Report No. 24891 - BR Brazil Growth and Poverty Reduction in Rio Grande do Norte A State Economic Memorandum January 16, 2004 Brazil Country Management Unit PREM Sector Management Unit Latin America and the Caribbean Region Document of the World Bank CURRENCY EQUIVALENTS Currency Unit - Real (R$) EXCHANGE RATE 1998 R$1.21 = US$1 1999 R$1.79 = US$1 2000 R$1.82 = US$1 2001 R$2.35 = US$1 Sep 2002 R$3.12 = US$1 WEIGHTS AND MEASURES Metric System FISCAL YEAR January 1 ­ December 31 STATES OF BRAZIL AC Acre PB Paraíba AP Amapá PE Pernambuco AL Alagoas PI Piauí AM Amazonas PR Paraná BA Bahia RJ Rio de Janeiro CE Ceará RN Rio Grande do Norte DF Distrito Federal RO Rondônia ES Espírito Santo RS Rio Grande do Sul GO Goiás RR Roraima MA Maranhão SC Santa Catarina MG Minas Gerais SE Sergipe MT Mato Grosso SP São Paulo MS Mato Grosso do Sul TO Tocantins PA Pará Vice President LCR: David de Ferranti Director LCC5C: Vinod Thomas Director LCSPR: Ernesto May Lead Economist: Joachim von Amsberg Sector Manager: Mauricio Carrizosa Task Manager: Dorte Verner Rio Grande do Norte at a Glance POVERTY Headcount Poverty Ratio (% of population below poverty line of per-capita R$73 in 1999) 1981 1990 1999 Rio Grande do Norte 49.4 57.0 39.7 Northeast 49.8 58.7 44.3 Brazil 24.4 30.3 22.4 SOCIAL INDICATORS 1970 1980 1990 1999 Life Expectancy at Birth (years) Rio Grande do Norte 44.4 51.0 60.6 66.4 Northeast 48.1 54.0 60.6 65.8 Brazil 51.4 56.9 63.3 68.6 Infant Mortality (per 1000 live births) Rio Grande do Norte 235.6 169.3 90.5 48.7 Northeast 179.2 131.3 82.5 53.0 Brazil 123.2 85.2 49.5 34.6 School Enrollment (percent of 7-14 year olds) Rio Grande do Norte 56.1 77.2 86.7 95.1 Northeast 50.5 69.6 82.7 95.6 Brazil 67.4 80.9 89.0 97.0 GDP & POPULATION Population (millions) Sectoral GDP in 1998 R$ million 1970 1980 1991 2000 1985 1990 1998 Rio Grande do Norte 1.6 1.9 2.4 2.8 Agriculture 375 384 448 Northeast 28.7 34.8 42.5 47.7 Industry 2047 1855 2340 Brazil 94.5 119.0 146.8 169.5 Services 1629 2870 4052 Total 4051 5109 6840 Structure of GDP GDP Per-Capita Growth Rate (annual avg. in percent) 1985 1998 1970-80 1980-90 1990-98 Industry Rio Grande do Norte 2.9 3.1 3.0 Services 34% Northeast 4.3 1.7 2.7 40% Industry Brazil 5.0 0.5 2.5 51% Services 59% Agriculture Agriculture 7% 9% iii Contents EXECUTIVE SUMMARY...............................................................................................................I SUMÁRIO EXECUTIVO..............................................................................................................17 1. BACKGROUND..................................................................................................................37 GEOGRAPHY AND CLIMATE.............................................................................................................37 ECONOMY AND PEOPLE...................................................................................................................37 REPORT OBJECTIVES AND STRUCTURE............................................................................................39 2. POVERTY.............................................................................................................................43 POVERTY TRENDS ...........................................................................................................................43 POVERTY PROFILE...........................................................................................................................47 DETERMINANTS OF POVERTY..........................................................................................................51 DEMOGRAPHICS AND EMPLOYMENT ...............................................................................................55 3. ECONOMIC GROWTH..................................................................................................61 OVERALL TREND.............................................................................................................................61 SECTORAL SOURCES OF GROWTH AND EMPLOYMENT.....................................................................62 SECTORAL PATTERNS AND POTENTIAL ...........................................................................................66 LOCATION STRUCTURE OF GROWTH ...............................................................................................73 DETERMINANTS OF GROWTH...........................................................................................................77 4. POLICIES FOR GROWTH AND POVERTY REDUCTION ..........................80 INFRASTRUCTURE AND BUSINESS ENVIRONMENT ...........................................................................81 EDUCATION.....................................................................................................................................86 HEALTH...........................................................................................................................................94 SOCIAL PROTECTION.....................................................................................................................100 TABLE 4.11 ...................................................................................................................................104 ENVIRONMENT ..............................................................................................................................107 SAFETY AND VIOLENCE.................................................................................................................108 GOVERNANCE................................................................................................................................109 5. FISCAL SITUATION AND PROSPECTS.............................................................................114 REVENUES.....................................................................................................................................114 EXPENDITURES..............................................................................................................................120 OVERALL RESULTS AND PROGNOSIS.............................................................................................125 REFERENCES...............................................................................................................................129 APPENDIX: FEDERAL EDUCATIONAL PROGRAMS ........................................................133 v ACKNOWLEDGMENTS This report was written by Dorte Verner (Task Manager and author of the main report) and Mateen Thobani (author of the Executive Summary), based on the findings of various missions that visited Rio Grande do Norte during 2001, on additional research undertaken during 2001 and 2002, and on additional discussions with the government in 2002. More recent developments and policy changes have not been reflected in this report. Background reports and notes were prepared by Jeff Alwang and Paul Siegel (Tourism and Demography), Erik Alda (Shrimp), Judy Baker and Dorte Verner (Education), Bernice von Bronkhorst (Gender and Health), Bernice von Bronkhorst and Luiz Noronha (Participation), William Dillinger (Fiscal Performance), Norbert Fiess and Dorte Verner (Poverty), Luiz Noronha and Mateen Thobani (Infrastructure), Luiz Noronha and Dorte Verner (Environment and Governance), Norbert Schady (Milk Program), and Dorte Verner (Growth, Social Protection, and Labor Markets). Adriana Magalhães Costa and Lucilene Anderson provided office support. The report was produced under the supervision of Gobind T. Nankani and Vinod Thomas, Directors, and Joachim von Amsberg, Lead Economist. This report was produced with the assistance of the government of the State of Rio Grande do Norte, under the leadership of Lindolfo Neto de Oliveira Sales, Secretary of Planning. The World Bank team also received invaluable assistance from Graça Fossa (IDEMA) and her team, other staff of the government, and a wide range of nongovernmental organizations operating in the economic and social sectors. The report was presented to the outgoing and incoming government in November, 2002 and discussed with the new government though 2003. Verbal and written comments and suggestions received from the government are incorporated in this report. While this report has been discussed with institutions and individuals of the Brazilian government and the State of Rio Grande do Norte, the views expressed in this report are exclusively those of the World Bank. vi ABBREVIATIONS AND ACRONYMS ABCC Associação Brasileira de Criadores de Camarão Brazilian Shrimp Producer's Association AIDS Síndrome de Deficiência Imunológica Adquirida Auto Immune Deficiency Syndrome ARO Antecipação da Receita Orçamentária BADERN Banco do Estado do Rio Grande do Norte Rio Grande do Norte's State Bank BEMFAM Sociedade Civil Bem-Estar Familiar Civil Society for Family Well-Being BNB Banco do Nordeste do Brasil Northeast Regional Development Bank CEACA Conselho Especial das Associações Comunitárias Special Council of the Community Associations CODERN Companhia do Cais do Rio Grande do Norte Rio Grande do Norte Dock Company CODIN Coordenadoria de Informática Coordinator of Informatics CONFAZ Conselho Nacional de Política Fazendária National Council of Fiscal Policy COSERN Companhia Energética do Rio Grande do Norte Rio Grande do Norte Energy Company DEDAM Delegacia Especializada em Defesa da Mulher Special Police for the Safety of Women DHB Desenvolvimento Humano no Brasil Human Development in Brazil ECD Early Childhood Development EMATER Empresa de Assistência Técnica Extensão Rural Company for Rural Extension Services ENEM Exame Nacional do Ensino Médio Secondary School Test FAO Organização das Nações Unidas para Agricultura Food and Agriculture Organization e Alimentação FDES Fundo de Desenvolvimento Econômico e Social Social and Economic Development Fund FGTS Fundo de Garantia do Tempo de Serviço Time in Service Guarantee Fund FJP Fundação João Pinheiro João Pinheiro Foundation FNDE Fundo Nacional de Desenvolvimento da National Education Development Fund Educação FPE Fundo de Participação dos Estados State Revenue Sharing Fund FUNDAP Fundação do Desenvolvimento Administrativo Foundation of Administrative Development FUNDEF Fundo de Manutenção e Desenvolvimento do Basic Education Development and Ensino Fundamental e de Valorização de Teachers' Incentive Fund Magistério FUNDESCOLA Fundo de Fortalecimento da Escola School Development Fund GDP Produto Interno Bruto Gross domestic product IBGE Instituto Brasileiro de Geografia e Estatística Brazilian Institute of Statistics and Geography ICMS Imposto Sobre Operações Relativas a Circulação Tax on the Circulation of Goods, on de Mercadorias e sobre Prestações de Serviços de Interstate and Intermunicipal Transportation Transporte Interestadual, Intermunicipal e de Services, and on Communication Services Comunicação IDB Banco Interamericano de Desenvolvimento Inter-American Development Bank IDEMA Instituto de Desenvolvimento Econômico e Meio Institute of Economic Development and Ambiente do Rio Grande do Norte Environment of Rio Grande do Norte IGP-DI Índice Geral de Preços - Disponibilidade Interna General Price Index - Domestic Supply IICA Instituto Interamericano de Cooperação para a Inter-American Institute for Cooperation on Agricultura Agriculture IMR Taxa de Mortalidade Infantil Infant Mortality Rate INEP Instituto Nacional de Estudos e Pesquisa National Education Research Institute Educacionais INSS Instituto Nacional de Seguridade Social National Social Security Institute IPCA Índice Nacional de Preços ao Consumidor National Consumer Price Index Amplo IPEA Instituto de Pesquisa Econômica Aplicada Applied Economic Research Institute ISS Imposto sobre Serviços Tax on Services LOAS Lei Orgânica de Assistência Social Organic Law of Social Assistance vii LRF Lei de Responsabilidade Fiscal Federal Law of Fiscal Responsibility MEC Ministério da Educação Ministry of Education MI Moran Index NGO Organização Não Governamental Nongovernmental organization PACS Programa de Agentes Comunitários de Saúde Community Health Agent Program PCPR Projeto de Combate à Pobreza Rural Project to Combat Rural Poverty PDS Plano de Desenvolvimento Sustentável Sustainable Development Plan PDV Programa de Demissão Voluntária Voluntary Departure Program PETI Programa de Erradicação do Trabalho Infantil Child-Labor Eradication Program PETROBRAS Petróleo Brasileiro Brazilian Petroleum PLANFOR Plano Nacional de Qualificação do Trabalhador National Training Program PNAE Programa Nacional de Alimentação Escolar National School Lunch Program PNBE Programa Nacional Biblioteca da Escola National School Library Program PNDS Pesquisa Nacional sobre Demografia e Saúde National Survey on Demography and Health PNLD Programa Nacional do Livro Didático National Textbook Program PNUD Programa das Nações Unidas para o United Nations Development Program Desenvolvimento PROADI Programa de Apoio ao Desenvolvimento Rio Grande do Norte's State Industrial Industrial do Estado do Rio Grande do Norte Development Program PRODETUR Programa de Ação para o Desenvolvimento do Action Program for Development of Turismo Tourism PROFORMAÇÃO Programa de Formação de Professores em Teacher Training Program Exercício PROINFO Programa Nacional de Informática na Educação National Program of Information Technology in Education PRONAGER Programa Nacional de Geração de Emprego e National Program for Job and Income Renda Generation PSF Programa de Saúde Familiar Family Health Program PTA Parent Teacher Association P0 Headcount Poverty Ratio P1 Poverty Gap Index P2 Squared Poverty Gap Index RAIS Relação Anual de Informações Sociais Annual Relation of Social Information RCL Receita Corrente Líquida Net Current Revenues RGPS Regime Geral da Previdência Social Social Security System RMN Região Metropolitana de Natal Metropolitan Region of Natal SAEB Sistema Nacional de Avaliação da Educação National Primary Education Evaluation Básica System SEBRAE-RN Serviço de Apoio às Micro e Pequenas Empresas Support Service for Small and Medium Enterprises SEPLAN Secretaria do Planejamento e Finanças State Secretariat of Planning and Finance SERHID Secretaria de Estado dos Recursos Hídricos State Secretary for Water Resources SETUR Secretaria Estadual do Turismo State Secretariat for Tourism SINTEC Secretaria de Ciência e Tecnologia Secretaria de State Secretariat of Science and Technology Ciência e Tecnologia SRH Secretaria de Recursos Hídricos Secretariat of Water Resources SUDENE Superintendência do Desenvolvimento do Northeast Development Agency Nordeste SUS Sistema Único de Saúde National Health System TFG Tetos Financeiros Globais Annual Budget Ceilings UNISOL Universidade Solidária Solidarity University VAT Imposto de Valor Agregado Value Added Tax viii Brazil Growth and Poverty Reduction in Rio Grande do Norte EXECUTIVE SUMMARY Overview 1. Rio Grande do Norte (RN) has made 4. This report concludes that policies to commendable progress towards increasing stimulate economic growth and employment incomes over the last half century. Over this must remain the backbone of RN's efforts period, its per-capita income grew by 3.9 to reduce poverty. While national economic percent annually, higher than Brazil's policies will play a major role in stimulating average of 3.4 percent. During the last two growth, the state can contribute by decades alone, the share of the population implementing--and encouraging the federal that was classified as extremely poor fell by and municipal governments to implement-- 20 percent. Infant mortality and illiteracy policies and programs that are oriented to rates fell by an astounding 71 and 41 enhancing RN's infrastructure and human percent respectively over this period. That capital in an effective manner. In addition, RN has been able to achieve all this without it can strive to ensure that its social incurring much debt is particularly laudable. programs aimed at providing a safety net for those who are well below the poverty line 2. Despite these achievements, RN's are well targeted and effective. income per capita is only slightly above that of Brazil as a whole. Similarly, its poverty 5. Specific recommendations on how is disconcertingly high and well above that to enhance infrastructure and human capital, of Brazil as a whole. About 40 percent of reform safety nets, and improve the its population lives in extreme poverty, environment, safety, and governance are meaning that the household does not have provided in the matrix following the sufficient income to purchase a minimum Executive Summary. The matrix also food basket of 2288 calories per day for summarizes measures to increase revenues each household member. and reduce expenditures, with a view to maintaining budgetary balance while 3. Moreover, despite enormous gains implementing the recommended policies in per-capita incomes of the poorest 10 and and programs. RN has already shown that it 20 percent of households since 1995, the is possible to improve social and poverty per-capita incomes of the poorest 10 and 20 indicators without running deficits. percent were lower in 1999 as compared to 1981. Similarly, over this period, per-capita 6. In keeping with its poverty focus, incomes declined for households headed by the report is organized as follows. blacks and mulattos and by young people Following an introduction, the report with children. In addition, over the last discusses the poverty situation with a view three decades, per-capita income contracted to understanding trends, the poverty profile, in three of the poorest of RN's eight determinants of poverty, and employment zones--Serras Centrais, Caicó, and Currais matters. It then discusses the sources, Novos. determinants, and constraints to economic growth, which is key to long-term poverty 1 reduction. Next, the report discusses 9. The poor are disproportionately policies and programs to stimulate growth employed in the informal sector (56 percent and reduce poverty. The areas covered of them are poor), suggesting that social include the business environment (with a policies tied to formal employment will focus on infrastructure), education, health, have only limited reach among the poor. social protection, environment, safety, and The poor are also disproportionately governance. Finally, the report concludes employed in agriculture (58 percent), with fiscal recommendations aimed at primarily as smallholders, sharecroppers, ensuring that economic growth is and wageworkers, which are largely sustainable and that sufficient funds are dependent on subsistence crops that are available for necessary expenditures. vulnerable to agro-climatic conditions. Fortunately, these two areas are precisely Poverty where recent gains in poverty reduction have been the largest. Since 1993, poverty 7. Between 1981 and 1999, RN rates fell by a dramatic 24 percentage points succeeded in reducing the proportion of its in the informal sector and an impressive 18 population living in extreme poverty from percentage points in rural areas. The 50 percent to below 40 percent. reduction in the informal sector is partially Improvements in other social indicators attributable to the Plan Real of 1994, which have been even more impressive. Infant stabilized inflation. The reduction in rural mortality per thousand live births fell from poverty is partly due the introduction of 169 to 49 and the illiteracy rate for people rural pensions and a social assistance over age 15 fell from 44 to 26 percent. program (LOAS). Similarly, household access to water supply increased from 26 to about 78percent over 10. The poverty rate is 34 percent for this period. households who are literate, and 52 percent for those who are not. However, there is 8. However, the headcount poverty little difference in poverty rates between ratio, at 40 percent, is high--almost double household heads with no education (50 that for the whole of Brazil (22 percent). percent) and with completed primary Certain groups are of particular concern. education (47 percent), possibly reflecting Blacks and mulattos are poorer than whites the low quality of education in areas with and households headed by young persons high dropout rates. Secondary and higher are poorer than other households. Between education, on the other hand, is strongly 1988 and 1999, poverty fell by 8 percentage associated with a reduction in poverty. It is points for blacks and mulattos (to 45 interesting and surprisingthat the wages of percent) but increased from 49 to 60 percent unskilled workers have risen much faster for households headed by a person younger than those for skilled workers. than age 25. Households with children under age 5 also saw their poverty levels 11. Income inequality in RN is rise from 51 to 57 percent. Although comparable to that of the rest of Brazil, poverty levels may be overstated for which is among the highest in the world. families with children, because the data do However, inequality in RN has decreased in not adjust for the fact that young children the last decade. The Gini Coefficient for need to consume less than adults, the RN was 0.61 in 2000 as compared to 0.65 in increase in the incidence of poverty is 1991. worrisome. 2 12. Demographics help explain RN's 15. The close relationship between achievements in poverty reduction. In Brazil's economic growth and RN's recent years, RN's population growth rate economic progress in the last five decades has dropped to just over 1.5 percent. The reflects a response to common fertility rate has fallen sharply from 7.0 macroeconomic forces and external children in the 1970s to 2.6 children in environment as well as the enormous 1998. Poverty has been reduced as a result influence of national policies and programs of the reduction in the dependency ratio on RN's economy. However, the state can associated with lowered fertility. However, also implement policies and programs to the fertility rate for the 10-19 year cohort stimulate growth and employment. For this has increased, suggesting that family purpose, an understanding of trends in state planning services need to pay greater GDP and employment and of the sources of attention to teenagers. growth is important. 