity of the discov- But de la Torre is also keenly ery of oil resources. All of that is aware of dangers of compla- creating a configuration where cency and of inadequate plan- all the stars are aligned for ning of natural windfalls. As Brazil to perhaps enjoy a long one of the authors of the Bank`s spell of fast growth and prosper- flagship regional work for 2010 ity if things are managed appro- Natural Resources in Latin priately. And the if is always America and the Caribbean: worth remembering. De la Torre: Brazil needs to save Beyond Boom and Bust, and BET What are those "ifs," that more with extensive public sector Brazil needs to address to real- experience in in his native Ecua- ize this potential? available savings that Brazil has dor, de la Torre knows that good into appropriate long term fi- times offer the best opportunity de la Torre: There are chal- to prepare for less favorable lenges in a number of dimen- nancing of big, long-term invest- "All the stars are ments that need to happen in conditions. sions. One is managing the Brazil. And I think that there are aligned for Brazil to potential for fast growth on the Following are the main excerpts two clear areas there: infra- from his interview to BET`s basis of domestic saving efforts. structure is one and the other enjoy a long spell of Brazil does not have the same Mauro Azeredo. saving effort that the East Asian has to do with human capital. fast growth and For that, Brazil needs to discuss tigers or China have, this means BET: Brazil has sailed through that Brazil should on the one ways to bring in the private prosperity, if things he crisis and is growing fast. financial sector into the chan- What is the long term outlook hand strengthen savings, and neling of these resources into are managed for the country? on the other optimize how sav- long-term investments. A big ings are used. Another impor- challenge for Brazil is to develop appropriately" Augusto de la Torre: One has to tant dimension is how to use be careful talking about the long a more robust market for long foreign savings appropriately. term because it is, after all, the term finance. Right now, the On the first dimension, much of long term. I think people would country is trapped into short it is about management of the agree that we have not seen term financing, the longer term fiscal process, because public Brazil in such an auspicious finances play a major role in financing is mainly with BNDES. time as the one it is now experi- national savings in Brazil. That BET: How can the country solve encing, and the future looks means that Brazil has to make a the savings and long term fi- very promising. It is promising big effort to make room in its nancing bottlenecks? not only because of the good budget to move resources to- performance of Brazil in the wards investment. Which de la Torre: Let`s take savings recent years and during the means that Brazil has a big on the one hand and long term crisis, but also because of the challenge to keeping the growth finance on the other. On the enormous enthusiasm that the in current expenditures within savings side, it will be largely country has raised around the government under reasonable about the fiscal stance. The world and among investors. control. And this will become government needs to generate Brazil now is probably one of the even more important if and more savings, and that goes prime places to invest money when the resources from the through the fiscal process. And around the world. Pre-Sal begin to flow. Brazil will essentially, when push comes to have to learn to appropriately shove, the bottom-line is that On the one hand, among the Brazil needs to have a larger save some of these resources BRICs Brazil is taking a special share of investment in the gov- and not consume them all in a prominence for a combination ernment budget and a lower hurry, and invest them gradually of things. With a more mature share of current expenditures. economy than China, it now over time. To keep current expenditures faces more difficult develop- The second big challenge is to under control, Brazil needs to mental challenges. But on the find a way to transform the have a clear view and strategy Page 6 November 2010 about social security expendi- that can help create an environ- ments with a lot of short term tures; and a well articulated ment for that transition to hap- money. That`s the Lehman plan on how to distribute reve- pen. But I think that this is a Brothers phenomenon where nues in the federal system. very important challenge for you have short funding and long Such a strategy is key for cur- Brazil, because the type of jump assets. It would be an accident rent expenditures to grow less in investment that you need to waiting to happen. So it may not than GDP over the next years. do cannot be done only on the be very important for short term That will allow Brazil to make balance sheet of BNDES. It growth, but for sustainable long room for investments. So in my requires the broader balance term growth you want things to opinion the story on savings is sheet of the financial system. be financed through a good largely a fiscal story. It will be matching between the long term also a private sector story to the BET: So BNDES and other public investment and long term fi- extent that the middle class in sector long term credit institu- nance. If there is not sufficient Brazil keeps on growing, and tions would remain a player? good matching and maturities that middle class will begin to de la Torre: Yes, but comple- transformation through the think more about its future, of mentary to the private markets, financial system, down the line the future of their children and and that is a transition that I you are going to have financial of retirement. The private sec- think will keep Brazil occupied problems. tor will likely play a role, be- for the next three to four years, cause the middle class can BET: You touched upon the because there is consensus issue of the Pre-Sal. You have engineer the way it saves, but that the investment jump needs can only do it with the help of recently done a flagship report to be financed, prudently, by on commodities in Latin Amer- the financial sector. broader sources than just one ica. Brazil is a major exporter of This is the link to the balance sheet. these products, but also "The challenge for long term finance. The has a strong industrial challenge for Brazil is to sector and internal mar- Brazil is to make a make a nice transition ket. Should the country smooth transition to a to a robust market for privilege one over the long term finance. But other? robust market for long that transition is not de la Torre: It is a false going to be easy, be- term finance. But that cause right now possi- dichotomy. What we say bly the only game in in the report is that every is not going to be town in long-term fi- country that has an nance is BNDES. And abundance in natural easy, because right the private markets, as resources needs to be aware of the risks that now the only game in a result of a long his- this abundance can cre- tory, are mainly dealing town is BNDES" with short term transac- ate. But these downside tions. Brazil went into risks are not inevitable. BET: How much of Brazil`s Countries do not need to be that equilibrium as a result of growth depends on this long past hyperinflation, as an effort trapped by this dark side of term finance shift? natural resources. They could of investors to be protected. So how do you make a transition de la Torre: I think that sustain- rather use them as an opportu- from the current reliance on able growth depends on that. nity for prosperity. What are the BNDES and on the short term The you can have quick growth two things that countries need instruments, towards a more because Brazil does not have a to stay away from when they balanced system where the lack of financing, everybody in have abundant natural re- private market is able to chan- the world wants to put money sources? One, they need to nel long time finance? This is into Brazil. But when the money make an effort to avoid that not an easy transition and there comes here, it ends up in short natural resources destroy the is no simple