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 Health & Beauty | March 2008 
Cash Transfer Program In Mexico Shows Positive Results For Child Development
 Anna Sophia McKenney - Medical News Today
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| | Beneficiaries of the Oportunidades program gather by a mural in Coscomatepec, Mexico. | | |
By increasing the cash transfer component of Mexico's Oportunidades program, better outcomes in child health, growth, and development were made, according to an Article published in the March 8, 2008 issue of The Lancet.
Globally, over 200 million children younger than five years are not fulfilling their potential for growth, brain function, or socioemotional development. This development process may be blocked by many factors, including poor sanitation, a large family size, deficit in psychosocial stimulation, and a general lack of resources. As a result, when they grow up, children in the developing world who are growing up in poverty are likely to have substantially lower wages as adults, thus perpetuating their impoverished state on to their children.
The method by which intervention should be taken to improve child health and wellbeing is extremely important. Several governments in developing countries, especially in Latin America, have begun trials of conditional cash transfer (CCT) programs to address the issues related to poverty. To qualify, families must have an income below a determined level or live in a certain geographical area, and to receive payment they must comply with certain requirements. For instance: most CCT programs give payment conditional on mandatory attendance at education sessions related to preventive-health care services and health and nutrition. Others require school attendance for school aged children.
To investigate the success of these programs, Dr Lia Fernald, School of Public Health, University of California, Berkeley, CA, USA, and colleagues examined Mexico's Oportunidades program, which was previously called Progresa, and which has been in effect since 1998. A total 506 low-income communities were randomly assigned to be enrolled in Oportunidades, either effective immediately or within 18 months. A total 2449 children between the ages of 24 and 68 months, who had been enrolled in the program since birth, were assessed for several outcomes.
It was found that by doubling the cash transfers in a household, improvements were made in all areas in the children. They found:
• An approximate 1cm increase in height
• 10% fewer stunted children
• Reduced age-adjusted body mass equivalent of just under one half pound
• 8% reduction in overweight children
The authors conclude with hopeful news for this sort of program, especially when performed with other program components. "Our results suggest that the household cash transfer component of a large-scale CCT programme is associated with critically important child health, growth, and development outcomes, including height for age, stunting, being overweight, several measures of cognitive development, and language development. Our findings support the notion that Oportunidades is achieving its objectives in these domains via cash transfer." They pointedly state that this cash transfer likely works in tandem with other Oportunidades programs, including health care, nutrition supplementation, and nutrition education.
Dr Kenji Shibuya, WHO, Geneva, Switzerland, contributed an accompanying Comment, in which he suggests future actions involving CCT: "CCT could be combined with ongoing efforts to enhance the provision of health services to poor people in many low-resource settings - through performance-based funding and health-systems strengthening - and simultaneously introduce behavioural changes and incentives."
Role of cash in conditional cash transfer programmes for child health, growth, and development: an analysis of Mexico's Oportunidades
Dr Lia CH Fernald PhD, Paul J Gertler PhD and Lynnette M Neufeld PhD
The Lancet 2008; 371:828-837
Mexico’s Oportunidades
An interview with Miguel Székely, Undersecretary for Social Development
IDBAmérica
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December 2004
IDBAmérica: żHow is Oportunidades different from previous poverty reduction programs?
Székely: The program started in 1997 with three paradigm shifts for social programs, one of which was evaluation. Back then, the mere mention of cash transfers to the poor scandalized many in our society. How could you even think of giving people money? This is a question that has yet to be settled in Latin America. But the cultural change implied in making cash transfers instead of giving what the state had traditionally handed out, in-kind subsidies, was almost heresy in the eyes of many sectors of Mexican society.
IDBAmérica: As if you were buying people’s loyalties...
Székely: With an added dose of paternalism, because many would say: ‘how are you going to let people decide for themselves? You have to give them food, or transportation. You’re the one who knows what they need, not them.’ The second paradigm shift involved co-responsibility, which was one of the innovations in the program’s design. You would give people cash transfers, but on condition that they assume responsibilities for a series of requirements. A scholarship tied to school attendance, for example. It’s hard to believe now, but the scholarships the government used to grant were not linked to academic performance or even to attendance. [In Oportunidades] the co-responsibilities concern nutrition, health and education. These are things families do in order to maximize the impact of the support they receive. If you only give them money, but their children don’t go to school, the impact you achieve is lesser than if you link them. And the third paradigm shift was evaluation.
