Increasing poverty in Latin America takes a breather thanks to improving economic dynamics

After having fallen for over ten years, the rates of poverty and extreme poverty increased again in a large part of Latin America in 2015 and 2016. But in 2017, thanks to the greater economic dynamism, the indices remained stable, according to the 2017 Social Panorama Report on Latin America, published by the Economic Commission for Latin America and the Caribbean (ECLAC).

Between 2000 and 2014, the middle class in Latin America nearly doubled to reach 186 million people. This marked a 35% increase while "poverty managed to decrease at a rate of 11%," according to Héctor Salazar, Social Sector Manager of the IDB. By the end of the period, poverty had been reduced to 28.5% of the population of Latin America. However, the economic recession that affected several countries in recent years led to poverty in the region rising to 29.8% in 2015 and 30.7% in 2016, amounting to some 186 million people. Extreme poverty was also affected, increasing from 8.2% in 2014 to a tenth of the regional population in 2016.

Despite the poor data of recent years, the balance in the medium term remains positive; between 2002 and 2016 there was a 15 point reduction in poverty, according to Alicia Bárcena, the Executive Secretary of ECLAC. Throughout the period there was also an improvement in the redistribution of wealth thus reducing income inequality. And while the reduction in inequality has slowed in recent years, between 2002 and 2016 the Gini (where 0 represents absence of inequality and 1 maximum inequality) fell from 0.538 to 0.467.

"Recent experience indicates that the increase in income in low-income households has been essential to the reduction of both poverty and income inequality," says Bárcena. This is partly due to the distributive and redistributive policies that many Latin America countries have carried out, such as tax reforms, increases in the minimum wage and the expansion of social security.

In the context of a region with a quickly-aging population, pension systems reforms were essential to expanding access to social security. Between 2000 and 2014, according to the ECLAC report, the economically-active population participating in one of the region’s pension systems increased from 36.9% to 47.8%. This improvement is associated with the improvement in the labor markets, especially with respect to "the decrease in unemployment and the increase in the levels of employment, formalization and income from wages." In addition, the proportion of people receiving some type of pension increased from 53.6% to 70.8%, which especially affected people with lower incomes and those living in rural areas due to the expansion of non-contributory pensions.

While there were considerable improvements throughout the period, in 2015 29% of the retirement age population did not receive any type of pension and a large portion of workers did not have access to social security, especially among those with less access to education and especially people living in rural areas. In addition, according to the report, poverty and extreme poverty in Latin America are more likely to affect younger people and women, and especially impact children who are three times more likely to suffer extreme poverty than older adults.

*Guest blog post from Latinoamerica21

Jeronimo Giorgi, a Uruguayan journalist dedicated to international issues, is pursuing a master's degree in Latin American Studies. He has collaborated with various media outlets in Latin America and Europe, and has received distinctions such as the Premio Rey de España for Journalism.

Latinoamerica21 is a blog about current economic, political and social topics in Latin America that is currently published within the newspaper El Observador de Uruguay and Pagina Siete in Bolivia, and will soon be published in other media outlets within the region. The original version of this blog post is available in Spanish: América Latina reduce las trabas al comercio internacional.

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*Guest blog posts do not reflect the views of FocusEconomics. 

Date: December 28, 2017