formula. But it term investment or government ability of the country to diversify. requires a greater convergence bonds, it does not find enough That natural resources take up towards a lower interest rate in supply of long term corporate so much of the productive ener- the SELIC and the transition bonds ­ housing finance, infra- gies of the society that in the towards a steeper yield curve structure finance. This kind of end they lose diversification and that would foster savings in assets need to be developed to become extremely dependent instruments with longer maturity match the availability of a lot of on only one commodity. and duration. And I am very money that is coming both from The second one is that natural happy to note that there is a lot outside and inside the country resources generate a lot of of good thinking in Brazil on into such longer contracts. If rents ­ income or resources other measures that can be you don`t do this transforma- that people have access to done in the tax side, in the regu- tion, what may happen is that without effort. And once you latory side... small legal changes you finance long term invest- Qua r te r l y K n o w l e d g e R e po r t Page 7 have a lot of rent in a society, much valued. Right now there is needs to be redressed. The you can have a lot of rent­ a global impasse where no second message is that, to deal seeking behavior. That can emerging market wants its cur- with issues of currency, you damage your political system, rency to gain value against the have to deal with a broader your institutions. So those are dollar ­ but that is the same as issue of how to make sure that the things we have to avoid, and saying that we are not allowing all this money coming in does that requires some energy. The the dollar to depreciate. One not create financial excesses in most important thing you need argument that Brazil has made the domestic markets. So it is to do is to know how to save -- I think it is an important argu- not just an issue of currency. those resources ­ which goes ment -- is that part of the solu- The money comes in and appre- back to my first point. tion requires global coordina- ciates the currency, it also tion. No matter what are your comes in and generates very That said, we show in our report views about that argument, at fast rates of expansion, pres- quite a few examples of coun- the national level you still have sures on the stock market and tries that have been able to the problem of dealing with the so forth. So we have to manage have diversified economic struc- pressures for appreciation. Two capital inflows not just in re- tures, generate prosperity and things are very important in spect to the currency but in keep good institutions while avoiding the excessive apprecia- respect to the financial impacts managing natural resources. tion. One is to provide much as a whole. One the point we Take the U.S., a resource-rich more support to monetary policy make is that Latin America has country that created diversifica- from the fiscal efforts, because to engage much more vigorously tion. Achieving this will require right now monetary policy is in what is known as macro- some careful policy, for instance prudential tools that mitigate avoiding to the extent possible the potential adverse effects of excessive overvaluation of the these capital inflows into the "To deal with issues currency. Because diversifica- financial system. If we develop tion is destroyed when a cur- better macro-prudential tools I of currency rency is so overvalued that it is think that we will relieve some appreciation, you have no longer profitable to export of the pressures of the currency any thing other than the natural as a side effect. So the fiscal to address the broader resources. So avoiding over- contribution and the macro valuation is an important part of prudential agenda are two im- issue of how to make the policy environment that portant aspects in the discus- allows you to use commodities sion of the currency apprecia- sure that all this well. tion. money coming in BET: This is a very important BET Could you give an example point right now in Brazil as the of these macro-prudential does not create real is believed to be much tools? financial excesses in overvalued. In connection to this, there has been talk about de la Torre: I`ll give you two the domestic Dutch disease and deindustriali- good examples. One, with which zation ­ how do you see the Brazil is very familiar with, is markets" Brazilian situation? that when you see that capital inflows are transforming into de la Torre: One part of the handling all of the pressure, and fast credit growth, the Central debate is that the pressures for there is a limit to that. Monetary Bank may raise the legal re- the appreciation of the Brazilian policy has to deal with inflation, serve requirement. In the past currency, along with other Latin and so it can exacerbate the this was sometime seen as an American currencies such as currency pressures, because it abuse, now it is recognized as a the Colombian, Peruvian and raises interest rates bringing prudential agenda, trying to Chilean, are linked in part to a money in. So a general message avoid a credit bubble. Another more global distortion. The we are giving is that the mone- tool much talked about are the argument is: the world needs tary policies of countries like countercyclical provisioning some rebalancing, and the dol- Brazil, Colombia, Peru, and requirements, in which authori- lar needs to depreciate. So the Chile are overburdened, they ties request banks to accumu- dollar needs to depreciate are taking much of the adjust- late more provisions to slow against some currencies, so ment effort and they need to be down the exuberance in the that the rebalancing happens. complemented by a bigger fiscal good times so that you have In a more orderly rebalancing, effort. We know that countries more ammunition to deal with goes the argument, it would be near an election cannot solve the situation when the cycle the Chinese currency that needs the fiscal problem, but we all goes down to gain value against the dollar, hope that we go back to this so that the Brazilian reals and issue, because the balance other currencies do not get so between monetary and fiscal Page 8 November 2010 MU LTID IMEN SIONA L POVERTY IN BRAZIL By Guilherme Lichand Figure 1--Income-poverty vs. multidimensional-poverty W hat does it mean to be poor in Brazil? Can we measure poverty just in terms of dollars a day, or should we also take other dimensions into account? How do differ- ent measures of poverty af- fect the design of social poli- cies? To try to answer these ques- tions, this note calculates a multidimensional (M) poverty index for Brazil between 2001 Source: Author`s calculation based upon PNADs 2001 to 2006. -20061, and compares it with standard measures of income goods, such as water and dimensions ­ including poverty. Our main result is sanitation. health, education and access that, while both standard to basic services and assets ­ Recognizing the need for a , despite of the fact that 6 out measures of poverty and M- broader perspective on pov- poverty have fallen in the of 10 have enough income to erty, the Oxford Poverty and secure minimum calorical period, the latter has dis- Human Development Initia- played higher persistence. intake, while Tanzanians lack tive (OPHI) organized an effort income but not as much ac- The qualitative dynamics are to develop a multidimensional also different: M-poverty fall cess to those key dimensions. poverty index, able to account "While both standard was more pronounced for the for the several deprivations The MPI brings together 10 2001-03 period, while income that define an individual as indicators of health (child measures of poverty poverty declined faster from poor. Economists have always mortality and nutrition), edu- and multidimensional 2003 on. recognized that poverty is not cation (years of schooling and From a policy perspective, two one-dimensional, and that child enrolment) and standard poverty have fallen, conclusions are worth high- restricting attention to income of living (access to electricity, is reductionist; however, the drinking