Navigating the Crisis: Analyzing the Role of Cash Transfers in MERCOSUR Countries during COVID-19

Written by Joaquín Baliña, participant of the 10th edition of the socialprotection.org Ambassadors Programme

 

COVID-19 was the most complex and profound crisis faced by our societies in recent times. Social protection represented a key field to address the socioeconomic consequences of the pandemic, and among social protection measures, cash transfers (CTs) played a fundamental role. This blog discusses the performance of CTs in addressing COVID-19, implemented in the four south American countries (Argentina, Brazil, Paraguay and Uruguay) that make up the Common Market of the South (MERCOSUR) regional block. To this end, the analysis focuses on highlighting the main characteristics, challenges and lessons learned based on selected CTs. Venezuela is also a member of the block, but since august 2017 has been suspended indefinitely.

 

Socio-economic impact of COVID-19

To contain the impact of the pandemic, social protection measures were implemented in every corner of the world. This meant drafting policies to deal with job loss, lack of proper health coverage or reduction of economic income. As part of this universe of measures, CTs were widely employed (Cejudo et al., 2020; Gentilini, 2022; Silva et al., 2022), especially in poor regions, where they have had a major expansion during the last two decades (Ladhani & Sitter, 2020). CTs were particularly used to tackle the impacts of the pandemic in Latin America and the Caribbean, given the role of these kind of measures in the social protection schemes and pronounced levels of structural poverty (CEPAL, 2023).

As a matter of fact, most countries in the region already had an extended net of (mostly conditional and non-contributory) CTs, with their origins dating back to the late 1990´s (Abramo et al., 2019; Villatoro, 2005). Since then, through a process of gradual expansion and articulation of national governments with international organizations and banks, CTs progressively grew in terms of number of programs and coverage (Salas & Lopresti, 2014; Valencia Lomelí, 2008). According to different estimations based on household surveys, even before the pandemic non-contributory CTs covered as much as 26%-30% of Latinamerican population (Cecchini et al., 2021; Stampini et al., 2021). It should be pointed out, though, that the country-to-country coverage within MERCOSUR regional block was heterogeneous: while in Paraguay only 15% of its population was covered, the Uruguayan figure reached 30%. On the other hand, Brazil and Argentina had an average coverage of around 20%.

When the pandemic hit, Latin American countries -and among them MERCOSUR countries- rapidly responded through coverage extension of these CTs nets, provision of additional grants or bonuses, and deployment of temporary emergency transfers, both in cash and in kind (Atuesta & Van Hemelryck, 2022). As appreciated in Graphic 1, CTs (both in cash and in kind) represent 70% of all regional social protection measures. Furthermore, even though CTs among MERCOSUR countries was quite similar in terms of design, they reached different levels of coverage based on different approaches (Baliña, 2022). For example, Brazil and Argentina prioritized the expansion of childhood allowances, complemented by in kind transfers and the implementation of widely extended emergency CTs. Paraguay followed a similar path, even though with some restrictions in terms of coverage and the implementation of emergency CTs, which was more limited. Uruguay, on the contrary, did not implement direct emergency CTs and focused on in kind transfers and childhood allowances. Graphic 2 shows these differences among MERCOSUR countries in terms of CTs, by relating the average number of deliveries per recipient and duration. This was particularly high in Brazil, even in regional terms, constituting an exceptional case. On the contrary, Paraguay and Uruguay had very similar responses (prioritizing duration over coverage), and Argentina, on the other hand, was characterized by slightly higher levels of coverage rather than continuity over time.

 

Graphic 1 | Cumulative number of non-contributory measures among Latin American countries (March 2020 to October 2021)

Source: Atuesta & Van Hemelryck (2022)

 

Graphic 2 | Number of deliveries per recipient and duration of emergency CTs among Latin American countries (March 2020 and December 2021)

Source: Atuesta & Van Hemelryck (2022)

 

Now that the pandemic as a global emergency has come to an end [1], a relevant question arises: How did these CTs perform among MERCOSUR countries?

