UNDP Poverty Report 2000

National Poverty Programme Improves Its Targeting

The success of Peru's poverty reduction efforts has been closely linked to the rise and fall of its economy. With the economy ravaged by inflation, income poverty rose to 59% in 1991. It then declined to 45% by the mid-1990s as the economy recovered.

Thanks to increased expenditures and better targeting, Peru has made progress in improving the availability of basic social services. Despite this advance, 37% of the population remained poor and 16% extremely poor in 1997. World Bank estimates for the same year show that almost half the population was poor. Part of the problem is that the gap between rural and urban living standards has remained wide. For example, child malnutrition and under-five mortality are twice as high in rural areas as in the cities.

The country's national poverty reduction efforts gained momentum after it began implementing its economic stabilization and structural reform programme in 1993. The government began devoting more resources to pro-poor programmes, and it instituted legal reforms to strengthen interagency coordination of programmes to promote conflict resolution, basic education and health care, and food security for children and other groups at risk.

Early on, the government set up the National Fund for Social Development - to implement its first explicit national poverty programme, focusing on social infrastructure and productive activities. Later it started the National Food Programme - to deliver school meals and set up soup kitchens in rural areas and marginal urban areas. The government has supplemented these measures with programmes to address women's poverty and to protect the poorest in future economic crises or slowdowns.

The government's goal is to cut extreme poverty to 11% by 2000. But El Niño and the global economic crisis halted growth in 1998, reducing that likelihood - though recovery was under way in 1999.

Social expenditures increased from 4% of GDP in 1993 to 7% in 1998— still below the regional average of 12%. In 1997 and 1998 Peru allocated 20% of its public expenditures to basic social services - outspending Chile and Colombia. The government estimates that it spent 33% of its budget on basic social services as it defines them - including road rehabilitation, energy infrastructure and environmental programmes. And its spending on poverty reduction programmes doubled between 1994 and 1997.

What would it cost to ensure that all the poor could meet their basic food needs? Studies estimate $517 million. The country now spends $250 million on food security programmes such as the National Food Programme.

The impact of all these expenditures is uneven because of the lack of targeting. While improving access to basic health services and focusing on child heath, for example, have led to general improvements, these measures have not always favoured the poorest. To improve targeting, programmes now use new methods, including self-selection, site visits and deeper studies. Some programmes now concentrate on areas bypassed by previous interventions. Others, such as the National Food Programme, rely more on self-targeting.

The National Fund for Social Development and the National Food Programme have pioneered the use of a composite index - with such indicators as adult illiteracy and infant mortality - to develop a poverty map. The result has been better distribution of resources to geographically disadvantaged areas and allocation of more than 43% of funds to the poorest households.

Still, the success of targeting depends on the programme and the instruments. In 1998 the Targeted Strategy against Extreme Poverty identified 419 priority districts and concentrated on the extremely poor in both rural and urban areas. But sectoral studies, such as in education, show that general expenditures still tend to be regressive. For example, the poorest fifth of the population receives 8% of public expenditures - the richest fifth 37%. Better coordination among the programmes could help this situation.

Economic growth - especially growth that is employment-creating - remains crucial for reducing poverty. With poverty becoming more urban, the government is trying to raise the productivity of labour - and improve education and people's access to it.