BOLSA FAMILIA LIKELY TO EXPAND DESPITE CONTROVERSY

UNCLAS SECTION 01 OF 05 SAO PAULO 000010

SIPDIS

SIPDIS

STATE FOR WHA/BSC AND WHA/EPSC
STATE PASS USTR FOR CRONIN
STATE PASS EXIMBANK
STATE PASS OPIC FOR DMORONESE, NRIVERA, CVERVENNE
USDOC FOR 4332/ITA/MAC/WH/OLAC
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TREASURY FOR OASIA, DAS LEE AND JHOEK
NSC FOR FEARS
SOUTHCOM ALSO FOR POLAD
AID/W FOR LAC/AA

TAGS: SOCI PGOV ECON BR
SUBJECT: BOLSA FAMILIA LIKELY TO EXPAND DESPITE CONTROVERSY


1. SUMMARY: Bolsa Familia is the best-known and most popular cash
transfer program in Brazil. As the Lula administration's flagship
social program, it played an important role in 2006 in securing
support for President Lula among the very poor and thus ensuring his
re-election. It currently benefits 11.1 million families and costs
the federal government approximately USD 4.1 billion per year.
Similar state and municipal level programs such as those in Sao
Paulo supplement federal stipends for many poor. Although
considered a very successful social program -- it is given at least
some of the credit for Brazil's recent improved income distribution
-- Bolsa Familia remains controversial in Brazil as a tool to combat
poverty. Experts who support it point to the fairness of its
requirements, the lack of local political influence in its
administration, and its impact in improving the standard of living
of extremely poor families. While few oppose the program outright,
its critics argue that its effects in ameliorating the plight of the
poor are temporary and limited and that in the long run, Bolsa
Familia will create dependency and perpetuate poverty. Regardless
of the continuing controversy surrounding it, Bolsa Familia is
likely to be expanded in Lula's second term. End Summary.

OVERVIEW OF THE PROGRAM


2. Bolsa Familia's roots go back to Fernando Henrique Cardoso's
administration, when several cash transfer programs were established
on a small scale to assist the poor with food, energy, and education
costs. In 2004, in Lula's second year in office, the government
consolidated four such programs under the Bolsa Familia umbrella.
The program is administered by the Ministry of Social Development
and the Fight against Hunger and is operated by municipal offices
and agencies. The Social Development Ministry establishes the rules
and provides the funding. The rules are simple and broad. Poor
families -- those who have a per capita income of 120 Reals (about
USD 55) or less per month (USD 220 for a family of four) -- are
entitled to receive from 15 to 95 Reals per month (USD 7 to 45),
depending on the number of children under the age of 15. In return,
they are expected to keep their children in school (85 percent
attendance),follow the national schedule for vaccinations and, in
the case of pregnant women, have regular pre-natal medical
check-ups. The conditional nature of the cash transfers is viewed
as the program's most important feature, designed to ensure that
even Brazil's poorest children have access to health care and
education in the hope that this will enable them to emerge from
poverty into the mainstream.


3. Bolsa Familia has been viewed as a success largely because of
its efficient operating system. Enrollment of families is done by
local governments through offices established for that purpose. As
most of Brazil's 5,563 municipalities are relatively small
communities, it is easy for them to register poor families and
compile such pertinent information as address, income, educational
profile, and number of children. This information is then sent to
the federal Social Development Ministry, where it is added to a
national database called "cadastro unico". This social database is
supposed to compile a list of all poor families in Brazil. The
Social Development Ministry selects the families for Bolsa Familia
from the national database. Once accepted into the program, each
beneficiary family receives an electronic bank card, by mail or
through the local government, to withdraw their monthly Bolsa
Familia stipend from the Caixa Econtmica Federal (CEF -
federally-owned bank). The bank card is usually given to the adult
female of the family on the grounds that she is more likely to spend
the funds responsibly.


4. CEF's status as a nationwide public institution with branches in
almost every city is key to Bolsa Familia's operation. Moreover,
small businesses, such as grocery stores and post offices, also
function as independent bank agencies, disbursing social benefits
and receiving tax payments. This structure helped the Bolsa Familia
program spread quickly. In 2004 there were 6.5 million families
enrolled in the program. By mid-2006, the number had grown to 11.1

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million families, according to official statistics published by the
Social Development Ministry.

HOW IT WORKS IN SAO PAULO


5. Most state governments have their own complementary cash
transfer programs, as do the governments of some large cities,
including not only Sao Paulo but also Campinas and Ribeirao Preto,
both in the interior of the state. The state itself has a program
called Renda Cidada (Citizen Income),and the city of Sao Paulo has
a similar program called Renda Minima (Minimum Income). Thus, a
poor family living in the city could qualify for funding from three
different sources at the same time. Though the municipal government
is responsible for administering all three programs, they are
operated separately, and each issues its own bank card, using
different banks. (Sao Paulo uses state-owned Nossa Caixa; the city,
Banco do Brasil.) For political reasons, federal, state, and local
governments each want to receive credit for their largesse. Each
program also has its own database of enrolled participants, though
the databases are not fully integrated. For now, it is possible to
compare the list of beneficiaries from Bolsa Familia to that of
Citizen Income or Minimum Income, but the databases do not
interface. When one family is found to be listed on Bolsa Familia
and at the same time on Citizen Income or Minimum Income, the
stipend is recalculated so as not to exceed a maximum of USD 180.