IDBAmérica: What was done before then?
Székely: Social programs were not evaluated in Latin America, and generally they still aren’t. There are some cases where evaluations are made. In Mexico, all programs are evaluated. But they are island in an ocean. In part, evaluations were first considered for this program because its design was so harshly questioned. First, because it proposed to give people cash, when the state was supposed to provide them goods or services to ensure that they received the right things. Second, the idea of co-responsibility also drew fire because it was seen as a condition. How are you going to force poor people to meet a requirement? To a certain degree, evaluation would respond to the need to generate evidence to prove whether this strategy really made sense. And what was found, to many people’s surprise, was that the poor were spending the money on food, school supplies, transportation to get to school and medicines. The second finding was that people did not view co-responsibilities as negative impositions but rather as something positive. It was quite clear in the case of health. When people start to receive preventive care, and their children do not fall ill, they are the first ones to recognize the benefits.
IDBAmérica: But evaluations are also a tool for the program.
Székely: While evaluations were initially demanded to justify the program’s design, there was a second aspect that turned out to be the most important one: it was the first large-scale program in Mexico, and perhaps in Latin America, that was ready to measure the outcome of every peso invested. Beyond whether people bought food or not, or whether co-responsibilities were good or bad, what was the effect of a peso invested here in terms of the population’s education and health. From the onset, evaluations had a singular characteristic, since they were taken as an integral part of the program, rather than as something external. It wasn’t like a police search; evaluation was part and parcel of the program. Precisely because of that, evaluations have been able to play the role that they must play in any program, which can be boiled down to three things: first, to improve its operations. Second, an evaluation should let you know the effect of every peso you spend, simply because in any department you are running several programs, and the basic information public policy planners need to make budget allocations is what happens if they invest a peso here or there. Last, but not least, there’s the issue of accountability.
IDBAmérica: And how have they worked?
Székely: Evaluations have played a key role in those three aspects. In the first sense, it has helped us redesign the program somewhat, for instance to extend it to include high school, to expand it into urban areas and to create a new component such as Jóvenes con Oportunidades (young people with opportunities). This is a component that in good part springs from the evaluations, which detected the need to start to offer an exit to the program, so people would not remain in it forever. In terms of how you can use evaluations to make budget decisions, Oportunidades covered 150 thousand families in 1997. By the year 2000 it had reached 2 million families. It now serves 5 million households. Evaluations enabled the program to garner more resources. This is also linked to the third aspect, accountability. In Mexico, we weren’t used to evaluations, so when a program started to generate information that showed that for every peso you put here you obtain an effect on improving school retention for girls, on reducing the incidence of sicknesses or in people’s nutrition, people took notice. Once you proved this, the effect on the budget process was astounding. This is the largest social program in Mexico’s history. We’ve never had a single program in which we have invested 30 billion pesos (about $2.7 billion) a year. I can say that around 90 percent of that allocation is the result of evaluations. It allowed us to take resources from some programs and invest them in others. In that sense, the evaluations paid off twice. On one hand we had programs that were not been evaluated. If there was no evidence of a program’s impact—and there are specific cases such as a tortilla subsidy—you could literally end it and use its budget on something with proven results. On the other hand, there were some programs that had been evaluated using less rigorous criteria, but you could still use them to compare effects. If this program’s impact was 10 and this other program’s impact was 3, even if it was not perfectly measured, you can draw conclusions and make choices. That’s why the 30 billion pesos are not additional resources but rather the result of the downsizing or elimination of other programs.
IDBAmérica: Those reallocated resources came from programs that were not targeted?
Székely: They also came from some targeted programs, albeit poorly targeted ones. The tortilla subsidy is an example. When we started to make a database of that program we realized that more than half of its beneficiaries did not exist. There were names and addresses, but when you checked it turned out families had moved years ago or lived in high-income areas. Once you started to generate such evidence, and compared it with the information of how this other program was working, it was easy to reorient resources.