water, sanitation, the latter has higher lighting. First, opportunities simplicity, ease of comparabil- flooring, cooking fuel and are powerful: while the 2002- persistence" 2003 crisis in Brazil ­ a surge ity ­ across countries and basic assets like a radio or in inflation followed by a hike throughout time ­ and the bicycle). It is thus an exten- in interest rates - pushed lack of subjectivity required to sion of its predecessor, the some people back to income determine relative weights of UNDP`s Human Development poverty, multidimensional poverty thresholds were ar- Index, which combined life poverty did not increase as a gued to more than offset the expectancy, education result. Hence, although it is disadvantages of the meas- (literacy + enrolment rates) hard to overcome depriva- ure. and GDP per capita. The OPHI tions, once achieved they are team devised the index so A preliminary version of that it could be comparably much less sensitive to eco- OPHI`s Multidimensional Pov- nomic downturns. Second, calculated for the highest erty Index (MPI), intended as number of countries and with policies aimed at increasing a complement to other pov- the income of poorer individu- the highest possible fre- erty measures, has been just als cannot work alone: M- quency. released, with interesting poverty`s faster decline until results: in Ethiopia, for in- Measuring MPI in Brazil 2003 can be attributed to the stance, 90% of people are rapid educational catch-up in MPI-poor compared to the Since multidimensional pov- the period, especially among 39% who are classified as erty is defined at the house- rural households; in contrast, living in extreme poverty` hold-level, information on all the relative pace of the reduc- under income terms alone. On deprivations must be ex- tion in deprivations slowed the other hand, 89% of Tanza- tracted from the same data- down during the latter period, nians are extreme income- base. For the official index, in part because of the higher poor, but only 65% are MPI- researchers chose not to rely baseline, although there is poor. These differences are on household surveys, since still large space for improve- because 9 out of 10 Ethiopi- they do not usually include ment in access to public ans are deprived in several information on health depriva- Qua r te r l y K n o w l e d g e R e po r t Page 9 tions, for instance. But turning and replaced information on hovers around 23% and 11%, to health surveys means be- car ownership with that of respectively, until 2003, when ing able to monitor poverty mobile phone ownership, a sharp decrease takes place, only at the sparse intervals in restricting the set of other leading the poverty figure to which these surveys are car- assets analyzed to computer, 13.9% and 6.5% of the popu- ried on. This also means that fridge, refrigerator, radio and lation, an impressive reduc- it is difficult to compare the television. Though prelimi- tion. multidimensional poverty nary, estimates are transpar- trends with traditional poverty ent enough to allow for differ- In face of the recent progress headcounts, which are based ent criteria, according to re- in poverty reduction, a rele- searchers` interests. Also, we vant question is whether this on household surveys. restrict attention to the pov- extra-income and/or other To address this important erty headcount, which is only public policies helped reduc- comparability issue, we con- a component of the official ing deprivations faced by poor structed a multidimensional individuals to access key pub- MPI3. poverty index for Brazil based lic goods. Calculations show on National Household Sur- Headcounts are displayed in that this was indeed the case, veys (PNADs) data. This al- Table 1 (as a percent of total but at an uneven fashion: lows us to compare the tradi- population). Income-poverty, first, multidimensional poverty tional income-based poverty calculated using IBGE-IPEA- shows a much higher persis- headcounts with the multidi- ECLAC regionalized poverty tence in time, and second, mensional one and to see if lines4, is shown to have been the decrease in M-poverty is the latter can help formulate reduced from nearly 37.3% in more pronounced for the more comprehensive policy 2001 to 28.9% in 2006. From 2001-2003 period, while the responses from poverty moni- 2003 on (with the surge of 2004-2006 is characterized toring. Bolsa-Família and of the mini- by a steady, but slower reduc- "The recent progress mum wage, along with a more tion in overall deprivations. Of the dimensions originally recent rise in formality), in- in poverty reduction included in the MPI, we can- Besides these differences, is not assess malnutrition (since come poverty falls very fast. it the case that poverty reduc- also helped reducing From different starting points, PNADs do not ask about indi- the same time trend is docu- tion has been homogeneous deprivations faced by viduals` height and weight) mented for two other defini- in urban and rural areas? and car or bicycle ownership. tions of poverty ­ the USD 2 Does that assessment vary poor individuals to To compensate, we doubled according to each definition the weight of child mortality2, PPP per day and the USD of poverty? Figure 2 shows access key public 1.25 PPP per day: poverty goods" Figure 2--Rural vs. urban poverty Source: Author`s calculation based upon PNADs 2001 to 2006. Page 10 November 2010 that poverty is a lot higher the entire period. overall income-poverty. among rural households and that poverty figures have One of the most interesting But what are the reasons for somewhat converged, with features that this alternative these differences? First, ex- rural areas experiencing a poverty measurement allows treme poverty was being ac- sharper reduction, according is to assess whether income- tively fought already by 2001, to every measure; on the poor individuals are also mul- but the 2002-03 crisis hin- other hand, the speed of such tidimensionally deprived. Fig- dered its reduction, bringing a convergence widely varies ure 3 exploits this decomposi- relevant share of people back with the definition of poverty tion, using the USD 1.25 PPP to income-poverty. Neverthe- measure, which seems to less, since M-poverty is much at hand. best approximate its depriva- more time-persistent (it is For instance, rural poverty tions` counterpart. more difficult to eliminate, but reduction took place at a 33% once overcome, it displays faster rate than its urban One must realize that the much lower sensitivity to the counterpart using regional- trend for poverty subcompo- economic cycle), these people ized poverty lines, but at a nents is what is behind the were not pushed back to M- 144% faster rate for the USD different behavior for the ag- poverty as well, which fell the 1.25 PPP definition. M- gregate measures: if M- most precisely during that poverty had the faster conver- poverty and income-poverty period. gence (561% faster in rural move over time in different areas), but this is also be- ways, this cannot be attrib- Second, the lower speed of M- cause urban poverty was al- uted to their intersection (blue poverty decline from 2004 on ready very low in Brazil in segment), but rather to the can be attributed to a combi- "One of the most behavior of the shares of the nation of, on one hand, a true 2001: more than 90% of ur- income-poor that are not M- decreased speed of elimina- interesting features ban households had access poor (red segment) and to tion of deprivations ­ also to basic public goods, while that this alternative more than 40% or the rural that of the M-poor that are not because of higher baseline ones still lacked it. By the end income-poor (green segment). access ­, and on the other poverty measurement Indeed, the share of those M- hand, to the faster pace of of the period, more than 10% allows is to assess of rural households had ex- but not income-poor reaches the reduction of extreme pov- perienced a sufficient de- its lowest value in 2003, later erty, since, because of M- whether income-poor crease in deprivation so as to on hovering about a higher poverty higher resilience, it is escape from M-poverty. Thus, level ­ matching the behavior the case that the extreme- individuals are also of overall