A girl walks along "Graffitti Way" at Prazeres slum in Rio de Janeiro REUTERS/Ricardo Moraes

Why emergency basic income programs are so necessary in Latin America

Even after the pandemic, experts discuss if governments should restrain spending in other areas and consider expanding such programs to mitigate the effects of unstable labor markets and informality

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The situation of Roseli Aparecida Barbosa Duarte‘s family illustrates the social vulnerability in which millions of people find themselves in Latin America. A resident of Ilha do Mel, a touristic region in southern Brazil, she is an employee at a small lodging establishment. The island has just over 1,000 inhabitants and is totally dependent on tourism, a sector globally impacted by the Covid-19 pandemic, which still plagues the world and has already killed more than 200,000 people across the continent. Roseli managed to keep her job; her husband, however, was fired, as was her son. Neither of them had enough time on jobs to claim unemployment insurance.

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Then came what the family believed to be the solution: the BRL 600 Emergency Aid granted by the federal government during the coronavirus pandemic. In the family, only Roseli’s husband got the benefit, and only one of three installments. The son has been waiting since then: he depended on the help of friends, who donated staple food baskets, to survive.

It has been long known that Latin America is the most unequal region on the planet – the consideration was made on several occasions by the Economic Commission for Latin America and the Caribbean (ECLAC), which has been emphasizing the importance of emergency basic income programs throughout the region. Situations like that of the Duarte family are common not only in extreme events such as the one caused by the coronavirus: the threshold between comfort and poverty is tenuous. It is estimated that the pandemic crisis may leave up to 83 million people in extreme poverty by the end of 2020, causing an increase in hunger levels.

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The scenario of reductions in GDP, employment and consumption, as well as warnings about an imminent social collapse prompted countries like Brazil, Argentina, Peru and Chile to announce emergency measures for income transfer. In Chile, for example, a $2 billion fund was created to distribute resources and generate jobs in low-income sectors. In Argentina, a single transfer of ARS 10,000 ($135) served the unemployed and informal workers. In Peru, the government provided a $224 grant to families in poverty or extreme poverty in rural areas.

In Brazil, as soon as social distancing was implemented by states and municipalities as a measure to confront the coronavirus and to save time for a better preparation of the public Unified Health System (SUS), there was a need to help vulnerable people. One of the main problems in the country today is informality in the labor market, which exceeds 40% of the employed population and exceeds 50% in some states, according to the Brazilian Institute of Geography and Statistics (IBGE).

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After disagreements between the federal government and the National Congress, a financial aid of BRL 600 was devised, initially for three months, and popularly known as “coronavoucher”. Initially, Jair Bolsonaro’s administration proposed monthly BRL 200 installments; Congress suggested BRL 500 and then reached the amount paid today. The program, which had a positive impact on the president’s popularity, will be extended until the end of 2020, with a reduced value of BRL 300.

Daniel Duque, a researcher in the field of Applied Economics at FGV IBRE. Photo: Courtesy

Even though the country implemented, in 2003, during the government of Luiz Inácio Lula da Silva, one of the largest cash transfer programs in the world, the Bolsa Família, it has been the first time in 30 years that there has been such a strong reduction in poverty rates in Brazil, says  Daniel Duque, a researcher in the field of Applied Economics at FGV IBRE who combined data from the National Household Sample Survey (PNAD Continuous) with the more recent PNAD Covid to arrive at the result.

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The amount of BRL 600 and the coverage are two reasons cited by Duque: the aid served informal, self-employed and unemployed individual microentrepreneurs with monthly family income below BRL 3,000. In families headed by mothers, the monthly benefit reached BRL 1,200. “The eligibility line is very high, and the program has been progressive, with poorer families earning more,” says Duque. In his data analysis, the researcher points out that, in 2019, extreme poverty reached 8% of the population of Brazil. In June 2020, the percentage had fallen to 3.3%.

Although worthwhile, the Brazilian emergency program was “poorly calibrated”, believes Zeina Latif, an economist and economic consultant. “We saw operational problems, from the concentration at Caixa Econômica [a state-owned bank] to the problem of registration and undue transfers to the military and civil servants.”

Zeina Latif, economist and financial consultant. Photo: Courtesy

It is clear that there was an excess and there was a problem of lack of focus.

Zeina Latif, economist and consultant

The importance of permanent programs

The positive impacts of the aid, even if temporary, made even more visible the importance of thinking about permanent minimum income programs that are more comprehensive in Latin America, even though countries such as Mexico, for example, already has Oportunidades, with cash payments to families conditioned to things such as school attendance; same criterion adopted by the Brazilian Bolsa Família, which also mandates vaccination.

The whole of Latin America is marked by informality and high inequality. It is a region where a basic income would be very welcome, with a higher eligibility line.

Daniel Duque, researcher in the field of Applied Economics at FGV IBRE

This is mainly due to the precarious labor market, marked by informality and less demand for services, generating more instability in household income, believes Duque. “That way people can be trapped, going in and out of poverty.”

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A study by the Center for Development and Regional Planning of the Faculty of Economic Sciences at the Federal University of Minas Gerais (UFMG) simulated scenarios in which basic income was extended in Brazil until the end of 2020 and concluded that the measure could mitigate the negative effects of growth by half; the Central Bank estimates that the GDP retraction will reach -5% in the country. The main reason keeping from a deeper fall is the positive impact on the consumption of the families receiving the aid. “Excluding automobiles and construction, retail trade has shown a rapid recovery. When we give more money to those who have less, the reversal on consumption is direct”, stresses Daniel Duque.

Attention to public spending must be kept

The main reason that keeps governments from devising more robust emergency basic income programs in Latin America is the high public spending. Both Daniel Duque and Zeina Latif agree that there is no possibility of maintaining the emergency aid in Brazil for long.

You would set a precedent after precedent, because the demands for public spending are explosive. If emergency aid is just another program, it will have consequences. It cannot be set to automatic continuity.

Zeina Latif, economist and consultant

Zeina Latif also stresses that job creation is the most efficient measure in reducing poverty and inequality. The IBRE FGV researcher believes that it is necessary to start a debate to create a broad basic income for the long term in Brazil and in Latin countries, reducing other public spending and making income transfer programs a priority.