IDBAmérica: How did the tortilla subsidy work?
Székely: It was a coupon that people received to buy tortillas at reduced prices. Let’s say tortillas cost one peso; using the coupons you could buy them for 50 cents. There were several problems. To mention one, tortilla vendors would buy coupons at a discount. This isn’t something that only happens in Mexico, it happens everywhere you have this sort of program. But when you have evidence that a program is working, you’ve got a point of comparison. Now you can say; if we’re investing 1 billion pesos here, and we scratch the surface and find that it’s not working, and you have solid scientific information on its impact, you can reallocate your budget. The advantage of accountability and transparency is that, since weren’t used to them, once a program starts to generate evidence, you become more willing to defend it as a government. When you don’t have the means to account for your spending, you face great constraints to explain what you are doing. Normally, when a government reports its actions, it needs tools to account for them. Usually these accounts consisted in stating how many breakfasts were served or scholarships granted. A program such as Oportunidades now accounts for its spending by showing how much it has increased schooling levels, which is the final outcome. When a government discovers these advantages, the possibility of having an instrument to present its accounts to its citizens becomes an unimpeachable fact, even for those who govern. In Mexico it would be simply impossible to close down Oportunidades because it has proven that it achieves results.
IDBAmérica: Has the use of evaluation expanded to other programs?
Székely: One thing we found at the beginning of this administration was that there already had been an evaluation of the program’s first phase. One of our tasks was that we had to have evidence of whether we needed to reallocate resources from other programs, but we lacked information that would allow us to know if such changes were needed. Oportunidades’ evaluation was the pioneer. In 2001 the Social Development Department (SEDESOL) started to evaluate all its programs, and we do so to be held accountable and to improve our performance, but in regard to budget allocations we are gauging other programs just as we are evaluating Oportunidades to see whether we are making the best choices. A specific case is a subsidized milk program called LICONSA, which had been started for more than 50 years. It was similar to the tortilla program. The people who were registered could buy milk at a lower price. The program had been operating for over half a century but milk’s nutritional impact had never been measured. When a culture of evaluation started to spread in SEDESOL, we made an initial study of milk’s formula and we compared the results with the nutritional needs in children from poor families. Milk is a mechanism for nutrition, even in an emblematic sense. But when we looked at its formula, we noticed that it was not providing what children needed to improve their nutrition. The next step was to fortify the milk and to start measuring its effect. The results were impressive, in terms of cost and benefits. The extra cost is minimal and the benefits were that after six months of drinking fortified milk, 300 thousand children from poor households were no longer anemic, which radically changes their prospects, and the cost of pulling each kid out was only 7 cents of a peso a month. When you have a result like that, you can compare it to the cost and the nutritional effect of the cereal-based infant food provided by Oportunidades. It turned out they are very similar. It’s more a question of logistics: in cities it’s better to distribute milk but in other areas it’s better to offer infant food.
IDBAmérica: Did you encounter any resistance to evaluation?
Székely: Evaluations entail a huge cultural change in any institution. When a program such as Oportunidades starts to absorb more resources, it’s easier to sell the idea of evaluations to other programs. When we wanted to put (the milk program) LICONSA to the test, they were more than willing. But in other cases, and not necessarily within SEDESOL, there have been programs that are not likely to subject themselves to evaluations. When LICONSA’s results came out, many other programs started to ask for evaluations because they wanted to have evidence of their impact. When they saw that the milk program was curing kids with anemia for 7 centavos a month, they also wanted us to see how they were doing.
IDBAmérica: Oportunidades is also noted for its low overhead. How has that influenced other social programs?
Székely: You see a similar effect. When a program such as Oportunidades can say that its operation costs are under six percent of its budget, other programs want to find out their own costs. This has been a boon because it has opened a whole field of information. We used to have no idea of the operation costs of most of our programs. Today we know the cost of many of them and we can compare them. This allows those who are working well to prove it; for others, it provides a benchmark to improve or set themselves new goals. We’re not saying that you’re a useless civil servant or that we’re going to fire you. If your cost is 30, let’s take steps to bring it down to 20 in six months and to 10 by year’s end. You can set off a process of cultural change, but you need a first successful case.
