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Cablegate: Brazil's Conditional Cash Transfer Program Five Years In

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RR RUEHRG
DE RUEHBR #1098/01 2441910
ZNR UUUUU ZZH
R 011910Z SEP 09
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 4988
INFO RUEHSO/AMCONSUL SAO PAULO 4476
RUEHRG/AMCONSUL RECIFE 9871
RUEHRI/AMCONSUL RIO DE JANEIRO 8132
RUEHBU/AMEMBASSY BUENOS AIRES 6338
RUEHAC/AMEMBASSY ASUNCION 7641
RUEHMN/AMEMBASSY MONTEVIDEO 7818
RUEHSG/AMEMBASSY SANTIAGO 1014
RUEHLP/AMEMBASSY LA PAZ 6949
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHDC

UNCLAS SECTION 01 OF 04 BRASILIA 001098

SENSITIVE BUT UNCLASSIFIED
SIPDIS

STATE FOR WHA/BSC, EEB/IFD/ODF, INR/IAA, INR/R/AA
STATE PASS USTR FOR KATE DUCKWORTH
NSC FOR ROSSELLO
TREASURY FOR KAZCMAREK
USDOC FOR 4332/ITA/MAC/WH/OLAC
USDOC ALSO FOR 3134/USFCS/OIO
USAID FOR LAC/AA

E.O. 12958: N/A
TAGS: PGOV SOCI SCUL EFIN ECON PREL BR
SUBJECT: BRAZIL'S CONDITIONAL CASH TRANSFER PROGRAM FIVE YEARS IN

REF: (A) 08 SAO PAULO 38; (B) 07 SAO PAULO 10; (C) BRASILIA 310

1. (SBU) SUMMARY: A little more than five years into its existence,
Brazil's conditional cash transfer program Bolsa Familia (PBF)
continues to stir debate over its effectiveness. PBF aims to
alleviate poverty both by providing for beneficiaries' short-run
basic needs and by creating conditions for long-run upward mobility
through incentives for education and investments in human capital.
Some national and international studies claim PBF has reduced
poverty. While it has helped millions of poor Brazilians make ends
meet on a month-to-month basis and inspires their fierce loyalty to
both the program and to President Lula, its success in reducing
poverty and promoting long-term social mobility remains less clear.
Significant implementation challenges exist due to the decentralized
structure of PBF as well as the danger of the program becoming a
political electoral tool. Some experts believe the PBF cannot
succeed in breaking the cycle of poverty before other underlying
issues are addressed, especially the need for deep educational
reform. While experts debate PBF's long-term benefits, the program
remains politically popular, has become a virtual entitlement, and
is unlikely to be questioned by any candidate for president in the
run-up to next year's election. END SUMMARY.

----------
BACKGROUND
----------

2. (U) Bolsa Familia was established in 2004 when President Lula
consolidated several cash transfer programs that had been introduced
during the predecessor administration of President Fernando Henrique
Cardoso. Lula dramatically expanded PBF during his first term, and
the program now reaches 11.5 million families -- about 46 million
individuals -- at a total annual cost of R$12 billion (US$ 6.7
billion). PBF participants represent approximately 80 percent of
Brazil's poor, and about one quarter of the country's population.
Fifty percent of beneficiaries reside in Brazil's underdeveloped
northeast. Participation continues to increase as the government
periodically raises the maximum income households can have and still
be eligible and the program reaches more communities. Official
government projections estimate the number of recipient households
will reach nearly 13 million by the beginning of 2010.

3. (U) Families with monthly per capita income of US$ 78 or less
qualify for PBF. Based on income and family size, scaled payments
are dispersed via an ATM card issued by the Caixa Economica Federal
(federally-owned bank). On average families receive about US$ 47
per month. In order to receive PBF benefits, parents must
theoretically send their children to school, have them immunized and
adhere to pre- and post-natal care. Literacy, professional and
income-generating training programs are also made available to
program beneficiaries. Approximately 93 percent of the persons who
register on behalf of their families are women. The Ministry of
Social Development and the Fight against Hunger (MDS) oversees PBF,
but states and municipalities handle implementation.

----------------------------
ADMINISTRATION AND OVERSIGHT
----------------------------

4. (U) Bolsa Familia is a federally funded program that is
implemented at the state and municipal level, with the bulk of the
identification and registration of beneficiaries occurring at the
municipal level. With over 5,000 municipalities individually
managing the delivery of funds and program compliance, federal
oversight to monitor effectiveness is difficult. On the other hand,
many municipalities are small and it is relatively easy for these
communities to accurately register poor families. In the city of
Sao Paulo, however, only two municipal officials manage the program
for a population of about 11 million residents. Given the large
variation in local capacities and resources, it is not surprising
that issues of fraud and lapses in beneficiaries' compliance with
program conditionality have surfaced.