13. Increased urbanization and out- 16. RN's economy has undergone a migration from poorer rural areas also help rapid and welcome transformation from one explain the observed poverty reduction. dependent on salt, cotton, sugar, and cattle Between 1991 and 2000, the urban to one dominated by services. The service population share grew from 69 percent to 73 sector has increased its share of GDP from percent. And while the population of 8 40 percent in 1985 to 59 percent in 1998. coastal municipalities (accounting for less Over this period, the share of industry than 5 percent of municipalities) increased declined from 50 to 34 percent and the share by 41 percent, the remaining municipalities of agriculture fell from 9 to 7 percent, all showed net out-migration. This is an though its share of total employment appropriate response to the poverty in the remains relatively high at 18 percent, harsh interior with limited access to reflecting lower productivity of agricultural infrastructure and social services and workers. The shares of services and limited opportunities for productive industry in total employment are 53 and 29 employment. percent, respectively. Economic Growth 17. The most dynamic sub-sectors in services included communications; real 14. Brazil was the fastest growing estate, including tourism; and domestic country in the world between 1930 and services. Within agriculture, irrigated 1995, with an average annual growth rate of agriculture; especially fruits and nuts for 6.1 percent. By 2000, Brazil's per-capita export; farmed shrimp; poultry; and milk income stood at R$6,500. While RN's per- led the way. Among the major industrial capita income is slightly above half the sub-sectors recording long-term annual national average, it increased from 43 growth rates in excess of 5 percent were percent of the national average in 1947 to manufacturing; especially textiles; 47 percent in 1998, implying that RN's electricity, gas and water; and mining. economy grew faster than that of Brazil for over half a century. This has also been true 18. About two-thirds of the jobs in RN in recent years. Between 1990-1998, RN's are informal, which is similar to the income per capita showed a respectable Northeast Region as a whole. Interestingly, trend growth rate of 3.0 percent. the wages in the informal sector are not much different from those in the formal 3 sector. This could be because the wage data simultaneously in different areas. The did not capture the value of benefits for policies must be aimed at enhancing formal sector employees. Another economic growth and employment and interesting finding is that while skilled complemented by effective social protection workers get paid over four times more than programs that more directly target the poor. unskilled workers, the gap is narrowing. Wages of unskilled workers have been Infrastructure & Business Environment increasing more than those of skilled workers, though the average wage of 23. A business environment that attracts unskilled workers is still just below the efficient investment is key to sustainable minimum wage. economic growth. Bottlenecks in infrastructure, coupled with inefficiently 19. Between 1992 and 1999, the growth operating land and labor market, and in jobs has averaged 1.6 percent, roughly in onerous and unjust taxes, impede growth in line with population growth. Service and RN. Infrastructure bottlenecks are most industrial jobs grew at respectable annual noticeable in roads, ports, rural electricity growth rates of 2.6 percent each, while and water supply and sanitation. agricultural jobs declined by 4 percent annually. Despite the decline in jobs, 24. Overcoming these constraints will poverty fell in rural areas, suggesting that require reforms at the federal, state and the jobs lost were "bad" jobs paying very municipal level, including a possible low wages, below the minimum wage. reorientation of the role of the state. In principle, the state should strive to establish 20. An analysis of absolute convergence policies and regulations in a way that showed that poor municipalities were attracts private investors to enhance and falling behind rather than catching up with operate the infrastructure services, under rich municipalities in RN. regulations that ensure adequate coverage, quality, and affordability. International 21. Having developed a better experience has shown that the private sector understanding of poverty and economic typically provides the service more growth in RN, the following sections efficiently and effectively. This has also assesses selective reforms that the state been true in RN in both electricity and could implement in order to reduce poverty. telecommunications, where services have However, it is recognized that the policies improved and greatly expanded following carried out by the federal government, privatization. especially with respect to the macroeconomic framework, are likely to be 25. However, private provision of more important for poverty reduction than infrastructure services may not be feasible state policies. in every sector. In some cases, it may not be feasible to charge sufficient tariffs (or any 22. Given the heterogeneity of the poor tariffs) to make it attractive to an investor. in terms of income sources, human In others, political realities may make it resources and physical endowments, there is difficult to allow private service provision. no single or simple solution. A poverty Even when private service provision is reduction strategy must include different feasible, the state needs to develop the exit paths for different households and capacity to award and regulate concessions, policy reforms need to be carried out and to provide subsidies when needed. Thus 4 the recommendations have to be tailored port of Ilha is limiting its cargo handling according to the service, RN government abilities. Without improved port facilities, capacity, and political realities. A the state will be unable to take full discussion of some of these constraints, advantage of its export potential from its along with suggestions to overcome them, strategic location in the northeastern corner follows below. of Brazil. 26. Roads: Even the 15 percent of roads 29. At present, the federally-controlled that are paved are largely in a state of company operating the port of Natal has disrepair, which greatly increases been unable to maintain the port adequately. transportation cost. As roads carry 70 To ensure that state priorities on this matter percent of the cargo in the state, this is a are met, the state government should major obstacle to running businesses in RN. consider requesting the federal government to transfer the management of RN's public 27. Given the traffic volumes and ports to the state. The transfer should be payment capacity of users, it is infeasible to carried out in a manner so as to ensure that provide long-term concessions for roads in it does not affect state finances negatively. RN. However, it may still be desirable to Following the transfer, the state could contract out the rehabilitation and reorganize CODERN into a port authority in maintenance of the state network through charge of regulating and supervising long-term, performance-based forms of terminal concessions and planning port contract. Such as scheme has worked development. In addition, the government successfully elsewhere in Brazil. Moreover, should consider supporting the on-going the National Transport Infrastructure discussions between private port operators Department (DNIT) is preparing to award and labor unions to reach an amicable such contracts to private operators for agreement regarding the use of union labor federal roads in RN. The state therefore has and union operating rules. Eventually, the an ideal opportunity to learn from this federal government needs to resolve the experience and follow in its steps. For the surplus labor issue in ports via a fund for state-run program to succeed, however, the retraining, redeployment and retrenchment state would have to implement a reliable scheme. The current situation makes form of finance for road maintenance. efficiency improvement in ports very According to the state government, user difficult. fees may not be feasible as car owners already face high costs related to 30. Electricity: Following privatization automobile transportation. of the state's electricity company, COSERN, electricity services in urban areas 28. Ports: The state of ports is another have improved while the government's obstacle. There are three major ports in RN: fiscal position has strengthened from Guamaré, annually handling about 4 million privatization proceeds and additional taxes. tons of mostly oil products; Ilha of Areia However, when the state's electricity Branca, handling 2.5 million tons of cargo company, COSERN, was privatized, dominated by salt; and Natal, which handles operators were not obliged to expand 400,000 tons. Because of sand banks and service to the difficult-to-serve rural areas, some isolated rocks, ships have great thus generating higher privatization difficulty getting access to Natal. At the proceeds. However, it also resulted in same time, insufficient maintenance at the coverage in rural areas to remain low, at 65 5 percent of properties. This limits the ability aid--a form of contract under which private of rural areas to contribute to growth and operators, NGOs, or community exacerbates the problem of unequal access associations compete for the right to provide to infrastructure and income-generating the needed service at lowest cost and only activities. receive the full payment when output targets--such as number of households 31. To resolve this, one option is to connected, reliability of service, and water negotiate rural coverage targets with the quality standards--have been met. utility. To be fair to COSERN investors, statewide tariffs should then be increased to 34. In the long-term, the preferred cover the incremental costs. However, as solution will be to auction the right to the state government notes, tariffs are provide water and sewerage services to the already high, therefore a better option, if the operator who agrees to pay the highest state can find a way to finance it, would be percentage of gross receipts and who also to provide a subsidy to connect rural agrees to enhance the coverage and customers. An effective way of doing this reliability of water supply and sewage would be to award the connection contract collection. Tariff changes, which would be to the investor who agrees to connect regulated by the state, could be linked to certain areas at the lowest subsidy and then improvements in service quality and run the service at regulated tariffs. This coverage, while the state can direct its method allows competition and incentives subsidies to ensuring that the poor can for alternative technologies that in some access the service rather than to cover instances may be cheaper than being operational costs of the utility. connected to the statewide grid controlled by COSERN. 35. While the above solution has large benefits, there are huge political and 32. Water supply and sanitation: While practical difficulties in awarding such coverage of water supply services in RN is concessions, as seen in Bahia, Pernambuco, over 78 percent, coverage of sewerage is Espirito Santo, and Mato Grosso. Also, only 13 percent, as opposed to 19 percent in many of Brazil's municipal water the Northeast and 37 percent nationally. concessions have been poorly designed, The lack of sewage collection has also led with allegations of corruption and disputes to a contamination of water supply. following a change of local governments. Without a reliable supply of clean water and Despite this, all concessionaires achieved improvements in sewage collection, health rapid improvements in the coverage and suffers and businesses are discouraged from quality of water services. The potential establishing themselves in RN. The state rewards from well-designed concessions are water company, CAERN, which makes enormous: improved coverage of water and losses, is also a drain on the state's finances. sewage collection, more reliable service, and annual "royalty" fees, in addition to 33. Given CAERN's financial situation, possible up front revenues from the auction. in the short to medium term, there is no option but to provide operational subsidies 36. State Regulatory Agency: As the for small towns and sewerage, possibly by state has moved towards increased private tapping into federal funds under the compra participation in infrastructure services the de esgoto program. Subsidies for small state is developing its capacity to regulate towns could be allocated via output-based the services. The state has created an 6 agency, ARSEP, which regulates services in 39. Labor laws: The labor code and all infrastructure sectors. Its focus should go labor taxes, as well as the way they are in the direction of balancing the needs of enforced by courts, have discouraged formal investors, consumers and the government employment and led to greater informal and should be seen to facilitate rather than hiring of labor. The monetary cost of hiring to obstruct the entry of new firms and to a formal employee is high. In Brazil as a keep regulation to a minimum. It could also whole, wages in the informal labor market help in enforcing concession contracts. are about 60 percent of those in the formal market, controlling for occupational 37. Taxes: As in other states, RN has a category and economic sector. Moreover, variety of taxes at the local, state and informal sector workers forgo several federal level, making it onerous for business benefits such as severance payment, paid to comply with them. The bulk of state vacations, weekly rest, and the 13th salary. revenue comes from one tax, the value- When one factors in the compliance costs added ICMS, which is complex, subject to and costs of fighting dismissal cases, the evasion, and selectively imposed in an costs are often prohibitive for most indirect way through taxes on utilities and a businesses. In part because formal small number of manufacturing firms. employment provides a safety net in the Because ICMS exemptions are given to form of pensions and severance payments, many new businesses, existing businesses the increase in informality is worrisome. face an impediment to expansion, as they have to compete with businesses that do not 40. The state government should support have to pay the tax. attempts to reform the labor code by the federal government. The labor code in 38. Two reforms would improve the tax Brazil relies more on a rigid legislative code environment. First, tax compliance could be than on collective bargaining. By shifting made less onerous. Through the that balance, Brazil could reduce labor introduction of integrated tax payment turnover, increase productivity, decrease system, SIMPLES, the federal government payroll costs, expand the formal labor has already done much to simplify federal market and social security coverage, and taxes and make it easier for firms to comply lessen the reliance on litigation. Possible with. Developing similar systems at the measures would entail realigning incentives state and municipal levels would for hiring, retaining, and firing workers and complement these efforts, thereby relaxing rules, including mandated facilitating compliance and increasing minimum non-wage benefits, to leave more formalization and the tax base. A first step to decentralized collective bargaining. could be to undertake an analysis of current costs and benefits of SIMPLES in 41. Rural Land Markets: Insecure RN. Second, the policy of providing ICMS property rights to land inhibit the exemptions for new investment and capital development of land rentals and goods needs to be reevaluated. These sharecropping and raise the cost of measures are costly and have doubtful transactions. Rentals, in particular, could be effectiveness (see Fiscal Section below). an important source of access to land for the Moreover, they encourage the substitution younger and poorer entrepreneurs, facilitate of capital for labor and discriminate against elderly or inefficient farmers to exit farming businesses that do not enjoy the tax breaks. without having to sell the land, accommodate short term needs for land, and 7 facilitate consolidation of operational units. human resources as well as to more directly The insecurity stems from two sources: (i) target poverty reduction, the state must land and labor laws, under which tenants strive to provide an opportunity for all and "informal" sharecroppers can claim segments of the population to increase their rights to the land and (ii) the lack of formal skills. This requires investments in human registered titles to land, which sometimes capital--particularly in education. leads to multiple titles to the same land and improper specification of property 45. RN has achieved significant boundaries. advances in public education. Over 95 percent of children were enrolled in 1999 42. In order to increase land and strong progress has been made on productivity and promote labor-intensive school attainments. Schools are typically farming, it is necessary to facilitate the attractive and clean, with textbooks and movement towards farming medium-sized instructional material present in the vast land holdings. This can be done by majority of schools. Teachers are generally providing more secure titles to land and by dedicated and diligent in their duties. Some the revision of the land legislation so as to schools run successful adult literacy secure longer-term tenancy arrangement, programs. The achievements have been due resolve disputes regarding interpretation, to a large increase in state funding for and facilitate enforcement of land rental education and to a variety of federal arrangements. The impact of such a programs aimed at reducing regional program would be greatly enhanced by disparities in education, which are typically simultaneous adjustments of the labor code implemented by municipalities. and of the land tax system. 46. However, over 40 percent of the 43. A more direct way of improving population is functionally illiterate and the farm productivity and revenues is via the quality of its primary school, in particular, community-based approach to land reform. is poor. This is demonstrated both by Under this approach, beneficiary groups anecdotal evidence and by analysis carried negotiate directly with potential sellers of out in the report showing poverty to be suitable properties, and then obtain unaffected by whether or not the head of financing for the purchase of the land and household had completed primary school. complementary sub-projects and receive Also, while school attainments have technical assistance. Two successful pilot improved, the gap between attainments for projects--the Ceará Rural Poverty the poor and non-poor has not closed. Alleviation Project and the Cédula da Finally, teachers fail to use class time Terra--redistributed about 640,000 hectares efficiently and use deficient teaching to benefit about 23,700 households using methods, relying excessively on having this approach (about 1 percent of the rural students copy material from the blackboard. poor). 47. A good primary education is Education necessary for acquiring most skills as well as for increasing the effectiveness of 44. To achieve economic growth and secondary education. Improving the quality reduce poverty, RN must improve the of primary education is likely to increase productivity of its labor force. Moreover, to productivity and could help break the take maximum advantage of its pool of vicious poverty cycle of low levels of 8 education leading to low incomes that, in programs that supported primary care in turn, leads to low attendance of children and municipalities, and to increased state low levels of education. Based on evidence funding for health. suggesting that the quality of RN's primary school is low, this is where the focus needs 51. Many challenges remain, however, to be. particularly in lowering the still high levels of maternal mortality and reducing the 48. Efforts to improve the quality of incidence of preventable, communicable education should focus on better teacher and infectious diseases. A disproportionate training, especially on using their class time number of households with young children effectively, on tutoring for those who are are poor. Malnutrition is also highly left behind, and on promoting parent prevalent in the child population. Also, participation in schoolwork and governance. while fertility rates have fallen substantially, These measures need to be complemented they are still above desired rates. by programs to improve adult basic education in poor communities. 52. Despite increased coverage of basic health care infrastructure, access to health 49. Simultaneously, efforts devoted facilities by the poor is inadequate. Many towards early childhood education are likely still lack access to clean water. It is difficult to improve primary school performance as to recruit doctors in remote and poorer well as reduce poverty quickly by allowing municipalities. Teenage pregnancies are mothers in the poorest households--those high and while women are contracting HIV with young children--an opportunity to and AIDS at a faster rate than men, the work and bring home income. With the incidence of HIV and AIDS is higher for transfer of pre-school programs to men. Also, while the move towards municipalities, there has been more than a decentralization and basic health over the 20 percent decline in pre-school enrollment last decade is to be welcomed, in recent years. The possibility of municipalities have limited technical expanding early childhood education and capacity to carry out their responsibilities care with the assistance of the newly and have less incentive to comply with launched federal program, Bolsa reporting requirements that are needed to Alimentação, should be explored. Under monitor and improve health outcomes. this program, mothers of children below age 5 are given grants conditional upon 53. Thus, RN's health outcomes are still stringent prenatal, postnatal, and poor and profoundly affect economic development check-ups by health productivity and educational performance. professionals. They are also a drain on private and public resources and are an obstacle to economic Health growth and poverty reduction. To address these problems, public expenditures and 50. RN has made remarkable strides in policies should focus on the following: improving its health indicators over the last two decades. Life expectancy at birth has · Provide subsidies and incentives for increased from 59 years to 66 years and private investment in water supply and child mortality rates have fallen sewage collection with the aim of dramatically. This was due primarily to improving health and reducing infant improved access to clean water, to federal mortality 9 · In remote rural areas, consider greater 56. While Brazil's pension system is use of nurse-practitioners and nurse- generous and the extension of the pension midwives, revitalizing the use of small scheme to rural households appears to have maternity hospitals, and mobilizing helped reduce rural poverty, there are gaps NGOs and community-based in the safety net programs. The organizations to provide basic care unemployment schemes apply only to the · Continue reducing maternal mortality formal sector and some of the programs do through family planning services that not have widespread coverage. As a result, focus on preventing pregnancies, poor young children, poor youth who wish especially for teenagers, preventing to study rather than work, and informal complications during pregnancy, and employees who lose their jobs often find preventing deaths when complications themselves in extreme poverty. Moreover, arise it is difficult to reach the very poorest. A · Target men as partners in reproductive recent study found that of total social and sexual health programs and spending in Brazil, only 14 percent accrued encourage fathers to participate in to the first quintile of the income programs of child care and nutrition distribution--the ones most in need. · Improve training and management skills for state and municipal administrative 57. The most successful of the social staff and managers. protection programs are the targeted income transfer schemes that are conditional on Social Protection behavior. These programs improved educational outcomes and family welfare of 54. Recognizing that economic growth the recipient families. While their costs are and social investments in education and not low, targeted income transfer programs health will still leave many in extreme offer immediate hope to some of the poorest poverty, the state and federal governments families. A side benefit is