SHAPING THE FUTURE OFSOCIAL PROTECTION:

ACCESS, FINANCINGAND SOLIDARITY

José Luis MachineaExecutive Secretary

Economic Commission for Latin America and the Caribbean

THIRTY-FIRST SESSION OF ECLACMontevideo, Uruguay, 20-24 March 2006

Background and the Reforms of the 1990s

The welfare State founded upon the concept of a labour-based society has not lived up to expectations

Limited coverage, which is a factor in social exclusionIncome inequality carries over into social protection

The reforms of the 1990s sought to improve financing and access by:

Creating a closer link between employment and protection based on the formalization of the labour marketPlacing more emphasis on incentives and efficiency than on solidarity

Despite the reforms, non-contributorycoverage has not increased since 1990

ChiMéx C.Rica

Arg*

BraAverage

Ecu*

El Sal

Bol*

Nic

0

10

20

30

40

50

60

70

80

0 10 20 30 40 50 60 70 80

Coverage c.1990

Cov

erag

e c.

2002

COUNTRIES WHERE

COVERAGE IMPROVED

COUNTRIES WHERE

COVERAGE WORSENED

LATIN AMERICA: COVERAGE IN 1990 AND 2002(% of employed persons paying contributions)

Inequity in the structure of contributions

45,4%

21,9%

68,2%

21,7%

54,9%

20,4% 18,9%

32,3%

1 2 3 4 5 6 7 8

Average coverage: 38.7%

LATIN AMERICA AND THE CARIBBEAN:EMPLOYED WORKERS WHO CONTRIBUTE (c. 2002)

Urban Rural UrbanFormal

UrbanInformal

Men Women(% working age population)

Q5 Q1 (rich) (poor)

In summary

On average,4 out 4 out ofof everyevery 10 10 employedemployed personspersons pay into thesocial security system4 out 4 out ofof everyevery 10 10 personspersons overover 7070 receiveincome through retirement or other pensions4 out 4 out ofof everyevery 10 10 personspersons live in poverty

A high degree of heterogeneity among thecountries of the region

Social protection: a change in approach

Employment should no longer be seen as the only mechanism for access to social protectionNeed to strike a better balance betweenincentives and solidarityNew forces of change in demographics, epidemiological patterns and family structure

A new social covenant is needed in order to universalize social protection

Content of a new social covenant

Explicit, guaranteed and enforceable rightsDefinition of levels and sources of financing (solidarity mechanisms)Development of a framework of social institutions

Economic and social rights in public policy

Three dimensions of economicand social rights:

ethicalproceduralcontent

Work to build genuine social citizenship.

Sources of financing

Challenges for social protectionsystems:

Increase non-contributory financing: boost tax collection and reallocateexpenditureInclude a solidarity component withinthe contributory scheme

Public revenuesLOW LEVEL OF TAX REVENUES

(% GDP, 2004)

0%5%

10%15%20%25%30%35%40%

Arg

entin

a

Bol

ivia

Bra

sil

Chi

le

Col

ombi

a

Cos

ta R

ica

Ecua

dor

El S

alva

dor

Gua

tem

ala

Hai

tí

Hon

dura

s

Méx

ico

Nic

arag

ua

Pana

má

Para

guay

Perú

Rep

.D

omin

ican

a

Uru

guay

Vene

zuel

a(R

B)

Tax revenues Social security contributionsOther revenues Capital revenues

Tax revenues+SS: 17.5%Total: 20.8%

Sectoral proposals

The document develops a series of proposals regarding:

Health-care systemsPension systemsAnti-poverty social programmes

Reforms are non-replicable processes

Challenges for social protection in health

Striking inequity in access to healthservices in the region

Inequity: out-of-pocket spending on health

OECD

VENURY

TTO

SURVCTLCA KNA

PER

PRY

PAN

NIC

MEXJAM HND

HTI

GUY

GTM

GRDSLV

ECUDOM

DMA

CUB CRICOL

CHL

BRABOL

BLZ

BRB ARG

ATG

0

1

2

3

4

5

6

7

8

0 10 20 30 40 50 60Out-of-pocket spending on health as a

percentage of total spending on health (%)

Publ

ic s

pend

ing

on h

ealth

as %

of G

DP

LAC

Challenges for social protection in health

Striking inequity in access to healthservices in the regionDemographic, epidemiological andtechnological transitions

Incidence of diseaseDALYs per 1,000 inhabitants

29 29 27 39 26

112108

115 120 103 108

9845 35 39

101

12

8

0

50

100

150

200

250

300

Group I (communicable)Group II (non communicable)Group III (accidents, violence)

