Social Expenditure In LatAM Rose 50% In The 1990s.

Social spending per capita rose 50% for all 17 countries of Latin America during the 1990s, according to the Social Panorama of Latin America 2000-2001, published by the Economic Commission for Latin America and the Caribbean (ECLAC). It went from US$360 in 1990 to US$540 per capita in 1999. The increase swept the continent and only two countries (Honduras and Venezuela) saw it drop in real terms.

This increase was higher than that of per capita GDP. As a result, throughout the decade, the relative importance of resources channeled into social programs went from 10.4% to 13.1% of GDP. ECLAC affirms that “both economic growth and the effort to increase social sectors’ share of the public budget explain most (almost 80%) of the increase in social expenditure, with similar relative importance, and just one-fifth of this increase was the result of larger budgets.”

This is a substantial achievement for Latin America, although it remains insufficient given the population’s needs. Protecting this spending level through adverse conditions and increasing its effectiveness and efficiency are the next challenges.

The increase in public spending on social needs varied from country to country, tending to be higher in countries with medium to low spending per capita: in Colombia, Guatemala, Paraguay, Peru and the Dominican Republic it more than doubled. In contrast, in countries with relatively high spending levels (Argentina, Brazil, Costa Rica and Panama), increases were somewhat smaller, from 20% to 40% over the start of the decade. In Chile, Mexico and Uruguay increases were also substantial: 88%, 55% and 73%, respectively.

The increase in spending on social needs also changed throughout the decade. In most countries it rose faster during the first five years and although it continued to rise during the second half of the decade, it rose less. In 1990-1991 and 1994-1995 per capita spending rose 30%, while in 1994-1995 and 1998-1999 it only rose 16%. This trend was in response to the performance of economic growth: during the first half of the decade, annual GDP grew 4.1%, falling to 2.5% annually in the next five years.

According to ECLAC, most countries raised per capita amounts directed at social sectors “as a consequence of economic recovery and to a larger or smaller degree thanks to governments placing a higher priority on social spending within the national budget…”

The Impact on Distribution

The components of social spending show marked differences in terms of their distributive impact. The most progressive, that is, the spending that benefits the poorest households most, is spending on primary and secondary education, followed by health care and nutrition, and basic services (water and sewage).

Altogether, social spending had an enormous effect on distribution in all countries. If social security is excluded, the lowest income 20% of households received a fraction of social spending, which on average was six times its share of primary income distribution (28% from social spending compared to 4.8% of total income), while this ratio was reversed in the case of the wealthiest 20% of households, which received just one-quarter of their share of income distribution this way (12.4% from social spending compared to 50.7% of total primary income).

The Success of Focalisation

Excluding social security, the degree to which spending was focalised varied significantly among the different countries. Chile and Colombia, which have made an effort to concentrate the benefits of social programs on their lowest income sectors, focused more social spending on the 40% poorest households, compared to the fraction of income that these households managed to capture. Indices reached 4.9 and 4.2 respectively.

Social spending in Costa Rica and Uruguay, in contrast, was less focussed: 2.6 and 2.9, respectively. Both countries have more universally oriented social programs, which provide similar percentages of benefits to a high percentage of total households. Argentina, Bolivia and Ecuador, meanwhile, are in the mid-range, with focalisation indices for the 40% poorest part of the population reaching 3.7, 3.8 and 3.5.

ECLAC estimates that 44% of the increase in spending went to education (28%) and health care (16%); 51% to an increase in social security, mainly pensions and other retirement schemes; and the remaining 5% to other spending, such as housing, drinking water and sewage.

Sector Trends in Social Spending

The impact on equity varied by country. In those with lower per capita income, spending grew relatively more in the more progressive components (education and health care), which accounted for 56% of the total, while social security represented one-fifth. In countries with higher spending levels, in contrast, social security represented around half of the overall increase.

The significant increase in educational spending was directly linked to reform processes, mainly in primary and secondary education, that seek to improve quality and equity. The largest increases in spending on health care occurred in Argentina, Chile and Colombia, where it rose from US$76 to US$109 per capita, far surpassing the regional average of US$28.

In social security, the largest spending increases occurred specifically in those countries where this absorbs a larger fraction of public resources (Argentina, Brazil, Chile and Uruguay), with increases ranging from US$150 to US$200 per capita in the first three countries and somewhat more than US$500 in Uruguay. To a large degree this is the result of indexing retirement schemes and pensions.

ECLAC’s study concludes that growing efforts to dedicate a lower fraction of output to some social sectors had a positive impact on welfare distribution. This was most noticeable in countries where per capita social spending is higher and where social security – which benefits middle and high-income sectors more – absorbs a much higher fraction of public revenues.

For a copy of the study CLICK below (Adobe Acrobat required):

http://www.eclac.cl/publicaciones/DesarrolloSocial/8/LCG2138P/PSE-2001-Cap4.pdf.