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### Viewing cable 07SAOPAULO10, BOLSA FAMILIA LIKELY TO EXPAND DESPITE CONTROVERSY

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
07SAOPAULO10 | 2007-01-04 16:53 | 2011-07-11 00:00 | UNCLASSIFIED | Consulate Sao Paulo

`

    VZCZCXRO9139
    PP RUEHRG
    DE RUEHSO #0010/01 0041653
    ZNR UUUUU ZZH
    P 041653Z JAN 07
    FM AMCONSUL SAO PAULO
    TO RUEHC/SECSTATE WASHDC PRIORITY 6234
    INFO RUEHBR/AMEMBASSY BRASILIA 7315
    RUEHAC/AMEMBASSY ASUNCION 2884
    RUEHBU/AMEMBASSY BUENOS AIRES 2573
    RUEHMN/AMEMBASSY MONTEVIDEO 2241
    RUEHLP/AMEMBASSY LA PAZ 3163
    RUEHSG/AMEMBASSY SANTIAGO 1947
    RUEHRG/AMCONSUL RECIFE 3299
    RUEHRI/AMCONSUL RIO DE JANEIRO 7690
    RHEHNSC/NSC WASHDC
    RUCPDOC/USDOC WASHDC 2669
    RUEATRS/DEPT OF TREASURY WASHDC
    RHMFISS/CDR USSOUTHCOM MIAMI FL

` `

    UNCLAS SECTION 01 OF 05 SAO PAULO 000010

    SIPDIS

    SIPDIS

    STATE FOR WHA/BSC AND WHA/EPSC
    STATE PASS USTR FOR CRONIN
    STATE PASS EXIMBANK
    STATE PASS OPIC FOR DMORONESE, NRIVERA, CVERVENNE
    USDOC FOR 4332/ITA/MAC/WH/OLAC
    USDOC FOR 3134/ITA/USCS/OIO/WH/RD
    TREASURY FOR OASIA, DAS LEE AND JHOEK
    NSC FOR FEARS
    SOUTHCOM ALSO FOR POLAD
    AID/W FOR LAC/AA

    TAGS: SOCI PGOV ECON BR
    SUBJECT: BOLSA FAMILIA LIKELY TO EXPAND DESPITE CONTROVERSY

    ¶1.  SUMMARY: Bolsa Familia is the best-known and most popular cash
    transfer program in Brazil.  As the Lula administration's flagship
    social program, it played an important role in 2006 in securing
    support for President Lula among the very poor and thus ensuring his
    re-election.  It currently benefits 11.1 million families and costs
    the federal government approximately USD 4.1 billion per year.
    Similar state and municipal level programs such as those in Sao
    Paulo supplement federal stipends for many poor.  Although
    considered a very successful social program -- it is given at least
    some of the credit for Brazil's recent improved income distribution
    -- Bolsa Familia remains controversial in Brazil as a tool to combat
    poverty.  Experts who support it point to the fairness of its
    requirements, the lack of local political influence in its
    administration, and its impact in improving the standard of living
    of extremely poor families.  While few oppose the program outright,
    its critics argue that its effects in ameliorating the plight of the
    poor are temporary and limited and that in the long run, Bolsa
    Familia will create dependency and perpetuate poverty.  Regardless
    of the continuing controversy surrounding it, Bolsa Familia is
    likely to be expanded in Lula's second term.  End Summary.

    OVERVIEW OF THE PROGRAM

    ¶2.  Bolsa Familia's roots go back to Fernando Henrique Cardoso's
    administration, when several cash transfer programs were established
    on a small scale to assist the poor with food, energy, and education
    costs.  In 2004, in Lula's second year in office, the government
    consolidated four such programs under the Bolsa Familia umbrella.
    The program is administered by the Ministry of Social Development
    and the Fight against Hunger and is operated by municipal offices
    and agencies.  The Social Development Ministry establishes the rules
    and provides the funding.  The rules are simple and broad.  Poor
    families -- those who have a per capita income of 120 Reals (about
    USD 55) or less per month (USD 220 for a family of four) -- are
    entitled to receive from 15 to 95 Reals per month (USD 7 to 45),
    depending on the number of children under the age of 15.  In return,
    they are expected to keep their children in school (85 percent
    attendance), follow the national schedule for vaccinations and, in
    the case of pregnant women, have regular pre-natal medical
    check-ups.  The conditional nature of the cash transfers is viewed
    as the program's most important feature, designed to ensure that
    even Brazil's poorest children have access to health care and
    education in the hope that this will enable them to emerge from
    poverty into the mainstream.