that the have a variety of programs aimed at programs, by providing the grants directly reducing economic insecurity and targeted to women, has increased women's self- poverty reduction. The programs fall into confidence and changed gender relations for three categories: (i) those dealing with life- the better. cycle considerations such as social security and pensions; (ii) those dealing with income 58. In view of the success of the existing volatility such as unemployment insurance; income transfer programs, the report and, (iii) those dealing with social evaluated the feasibility of expanding them. protection, aimed at improving the well- It also evaluated the feasibility of being of specific vulnerable groups. introducing a cash-transfer scheme linked solely to providing income supplements to 55. The social protection programs raise the poorest households out of poverty. include income transfer schemes, an Simulations revealed that the immediate employment and income generation impact on poverty reduction from program, a youth program, a milk program, expanding existing schemes was small. and programs to combat child labor and They also showed that the fiscal cost of sexual abuse. In addition, there are health introducing a cash transfer scheme on a and education programs aimed at building wide scale was prohibitive even before sewerage and keeping children in school. considering their administrative costs. Moreover, such a scheme would greatly 10 reduce incentives to seek employment. and is likely to be an inferior good, which Thus, from a short-term poverty reduction helps ensure self-targeting. point of view, expanding the schemes substantially is infeasible and may not be Environment the best way of targeted poverty reduction in the short-term. 62. The two biggest enviromental challenges in RN are to reduce: (i) in- 59. One of the state's major social appropriate disposal of urban sewage, solid protection initiatives is the milk program, waste, and industrial discharges that lead to under which targeted families receive free major health problems and inhibit economic pasteurized milk. The size of the program growth and (ii) degradation of some very has grown more than five-fold since 1995. important natural formations, including By 2000, it provided 130,000 liters of mangroves, wetlands, scrub savanna, and milk/day to each of the 166 municipalities forests, which threatens bio-diversity, of the state and covered about 15-20 percent increases soil salinization, and reduces of all families. The milk program has two agricultural productivity. aims: (i) to improve the health and nutritional status of young children and 63. Natal, whose metropolitan area pregnant and lactating mothers in poor covers 1.1 million inhabitants, has a households and (ii) to provide a stimulus to sewerage system covering only 27 percent milk producers, especially small-scale of households, whereas the vast majority of producers and milk pasteurizing and municipalities have no sewerage at all. The processing business. sewage and industrial discharges are threatening to contaminate ground water 60. While RN's attempts to reduce sources, which is the source of water supply infant mortality are laudable, available for many residents. evidence suggests that the milk program design is not the most efficient way of 64. Even where solid waste is collected, improving the nutritional status of the the system for packing, collecting, and poorest. The cost of R$ 34 million in 2000 disposing of urban garbage rarely complies or about R$22 per benefiting family is high. with technical recommendations. For RN is not a low cost producer of milk. example, except in Natal, there is no Moreover, many of the non-poor receives separation of different kinds of waste. Even free milk, while the program has hurt the there, only hospital waste is separated. small milk producers. It has also encouraged the use of pasteurized milk over 65. Substantial landscape change is breast milk, which undermines efforts to occurring, with the decrease in the wetlands reduce infant mortality. ecosystem area and consequent decrease in the numbers of species. This is caused by a 61. There may be merit to restructuring combination of shrimp farming, leveling of the milk program. For example, the wetlands for the building of low-income government could consider distributing a housing, sewage and agro-chemical different food commodity, such as legumes discharges, and sand removal and wood and tubers, which is more cost-effective and clearing from dunes for housing. nutritious. Alternatively, it could distribute powdered milk supplemented with Vitamin 66. Environmental solutions will require A. Powdered milk is cheaper, stores longer, a three-pronged approach. First, sewage 11 collection coverage needs to be expanded 5.5 percent in 1995 to 6.2 percent in 2000. by granting private concessions for water Natal has created a women's police station supply and sewerage. Given externalities in and has several shelters for victims of sewage collection, the state may need to pay violence. a small subsidy for it and, once sufficient coverage of sewage collection is achieved, 70. RN could develop a policy approach for sewage treatment as well. However, to crime and violence that is preventive in consumers will need to finance the bulk of nature. The education system, for example, the costs for both sewage collection and can change existing cultural values that treatment. promote aggressive behavior among boys and docile behavior among girls. Possible 67. Second, the environmental agency interventions include retraining teachers and needs to be strengthened and better financed eliminating gender stereotypes in textbooks, in order to allow it to carry out its mandate. and developing special programs to teach It presently lacks equipment and inspectors children nonviolent resolution skills and and is unable to enforce zoning or promote civic values. Community-level environmental laws on industrial pollution programs can be used to provide informal and discharges. Third, an environmental education programs, teach citizens about education campaign could be carried out, legal sanctions against violence, establish increasing awareness on the dangers of violence-prevention strategies, and provide environmental degradation and encouraging social services for victims of violence. The the public to report non-compliance with media can be used to promote nonviolence environmental laws. and counteract the aggressive images and behaviors currently transmitted through the Safety and Violence media. Finally, better data on crime needs to be collected in order to identify the 68. While crime levels in Natal may be sources and victims of crime with a view to lower than in the other main metropolitan improving targeting efforts to reduce it. areas of Brazil, they cannot be ignored. Attention to crime is important from the Governance point of view of growth and poverty reduction. High crime levels deter 71. RN is working hard to improve the investment and hence growth. Furthermore, quality of public sector governance. The high crime levels are often linked with objectives are to build on the existing poverty, with the poor most often being the foundations of democracy and participation victims of crime. to make government more open and responsive to the needs of the poor and 69. Statistics show that crime is provide the poor more of a voice in increasing only marginally in RN, but it is decision-making. The state appears to have well known that domestic violence and made some progress towards making public other types of crime are often not reported. decision making more inclusive and Domestic violence appears to be increasing, towards improving intersectoral integration with women, in particular, being victims of and coordination of policies. It is also aggresion. The state is spending significant seeking ways to enhance the quality and resources in fighting crime and and transparency of public sector decisions. improving safety. The share of the state budget devoted to safety has increased from 12 72. Three initiatives have helped make RN has substantial bureaucratic control on decision-making become more inclusive its policies and programs but carries our and participative. First, the Project for little monitoring and evaluation of them. Combating Rural Poverty, PCPR, has helped organize rural communities into Fiscal Situation and Prospects democratic, legal associations to qualify for grant funding for carrying out small-scale 75. For the moment, RN is in a sound infrastructure and commercial projects. fiscal situation. Revenues and the current Second, about 100 water user associations account surplus have been rising between have been established and provided 1997 and 2001. This is due to a technical assistance in order to operate combination of improved tax small water systems. These associations administration, especially in its value-added have at times evolved to also carry out tax (ICMS), and from constitutional communal income-generation and social transfers. Fixed costs--debt service and projects. Third, the Solidarity Community personnel--are low. The stock of debt is Program has organized the poorest modest. However, these results have been communities to allow them to decide about achieved largely through tight controls on their priorities and investments. the wage bill and by using one-off proceeds from the sale of the state power company to 73. While intersectoral integration and finance capital works. There is a risk that coordination is a challenge in RN, the fiscal performance would deteriorate state's Sustainable Development Plan (PDS) because of wage pressures, additional and the Seridó Plan are models for how to employment needs, pension costs, and from overcome this. Both these plans are pressures to increase capital spending and acknowledged to have been widely targeted poverty-reduction measures. discussed and participatory in nature. The Seridó Plan, in particular, has indentified 76. Nevertheless, a fiscal scenario with a and helped build a consensus around a plan zero overall deficit and no real debt growth for economic, social, environmental, and appear to be feasible and prudent, given institutional development. RN's vulnerability to external shocks and limited flexibility to respond to them. It 74. Building upon the success of would require taking measures to increase previous initiatives, the state could sponsor revenues or control costs in some areas. a new initiative that would enhance the quality and transparency of public decision- 77. There are four areas that could yield making, while building consensus around a some fiscal savings. First, cutting state tax development agenda for the state. breaks for capital equipment and new Following a participatory process, the investment deserves consideration. These proposed initiative would seek to identify, are costly and have doubtful effectiveness. and subsequent implement, a poverty- PROADI exemptions alone cost the state reduction plan. Such a process could also 2.5 percent of net current revenue in 2001 serve as a vehicle for coordinating activities and are expected to grow. Moreover, they of different entities and orienting systematic exacerbate the bias away labor-intensive and cost-effective action. To assist in technologies towards capital-intensive ones improving the effectiveness of policies and and discriminate against businesses that do programs, rigorous analysis and evaluation not enjoy the tax breaks. should be built into the program. Presently, 13 78. Over the long term, the state should 80. Third, the state could phase out avoid offering tax incentives to firms and certain (non-PROADI) tax exemptions such instead use the funds for some of the as on the production of raw or semi- investments in infrastructure and human processed agricultural products and fruits capital identified earlier. While data at hand destined for domestic consumption. does not allow an evaluation of whether this will reduce investment, the evidence from a 81. Fourth, where feasible, increased survey in Pernambuco on the topic suggests reliance on the private sector for the that the reduction would be minimal. But provision of services such as water and because similar incentives are offered by all sewerage, roads, and ports could help the states surrounding RN, for the time control the state's capital expenditures and being, the state may therefore have to operational subsidies. Such savings could continue to offer such incentives merely to be substantial even if the concessions or maintain a level playing field for new privately contracted services are investment. However, the state would be accompanied with transparent targeted well advised to support federal efforts to subsidies for certain services. prohibit all states from offering tax incentives to firms. 82. In conclusion, by redirecting the expenditures in the areas mentioned and by 79. Second, the state should continue to implementing the policies outlined in this take measures to control pension finances. report, RN can expect to accelerate its Pension costs are projected to double in real poverty-reduction efforts in a sustainable terms over the next ten years, consuming 40 manner, leading to sustained improvements percent of the personnel budget by 2012. in social indicators and increased To make the state pension fund actuarially opportunities for all. sound and self-sustaining will require continued gradual increases in the contribution rate as well as cuts in benefits. 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inc diseas Im program Re sewage, disc Re Re viole Im qua Ma zero in Enhance productivity Social Envir Safety Gove Fiscal Brasil: Crescimento Econômico e Redução da Pobreza no Rio Grande do Norte SUMÁRIO EXECUTIVO Apresentação per capita diminuiu em três das oito zonas mais pobres do Estado --Serras Centrais, 1. Nos últimos cinqüenta anos, houve um Caicó, e Currais Novos. significativo aumento de renda no Estado do Rio Grande do Norte (RN). No mesmo período, sua renda per capita aumentou 4. O presente relatório conclui que as 3,9% ao ano, o que representa mais que a políticas para estimular o crescimento média do País como um todo (3,4%). econômico e o emprego deverão continuar Somente durante as últimas duas décadas, a sendo centrais no esforço para reduzir a parcela da população classificada como pobreza no Estado do Rio Grande do Norte. extremamente pobre diminuiu em 20%. As Enquanto as políticas econômicas a nível taxas de mortalidade infantil e de nacional continuarão tendo um papel analfabetismo tiveram queda importante no estímulo ao desenvolvimento, impressionante de 71% e de 41%, o Governo Estadual poderá contribuir respectivamente, no mesmo período. Mais implementando e encorajando os governos louvável ainda é o fato de o RN ter federal e municipais a implementar políticas alcançado esses resultados sem acumular e programas que busquem aprimorar a infra- dívidas significativas. estrutura e capital humano do RN de forma eficaz. Além do mais, poderá esforçar-se 2. Apesar dessas conquistas, a renda per para assegurar que os programas sociais capita no RN está apenas um pouco acima orientados à criação de uma rede de da média do Brasil como um todo. segurança para os que vivem muito abaixo Preocupa também o fato de a pobreza da linha de pobreza sejam bem focalizados encontrar-se em um patamar muito mais e efetivos. elevado que o do País como um todo. Cerca de 40% da sua população vive em extrema 5. Recomendações específicas quanto ao pobreza, o que significa que a família não aprimoramento da infra-estrutura e capital dispõe de renda suficiente para adquirir a humano, reforma de redes de segurança, cesta básica de 2.288 calorias por dia para melhorias no meio-ambiente, segurança cada pessoa da família. pública e administração serão apresentadas no quadro anexo a este Sumário Executivo. 3. Além disso, apesar de grandes avanços O quadro também resume medidas para em termos de renda per capita dos 10 e aumentar receitas e reduzir despesas, no 20% de domicílios mais pobres desde 1995, intuito de manter um equilíbrio a renda per capita dos integrantes dos 10 e orçamentário na medida em que são 20% mais pobres da população em 1999 implementadas as políticas e os programas havia diminuído em relação a 1981. Durante recomendados. O RN já demonstrou que é esse período também diminuiu a renda per possível melhorar seus indicadores sociais e capita de domicílios chefiados por negros, de pobreza, sem incorrer em déficit. pardos e jovens com crianças. Também, no decorrer das ultimas três décadas, a renda 6. Por ser a pobreza o seu enfoque, o relatório está estruturado da seguinte forma. 17 Após uma introdução, o relatório discute a e 1999, a pobreza diminuiu em 8 pontos situação da pobreza com a finalidade de percentuais para negros e mulatos (para entender as tendências, o perfil da pobreza, 45%), mas aumentou de 49% para 60% seus fatores determinantes e questões de entre domicílios chefiados por pessoas com emprego. Em seguida passa a discutir as menos de 25 anos. (Domicílios com fontes, os fatores determinantes e as crianças menores de 5 anos de idade limitações ao crescimento econômico, que também tiveram seus níveis de pobreza são pontos críticos para a redução da aumentados de 51 para 57 por cento. Apesar pobreza a longo prazo. O relatório passa da possibilidade de existir algum exagero então a analisar políticas e programas de nas análises dos níveis de pobreza das estímulo ao crescimento e de redução da famílias com crianças ­ devido ao fato de pobreza. As áreas tratadas incluem o tais dados não considerarem que crianças ambiente empresarial (com enfoque em pequenas precisam consumir menos calorias infra-estrutura), educação, saúde, proteção que os adultos - o aumento da pobreza nesse social, meio-ambiente, segurança e segmento causa preocupação. governança. E para finalizar, o relatório apresenta recomendações de ordem fiscal 9. Os pobres ocupam uma parcela que buscam garantir que o crescimento desproporcional (56%) dos postos de econômico seja sustentável e que os trabalho no setor informal, o que sugere que recursos suficientes para despesas políticas sociais atreladas ao emprego necessárias estejam disponíveis. formal terão entre eles um impacto limitado. Os pobres ocupam, ainda, uma parcela Pobreza desproporcional (58%) dos postos de trabalho na agricultura, principalmente na 7. Entre 1981 e 1999, o RN conseguiu qualidade de pequenos proprietários, reduzir a parcela da sua população que vive meeiros e assalariados, que dependem, em em condições de pobreza extrema de 50% grande parte, de culturas de subsistência para menos de 40% . Melhorias em outros vulneráveis às condições agro-climáticas. indicadores sociais foram ainda mais Felizmente, são essas as duas áreas em que impressionantes. A mortalidade infantil caiu se tem obtido os maiores avanços na luta de 169 para 49 (por mil nascimentos vivos) contra a pobreza. Desde 1993, as taxas de e a taxa de analfabetismo entre pessoas pobreza declinaram de forma com idade acima de 15 anos caiu de 44% impressionante em 24 pontos percentuais no para 26%. Da mesma forma, a proporção de setor informal e em 18 pontos percentuais domicílios com acesso a água encanada nas áreas rurais. A redução no setor aumentou de 26% para cerca de 78% informal é em parte atribuível ao Plano durante o período. Real, lançado em 1994, que estabilizou a inflação. A redução da pobreza rural é em 8. Contudo, em termos absolutos, a parte conseqüência da introdução de proporção da população considerada pobre aposentadorias rurais e do programa de permanece alta: cerca de 40% - quase o previdência social (LOAS). dobro da taxa para o Brasil como um todo (22%). Certos grupos causam uma 10. A taxa de pobreza é de 34% para preocupação maior. Os negros e mulatos domicílios de populações alfabetizadas e de são mais pobres que os brancos e os 52% para os de não alfabetizadas. Contudo, domicílios chefiados por jovens são mais há pouca diferença entre as taxas de pobreza pobres que os outros domicílios. Entre 1988 nos domicílios cujos chefes não têm 18 nenhuma escolaridade (50%) e aqueles outros municípios manifestaram sinais de cujos chefes concluíram o primeiro grau emigração. Este deslocamento populacional (47%), o que pode ser reflexo da baixa é uma reação natural às dificuldades da vida qualidade das escolas em áreas com altas no interior com acesso limitado a infra- taxas de evasão escolar. A educação estrutura e serviços sociais e poucas secundária e superior, por outro lado, têm oportunidades de emprego produtivo. uma forte associação com a redução da pobreza. É interessante e surpreendente o Crescimento econômico fato de que os salários de trabalhadores não qualificados tenham aumentado mais 14. O Brasil foi o país que cresceu mais rapidamente que os de trabalhadores rapidamente no mundo entre 1930 e 1995, qualificados. com uma taxa de crescimento anual média de 6,1%. Até o ano 2000, a renda per 11. A desigualdade de renda no Rio Grande capita brasileira havia alcançado do Norte se compara à do restante do País, R$6.500,00. Apesar de a renda per capita encontrando-se entre as mais elevadas do no Rio Grande do Norte ser apenas um mundo. Contudo, no Rio Grande do Norte, pouco acima da metade da média nacional, essa desigualdade vem diminuindo na ela aumentou de 43% da média nacional última década. O Coeficiente Gini para o em 1947 para 47% em 1998 - o que Estado do Rio Grande do Norte foi de 0,61 significa que a economia do Estado cresceu em 2000, comparado com 0,65 em 1991. com mais velocidade que a do País como um todo nesses mais de cinqüenta anos. Nos 12. Fatores demográficos auxiliam na últimos anos, essa tendência se confirmou e, explicação das conquistas do Estado em sua entre 1990 e 1998, a renda per capita do RN luta para reduzir a pobreza. Nos últimos vem crescendo a uma taxa anual bastante anos, a taxa de crescimento demográfico no satisfatória de 3,0%. Rio Grande do Norte baixou para pouco mais de 1,5%. A taxa de fertilidade 15. A relação bastante próxima entre o despencou de 7,0 filhos na década de 70 crescimento econômico brasileiro e o para 2,6 em 1998. A pobreza foi reduzida progresso econômico do Rio Grande do como conseqüência de uma menor razão de Norte nas últimas cinco décadas reflete uma dependência, associada a uma diminuição resposta às forças macroeconômicas na taxa de fertilidade. No entanto, a taxa de comuns e ao ambiente externo, assim como fertilidade na faixa etária de 10 a 19 anos à forte influência das políticas e programas vem aumentando, o que sugere que os nacionais na economia do estado. Não serviços de planejamento familiar deveriam obstante, o estado pode também dar mais atenção aos adolescentes. implementar políticas e programas para estimular o crescimento e o emprego. Para 13. A maior urbanização e a migração de tanto, é importante que haja uma boa pessoas das áreas rurais para fora do Estado compreensão das tendências do PIB e do podem ter contribuído para a observada emprego no estado, bem como das fontes de redução da pobreza. Entre 1991 e 2000, a crescimento. parcela urbana da população aumentou de 69% para 73%. E enquanto a população 16. A economia do Rio Grande do Norte de 8 municípios litorâneos (que passou por uma rápida e bem-vinda correspondem a menos de 5% dos transformação, de uma economia municípios) aumentou em 41%, todos os dependente do sal, do algodão, do açúcar e 19 da pecuária para uma em que predominam qualificado encontra-se um pouco abaixo do os serviços. A