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Poverty and inequality: the policy challenge
Emily MorrisInternational Institute for the Study of Cuba
October 9th 2008
Poverty and inequality: the policy challenge
• Policy objectives
• Measuring poverty and inequality in Cuba
• Assessing the record in context
• Policy debates and challenges
Policy objectives
The “basic principle of the Cuban revolutionary process” is development with “equity and social justice”, involving – the redistribution of incomes in favour of
workers and marginalised groups – the elimination of unemployment– the raising of living standards.
Measuring poverty and inequality in Cuba
• Measurements of poverty and inequality: • Absolute poverty – “minimum level of income
necessary to meet basic needs” – Extreme – not enough food – Moderate – not much money– Standard measures: equivalent to US$1 or US$2 a day.
• Relative poverty – less than half average income? • Inequality – Gini coefficient
• In Cuba:– Big problem: how to measure real incomes?
Measuring poverty and inequality in Cuba:real incomes
Aggregate consumption -- nominal and real
0
50
100
150
200
250
300
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
Ind
ex
, 19
90
=1
00
Nominal household consumption Real household consumption
Economic crisis = lower real average incomes = more poverty, but how much? And for whom?
Measuring poverty and inequality in Cuba:calculating real wage growth: data
-10-5
05
10
152025
303540
%
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
Nominal wage growth CPI average increase
Estimates
Measuring poverty and inequality in Cuba: calculating real wage growth: results
0
50
100
150
200
250
3001
99
0
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
Ind
ex,
1990
=10
0
Nominal wages
Cost of living index (1989=100)
Average real wage index (1989=100)
…but which measure of consumer price inflation?
Measuring poverty and inequality in Cuba: real wages with rations and fixed prices
1990
0
50
100
150
200
250
300
nominal pesowage
US$ equivalent
Othergoods
Rent,utilities
Rationedfood
1993
0
50
100
150
200
250
300
nominal peso wage US$ equivalent
Measuring poverty and inequality in Cuba: real wages with rations and fixed prices
1990
0
50
100
150
200
250
300
nominal pesowage
US$ equivalent
Othergoods
Rent,utilities
Rationedfood
1993
0
50
100
150
200
250
300
350
400
nominal peso wage US$ equivalent
Measuring poverty and inequality in Cuba:the decline in CUP purchasing power
00.020.040.060.080.1
0.120.140.160.180.2
1990
1992
1994
1996
1998
2000
2002
2004
2006
exchange rate: US$ per CUP
The purchasing power of the extra peso remains small…
Measuring poverty and inequality in Cuba:the rise in US$ purchasing power
0
10
20
30
40
50
60
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Value of US$100 as multiple of average monthly wage
…and the value of the dollar is still large
Measuring poverty and inequality in Cuba:the currency divide
• In 1993 • US$2 could match an average month’s salary of 182
pesos (real value around US$150)• to double it would take another US$150, or over
15,000 (150 x 100) pesos, or 82 months
• In 2007• US$20 would be needed to match a month’s salary of
400 pesos (real value around US$300)• to double it would take another US$300, or 7,200
pesos (300 x 24), or 18 months
Measuring poverty and inequality: average real incomes disguise divergence
Aggregate nominal and real consumption, and nominal wages
0
50
100
150
200
250
300
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
Ind
ex
, 19
90
=1
00
Nominal household consumption Real household consumption
The gap between peso and hard currency (US$/CUC) incomes widened in 1990-1993; narrowed in 2005-2007
Shortages, currency depreciation, agromarkets
Higher wages, more bonuses, more goods on sale in pesos
Measuring poverty and inequality: findings
• Wages: average real disposable peso incomes barely recovered from 1990-1993 collapse
• Poverty: basic needs have been met• Inequality between peso earners was reduced
by the crisis and remains small• Most inequality still springs from duality between
hard currency and peso, formal and informal, economies
…which is different….
Assessing the record in context: real wages in transition
SloveniaPoland
Czech RepublicSlovakia
HungaryGeorgia
Estonia
LatviaRomania
KyrgyzstanBulgaria
LithuaniaAzerbaijan
KazakhstanRussia
Moldova
-80 -60 -40 -20 0 20 40
%Change in Real Wages, 1990-98Source: World Bank, Making Transition Work for Everyone, 2000
Cuba’s decline in real average wages was not exceptionally severe -- and other entitlements reduced the impact on welfare
Assessing the record in context: infant mortality
0
2
4
6
8
10
121
99
0
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
de
ath
s p
er
1,0
00
Positive proxy indicators: low and falling mortality rates …
Assessing the record in context: infant mortality in transition
0
5
10
15
20
25
30
RO
MA
NIA
RU
SS
IAN
FE
DE
RA
TIO
N
UK
RA
INE
BU
LG
AR
IA
PO
LA
ND
HU
NG
AR
Y
SL
OV
AK
IA
CZ
EC
HR
EP
UB
LIC
CU
BA
1990
1993
1998
2005
…comparing well with the “transition” economies
Assessing the record in context: inequality in transition
Income Inequality in Selected ECA Countries During Transition
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
Czech
Rep
ublic
Hunga
ry
Slove
nia
Belar
us
Lativ
a
Ukrai
ne
Polan
d
Lith
uani
a
Croat
ia
Eston
ia
Mol
dova
Geo
rgia
Russia
n Fed
erat
ion
Krygy
z Rep
ublic
Tajiks
itan
Armen
ia
Gin
i coe
ffic
ient
(pe
rcen
t)
1987-90
1996-99
Cuban income inequality increased – but comparisons are difficult
Assessing the record in context: findings
• The increase in poverty and inequality in Cuba was induced by post-CMEA economic crisis
• Its record in meeting basic needs and maintaining equality in the formal sector has been positive
• But the gap between dollar and peso economies persists
Policy debates
• Ideology: welfare priorities– Commitment to protect the vulnerable, maintain social
cohesion and preserve human capital+ Management and resources: targeting
– Reforming institutional infrastructure – Raising spending– Improving accountability
• Auditing• Decentralisation
¿ Markets: getting the prices right– How to square the exchange rate circle ?– How to improve incentives but contain inequality,
using entitlements, bonuses and taxes ?
Conclusions
• Increase in poverty and inequality since 1990…
• … has been mitigated by policy
• A heterodox policy approach– bringing gradual improvement– but corrosive imbalances remain
no simple solutions
Poverty and inequality: the policy challenge
Emily MorrisInternational Institute for the Study of Cuba
October 9th 2008