IDBAmérica: Are there pockets of resistance?
Székely: At first, when evaluation was still something new, there was a case of a program administrator who was uneasy because he was not satisfied with the reports he was getting on construction projects. One day he decided to hire a photographer to visit the sites and document what was happening. The photographer returned and told the administrator that in 8 out of 10 sites he found unfinished projects or no construction at all. There are two ways to take such information. One person started to make telephone calls to demand that contractors finish or fix what had been built, and also reviewed his own monitoring mechanisms. But others started questioning the photographer, criticizing his pictures. That’s the culture of those who resist evaluations because they feel as if the police are coming to inspect and fine them. The cultural change takes place when people start seeing evaluations as a tool and an investment to improve their performance. So we did meet some resistance, but when you have a success case like Oportunidades, people can see the benefits of evaluation.
IDBAmérica: Has this spread beyond SEDESOL?
Székely: It’s spread in some departments and not in others, because bureaucracies don’t budge easily. [...] In large institutions, any process involving cultural change is going to be a very difficult proposition. I’d say that Oportunidades planted a seed in Mexico. The seed sprouted and grew into a plant, and eventually disseminated within SEDESOL. It’s spread further a field, but [evaluation] is not yet a generalized practice throughout the Mexican government. The seeds have also been sown in other countries, where social programs are being evaluated in similar ways.
IDBAmérica: How does Oportunidades link with other Mexican social programs?
Székely: The Mexican government has a social strategy known as Contigo. It’s this government’s social compass. To be brief, and to talk only about the issue of income, what we want is to improve people’s incomes. That’s not our only goal; there are also issues concerning liberty and democracy, for example. But let’s say that the goal of our social policy is to improve people’s incomes. It’s not a question of simply giving people more money, of distributing tax revenues, because income is a reflection of various income-generating assets and of people’s capacity to generate income. It also reflects the possibilities of using those assets. The classic Latin American example is the taxi driver with a Ph.D. He’s got capacities but he’s in an environment that prevents him from exploiting them. [Income] also depends on social safety networks, because you might have capacities but if you have no protection mechanisms, any unforeseen mishap can limit your possibilities or even hinder your ability to generate income. You also need mechanisms to build up your assets. You may have abilities, options and protection, but if you cannot accumulate a patrimony, whether in physical or human capital, it’s doubtful that you’ll leave anything to the next generation. Assets play an important role and give you opportunities such as access to credit, but in this case they’re complementing human capital, options and social protection. The Mexican government is aiming all its mechanisms at generating capacities, options, patrimony and protection. In that sense, the tortilla subsidy was pointless, the same as the milk program, because they were not generating capacities [...] Oportunidades fits in this new framework because it’s our principal tool for building human capital. We see it as an investment in people’s productivity. There are other tools, such as Habitat, a neighborhood upgrading program that improves living conditions and offers more income-generating opportunities.
IDBAmérica: What happens if a family no longer qualifies for Oportunidades but you know that their nutrition or their living standards will drop if you cut them from the program?
Székely: This is the biggest pending issue of the design of social policies in Latin America, not only in Mexico. For example, in the United States the welfare system linked to the fiscal system. There is a range of programs that kick in automatically if your income falls below certain levels, offering you a series of benefits. When your income rises, you deactivate these benefits on your own. It’s a whole system of incentives, rights and penalties that works automatically. And it’s well designed because it takes into account the short term and the long term. It’s not just social policy but also fiscal policy, because the only way you can tell how people’s situations vary is precisely because both systems are linked. In Mexico, we’re missing two pieces. The first one is that our fiscal and social systems are not connected. We also have a very large informal sector, so because our target population is not registered in the fiscal system, we can’t obtain information on how their situation varies. The second missing piece is that the social programs we have are designed to deal with structural poverty. They are static programs. The question is how, when and even whether you should take someone off a program. What we have to do is to start thinking of these programs as dynamic programs with appropriate incentives so that people themselves will leave the programs when they no longer require assistance. It’s a complex issue, but if we establish the right incentives, we can arrive at a better design, but we would still be lacking a connection to the fiscal system. One example of how you can do it is the LICONSA milk program. In order to buy subsidized milk, people must rise very early, stand in a line and return home to make breakfast for their children. People won’t go through all the trouble unless they really value the subsidy. LICONSA lists were full of people who had no interest because it was more costly, in terms of their own time, than buying milk at market prices. By design, the program has an incentive to keep people who value a 3.50 peso subsidy in the program. The challenge for Oportunidades is to create a system of incentives, along the lines of its co-responsibilities, by which people who rise above a given level will no longer find it worthwhile to remain in the program.