 

The value of money in times of crisis

When analyzing the most relevant CTs deployed during the pandemic in MERCOSUR countries, I propose to distinguish three specific categories of measures: (1) expansion and flexibilization of conditional childhood allowances, (2) expansion of nutritional reinforcement allowances, and (3) deployment of emergency financial income.

In the first category we find “traditional” CTs, as they comprise the first conditional CT programs implemented in the region, such as Bolsa Familia in Brazil or Tekoporã in Paraguay, created in 2003 and 2005 respectively. These are childhood allowances granted to families in situation of vulnerability, with the main declared aim of interrupting the intergenerational cycle of poverty (Balletbo, 2018; Soares et al., 2010). During the pandemic, these measures were mostly expanded vertically (by increasing the adequacy of the transferred amounts) alongside a relaxation of the monitoring of the fulfilment of program conditions. This allowed more resilient coverage, which, in some cases, was accompanied by additional cash bonuses.

Second, given that the pandemic would hinder an already critical situation related to basic needs, nutritional reinforcement measures were deployed. Instead of vouchers, countries tended to opt for CTs distributed through electronical means -such as debit cards- to channel the spending on food and related expenses. This was the case, for example, of the Canasta de Emergencia Alimentaria in Uruguay, or of the Prestación Alimentar in Argentina (Baliña, 2021; Castellanos et al., 2022). Even though this kind of CTs already existed, during the pandemic they were expanded both vertically and horizontally, by increasing their coverage and adequacy. This was done through piggybacking on previous social registries and delivery mechanisms, mostly those pertaining the previously described childhood allowances. Therefore, most recipients of childhood allowances were also receiving complementary nutritional support.

A third category of responses was represented by emergency financial income. Unlike previous cases, these CTs were a new practice in the region. They consisted of cash directly delivered to those whose income had been affected by the pandemic. Given that unregistered labor is prominent in the region, these measures were mainly targeted to unregistered workers. Such innovative design did not come without challenges, however, considering that most of unregistered workers were previously “outside” of social protection umbrellas. For example, in Argentina, the Ingreso Familiar de Emergencia could not be entirely managed through piggybacking; instead, it required an increase of institutional capacities and appealed to other mechanisms, such as self-application processes (made by the same people that applies to receive the CT) supported by government checking (D´Alessandro, 2022). The development of new financial and delivery mechanisms for these measures (that reached around 9 million people in Argentina and 70 million people in Brazil) was a complex challenge to be dealt with (Kaplan & Delfino, 2021).

 

Implementation and impacts

It could then be stated that the implementation of COVID-response CTs in MERCOSUR was based on a combination of vertical (value or duration) and horizontal (coverage) expansion of previous measures, while piggybacking on preexisting institutional capacities, such as government offices, social registries and delivery mechanisms. As such, these responses often involved a shift in implementation mechanisms, with the improvised combination of routine and shock-responsive social protection mechanisms in all four countries. Traditional CT programs, designed to deal with idiosyncratic shocks such as structural poverty, were adapted to respond to a covariate shock as a pandemic. In Table 1, a more detailed explanation is provided for each of these measures.

 

Table 1 | Cash transfer measures deployed by MERCOSUR countries

Source: own, based on CEPAL´s registry of social protection measures to address COVID-19.

 

In addition, the financial aspect also had to be dealt with. According to data recollected by CEPAL´s registry of social protection measures to address COVID-19, most of CTs were financed through a combination of increasing public spending and international loans. Furthermore, in some cases (such as Argentina) extraordinary taxes were applied to finance COVID-19 responses, accompanied by monetary expansion. However, the impact on public finances is still to be assessed.

