Social-investment funds have been implemented regionwide to combat the rising poverty associated with structural adjustment. These funds do little, however, to address the structural causes of poverty. During the 1980s and 1990s, structural-adjust- ment programs crafted by the International Monetary Fund (IMF) and the World Bank had dire social consequences. They adversely affected not only low-income groups but the middle class as well. Government budget cuts and price increases of basic foodstuffs led to a dramatic decline in purchasing power. Privatization and the deregulation of labor markets resulted in rising un- and underemployment rates and the growth of the informal economy. Trade liberaliza- tion and policies favoring exports led to the ruin of many small farmers, feeding migration to the cities and the swelling of already bloated shantytowns. By the year 2000, it is estimated that seven out of every ten Latin Americans will live below the poverty line. Hand-in- hand with this growing pauperization is the concentra- tion of income in the wealthiest 10% of the population. Many observers began to question the compatibility of neoliberal restructuring and its profound social costs with efforts to consolidate democratic rule in the region. Multilateral lending institutions such as the World Bank and the Inter-American Development Bank (IDB), as well as United Nations development agencies, have also become increasingly concerned about the politically destabilizing effects of increasing poverty. As a result, these institutions began to emphasize the need to devel- op specific social policies to accompany the structural- adjustment programs. Neoliberal policy makers did not question the viability of the structural-adjustment pro- grams; rather, they considered poverty-alleviation programs to be a necessary complement to them. "Social reform, instead of a residuum, is an indispens- able condition of economic efficiency and viability," reads one report by the IDB and the UN Development Program (UNDP). "Only in an environment of social and political stability is it possible to attract long-term oriented investment.... For political stability and democ- ratic consolidation, it is imperative to build up the con- ditions that will expand and deepen the relationship of solidarity and social responsibility."' Discussions of how these social-policy measures should be structured were interlaced with growing crit- icisms of the deficits of traditional state social-security systems in Latin America. Traditional social-security systems, which provided coverage to wage earners, benefited only one segment of society and failed to reach the growing number of unemployed or those laboring in the informal economy. Budget cuts over the past decade undermined these public welfare systems, as did corrupt government management in many coun- tries. Social policies that directly targeted the most mar- ginalized groups of society, it was argued, would make the best use of scarce financial resources. A crucial distinction must be made, however, be- tween "structural poverty" and "new poverty." The development banks are concerned with the new poor, who have been expelled from the formal economic sys- tem as a direct result of the structural-adjustment pro- grams and the ensuing contraction of the economy. This group includes fired workers, young people who cannot find employment, and pension holders. The banks do not deal with structural poverty, which refers to those sectors of society who remain outside or are excluded NALIA REPORT ON THE AMERICAS Karin Stahl is a political scientist who teaches at the University of Heidelberg in Germany. 32REPORT ON SOCIAL POLICY Children in their home in Barrial, Honduras. from the formal economic system, and have minimal access to formal employment and education. Faithful to its neoliberal underpinnings, the World Bank conceptualizes poverty as a temporary phenome- non. Once economic growth resumes, the new poor will supposedly be reintegrated into the formal economy. Consequently, the principal World Bank recipe for reduc- ing poverty consists of stimulating economic growth. Sustainable, permanent social-security nets are consid- ered superfluous. "Economic recovery, stimulated by economic stabilization and deregulation, is the basis of the poverty-alleviation strategy," according to a World Bank document discussing the establishment of a social- compensation fund in Peru. "However, in the short run, the poor are likely to be adversely affected by the struc- tural-adjustment program.... Social-compensation pro- grams, such as employment generation and food aid, can complement the two main elements of a poverty-allevia- tion strategy-the promotion of broad-based growth, and improved and more equitably distributed social ser- vices." 