Social funds in stabilization and adjustment programmes

Social funds in stabilization and adjustment programmes

Scepticism about the effectiveness of Social Fund programmes to reduce poverty during the structural adjustment process

Social Funds (SFs) have proven to be no panacea. Many of them were formulated with the political objective to reduce domestic opposition to the adjustment process, and in particular of mollifying the influential groups affected by adjustment.

Paper's conclusions include:

  • Greater impact on poverty would have required much larger resources, more permanent relief structures, improved planning and targeting and, especially, better coordination and sequencing with the fiscal cuts entailed by macroeconomic adjustment, a fact underscored once more by the recent Indonesian experience.
  • ex ante macro policy decisions have always had a greater impact on employment, incomes and poverty than ex post SFs. The key question then is whether alternative macro policies with a less marked social impact can be followed. Among others, a recent external evaluation of IMF-sponsored ESAFs concluded that there is some room for manoeuvre in this area
  • recent SIFs increasingly started shifting towards permanent community-based programmes often supported by local and foreign NGOs focussing on the creation of social infrastructure in regions where state services were absent or deficient
  • However SFs did not have an effect on the total social expenditure/GDP ratio, as in most cases the rise of the latter during the years of execution of the SFs was less than the drop that occurred during the years of crisis and adjustment.
  • SFs played a minor role in reducing the number of adjustment- and chronic-poor, and in reversing adverse shifts in income distribution. In most cases, the number of jobs added to the economy was less than 1.0 per cent of total employment. This was due partly to their limited funding, poor targeting and inadequate sequencing, as SFs were generally introduced after years of crisis and adjustment.
  • while SFs were implemented more rapidly than government programmes, their unit costs were higher, making their replication at the national level impossible. Their sustainability improved with the introduction of SIFs which fostered low cost approaches to health and education with the help of village organizations, local governments, the private sector and foreign donors.
  • while this approach has advantages in weak states and emergency situations, its effectiveness remains doubtful in countries where cost-effective social programmes exist or can be developed.
  • SFs rarely focused on activities with the highest social rates of return but rather on activities that required little programme preparation and had large demonstration effects. The targeting precision of SFs has been lower than that of most pre-adjustment safety nets which also covered a greater share of the poor. While SFs targeted by objective criteria (low-income areas, female-headed households, etc.) more effectively reached the poor, targeting imbalances by region and social class were frequent. One of the causes of this phenomenon was their 'demand-driven' nature, as many projects were selected among the proposals submitted by municipalities and NGOs
  • while this may lead to the selection of projects better responding to the needs of the populations affected, it often tends to short-circuit the very poor who have a limited capacity to articulate their demands and mobilize counterpart funds.

[adapted from author]

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