Poverty and Economic Crisis: Recent Evidence from Uruguay

Article excerpt

I. INTRODUCTION

Many studies attest that Latin America is a region of persistent poverty and inequality, despite the evolution of its economic performance. Since the 1940s, research undertaken in the orbit of the Economic Commission for Latin America and the Caribbean (ECLAC) has remarked on the enormous social disparities present in most countries (see, for example: Prebisch, 1949; Furtado, 1969; Pinto, 1976; ECLAC, 1991; Altimir, 1997). In recent times, work carried out by Lustig (1995), Berry (1997), Londoflo and Székely (1998), Morley (2000), De Ferranti et al. (2004), and many others has shown that this situation remained unchanged and has even worsened in the 1980s and 1990s, and more recently than that in some Latin American countries that have experienced severe economic crisis. In 2002, approximately 44 percent of the Latin American population lived in poverty and 19.4 percent in indigence. In 2003 no relevant modifications occurred, although according to ECLAC it is likely that 2004 provides better trends (ECLAC, 2004).

In the first years of the twenty-first century, Latin American countries have experienced modest GDP growth rates, with the probable exception of Chile (Chart 1). Even though Brazil showed significant growth rates in previous decades, in the 1990s it experienced a slowdown of its economic expansion. In the Southern Cone, Argentina and Uruguay went through a severe economic crisis in 2001-2002 that turned into a significant reduction of economic activity and eroded socioeconomic indicators. Since 2004, these two countries are experiencing positive and significant growth rates.

Income poverty and inequality trends worsened significantly in Argentina and Uruguay in recent years as a result of the economic crisis. At the same time, unemployment rates increased, while informality remained steadily high (Table 1).

In the last ten years developing countries located in three regions experienced severe economic crises, which resulted in severe shocks in household well-being indicators. But one peculiar aspect to be noted is that, in both Argentina and Uruguay, the impact and duration of these economic crises in terms of income-poverty variation was larger than in most other countries that also experienced severe shocks (Table 2 and World Bank, 2003).

The purposes of this article are to assess which poverty concepts and measures are more suitable for analyzing the impact of an economic crisis on household well-being, and on this basis, to examine the impact on poverty of the recent economic crisis in Uruguay.

Uruguay's interest, in terms of poverty studies in Latin America, comes from the fact that despite its having a relatively developed social protection system built many decades ago, the recent crisis uncovered many of its weaknesses and clearly pointed out the need for redesign.

Uruguay is a peculiar country in the Latin American context. Specific demographic and socioeconomic features have distinguished it since its origin. It received significant inflows of Southern European immigrants until 1950. At the same time, indigenous population was relatively scarce. Demographic transition was achieved in the first decades of the twentieth century. An early welfare state built a broad pension system and led to universalization of primary schooling.

Inequality, poverty, and indigence were and still are low compared to most Latin American countries (before and after the crisis).1 Uruguay also has distinctive economic features, as it experienced significant economic growth rates in the first decades of the twentieth century and stagnation since. The reform process undertaken abruptly in many Latin American countries in the 1990s was gradual in Uruguay, and the trade liberalization process started in the 1970s. Hence, a case study of Uruguay is a sort of laboratory for anticipating possible problems to be faced in the next years by other countries in the region that are presently building and broadening their social protection system. …