July 2008 · Number 128 46976 A regular series of notes highlighting recent lessons emerging from the operational and analytical program of the World Bank`s Latin America and Caribbean Region. Argentina Income Support Policies towards the Bicentennial Rafael Rofmana and Dena Ringoldb CONTEXT AND BACKGROUND de Hogar (Jefes) provided benefits to nearly 2 million As Argentina approaches its bicentennial as an indepen- households in a period when poverty affected more than dent republic, it has a window of opportunity in social half the population and unemployment reached record protection policy (see Box 1). As growth has returned levels. The number of beneficiaries slowly declined after and social indicators have recovered to pre-2001/2002 2003, and was at nearly one-third of its peak value by crisis levels, there is an opening to move from emergen- early 2008. This reduction was achieved by the reentry cy income support programs to a more comprehensive, of beneficiaries into the formal labor market, the loss of long-term and sustainable strategy for social protection. eligibility (in most cases, when children turned 18 years old), and the shift of beneficiaries to Familias and Segu- A recent report1aims to contribute to the discussion of ro de Capacitación y Empleo ­ the successor programs options for social protection. Specifically, it focuses on to Jefes. non-contributory income support in Argentina through discussion of the current set of programs, their coverage, As the crisis has passed, the policy debate has shifted effectiveness, costs and sustainability. It looks at the po- towards the future of social protection over the longer tential impact of the government's new social protection term. The improvement in overall economic conditions programs ­ Seguro de Capacitación y Empleo and Famil- since 2003 has resulted in a decline in unemployment, ias ­ which are in the early stages of being rolled-out and poverty and inequity, and a recovery of formal employ- specifically at the institutional set-up for social protection and the potential role of provinces in Argentina's federal Box 1 - What is Social Protection? system. The report follows an intensive two year process Social protection is defined as the set of programs that of analysis, dialogue and partnerships focused on income help individuals and households manage social risks, cope support in Argentina. The work was carried out between with their impacts, and overcome structural poverty. Risks July 2006 and June 2008 by a World Bank team in col- and shocks can include those such as job loss, health, laboration with a wide range of partners in Argentina. childbirth, old age, droughts and floods. The objectives of social protection are: poverty relief, employment Responding to Crisis 2001-2002 opportunities and consumption smoothing. Social protection programs range from contributory social insurance benefits, Following the most serious economic crisis in its history including pensions and other benefits linked to formal during 2001-02, the country mobilized an unprecedented employment, as well as non-contributory social assistance and highly effective effort to provide income support to and social safety net benefits and services targeted at the the population in need. The program Plan Jefes y Jefas poor. Income support refers to the set of social protection programs that, through cash and in-kind transfers 1 "Argentina- Income Support Policies towards the Bicentennial", June 24 2008, (contributory and noncontributory) help households manage Report No. 44194-AR, World Bank income-related risks and shocks. The work described in this note was partially supported by the UK Government's Department of International Development (DFID) through the Markets and Governance for Poverty Reduction Fund (MGPR) Trust Fund. The views expressed in this document are not necessarily those of the UK Department for International Development' ment and real salaries to pre-crisis levels. These posi- Figure 1 - Poverty 1992-2006 tive trends have generated space to consider longer 80 term and structural issues, including a debate over the future of these types of non-contributory social poli- 60 cies, based on income transfers to households and indi- viduals. 40 There is a strong preference in Argentina for social noitalupopfo % programs that will expand employment opportunities. 20 National opinion research and stakeholder consulta- tions that were conducted for the report found that 0 people favor programs that yield tangible labor market 1992 1994 1996 1998 2000 2002 2004 2006 outcomes. Among potential beneficiaries, people prefer Source: Rofman & Lucchetti (2006), benefits accompanied by training, access to employ- World Bank staff, CEDLAS and INDEC ment services, or job placements, even if it would mean a smaller monetary benefit. The challenges lie 11,200,000 Argentines emerged from poverty. Similarly, in program design, and equally, if not more impor- unemployment reached a historical peak in 2002 at 20 tantly, ensuring effective implementation. Policies will percent and has since declined to under 10 percent. Infor- need to be coordinated across multiple agencies and mality also spiked to 48.5 percent during the crisis, but has government levels, respond to concrete demands from declined more slowly than poverty and unemployment. Re- beneficiaries, and ensure that an adequate set of incen- cent estimates suggest that the rate of informal employment tives and opportunities are available for beneficiaries to persists at 43 percent (second semester 2006). become self sufficient within the labor market. Despite the recovery, social needs persist and coverage The challenge is to design and fully implement a so- of current social protection programs is limited. Gaps cial protection system that has adequate coverage and are also found in the coverage of social insurance pro- benefits, and is integrated and sustainable. The model grams. Close to 3.3 million salaried workers and a very of income transfer programs currently under imple- high number of the self-employed continue to be ex- mentation