BRASILIA 00001098 002 OF 004


5. (SBU) The Federal Audit Court (TCU) evaluates PBF's execution
along with civil society organizations. In 2009, the TCU found that
about 1.2 million families who were not poor received PBF benefits
illegitimately, and estimated that combating PBF fraud could save
about US$ 177 million per year. The TCU has relied on the
cross-checking of major databases to uncover abuses. For example,
comparing PBF beneficiary lists with other available databases
revealed that approximately 40,000 politicians; 300,000 deceased
people; and 100,000 vehicle owners were fraudulently receiving
benefits. In 2009 in the State of Bahia, two officials stole US$ 1
million in PBF funding through false contracts.

-----------------
REDUCING POVERTY?
-----------------

6. (U) Brazil's poverty rate -- as measured by per capita income of
half the local minimum wage -- dropped from 39.4 percent of the
population in 2003 to 30.3 percent in 2007, according to the World
Bank. Recent data from Brazil's official government economic
statistics office (IPEA) indicate that Brazilians are continuing to
pull themselves out of poverty. IPEA reports that despite the
current economic crisis, another 500,000 Brazilians have risen above
the poverty line over the past year. With respect to PBF, questions
remain as to how much of the drop in poverty can be attributed to
PBF or to a combination of other cash transfer programs, most
notably social security cash transfers to some 30 million retired
rural workers, and Brazil's sustained economic growth over the last
five years. Some academic research has suggested that PBF has
played a partial role in Brazil's improving Gini coefficient
(measure of income distribution equality), which has fallen from 53
to 49 since 2002. The World Bank continues to back PBF with
technical and financial assistance, giving it credit for positive
social outcomes in Brazil.

---------------------------
PULLING IN THE MARGINALIZED
---------------------------

7. (U) Aside from cash transfers, PBF has a number of positive
secondary effects that help to integrate the poor into society
according to economist Andre Portela Souza and social worker Paula
Galeano, both based in Sao Paulo. By registering for PBF,
vulnerable populations become visible to both national and local
level governments because participants must acquire and present
documents they might have never had before: a birth certificate, ID
card or proof of residence. Potentially, this evidence could help
the GOB tailor programs to specific needy groups (the handicapped,
those suffering from mental illness, the unemployed, etc.). In this
way, PBF has put a human face on the formerly marginalized, bringing
them in from the shadows and making their plight potentially more
measurable.

8. (U) In addition to identification, PBF also integrates
recipients into Brazil's growing consumer and banking cultures.
Even families living in relatively remote areas can enroll in the
program and in a matter of months receive an ATM card that allows
for modern and direct access to PBF funds. With this card, the same
families can then open a small checking account and apply for
microloans. Anecdotal evidence suggests that, in addition to
subsistence, PBF enables poor families to make small capital
investments. For example, PBF authorities in Sao Paulo cited the
example of a female PBF recipient who used the cash transfer to buy
a washing machine to sell laundry services in her community.

----------------------------------------
MINIMAL IMPACT ON CHILD LABOR AND HEALTH
----------------------------------------

9. (U) Studies conflict on Bolsa Familia's impact on reducing child
labor, indicating only a small long-term impact on reducing
children's presence in the workforce. PBF is not incentive enough
for children from poor families to abandon the labor market and the

BRASILIA 00001098 003 OF 004


short school day encourages families to have their children perform
wage work outside of class. Children who work full-time receive an
average wage that is higher than the sum of the average wage
received by children working part-time with added program benefits.
Studies show no difference in the rate of immunization, as the same
numbers of children are being vaccinated with Bolsa Familia as
without. Studies have yet to show the impact on pre- and post-natal
care of PBF recipients.

10. (SBU) Interestingly, some employers may be encountering
difficulties finding workers willing to give up their Bolsa Familia
eligibility to join the workforce. Consulate Recife has heard of
complaints raised from sugarcane growers from the states of Alagoas
and Pernambuco that PBF has made it more difficult to find workers
to cut the cane, saying that some of the men who normally performed
this seasonal labor are opting not to because of Bolsa Familia
stipends.