participação do setor de salário mínimo. serviços no PIB estadual aumentou de 40% em 1985 para 59% em 1998. No mesmo 19. Entre 1992 e 1999, o crescimento do período, a participação da indústria número de empregos foi de 1,6% em média, diminuiu de 50% para 34%, e a da quase não acompanhando o crescimento agricultura baixou de 9% para 7% - apesar demográfico. O emprego nos setores de da sua participação no total de empregos serviços e de indústria cresceu numa taxa permanecer relativamente alta (18%), o que anual bem razoável de 2,6%, enquanto o reflete a baixa produtividade da mão-de- número de empregos na agricultura obra agrícola. A participação do setor de diminuiu em 4% ao ano. Apesar da serviços e da indústria no total de empregos diminuição no nível de emprego, a pobreza é de 53% e 29%, respectivamente. também diminuiu nas áreas rurais, sugerindo que os empregos perdidos eram 17. Em termos de serviços, os sub-setores empregos `ruins' que pagavam salários mais dinâmicos incluíram comunicações; muito baixos, abaixo do salário mínimo. imobiliária, incluindo o turismo; e serviços domésticos. Em termos de agricultura, os 20. Uma análise de convergência absoluta componentes mais fortes foram: a mostrou que os municípios pobres, não agricultura irrigada ­ especialmente frutas e estavam alcançando os municípios ricos do castanhas para exportação, criação de estado, mas ficando para trás. camarões, aves e laticínios. Entre os principais sub-setores industriais, que vêm 21. Tendo alcançado uma melhor expandindo a uma taxa anual de mais de compreensão da pobreza e do crescimento 5%, estão as indústrias de transformação, econômico no Rio Grande do Norte, as em especial o setor têxtil; energia elétrica; sessões a seguir avaliam algumas reformas gás; água e mineração. seletivas que o estado poderia implementar a fim de reduzir a pobreza. Entretanto, 18. Cerca de dois terços dos empregos no reconhecidamente, as políticas Rio Grande do Norte estão no setor implementadas pelo governo federal ­ informal, proporção esta que é semelhante especialmente aquelas que tratam do quadro para a região Nordeste como um todo. É macroeconômico ­ são provavelmente mais interessante observar, que os salários pagos importantes para a redução da pobreza que no setor informal não diferem muito dos as adotadas pelo governo estadual. pagos no setor formal. Isso talvez se deva ao fato de que os dados sobre salários não 22. Em vista da heterogeneidade dos reflitam o valor dos benefícios pagos aos pobres, em termos de fontes de renda, trabalhadores do setor formal. Outra recursos humanos e atribuições físicas, não constatação interessante é a de que, existe uma solução única ou simples. Uma enquanto os trabalhadores qualificados estratégia para a redução da pobreza deve ganham quatro vezes mais que os não incluir diversas saídas para os diferentes qualificados, a diferença vem diminuindo. domicílios, e reformas políticas devem ser Os salários dos trabalhadores não levadas a cabo simultaneamente em qualificados vêm aumentando mais que os diferentes áreas. As políticas devem ser dos trabalhadores qualificados. Ainda direcionadas ao aprimoramento do assim, o salário médio do trabalhador não- crescimento econômico e do emprego e complementadas por uma rede de 20 programas de proteção social que focalizem serviços sob regime privado. Mesmo mais especificamente os pobres. quando a prestação de serviços em regime privado é viável, o estado terá que adquirir Infra-estrutura e Ambiente Empresarial as capacidades necessárias para outorgar e regular as concessões e conceder subsídios, 23. Um ambiente empresarial que atraia quando necessário. Enfim, as investimentos eficientes é essencial para um recomendações precisam ser adequadas de crescimento econômico sustentável. acordo com o serviço, a capacidade do Gargalos na infra-estrutura, associados a governo estadual e as realidades políticas. mercados imobiliários e de trabalho Em seguida, passamos a discutir algumas ineficientes e a uma tributação injusta e dessas limitações e a oferecer algumas onerosa impedem o crescimento econômico sugestões para superá-las. do estado. Esses gargalos são mais perceptíveis nas rodovias, nos portos e nos 26. Rodovias: Mesmo os 15% das estradas serviços rurais de energia elétrica e de de rodagem pavimentadas do estado estão abastecimento de água e saneamento básico. em condições precárias, o que aumenta em muito os custos do transporte. Já que 70% 24. Para superar essas limitações, serão das cargas passam pelas estradas, isso necessárias reformas a nível federal, constitui um obstáculo significativo à estadual e municipal, incluindo uma atividade empresarial no estado. possível reorientação do papel do estado. Em princípio, o estado deve buscar o 27. Em vista do volume de trânsito e da estabelecimento de políticas e baixa capacidade de pagamento dos regulamentos, de forma a atrair investidores usuários, torna-se inviável instituir privados para aprimorar e operar seus concessões de longo prazo para as estradas serviços de infra-estrutura através de um de rodagem no Rio Grande do Norte. regime que garanta uma cobertura Contudo, é provável que seja conveniente adequada, qualidade e tarifas terceirizar as obras de reforma e economicamente accessíveis. Experiências manutenção da rede estadual de estradas de internacionais mostraram que o setor rodagem, através de contratos de longo privado geralmente presta serviços com prazo que levem em conta o desempenho. maior eficiência e eficácia. Isso tem-se Esse tipo de abordagem tem dado bom comprovado no Rio Grande do Norte, tanto resultado nas outras regiões brasileiras. no setor de energia elétrica quanto nas Além do mais, o Departamento Nacional de telecomunicações, que melhoraram a Infra-estrutura do Transporte (DNIT) vem qualidade dos serviços e expandiram preparando contratos de concessão, através significativamente após a privatização. dos quais empresas operadoras privadas ficarão responsáveis pela manutenção das 25. Contudo, a prestação privada de rodovias federais no Estado de Rio Grande serviços de infra-estrutura pode não ser do Norte. É portanto, uma oportunidade viável em todos os setores. Em alguns ideal para que o Estado aprenda com essa casos, cobrar tarifas adequadas (ou qualquer experiência e siga os mesmos passos. No tarifa ) a fim de tornar a exploração do entanto, para que um programa de reforma e serviço interessante para o investidor pode manutenção para a malha viária estadual não ser viável. Em outros setores, seja bem sucedido, o estado terá que obstáculos de cunho político podem encontrar formas confiáveis de financiá-lo. dificultar a perspectiva da prestação de De acordo com o governo do Estado, cobrar 21 tarifas de usuários talvez não seja uma relação ao emprego de trabalhadores opção viável, já que os proprietários têm sindicalizados e às regras sindicais de que arcar com os altos custos que envolvem operação. Em algum momento, o Governo o transporte de automóveis. Federal terá de sanar a questão de trabalhadores ociosos no setor portuário, por 28. Portos: A condição dos portos constitui meio de programas de capacitação para outro obstáculo. Existem três portos outras funções, deslocamento para outros importantes no Rio Grande do Norte: setores e reformas estruturais. Na Guamaré, que movimenta em torno de 4 conjuntura atual, qualquer iniciativa de milhões de toneladas de produtos por ano, aprimorar a eficiência do setor fica principalmente petróleo e derivados; Ilha de prejudicada. Areia Branca, que movimenta 2,5 milhões de toneladas de carga, principalmente sal; e 30. Energia Elétrica: Com a privatização Natal, que movimenta 400.000 toneladas. da empresa estadual de energia elétrica, Devido a barrancos de areia e algumas COSERN, os serviços elétricos nas áreas rochas isoladas, as embarcações têm urbanas vêm melhorando, ao mesmo tempo dificuldade para acessar o porto de Natal. em que a posição fiscal do governo foi Ao mesmo tempo a manutenção fortalecida pelos ingressos oriundos tanto da insuficiente no porto da Ilha limita sua privatização quanto da maior arrecadação capacidade de movimentar cargas. Caso não de tributos. No entanto, quando da melhore suas instalações portuárias, o privatização da COSERN, as novas estado não poderá fazer pleno operadoras não tiveram de assumir nenhum aproveitamento de suas potencialidades de compromisso com a expansão de serviços exportação e de sua posição estratégica para as áreas rurais com maiores problemas privilegiada no canto mais ao nordeste do de abastecimento, gerando assim maiores Brasil. proventos da privatização. No entanto,também resultou que as taxas de 29. Atualmente, a empresa pública federal cobertura na área rural permaneceram que opera o porto de Natal não está baixas, com apenas 65% das propriedades conseguindo realizar a manutenção de servidas. Isto impõe uma limitação quanto à forma adequada. Para garantir que as capacidade das áreas rurais de contribuírem prioridades do estado nesse âmbito sejam com o crescimento econômico e agrava o atendidas, o governo estadual deve problema das desigualdades de acesso à considerar a possibilidade de pleitear junto infra-estrutura e das atividades geradoras de ao governo federal a transferência da renda. gestão dos portos públicos para o estado. Após tal transferência, o estado poderá 31. Uma maneira de solucionar esse prosseguir com a reforma da CODERN, problema seria negociar metas de cobertura transformando-a numa administração de eletrificação rural com a empresa portuária responsável pela regulamentação e distribuidora. Para assegurar uma supervisão de terminais operados em regime compensação justa aos investidores da de concessão e pelo planejamento do COSERN, as tarifas devem ser reajustadas desenvolvimento dos portos. Além disso, o em todo o estado a fim de compensar o governo estadual deve pensar em dar apoio aumento dos custos de ampliação da rede. às negociações em andamento entre as No entanto, como o próprio governo do operadoras privadas de portos e os Estado observa, as tarifas já são altas, e sindicatos, visando acordos amigáveis em assim, uma maneira ainda melhor para sanar 22 o problema, desde que o estado encontre direito de prestar os serviços desejados pelo formas de financiá-la, seria a concessão de menor custo, recebendo a totalidade do um subsídio para a adesão de novos pagamento apenas quando atendidas as consumidores rurais. Uma forma eficaz de metas de produção, tais como: o número de levar essa sugestão a cabo seria licitar o domicílios servidos, confiabilidade do fornecimento de energia elétrica entre serviço, e atendimento de normas de empresas que concordem em prestar o qualidade de água. serviço pelo menor subsídio e então fornecer a energia por uma tarifa 34. A longo prazo, a solução preferida será controlada. Deste modo, assegura-se a o leilão do direito de prestar serviços de concorrência e o incentivo a tecnologias abastecimento de água e de saneamento alternativas que, em certas circunstâncias, básico, vencendo a operadora que concorde podem proporcionar a energia necessária, a em pagar a maior porcentagem de suas um custo menor que a ligação com a rede receitas brutas e que concorde também em estadual controlada pela COSERN. aumentar a cobertura e a confiabilidade dos sistemas de abastecimento de água e coleta 32. Abastecimento de água e saneamento de esgoto. Reajustes tarifários, acertados básico: Enquanto a cobertura de serviços de pelo estado, poderiam ser associados a abastecimento de água no Rio Grande do melhorias na qualidade do serviço e Norte atinge mais de 78% dos domicílios, a ampliação da cobertura, ao mesmo tempo cobertura de serviços de esgoto sanitário em que o estado focalizaria seus subsídios alcança apenas 13%, em contraste com 19% para assegurar que os pobres tivessem para a região Nordeste e 37% para o País acesso aos serviços, ao invés de cobrir os como um todo. A falta de coleta de esgotos custos operacionais da operadora. tem levado a uma contaminação do abastecimento de água. Sem o 35. Ao mesmo tempo em que a solução abastecimento confiável de água potável e proposta acima traz grandes benefícios, melhorias na coleta de esgoto sanitário, a existem também enormes dificuldades de saúde fica prejudicada e as empresas ordem política e prática a serem vencidas desestimuladas a se estabelecerem no para que sejam outorgadas essas estado. A Companhia de Água e Esgoto do concessões, como ocorreu nos estados da Rio Grande do Norte, CAERN, é deficitária Bahia, Pernambuco, Espírito Santo e Mato e gera passivos onerosos para o Tesouro do Grosso. Além disso, muitas das concessões estado. municipais de abastecimento de água no Brasil foram mal projetadas, com acusações 33. Em vista da situação financeira da de corrupção e controvérsias após a CAERN, a curto e médio prazo, não há mudança de administração local. Apesar alternativa a não ser conceder subsídios disso, todas as concessionárias promoveram operacionais para as pequenas cidades e as rápidas melhorias em termos de cobertura e redes de esgoto, possivelmente utilizando-se qualidade dos serviços de abastecimento de de recursos do programa compra de esgoto água. Os possíveis benefícios decorrentes de do Governo Federal. Subsídios para concessões bem projetadas são enormes: pequenos municípios poderão ser melhores taxas de cobertura dos serviços de concedidos na forma de assistência com abastecimento de água e de coleta de base em resultados, através de contratos esgoto, maior confiabilidade dos serviços, e pelos quais operadoras privadas, ONGs ou encargos anuais na forma de `royalty' , além associações comunitárias compitam pelo dos recursos arrecadados com os leilões. 23 36. Agência Regulatória Estadual: facilitando a conformidade fiscal das Enquanto vai-se aproximando mais do empresas. O desenvolvimento de sistemas modelo que envolve participação cada vez semelhantes nas esferas municipal e maior do setor privado na prestação de estadual complementaria esses esforços, serviços de infra-estrutura, o estado melhora facilitando, assim, a conformidade fiscal das a sua capacidade de regular esses serviços. empresas, e aumentando a formalidade e a O estado criou uma agência, Agência base tributária. Um primeiro passo poderia Reguladora de Serviços Públicos Estaduais ser executar uma análise dos custos atuais e (ARSEP) que regula os serviços em todos benefícios do SIMPLES no Rio Grande do os setores de infra-estrutura. O enfoque Norte. Segundo, a política de conceder dessa agência seria contrabalançar as isenções de ICMS para novos investimentos necessidades de investidores e dos e bens de capital precisa ser reavaliada. Tais consumidores, devendo o governo atuar incentivos são caros e de efetividade para facilitar, e não como elemento de duvidosa. (Ver seção sobre Política Fiscal, a obstrução da entrada de novas empresas, seguir). Mais ainda, estimulam a reduzindo a regulamentação ao mínimo. O substituição de capital por mão-de-obra e governo poderia também auxiliar na discriminam empresas que não gozam colocação em vigor dos contratos das desses incentivos fiscais. concessões. 39. Legislação Trabalhista: O código e os 37. Tributos: A exemplo do que ocorre em encargos trabalhistas, como também a outros estados, no Rio Grande do Norte forma que são aplicados pelo judiciário, existe uma diversidade de tributos desestimularam contratações no setor municipais, estaduais e federais, que formal e conduziram a um aumento do oneram as empresas e dificultam o emprego informal. O custo monetário da cumprimento de suas obrigações fiscais. A contratação de um empregado formal é alto. maior parte das receitas estaduais provém No País como um todo, os salários pagos no do ICMS, imposto que é complexo, setor informal são aproximadamente 60% estimula a sonegação, e é aplicado dos praticados no setor formal, controlando seletivamente de forma indireta sobre os por categorias ocupacionais e pelo setor serviços prestados por concessionárias de econômico. Além disso, trabalhadores do serviços públicos e por um pequeno número setor informal não recebem diversos de empresas de transformação. Já que são benefícios, incluindo compensação por concedidas isenções de ICMS a muitas tempo de serviço [aviso prévio], férias novas empresas que se estabelecem no remuneradas, descanso semanal remunerado estado, as empresas existentes enfrentam e 13o salário. Quando computados os um obstáculo ao seu crescimento, uma vez custos de fazer cumprir a lei e dos processos que precisam competir com as que não por demissão, esses muitas vezes pagam o tributo. inviabilizam as atividades das empresas. Em parte, porque o emprego formal proporciona 38. O ambiente tributário poderia ser uma rede de proteção social, através das melhorado de duas maneiras: primeiro, a aposentadorias e compensação por tempo de carga tributária poderia se tornar menos serviço, o aumento da informalidade é fonte onerosa. Através da introdução de um de preocupação. sistema integrado de arrecadação, o SIMPLES, o governo federal já conseguiu 40. O governo do Estado deveria apoiar simplificar os tributos federais, assim tentativas do governo federal para 24 implementar uma reforma do código propriedades de médio porte. Isso pode ser trabalhista. O código trabalhista brasileiro conseguido através de escrituras mais se baseia mais na rígida legislação que no seguras e de uma reforma da legislação dissídio coletivo. Equilibrando essa balança, fundiária a fim de garantir contratos de seria possível reduzir a rotatividade no inquilinato a prazo mais longo, resolver emprego, aumentar a produtividade, reduzir conflitos quanto à interpretação dos mesmos os custos com folha de pagamento, e facilitar o cumprimento de contratos de aumentar o emprego no setor formal, arrendamento de terras. O impacto de um ampliar a cobertura da previdência social e programa dessa natureza será intensificado diminuir a dependência no litígio na justiça se implementado simultaneamente aos trabalhista no País. Entre as medidas ajustes do código trabalhista e do sistema de possíveis estariam o remanejamento dos tributação fundiária. incentivos para contratação, manutenção, e demissão de trabalhadores e o relaxamento 43. Uma forma mais direta de estimular a das regras incluindo benefícios obrigatórios produtividade e a geração de renda na mínimos extra salário, para permitir maior agricultura é através de uma abordagem margem para dissídios coletivos comunitária à reforma agrária. Com essa descentralizados. abordagem, os grupos beneficiários negociam diretamente com os potenciais 41. Mercado Imobiliário Rural: Direitos de vendedores de propriedades adequadas para, propriedade mal protegidos desincentivam o em seguida, obter financiamento para a sua arrendamento de terras e contratos de compra e para sub-projetos meeiros, como também aumentam custos de complementares, e receber assistência transação. Particularmente, os técnica. Dois projetos-piloto bem sucedidos arrendamentos poderiam ser uma forma ­ o Projeto Ceará para Aliviar a Pobreza importante de viabilizar o acesso à terra Rural e o Cédula da Terra - já para empreendedores jovens e com menos redistribuíram cerca de 640.000 hectares de recursos, facilitar a retirada de produtores terras, beneficiando em torno de 23.700 idosos ou ineficientes da agricultura, sem domicílios (cerca de 1% dos pobres rurais), que estes tivessem que vender suas através dessa abordagem. propriedades, atender a demanda por terras a curto prazo e facilitar a consolidação de Educação unidades operacionais. A insegurança fundiária parte de duas vertentes: por um 44. Para alcançar o crescimento econômico lado, (i) a legislação fundiária e trabalhista, e reduzir a pobreza, o Rio Grande do Norte pela qual arrendatários e meeiros deve melhorar a produtividade de sua força `informais' possam reivindicar direitos de de trabalho. Além disso, para aproveitar ao posse e (ii) a falta de escrituração formal máximo seus recursos humanos, ao mesmo das terras, que em certos casos resulta na tempo que focaliza a redução da pobreza, o multiplicidade de títulos de propriedade de estado deve se empenhar em proporcionar um único terreno e na delimitação oportunidades para que todos os segmentos inadequada dos limites das propriedades. da população possam aprimorar suas capacidades. Para tanto, serão necessários 42. Com o intuito de aumentar a investimentos no capital humano, produtividade da terra e promover a especialmente na educação. agricultura de mão-de-obra intensiva, é necessário o incentivo à produção em 25 45. O Rio Grande do Norte vem alcançando resulta em baixas rendas, que por sua vez, avanços importantes na educação pública. causam baixos níveis de freqüência nas Mais de 95% das crianças estavam escolas por parte das crianças e, enfim, matriculadas em 1999, e o rendimento geram baixos níveis de escolaridade. Com escolar obteve avanços significativos. Em base em estudos que demonstram que a sua maioria, as escolas são atraentes e qualidade do ensino fundamental no estado limpas e os livros didáticos e materiais de é baixa, aí é onde faz-se necessário ensino estão presentes em grande parte focalizar.. delas. De forma geral, os professores são dedicados e atentos às suas obrigações. 48. É necessário que os esforços para Algumas escolas ministram programas bem melhorar a qualidade do ensino focalizem sucedidos de alfabetização de adultos. Essas uma melhor capacitação do professor, conquistas foram alcançadas através de um especialmente quanto ao bom aumento significativo das verbas estaduais aproveitamento do tempo de aula, ao para a educação, como também de diversos acompanhamento de alunos que estão programas federais direcionados à redução atrasados, à promoção da participação dos das disparidades regionais na educação, pais nos trabalhos escolares e à governança. geralmente, implementados pelos Essas medidas devem ser complementadas municípios. por programas que melhorem a escolarização básica de adultos nas 46. Contudo, cerca de 40% da população é comunidades pobres. funcionalmente analfabeta e a qualidade do ensino, especialmente nas escolas 49. Ao mesmo tempo, esforços que fundamentais, é precária. Isso pode ser focalizem a educação infantil comprovado não apenas por relatos provavelmente melhorarão o rendimento informais, como também por análises nas escolas fundamentais, reduzindo de contidas num relatório que demonstra que a forma acelerada a pobreza, por permitir às pobreza é pouco afetada pelo fato de o chefe mães dos domicílios mais pobres ­ as que do domicílio ter ou não concluído o têm crianças pequenas ­ a oportunidade de primeiro grau. Ao mesmo tempo, enquanto trabalhar e gerar renda. Com a uma melhoria no rendimento escolar foi municipalização dos programas pré- registrada, a lacuna entre o rendimento dos escolares, houve uma diminuição de mais pobres e dos não-pobres não diminuiu. Por de 20% nas matrículas em pré-escolas nos último, os professores não aproveitam o últimos anos. A possibilidade de ampliar a tempo de aula de forma eficiente, e utilizam educação e o atendimento a crianças na fase métodos de ensino ineficientes, onde os pré-escolar, através da Bolsa Alimentação alunos passam tempo demais copiando (um programa recém lançado pelo do matérias do quadro negro. governo federal), deve ser examinada. Através desse programa, mães de crianças 47. Uma boa educação primária serve de com até 5 anos de idade recebem base tanto para a aquisição da maioria das subvenções condicionadas a requisitos capacidades necessárias quanto para um rígidos quanto a cuidados pré-natais, pós- segundo grau bem sucedido. Melhorias na natais e de desenvolvimento infantil, educação fundamental são capazes de supervisionados por profissionais de saúde. promover um aumento da produtividade e podem ajudar a romper o ciclo vicioso da pobreza pelo qual a baixa escolaridade 26 Saúde monitoramento e melhoria dos resultados na saúde. 