Peru has made great strides in the fight against poverty. As the economy has grown, many areas have seen a reduction n the poverty rate. Sadly though, some areas remain entrenched in poor economic conditions, and have seen little improvement according to a report published in El Comercio Peru.

Economic growth largely explains the reduction in the number of poor people in Peru

(Via El Comercio Peru using Google Translate with authors corrections for clarity)

Two weeks ago, the INEI presented the map of provincial and district poverty this year. The good news: poverty in the country has been reduced by 10 percentage points since 2009. The bad: not all districts have improved their situation. Indeed, if we analyze in detail the results, we find that much of the reduction occurred in the central and southern Andes, while in some districts of Cajamarca, La Libertad and Amazonas, the situation has worsened. The obvious question, then, is what led to that in some places has reduced poverty and in others has increased.  Between 2009 and 2014 the total growth was 32% and created about a million jobs.

This sustained growth has resulted in improvements in regard to poverty. Thus, in the national poverty it has declined by 10%. Positive changes have been even higher in rural areas, where poverty was reduced by 20%.

Reflecting this situation is, for example, the department of Cusco, which has seen a major increase in GDP and the largest reduction in poverty during this period.

And the improvement of the national economy and poverty reduction would be closely related. For the economist Pablo Secada, principal investigator of the Peruvian Institute of Economy, “which has really taken people out of poverty is economic growth.”

According to estimates by Juan Mendoza, director of the Master in Economics from the University of the Pacific, the growth of the economy accounts for about 85% of the poverty reduction from 2004 to 2014.

The Good News

In 2009, in Peru there were 225 districts with higher poverty by 80%. In 2013, the figure dropped to 76 districts.

1. Royalties: According to Anibal Sanchez, head of INEI, more districts reduced poverty are those with a mining settlement or access to the royalties. Thus, in the districts of Coporaque and St. Thomas in Cusco, where the gas royalties increased by S / 14,000,000 and S / 18,000,000, respectively, poverty has fallen by more than 50 percentage points. In the district of Chavin, in Ica, mining royalties increased by more than S / 2 million and the decrease was slightly over 70 percentage points. Not for nothing in a study by Norman Loayza, chief economist of the World Bank, it was shown that the average cost of people in communities where there is mining activity is 10% higher than those living in surrounding communities where no mining.
2. Investment: The royalties alone do not explain the entire poverty reduction. Another factor is the increase in public spending, such as building roads or water and sanitation works.
One example is that more than half of the 32 districts with the highest poverty levels reduced capacity increased budgetary spending. Among others, the district Omacha in Cusco, which managed to increase its delivery capacity by 24 percentage points and reduce poverty levels by almost 50%.

3. Social programs: According to the INEI, another factor is the growing power of social programs. For the Minister of Economy and Finance, Alonso Segura, 87% of the poverty reduction between 2013 and 2014 is explained by social programs and only 13% would be due to economic growth of the country. “Growth is fundamental for poverty reduction factor. As growth weakens channel, that address poverty reduction is far less significant. ”
However, Iván Vásquez, Cato Institute, “this figure alone explains the decline from one year to another […] when it really important is to see the figures over time. In other words, the important thing is to identify the factors that create long-term sustainable growth and reduce poverty”.

New pockets

According to the INEI, poverty remained the same ranges in 761 districts and increased by 232. The poorest districts are in Cajamarca and La Libertad.

Investment: If we analyze the situation of the poorest districts, we see that two thirds cut their budget spending capacity. For Bambamarca highlights, in La Libertad, whose budget for public investment projects fell by 62.5 percentage points, while poverty increased by about 30 points. In Huaso, La Libertad, implementation capacity fell 19.5 points and poverty rates increased by at least 15 points.

According to Pablo Secada, “some people still have no access to the market for an issue of distances and lack of infrastructure. There are products that will not be able to sell because they spoil, while deprived of purchasing goods and services. To the residents of the most remote areas, a road is life changing. Without access to such infrastructure they are left in the same world. “
Institutions:

We must emphasize that some of the districts where the highest incidence of poverty occurs also have access to royalties. But for Carlos Adrianzén, dean of the Faculty of Economics of the UPC, “the political class spends the money on things that do not serve. They do not take steps that help between investment and trade “.
This can be seen in districts of La Libertad as Curgos, Huaso and Taurija, where poverty has increased by more than 10 percentage points despite having received this benefit.
Ian Vásquez, “In Peru there are provinces that have better institutions than others and tend to make better use of resources, however, that study has not yet been done in Peru.”

With the dramatic slowdown in the mining sector, Andes mountain communities will continue to struggle as that sector slows.

©2015 Ben Gangloff

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