Latin America and the Caribbean

High-income

Middle- income

Low-income

Latin America and the

CaribbeanOECD, high-

income

World average

Challenges for social protection in health

Striking inequity in access to healthservices in the regionDemographic, epidemiological andtechnological transitionsProblems with the coordination ofsubsystems in terms of financing andservice delivery

Moving towards universalization

The health reform agenda should include (1)

1. Integration of public and social securitysystems:

Solidarity: Access to services regardless ofcontributions, payment capacity and individual risk levels

Efficiency: Improved risk management andavoidance of duplications

2. Establish benefits with universal coverage and guaranteed entitlements (health needs)

The health reform agenda should include (2)

3. Policies on the organization and delivery of servicesSeparation of financing from service provisionCoordination of the supply of health-care servicesImprovement of payment mechanismsRegulation and oversight

4. Policies on public health and the expansion ofprimary care

Strengthening of primary-care prevention andtreatmentDecentralization

Challenges for pension systems

Ageing of the population and limitedcontributory and non-contributorypension coverage

Pension coverage: Only 4 out of every 10 persons over 70 receive some sort of pension

0102030405060708090

100

Arg

entin

a

Bol

ivia

Bra

sil

Chi

le

Col

ombi

a

Cos

ta R

ica

Ecua

dor

El S

alva

dor

Gua

tem

ala

Hon

dura

s

Méx

ico

Nic

arag

ua

Pana

má

Para

guay

Perú

Rep

úblic

aD

omin

ican

aU

rugu

ayVe

nezu

ela

(RB

)

Latin

Am

eric

a

Perc

enta

ge o

f ind

ivid

uals

rece

ivin

g re

tirem

ent o

r oth

er ty

pes

of p

ensi

ons

42

Challenges for pension systems

Ageing of the population and limitedcontributory and non-contributorypension coverageSegmented contributory systems with financing difficultiesDifficulty of reaching a consensus onparametric reforms in PAYG systemsLimited coverage of non-contributorysystems

Pension reform agenda

1. Strengthen non-contributory pensions

Non-contributory pensions for over-65s to cut thepoverty rate in half

COST OF PENSION BENEFITS EQUIVALENT TO ONE POVERTY LINE(As percentage of GDP)

0

1

2

3

4

5

6

Arg

entin

a

Bol

ivia

Bra

sil

Chi

le

Col

ombi

a

Cos

ta R

ica

Ecua

dor

El S

alva

dor

Ave

rage

LA

C

Gua

tem

ala

Hon

dura

s

Méx

ico

Nic

arag

ua

Pana

má

Para

guay

Rep

. Dom

inic

ana

Uru

guay

Vene

zuel

a (R

.B.)

Cost of targeted pensionCost of universal pension

0,9 2.2

Pension reform agenda

1. Strengthen non-contributory pensions

2. Reform PAYG systemsEmphasis on contributory solidarity

Promotion of participation in contributory system (e.g., a closerlink between contributions and benefits)

Financial viability (notional or parametric reforms)

Standardization and unification of pension systems

3. Supplement with individual capitalizationDiversify economic, financial and demographic risks

Transition costs

Industrial organization

Gender equity (labour market and life tables)

Context for social programmes

Poverty limits the exercise of citizenship and the enforceability of rightsPoverty runs counter to equality of opportunity for present and future generationsMultidimensionality of poverty has given rise to a broad range of programmes

Challenges for anti-poverty social programmes

Alleviate poverty in the short runBreak the cycle of intergenerational poverty transmission (human capital)Create a framework of social institutions:

Intersectoral coordination and integrationTransparency and evaluationContinuity and consistencyEngagement of civil society

Proposals for enhancing conditional transfer and employment programmes

1. Share the programme-generated workload within the household (CCT)

2. Incorporate social capital criteria3. Proactive role for the State in incorporating

beneficiaries into the programmes4. Ensure supply of health and education services

to match programme-induced increase in demand (CCT)

5. Explicit exit rules6. Strengthen skills-building in employment

programmes

In summary

The job of universalizing and improving social protection is yet to be completedEmployment alone is not enough to universalizecoverageGreater complementarity between solidarity andincentivesThe contributory and non-contributory systems needto be integrated

Reforms in the context of a social pact in which rightsare the normative horizon and economic inequalities

are constraints to be overcome

SHAPING THE FUTURE OFSOCIAL PROTECTION:

ACCESS, FINANCINGAND SOLIDARITY

José Luis MachineaExecutive Secretary

Economic Commission for Latin America and the Caribbean

THIRTY-FIRST SESSION OF ECLACMontevideo, Uruguay, 20-24 March 2006