50. O Rio Grande do Norte alcançou progresso significativo na melhoria de seus 53. Portanto, os resultados do setor saúde no indicadores de saúde durante as últimas Rio Grande do Norte permanecem precários duas décadas. A expectativa de vida de um e afetam profundamente a produtividade recém-nascido aumentou de 59 para 66 econômica e o rendimento escolar. Alem anos, enquanto as taxas de mortalidade disso, oneram os setores público e privado, infantil diminuíram dramaticamente. Esse constituindo um obstáculo ao crescimento progresso se deve, essencialmente, a um econômico e à redução da pobreza. Para melhor acesso à água potável, a programas tratar desses problemas, as políticas e os federais de apoio à saúde básica nos recursos públicos deveriam ter em foco o municípios, bem como ao aumento das seguinte: verbas estaduais dedicadas à saúde. · Fornecer subsídios e incentivos para o 51. Contudo, existem ainda muitos investimento privado em sistemas de desafios, especialmente quanto à abastecimento de água e coleta de diminuição da mortalidade materna e à esgoto sanitário, com a finalidade de redução da incidência de doenças evitáveis, melhorar a saúde e reduzir a mortalidade contagiosas e infecciosas. A prevalência da infantil; má nutrição continua elevada entre a · Nas áreas rurais mais remotas, população infantil. Ao mesmo tempo, considerar um aproveitamento maior de embora as taxas de fertilidade, tenham enfermeiras para-médicas e enfermeiras- diminuído bastante, continuam acima do parteiras, revitalizando o uso de desejado. Um número desproporcional de pequenos hospitais/maternidades, e domicílios com crianças pequenas são de mobilizando ONGs e organizações pobres. comunitárias para a prestação de atendimento à saúde básica; 52. Apesar da ampliação da cobertura da · Dar continuidade a esforços voltados à infra-estrutura de saúde básica, o acesso aos redução da mortalidade materna, através serviços de saúde, por parte dos pobres, de serviços de planejamento familiar continua prejudicado. Muitos não têm que focalizem a prevenção da gravidez, acesso a água potável. É difícil recrutar especialmente entre as adolescentes, a médicos para trabalhar nas áreas remotas e prevenção de complicações durante a nos municípios mais pobres. É alta a taxa de gestação, como também a prevenção de gravidez entre adolescentes; e, enquanto as óbitos decorrentes de complicações na mulheres estão sendo infectadas pelo gestação. HIV/Aids a uma taxa maior que os homens, · Estimular a participação de homens em a incidência de HIV/Aids é mais elevada programas de saúde reprodutiva e sexual entre os homens. Ao mesmo tempo, embora e estimular os pais a participar de seja bem recebida a mudança para programas destinados aos cuidados e descentralização e saúde básica na última alimentação infantil ; década, os municípios carecem de · Aperfeiçoamento e capacitação para o capacidades técnicas para desempenhar as gerenciamento de quadros funcionais e suas responsabilidades e falta-lhes gerentes das administrações estaduais e incentivos para cumprir com as exigências municipais. de notificação necessárias ao 27 Proteção Social os mais pobres. Um levantamento recente constatou que, do total dos gastos sociais no 54. Reconhecendo que apesar do Brasil, apenas 14% alcançou o primeiro crescimento econômico e dos investimentos quintil da distribuição de renda-- os mais sociais na educação e na saúde, muitas necessitados. pessoas ainda permanecerão na pobreza extrema, os governos estadual e federal têm 57. Os programas de proteção social mais vários programas que visam à redução de bem sucedidos são os que direcionam incertezas econômicas, objetivando a transferências de renda condicionadas a redução da pobreza. Esses programas se certos comportamentos. Tais programas encaixam em três categorias: (i) os que vêm melhorando o rendimento escolar e o tratam de considerações de ciclo de vida, bem estar das famílias beneficiadas. Apesar tais como a previdência social e as de seus custos não serem desprezíveis, aposentadorias; (ii) os que tratam da programas de transferência de renda volatilidade de renda, como o seguro condicionados oferecem uma perspectiva desemprego; e (iii) os que tratam da imediata de melhoria a algumas das proteção social, visando a melhoria do bem famílias mais pobres. Um efeito colateral estar de grupos vulneráveis específicos. benéfico é que, ao repassar o benefício diretamente à mulher, esses programas vêm 55. Os programas de proteção social aumentando a auto-estima feminina e incluem esquemas de transferência de realizando uma alteração saudável nas renda, programa de geração de emprego e relações de gênero. renda, programa para jovens, programa de distribuição de leite, e programas para 58. Em vista do êxito dos programas de combater o trabalho infantil e o abuso transferência de renda já em andamento, o sexual. Existem também programas de relatório avaliou a viabilidade de sua promoção da saúde e educação, ampliação. Avaliamos também a direcionados à construção de redes de viabilidade da introdução de um programa esgoto e à permanência de crianças na de transferência de dinheiro vinculado escola. apenas ao conceito de proporcionar renda suplementar para retirar da pobreza 56. Apesar de o sistema de benefícios domicílios mais carentes. As simulações previdenciários brasileiro ser generoso e da realizadas constataram que o impacto ampliação das pensões para os domicílios imediato dos programas existentes sobre a rurais ter, aparentemente, reduzido a redução da pobreza foi pequeno. pobreza nas áreas rurais, existem lacunas na Constatou-se ainda que o custo fiscal de rede de benefícios oferecidos através dos introdução de programas de transferência de programas. Os sistemas de seguro dinheiro em escala mais ampla seria desemprego se aplicam apenas a proibitivo, mesmo sem computar os custos trabalhadores do setor formal e alguns dos administrativos. Além do mais, um programas não têm cobertura muito ampla. programa dessa natureza reduziria, em Em conseqüência, crianças pobres e muito, o incentivo para procurar emprego. adolescentes pobres que preferem estudar a Portanto, do ponto de vista de redução da trabalhar, assim como empregados do setor pobreza a curto prazo, a ampliação informal que perdem seus empregos significativa desses programas, além de ser geralmente se encontram em situação de inviável, pode não constituir a melhor extrema pobreza. E ainda, é difícil alcançar 28 abordagem para, a curto prazo, focalizar a tubérculos, que, além de mais nutritivos, redução da pobreza. oferecem vantagens em termos de custo- benefício. Alternativamente, poderia 59. Uma das maiores iniciativas sociais do distribuir leite em pó com complementação Governo Estadual é o programa de de Vitamina A. O leite em pó é mais barato, distribuição de leite, através do qual as pode ser armazenado por mais tempo, e famílias contempladas recebem pode ser considerado um produto com status gratuitamente leite pasteurizado. O alcance inferior, o que ajuda a assegurar que do programa foi ampliado em mais de cinco chegaria ao público ao qual se destina. vezes, desde 1995. Até 2000, estava distribuindo 130.000 litros de leite por dia Meio-Ambiente em todos os 166 municípios do estado com uma cobertura que alcançava entre 15 e 62. Os dois principais desafios ambientais 20% do total das famílias. O programa do no Rio Grande do Norte são: (i) reduzir a leite têm dois objetivos: (i) melhorar a destinação final inapropriada do esgoto saúde e a situação nutricional das crianças, sanitário urbano, dos dejetos sólidos, e de gestantes e mães lactentes de domicílios dejetos industriais, responsáveis pelos pobres; e (ii) dar um incentivo a produtores principais problemas de saúde e que inibem de leite, especialmente os de pequenas o crescimento econômico; e (ii) diminuir a propriedades, como também a empresas de degradação de algumas formações naturais processamento e pasteurização de leite. muito importantes, entre elas, mangues, alagados, caatingas e florestas, com o 60. Não obstante o mérito dos esforços que intuito de preservar a biodiversidade, o Rio Grande do Norte vem empenhando na reverter a salinização do solo e proteger a sua luta para reduzir as taxas de mortalidade produtividade agrícola. infantil, as evidências disponíveis apontam que o formato do programa do leite não é a 63. Natal, cuja área metropolitana cobre 1,1 forma mais eficiente para melhorar a milhão de habitantes, tem um sistema de situação alimentar da população mais pobre. esgoto sanitário, cuja cobertura alcança O custo, em 2000, de R$ 34 milhões, ou apenas 27% dos domicílios, onde a grande cerca de R$ 22 por família beneficiada, é maioria dos municípios carece das mais elevado. O Rio Grande do Norte não é rudimentares redes de saneamento. A produtor de leite de baixo custo. Além disto, descarga de esgoto e dejetos industriais muitas famílias não-pobres são compromete o lençol freático, que é a fonte contempladas com a distribuição de leite, de abastecimento de água utilizada por enquanto que o programa têm prejudicado grande parte da população. pequenos produtores de leite. Tem induzido também à substituição do leite materno pelo 64. Mesmo onde existe a coleta de dejetos leite pasteurizado, o que é considerado sólidos, o sistema de embalagem, coleta e prejudicial para a diminuição da destinação final do lixo urbano raramente mortalidade infantil. atende às recomendações técnicas. Por exemplo, com exceção de Natal, não existe 61. É possível que, com uma reforma, o nenhuma seletividade nos diversos tipos de programa do leite dê melhores resultados. dejetos; mesmo lá, somente o lixo Por exemplo, o Governo estadual poderia hospitalar é separado. considerar a possibilidade de distribuir outros produtos como, legumes ou 29 65. Vem ocorrendo mudanças expressivas Segurança e Violência na paisagem, com a diminuição das áreas alagadas do ecossistema e, em 68. Apesar dos índices de criminalidade conseqüência, uma diminuição no número em Natal serem menores que os de outras de espécies. Os fatores responsáveis principais áreas metropolitanas do Brasil, incluem a criação de camarão em cativeiro, eles não devem ser ignorados. Estar em a terraplanagem de alagados para alerta quanto ao crime é importante, tanto construção de casas populares, a descarga da ótica do crescimento econômico, e da de esgoto e de dejetos químicos e agrícolas, redução da pobreza. Altos índices de e a remoção de areia e de madeira das dunas criminalidade afastam o investimento para a construção de habitações. produtivo e, conseqüentemente, o crescimento econômico. Além do mais, a 66. As soluções ambientais deverão adotar criminalidade elevada, no geral, acompanha uma abordagem tríplice. Em primeiro a pobreza, sendo os pobres, na maioria das lugar, deve haver uma ampliação da coleta vezes, as vítimas do crime. de esgoto sanitário, através de contratos de concessão firmados com empresas privadas 69. Estatísticas mostram que o aumento da para a exploração de serviços de criminalidade no Rio Grande do Norte, vem abastecimento de água e de saneamento ocorrendo de forma sutil, mas, básico. Devido a externalidades envolvidas reconhecidamente, há sub-notificação da na coleta de esgoto, é provável que o Estado violência doméstica, bem como de outros tenha que pagar um pequeno subsídio e, a tipos de crime. A violência doméstica partir do momento em que se consiga uma parece estar aumentando, com as mulheres, cobertura satisfatória da coleta, esse no geral, sendo as principais vitimas das subsídio se estenderá também ao tratamento agressões. O Governo Estadual vem do esgoto. Não obstante, caberá aos destinando recursos significativos ao consumidores pagar por grande parte do combate do crime e à melhoria da financiamento da coleta e do tratamento do segurança. A parcela do orçamento esgoto. estadual destinada a segurança aumentou de 5,5% em 1995, para 6,2% em 2000. Em 67. Segundo, a agência de meio-ambiente Natal foi criada uma Delegacia da Mulher e precisa ser fortalecida e dotada de recursos existem vários abrigos para as vítimas da para que tenha condições de desempenhar violência. suas atribuições. Atualmente, a agência carece de equipamentos e inspetores e não 70. O Rio Grande do Norte poderia adotar tem condições de aplicar o zoneamento ou uma abordagem política de cunho as leis ambientais que disciplinam a preventivo para os problemas do crime e da destinação de dejetos e a poluição violência. O sistema de ensino, por industrial. Terceiro, uma campanha de exemplo, poderia alterar os valores culturais conscientização ambiental poderia ser predominantes, os quais promovem realizada, aumentando a consciência quanto comportamentos agressivos entre os aos perigos da degradação ambiental e meninos e comportamentos dóceis entre as estimulando o público a denunciar o meninas. Possíveis intervenções incluem a descumprimento da legislação ambiental. re-capacitação de professores, a eliminação de estereótipos de gênero dos livros didáticos, o desenvolvimento de programas especiais para dotar crianças de capacidades 30 não-violentas na resolução de conflitos, financiamentos na forma de subvenções como também a promoção de valores para a realização de pequenos projetos de cívicos. Programas comunitários podem ser infra-estrutura e projetos comerciais. aproveitados para estimular a educação Segundo, cerca de 100 associações de informal, ensinar os cidadãos a respeito dos usuários de recursos hídricos foram recursos jurídicos que podem ser adotados estabelecidas e receberam serviços de no combate à violência, estabelecer assistência técnica a fim de operacionalizar estratégias de prevenção da violência, como sistemas de abastecimento de água de também prestar serviços de cunho social pequeno porte. Tais associações, em alguns direcionados às vitimas da violência. A casos, evoluíram ao ponto de realizar mídia poderia ser convocada para participar projetos comunitários de geração de renda e na promoção e veiculação de imagens e projetos sociais. Terceiro, o Programa comportamentos não-violentos, em Comunidade Solidária vem organizando as contraposição às mensagens e comunidades mais carentes para que comportamentos agressivos atualmente possam tomar decisões quanto às suas transmitidas. E, finalmente, é preciso que se prioridades e investimentos. faça uma coleta mais acurada dos dados sobre a criminalidade, para que se possa 73. Enquanto a coordenação e integração identificar as causas e as vítimas do crime, intersetorial representam desafios para o no intuito de melhor direcionar os esforços Rio Grande do Norte, o seu Plano de para o seu combate. Desenvolvimento Sustentável (PDS) e o Plano Seridó são modelos para a superação Governança dos mesmos. Reconhecidamente, ambos os planos, foram amplamente discutidos e são 71. O Rio Grande do Norte está empenhado de cunho participativo. O Plano Seridó em na melhoria da qualidade do seu setor específico, vem identificando e auxiliando público. O objetivo é a criação, sobre os na construção de um consenso em torno de alicerces democráticos e de participação um plano para o desenvolvimento existentes, de meios para se tornar mais econômico, social, ambiental e institucional. transparente e sensível às necessidades dos pobres, dando ao pobre maior voz na 74. Aproveitando o sucesso alicerçado em tomada de decisão. O Estado parece ter iniciativas anteriores, o Estado poderia alcançado alguns avanços no sentido de patrocinar uma nova iniciativa de tornar o processo decisório público mais aprimoramento da qualidade e da inclusivo, como também de fazer com que transparência do processo decisório público, haja uma melhor integração intersetorial e enquanto buscasse a construção de um coordenação de políticas. Está também consenso em torno de uma agenda de procurando imbuir as decisões do setor desenvolvimento para o Estado. Ao suceder público de maior qualidade e transparência. o processo participativo, a iniciativa proposta deve buscar uma identificação e 72. Três iniciativas ajudaram a tornar o subseqüente implementação de um plano processo decisório mais inclusivo e para a redução da pobreza. Esse processo participativo. Primeiro, o Projeto de poderia servir de veículo para a Combate à Pobreza Rural ­ PCPR, vem coordenação de atividades das diferentes auxiliando na organização das comunidades entidades e orientar ações sistemáticas, de rurais em associações democráticas e forma a garantir o melhor resultado em juridicamente reconhecidas, aptas a requerer termos de custo-benefício. Para auxiliar no 31 aprimoramento da efetividade das políticas 77. Existem quatro áreas nas quais seria e programas, uma rigorosa análise e possível alcançar economias fiscais. avaliação deve ser embutida no programa. Primeiro, merece consideração a Atualmente, o Rio Grande do Norte detém possibilidade de reduzir os incentivos um controle burocrático amplo sobre suas fiscais concedidos para a aquisição de políticas e programas, contudo, realiza equipamentos de capital e novos pouco monitoramento ou avaliação sobre os investimentos. Tais incentivos são onerosos mesmos. e de efetividade duvidosa. A isenção do PROADI, por si só, custou ao Estado 2,5% Situação Fiscal e Perspectivas de suas receitas líquidas em 2001, sendo que essa perda pode aumentar ainda mais. 75. No momento, a situação fiscal do Rio Mais ainda, tais incentivos exacerbam o Grande do Norte é bem sólida. As receitas viés contra as tecnologias intensivas em e o superávit da conta corrente aumentaram mão-de-obra, favorecendo as intensivas em entre 1997 e 2001. Esse resultado decorre capital, ao mesmo tempo em que da combinação de uma melhoria na discriminam empresas que não gozam das administração tributária, especialmente em isenções. relação ao Imposto sobre Circulação de Mercadorias e Serviços ­ ICMS e dos 78. A longo prazo, o Estado deve evitar a repasses constitucionais. Os custos fixos -- concessão de incentivos fiscais a empresas serviço da dívida e gastos com pessoal -- e, ao invés, aproveitar a arrecadação para são baixos e o estoque de dívida é modesto. financiar alguns dos investimentos em No entanto, esses resultados foram infra-estrutura e capital humano alcançados, em grande parte, através de identificados anteriormente. Enquanto que controles rigorosos sobre a folha de os dados de que dispomos não permitem pagamento e do aproveitamento das receitas que se determine se haverá ou não uma fortuitas da venda da empresa estadual de diminuição do investimento, as evidências energia elétrica, para financiar obras de apresentadas num levantamento realizado capital. Existe o risco de que o desempenho sobre o mesmo tópico em Pernambuco fiscal possa se deteriorar, em conseqüência indicam que a redução seria mínima. Mas de pressões por aumento de salários, da devido ao fato de incentivos semelhantes necessidade de contratar novos servidores, serem oferecidos por todos os estados dos custos previdenciários, de pressões para adjacentes, o Rio Grande do Norte, por aumentar gastos de capital e de medidas enquanto, pode portanto, ter quecontinuar a direcionadas à redução da pobreza. oferecer tais incentivos, apenas para manter uma isonomia na disputa por novos 76. Mesmo assim, a perspectiva de uma investimentos. Contudo, recomenda-se que situação fiscal, com déficit zero e nenhum o estado apóie os esforços do Governo crescimento da dívida, parece ser viável e Federal que visam a proibição da concessão prudente, em vista da vulnerabilidade do de incentivos fiscais, por todos os estados, a Estado a choques externos e da sua baixa empresas. flexibilidade para responder aos mesmos. Isto implicará em tomar medidas para 79. Segundo, o estado deve dar aumentar as receitas ou controlar os custos continuidade às medidas que buscam maior em algumas áreas. controle sobre o financiamento das aposentadorias. Os custos previdenciários estão projetados para duplicar, em termos 32 reais, no decorrer dos próximos dez anos e consumir 40% do orçamento com pessoal, até 2012. Para tornar sólido e auto- regulador o fundo de pensões do estado, em termos atuariais, será necessário um paulatino aumento nas contribuições, bem como cortes nos benefícios. Por conseqüência, o governo do Estado deveria apoiar uma reforma previdenciária federal. 80. Terceiro, o estado poderia retirar algumas isenções fiscais (não as do PROADI) por etapas, como aquelas que incidem sobre produtos não processados ou semi-processados da agricultura e frutas destinadas ao consumo interno. 81. Quarto, quando viável, uma maior participação do setor privado na prestação de serviços tais como abastecimento de água e saneamento, estradas, e portos, poderia auxiliar no controle sobre as despesas de capital e de subsídios operacionais do estado. Tais economias poderiam ser significativas, mesmo se as concessões ou serviços contratados de prestadores privados fossem acompanhados de subsídios repassados de forma transparente, concedidos a certos serviços. 82. Concluindo, através de um re- direcionamento de despesas nas áreas mencionadas e por meio da implementação das políticas delineados neste relatório, o estado de Rio Grande do Norte poderá contar com uma aceleração de seus esforços para reduzir a pobreza de forma sustentável, alcançando assim uma melhoria em seus indicadores sociais e aumentando as oportunidades para todos os cidadãos. 33 e e e Quem ospiíci e ospiíci deralfee Implementa Estadual Estadual Estadual Federal Estadual Estadual Estadual Federal Estadual Estadual Estadual Mun Estadual Mun Estadual Estadual Estadual Estadual as de a a de a oãç osi sejso neiosi ão açp ovérsi daso a o, xã eradoras presamea raapo vés od pague e atra arati na çã liar legislaa nefíc be perv tad ratat opa port rtici que ura program zar dos ão sueel paa contra oneca mocl esoo ente facil do lm dora talipac cona sobresa nada faz cobert lhoriaemà tod plo enho,pme do idores, de exibilifl raap gesta regu quanto saa rura vei de que Auxi.omniím ns de que os 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veníaacin entarm avalie çã ão ple mua ente das amn dure ente amn açp ntose tereóti es entar portam inando olêivàoãçn ime ascin isesálna ati stosuc dae ver paul atiulap rtici paa téc entarm entos osra çãoiu ar plem lises ple rolt ribt laso ular Im come stime elim preve Desenvol aná ações Im Desativar inv Con con sativeD agríc Estim a ael ro os set e term ntee oriat no rioó do roez em cialm tersenio al vas sóli cti obgl ai espe cal a,i a açã ecisdo daivídad fis olênciVea ênc sticé den process Perspee io déficit ntoe viol coor al a domacin a doe cenár oc Fisc um crescim duzir rnança orarlh dadli bli ernt muodnav eti hum Re violê Me qua pú Ma obj nen reais Seguranç Gove Situação Growth and Poverty Reduction in Rio Grande do Norte 1. BACKGROUND GEOGRAPHY AND CLIMATE 1.1 The state of Rio Grande do Norte (RN), starts where the northeastern sugar belt ends. It covers 0.62 percent of Brazil's total area, or 53,307 square kilometers, and has a history and landscape different from the states to its south (see Maps 1, 2, and 3 at the end of this chapter). RN is famous for its beaches and dunes, and the coast is dryer and less green than in the states to the south. Where once there were coastal forests (mata atlântica), there are now dry scrub savanna (caatinga) vegetation and cashew orchards. Most of the state is level or gently rolling, with few elevations exceeding 700 meters. About 20 percent of RN is considered suitable for cultivation, and 75 percent is either under pasture or has potential for such use. 1.2 Geographically, the state is rather heterogeneous, comprising two great ecosystems--the Coastal Zone and the semiarid Sertão Zones. The Coastal Zone is a humid area, with average precipitation of 2,000 millimeters per year. Although it only accounts for 10 percent of the state's area, more than half the state's 2.8 million inhabitants resided in the Coastal Zone in 2000 (Figure 2.6). Major cities and industry are located in this area, as well as some high value agriculture. Coastal soils are formed from sedimentary rock and are thus deep and permeable, making them suitable for agriculture. Despite substantial degradation of the flora in the coastal area, there are still some forests and wetlands remaining. 