Ecuador has been paying bonuses for 25 years. Has the cycle of poverty been broken?

The solidarity bonus started social policy in Ecuador in 1998, it is one of the three decisions made by Jamil Mahuad as president, which have been maintained over time: the signing of peace with Peru, dollarization and the bonus. There were 100,000 sucres that poor mothers received, which at that time was equivalent to 15 dollars, and for which the government allocated 217 million dollars annually. There is now $1.311 million for nine types of subsidies.

The payment of this bonus began on November 4 – at that time the dollar was quoted at 6,500 sucres – as compensation for the abolition of subsidies for gas and electricity and curbing the increase in poverty, which in 1998 was 44.8%, and the poor were 18.8%. %. Then the financial crisis broke out, the country was dollarized, presidents were overthrown, and in the midst of all this, the program was maintained, adjusted, expanded, and the results were analyzed.

More than $10.5 billion delivered in bonds over two decades to reduce the effects of poverty in Ecuador

The aid, renamed the Human Development Bonus – now $55 – “has managed to reduce extreme poverty in the country, there are studies that confirm this by about 20%,” says Carlos Hernández, director of Ayuda en Acción in Ecuador, an international organization that has been working for the country for more than 37 years, fighting against poverty in rural areas. He points out that the bonus that families receive represents half of their income and that this gives an idea of ​​the importance it has in their family economy.

An Inter-American Development Bank (IDB) publication approximates the impacts of the bonus on poverty based on simulations made with data from the National Survey on Employment, Unemployment and Underemployment on income and who receives it to calculate each household’s income and the poverty rate with and without bonus. “In the years of highest coverage, the bonus had a significant impact on poverty”: in 2013, before the eligibility threshold was changed, transfers from the human development bonus reduced the extreme poverty rate by 30%, the extreme poverty gap by 44% and the severity of extreme poverty by 56%. And in 2015, they reduced the extreme poverty rate by 20%, the extreme poverty gap by 34% and the severity of poverty by 47%.

Five special features of the human development bonus

That information is in the book. Reforms and development in contemporary Ecuador, published in 2018 and which analyzes that “after the financial crisis of the end of the last century was overcome, Ecuador entered an extended period of economic growth that allowed the incidence of poverty to decrease to historically low levels and favored the emergence of a prosperous middle class.” However, the outbreak of juice “The oil crisis at the end of 2014 once again plunged the country into a situation of economic instability that calls into question the sustainability of some of the advances made in the recent past.”

And then the pandemic came and in 2020 poverty ended at 32.4%, and extreme poverty at 14.9%. In 2023, income poverty nationally stands at 27% as of last June, according to the latest data released by the National Institute of Statistics and Censuses (INEC). That poverty line is $89.29 per month per capita. Extreme poverty is 10.8% with $50.32 per month per capita.

In Ecuador, almost six million people are in poverty

There are now nine types of bonuses with the same objective as described by the Ministry of Economic and Social Inclusion: to deliver cash transfers to those who need a bonus or pension because they are in poverty, extreme poverty or vulnerability and belong to priority groups and so on. contribute to the development of the next generation – children – and break the cycle of poverty.

And it was her children who were entitled to the bonus that María received for ten years. “I bought notebooks, necessities and sometimes even food to help my husband. But they took away my bonus in 2007 or 2008. One day I went to pay and they told me that I didn’t go again, by then I had already been a widow for a year. There were people who took their turn who were well trained, who received a bonus and who needed it, they took it. I started working around the house so that I could support myself and raise my children” who graduated from high school. She is now 53 years old and continues to do housework. Her 29-year-old daughter is engaged and has three children, and the man is 24, single and working.

“The bonus that families receive represents half of their income”

The Human Development Allowance (HDA) is not a sufficient measure to solve such a complex problem as poverty and a higher level of public investment is needed and must be tackled from different fronts. This is how Carlos Hernández, national director of Ayuda en Acción in Ecuador, an international organization that has been working in the country for more than 37 years with rural development projects to fight poverty in rural areas through sustainable production chains, access to clean and safe water and the promotion of rights, analyzes it.

After 25 years of the solidarity bonus program, what balance can be struck?

It has evolved over the years, originating as a compensatory mechanism for increasing gas, petrol and electricity prices and progressing towards a mechanism to promote and reduce extreme poverty. Although it was initially an unconditional bonus, over time conditions were created for its perception, such as, for example, that pregnant women and children up to five years of age undergo health examinations, that children enroll and remain in the education system, that children up to 15 years of age do not work or that the houses are not built in areas prone to flooding.

This conditioning enabled, in addition to improving the family’s spending power, an increase in health coverage, a decrease in the mortality rate of mothers and infants, an increase in the durability of children and adolescents in the education system, and a decrease in child labor. All these bonus effects are positive and would hardly have been realized if it did not exist.

Has it succeeded in alleviating poverty or is there some other alternative that can be applied to make the beneficiaries have better living conditions?

If we compare the current amount of the bonus with that of the basic family basket ($763), it is evident that it does not cover the basic needs of the Ecuadorian family, but it is no less true that thanks to BDH extreme poverty has been reduced in the country – there are studies that claim about 20% – and it is no less true that what families receive represents about half of the family income. That is, one out of every two dollars that comes into families receiving the bonus comes from the bonus itself, which gives an idea of ​​the importance it has in their family economy.

We believe that BDH is not a sufficient measure to solve such a complex problem as poverty and socioeconomic exclusion. A higher level of public investment is needed in the provision of services: education, health, drinking water and in economic measures and fiscal incentives that promote job creation and economic integration, as well as the creation of alliances between the public, private and economic sectors. .social, especially with organizations that implement social development programs, like ours.

Is the bonus already entrenched as a gas subsidy? Would elimination be unthinkable?

Elimination would be very harmful to the country, as it would leave a part of the population that already lives in very difficult conditions in a situation of extreme vulnerability. This would mean that families receiving the bonus have half of their current family income to meet their needs, but it would also mean a reduction in consumption levels, which would mean a setback to the already affected national economy, health insurance would be reduced and education would be reduced with a consequent increase in morbidity and impoverishment the level of education and professional qualifications of the country.

Amounts in accordance with the consumer price index should be revised annually, in order to prevent the effects of inflation from affecting the already very low purchasing power of families receiving BDH, and should be accompanied by an increase in the supply of basic social services.