1. The Social Protection Challenge in Middle income Countries
Ana Revenga
Director, Poverty Reduction
The World Bank

2. SP challenges in Middle Income Countries (MICs)
Most MICs are facing pressure to expand social protection
Financial crisis has added to these pressures during times of increased fiscal constraints
Crisis highlighted the need to develop cost-effective safety nets in advance
Responses have varied depending on structures in place
Building SP takes time Better to act promptly
Driven by rising incomes, growing middle class and aging demographics, most MICs are facing pressure to expand their social protection systems
Pressures pre-date the recent crises, but the sequence of food, fuel and finance shocks have added to the urgency of these demands, by highlighting the vulnerability of household welfare to shocks even in dynamic, fast growing MICs
Countries have been diversely impacted but no question that we are seeing significant adjustments in employment, hours worked, wages and incomes across a broad swath of countries. Many of those affected are not necessarily the poor, but are vulnerable.
What the crisis has highlighted is the need to develop cost-effective programs and implement them in advance. Sp systems take time to build, and in a crisis context, you need to respond quickly and build on what you have. When what you have in place is significantly flawed, the responses is likely to be less effective and more wasteful.
Some countries (especially in Latin America, but also in Eastern Europe) took advantage of crises in the 1990s, to build some elements of a system that allowed them to respond more easily to the food and finance crises. But even those MICs that had some systems in place, have found that their systems remain fragmented and are not able to serve different target groups and their needs very well. Time for reflection on SP systems in all MICs.
Important to acknowledge that as countries move into higher middle income status, the social contract between goverment and its people increasingly demands a system that will help families deal with uncertainty and risk, that will encourage savings for old age, and that will provide access to health care in an affordable manner. This is important not just from a social perspective, but also to underpin a competitive, risk taking economy.

3. Features of SP systems in MICs
Objective
Target group
Design Element
Reduce poverty and encourage human capital investment
Chronic poor
Targeted and non-contributory
Help households manage risks
Households vulnerable to shocks
Contributory, with public subsidies for the poor
Improve productivity
Groups facing special challenges
Targeted SP/Labor interventions
Although MICs have made significant progress in poverty reduction, they are still home to 1/3 of the world’s poor
There are almost 730 million people living in less than $2 per day in East Asia, of which 474 million are in China alone
Vulnerability to poverty remains high – often see high ‘churning’ in and out of poverty; Despite progress in poverty reduction and relatively good growth performance, many MICs evidence high disparities in access to and quality of education and health services
Reflect underlying high levels of inequality in incomes but also contribute to perpetuating this inequality
Household welfare, no just of the poor, highly vulnerable to both hh-specific shocks such as illness of job loss, and systemic shocks – like natural disasters or economic crisis.
Improve productivity. Most MICs have segmented labor markets, with large informal sectors that often represent a drag on labor productivity growth. Many MICs have relatively large youth cohorts entering the labor market, with difficulty finding right productive jobs.

4. What are other MICs doing?
Establishing a ‘core’ non-contributory safety net program
Expanding coverage of social insurance
Emerging best practice in pensions
More diversity in financing models for health
Developing active labor market and skill development policies
Expanding coverage of social insurance to (a) better cover workers outside the formal sector and (b) satisfied demand for growing protection from different segments of the population but especially growing middle class
Emerging best practice in pensions
Moving toward individual accounts to increase portability
Linking benefits to contributions
More diversity in financing models for health
In East Asia, rely primarily on contributory schemes (Taiwan and Korea)
More reliance on tax financing in countries like Malaysia and Thailand. Linked to the extent that labor market is formalized. LAC has tried to have contributory schemes with large informal markets, with poor results.
Increasing recognition of the need for policies to foster the growth of a productive work force – which encompasses policies to strengthen educational systems but also other areas of intervention such as training, and active labor market policies.

5. Country example– Mexico (1)
New Social Policy that started in 1994
A switch from general subsidies to targeted interventions in late 1990s, following “Tequila” crisis
Introduced a whole set of targeted non contributory programs aimed at developing opportunities for the poor
Maintained a contributory “core” social insurance tied to formal employment contract
Systems have to be country specific – but there are lessons to be learnt from others. A lot of innovation and experimentation in Sp systems is happening in MICS – which offers lessons to both other MICs and OECD economies. One country that has been very innovative in recent decade is Mexico.
Change in policy post tequila crisis (1994) as govt realizes that it has very inefficient instruments at its disposal to deal with system-wide economic shocks.