6. The city's Minimum Income program is broader than Bolsa Familia;
it covers more families and pays better stipends - the maximum value
under Minimum Income is approximately USD 100 per month for a family
with a monthly per capita income of USD 90. The minimum benefit is
USD 75. The program covers those whose income is not low enough for
them to qualify for Bolsa Familia. When the program was inaugurated
during the administration of Mayor Marta Suplicy, the maximum
payment was USD 180, but in December 2006, the City Council adopted
a proposal by Mayor Gilberto Kassab to reduce the maximum payments
and increase the minimum in order to focus the program better on the
poorest members of the population.


7. Sao Paulo state's program, Citizen Income, runs in parallel with
the Bolsa Familia and targets the same social and economic class.
Families who qualify on the basis of income can register in local
offices installed throughout the state and within the metropolitan
area. The stipend is fixed - USD 30 per family per month. The
requirements are the same as for Bolsa Familia, but applicants must
also have resided in Sao Paulo state for at least 2 years. If a
family is found to be receiving benefits from both the federal and
state government programs, the stipends are combined up to the Bolsa
Familia maximum of USD 45. Felicidade Pereira, coordinator of the
program at the state level, says that clerks are trained to enroll
families in the program - federal, state, or local, or combination
thereof - that best fits their needs. "It's a common procedure",
Pereira said, "because there are more families waiting for the
benefits than funds available to assist them."


8. In addition to its Citizen Income program, the state also has
Acao Jovem (Youth Action),which is focused on adolescents and young
adults between the ages of 15 and 24 years old. The stipend of about
USD 25 per month goes directly to the young adult. The program's
purpose is to encourage the beneficiary to continue his/her
schooling. There are no legal or ethical restrictions that would
prevent an individual or family from receiving Bolsa Familia and
Youth Action stipends at the same time, or receiving both Youth
Action and Citizen Income benefits.


9. Official statistics from the state and federal governments show
that 1.1 million families in the state are receiving cash transfers
from at least one of the programs, out of a total of 1.3 million
families with income low enough to qualify. This means there is a
waiting list of 200,000 eligible poor families who are not now
receiving benefits. The state's Citizen Income program reaches
slightly over 167,000 families, while Minimum Income provides

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benefits to just over 37,000 families. Some 66,000 families receive
some combination of Citizen Income and Bolsa Familia. The remainder
- approximately 940,000 families - receive only a Bolsa Famlia
stipend.

PROS AND CONS


10. Although Brazil's cash transfer programs have been the subject
of numerous studies, their social and economic impact is not fully
understood. Because the programs are still relatively new (Bolsa
Familia was consolidated into a single program in 2004),there isn't
enough data to formulate reliable results. This lack of conclusive
research fuels the controversy surrounding Bolsa Familia. Following
are some of the most common arguments in favor and against Bolsa
Famlia:


11. Focus: The program is considered well-focused, providing money
directly to families who need it most. In the past, governmental
social programs rarely reached the poorest communities because of
lack of infrastructure, and earlier programs were plagued by
corruption. Bolsa Familia reaches all the regions in the country.
Some observers argue that many poor people remain outside the social
safety net system, and advocate an income cutoff lower than USD 55
per month. With this measure, the program would reach more people in
the base of the social pyramid. Despite this criticism, Bolsa
Familia is generally acknowledged as a program where the benefits
hit the right beneficiaries.


12. Fairness: The program is respected because it distributes
stipends according to need and avoids political influence. The
Ministry of Social Development in Brasilia decides who is eligible
to receive benefits based on technical criteria, and funds are
disbursed from the CEF. In the past, state and local leaders could
manipulate the distribution of social assistance according to
political loyalty or, worse, could even divert funds to themselves
or to family and friends. By consolidating the program within the
federal bureaucracy, the Lula administration has kept Bolsa Familia
free of local political taint.


13. That said, while no one accuses the government of distributing
Bolsa Familia funds as a form of patronage, many in the opposition
accuse Lula of using the program as an electoral propaganda tool. In
April 2006, the Ministry of Social Development increased the
program's income threshold from about USD 45 to USD 55 per person,
instantly expanding eligibility. In June 2006, just before the
presidential campaign officially began, 1.8 million families became
beneficiaries of Bolsa Familia for the first time. The increase in
the number of families in one single month was equivalent to 62
percent of beneficiaries in 2004. In addition, whereas in the past,
the electoral capital of social programs was shared among different
levels of governments and candidates, Bolsa Familia benefits are the
sole province of the federal government, further enhancing Lula's
image as "father of the poor." His political opponents complained
bitterly about his appropriation of a program that had been
initiated by his predecessor, and accused him of relaxing
eligibility requirements and enforcement as a means of boosting the
number of recipients for his own political benefit. During the
campaign, Lula also suggested, without evidence and despite denials,
that his opponent would sharply curtail or even eliminate the
program.

