Mexico 2000-2002:Poverty reduction with

stability and expansion of social programs

By

Miguel Székely

Subsecretario de Prospectiva, Planeación y EvaluaciónSecretaría de Desarrollo Social de México

Reasons for presenting this

paper1. 1997-1998 IPES: Volatility (Hausmann, Gavin), Counter cyclical fiscal policy (Stein, etc.)

2. 1998-1999 IPES on Inequality (Londoño, Lora, Hausmann)

3. 2003 IPES on labor markets (Pagés, Duryea, etc.)

4. RES work on poverty and inequality (Londoño, Spilimbergo, Panizza)

Contents

1. Historical context of poverty: 5 periods in the past 20 years

2. The 2000-2002 period

3. Poverty decomposition & explanations

4. Conclusions

1. Historical context of poverty:

5 periods in the past 20 years

5 periods of crisis, growth and stagnation

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.019

84

198

5

198

6

198

7

198

8

198

9

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

GPD growth rate Per capita GDP

1 12 13 14 15

5 periods of stability and instability

0

20

40

60

80

100

120

140

160

198

4

198

5

198

6

198

7

198

8

198

9

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

Real exchange rateInflationCetes % rate

12 13 14 151

5 periods of cyclical and counter-cyclical fiscal policy

0.0

10.0

20.0

30.0

40.0

50.0

60.0

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

De

bt

0

1

2

3

4

5

6

7

8

9

10

11

So

cia

l e

xp

en

dit

ure

s

Externao debt as % of GDP Social expenditures as % of GDP

2 3 4 51

5 periods of structural reforms

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

0.55

198

5

198

6

198

7

198

8

198

9

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

MéxicoLAC average

2 3 4 51

5 periods of changes in income distribution

I -2.2 37.7 -22.3 12.2 14.6II 1.8 31.0 -20.0 17.0 6.9III 3.4 31.3 -20.3 20.7 5.5IV 2.7 34.1 -21.2 22.1 4.0V 2.6 36.3 -21.9 23.8 1.7VI 1.3 38.9 -23.2 24.5 -0.3VII 0.8 39.5 -23.5 23.4 0.5VIII 1.3 41.7 -24.7 24.8 -0.1IX 3.9 44.3 -25.6 25.0 -1.7X 21.7 39.7 -29.0 33.7 -12.0

1996-00 2000-02Decil 1984-89 1989-94 1994-96

5 periods of changes in poverty

19.522.7 22.5

21.1

37.133.9

24.2

20.3

26.529.3

28.029.4

45.3

40.7

31.9

25.6

50.353.5 52.6

55.6

69.6

63.9

53.751.7

0

10

20

30

40

50

60

70

8019

84

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

Year

% o

f to

tal

po

lula

tio

n

Food poverty Moderate poverty

2 3 4 51

5 periods, 5 stories

1984-89

Growth Recession

Stability

Social spending

Reforms

2 3 4 51

1989-94 1994-96 1996-00 2000-02

Instability

Contraction

Deepening

Growth

Stability

Expansion

Deepening

Recession

Instability

Contraction

Slow down

Growth

Stability

Expansion

Slow down

Stagnation

Stability

Expansion

Slow down

Poverty Increase Stable Increase Decline Decline

2. The 2000-2002 period

2000-2002: the food poverty rate declines by 16%

Type of poverty Population share %

2000 2002 Change

Food 24.2 20.3 -16.1

Capabilities 31.9 26.5 -16.9

Moderate 53.7 51.7 -3.7Fuente: Cálculos de la Secretaría de Desarrollo Social con base en la

metodología oficial de medición de la pobreza aplicada a la

ENIGH 2000 y a la ENIGH 2002 del INEGI.

3.4 million individuals “escape” food poverty

3. Poverty decomposition and explanations

44%

40%

72%

48%

33%

2%

2%

12%

6%

4%

10%

-40%

3% -10%

4%

5%

2%

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Food poverty (3.9 points)

Capital rents

ProcampoRemittances

Oportunidades

Wages

Other

36% Relative prices

14%

Capabilitiespoverty

(5.4 points)

Decomposition of changes in Decomposition of changes in povertypoverty

28%

Moderatepoverty

(2 points)

a) Social spending

1. Oportunidades expands by 1.75 million

hounseholds (70% expansion, reaching

4.2 million houeseholds = 22 million

people).