6. Country example– Mexico (2)
“New” elements introduced since late 1990s:
CCT (Progresa) full implementation in Renamed and a scaled up as Oportunidades in 2000.
Workfare programs (PET) implemented in 1998; reinvigorated in recent crisis
Health insurance for the poor (Seguro Popular) implemented in 2003/04
Social pensions for the elderly in 2003
=> Great improvement in coverage for people outside the formal sector; positive impacts on education and health of the poor
These systems co-exist with a parallel payroll-tax based social security system for formal sector workers (covering pensions, health, disability) => has raised issues of disincentives to becoming formal
Oportunidades coverage 5 million households
PET finances 90% of minimun wage and 88 working days
Seguro Popular million individuals in 2006
Social Pension, 800 per month to all elderly 70 years and older
New components of Oportunidades MAROP
Despite huge progress Mexico still faces important challenges in its Social Protection system:
SP innovations have increased access of the poor to SP but not part of an integral SP strategy
System is still
Unequal in access
Regressive – transfers are higher for the well off
Inefficient – coverage is not adequate for many
Fiscally challenging
New daycare—Guarderias reaching 57, 320 mothers in 2007

7. Where does Thailand fit?
Strong poverty reduction but persistent disparities
Poverty by region in 2007
Poverty over time
Disparities linked in large part to different endowments (eg. Concentration in poor regions of people with personal characteristics –such as low levels of education or poor health status- that impede higher incomes and growth).
Source: NESDB

8. Where does Thailand fit?
Informal Sector
Large informal sector – in line with what is expected for its income level, but that limits the scope for exclusively contributory-based SP systems

9. Where does Thailand fit?
Aging Society
Higher dependency ratio – larger older population and fewer contributors, so system under pressure. Productivity and wage growth has to be high enough to support the elderly, and you need to develop better saving instruments for old age.
Also fewer younger people…. PISA results show that there are some challenges. the share of Thai 15-year-olds that perform at level 1 or below in the PISA reading proficiency scale (up to the top score of 5). It indicates that about 45 percent of Thai students at the end of the compulsory cycle have serious trouble in terms of cognitive reading ability. Thailand does better than many non-OECD comparators at similar levels of income and is broadly on par with the worst OECD country (Mexico). However, the argument could be that as it increasingly orients itself towards OECD comparators over the next decade, this will become a problem. Hence the need to fix this now.
There is also some evidence that reading proficiency overall has declined since the first PISA assessment in 2000.

10. Where does Thailand fit?
Ongoing Rural-Urban Migration
Rapidly urbanizing – effectiveness of traditional family and community based social protection networks is eroding.

11. Thai SP panorama - challenges
Common
Harmonization
Sustainability
Informal
Sector
Health
Pensions
Community Based SP
Safety Nets
Labor Market Interventions
Thailand, like other MICs, wants its SP system to achieve several key objectives: (i) protection against income loss or ill health; (2) old age security; (3) access to basic services and ‘equity’ in opportunities (to achieve en education, become productive workers).
SP system comprises several key elements. In today’s sessions, we will focus largely on the first 3 (health, old-age security, and community based SP). We will also touch –but I think more briefly- on two other key elements of most middle income (and high income) SP systems: safety nets (cash or non cash transfers) designed to protect the poor and foster investments in their human capital, and labor market interventions aimed at fostering worker productivity growth.
5 different elements, they all share some common challenges, which today’s sessions am sure will focus on – issue of adequate coverage and financing mechanisms given large informal sector; issues of harmonization across the existing range of programs in individual parts of the system (for example, co existence of 3 schemes in health), but also of coordination and harmonization across elements of the SP system; and issues of financial and fiscal sustainability.
Because the presentations in the sessions will focus mainly on the 1st three parts, I want to say a little bit about MIC experience in the last two.
Breakout
Sessions

12. (Conditional) Cash Transfers as Safety Nets
Experience from MICs
(Conditional) Cash Transfers as Safety Nets
(Conditional) cash transfers are increasingly adopted as core safety net program
CCT are more a “contract” than a cash transfer
They alleviate poverty but also encourage investment in human capital (education and health) and improve consumption
Little evidence of welfare dependency and negative impact on labor markets
Quid pro quo – involve a commitment from the recipient household to make investments in the health and education of its children. Co-responsibility.