1.3 The rest of the population lives in the Sertão, which has relatively few natural resources and scattered caatinga vegetation. Soils in the interior are generally shallow and impermeable, and underground aquifers are scarce and often saline. Agricultural activity predominates, but climatic variability makes it risky. Precipitation ranges between 300 and 800 millimeters per year. However, rainfall is irregular and tends to be concentrated in a few, brief storms, resulting in high rates of erosion and water loss. Much of the inland area experiences water deficits lasting 8 to 12 months. Droughts and floods are frequent. On average, only two years in every decade are free from drought. Droughts cause crop failures and unemployment, which exacerbate poverty and cause social problems such as malnutrition and migration (Magalhães 1992). ECONOMY AND PEOPLE 1.4 RN is a low-to-middle-income state with a population of 2.8 million (1.6 percent of Brazil's total). The people are called Potiguars, after an Indian tribe that once resided in the state (Box 1.1). In 1999, the state's GDP was about R$7.6 billion, equivalent to about 6 percent of the Northeast's GDP, and well under 1 percent of the country's GDP. About two-fifths of the state's GDP is derived from services and another one-third from industry. Agriculture accounts for only 7 percent of GDP but about 18 percent of employment.1 1Contas Regionais do Brasil, (Instituto Brasileiro de Geografia e Estatística, IBGE). The most recent year for which sectoral information is available is 1998. 37 Box 1.1: Historic Background: From a Salt/Cattle/Sugar Economy to a Diversified Industrial/Services Economy The Potiguar Indians were hunters, fishermen, and subsistence farmers (manioc was the main crop). Cattle raising was a very important activity in the Capitania (the geographical unit before states were formed) of Rio Grande do Norte. Sugarcane was an important crop in the Northeast region, but it was never big in RN, which for much of the 16th century was largely controlled by the French, who were in the area in their search for wood, principally pau-brasil (Brazil wood). The Portuguese took control of the area in 1598 and consolidated their hold with the construction of the Forte dos Reis Magos a year later. However, the area came under Dutch domination from 1633 until 1654. This period saw an expansion of salt production and cattle rearing with backward linkages to sugar production, the first two of which became the chief activities when the Portuguese won back control in 1654. Cattle were an important source of energy in sugar production, and also supplied meat and leather. The cattle era ended with the drought in 1845. Throughout history-- especially 1845, 1877, and 1975­76--drought has been a determining factor in RN's fortunes. In the late 17th century a rebellion by Indians against enslavement, the Confederação dos Cariris, affected RN and neighboring provinces. However, it was put down by troops led by bandeirantes. From 1701, the Capitania of RN became part of the Capitania of Pernambuco. In 1824, soon after Brazilian independence, RN received provincial status and in 1889, it became a state of Brazil. At the beginning of the 19th century, RN's main exports were cotton, salt, sugar, and wax from the carnauba tree. By the mid-19th century, the Portuguese crown devastated the economy by forbidding the export of salt and dried beef. The state did not recover until Brazilian independence in 1822 removed the prohibition. By the mid-19th century cotton had become a very important crop, especially in the Seridó and Agreste regions. RN was Brazil's leading cotton producer, and continued to be until 1930, when stagnation set in as São Paulo abandoned its coffee production and started to grow cotton. At the beginning of the 20th century, cotton, salt, and carnauba wax were the main products of the state. By the middle of the century industrialization began in Northeast Brazil. Agricultural products such as cotton, sugar, sisal, and nuts were driving the creation of the industrial and service sectors in RN. Cotton was the most important crop, and led to the founding of textile manufacturing, which is still one of the most important industrial sectors in the state. In RN, the first cotton processing factories were in place in 1910, and by 1920 there were about 200. After World War I the number of factories mushroomed, reaching 1,042 in 1950. 1.5 RN is well located for domestic trade and international trade, particularly its northeastern region, which is growing in both population and purchasing power. RN's economy is fairly diversified and exports industrial products (such as textiles, shoes, oil, and salt), agricultural products (such as melons and fisheries), and service products (such as tourism) to other states within Brazil and overseas. Exports to markets overseas, helped by access to various ports in the area and a new international airport, are growing rapidly. 1.6 Despite substantial progress in poverty reduction in the past two decades, about 40 percent of the population in RN is indigent--unable to afford the basic daily caloric intake.2 2This is the headcount poverty ratio (P0), which measures the proportion of people below the poverty line. Here, the indigence poverty line is used, which is based on the monetary cost of a "minimum food-basket" equal to the Food and Agriculture Organization (FAO) minimum caloric intake of 2,288 per day. This corresponds to a monthly per-capita income of about R$73 in 1999. 38 Poverty is more widespread in rural areas, where 53.5 percent of the population is unable to pay for a minimum basket of food. In urban areas, where 73 percent of the population resides, the incidence of poverty is 33.5 percent. Similarly, 26 percent of the population older than age 15 is still illiterate and the infant mortality rate is still high at 48.7 per 1,000 live births--much higher than Brazil's average but slightly better than the Northeast average. REPORT OBJECTIVES AND STRUCTURE 1.7 The motivation for the report, as well as the structure of the report, arises from the objective of reducing poverty. International experience has demonstrated that this requires economic growth and effective poverty reduction policies and programs, which in turn require improved public sector governance. To allow the government to become more effective in its poverty reduction efforts, an assessment of the appropriate role of the state is necessary to ensure that the state helps create an enabling environment for strong economic growth and plays a more focused role in the provision of certain services, while keeping within the limits dictated by fiscal and governance constraints.3 1.8 The report is structured as follows. Chapter 2 focuses on poverty, with a view to learning about trends in poverty and employment, identifying the characteristics of the poor, and analyzing the determinants of poverty. Chapter 3 discusses the sources, determinants, and constraints to economic growth, with a view to understanding economic growth, which is key to long-term poverty reduction. Chapter 4, the heart of the report, discusses both the longer-term policies and programs that can stimulate growth and reduce poverty as well as the short-term measures aimed at improving the condition of the most vulnerable. In doing so, it covers policies and programs in infrastructure and business environment, education, health, social protection, environment, safety, and governance. Finally, Chapter 5 concludes with recommendations on fiscal policy aimed at ensuring that economic growth is sustainable and that sufficient funds are available for necessary investments in infrastructure, social services, and safety nets. 1.9 The report has been prepared with the assistance of and in collaboration with the government of RN. It is hoped that the analysis and recommendations contained in the report will be useful to helping the government in formulating and implementing a poverty reduction strategy. 3This report complements an earlier and broader World Bank report on public expenditures for poverty alleviation in the Northeast, and other state economic memoranda on Bahia, Ceará, and Pernambuco (see World Bank 2001a, 2001b, 2000a, and 2002a). 39 MAP 1: Rio Grande do Norte in Brazil 40 MAP 2: Rio Grande do Norte in Northeast Brazil 41 MAP 3: Rio Grande do Norte's Eight Regions RIO GRANDE DO NORTE DIVISÃO DO ESTADO POR ZONAS HOMOGENEAS O C E A N O A T L Mossoroense A Litoral Norte N T Litoral I Oriental Serras Centrais C Alto Apodi Agreste O Caicó Currais Novos 42 2. POVERTY POVERTY TRENDS 2.1 In the last two decades RN has made creditable headway in reducing poverty. From 1981 to 1999, the state's extreme poverty, measured by the headcount poverty ratio, P0, fell 10 percentage points, while real GDP increased by 63 percent. There is little room for complacency, however, because extreme poverty is still very high at almost 40 percent.4 In 1999, over a million people still lived in extreme poverty, which means that they do not have sufficient income to buy a minimum basket of food of 2288 calories per day for each household member. This is almost twice the poverty rate for Brazil as a whole (22.4 percent). 2.2 Poverty did not fall monotonically over the last two decades. The P0 increased from the beginning of the 1980s, fell briefly after implementation of the inflation-beating Cruzado Plan of 1986, increased when the plan collapsed, and increased even more during the crisis of 1990. The P0 embarked on a downward path only after the most recent inflation-beating Real Plan of 1994 was implemented and the minimum wage increased. There was a sharp decline in poverty to a level lower than at any point during the previous decade. After the Real Plan was implemented, the P0 fell 7 and 12 percentage points in Brazil and the Northeast region, respectively. But RN managed to reduce the P0 by 15 percentage points, more than twice the reduction in the national rate. Since 1996, poverty has remained largely unchanged, at around 40 percent (Figure 2.1). 2.3 The fall in RN's P0 during 1981­99 was nearly twice the average for the Northeast and five times that of Brazil as a whole (Table 2.1). RN experienced a 9.7 percentage-point reduction in the P0, while the reduction in the region and the nation was 5.5 and 2.0 percentage points, respectively. 5 The data applied for the analysis are both money-metric and non-money-metric welfare indicators constructed from available data. The data applied are from three sources: (a) the Desenvolvimento Humano no Brasil (DHB) (1998), a co-production of IPEA, IBGE, FJP, and PNUD constructed from the Census figures for 1970, 1980, and 1991; and (b) Pesquisa Nacional por Amostra de Domicílios (PNAD) for the years 1981, 1985, 1988, 1990, 1993, 1995, 1997, 1998, and 1999, (no PNAD dataset for the Census year 2000 exists); and (c) Census 2000. 43 Table 2.1: Poverty Indicators in RN, Northeast and Brazil, selected years 1981 1990 1999 Headcount Poverty (P0) Rio Grande do Norte 49.4 57.0 39.7 Northeast 49.8 58.7 44.3 Brazil 24.4 30.3 22.4 Poverty Gap (P1) Rio Grande do Norte 21.7 28.1 19.0 Northeast 22.0 28.5 21.2 Brazil 9.7 13.0 10.8 Squared Poverty Gap (P2) Rio Grande do Norte 11.9 16.9 12.6 Northeast 12.5 17.3 13.8 Brazil 5.2 7.4 7.5 Source: Calculations based on selected years of PNADs during 1981­99. Figure 2.1: Headcount Poverty Ratio (P0) in the Northeast and Brazil for Selected Years during 1981­99 75 NE Maranhão 70 Piauí Ceará 65 Rio Grande do Norte Pernambuco 60 Bahia 55 50 45 40 35 30 1981 1985 1988 1990 1993 1995 1997 1998 1999 Source: Calculations based on selected years of PNADs during 1981­99. 44 2.4 The fall in RN's social indicators such as infant Table 2.2: Illiteracy and Infant Mortality mortality and adult illiteracy Illiteracy RateInfant Mortality during 1980­99 corroborates the People Over Per 1,000 Live Age 15 (%) Births improvement in measured income poverty. The infant 1980 1999 1980 1999 Brazil 25.3 13.3 85.2 34.6 mortality rate dropped Northeast 45.9 26.6 131.3 53 dramatically from 169.3 per Alagoas 54.0 32.8 159.5 66.1 1,000 live births in 1980 to Bahia 43.1 24.7 95.4 45.4 48.7 per 1,000 live births in Ceará 45.5 27.8 155.2 52.4 1999, a far greater decline than Maranhão 51.0 28.8 126.3 54.2 in the Northeast and Brazil as a Paraíba 49.3 25.9 170.6 60.3 whole (Table 2.2). Adult Pernambuco 42.2 24.7 149.8 58.2 illiteracy took the same path as Piauí 49.6 31.6 105.6 45.3 the P0 and infant mortality. Rio Grande do Norte 44.4 25.5 169.3 48.7 During 1980­99 the illiteracy Sergipe 46.5 23.9 110.9 45.4 rate for people over age 15 fell 18.9 percentage points, to 25.5 in 1999. The downward trends in the poverty rate, infant mortality, and adult illiteracy testify to government success in areas including health and education. 2.5 While the headcount poverty has stabilized in recent years, the very Table 2.3: Monthly Per-Capita Income poorest have seen a substantial (1997 R$) improvement in their incomes. Between Income Group 1981 1995 1999 1995 and 1999, the incomes of the Poorest 10% 20.7 13.7 18.1 poorest 10 percent and poorest 20 Poorest 20% 30.3 19.8 27.3 percent increased by 33 and 38 percent, Source: Calculations based on PNADs during 1981­99. respectively (Table 2.3). 2.6 This improvement in incomes of the poorest is also borne out by the poverty gap measures, P1 and P2. The poverty gap index, P1, is the average of all people of the gaps between poor people's standard of living and the poverty line, expressed as a ration of the poverty line. The squared poverty gap measure, P2, by squaring the distance between the individual standard of living the poverty line, implicitly gives a higher weight to the welfare of the very poorest. The P1 and P2 measures were reduced by 32 and 25 percent respectively between 1990 and 1999--more rapidly than for the averages for the Northeast or Brazil (Table 2.1). 2.7 However, when compared with 1981, RN has worsened slightly with respect to both the incomes of the poorest and with respect to P2 (Tables 2.3 and 2.1 and Figure 2.2). This result holds true for the Northeast as well as the whole of Brazil, suggesting that the hyperinflation of the 1980s and early 1990s hurt the poorest profoundly. In fact RN has done slightly better than other states--the squared poverty gap measure increased by 1.3 and 2.3 percentage points in the Northeast and 45 the nation versus 0.7 percentage points for RN. Despite the large improvements on the poverty front in recent years, the poorest in RN and the rest of Brazil have yet to fully cover the ground that was lost in the 1980 and early 1990s. Figure 2.2: Squared Poverty Gap in the Northeast and Brazil during 1981­99 35 Brazil NE 30 Maranhão Piauí Ceará Rio Grande do Norte 25 Pernambuco Bahia 20 15 10 5 0 1981 1985 1988 1990 1993 1995 1997 1998 1999 Source: Calculations based on selected years of PNADs during 1981­99. 2.8 RN's indicators are worse than in other countries with similar per-capita incomes because of income inequality. Both Brazil and RN have extremely unequal income distribution. In fact, Brazil's income inequality is exceeded only by Swaziland and Nicaragua (UNDP 2002). RN's income inequality has declined, however. In 2000, the Gini Coefficient for RN was 0.61, slightly below the coefficient for the Northeast region (0.62), and equal to that for Brazil as a whole (Figure 2.3). That compares to a Gini of 0.65 in 1991, a slightly better improvement than that in the rest of the Northeast and Brazil, where it improved by 0.03 percentage points. 2.9 RN's performance with reducing inequality is commendable. Changes in inequality are typically very slow, except during periods of radical social and institutional change. Where inequality has fallen it has usually happened in association with major expansion and equalization in educational attainment, as in Korea and Malaysia in the 1970s and 1980s. RN's expansion in education may have been too recent to have a significant effect on the composition of skills, and occurred 46 during a period in which the overall returns to high levels of skills were rising and returns to basic skills were falling in Brazil (see Chapters 3 and 4). Figure 2.3: Gini Index of Income Equality, 1991 and 2000 0.680 0.660 1991 2000 0.640 0.620 0.600 0.580 0.560 0.540 0.520 rth rte hia t No Northeast buco rgipe eas West doNo Ba South Brazil Grande rnam Alagoas Se South Pe Center- Rio Source: Census 1991 and 2000. POVERTY PROFILE 2.10 Comparing average levels of poverty for different categories is useful for learning about which population groups are falling behind or catching up in terms of poverty. This is useful for the design of policies: we would like to know not only whether, for example, more- or less-educated people are more likely to be poor in RN, but how the relative odds of being poor have evolved for these groups. This section traces the evolution of the P0 for various population groups during the 1990s. 2.11 The structure of poverty is clear in RN: (a) blacks and mulattos are poorer than whites, (b) young households/household heads are poorer than older households/household heads, (c) the poor tend to work more in the informal sector, and (d) a greater share of those engaged in agriculture are poor as compared to industry or services. Furthermore, the deepest poverty is in rural areas, and among the illiterate or poorly educated and young households with children. In fact, the P0 is actually rising for these groups. Without interventions to improve their opportunities and assets, their plight is likely to worsen. The social protection measures described in Chapter 4 are particular relevant for them. 2.12 More blacks and mulattos are poor than whites. The poverty profile for 1999 reveals a large difference in the levels of well being among different groups. The P0 reveals that 34 and 45 percent of households headed by blacks and mulattos, respectively, are extremely poor compared to 30 percent of households headed by whites. During 1988­99, poverty fell 9 percentage points among households headed 47 by whites and 8 points among those headed by blacks and mulattos, which is largely in line with the Northeast region as a whole.5 However, caution is needed before one can draw policy implications from this finding. There is widespread misrepresenting of race in Brazil, with richer black and mulatto households sometimes identifying themselves as white. It is more sensible to target social policies towards the poor rather than to consider affirmative action programs. 2.13 Being able to read and write is important in determining the likelihood of being in poverty. The P0 is 34 percent for household heads that are literate, and 52 percent for those that are not. However, while a negative relationship between years of education completed and poverty is typical, and is evident in most of the Northeast states, it is less marked in RN, where there appears to be little difference in P0 between household heads with no education (50 percent) and household heads with completed primary education (47 percent).6 Nevertheless, household heads that have completed secondary education are much better off (22 percent are poor) than those with only primary education (47 percent are poor). Not a single household head with more than 12 years of schooling was extremely poor. 2.14 The gap in P0 between the educated and less educated is widening: the more educated are experiencing less poverty, while the less educated are getting left behind. For each level of education (lower primary only, upper primary only, secondary only, and tertiary) the probabilities of being poor are estimated for RN.7 Figure 2.4 shows that there are very large differences in poverty levels by education, and that they have increased over time: since 1995, the P0 for people with some primary education appears to have increased, while the P0 for people with some university education has fallen from its already very low level. In RN, as elsewhere, there is a great deal of debate about the causes of these changes: skill-biased technological change, changes in the relative supply of and demand for workers with different characteristics, and trade liberalization have all been mentioned as possible explanations (Blom and Velez 2001; Blom, Pavcnik, and Schady 2001). 2.15 The younger the household head, the poorer the household. Data reveal that 60 percent of the households headed by a person younger than age 25 are extremely poor in RN. This number may be overstated because no adjustment has been made for the fact that young children, that these households are likely to have, do not need to consume 2288 calories, as do adults. However, what is worrying is that they are getting worse off. The poverty rate for these households rose 11 percentage points during 1981­99. This is not as bad as the Northeast as a whole, where 66.1 percent 5For a detailed description of the poverty profiles for Brazil and the Northeast, including Rio Grande do Norte during 1981­99, see Fiess and Verner (2001). 6This picture might be clouded by the relatively small sample size of these groupings in the PNAD dataset for RN. 7The estimations show that the differences in the probabilities of being poor between men and women, by race, and by place of residence have all basically remained constant throughout the 1990s. For these categories, therefore, analysis of the poverty profile at one point in time is sufficient. 48 of the households headed by a person younger than age 25 are extremely poor, which is a 22-percentage-point increase during the same period. Some of the targeted social protection measures described in Chapter 4 that relate to family planning and pre- school programs could help improve employment prospects (see also para 2.18 below). 2.16 In RN, only 17 percent of those older than age 65 are below the indigent poverty line--a decline of 15.3 percentage points since 1993. Additionally, the latter group has the highest average income of any age group, which may be explained in part by pension reforms. The P0 of the population groups aged 25 to 44 and 45 to 64 fell by 8 and 13 percentage points, respectively, during 1981­99. In 1999, 47 percent of the younger group was extremely poor as compared to 33 percent of the older group. Thus the younger the head of household, the more likely it is to be poor. This life-cycle profile of poverty illustrates that many households are born poor (due again to inadequate assets), with some escaping poverty as they accumulate more assets or as their household size shrinks. Figure 2.4: Extreme Poverty Rates in RN by Education Figure 1a: Poverty Rates, by Education Level and Year (RGN) 0.7 0.6 0.5 0.4 Index RGN--primary 1 RGN--primary 2 RGN--secondary 0.3 RGN--university Headcount 0.2 0.1 0 1992 1993 1994 1995 1996 1997 1998 1999 Year Source: Calculations based on PNAD 1992­99. 