    ¶3.  Bolsa Familia has been viewed as a success largely because of
    its efficient operating system.  Enrollment of families is done by
    local governments through offices established for that purpose.  As
    most of Brazil's 5,563 municipalities are relatively small
    communities, it is easy for them to register poor families and
    compile such pertinent information as address, income, educational
    profile, and number of children.  This information is then sent to
    the federal Social Development Ministry, where it is added to a
    national database called "cadastro unico". This social database is
    supposed to compile a list of all poor families in Brazil.  The
    Social Development Ministry selects the families for Bolsa Familia
    from the national database.  Once accepted into the program, each
    beneficiary family receives an electronic bank card, by mail or
    through the local government, to withdraw their monthly Bolsa
    Familia stipend from the Caixa Econtmica Federal (CEF -
    federally-owned bank).  The bank card is usually given to the adult
    female of the family on the grounds that she is more likely to spend
    the funds responsibly.

    ¶4.  CEF's status as a nationwide public institution with branches in
    almost every city is key to Bolsa Familia's operation.  Moreover,
    small businesses, such as grocery stores and post offices, also
    function as independent bank agencies, disbursing social benefits
    and receiving tax payments.  This structure helped the Bolsa Familia
    program spread quickly.  In 2004 there were 6.5 million families
    enrolled in the program.  By mid-2006, the number had grown to 11.1

    SAO PAULO 00000010  002 OF 005

    million families, according to official statistics published by the
    Social Development Ministry.

    HOW IT WORKS IN SAO PAULO

    ¶5.  Most state governments have their own complementary cash
    transfer programs, as do the governments of some large cities,
    including not only Sao Paulo but also Campinas and Ribeirao Preto,
    both in the interior of the state.  The state itself has a program
    called Renda Cidada (Citizen Income), and the city of Sao Paulo has
    a similar program called Renda Minima (Minimum Income).  Thus, a
    poor family living in the city could qualify for funding from three
    different sources at the same time.  Though the municipal government
    is responsible for administering all three programs, they are
    operated separately, and each issues its own bank card, using
    different banks.  (Sao Paulo uses state-owned Nossa Caixa; the city,
    Banco do Brasil.)  For political reasons, federal, state, and local
    governments each want to receive credit for their largesse.  Each
    program also has its own database of enrolled participants, though
    the databases are not fully integrated.  For now, it is possible to
    compare the list of beneficiaries from Bolsa Familia to that of
    Citizen Income or Minimum Income, but the databases do not
    interface.  When one family is found to be listed on Bolsa Familia
    and at the same time on Citizen Income or Minimum Income, the
    stipend is recalculated so as not to exceed a maximum of USD 180.

    ¶6.  The city's Minimum Income program is broader than Bolsa Familia;
    it covers more families and pays better stipends - the maximum value
    under Minimum Income is approximately USD 100 per month for a family
    with a monthly per capita income of USD 90.  The minimum benefit is
    USD 75.  The program covers those whose income is not low enough for
    them to qualify for Bolsa Familia.  When the program was inaugurated
    during the administration of Mayor Marta Suplicy, the maximum
    payment was USD 180, but in December 2006, the City Council adopted
    a proposal by Mayor Gilberto Kassab to reduce the maximum payments
    and increase the minimum in order to focus the program better on the
    poorest members of the population.

    ¶7.  Sao Paulo state's program, Citizen Income, runs in parallel with
    the Bolsa Familia and targets the same social and economic class.
    Families who qualify on the basis of income can register in local
    offices installed throughout the state and within the metropolitan
    area.  The stipend is fixed - USD 30 per family per month. The
    requirements are the same as for Bolsa Familia, but applicants must
    also have resided in Sao Paulo state for at least 2 years.  If a
    family is found to be receiving benefits from both the federal and
    state government programs, the stipends are combined up to the Bolsa
    Familia maximum of USD 45.  Felicidade Pereira, coordinator of the
    program at the state level, says that clerks are trained to enroll
    families in the program - federal, state, or local, or combination
    thereof - that best fits their needs. "It's a common procedure",
    Pereira said, "because there are more families waiting for the
    benefits than funds available to assist them."