--------------------------------------
LACK OF COMPLIANCE AMONG BENEFICIARIES
--------------------------------------

11. (SBU) Another concern for officials is the failure of
legitimate recipients to fulfill PBF requirements. Though school
attendance is up overall thanks to PBF, in some key areas it lags
badly, indicating a lack of high quality nationwide supervision and
follow-up. According to Alexandre Marinis, a political economist
and writer for Bloomberg, in the state of Goias 33 percent of
children in families receiving PBF benefits were not enrolled in
school. The same figure for Rio Grande do Sul was 32 percent,
according to Marinis.

12. (U) Social workers in Sao Paulo tended to dismiss
non-compliance violations. They stated that non-compliant PBF
families were often the most marginalized, and that they needed more
help, not less. A Sao Paulo-based social worker said, "The people
whose kids are missing school or are not getting proper medical
treatment, those are the most needy. They should not be kicked out
of the program."

--------------------------------------------- ---
SCHOOL: ATTENDANCE UP, BUT QUALITY BLUNTS BENEFIT
--------------------------------------------- ---

13. (SBU) Ironically, school enrollment non-compliance may not be a
significant factor as long as Brazil's public school system
continues to underperform. Bolsa Familia was designed to encourage
long-run upward mobility by setting conditions that children of
beneficiary families attend school. Professor Andre Souza cites
studies indicating that PBF has raised school enrollment by two
percent and the amount of time students spend in school by three
months. Unfortunately, increased school attendance does not
guarantee educational gains, given the shortcomings of Brazil's
public schools. As Souza explains, "The problem is not demand for
schooling, but the supply of good schools." PBF brings more kids
from marginalized families -- many of whom represent the first
generation ever to attend school -- into an educational system that
is woefully inadequate. Overcrowding, a truncated school day
(Brazilian elementary and high school students only study three to
four hours per day) and rigid school structures hostile to
innovation frequently combine to undermine the benefits that might
have been gained from increased attendance. While the public system
is inadequate, efforts at reform are being made by the Ministry of
Education and state and municipal governments, some of which are
being supported by various Public Affairs programs in Brazil (reftel
C).

14. (U) A study conducted by IPEA and the Brazil office of the
United Nations Development Program (UNDP) found that Brazil's
education system is not capable of assisting PBF beneficiaries
escape poverty. The study modeled the impact the PBF would have had
on Brazil's current poverty levels had it been instituted since
1976. In other words, the researchers attempted to go back in time

BRASILIA 00001098 004 OF 004


and simulate 30 years of PBF implementation, modeling perfect school
enrollment of beneficiary children, to model how current levels of
poverty would have been impacted. According to their study, current
poverty levels would have only dropped from 25 percent (what it is
today) to 22.3 percent. The researchers concluded that exposing
more students to a weak public educational system would not have led
to a significant improvement in poverty levels.

----------------
PBF AND POLITICS
----------------

15. (SBU) PBF remains a popular program, particularly with the
poor, who constitute President Lula's political base. The program
likely contributed to Lula's successful 2006 Presidential
reelection. In the Northeast, President Lula's home region and an
area which concentrates program beneficiaries, Lula averaged between
68-85 percent of the vote. Another study indicated that nationwide,
for every one percentage-point increase in a state's population
receiving PBF funding, Lula's voting share jumped by more than 7
percentage points in the 2006 race. This has led critics like PMDB
Senator Jarbas Vasconcelos, from Pernambuco in the Northeast, to
charge that PBF benefits amount to vote buying. Senator Vasconcelos
also criticizes the PBF for not doing more to address the
substandard education system that children attend.

---------------------------------
COMMENT: A PARTIAL ANSWER AT BEST
---------------------------------

16. (SBU) Bolsa Familia has ameliorated daily living conditions for
the poorest Brazilians. Cash transfers, however, will not address
the significant structural problems -- most importantly a weak
public education system -- that continue to undermine longer-term
goals of social and economic mobility and opportunity. The PBF also
suffers from operational challenges that may be easier to address,
including: building a more complete registry, designing mechanisms
to systematically evaluate and police the program, creating a modern
compliance management system, and, eventually proposing an exit
strategy for beneficiaries. Nonetheless, to advance the PBF key
goals of long-run upward mobility, education reform stands out as
the critical need. Independent of Brazil's ability or willingness
to address the underlying conditions impacting the country's poor
populations, Bolsa Familia is politically popular and, as a result,
no candidate in next year's presidential election is likely to
challenge it. The program appears to have become a permanent part
of Brazil's political infrastructure -- almost a sacrosanct
entitlement -- ensuring that it is here to stay. END COMMENT.

17. (U) This cable was co-drafted by Consulate Sao Paulo and
Embassy Brasilia, with input from Consulates Rio de Janeiro and
Recife.

KUBISKE

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