[World Bank] LatAm needs to fight poverty

from US Info

Organization calls cut in poverty key to region competing in global economy

By Eric Green
Washington File Staff Writer

Washington -- The World Bank says the nations of Latin America should fight poverty more aggressively if they want to grow economically and compete with China and other Asian nations in the global market.

In a February 14 statement, the bank said Latin America's per capita gross domestic product (GDP) declined by 0.7 percent during the 1980s and increased by about 1.5 percent during the 1990s, but that the region's poverty rate hardly changed. In comparison, China experienced annual per capita growth of about 8.5 percent between 1981 and 2000, while poverty fell by 42 percent.

The findings were made in a new World Bank report, Poverty Reduction and Growth: Virtuous and Vicious Circles. The report's thesis, the bank said, is that Latin America's persistent poverty may itself be impeding the achievement of higher growth rates -- "that there are reinforcing vicious circles that keep families, regions, and countries poor and unable to contribute to national growth."

A 10 percent drop in poverty levels, the report said, with other things being equal, can increase economic growth by 1 percent. In turn, a 10 percent increase in poverty levels can lower the growth rate by 1 percent and reduce investment by up to 8 percent of GDP.

The report attributes this situation to the fact that the poor, who generally lack access to credit and insurance, cannot undertake many of the profitable activities that fuel investment and growth. Thus is created the vicious circle, in which low growth results in high poverty and high poverty in turn results in low growth.

U.S. official Adolfo Franco said in September 2005 congressional testimony that the challenge to democracy in Latin America and the Caribbean derives from the "vast levels of inequality and poverty" in the region.

Franco, assistant administrator for Latin America and the Caribbean at the U.S. Agency for International Development, said that "unfortunately, the region's classification of mostly middle-income status disguises the harsh realities of its economic disparity." Franco said that according to the United Nations, 43 percent of the population, about 222 million people, in Latin America are poor, and 96 million, 18.6 percent, live in extreme poverty on less than $1 a day.

Furthermore, Franco said inequality in Latin American is higher than any other region of the world, despite increases in per capita income over the last decade. Franco's comments were made in testimony before a subcommittee of the U.S. House Committee on International Relations. (See related article.)

The World Bank report said that one important negative effect from poverty is that poor families, faced with substandard schools under-invest in the education of their children. The lack of education leads to decreased earnings potential and labor mobility, a lack of health care for parents and children and increased fertility and child mortality rates.

Also, poor countries, unable to moderate income disparities, find social tensions exacerbated, which, in turn, makes it difficult for a healthy business climate to flourish, the report said.

To move from a "vicious to a virtuous circle," the report calls for a "pro-growth poverty reduction strategy" that includes improving the quality of education, boosting investment in infrastructure to benefit "laggard regions" and increasing the access of the poor to public services.

The bank calls fighting poverty "not only good for the poor; it's also good business for the whole of society."

It added that "converting the state into an agent that promotes equality of opportunities and practices efficient redistribution is, perhaps, the most critical challenge Latin America faces in implementing better policies that simultaneously stimulates growth and reduces inequality and poverty."