in Argentina, with Seguro and Familias, cluded from the social security system, and around nine combined with more direct interventions at the com- million Argentines lack access to health care coverage munity level ­ such as the Centros de Integración through social security. Comunitarios (CICs) ­ to promote faster and stronger building of human and social capital has the potential What is the Status of Social Protection in Argentina? to fill this niche. However challenges include: covering Argentina has a rich history to build on in the area of all vulnerable groups including those in the informal income support. From the outset, programs have been and formal sectors, ensuring that benefits are adequate mainly tied to formal employment. Formal sector social to meet the programs' objectives, avoiding gaps and insurance programs, including pensions, family benefits overlaps between programs, institutions, and levels of and unemployment evolved from early efforts by trade government, and ensuring that the overall social protec- unions to cover their members. Non-contributory social tion system is fiscally and politically sustainable. assistance programs have evolved more recently, notable Jefes. This experience, along with the set of existing so- Why Does Argentina Need Social Protection? cial protection programs, provides an important starting The 2001-02 crisis marked one of the most significant point for a future social protection strategy. shocks to incomes and employment in Argentina's history. However, due to the emergency response and Jefes largely succeeded in targeting the poor population resumption of growth, social indicators have been im- and mitigating the impact of the social and economic proving during the last six years. While the poverty crisis. Around 80 percent of the benefits were received rate leapt 28 percentage points to 57.5 percent in 2002, by the poorest 40 percent of the population. In terms by the end of 2006 it had declined to 26 percent (see of targetting, this compares well with other programs Figure 1). Between 2002 and 2006, approximately in the region. In the absence of the program, nearly 10 percent of the beneficiaries would have fallen below 2 · July 2008 · Number 128 the poverty line. The coverage was also quite efficient, tributions, and has a limit of 1 year of benefits. since the program reached a third of the population in the lowest quintile. The program was also fundamental in Federal social protection policies in Argentina go beyond improving the income distribution during the first stage of income transfers. Other programs include in-kind trans- economic recovery in Argentina [May 2002-May 2003]. fers but, more importantly, efforts to promote stronger Many Jefes beneficiaries have since transitioned out of the community development. Among those, a large, and program because they got a formal job (close to 550,000) growing program to build community centers (CICs) in or because they moved into new programs (326,000 ben- poor neighborhoods around the country. The Ministry eficiaries). As a result, the total number of Jefes benefi- of Social Development has actively supported this pro- ciaries, which peaked at 2 million in 2003, was around gram, resulting in more than 250 centers built by 2007. 800,000 at the end of 2007. The centers are managed by local community councils, with participation of municipal authorities, and provide More recently, the Government has launched two new pro- multiple services, such as basic health controls, training, grams to gradually replace Jefes. Familias seeks to offer social activities, child care, etcetera. a basic income to households with 3 or more children.At the same time, Seguro de Capacitación y Empleo is a non The Government recently implemented a strategy to contributory unemployment benefit accompanied by train- expand pension coverage among the elderly. This was ing and employment services. called the "Pension Inclusion Plan," and aimed at includ- ing most of the elderly in the pension system. The Plan Expanding the coverage of these new non-contributory allowed individuals who met the minimum retirement income support programs remains a challenge. Both age, but not the minimum contribution requirements, to Seguro and Familias have operated as transition strate- receive a pension, a one time opportunity that closed in gies for the beneficiaries of Jefes, as they have not been 2007. This provided for the one-off inclusion of approxi- opened to new beneficiaries who were not participants mately 1.7 million new beneficiaries into the contributory in Jefes. This represents an important coverage gap, as system, although it is not clear how many of them were nearly 1.8 million households in the country meet the eli- already receiving other benefits. By the end of 2007, the gibility criteria of Jefes but are not receiving it, because National System was paying slightly over 4 million ben- they did not apply in 2003. efits, to an unknown number of beneficiaries. In addition to the the Government's new programs of in- Finally, provincial governments play an important role in come support, changes in the social security system have social protection. Provincial authorities in Argentina have allowed many older individuals to receive a pension re- the power to implement their own social protection pro- gardless of their contributory history. Many workers are grams, including income transfers. Until the early 1990s, moving into jobs, or into the new programs. Questions most of their social protection spending was on pensions, remain about the future of those in Jefes and the pace of but since 1990 the resources spent on other transfers has transition, given the phased roll-out of Seguro. The chal- grown consistently. By 1998 non-pension spending at the lenge is not just to move people from one program to an- provincial level reached 0.5 percent of GDP, and in 2007 other, but to contribute to the development of an integrated reached almost 1 percent. Most programs at the sub na- and equitable system which meets the needs of those com- tional level are focused