M-poverty ­, while poor go up one step a time: the faster pace of M-poverty multidimensionally reduction until 2003 is ex- the share of those income- from both income- and M- plained by rural poverty de- but not M-poor only starts to poverty to M-poverty only, deprived" cline, while urban poverty fall consistently from 2004 on before being able to eventu- declined steadily throughout ­ while the same is true for ally escape overall poverty. Finally, is it possible to map which deprivations drove M- Figure 3 ­ Poverty components poverty reduction in Brazil? A word of caution should be raised regarding this sort of decomposition: since poverty is defined at the household- level, it is better to assess the extent of M-poor experiencing each deprivation instead of just mapping average decline in deprivations, since those could have fallen dispropor- tionally among those that were already out of poverty, thus with a limited contribu- tion to poverty reduction. Fig- ure 4 illustrates such decom- position for the period of analysis: Source: Author`s calculation based upon PNADs 2001 to 2006. First, it is clear that the major Qua r te r l y K n o w l e d g e R e po r t Page 11 Figure 4 ­ M-poverty decomposition (% of the M-poor deprived in each dimension) "Multidimensional poverty measurement Source: Author`s calculation based upon PNADs 2001 to 2006. nutrition cannot be proxied suggests that policies by Body Mass Index (BMI) can be especially deprivations facing M-poor nate that a very high share of households are a lack of the poor do not have access since height and weight are efficient if targeted at not part of PNAD's question- poor individuals proper sanitation, access to to proper water or sanitation, naire. drinkable water, and low edu- there is a bright side of these deprived of water and cational attainment. Second, figures: policies aimed at the 3. The other component is while the first two have been poor can be extremely effi- poverty intensity, measured sanitation" quite persistent features of cient if targeted at individuals as the weighted average multidimensional poverty deprived in these dimensions. distance from poor individu- through time, educational This shows how multidimen- als to the deprivation line in attainment has improved sional poverty can be a pow- each dimension. remarkably. erful complementary tool to traditional, income-based 4. Each poverty line is calcu- In particular, educational lated with respect to the av- poverty monitoring catching-up of lower income erage price level prevalent at individuals takes place with a each region. The basic unit of much higher speed in the consumption is a basket of 2001-03 period, especially in goods that would allow a 1. After 2006, it seems to be minimum calorical intake as rural areas ­ making it a ma- the case people answer differ- jor candidate for explaining set by nutrition standards. ently to the PNAD's question I why M-poverty falls faster for use for tabulating child mortal- 5. As from James Foster's the period. For 2004-06, it is ity, with very high figures for presentation late August at asset ownership that im- the years following 2007. For the Workshop on Multidimen- proves faster. Taken together, this reason, and since lacking sional Poverty Measurement these are evidence that in- alternatives for a health indi- organized by Jaime Saavedra come improvements have cator (see footnote 2), the at the World Bank, which laid indeed allowed individuals to analysis was restricted to the the theoretical grounds for decrease deprivations, but 2001-06 period. the multidimensional assess- that income alone cannot substitute for the provision of ment of poverty. 2. The only Health variable public goods and services. available for every survey year is child mortality at birth. Mal- Moreover, while it is unfortu- Page 12 November 2010 WHEN SOUTH MEETS SOUTH By Ana Francisca Ramirez and Mauro Azeredo years, Brazil rose to be A frica and Brazil are push- ing the innovation frontier for South-South development one of the world`s breadbas- cooperation. Instead of coun- kets. Brazil try by country initiatives, Bra- and Africa zil and African organizations share many ­ with the catalytic support of soil and the World Bank ­ are seeking climate con- to engage a whole continent ditions and across agriculture, in a model have strong that could be replicated by historic and other countries and themes. cultural af- The first Africa-Brazil Innova- finity. Our tion Marketplace is a broad experience DFID, in context of the Brazil- Continental partnership with in tropical agriculture will be Africa Summit, and now support from international very helpful for the Continent counts with support from partners to enhance agricul- to bridge the gap much more IFAD (International Fund for tural innovation and develop- quickly, said Arraes. Agriculture and Development) ment in Africa. This is the first For the World Bank`s Director and ABC (Brazilian Coopera- major initiative coming out of for Brazil, Makhtar Diop, the tion Agency). It is a great the May 2010 Brazil-Africa country is opening new achievement to be here, "This is a simple, Summit that brought more said FARA`s Deputy Executive ground in terms of South- effective mechanism than 20 African Agriculture South exchanges. For many Director, Ramadjita Tabo, for Ministers to Brazil. reasons, mainly practical, whom Africa needs high level that will result in most of these partnerships operational and strategic The goal of the Marketplace partnerships. According to enormous benefits not is to match African re- have been between single him, the training of African searchers with Brazilian ones, countries up to now. Much only for Africa, but researchers made possible by to support research and de- can and has been accom- the Marketplace will contrib- plished that way, but develop- also for Brazil, which velopment of ideas and part- ment knowledge is all about ute to develop the agriculture nerships. The matching proc- of the continent. will learn much from ess is followed by a competi- scale ­ and Africa and Brazil tive selection of the best pro- are about as large and akin The technical partnership the Continent's posals. The first awarding as it gets. Initiatives such as seeks to respond to FARA`s experience" event happened in Brasília, this will multiply results and strategic needs, to which on October 6-7, with more impacts enormously. Embrapa matches its world- than fifty researchers from According to Diop, who is a class expertise. Out of 61 fourteen African countries Senegal national, agriculture proposals submitted to this and Brazil. The initiative will first edition of the Innovation is central to the social and cost $ 3 million over its three Marketplace, the following 6 economic development of year initial period. Africa, and Brazil's support in projects were selected for areas such as biofuels, agri- funding: This is a simple, effective mechanism that will result in cultural cooperatives, land Exchanging Knowledge, Ex- enormous benefits not only management, national re- perience and Expertise for Africa, but also for Brazil, search systems and commer- cial and family farming can Brazil`s Agriculture Minister which will learn much from help African nations in their Wagner Rossi was impressed the Continent`s experience, efforts to achieve the Millen- by the strong demand from said the President of the Bra- nium Development Goals. African countries for Brazil`s zilian Agriculture Research agricultural knowledge. In Company (Embrapa), Pedro An Africa-Brazil Partnership any country, agriculture is the Arraes Pereira, during the The partnership was born out basis for further economic event. He noted that, when and social improvements. Embrapa was created, Bra- of discussions led by FARA (Forum for Agricultural Re- This is especially true in Afri- zil`s agriculture was at a simi- can countries, which are in a lar stage as Africa is today. In search in Africa), Embrapa, the World Bank Group and quick modernization process the relatively short span of 30 (Continued on page 14) Qua r te r l y K n o w l e d g e R e po r t Page 13 and organizing themselves to excel in the sector. Sharing Experiences in Judicial and The Innovation Marketplace