2 Social-investment funds (SIFs) are a centerpiece of the World Bank's new social policy. They are con- ceived of as temporary mechanisms to mitigate the most devastating effects of structural adjustment. The first SIF was created in 1985 in Bolivia as part of the World Bank-sponsored adjustment program. Since then, SIFs have been established in nearly every Latin American country that has implemented structural- adjustment policies. While the SIFs vary somewhat depending on the specific national context in which they operate, they are structured according to a com- mon mold. The funds' stated priorities are emer- gency employment programs (building or repairing infrastructure projects like bridges, schools or roads, which pro- vides short-term employment), social- assistance programs (such as food aid), and promoting productivity (credits, assisting small enterprises, and worker training). In practice, however, spending tends to focus on short-term measures like emergency employment and aid programs. With rare exceptions, little emphasis is given to creating productive employment or attacking the roots of structural poverty. By concentrating resources on infrastructure develop- ment, the funds are in effect financing a component of state social spending that had deteriorated dramatically due to severe budget cuts in the 1980s. The SIFs were designed to be autonomous institutions subordinate only to the president. They operate independently of the state bureaucracy, which ostensibly gives them greater flexibility, efficiency and transparency in the handling of resources. The SIFs are financed largely by multilateral lending institutions, UN agencies, and Northern govern- ments and private aid agencies. In most cases, only a small percentage of the total budget of the SIFs comes from local governments. Even though funding is pre- dominantly international, the strict control exercised by the executive permits governments to use the SIFs as tools of political patronage, especially around election time. Resources are distributed according to an application process in which local groups and organizations solicit funding for a specific project within the funds' estab- lished guidelines. The SIFs themselves do not carry out social programs or projects. The funds operate more as development banks that finance projects implemented by groups in civil society. While the SIFs presumably are aimed at helping the poorest, the application process actually favors local groups, professionals and NGOs that already have experience formulating and imple- menting projects. NGOs often become mediators between the state and the target groups, and derive financial benefits from the funds. he Honduran Social Investment Fund (FHIS) is a typical example of how the SIFs operate on the ground. It was created by the UNDP in 1990 to alleviate the social costs of the structural-adjustment program implemented that same year. Of the 5,494 pro- jects funded between 1990 and 1994, 70% were short- term infrastructure projects, including the maintenance Vol XXIX, No 6 MAY/JUNE 1996 r r 33REPORT ON SOCIAL POLICY and construction of roads, bridges, schools, health clin- ics, water pipes, and sewerage. Social-assistance pro- grams comprised 19% of the funded projects, while productive projects accounted for only 7% of total spending. 3 These public-works projects, which had been neglected in recent years due to government budget cuts, have been implemented in close cooperation with the corresponding government ministries. The FHIS, however, goes beyond just supplementing the work of the ministries; it is increasingly being used to substitute for functions and duties that the government ministries used to perform. The FHIS, which is largely funded from international credits and loans, thus releases the Honduran government from fulfilling some of its basic responsibilities. It is doubtful whether the FHIS benefited the most vul- nerable groups in society--those purportedly targeted by the fund. In 1991, only 10% of the approved projects in Honduras were located in the six poorest departments of the country, while nearly 58% were concentrated in the wealthiest five departments. Urban areas were also favored, even though the poverty rate is much higher in rural areas. 4 The poorest of the poor did not benefit from the FHIS in part because of their relative lack of experi- ence in formulating projects, administering resources, and organizing in general. This neglect was also due, however, to the political manipulation of the FHIS by the ruling National Party, which channeled government spending to the well-populated urban areas, where most voters live, in anticipation of the 1993 elections. This clientelistic manipulation of the FHIS has alien- ated many NGOs that initially collaborated with the fund. These organizations have accused the government of using the FHIS to assert state control over NGOs and social movements. The highly centralized control of the FHIS by the president, and the lack of grassroots and NGO participation in administering the fund, have also given rise to charges of corruption within the FHIS. he Chilean Solidarity and Social Investment Fund (FOSIS) is an example of an alternative way of structuring poverty-alleviation programs that is more effective in terms of reaching the intended A worker from a non-governmental organization teaches residents Santiago shantytown how to care for a vegetable garden. target-groups. The FOSIS was founded in 1990 to com- bat poverty-which, despite the much-touted "success" of the Chilean neoliberal economic model, had nearly doubled between 1970 and 1990, from 17% to 34% of the urban population. 