on basic social assistance, nutri- ing from the formal and informal sectors. tion and in-kind transfers, but it is also interesting to note that employment programs have grown and nowadays Argentina also has a strong social insurance system. Its make up 0.1 percent of GDP. main programs are pensions (including old age, survivors and disability), family allowances, and a contributory What Does the Future Hold for Income Support in Argentina? unemployment insurance. To be eligible for a contribu- tory old age pension, men need to be older than 65 years As economic growth has returned and poverty and un- old, and women 5 years younger, both with at least 30 employment have declined since the crisis, there is a years of contributions. Family allowances are restricted window of opportunity to develop a long term strategy. to children of formal salaried workers with low and me- An integrated social protection strategy needs to encom- dium wage levels. Unemployment Insurance can only be pass three objectives: poverty relief; earning opportuni- claimed by formal workers with at least 6 months of con- ties; and consumption smoothing (insurance). While July 2008 · Number 128 · Argentina has a range of programs in place at the na- tion. Social protection programs in Argentina seem to tional and provincial levels, there are challenges ahead work, in most cases, as independent systems with little to ensure that each of these objectives is addressed in interaction among them. This occurs across jurisdic- a coordinated, equitable and efficient manner. tions, as some provinces have schemes that replicate or overlap those at the national level, but also between In order to understand what a national program national agencies, and even within specific programs. aimed at poverty relief would entail, the report in- · Sustainability has not been a critical issue in recent cludes simulated impacts of four different policies. years, but is potentially fragile. Pension expenditures in The scenarios indicate that alternative income trans- Argentina have been below 8 percent of GDP since the fer programs could be cost-effective and have an mid 1990s. The introduction of Jefes in 2002 and Fa- important impact on welfare. For example, a family milias and Seguro later on had a small impact, as their allowances program aimed to children in the first and consolidated cost barely reached 1 percent of GDP, in second quintiles could result in a dramatic reduction 2003, to then decline to half that figure in a few years. of extreme poverty levels, to below 3 percent of the The simulations showed that an additional 0.5 percent population. Other alternatives, such as universal un- of GDP could yield high impacts on welfare and cover- employment insurance or a transfer targeted to poor age. On the other hand, the recent reforms in the pen- households would also be effective. Instead, expand- sion system created a potential fiscal pressure, which ing coverage of the elderly in addition to the family might end up crowding out other programs. allowances would have little effect, mostly because · The 2002 crisis showed how important is to have a the moratoria has already reached near universal social protection system able to respond effectively coverage for that age group. Of course, the exercise to short term shocks. The response to the crisis was of the simulations masks the complexity of imple- effective, but most policies and programs were not in mentation and the political economy involved in any place and had to be designed and implemented in a reform of existing programs. hurry, resulting in unnecessary delays and problems. This experience provided an important lesson for Final Reflections policymakers in Argentina. Rapid response to critical · Coverage - there is an important need to reduce situations is very difficult to implement, unless institu- gaps in coverage ­ both between formal and tions, programs, and instruments are already in place, informal workers, and between regions, as some providing poverty alleviation to those in need of it, programs are offered in a few areas but not in and able to scale up the programs if necessary. others. Familias and Seguro, as defined today, do · The combination of positive trends in macroeconomic not cover all individuals and households in need and social indicators and the consensus across society of support. The constraints are not legal, but rath- about the need to advance in structural policies has er the consequence of a demanding implementa- opened a window of opportunity for the social pro- tion process and short term fiscal restrictions. tection sector. The strong economic growth of recent · Adequacy of benefits - Jefes benefits have years and the effect of several policy initiatives have been fixed since the program's creation in 2002, relaxed pressures on the sector, as fiscal restrictions resulting in a loss of real value of more than relaxed and demands for urgent interventions dimin- 50 percent. The new programs provide higher ished. This context, together with a growing awareness benefits (around AR$ 225, on average) but there among policymakers, analysts, and the population in have been no increases since their creation and general about the need to advance in the implementa- no adjustment mechanism is defined for them. tion of long term policies is creating a rare window · Integration is a challenging issue. Ensuring of opportunity for authorities to discuss, design and coherence across programs, levels of govern- implement consistent reforms to address the issues of ment and institutions requires particular atten- coverage, adequacy, integration and sustainability. About the Authors a. Lead Social Protection Specialist, Human Development Department, Latin America and Caribbean Region, World Bank b. Senior Economist, Human Development Department, Latin America and Caribbean Region, World Bank "en breve" is produced by the Knowledge and Learning Team of the Operations Services Department of the Latin America and the Caribbean Region of the World Bank - http://www.worldbank.org/lac · July 2008 · Number 128