13. Experience from MICs Adoption of CCTs
Also being used in high income economies – both UK and Spain (regional gvt) are experimenting with CCTs to reduce school dropout among disadvantaged youth. NYC is considering them as well.

14. CCT impacts on poverty, education and health outcomes
CCTs have generally led to substantial reductions in consumption poverty:
In Mexico, PROGRESA (now Oportunidades), a program with national coverage, reduced the poverty gap in rural areas by 19 percent
And had significant impacts on education outcomes:
In Mexico, Oportunidades decreased dropout between 6th and 7th grade by 9% points
In Pakistan, the Punjab Education RSP increased the school enrollment of year-old girls by 11% points
And health outcomes:
In Colombia, Familias en Acción increased the proportion of children who had growth monitoring by 20-30% points
Large and growing body of empirical evidence that shows that they have:
Source: “Conditional Cash Transfers: Reducing Present and Future Poverty,” A World Bank Policy Report, World Bank, Washington D.C., (authors: Ariel Fiszbein, Norbert Schady eds. with Francisco Ferreira, Margaret Grosh, Pedro Olinto, and Emmanuel Skoufias).

15. CCT impacts on health and education outcomes
Because impacts are concentrated among the poorest households, CCTs have helped increase “equality of opportunities”
Example: Nicaragua
Effects on HC investment are greatest among the poorest, hence contributing to building greater equality of opportunity for children.

16. Experience from MICS – labor market interventions
Active Labor Market Policies (skill development and employment services)
Programs targeted to youth (the “Jovenes” programs in Latin America)
Unemployment insurance/assistance
Unemployment Insurance Savings Accounts (Chile, Colombia)
Graduation and work activation linked to social safety net programs
Labor market interventions are also important in MICs that need to upgrade the skills of their workforce to underpin productivity growth and remain competitive.
ALMP – different forms of intervention to support skills development and training; and also services to support employment transitions – job search, placement, labor information services.
Within these ALMPs, those that target groups with special employment problems –such as youth- are particularly important. Many MICs esp. in LAC are experimenting with targeted youth programs that involve a
Comprehensive package of services – usually workplace internships preceded by training in both professional and life skills
These interventions, as all training, need to be demand driven and where feasible should use NGOs and private sector as delivery mechanisms
Training providers must be certified and provide proof of availability of internships
Average costs: US$ per participant
Other set of labor market interventions of growing importance in MICs are those aimed at helping workers smooth incomes during periods of job loss. Modernizing economies typically will undergo a lot of job creation and job destruction as new sectors/firms emerge, which typically has some transition costs for workers. And as we have seen in this recent crisis, financial and macro volatility can have significant effects on employment and labor incomes. Increasingly, MICs are experimenting with different types of UI mechanisms – but as with other SI, one of the challenges is designing a system that can also cover those in non-formal activities.
Final area of growing importance in MICs, especially those that have effective safety nets in place such as Mexico, Colombia, Chile or much of Eastern Europe, is that of work activation and facilating the labor market insertion of individuals receiving social benefits.

17. Reflections
Thailand faces the challenge of establishing an effective social protection system
Such a system is not just important from a social perspective, but necessary to underpin a competitive, risk-taking economy with a growing middle class
After the 1997 crisis, similar reflection on SP needs took place; but no sustained investment in SP institutions took place.
facing similar issues and similar reflections in the wake of the crisis
Thailand cannot afford to lose this opportunity to modernize its SP institutions and adapt them to the needs of a modern economy
Like other MIC, Thailand faces the challenge of establishing an effective SP system; one that provides old-age security, protection against poverty, income loss and ill health, and supports investments in human capital and skills development. Such as system needs to be equitable, efficient, fiscally sustainable and tailored to country needs.
Significant progress in some areas but not sufficient movement towards a comprehensive and integrated system.

18. Thank You