POVERTY REDUCTION...


14. The most controversial question related to Bolsa Familia is
whether or not it helps reduce poverty. Economists and scholars
agree that there has been a reduction in the number of people living
below the poverty line in the past few years, and a reduction in
social inequality. According to IPEA (Institute of Research on
Applied Economy of the Ministry of Planning and Budget),between
2001 and 2005 the number of Brazilians living below the poverty line
fell by 4.5%. In the same period, the gap between the richest and

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poorest among the population fell by 4.2%. However, Bolsa Familia
is only one part of governmental cash transfers. For example, the
GoB pays social security pensions for 30 million retired rural
workers, who made minimal or no contributions into the social
security system, at a cost of approximately USD 35 billion per year,
which likely has a much greater impact on poverty than does Bolsa
Familia. At least one academic study the Mission is aware of has
found that the rural pensions had the biggest impact on poverty in
Brazil over the last decade.

...OR SOCIAL DEPENDENCE


15. In November, the National Conference of Brazilian Bishops
(CNBB) criticized Bolsa Familia as an ill-advised program because it
would make poor people "addicted to the money." Other church
officials have characterized Bolsa Familia as a good emergency
assistance program enabling poor people to eat better but not a real
poverty-reduction program. This is the most serious concern about
the program, that it only temporarily alleviates the plight of the
poor but doesn't offer sustainable improvement of their
socio-economic situation. One political analyst claimed to have
seen cases where, instead of going out to work, students repeated
the last year of school to avoid losing their family's eligibility
for assistance. Other commentators allege that some poor adults
decline low-paying jobs in the formal sector for the same reason.
Critics argue that Bolsa Familia should be temporary and focused on
the poorest regions of the country instead of being both long-term
and national. In addition, they say it will only work if integrated
into a broader strategy of investment in education, health care,
infrastructure, and economic opportunity. Brazil needs more
economic growth to create jobs and gradually make Bolsa Familia
unnecessary. The current model, they say, doesn't offer the poor -
or the government - a way out of the program.


16. Supporters, on the other hand, stress that the money from Bolsa
Familia is a way to ensure that poor children get an education and
access to health care. "Bolsa Familia is a program for the future",
wrote professor and economist Jos Marcio Camargo, of the Catholic
University of Rio de Janeiro in an article published in Folha de Sao
Paulo newspaper in late October. According to the professor, the
income provided by Bolsa Familia helps poor families keep their
children in school. Otherwise, they would start working at an early
age and would remain at a severe disadvantage all their lives. They
would likely not receive adequate health care in childhood,
exacerbating their precarious situation and perpetuating Brazil's
large social and economic disparities.


17. However, there is no way to determine with any reliability
whether beneficiaries of cash transfer program are fulfilling the
conditions. In contrast to the efficiency of the enrollment, there
is no efficient system of monitoring compliance. Municipal
secretariats of health and education are supposed to provide

SIPDIS
statistics on children's school attendance and vaccinations, but
their reports are often delayed and incomplete. Representatives of
all three levels of government assert that they suspend payments if
a family falls out of compliance with the conditions, but they also
recognize there's no way to be sure. Some observers claim that no
beneficiary has ever lost benefits due to non-compliance, which, if
true, would render the conditional aspects of the program toothless.
Certainly the complexities of the overlapping programs and the
sheer size of the databases make it hard to monitor compliance and
prevent abuses, although the vigilant Brazilian press has exposed
some cases of abuse. From the point of view of local, state and
federal governments, expansion of social programs for its own sake
is often considered a political achievement showing that they're
taking care of people, so they have a stake in not removing people
from the rolls.

COMMENT


18. Given the visibility it attained during the election campaign,

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it is likely that Bolsa Familia will continue to expand and evolve.
A Senator recently introduced a bill that would give Bolsa Familia
recipients a 13th month stipend, as if they were workers, though
this proposal is unlikely to go anywhere. The GoB is reportedly in
the process of increasing the size of monthly stipends, at an
estimated cost of 1.2 billion Reals (USD 550 million),to fulfill
one of Lula's campaign promises. Despite its rapid growth, the
program still does not reach all of Brazil's poor. It is still a
relatively new program and remains a work in progress. Officials of
Lula's Workers Party (PT) acknowledge that Bolsa Familia by itself
is not enough, and talk about improving it and bolstering it with
complementary social investment. While it remains a small tool in
the fight against poverty, it has the potential to become much more.
End Comment.


19. This cable was coordinated/cleared with Embassy Brasilia.

MCMULLEN