equidad: volume 2 : no. 2 : october, 2001

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Inter-American Development Bank Sustainable Development Department Poverty and Inequality Unit

October 2001, Vol. 11, Number 2

Social Policy with Economic Responsibility / Economic Policy with Social Responsibility

The IDB and the Reduction of Poverty and Inequality GUSTAVO YAMADA AND OMAR ARIAS

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he reduction of poverty and promotion of social equity in Latin America and the Caribbean constitute one of the Bank’s two priority objectives (along with the promotion of environmentally sustainable growth). These Bank priorities are consistent with the commitment undertaken by all countries in the region to address these issues, a commitment reaffirmed at the highest level at the recent Summit of the Americas in Quebec City. There, the Heads of State and Government of the region committed themselves to further efforts to attain the International Development Goals, especially the goal of reducing the percentage of those living in extreme poverty in the region by 50% by 2015 from the levels of 1990. However, the modest progress the region made in reducing poverty in the 1990s compromises its chances of achieving that goal. Therefore, while the economic growth of the countries in the region must be accelerated, that alone will not suffice. Additional measures are needed in the areas of creation of opportunities, human development, social protection, the quality of life, and political and social inclusion in order to ensure that the poor benefit from growth on an equal if not greater scale than the non-poor. In 2000, the Bank directed a substantial part of its lending and non-lending activities toward poverty reduction and promotion of social equity, with emphasis on the concept of socially responsible macroeconomics. About half (51.8%) of the total volume of IDB-approved loans went toward poverty reduction and promotion of social equity (so-called SocialEquity-Enhancing, or SEQ, loans). Some 46.8% of the total number of approved lending operations were SEQ operations. Included Continued on page 3

The Importance of Protecting the Poor from the Economic Cost of Illness

Poverty Reduction Strategies in Central America and the Bank’s Role

CESAR PATRICIO BOULLION

CHARLES RICHTER (*)

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ne of the most sizeable and least predictable shocks to the income generation capacity of families is associated with major illness. There are two important economic costs associated with illness: the cost of the medical care used to diagnose and treat the illness, and the loss in income associated with reduced labor supply and productivity. The size and unpredictability of both these costs suggest that families may not be able to ensure their consumption levels during periods of major illness, especially in developing countries where few individuals are covered by formal health and disability insurance. The Poverty and Inequality Unit and the STEP Program (Strategies and Tools against Social Exclusion Program) of the International Labor Organization organized a oneday workshop on The Economic Cost of Illness: Extending Financial Protection to the Poor and Excluded at IDB headquarters in June 2001. The workshop addressed two main issues: (i) how living standards can be protected from the economic costs of illness; and (ii) how social protection can be extended to those currently excluded from financial insurance schemes. Participants in the workshop included Professor Paul Gertler of the University of California at Berkeley, Professor David Bloom of Harvard University, and staff of the Pan American Health Organization, World Health Organization, International Labor Organization, the World Bank, and the IDB. Data presented at the workshop from Indonesia and Mexico show that the economic costs associated with major illness are significant. The discussions in the workshop suggested an additional rationale for subsidized medical care in developing countries, viz., consumption

eset by some of the severest cases of poverty in the Western Hemisphere, three Central American countries – Guatemala, Honduras and Nicaragua - are in the process of preparing Poverty Reduction Strategies (PRSs). These aim to sharpen the focus of public investments on poverty reduction. PRSs are country-driven, country-prepared, and country-led efforts that span the short-, medium- and long-term. The generation of a national consensus and commitment to poverty reduction forms an integral part of the PRS process. Ample consultations with civil society help to generate these commitments. The consultations also enrich the PRSs through the incorporation of stakeholder views and priorities. PRSs include an analysis of poverty and its determinants, followed by the definition of strategic guidelines and programs to attack the root causes of the problem. To be effective, PRSs specify the institutional and financial mechanisms required to carry out the strategies and to ensure the macroeconomic viability of proposed investments. PRSs also set goals and targets and help measure progress toward their achievement through establishing monitoring and evaluation systems. Honduras and Nicaragua have special incentives to prepare PRSs because the latter are conditions for debt relief under the HighlyIndebted Poor Country (HIPC) initiative. Both countries have prepared drafts of complete PRSs. Although Guatemala is not eligible for HIPC

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(*) Social Specialist, Social Programs Division 2, Regional Operations Dep. 2


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