    ¶8.  In addition to its Citizen Income program, the state also has
    Acao Jovem (Youth Action), which is focused on adolescents and young
    adults between the ages of 15 and 24 years old. The stipend of about
    USD 25 per month goes directly to the young adult.  The program's
    purpose is to encourage the beneficiary to continue his/her
    schooling. There are no legal or ethical restrictions that would
    prevent an individual or family from receiving Bolsa Familia and
    Youth Action stipends at the same time, or receiving both Youth
    Action and Citizen Income benefits.

    ¶9.  Official statistics from the state and federal governments show
    that 1.1 million families in the state are receiving cash transfers
    from at least one of the programs, out of a total of 1.3 million
    families with income low enough to qualify.  This means there is a
    waiting list of 200,000 eligible poor families who are not now
    receiving benefits.  The state's Citizen Income program reaches
    slightly over 167,000 families, while Minimum Income provides

    SAO PAULO 00000010  003 OF 005

    benefits to just over 37,000 families.  Some 66,000 families receive
    some combination of Citizen Income and Bolsa Familia. The remainder
    - approximately 940,000 families - receive only a Bolsa Famlia
    stipend.

    PROS AND CONS

    ¶10.  Although Brazil's cash transfer programs have been the subject
    of numerous studies, their social and economic impact is not fully
    understood.  Because the programs are still relatively new (Bolsa
    Familia was consolidated into a single program in 2004), there isn't
    enough data to formulate reliable results.  This lack of conclusive
    research fuels the controversy surrounding Bolsa Familia.  Following
    are some of the most common arguments in favor and against Bolsa
    Famlia:

    ¶11.  Focus: The program is considered well-focused, providing money
    directly to families who need it most.  In the past, governmental
    social programs rarely reached the poorest communities because of
    lack of infrastructure, and earlier programs were plagued by
    corruption.  Bolsa Familia reaches all the regions in the country.
    Some observers argue that many poor people remain outside the social
    safety net system, and advocate an income cutoff lower than USD 55
    per month. With this measure, the program would reach more people in
    the base of the social pyramid. Despite this criticism, Bolsa
    Familia is generally acknowledged as a program where the benefits
    hit the right beneficiaries.

    ¶12.  Fairness: The program is respected because it distributes
    stipends according to need and avoids political influence. The
    Ministry of Social Development in Brasilia decides who is eligible
    to receive benefits based on technical criteria, and funds are
    disbursed from the CEF. In the past, state and local leaders could
    manipulate the distribution of social assistance according to
    political loyalty or, worse, could even divert funds to themselves
    or to family and friends.  By consolidating the program within the
    federal bureaucracy, the Lula administration has kept Bolsa Familia
    free of local political taint.

    ¶13.  That said, while no one accuses the government of distributing
    Bolsa Familia funds as a form of patronage, many in the opposition
    accuse Lula of using the program as an electoral propaganda tool. In
    April 2006, the Ministry of Social Development increased the
    program's income threshold from about USD 45 to USD 55 per person,
    instantly expanding eligibility. In June 2006, just before the
    presidential campaign officially began, 1.8 million families became
    beneficiaries of Bolsa Familia for the first time.  The increase in
    the number of families in one single month was equivalent to 62
    percent of beneficiaries in 2004.  In addition, whereas in the past,
    the electoral capital of social programs was shared among different
    levels of governments and candidates, Bolsa Familia benefits are the
    sole province of the federal government, further enhancing Lula's
    image as "father of the poor."  His political opponents complained
    bitterly about his appropriation of a program that had been
    initiated by his predecessor, and accused him of relaxing
    eligibility requirements and enforcement as a means of boosting the
    number of recipients for his own political benefit.  During the
    campaign, Lula also suggested, without evidence and despite denials,
    that his opponent would sharply curtail or even eliminate the
    program.

    POVERTY REDUCTION...

    ¶14.  The most controversial question related to Bolsa Familia is
    whether or not it helps reduce poverty.  Economists and scholars
    agree that there has been a reduction in the number of people living
    below the poverty line in the past few years, and a reduction in
    social inequality.  According to IPEA (Institute of Research on
    Applied Economy of the Ministry of Planning and Budget), between
    2001 and 2005 the number of Brazilians living below the poverty line
    fell by 4.5%. In the same period, the gap between the richest and

    SAO PAULO 00000010  004 OF 005

    poorest among the population fell by 4.2%.  However, Bolsa Familia
    is only one part of governmental cash transfers.  For example, the
    GoB pays social security pensions for 30 million retired rural
    workers, who made minimal or no contributions into the social
    security system, at a cost of approximately USD 35 billion per year,
    which likely has a much greater impact on poverty than does Bolsa
    Familia.  At least one academic study the Mission is aware of has
    found that the rural pensions had the biggest impact on poverty in
    Brazil over the last decade.