The scale of the response was, in fact, massive: CEPAL (2021) estimated that emergency cash and in-kind transfers reached out to 60.8% of the Latin American population in 2020 and represented an expenditure of 1.55% of GDP. As such, the impacts of these measures were also tremendous, especially in containing the expansion of poverty and inequality, which would have been higher without the deployment of these measures. For example, according to Bonfiglio & Robles (2021) the effect of the Ingreso Familiar de Emergencia in Argentina was substantial, since it resulted in a reduction of 8.2 percentual points in the indigence rate and 6.6 percentual points in the poverty rate. Furthermore, it was assessed that the combination of these programs with childhood allowances provided coverage to 89% of the population located in first decile, and that without it, coverage for this same segment would have only been around 61% (Ministerio de Economía de la Nación, 2020).

 

What can we learn from the pandemic?

Despite the overall positive results, room for improvement clearly still remains, and many lessons can be learned from the analysis. First, in a region characterized by structural poverty, unregistered labor poses challenges to social protection. Given that traditional social security systems cannot absorb the socio-economic impact of a major crisis, it is necessary to promote the development of a social protection structure that would also consider the current global context of profound transformation of labor markets towards more flexibilization and instability (Castel, 1997). Young people and women, who suffer most of these consequences and are often excluded from CTs, would be the biggest beneficiaries of such a shift in practices (Morales & Van Hemelryck, 2022; Palma Cartagena, 2022).

A second point to draw attention to has to do with the adequacy of CTs and inequalities between countries. Even though the coverage of CTs was extended, the transfer amounts show great dispersion, leading in some cases to insufficient income. This specific issue was already mentioned in previous analysis of CTs implanted during the pandemic (Stampini et al., 2021), highlighting the need for better expansion and equalization of measures. The best CT programs are, indeed, those that successfully balance coverage, adequacy and sustainability.

Last but not least, there is a need to develop more efficient and effective regional mechanisms to respond to global crises. The combination of routine and shock-responsive mechanisms was made necessary by to the lack of proper social protection contingency plans. This issue could be considered from both the national and regional perspectives, given that MERCOSUR did not provide a regional context for articulated responses to the pandemic. This could have included, for example, a strategic assessment of potential crises, protocolized response mechanisms and shared resources.

A regional response to a global crisis, such as the pandemic, would be beneficial for several reasons. In first place, it provides safety regulations for the whole region, which allows to strengthen national capacities by defining common protocols and resources and promoting a more articulated approach to crises. For example, this might have contributed to prevent the emergence of new variants of the virus within the region, produced by a lack of coordination of public policies. On the other hand, a regional response could promote universal social protection, equalizing the coverage and adequacy of measures among all countries, based on the articulation of public resources and institutional capacities. This would have allowed, for example, a more equitable distribution of vaccines throughout the regional block, providing health coverage and access. Finally, an articulated response to global crises would be beneficial not only for contracyclical or adaptive responses -as were the cases of the abovementioned examples during the pandemic-, but also for the promotion of social development within the region.

 

We need to be prepared for future crises

As it was seen, there is extensive literature and evidence that supports the central role that CTs play in social protection structure in MERCOSUR countries. During the pandemic, they provided a safety net and contributed to contain some of its potential negative repercussions, such as (even) higher poverty and inequality. However, this was not enough, mainly because of disparities in coverage and adequacy, and lack of articulated responses. The addressing of these two dimensions is paramount to provide more resilient and well-prepared social protection structures, especially through CTs. Considering how likely it is that global shocks -such as pandemics or climate change- will occur again, in addition to the current negative trends in labor markets, countries need to be better prepared. In such a process, cooperation is a powerful ally, and regional blocks -such as MERCOSUR- are suitable environments to develop specific supranational institutions and regulations oriented to strengthen social protection responses, such as CTs. Now that the storm is over, it is just common sense to be well prepared for the next one.

 

*This blog post is published as part of the Ambassador Series, which presents insights into social protection policies and programmes from around the world focused on the experiences and expertise of our Ambassadors, a group of international online United Nations Volunteers who support online knowledge exchange activities, networking and promotion of socialprotection.org.

 

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[1] The pandemic was officially put to an end as global emergency by the WHO through a statement issued on 5th May 2023. Further information can be found at the link: https://www.who.int/news-room/speeches/item/who-director-general-s-opening-remarks-at-the-media-briefing---5-may-2023