Public Sector Reform supplied the much needed Since 2005, Brazil has undertaken extensive and successful platform for participants judicial reforms that have contributed substantially to the im- (researchers in agricultural provement of citizen participation, investment climate and pov- innovation) and institutional erty alleviation. The country has also initiated many successful partners to consolidate and south-south cooperation initiatives in the area, in particular with build on the dispersed dia- Latin America and Africa. logue between Africa and Brazil. The president of the Supreme Court of Brazil, Cezar Peluzo, came to the Bank in November to showcase some of these ex- The learning experience was periences and exchanges, and ask for the Bank`s support in based on two-way exchanges, bringing the Brazilian knowledge to even more countries. During fostered by interactive activi- the Law, Justice and Development Week, Mr. Peluzo shared ties such as proposal speed` insights and experiences on the modernization of Judiciary with rounds and peer assistance in peers from Angola, Mozambique, Cape Verde and Senegal. the proposal and pre-proposal stages that allowed African The audience also got a unique perspective from the Attorney and Brazilian participants to General of the State of Minas Gerais of how sub-national level improve their projects. Activi- public sector management reforms affect the judiciary. Under ties focused on direct peer-to- the celebrated Management Shock program, Minas did a se- peer learning, in which the ries of legal, administrative and structural changes to transform "The approach facilitators` role was secon- the state`s public administration, including its environmental piloted in Brazil could dary. management system. easily be replicated. In a way, South-South is peer sharpen its role as a knowl- Bank Group has a clear role -to-peer learning blown to a edge match-maker and to to play as a match-maker and Central to its success global scale, said Ethel Senn- explore new ways of adding a facilitator, but also as a hauser, World Bank Agricul- is to bring together value to a mechanism under repository of knowledge and ture Sector Manager for Latin construction. The World Bank exchanges such as this, to leading organizations America and the Caribbean. Group is uniquely positioned preserve and disseminate It is as innovative as the to match a country`s (or conti- innovations and lessons that have the extent to which the so-called nent`s) demand with another recipient is a part of the learned. convening power in country`s supply of expertise. knowledge building team. In Replicability their country or this sense, the Marketplace The case of the Africa-Brazil Innovation Marketplace has The approach piloted in Brazil region" has proven to be the perfect could easily be replicated for instrument to boost innova- shown that organizations like Embrapa and FARA value the other topics or countries. Cen- tive interactions across conti- tral to its success is to bring nents. Bank`s role of convening, monitoring and safeguarding together leading organiza- Knowledge Match-Making project implementation, said tions from both sides that are Bank Willem Janssen, World Bank able to define the scope of Lead Agriculturalist and Task the knowledge exchange and The Marketplace is also prov- that have the convening ing to be an opportunity for Manager of the partnership with FARA and Embrapa. The power within their country or the World Bank Group to region to generate the motiva- tion to participate. The smart use of the initiative`s website Africa-Brazil Marketplace 2010 Winning Projects allows matching partners and Burkina Faso Nutritional Potential of Native Food Tree Species initiating collaboration. In this way, South-South collabora- Kenya Rehabilitation of degraded rangeland tion can be moved from an Kenya Sweet Sorghum varietal adaptation for ethanol incidental, ad-hoc initiative to a more programmatic, Mozambique Knowledge sharing for natural resource management continental approach, where a large number of part- Tanzania Cotton varieties and pest management in Tanzania nerships are being estab- Togo Pesticide leaching in coastal Togo lished and supported over a number of years Page 14 November 2010 RURAL CREDIT AND AGRICULTUR AL PRODUCTION AND PRODUCTIVITY By Abdoulaye Sy and Barbara Farinelli R ural credit programs have been a popular policy tool for governments to stimulate agricultural de- velopment and lift rural populations out of poverty. In countries such as Brazil, where market interest rates are high, rural credit pro- grams are often heavily sub- sidized and this, according to many critics, generates allocative inefficiencies which undermine the ulti- mate objectives of improving nicipality1. The figure below and poverty rates. We find agricultural productivity, shows total rural credit and that overall, the size of the raising output, and the in- the value of agricultural pro- rural population (1991 popu- "Rural credit come of rural populations. duction. The graph suggests lation) explains about 85 Has this been the case in a strong association be- percent of differences in programs are often Brazil? By how much did tween rural credit and the credit inflow across munici- rural credit contribute to the increase in agricultural out- palities within the same heavily subsidized expansion of agricultural put between 1993 and state during the period 1993 and this, according to production, and how high 2004. We investigate this -2004. Moreover, everything are the returns to rural credit relationship econometrically else equal, poorer munici- many critics, in Brazil? and control for factors that palities (1991 poverty rates) generates allocative In this note, we present may influence both rural received more credit. We credit inflow and agricultural find that farmers in the poor- inefficiencies which some preliminary findings production in a municipali- est municipalities (top quin- that shed some light on tile of the distribution of undermine the these important questions. ty2. poverty rates) received on ultimate objectives of More precisely, we assemble We first investigate the role average 30% more credit information on rural credit of two main factors that may than farmers in the richest improving agricultural and agricultural production influence the inflow of rural municipalities. This effect productivity" for the major crops in Brazil credit in a municipality: the corresponds to about 400 during 1993-2004, by mu- size of the rural population reals more per rural popula- tion per year. The result is Figure1: Rural Credit and Crop Production Qua r te r l y K n o w l e d g e R e po r t Page 15 Table 1: Average Returns to Credit, 1993-2004 By Quintile of poverty in 1991 By regions 1st 0.103 North 0.373 2nd 0.229 South 0.264 3rd 0.300 Center-West 0.225 4th 0.171 Southeast 0.179 5th 0.135 Northeast 0.100 consistent with the introduc- palities in the middle of the "Reduction in subsidy tion of rural credit programs income distribution (1991 1. Municipal-level data on targeted to smaller and poverty rates) and in the crop production comes rates will materialize poorer farmers (e.g. PRONAF Northern (37 percent), from the Pesquisa de Pro- in increases in the in 1995). Southern (26 percent) and dução Agrícola Municipal number of farmers Center-West (22 percent) (PAM - Municipal Survey of Our main result is that aver- Agricultural Production). who could gain access regions. age return to credit appears The unit of data collection to rural credit to be high but these returns Our analysis suggests sev- in the PAM is crop type, programs and are very different across eral results of importance and, unlike other annual consolidate its role as municipalities and regions. for understanding the role of surveys, the PAM does not Average returns to rural rural credit on the perform- attempt to follow the same an important rural credit are obtained by multi- ance of Brazil`s agricultural farmers over time. Informa- poverty reduction plying the elasticity of agri- sector. First, we found that tion on rural credit is from strategy for Brazil" cultural production with re- the flow of rural credit is the Anuário do Crédito Ru- spect