January 22, 2014 4:55 pm

Brazil considers the cost of welfare as growth slows

Sao Paulo, July 2006 - Morumbi area - Paraisopolis Favela is next to rich buildings of the upper middle class©Eyevine

Great divides: homes for the well-off and the poor are clearly demarcated in São Paulo, Brazil

In a television campaign by Brazil’s ruling Workers Party, the country’s former president Luiz Inácio Lula da Silva joins his successor, President Dilma Rousseff, to warn voters that the opposition is planning the “unthinkable”.

Politicians across the aisle, he says, want to cut the country’s Bolsa Família programme – Brazil’s internationally acclaimed system of benefits for poor families that he built during his eight years in power and which Ms Rousseff has expanded.

“In Brazil, when money goes to the rich it’s called investment, but when it goes to the poor it’s a ‘cost’,” he tells the camera, vowing to protect the scheme.

Now entering its 11th year, the R$24bn Bolsa Família programme, which offers a small stipend to poor families in exchange for ensuring their children attend school along with other conditions, has become a hallmark of Mr Lula da Silva’s legacy and has helped keep the Workers Party, known as the PT, in power for 12 years.

The scheme was one pillar of a consumer-driven economic model created by the PT that propelled Brazil into the top ranks of the high-growth large emerging market countries known as the Brics that also includes Russia, India and China

Now with Ms Rousseff preparing to secure a fourth term for the PT in presidential elections this year, Bolsa Família will once again be central to the debate. But with the economy struggling as Brazil’s commodity and consumer credit booms lose steam, the government’s ever increasing expenditure and its politicisation of social security programmes is coming under more scrutiny.

“Brazil given its economic level provides more of a social security net than anybody else,” said Tony Volpon, economist at Nomura. “I think Bolsa Família is an amazing programme but there can be too much of a good thing.”

In depth

Emerging markets in retreat

Currency wars

Emerging markets are taking a battering as investors withdraw at the prospect of higher global interest rates

Brazil is not the only large developing country coming under criticism for funding populist social security programmes. India too has been criticised for building an expansive welfare system while avoiding tough economic and labour reforms that would boost productivity and growth.

But Bolsa Família has been more successful than most, helping to drive 40m people into the middle class over the past decade. As of 2012, the programme reached nearly 14m people with an average payout of R$150 at a total cost of 0.5 per cent of gross domestic product. Academics calculate every real invested in Bolsa Família generates R$1.60 in wider benefits to the economy as recipients use it to buy consumer goods and services.

“Bolsa Família has proven a powerful and well-targeted tool to reduce poverty with hardly any leakage,” the Organisation for Economic Development and Co-operation said in its Economic Survey of Brazil last year. It called for further increases in Bolsa Família and a wider benefits programme, Sem Miséria (Without Misery).

But some academics fear Brazil is encouraging a welfare mentality at a time when it needs to foster entrepreneurialism to become internationally competitive.

“The government has great intentions but the capacity [of these programmes] to transform Brazil into a society that is more productive and entrepreneurial is not there,” said Antônio Flávio Testa, professor of political science at the University of Brasília.

Brazil given its economic level provides more of a social security net than anybody else. I think Bolsa Família is an amazing programme but there can be too much of a good thing

- Tony Volpon, economist at Nomura

A study by government agency Ipea found that the proportion of people aged between 15 and 24 participating in the workforce or attending educational institutions has declined, especially among women in the poorer northeast of the country.

Ipea reported that 25.7 per cent of Brazilian young men and 40.6 per cent of young women were either not in the workforce, at school or attending higher education in 2012, up from 23.2 per cent and 38.4 per cent respectively in 2009.

“These findings are concerning for public policy, particularly as it affects women,” Ipea said.

Yet researchers at Ipea say it is difficult to draw conclusions from the figures without further research. They say the missing young people could well be attending technical colleges, which are not counted in the official statistics.

Other academics argue it is too early to judge the effect of Bolsa Família on the workforce as the generation most affected by the programme has yet to leave school.

“This has not yet resulted in more people working and receiving higher incomes because this group has yet to join the workforce,” said Aninho Arachande, professor of public policy at the University of Brasília.

At any rate, the grant at about a quarter of the minimum wage is too small to replace a family income. Elvina Maria Pereira da Silva, a maid from the impoverished Pacaembu suburb of Brasília, says she used the R$134 per month she received to buy school materials and clothes for her children and supplement the meagre income earned by her husband, a seasonal worker in the construction industry.

“Where I live, everyone receives it (Bolsa Família), my neighbours are very poor too,” she says. Her family’s benefit was recently cut because their income was too high but Ms Pereira da Silva says she wants it back. “I will fight to take care of my children.”

Related Topics

Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.


Sign up for email briefings to stay up to date on topics you are interested in