2.17 The age of household members also affects household poverty. The more young children there are, the poorer the household, although this may be partly explained because the analysis does not adjust for the fact that it takes less income to feed young children or that there are economies of scale for larger households. Among households with children under age 5, 57 percent were extremely poor compared to 45 percent of those with children aged 5 to 15. Among households with a member older than age 65 the rate drops even further, to 18 percent. During 1981­ 99, the rate of extreme poverty among households with children under age 5 rose 5.9 49 percentage points, but for households with children aged 5 to 15 it fell 4.2 percentage points. The P0 shows striking differences by age group: it is four times higher for children under age 5 than for people older than age 65. 2.18 Young parents with low income, low level of education, and few assets may also suffer poor health. Their children receive low-quality education, and the parents have no access to kindergartens for the youngest offspring. Such young parents face a high probability of becoming unemployed, and have no access to employment benefits or other social benefits. 2.19 The difference in poverty rates has gone up over time: since 1996, the poverty rate for children appears to have remained constant, or gone up slightly, while the poverty rate for the old appears to have fallen. Very young children have the highest--and growing--probability of being poor in RN. There is considerable evidence from other settings that the benefits associated with early childhood interventions are very high indeed, especially for children from disadvantaged backgrounds, both because this is a critical stage in child development and because the returns to any productive investment in children accrue over a much longer period of time than the returns to productive investments in adults (see Heckman 1999; Currie 2001). This suggests that interventions that benefit very young children that are described in Chapter 4 should receive high priority. 2.20 Informal workers suffer more poverty than formal workers. The P0 for informal workers (sem carteira assinada­without a signed workbook) is high--56 percent compared to 33 percent for formal workers. The informal poor, many of whom live in the urban periphery, earn a low and irregular income, own very few assets, and have no insurance against poverty. They face risks in the form of unemployment, crime, violence, and overall economic downturns. However, it is very heartening that in the last two decades, poverty rates have fallen by 25 percentage points among informal workers. At the same time, it should be recognized that since very few people work in the formal labor market, social policies tied to formal employment or unemployment will have only very limited reach among the poor. Social protection policies need to allow informal workers to avail of them, while simultaneous efforts needed to be made to encourage formal sector growth (see Chapter 4). 2.21 Women are only marginally more likely to be poorer than men, with 41 percent and 39 percent of female- and male-headed households, respectively, likely to be poor. Since 1993, male-headed households experienced a lower reduction in poverty (15 percentage points) than female-headed households (17 percentage points). These income poverty figures are, however, only part of the myriad of factors that affect a poor woman's well being. The data do not reveal anything about domestic violence and other types of discrimination that women often face (see Chapter 4), nor the fact that women should have higher incomes, as they tend to have more education than men. 50 2.22 Those who work in agriculture are more likely to be poor, suggesting that productivity is agriculture is lower than in services or industry. The P0 is 58 percent in agriculture, but 29 percent among service workers, and 18 percent among industrial workers. However, the agricultural workers' poverty rate fell by an encouraging 14.2 percentage points in the last two decades as compared to 2.5 percentage points in services. 2.23 One third of RN's population lives in rural areas, with limited access to basic infrastructure and services. The rural poor are primarily smallholders, sharecroppers, and wageworkers that depend on a diverse strategy of income-generating activities in which the subsistence production of corn, beans, manioc, rice, and small livestock predominates. In the semi-arid and transition zones, rainfall is scarce and highly irregular, yielding crops of low quality and low-income-generating capacity. These small farmers lack modern production technology, basic infrastructure to store harvests to take advantage of cyclical price fluctuations, and organized marketing facilities. Family income is therefore highly variable and there is little opportunity for saving. They have very few assets, including education, and are very vulnerable. Despite the limitations, poverty in rural areas has been reduced impressively, from 66 percent in 1993 to 54 percent in 1999.8 2.24 The differing characteristics of the smallholders, sharecroppers and wageworkers suggests that a poverty reduction strategy needs to provide multiple paths out of poverty tailored to the heterogeneous cross-section of poor rural households. A national study for Brazil9 suggests that this will involve a five- pronged approach aimed at: (i) small farm sector intensification, (ii) improved employment opportunities in dynamic commercial agriculture, (iii) growth of the rural non-farm sector, (iv) migration of the young, and (v) provision of safety nets for those "trapped" in poverty. The recommended measures include improving human capital endowments, reforming the land, labor and financial markets, enhancing research and extension, improving the supply of public goods and services, pricing and trade policies, and transfer programs. While a treatment of these is beyond the scope of this report, many of the policy measures, especially where the RN government has an important role in their implementation or promotion, are outlined in Chapter 4. DETERMINANTS OF POVERTY 2.25 Many of the poverty-reducing assets discussed above, such as education, experience, and labor market association, are important correlates of poverty and the dynamics thereof. This section takes the analysis a step further and investigates the marginal impact of each individual attribute on the likelihood of a household falling 8 During this period, poverty in urban areas improved by 16 percentage points (to 34 percent), suggesting that the Real Plan and state policies have benefited urban areas slightly more than rural areas. 9See World Bank (2001c). 51 below the indigence poverty line in RN, taking into account other characteristics. The analysis reveals (a) a conditional correlation between poverty and characteristics of household heads, (b) information about the volatility of the impact of the attributes on the likelihood that a household experiences poverty during the 1980s and 1990s, and (c) information about groups that are particularly vulnerable and how those groups have changed over the past two decades. The probability of a household being poor is analyzed based on relevant individual and household characteristics.10 One of the salient findings is that poverty can be attributed to the lack of income- generating assets, particularly human capital. 2.26 Other poverty studies for Brazil as a whole, such as Ferreira, Lanjouw, and Neri (1998), show that in 1996 education and location were the central attributes determining the likelihood that a household would experience poverty. Other factors such as age, family size, race, and rural living are also important in determining the likelihood of poverty. The findings on RN presented in this section are very much in line with those of Ferreira, Lanjouw, and Neri. A discussion of some of the variables explaining poverty follows below. 2.27 Education. In RN, for all levels of education, education variables are strongly associated with the probability of being poor starting with the first part of primary education. Figure 2.5 plots the education parameter estimates from the poverty regression for 1981­99 for RN. The impact of having completed primary education on the likelihood of being poor has been roughly constant throughout the 1980s and 1990s. The estimated impact of completing high school is much greater than that of completing primary education. Furthermore, the impact is closely linked to developments in the Brazilian economy. The effect on poverty of completed education was larger during economic upturns, such as after the Real Plan, and low during recessions, such as during the 1997 Asian crisis. Furthermore, Figure 2.5 shows that tertiary education helps reduce poverty even more than secondary education, and secondary more than primary. This shows that education is strongly correlated with poverty reduction. 2.28 Gender of head of household. Households headed by females are more likely to be poor than those headed by males, and the gap is increasing. Female-headed households have a much larger likelihood of being poor than do male-headed households even when other covariates are included in the analysis, such as labor market connection and education, which is an asset that women have relatively more than men. Since 1990, analyses show a slightly increasing trend in the likelihood of a female household head experiencing poverty. 10For a detailed analysis of the probit regression analyses for Northeast Brazil, including RN, see Fiess and Verner (2001). 52 Figure 2.5: Impact of Education on the Poverty Headcount Ratio for RN: Probit Regression Estimates for 1981­99 Rio Grande do Norte : Education 1981 1985 1988 1990 1993 1995 1997 1998 1999 0.5 0 -0.5 -1 -1.5 -2 -2.5 -3 -3.5 -4 primary1 primary2 secondary tertiary Note: Figures are based on probit coefficient estimates for the education variables. Source: Calculations based on PNADs during 1981­99. 2.29 Race of head of household. Ethnic background (white, black, mulatto) is another important factor contributing to poverty. Mulattos and black Potiguars have a higher incidence of poverty than their white peers, and the probit regression findings show that measurable differences are present between whites and nonwhites, controlling for other characteristics. Family and education variables capture part of the difference found in the simple unconditional mean incomes, but a large part is still due to discrimination or other unexplained individual characteristics of the non-white population group. 2.30 Size of household. Family characteristics such as household size are positively correlated with the incidence of poverty. The larger the household the more poverty prone it is; hence poverty increases with the dependency ratio. Moreover, larger households are poorer, but the effect is concave, indicating that a scaling factor matters for poverty. Moreover, the finding is partly explained because no correction has been made for younger children needing less food than adults or the economies of scale in providing food for a larger family. Worryingly though, the adverse impact of a large family on the likelihood of escaping poverty increased during the 1990s. 2.31 Age of head of household. The older the head of the household, the lower the probability that the household will be poor. 2.32 Age of members of household. Households with young children are the most poverty prone, and households with old people are the least. In RN and the Northeast, families with children under age 5 appear more likely to be poor than families with no children under age 5. The likelihood of extreme poverty for households with children aged 5 to 15 is less than for those with children under age 53 5, but is still high. While the higher observed poverty may be partly explained by the implicit assumption that it costs the same to feed young children as adults, it is disconcerting that the poverty levels for this category is increasing. 2.33 The lower likelihood of extreme poverty for households with a member older than age 65 may be due to the fact that most of the elderly receive a pension, which would increase household income. The impact estimate for the 1980s is roughly constant, but decreased marginally in the 1990s, indicating that in recent years households with elderly members are less likely to be poor than in the early 1980s. The 1988 and 1993 pension reforms helped to reduce poverty. The 1988 federal Constitution established the universal right to social security and instituted special eligibility conditions for rural workers under the Regime Geral da Previdência Social (RGPS), Brazil's public pension system for workers in the private sector. Furthermore, there has been a substantial increase in the coverage of social security in Brazil in the last decade, which had a substantial impact mainly on rural poverty, through the Lei Orgânica de Assistência Social (LOAS), which became effective in 1993. The rural pension takes the form of a monthly payment of one minimum salary to claimants who are older than age 67, disabled, or have per-capita household income less than one quarter of a minimum salary. 2.34 Location of household. Whether a household was rural or urban was a significant correlate to poverty in both the 1980s and 1990s, with rural households more likely to be poor. This is in line with what we observed earlier in the simple statistics. The deep rural poverty in the Northeast is not due only to a lower level of education, because this is already factored into the analysis, but possibly because of lower access to infrastructure, which is not. 2.35 Labor market connection. Households where the household head works in the formal sector with a signed workbook were less likely to be poor in both the 1980s and 1990s. However, the sector of employment--agriculture, services, industry, and public--is an insignificant correlate of poverty. A household whose head is employed in the service or industrial sector is not necessarily richer than one whose head is employed in agriculture. 2.36 Although these findings help improve our understanding of the determinants of poverty, they do not all lead to policy recommendations. For one thing, the analysis does not establish causality, though intuition and international research suggests that the causality is indeed in the direction assumed. Secondly, some findings such as race and gender are difficult to address, especially at the state level. Moreover, the findings on race are likely to be biased--the non-poor in Brazil have a tendency to classify themselves as white. Third, the findings on household size and age of members suffer the bias from the data that implicitly assume that it costs the same to feed an adult as an infant or young child. However, many of these findings help in the formulation of recommendations in Chapter 4. The location and education findings are reflected in the infrastructure and education sections respectively, while some of the health recommendations relating to improving family planning and infant mortality should result in lower household sizes with fewer young children. 54 Also, some of the social protection measures of Chapter 4 are targeted at the vulnerable as identified in this section. DEMOGRAPHICS AND EMPLOYMENT 2.37 The degree of poverty a society might experience depends on the volume and distribution of resources and on the size and distribution of the population among households. These two basic determinants of poverty, however, are not independently determined. On one hand, the size and age structure of a population are consequences of fertility decisions taken over past decades that were influenced by economic conditions. On the other hand, the volume of resources available today is influenced by the size and age composition of the labor force. This section analyzes changes in demography and employment in RN in recent decades. The salient points are that: · Demographic trends have been poverty reducing because they have lowered the dependency ratio, and this is likely to deepen further in the future. · Real wages for unskilled labor have been increasing, and at a faster rate than those for skilled labor. 2.38 Demographic factors have direct and indirect impacts on prices and poverty. As the size and age composition of the population changes, the relative size of the labor force and the number of dependents also change, modifying the dependency ratio of families, and therefore their level of poverty. This is the direct effect of demographic changes. It captures the effect that demographic changes have on quantities: number of children, size of the labor force, and the number of elderly people. These changes in quantities, however, will, in general, influence prices in the economy. In particular, changes in the rate of growth of the population and in the age structure may have important impacts on both labor supplies and savings. As a consequence, demographic changes may have considerable impact on the level of wages and on interest rates. Since these prices are important determinants of family income, they are bound to have a profound influence on the level of poverty. These are the indirect impacts of demographic changes on poverty, which occur through the effects of demographic changes on savings, wages, and interest rates. 2.39 Changing demographics can have important impacts on the demand for public sector investments and public services, on incentives for private sector investments, on political power, and on labor markets. As a result, it is important to look at recent changes in demographic patterns in RN. The following overview describes demographic changes that have taken place in RN from 1991 to 2000 (Table 2.4).11 11All raw population data are from IBGE, with Census data used for 1991 and 2000. 55 Table 2.4: Population in Brazil and Rio Grande do Norte by Region 1991 and 2000 Annual Percent Percent 1991 2000 Growth of RN of RN (thousands) (thousands) Rate Pop. Pop. (%) 1991 2000 Brazil 146,825 169,799 1.63 n.a. n.a. Rio Grande do Norte 2,416 2,771 1.53 n.a. n.a. Western Region 689 741 0.81 28 27 Seridó Region 342 360 0.57 14 13 Parallel to Coastal Region 353 387 1.03 15 14 Coastal Region 1,032 1,282 2.44 43 46 n.a. = Not applicable. Source: Census 1991 and 2000. 2.40 The population increased between 1991 and 2000 by about 350,000, or 15 percent, to almost 2.8 million. The annual growth rate of population during the period was 1.53 percent as compared to 1.63 percent for Brazil (Table 2.4). Much of the growth took place in the coastal region. The growth rate in RN was higher than in most other states in the Northeast during 1996­2000 (Table 2.5). Only Ceará (2.2 percent) and Sergipe (2.3 percent) had higher growth rates. Table 2.5: Comparison of Demographics in the Northeast Annual Population Population Urban Female State 2000 Growth Population Population (thousand) Rate 2000 2000 1996­2000 (percent) (percent) (percent) Sergipe 1,780 2.31 71 51 Ceará 7,417 2.16 72 51 Rio Grande do Norte 2,771 2.01 73 51 Maranhão 5,638 1.94 60 50 Alagoas 2,818 1.71 68 51 Pernambuco 7,911 1.69 77 52 Piauí 2,841 1.53 63 51 Bahia 13,067 1.03 67 51 Paraíba 3,437 0.98 71 51 TOTAL Northeast 47,680 -- -- -- -- = Not available. Source: Calculations based on Census 2000. 2.41 RN is the most urbanized state in the Northeast, and became more so during 1991­2000, with the percentage of the population living in urban areas rising from 69 percent to 73 percent. The metropolitan area of Natal increased its share of Litoral Oriental's population from 43 to 75 percent in 30 years. Eight other municipalities in the coastal region, taken as a group, grew at an annual growth rate of 2.4 percent. It appears that all other regions in the state are experiencing net out-migration, with the majority of the migrants moving to the coastal region (Figure 2.6). This is most 56 likely linked to the increase in economic activity in the coastal region, especially in Litoral Oriental around Natal and to a response to the higher level of poverty in the rural area. Litoral Oriental's share of the total economic activity in RN increased from 51 percent in 1970 to 68 percent in 1996. 2.42 There have Table 2.6: been substantial shifts Age Groups as Percentages of in the age structure of Rio Grande de Norte's Total Population the population (Table 1970 1980 1991 1996 2000* 2.6), similar to those Years (%) (%) (%) (%) (%) taking place in Brazil 0­14 45.1 41.5 37.3 34.2 32 as a whole. The share 15­64 50.9 53.4 56.8 59.6 61 of children aged 0 to 65 + 4.0 5.1 5.9 6.26 7 14 declined from 45 TOTAL 100 100 100 100 100 percent in 1970 to an * Estimated population distribution for 2000. estimated 32 percent Source: IBGE. in 2000, and there was no absolute increase in the number in this group. The percentage share and absolute number of those aged 65 or older have risen since 1970. There are reports of the elderly migrating to the Northeast because of the lower costs of living and higher quality of life, including lower crime and lower congestion, so that their pensions, old-age benefits, and savings can have higher purchasing power. In fact, the retired are said to make an important economic contribution, especially in rural areas. 2.43 Demographic trends, which have lowered the dependency ratio, help explain the reduction in the P0. This trend is likely to deepen further in the future as Brazil's richer regions, such as the Southeast, experience far lower fertility rates by age group than the Northeast. Fertility rates are much higher for the 15 to 19 and 20 to 24 age groups in the Northeast (0.10 and 0.15, respectively) than in the Southeast (0.07 and 0.12, respectively) (Census 2000). Furthermore, the large reductions in fertility rates since 1980 were lower in the Northeast for each age group than in the Southeast, except for the 15-to-19-year-olds, whose fertility increased, and by more in the Northeast than in the Southeast. 2.44 In RN, there was a sharp drop in the total fertility rate, from 7.0 children in the 1970s to 2.6 children in 1998. In the same period fertility fell to 2.4 for Brazil as a whole and 2.6 for the Northeast. Total desired fertility rate in the state is reported to be 1.9, close to that of 1.8 for Brazil as a whole. This would indicate that there is still a substantial unmet demand for high quality and reliable family planning services, information, and resources (BEMFAM 1998a). Another important development is the decline in the fertility differential between more-educated (eight years or more of education) and less-educated (less than four years) mothers, from around 4 children in the Northeast in 1980 to 1.9 children in 1998. This differential declined to 1.3 children in Brazil's richer southern states. Hence, again education plays a key role both directly (see above) and indirectly via the reduced fertility rate in poverty reduction. 