    ...OR SOCIAL DEPENDENCE

    ¶15.  In November, the National Conference of Brazilian Bishops
    (CNBB) criticized Bolsa Familia as an ill-advised program because it
    would make poor people "addicted to the money."  Other church
    officials have characterized Bolsa Familia as a good emergency
    assistance program enabling poor people to eat better but not a real
    poverty-reduction program.  This is the most serious concern about
    the program, that it only temporarily alleviates the plight of the
    poor but doesn't offer sustainable improvement of their
    socio-economic situation.  One political analyst claimed to have
    seen cases where, instead of going out to work, students repeated
    the last year of school to avoid losing their family's eligibility
    for assistance.  Other commentators allege that some poor adults
    decline low-paying jobs in the formal sector for the same reason.
    Critics argue that Bolsa Familia should be temporary and focused on
    the poorest regions of the country instead of being both long-term
    and national.  In addition, they say it will only work if integrated
    into a broader strategy of investment in education, health care,
    infrastructure, and economic opportunity.  Brazil needs more
    economic growth to create jobs and gradually make Bolsa Familia
    unnecessary. The current model, they say, doesn't offer the poor -
    or the government - a way out of the program.

    ¶16.  Supporters, on the other hand, stress that the money from Bolsa
    Familia is a way to ensure that poor children get an education and
    access to health care. "Bolsa Familia is a program for the future",
    wrote professor and economist Jos Marcio Camargo, of the Catholic
    University of Rio de Janeiro in an article published in Folha de Sao
    Paulo newspaper in late October.  According to the professor, the
    income provided by Bolsa Familia helps poor families keep their
    children in school.  Otherwise, they would start working at an early
    age and would remain at a severe disadvantage all their lives.  They
    would likely not receive adequate health care in childhood,
    exacerbating their precarious situation and perpetuating Brazil's
    large social and economic disparities.

    ¶17.  However, there is no way to determine with any reliability
    whether beneficiaries of cash transfer program are fulfilling the
    conditions.  In contrast to the efficiency of the enrollment, there
    is no efficient system of monitoring compliance.  Municipal
    secretariats of health and education are supposed to provide

    SIPDIS
    statistics on children's school attendance and vaccinations, but
    their reports are often delayed and incomplete.  Representatives of
    all three levels of government assert that they suspend payments if
    a family falls out of compliance with the conditions, but they also
    recognize there's no way to be sure.  Some observers claim that no
    beneficiary has ever lost benefits due to non-compliance, which, if
    true, would render the conditional aspects of the program toothless.
     Certainly the complexities of the overlapping programs and the
    sheer size of the databases make it hard to monitor compliance and
    prevent abuses, although the vigilant Brazilian press has exposed
    some cases of abuse.  From the point of view of local, state and
    federal governments, expansion of social programs for its own sake
    is often considered a political achievement showing that they're
    taking care of people, so they have a stake in not removing people
    from the rolls.

    COMMENT

    ¶18.  Given the visibility it attained during the election campaign,

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    it is likely that Bolsa Familia will continue to expand and evolve.
    A Senator recently introduced a bill that would give Bolsa Familia
    recipients a 13th month stipend, as if they were workers, though
    this proposal is unlikely to go anywhere.  The GoB is reportedly in
    the process of increasing the size of monthly stipends, at an
    estimated cost of 1.2 billion Reals (USD 550 million), to fulfill
    one of Lula's campaign promises.  Despite its rapid growth, the
    program still does not reach all of Brazil's poor.  It is still a
    relatively new program and remains a work in progress.  Officials of
    Lula's Workers Party (PT) acknowledge that Bolsa Familia by itself
    is not enough, and talk about improving it and bolstering it with
    complementary social investment.  While it remains a small tool in
    the fight against poverty, it has the potential to become much more.
     End Comment.

    ¶19.  This cable was coordinated/cleared with Embassy Brasilia.

    MCMULLEN

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