5 Perhaps most significantly, the FOSIS was established as a permanent feature of state social policy, rather than an institution that would become obsolete once neoliberal policies took root. Moreover, it was subordinated to the Ministry of Planning and Cooperation rather than under the direct control of the president. Finally, it was conceived as a complement to, rather than a substitute for, other social- policy measures. The FOSIS is different from other SIFs in its program priorities as well. While most SIFs in Latin America emphasize short-term strategies of emergency employ- ment and assistance programs, the FOSIS has adopted a long-term perspective to address the structural causes of poverty. As a result, the FOSIS has given priority to the funding of credit, training and marketing programs for small enterprises (33%) and self-help capacity- building in poor communities (33%). Training and technical assistance to small farmers and indigenous communities (16%) and capacity-building and training programs for young people (18%) have also been important components. The FOSIS has been more effective than many tradi- tional SIFs in targeting the poorest sectors of society. Compared with the social-investment fund in Honduras, for example, the FOSIS financed more projects in the poorest regions of the country. 6 The FOSIS was embed- ded in a wider government anti-poverty program which targeted 71 communities that suffered extreme poverty. Nearly 40% of the projects funded by the FOSIS were carried out in these communities. 7 However, the FOSIS has retained the same application process as the traditional SIFs, so poorer groups with little project-writing experience are less likely to get funding than more organized groups or intermediaries like NGOs. As in Honduras, NGOs in Chile remain wary of the fund, afraid that receiv- ing government funding from the FOSIS might jeopardize their autonomy. The experience of the social-investment funds in Latin America has revealed that creating temporary institutions to deal with growing poverty is inadequate. As the case of Chile suggests, the SIFs can be more effective if they are conceived of as long- term programs that address the structural problems of poverty. In general, however- even in Chile-the poorest of the poor do in a not benefit from the SIFs. Indeed, the demand-driven model of the SIFs leads to competition among the poor for scarce resources, fomenting fragmentation among the poor instead of social solidarity. The external funding of the SIFs is also problematic. Many of the funds are highly dependent on grants or loans from Northern governments, private aid agencies, and multilateral lending institutions like the World Bank and the IDB. Thus, the continuity of these pro- grams depends on securing international funding in the future. The FOSIS in Chile, which has become largely independent of these external funding sources, is a notable exception. In general, however, there are no guarantees of funding in the medium term, leading the SIFs to focus on short-term emergency programs. This growing dependency on foreign resources is contribut- ing to the "denationalization" of social policy in many Latin American countries. At the same time, financing social policy with foreign loans will increase Latin America's large and looming debt burden, even if the World Bank lends money at relatively low interest rates for social programs. In many cases, the existence of the SIFs leads to the deterioration of existing state social agencies. The case of Honduras reveals the tendency for governments to use the SIFs to supplant traditional government min- istries, releasing the state of its most basic obligations to society. The external funding of social policy takes the pressure off political elites and national govern- ments to use social reforms and redistributive policies to reverse the growing inequalities in the region. Not only do the SIFs not contribute to a progressive redis- tribution of wealth, but they serve to legitimize neolib- eral economic policies that have increased income con- centration and polarization in Latin America. Anti-Poverty Programs 1. Inter-American Development Bank and the United Nations Development Program, Reforma Social y Pobreza (New York: IDB and UNDP, 1993), pp. 6, 9. 2. World Bank, Peru: Social Development and Compensation Fund (FONCODES) Project (Washington, D.C.: World Bank, 1993). 3. Honduran Social-Investment Fund (FHIS), El rostro humano de la revoluci6n moral, 1994. 4. L.A. Fuentes, "El Fondo Hondureho de Inversi6n Social: una nueva modalidad de gesti6n pOblica," in Fondos y Programas de Compensaci6n Social: Experiencias en America Latina y el Caribe (Washington, D.C.: PAHO, 1992), pp. 185-225. 5. Economic Commission on Latin America, Gasto piblico corriente y gasto piblico de capital en servicios sociales: un andlisis cuanti- tativo de los paises sudamericanos en los ochenta, LC/R, 962 (Santiago: CEPAL, 1990). 6. Solidarity and Social investment Fund (FOSIS), Memoria FOSIS 1994, 1994. 7. FOSIS, Memoria FOSIS 1994.