IDBAmérica: This would be a future phase?
Székely: The program has gone through three periods. The first one was PROGRESA, which addressed the nutrition, health and education components. The second was its extension to high school, its expansion into urban areas and the [youth savings] component. The third one was its massive growth to cover 25 million people. The next period should be to turn it into a dynamic program.
IDBAmérica: What’s being done in the meantime with people who graduate from the program?
Székely: Oportunidades is aiming at becoming a more comprehensive program, entering other areas. The new component, Jóvenes con Oportunidades, is mostly linked to the assets accumulation aspect. One of the issues is that when you are successful in creating capacities, you can become a victim of your own success. If you’re producing better-educated, healthier and better-fed people, what happens to them when they end their cycle in the program? What’s the next step? Oportunidades had no other goal than building human capital, but it has run up against this other issue. Lots of people were approaching the exit, but there was nothing after that. You also run the risk of generating frustration among those who have gained all these capacities but cannot employ them. Besides the other programs that address this issue, the new component in Oportunidades is aimed at the patrimonial aspect. It works this way: starting in the 9th grade, savings accounts are opened for students. As they meet the co-responsibility requirements, deposits are made in their name. When they graduate, they can access those savings. The interesting point is that if it were only a question of freeing up money, it would only be an incentive to finish high school. But when you obtain your diploma, you have five options: you can use the money immediately to continue studying and build up your human capital. You can use the money to exercise your income-generation capabilities, employing it as collateral for a loan to start a business or invest in a productive project. You can use the money to buy health insurance for you and your family, an option linked to social protection. The money can also be used as down payment for a housing loan, which addresses the asset accumulation aspect. Finally, if you simply want the money, you’ll have to save for a couple of years. These options are an incentive to graduate from high school and from the program. When you leave, there are other programs for you. Oportunidades is like a first rung. Many of its beneficiaries would otherwise never have a chance to accumulate assets. For the first time in their lives they’ll have an option to climb to another level.
IDBAmérica: Are graduates already using this component?
Székely: It started in 2003, so you only have people who saved during one year. This year’s graduates will have two years of savings. Currently there are some 40 thousand people with accounts. Eventually we’ll have 1 million.
IDBAmérica: What other programs are available to young Oportunidades graduates?
Székely: We’re in the final stage of designing a new microcredit program. The natural exit would be higher education, and there’s a quite well established scholarship program. But many young people do not want to continue studying and need another option. We’re reviewing our microcredit mechanisms so Oportunidades families may be able to access the financial system, opening up a whole range of possibilities. Its spirit is similar to Oportunidades, which marked a great change because it started to invest on the demand side. Before, when the government invested in health or education it invested on the supply side by building schools and hospitals or hiring teachers and doctors. Oportunidades invests in families so they may be able to use the services offered. We’re thinking along the same lines. Loans offered by governments are usually subsidized or given as grants, which means that they address the supply side. The idea is to address the demand side with instruments that will improve people’s credit profile so they may access the financial system. You’d help Oportunidades families acquire collateral, provide them training to run a business and link them to the financial system. At the same time we’re overhauling the whole financial system in order to favor the proliferation of microfinance institutions and credit unions under new regulations. A new supply is being created not using subsidies but with a regulatory framework that will enable them to emerge. And we’re also investing on the demand side to create more good credit histories.