to credit and the relatively well targeted, with ral (Annual Rural Credit change in credit (as a per- municipalities that were Summary) of the Brazilian centage of average credit) initially poorer receiving a Central Bank. during the period 1993- higher share of total rural 2. An instrumental variable 2004. Our estimates for the credit, a result consistent strategy is implemented elasticity of agricultural pro- with the introduction of more using "initial" differences in duction with respect to targeted lines of credit such the size of the rural popula- credit show that a one per- as PRONAF. Second, the tion to predict rural credit cent increase in rural credit return to rural credit may be inflow in a municipality for raises the volume of agricul- as high as 30 percent, sug- a given year. More specifi- tural production by about 42 gesting that there is scope cally, the instrument is the percent, the value of produc- for reducing the subsidy product between the total tion by 34 percent and yield rates in Brazil`s rural credit credit inflow in a state in a by 22 percent. Using these system. Reduction in sub- given year and the share of elasticities we find that the sidy rates will materialize in rural population in the mu- average return to rural credit increases in the number of nicipality in 1991. was about 19 percent during farmers who could gain ac- the period 1993-2004. The cess to rural credit programs results also suggest that and consolidate its role as average returns to rural an important rural poverty credit were larger for munici- reduction strategy for Brazil Page 16 November 2010 I M P R OV I N G O P P O R T U N I T I E S I N BRAZIL By José Molinas and housing services, using data from two I n recent years, Brazil has made impressive progress in reducing poverty, but severe major household sur- veys (PNAD and PNDS) and standardized inequalities still limit the oppor- learning tests (SAEB). tunities of many of its citizens, In broad terms, we due to circumstances beyond find that Brazil is at or their control. It`s an unfortunate near universal provi- fact that a Brazilian child growing sion (HOI of 100) in a up in a rural household is less number of key human likely to have access to water opportunities such as and sanitation services needed school attendance and for a healthy development; and a child survival to age 5, boy born in a household with but may take genera- illiterate parents is less likely to tions to achieve full attend a high-quality primary coverage in others ­ school than a girl living in a like adequate learning household with parents with in school and cover- complete secondary education. age of water and sanitation ser- providing the bundle of services These types of inequalities are a vices ­ if current trends con- necessary for child survival, with common challenge to many developing countries. In her first tinue. neo-natal, infant and under five speech, President-Elect Dilma child survival HOIs projected to Opportunities in Education be universal by 2015 at the Rousseff stated that ensuring "The Human equal opportunities for all Brazil- Education in Brazil is character- current rate of progress. ized on the one hand by good Opportunity Index ians would be one of the key opportunities to attend school, The HOI for adequate height/age objectives of her administration. ratio among children under five estimates how but limited opportunities to pro- is relatively high, and could be To help better direct social poli- gress on time and to learn ade- personal cies aimed at overcoming these quately. The country performs close to 100 by 2020. However, circumstances not unequal opportunities, the World the HOI for exclusive breast strongly in providing equitable Bank undertook a Brazil study feeding for children under six under one's control using the Human Opportunity opportunities for children to attend basic education. The HOIs months--a good practice for child affect a child's Index (HOI). The HOI estimates for school enrollment for children wellbeing--is low and expanding how personal circumstances for slowly, with a projected 43 years probability of which an individual cannot be aged 5-14 and for children not needed to achieve universality. working are both expected to be accessing basic held accountable--like birth- universal by 2017. More troubling, the HOI for ade- quate weight at birth has de- services that are place, race, gender, or socioeco- On the other hand, Brazil`s HOIs creased slightly in recent years, nomic background--affect a necessary to succeed child`s probability of accessing for progressing through school which indicates inadequate and for acquiring adequate maternal nutrition and pre-natal in life" basic services that are necessary learning are much less promis- check-ups. to succeed in life, like education, health care, adequate nutrition ing. The index results for com- pleting 4th and 8th grade on time Opportunities in Housing or running water. were only 63 and 44 in 2009, Housing opportunities in Brazil The HOI combines in a single respectively, and the current rate are very good for accessing elec- measure the social progress of change indicates that univer- tricity, but much less promising toward providing universal cover- sality would take roughly three for the provision of water and age of basic services, and also decades. Learning HOIs are sanitation services. Brazil chil- how equitably these services are worse, with progress indicating dren`s have almost universal distributed. That is, the HOI is an that universal adequate knowl- access to electricity, but equita- equality of opportunity-adjusted edge of mathematics (HOI of 22) ble progress to universal access coverage rate of access to key and reading (HOI of 27) will not to adequate water and sanitation services. Using this information, be achieved within this century is poor. The HOI for access to policymakers can design and without policy changes. electricity is already 98 and the target basic services more equi- recent pace of expansion is of 1 tably and pursue the goal of Opportunities in Health percentage point per year. How- giving all citizens equal opportu- Human opportunities for a ever, it will take more than 30 nities, regardless of their back- healthy life in Brazil are charac- years, maintaining business as ground, since the beginning of terized by excellent opportunities usual, to achieve universal ac- their lives. for child survival, good opportuni- cess to adequate water (HOI of Our research1 reports on the ties for adequate nutrition, and 50 and changes at 1.3 percent- evolution of the HOI in Brazil very limited opportunities for an age points per year) and sanita- between the late 1990s and the healthy start in life. Brazil has tion (HOI of 56 and changes at late 2000s in education, health made remarkable progress in 1.4 percentage points per year). Qua r te r l y K n o w l e d g e R e po r t Page 17 Sources of Exclusion distribution of circumstances the expansion of the HOI can be themselves--that is, an increase accelerated by more effective Defining which circumstances or drop in the number of children sectoral policies, especially in are the most important for the in a disadvantaged circumstance the housing and health sectors exclusion of children from ac- group (composition effect)--or by where the coverage effects seem cess to basic opportunities is changes in coverage rates of the to play less of a role. One way critical to help policymakers different circumstance groups sectoral policies can be more improve the equitable targeting (coverage effect). Greater weight effective in expanding the HOI is of services needed to expand the to the coverage effect indicates to improve targeting to vulner- HOI. In Brazil, socioeconomic the relatively greater role of able groups as service provision status, gender and rural-urban sectoral service policies in expands. location appear to play the most changing the provision of basic important role in defining a Concluding Messages opportunities. child`s access to basic opportuni- ties. Family structure and race The composition effect has been The results of the HOI study on appear to play a relatively the main driving force in the Brazil present a mixed picture