2. Cash benefits increase by 85% (7,600 to

14,206 billion $) –representing 30% of

income of poorest 20%

b) 2 transmission mechanisms by which stability reduces

poverty

1. Relative prices of items of food

poverty basket

2. Increases in real wages

Significant reductions in inflation rates…

Inflation Rate 1996-2002

0.00

10.00

20.00

30.00

40.00

50.00

60.00

Ene

-96

May

-96

Sep

-96

Ene

-97

May

-97

Sep

-97

Ene

-98

May

-98

Sep

-98

Ene

-99

May

-99

Sep

-99

Ene

-00

May

-00

Sep

-00

Ene

-01

May

-01

Sep

-01

Ene

-02

May

-02

Sep

-02

Fuente:Banxico

Relative change in consumer price index by item

About one half of the items in the food porverty basket lower their price relative to the CPI

0

500

1000

1500

2000

2500

1994 1996 1998 2000 2002

Periodo

% I

ncr

ease

Legumbressecas exceptofrijolarroz y cerealespreparados

Pescados yMariscos enconservaaceites ygrasascomestiblestrigo y derivados

carne y viscerasde cerdo

carne de ave

arroz

-12%

-8%

-1%

-3%

-6%

-4%

-2%

-11%

-10

-8

-6

-4

-2

0

2

4

6

8

10

Ene

-97

Abr

-97

Jul-9

7

Oct

-97

Ene

-98

Abr

-98

Jul-9

8

Oct

-98

Ene

-99

Abr

-99

Jul-9

9

Oct

-99

Ene

-00

Abr

-00

Jul-0

0

Oct

-00

Ene

-01

Abr

-01

Jul-0

1

Oct

-01

Ene

-02

Abr

-02

Jul-0

2

Oct

-02

Average5.16

Real increases by 5.16% in contractual wages

Fuente: ENE 2000-2002, INEGI

Average wages in the mexican economy2000-2002

0

500

1000

1500

2000

2500

3000

3500

4000

4500

RURAL URBANA TOTAL

2000

20022.3%

3.7%

3.4%

Lower inflation lead to higher real wages

Fuente: ENE 2000-2002, INEGI

Wage bill expands by 5.7%

Wage bill, 2000-2002

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

RURAL Urban TOTAL

2000

2002

4.2%

6.0%

5.7%

Miles

c) More remittances for the moderately poor

Remittances grow from $840 million to 1

billion between 2000 and 2002

The share of remittances in total income, The share of remittances in total income,

grows between 2000 and 2002grows between 2000 and 2002

Fuente: Cálculos propios con base en la ENIGH

5.0% 5.2%

6.0%

6.5%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

Food poverty Moderate poverty

2000 2002

Because of improvements in commissions and Because of improvements in commissions and

access to the formal financial system…access to the formal financial system…

Evolución del costo total para enviar $USD 300 de EUA a México en las ciudades con mayor presencia de migrantes mexicanos

$31.76$32.99

$26.08

$29.83

$32.43

$39.03

$15.83 $15.48 $14.61

$17.26$19.19

$17.90

$-

$5

$10

$15

$20

$25

$30

$35

$40

Chicago Los Ángeles Nueva York Dallas Miami Houston

Fuente: PROFECO, 2002.

Ago-99 Ene-02

… … and because of better exchange ratesand because of better exchange ratesTipo de cambio bancario a la venta vs Remesas

0

2

4

6

8

10

12II

1991

IV 1

991

II 1

992

IV 1

992

II 1

993

IV 1

993

II 1

994

IV 1

994

II 1

995

IV 1

995

II 1

996

IV 1

996

II 1

997

IV 1

997

II 1

998

IV 1

998

II 1

999

IV 1

999

II 2

000

IV 2

000

II 2

001

IV 2

001

II 2

002

IV 2

002

0

1

1

2

2

3

3

Miles

de m

illo

nes

dóla

res

Tipo de cambio, venta 24 hrs

Remesas

4. Conclusion

Conclusion

Stability and counter-cyclical social

spending pay for poverty reduction