IDBAmérica: A number of people receive their assistance in bank accounts opened through Oportunidades. What impact has this had?
Székely: Of the 5 million women enrolled in the program, about 4 million continue to receive cash. Around 1 million are paid in BANSEFI accounts [in credit unions]. This has had a phenomenal effect that we hadn’t even imagined: the incorporation of all these unbanked people into the financial system. We aren’t talking about loans now, but this is what’s started to happen. When people receive cash, they tend to stuff it under the mattress, which is the most costly and least efficient and safe way to handle money. If you have cash available, you tend to spend more than if you only take out money when you need to spend. People started to receive payments in their BANSEFI accounts, and after the second or third time we started to notice that some women were keeping some of the money in their accounts. Later, other family members began to save in the same account. This was a surprising result because all the studies on savings in Mexico held that poor people did not save because they were poor, and not because they had no access to the financial system. Here we’re seeing that it’s not because they’re poor, because even if it’s in modest amounts, they’re saving. The next step is to link them to microcredit so their savings may become productive. One study found that Oportunidades, with no additional elements, is already expanding access to credit. If you go to a bank or a microfinance institution and you say you’re an Oportunidades beneficiary, it means that you have a steady inflow of money. You’re paid in a bank account. You’re also a reliable person because if you remain in the program it means that you’re sending your children to school, and so on. Now you’re a much better credit prospect for the financial market.
IDBAmérica: As an economist, what consequences will the fact that millions of people who hadn’t ever set foot in a bank now have access to the financial system?
Székely: I always say that one of our best social policies is not run by SEDESOL but by BANSEFI and the our Treasury, because I believe - and there is some evidence in Mexico’s case - that a lack of access to the financial market is one of the great obstacles to overcoming poverty. This is important for three reasons: first, because it’s necessary to generate productive options. Poor people can be very productive, but they can’t invest to expand their businesses and boost their incomes. Second, there are many people who would like to invest in their human capital but cannot do it. You could get a loan to finance your education, but if you have no access to the financial system, you won’t get one. Finally, without access to a financial market your chances of financing the purchase of durable goods are limited, therefore the chores of running a home remain less efficient. Why do we buy clothes washers? Because it’s much cheaper to use a machine than to it is to hire a person to do the wash. When a financial system allows you to buy in monthly installments, it opens up a range of options. I think that the microfinance institutions that are being opened in Mexico tend to these three aspects, among others. And these three aspects can change people’s lives for generations. On the contrary, when you don’t have these options you’re stuck in poverty. I’m convinced that creating a financial market is one of the best social development policies.
IDBAmérica: How did the IDB’s participation influence the program?
Székely: It was key—and I would say indispensable—to have the IDB assisting the Mexican government in this program. In Mexico, like in the rest of Latin America, having the IDB behind a program is almost a seal of quality. It’s an armor plate; in terms that it shows it’s a serious program. The IDB was also a great promoter of evaluations, an essential element in the program. There were key people like [IDB project team leader] Carola Alvarez, who fought to ensure that the program would have an evaluation component. And finally, the IDB in a certain way shares the paternity of the program and has spread it to other countries in the region as an example of good social policy. This had a very positive effect in Mexico, because once you have a program that’s being replicated in other countries, or becomes a point of reference, it shows that you’re doing something right.
IDBAmérica: What would the IDB bring to the program in the next stage, besides financial resources?
Székely: We’re currently discussing the next loan. We’re very interested for the reasons I mentioned before, but also because we believe that one of the program’s great achievements is that it transcended from one administration to the next. In Mexico, like in many Latin American countries, social policy was an area where you always started with a clean slate. Every new administration would wipe out what the preceding one had done, even if the same party remained in office. This was the first time in which a high-profile program such as PROGRESA, now Oportunidades, has passed from one administration to the following one. This was a very fortunate outcome not only for the program but principally for its beneficiaries, given the impacts we’re seeing. We think the program should continue under the next administration, and having the IDB as a partner of the Mexican government, with its technical advice and a loan that will outlive the current administration, is a very concrete way of strengthening and supporting it. |
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