of changes in access to electricity the country`s progress toward smaller role. (55 percent), water (89 percent) ensuring that its children have Socioeconomic status and sanitation (79 percent). For access to basic human opportu- (proxied by parental educa- services related to neo-natal, nities, irrespective of circum- tion, income or wealth) is infant, and under-five survival stances such as race, gender, one of the main sources of rates, the composition effect socioeconomic background or exclusion in accessing accounts for between 51-54 place of birth. education, housing, and percent to HOI expansion, as well On the positive side, Brazil has health services. For exam- as 79 percent to the expansion made excellent progress in a ple, children with the 10 of the height/age ratio HOI, number of areas, notably in percent lowest probability probably the most important achieving near-universal cover- to be in pre-school, to com- indicator of adequate child nutri- age of the bundle of services plete 4th grade on time, to tion. required to ensure early child- have access to water, sani- tation, and electricity, and Changes in coverage rates have hood survival, access to electric- "Better targeting driven expanding HOIs for educa- ity, and attending basic educa- to be well-nourished have tion. However, the HOI for ade- could greatly parents with less than three tion and for infant breastfeeding. The coverage effect accounts for quate weight at birth has de- years of education. By con- between 51-98 percent to the creased slightly, and indicators accelerate trast, children with the 10 for equitable access to water, percent highest probability expansion of the different HOIs for education, and 87 percent to sanitation and high-quality edu- improvements in the of accessing these services cation services are all poor and have parents with more the expansion in the HOI for improving slowly. equitable distribution than 13 years of education, infants fed exclusively by breast- on average. feeding. However, it also ac- Decomposing changes in the HOI of basic opportunities counts for all the decrease of the makes it evident that sectoral Child gender is particularly HOI for children with adequate policies have played an impor- to Brazil's children" important in accessing weight at birth. tant role in expanding some education services. The The coverage effect can be fur- opportunities such as education vast majority (80 percent) ther decomposed into changes but not in housing and health of children least likely to due to equality of opportunity services. And even where sec- complete 8th grade on time (equalization effect) and due to toral policies have had an im- are boys, compared to only average coverage rates (scale pact, they have been mainly a third of the children most effect). This decomposition high- through expanding coverage for likely to complete on time. lights whether sectoral policies all rather than targeting the most emphasize a more balanced vulnerable groups. This indicates Rural-urban location is one expansion of coverage across all that better targeting could of the main sources of groups, or whether they focus greatly accelerate improvements exclusion in accessing more on equity by favoring op- in the equitable distribution of housing services. All chil- portunity-vulnerable circum- basic opportunities to Brazil`s dren least likely to access stance groups. In all cases where children as the country pro- to electricity, water, and the coverage effect predomi- gresses toward universal provi- sanitation live in rural ar- nates in Brazil, the scale effect sion eas, but no child from the has been most prevalent, with most likely group to access the equalization effect (i.e. re- these services does. 1. José R. Molinas Vega duction of inequality of opportu- Ricardo Paes de Barros: Human Source of Change in Brazil`s HOI nity) accounting at most for Opportunities for Children in and Policy Implications around 20 percent of the ob- Brazil: An Assessment with the served changes. Human Opportunity Index, World Changes in the HOI over time These results make it clear that bank Brazil Working Paper Se- arise from either changes in the Page 18 November 2010 ROUSSEFF'S POLITICAL AND ECONOMIC CHALLENGES Photos: Daiane Souza;Unb Agëncia By Denise Marinho David Fleischer has been teaching political science at the University of Brasília for over 40 years, where he is now Professor Emeritus. An Ameri- can-born naturalized Brazilian, Fleischer is a familiar name to anyone interested in under- standing Brazil`s complicated political and economic sce- nario. His interviews and weekly Brazil Focus reports are eagerly used by analysts and policymakers around the world for insights on the country . In this exclusive interview, Fleischer: new president may adopt a more pragmatic shift foreign policy Professor Fleischer dissects some of the political and eco- labor laws but rather reducing view? nomic challenges and opportu- the levies and contributions nities for the Rousseff govern- that businesses have to make Fleischer: In principle, Dilma ment. Following are highlights on their payrolls. will have better and stronger majorities in both houses of "The new president's from his talk with BET`s Denise She had also talked about the Congress, especially in the main and first Marinho. reducing poverty further. An- Senate, than her predecessor other thing she talks about is challenges are in BET: What will be Dilma reducing the debt to GDP ratio had. But the problem is main- Rousseff's Government main taining that majority cohesively infrastructure. Other challenges? down to 30% from about 42%. voting with the Government. priorities include David Fleischer: The main and Brazil has the highest real It is going to take a lot of politi- fiscal and tax reforms, first challenges are in infra- interest rate in the world, cal activity to maintain this which is mission structure. The air transporta- therefore it is very attractive to functioning. The governing tion system is at its limit and hot capital. However, foreign coalition has to be well- impossible" there are other infrastructure capital is needed to finance attended by Dilma`s Govern- problems like ports, highways Brazil`s large current account ment, that means appoint- and railways, and, of course, deficit. ments and also budget distri- electricity. BET: What role do you think bution. Other priorities include fiscal President Lula will play in her I think the opposition will be and tax reforms, which is mis- administration? more pragmatic in presenting sion impossible, because no Fleischer: I think Dilma will try alternatives rather than just country has ever undertaken a to make it her own Govern- saying no. Let`s not forget, complete tax reform all at ment, with her own brand. however, that the opposition once. They've done in pieces. controls the majority of Brazil`s Lula`s role is the big question. There is heavy pressure com- state GDP. But the opposition ing from the private sector to He apparently turned down in some small states is heavily reduce the tax burden, to some possibilities in Unasul dependent on Federal Govern- spread it out a little more, to go and FAO. There is the Lula ment funds. after tax evaders. Presidential Institute that will be formed and will concentrate So negotiations will be very There is also the need to reex- in working with Africa and Latin important, especially if the amine social security, espe- Congress starts to deliberate America. cially in the private sector, and on tax or fiscal reforms, in of course the political reform in But Lula has said he wants to which state governors will be the agenda. The other issue is stay in Brazil and work very very active players as will some to look at labor legislation re- closely with the Government to mayors. forms, but the objective is to help approve the reforms. reduce the overhead cost. BET: What are Dilma's main Dilma talks about desonera- BET: Some analysts expect political challenges? ção, which does not mean greater difficulty for Dilma achieving a stable support Fleischer: In my view two: how flexibilizing or changing the to manage and dialogue with base in Congress, what is your Qua r te r l y K n o w l e d g e R e po r t Page 19 the opposition and how to Geraldo Alckmin, the newly- Brazil´s efforts to lead the manage the coalition, espe- elected Governor of São Paulo, emerging countries in the G20 cially the PT and the PMDB, Brazil`s most important and for more voice and participa- which are the two largest par- rich state, is not a radical politi- tion. ties in Congress as well as the cian and he is open to negotia- tions. However, he is leading a She also will probably try to main parties in her coalition. group of states to try to pres- continue the negotiations at Furthermore, many people sure for renegotiation of the the WTO, the Doha Round, and inside PT think that they will debt with the Federal Govern- that will be very important for have more influence over ment, putting Dilma in a very her to have a more active con- Dilma than they did over Presi- versation with Obama and difficult position. dent Lula. Lula was much lar- other Governments to try to ger than the PT, so he could BET: What will be Dilma's seek out an agreement. tell the PT what to do, not vice- agenda in the foreign arena? How she will handle Latin versa. Fleischer: Supposedly, Dilma`s America, with Venezuela, Then there are other parties foreign policy will be more Cuba, Bolivia and Ecuador is that have expanded, like the moderate, more pragmatic, another question. Maybe the PSB, which now have more less ideological, and concen- ideological approach may be governors, more senators and trated more on resolving eco- reduced a little. The question now more deputies. And it will nomic problems. with Iran will probably be probably pressure for more shifted to a lower status. "It is going to take a political appointments and Lula`s foreign policy became very ideological and very much There is a new trade agree- lot of work to resources. the foreign policy of the PT and ment being built which should maintain Rousseff's Finally, Dilma will have to be not that of the Brazil. So that be, in my view, very interesting: political base careful with the PSB, because could be a tilt. a full trade agreement be- the party, although supposedly tween Brazil and Mexico. If functioning. The BET: How do you see her rela- a very strong ally, has its eyes tionship with the multilateral that is concluded, it would give coalition has to be on the 2014 elec- Brazil a different tion. There are access to the U.S. well-attended with some indications and Canada, via appointments and that Eduardo Cam- Nafta. That would resource distribution" pos, the reelected not be just trade and Governor of Pernam- tariffs, but it would buco and PSB represent invest- leader, may be ar- ments. ticulating with BET: Will she con- PSDB`s Aécio Neves. tinue the Security BET: What will be Council drive at the the future of the United Nations? opposition under Dilma's administra- Fleischer: That will continue because it tion? is a high priority in Fleischer: The De- Brazil`s foreign pol- mocrats are in disar- icy and has contin- ray. Whether Aécio ued to be so during Neves will be able to Lula`s Government. agencies? refund PSDB, as he says he will, is a mystery. If he cannot Fleischer: This relationship U.S. President Barack Obama do it, he may form a new party has already been changing and supported India, and then he and take half of PSDB with has to do with the new G20. visited Japan and supported The membership of emerging Japan for the Security Council. him. nations and their voting weight There may be a Dilma-Obama Refunding PSDB means taking within the IMF is changing. encounter in Washington D.C. the leadership away from São Whether it will change even next December. And Obama Paulo. Apparently, José Serra more, we do not know. The would like to visit Brazil, maybe will be the president of the same happens with the World in the first half of 2011. So Teotônio Vilela Foundation, that might be a subject on the Bank. PSDB´s think-thank. agenda I believe Dilma will continue EDITORIAL (CONTINUED FROM PAGE 1) progress over the years in several key areas, which has left gaps in development that loom increasingly large over the country`s future prospects. For example, now that almost all children attend basic school, the need for greater access and quality in secondary education has become urgent and crucial. There is an evident service gap between basic education and university that needs to be bridged to empower tomorrow`s generation to go beyond the achievements of this one. The same is true about job training, health services ­ where the population has little access to life-saving intermediary care, and in issues such as formal employment, pensions and The Quarterly Knowledge regional and social inequality ­ where Brazil remains very much divided between the rich and the poor. Report is a publication of the These missing middle challenges can be emblematically embodied by Brazil`s middle class, which, despite the recent growth, remains quite under its potential in terms of size and services it has access World Bank to. This is a quintessentially middle income development agenda, and Brazil certainly brings a strong devel- opment momentum into it. The unifying factor is knowledge - central at the federal, state or municipal levels. As a very decentralized country, with different demands from the federal, state and municipal levels, Brazil is a unique sounding board for middle income country innovation and service delivery. Some of the Bank`s contributions to this agenda will be discussed during the Brazil Knowledge Day, next December in Washington. This issue of the Quarterly also touches on a few of these issues, which are Sign up to receive BET representative of the large complementary analytical program demanded by a sophisticated client. reports: Brazil has reached a different and higher stage in its journey to become a developed country. It is now turning its efforts to ensure that everyone benefits from the new opportunities and growth that the coun- betmail@worldbank.org try is generating. Addressing the missing middle issues may be the most efficient way to do this and boost development gains. Contacts: Makhtar Diop Brazil Country Director Tito Cordella Mauro Azeredo WB Link: 5761-1000 IN THE LOOP Ph.: +55 61 3329-1000 Some of the quarter's noteworthy events Events Projects Approved BET Publications International Seminar on Policies to Handle Integrated Health and Water Manage- BET Daily Report: the most Climate-Related Natural Disasters with Rio de ment Project (SWAp)--$ 60 million, No- important daily economic Janeiro Governor Sérgio Cabral--November 22, vember 2 news and indicators about the Rio de Janeiro Integrated Solid Waste Management and Brazilian economy [internal]. Strengthening Carbon Market Institutions Carbon Finance Project--$ 50 million, Brazil Monthly Report : BM&FBovespa--November 12, São Paulo November 2 updated information on Brazil Judicial Reform: Challenges and Opportu- economic developments, nities for South-South Cooperation with Su- Reforestation with Native Species preme Court President Cezar Peluzo­November Around AES-Tietê Reservoirs (CF)--$ 4.9 policy challenges, and 10, Washington million, September 29 economic trends [internal]. Launch of the Brazil Early Childhood Network-- São Paulo Trains and Signaling Addi- Quarterly Knowledge Report: tional Financing--$ 112.9 million, Sep- November 9, Brasília information about the Bank`s Brazil BBL: The Pre-Salt Oil Reserves with tember 21 analytical work and short knowledge pieces on policy Augusto Mendonça--November 4 Second Bolsa Família Project--$ 200 relevant questions. First Africa-Brazil Agriculture Innovation Market- million, September 16 place--October 18, Brasília Santa Catarina Rural Competitiveness--$ ---- Brazil BBL: A Strategic View to the Outcomes of 90 million, September 2 The Quarterly, Monthly and the October 3 General Elections with Christo- Rio de Janeiro Public Sector Modernizati- Daily Brazil reports are in the pher Garman--October 14 on--$ 18.7 million, August 26 Brazil Intrernet: Launch of the Flagship Report Natural Re- sources in Latin America and the Caribbean-- São Paulo Feeder Roads Additional Fi- http://go.worldbank.org/EX2K94 nancing--$ 326.8 million, August 3 L7V0 Beyond Boom and Bust--September 13, São Paulo