57 Figure 2.6: Population Concentration in Rio Grande do Norte (1970­2000) 1970 1980 1991 2000 Where is half of the population located ? Grande Natal´s 2 Year Area % Inhab/Km share of RN population 1970 27,33 53,46 43,23 1980 23,49 76,17 54,04 1991 17,10 132,34 64,33 2000 12,83 203,97 75,15 SOURCE: IDEMA/CESE (Basic data from IBGE, Demographic Censuses 1970/2000) 2.45 The poverty analysis reveals that many Potiguar workers, particularly those in the informal sector, are poor. The challenge of creating employment is therefore not only to provide new jobs for the new entrants to the labor force, but also to increase the number of jobs that are able to providing sufficient income to lift the employee's household out of poverty or cushion against it. Creating jobs regardless of quality is not enough--people need good jobs. As the labor market, particularly the informal one, is relatively flexible, the worry is about generating sufficient income via employment rather than simply having a job. The trend in this regard, as reflected by increasing real wages of unskilled workers--is encouraging. 2.46 The demographic change that demands the most urgent policy response is the sizeable growth in the economically active population. During 1991­2000 the number of those aged 15 to 64 rose by more than 300,000 (2.4 percent), while overall population grew by 1.5 percent annually. Some of the growth in the economically active population is from in-migration, but most of it is natural growth. 58 The high rate of growth of this age cohort--along with increasing female participation in the labor force--means that a high number of good new jobs are needed each year to keep pace, and the better jobs are needed by those already in poor jobs. This is a major challenge. 2.47 Poor jobs also pay poor salaries. Unskilled workers with less than four years of education receive an average monthly wage income of R$125 in the informal sector compared to skilled workers with a completed high school education who earn R$359 in the informal sector. Hence, skills are key to a good job. 2.48 Real wage rates for unskilled labor have been Table 2.7: Changes in Labor Earnings during increasing in the last decade 1991­99 (percent) (Table 2.7). Real wages for Unskilled Skilled unskilled labor with less Formal Informal Formal Informal than 4 years of education Rio Grande do Norte 30.47 72.30 -6.37 36.73 increased more than those Northeast 17.11 45.10 3.91 51.04 for skilled labor with 8 or Brazil 12.18 44.86 3.58 30.19 more years of education. Source: Calculations based on PNAD 1991 and 1999. This may indicate that the impact of demographic trends (increased labor supply) has been offset by the impact of economic growth (increased labor demand) because real wages have been increasing rather than falling. 2.49 Education is key to poverty reduction. Increased educational attainment can improve the livelihoods of the poor and reduce the likelihood of becoming poor, as shown above. More education is also a key factor in obtaining a higher income (see also Chapter 3). Furthermore, education is associated with fertility: The more education a woman attains, the lower her fertility rate and, therefore, the lower the dependency ratio and the lower the likelihood of falling into poverty. Therefore a clear message is that the Potiguars need to be brought up the educational ladder to escape poverty. Poverty-Reducing Factors in Rio Grande do Norte 2.50 Most of the reduction in poverty in RN in the last two decades can be credited to national economic policies. Brazil's macroeconomic stabilization, including the devaluation of the real, was clearly the most important poverty- reducing factor in the 1990s. Increased trade, opening the economy to foreign investment, an increase in the minimum wage, and increased access to social services and assistance (see Chapter 4) have also played important parts. 2.51 Only the most recent of the six stabilization plans since 1985, the Real Plan of July 1994, achieved macroeconomic stability and reduced inflation to a record single-digit low. The poor generally suffer most from high inflation, partly because they cannot protect themselves against it because they lack access to the financial and banking systems, so policies that reduce inflation commonly enhance their incomes. This applies to the poor in RN and elsewhere. Differences in inflation 59 among the regions of Brazil are minuscule and cannot be the sole determinant of regional differences in poverty, but inflation does affect the overall poverty trend. In May 1995 the minimum wage was raised while monthly inflation was about 2 percent, which may have reduced poverty. 2.52 The key instrument for poverty reduction through employment creation is growth, which is discussed in the next chapter. However, growth alone will not produce sufficient gains in poverty reduction in the short to medium-term. For example, simulations show that if income per capita in RN grew at 2 percent per year from 1999, the rates of poverty and extreme (or indigent) poverty would fall by only 2.8 and 1.4 percentage points respectively after five years (Table 2.8).12 After 15 years, the gains would be greater, but the rate of poverty and extreme poverty would still be high at 63.2 and 36.4 percent respectively. Even if the state were able to generate a record high growth rate resulting in 6 percent growth in per-capita income, this would need to be sustained for 15 years to bring the poverty and extreme poverty rates down to 53.0 and 26.4 percent respectively. This could be difficult, however, given that RN is a state within a national federation and many of the determinants of growth are related to national public policy and economic conditions (see Chapter 3). However, the state can still take measures to improve services in infrastructure, health and education, as well as make more effective its social protection programs. These measures are described in the corresponding sections in Chapter 4. Table 2.8: Projected Poverty-Reduction Impact of Economic Growth BEFORE AFTER 5 Years AFTER 15 Years (1999) (2004) (2015) Annual Per-capita Poverty Extreme Poverty Extreme Poverty Indigence Income Growth Rate Poverty Rate Poverty Rate Poverty Rate Rate Rate 2 percent 69.1 41.4 66.3 40.0 63.5 36.4 6 percent 69.1 41.4 63.6 36.4 53.0 26.4 Source: Simulations based on PNAD 1999. 12This section uses both the indigent poverty rate (food only) and a poverty rate slightly higher that also includes nonfood items in the basket, and is therefore much higher (69.1 percent). 60 3. ECONOMIC GROWTH OVERALL TREND 3.1 Brazil was the fastest-growing country in the world during 1930­1995,13 with an average growth rate of 6.1 percent per year, with much of the growth occurring prior to the 1980s. Although the Northeast also grew, the region remains much poorer than the national average. In 1998, the Northeast's GDP of R$119 billion was about 13 percent of Brazil's GDP of R$914 billion, while its population was 29 percent of Brazil's population. Thus the per-capita GDP of the Northeast was only 47 percent of per-capita GDP in Brazil. 3.2 RN's per-capita income has hovered around 45 percent of Brazil's per-capita GDP over the last five decades (Figure 3.1). The state's annual per-capita growth averaged 3.6 percent from 1947 to 1998, higher than for Brazil (2.9 percent) or the Northeast (3.0 percent). As a result, its GDP per capita over this period, relative to that of Brazil, increased from 43 to 49 percent. In 1999, RN's GDP was R$7.6 billion, or 6.0 percent of the Northeast's GDP. Figure 3.1: Per-Capita GDP for Rio Grande do Norte Relative to the Northeast and Brazil (1947­98) 2 1 .8 1 .6 PDG 1 .4 1 .2 capita 1 per G D P P C R N / G D P P C N o rth e a st 0 .8 lativeeR G D P P C R N / G D P P C B ra z il 0 .6 0 .4 0 .2 0 1 9 4 7 1 9 5 0 1 9 5 3 1 9 5 6 1 9 5 9 1 9 6 2 1 9 6 5 1 9 6 8 1 9 7 2 1 9 7 5 1 9 7 8 1 9 8 1 1 9 8 4 1 9 8 7 1 9 9 0 1 9 9 3 1 9 9 6 ye a r Source: Calculations based on data from Azzoni (1999) and Contas Regionais (1985­1998). 3.3 Figure 3.1 shows the recent performance of RN's per-capita income relative to the Northeast's. The data show strong growth compared to the rest of the states in the Northeast from 1947 to the end of the 1970s. During this period, RN's per-capita income ranged from 90 to 180 percent of the per-capita income of the Northeast. In the late 1970s, RN's GDP per capita as a share of the Northeast's GDP reached a historic low of about 90 percent. The main contributing factors were the collapse of 13See Abreu and Verner (1997). 61 cotton production and a fall in mining and manufacturing production. The economy recovered slightly after 1984 and is currently on a positive path, but the ratio of its per-capita GDP to the Northeast per-capita GDP of 105 percent is well behind its ratio five decades ago (Table 3.1). 3.4 Per-capita growth has been impressive in Table 3.1: Real Per Capita GDP Growth in the recent years. Between 1990 Northeast, 1985­98 and 1998, annual GDP 1985­90 1990­98 1985­98 growth in RN was 3.0 (%) (%) (%) percent, compared to 2.7 Brazil 1.72 2.49 2.34 percent for the Northeast and Northeast 0.17 2.65 1.77 2.5 percent for Brazil (Table Piauí 3.92 3.34 3.83 Ceará 0.69 5.27 3.66 3.1). It was higher than in Paraíba 4.53 1.78 3.08 the richest states of the Maranhão 2.96 2.38 2.80 Northeast, Bahia and Pernambuco 1.97 2.72 2.60 Pernambuco, but below Rio Grande do Norte 0.32 2.96 2.04 those of some of the poorest Bahia -1.19 1.83 0.65 Alagoas -1.49 1.91 0.57 states, Ceará and Piauí. Sergipe -5.93 1.99 -1.34 Source: Calculated with data from Contas Regionais and Central Bank of Brazil. 3.5 The strong relationship between Brazil's aggregate growth and RN's economic progress in the last five decades reflects the response to common macroeconomic forces. Country- level policies (for example, macro-management) imply a strong correlation between state growth and country growth. Growth in the Northeast, outperformed by other regions such as Center-West, has been lower than the Brazilian average. Nevertheless, RN's growth performance has been among the better in the Northeast during the last decade, suggesting that some convergence took place in the 1990s. The main factor in both RN's and Brazil's growth performance in the 1990s was the macroeconomic stabilization that followed the inflation-beating Real Plan of 1994. This may suggest that RN's economy experienced a very limited transformation in the past decade, which positively affected the growth path of the state. SECTORAL SOURCES OF GROWTH AND EMPLOYMENT 3.6 An understanding of the sectoral sources of Figure 3.2: Sectoral Composition of GDP growth and employment is 1985­98 useful in designing a strategy to accelerate Agriculture Industry Services growth and employment. 1.00 0.90 0.80 Over the last two decades 0.70 0.60 the economy has shifted 0.50 0.40 away from agriculture, 0.30 0.20 industry, and mining 0.10 0.00 towards services (Figure 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 3.2 and Table 3.2). Source : IDEMA 62 3.7 The service sector has been the Table 3.2: Sectoral GDP most dynamic in the last two decades. It 1985-1998 increased its share of GDP from 40 1985 1998 Annual percent in 1985 to 59 percent in 1998 Sector (R$ million) (R$ million) Growth while the shares of industry and (Percent) agriculture declined from 50 to 34 Industry 2047 2340 1.0 Services 1629 4052 7.3 percent and from 9 to 7 percent, Agriculture 375 448 1.4 respectively. TOTAL 4051 6840 4.1 Source: Contas Regionais, IBGE 3.8 RN's total employment in 1999 of almost 900,000 is comprised of about 600,000 employees, 35,000 employers, and 246,000 self-employed (Table 3.3). As elsewhere in Brazil, the proportion in informal jobs is high in RN, at 67 percent. As shown later in this section, this is less of a concern in RN than in other parts of Brazil since informal jobs do not pay any worse than formal jobs in RN. What is of concern though is that total jobs have Table 3.3: Employment in RN been growing at 0.8 percent annually, 1992­99 which is well below the growth of the Total Total Annual economically active population. Sector 1992 1999 Growth (%) Industry 155,479 192,046 3.1 3.9 In 1999, the service sector Formal 52,047 58,054 1.6 accounted for over half of all jobs, with Informal 74,102 92,620 3.2 job growth at a respectable 1.9 percent Self-employed 26,244 34,968 4.2 annually. Industrial employment grew the Employer 3,068 6,404 11.0 fastest, at over 3 percent annually. Services 388,436 443,851 1.9 Although a large number of agricultural Formal 70,955 103,941 5.6 jobs disappeared in the last decade, Informal 156,937 168,477 1.0 Self-employed 149,738 146,320 -0.3 poverty declined most sharply in the Employer 10,806 25,113 12.8 agricultural sector, suggesting that most Agriculture 154,986 123,284 -3.2 of the job losses were low-productivity, Formal 6,280 11,967 9.6 bad jobs, mostly in the informal and self- Informal 72,042 46,791 -6.0 employed sectors. Formal employment in Self-employed 70,491 61,080 -2.0 agriculture grew at an impressive 9.6 Employer 6,173 3,446 -8.0 percent annually. The agricultural sector Other 142,918 130,521 -1.3 Public sector 113,048 116,874 0.5 employed about 123,000 Potiguars in Other formal 16,489 837 -34.7 1999, accounting for about 14 percent of Informal 13,381 12,810 -0.6 the total. TOTAL 841,819 889,702 0.8 Source: Calculations based on RAIS and PNAD data. 63 3.10 Formal sector employment growth Table 3.4: Formal Sector Employment averaged 1.6 percent (selected years, 1990­99) between 1990 and 1999 Total (Table 3.4). However, Growth Annual there was tremendous Sector 1990 1995 1999 1990­99 Growth (%) (%) variation between Minerals 2,395 5,006 5,467 128.3 16.0 sectors. There are large Industry 37,155 30,498 37,366 0.6 0.1 variations in formal Industrial services 4,735 5,541 2,744 -42.0 -5.3 employment across Construction 7,762 9,721 12,477 60.7 7.6 sectors. While the total Commerce 20,954 28,625 36,698 75.1 9.4 number of agricultural Services 50,001 53,428 67,243 34.5 4.3 jobs declined, formal Public sector 113,048 136,563 116,874 3.4 0.4 Agriculture 6,280 13,094 11,967 90.6 11.3 employment in Other 16,489 3,509 837 -94.9 -11.9 agriculture grew by TOTAL 258,819 285,985 291,673 12.7 1.6 11.9 percent during Source: RAIS. 1990­99, largely because of rapid expansion of employment in fast-growth segments such as irrigated agriculture and farmed shrimp. Minerals and commerce formal employment also grew rapidly at the annual rates of 16.0 and 9.4 percent respectively, while employment in the public sector and industry stagnated. The stagnation in industrial jobs occurred despite heavy government focus on industrial policies for job creation, such as through the PROADI program (see Chapter 5). 3.11 In addition to the Table 3.5: Average Real Monthly Wages relatively good performance Per Sector, Selected Years (in 1999 R$) on output and employment Rio Grande do Norte growth, real wages in services Year Agriculture Industry Services almost doubled between 1992 1992 69.89 213.90 178.51 and 1999 (Table 3.5). Hence, it 1995 85.54 352.16 289.43 is not surprising poverty fell 1999 107.41 278.49 332.88 by 19 percentage points for Northeast household heads working in Agriculture Industry Services 1992 63.12 264.05 203.88 services during 1990­99. 1995 80.11 352.21 295.83 Wages in industry increased 1999 68.22 304.46 320.91 30 percent between 1992 and Brazil 1999. In 1999 the average Agriculture Industry Services wage was R$279, slightly 1992 112.83 479.13 325.13 lower than in services (Table 1995 142.10 632.04 490.35 3.5). Despite this increase, the 1999 129.70 553.31 491.04 Source: PNADs 1992, 1995, and 1999. effect on poverty of output and job growth was lower in industry than in the other sectors as the headcount poverty ratio fell by only 16 percentage points during 1990­99. 64 3.12 There is little difference Table 3.6: Wage Determination in RN between hourly wages in formal and 1999 informal employment. In 1999 the Std. formal sector paid R$2.33 and the B Error T Sig. informal sector paid R$2.22. Constant -0.750 0.152 -4.93 0.00 Therefore formal­informal may not Age 0.084 0.007 11.73 0.00 Age 2 -0.001 0.000 -9.50 0.00 be the best way to characterize a Nonwhite -0.122 0.040 -3.05 0.00 good­bad job. This is also Formal sector -0.048 0.043 -1.12 0.26 confirmed by the wage regression Agriculture -0.240 0.074 -3.27 0.00 findings (Table 3.6), which show Administration 0.357 0.089 4.00 0.00 that informal and formal workers Services 0.081 0.060 1.35 0.18 are not paid statistically different Construction -0.120 0.082 -1.48 0.14 wages, controlling for other worker 8 or less years of education* -0.896 0.052 -17.32 0.00 characteristics such as skills, More than 8 and education, and sector of occupation. less than 11 However, formal workers have years of access to social protection such as a education* -0.571 0.053 -10.78 0.00 13th salary, pension, and severance Female -0.406 0.042 -9.60 0.00 pay (see Chapter 4). Table 3.6 also Dependent Variable: Log Hourly Wages shows that skills and education are R sq: 0.305, Adjust. R Sq: 0.301 the strongest and most important * 11 or more years of education serves as reference group. wage-determining factors in RN. Source: Regression based on PNAD 1999. 3.13 One option to Table 3.7: Monthly Income for Skilled and Unskilled distinguish between Workers, Selected Years 1992­99 (in 1999 R$) good and bad jobs is to Rio Grande do use the skill level of Norte Northeast Brazil workers. Table 3.7 Year Unskilled Skilled Unskilled Skilled Unskilled Skilled reveals large wage 1992 53.93 268.68 51.38 290.02 91.66 427.34 differences between 1995 75.37 407.27 69.67 391.74 122.06 598.63 1999 69.89 315.05 60.14 333.43 104.16 481.94 skilled and unskilled Unskilled = 4 or less years of school. Skilled = 8 or more years of school. workers. In this report Source: Calculations based on PNAD data. skills are proxied by education attainment, where skilled workers have completed eight or more years of education and unskilled four or less. Calculations based on the 1999 PNAD dataset show that unskilled workers in RN earn an average monthly wage of R$70, and skilled workers earn R$315. Hence skills are an important factor in accessing good jobs and escaping poverty. The wages of the unskilled in RN are higher than those in the Northeast region, but in RN skilled wages are below the Northeast average of R$333. Average wages in the Northeast and RN are far below those of Brazil. 65 3.14 There are also large wage Table 3.8: Skilled and Unskilled Wages differentials between skilled and unskilled in Rio Grande do Norte, 1999 workers across sectors in RN. The largest Unskilled Skilled difference is in the public sector and the Sector (R$/hour) (R$/hour) smallest is in construction (Table 3.8). This Total 1.18 3.89 and the above findings suggest that the core Industry 0.97 2.64 of the poverty-reduction agenda in RN Service 1.53 3.74 Agriculture 1.05 5.06 should be education and promotion of Construction 0.99 2.19 economic growth because economic growth Public 1.01 5.80 creates jobs, and skilled jobs ensure that Source: Calculations based on PNAD 1999. workers are remunerated sufficiently so they and their families can escape poverty. SECTORAL PATTERNS AND POTENTIAL 3.15 An understanding of the sub-sectors within the broadly defined sectors of agriculture, industry and services will help identify constraints to growth as well as the growth potential. Agriculture 3.16 As in other states, agriculture in RN includes both a modern, irrigated sector and a traditional, non-irrigated sector consisting mostly of small farms. During 1985­98, the value added in agriculture in RN increased at an average annual rate of 1.4 percent, which is far higher than the Northeast average, where it has stagnated, but slightly below the Brazilian average of 1.6 percent (Contas Regionais). The modern agricultural sector, including fisheries, accounts for the bulk of this growth. Low-Growth Traditional Agriculture: 3.17 A decline in the production of aboreo cotton explains much of the decline in agriculture. Over the last three decades, farmed area under cotton declined from 73 percent to 3 percent of the total cultivated area. This steep decline in cotton growing can be attributed to three causes: (a) impact of the boll weevil, (b) a fall in world prices of cotton, and (c) changes in the labor code that resulted in an increase in the payroll tax that drove up the cost of labor. 3.18 Lack of technical assistance and water, and poor access to markets limit productivity. In general, yields of food and subsistence crops in nonirrigated areas are low. A major reason is the low use of fertilizer, but in many areas there is too little water to make fertilizer effective. Crop rotations that include nitrogen-fixing plants such as beans are an alternative. However, traditional agriculture has benefited from nongovernmental organizations, which supply assistance to the small farm sector, and from the formation of cooperatives among farmers to assist each other. 66 3.19 Family members provide most labor on small farms, which makes household income highly vulnerable to bad weather and droughts: if the crop fails, the household has no other source of income. Also, low labor productivity is a cause of poverty among agricultural workers. Despite its decline in output, agriculture still provided 14 percent of total employment in RN in 1999. About 80 percent of the jobs in agriculture are informal, and as mentioned above, this job category contracted during 1992­99. The good news is that the majority of the eliminated jobs were low- paid jobs, as shown by the increase in average real wages in agriculture. Real wages increased 54 percent from R$69.9 in 1992 to R$107.4 in 1999 in RN (Table 3.5). This indicates that the number of bad jobs may have been reduced, in particular in the low-growth agricultural sector. Dynamic and High-Growth Agriculture 3.20 Standing out from the sea of low-productivity agriculture are islands of irrigated agriculture in the Mossoró-Assu region (Box 3.1). These fruit producers are mainly of medium and large size, use modern irrigation techniques, such as sprinklers, central pivots, and microsprinklers, and often have easy access to credit and fiscal incentives. In 1998, the permanent crops in RN were coconut, cashew nut, banana, and mango. Coconut and cashew nut increased to 69 percent and 22 percent, respectively, of the cultivated area (see Box 3.2). The competitive annual crops consisted of melon and pineapple, which maintained an increasing and positive trend in area cultivated, price, and productivity. Currently, cotton production is increasing again in the form of a boll weevil-resistant annual crop with higher quality and longer fibers. Box 3.1: The Assu-Mossoró Irrigated Agriculture Pole The Assu-Mossoró irrigated agriculture pole is located in the Northeast of the state. The pole is 150 kilometers from Natal and covers about 8,000 square kilometers, with a population of 340,000. The dam in River Piranhas/Assu has a capacity of 2.4 million cubic meters of water; it is the third largest in the Northeast of Brazil, and guarantees sustainability of the irrigated agriculture in the area. Research shows that the climatic conditions five degrees above or below the equator are ideal for high-quality fruit production. The dry and sunny (3,000 hours per year) climates reduce the likelihood of plagues such as Sigatoka Negra, which was responsible for the destruction of the banana sector in Ecuador and São Paulo. The productivity in the Assu- Mossoró area is good--for example, 80 tons of bananas are produced per hectare. Production technologies are advanced, but many jobs have been created (about 15,000 new jobs in the last decade according to the Banco do Nordeste do Brasil, the Northeast Regional Development Bank). Furthermore, part of the production is being undertaken by small-scale cooperatives, some of which originate from the land distribution project. The development plan of the Assu-Mossoró pole has components other than irrigation, such as the restoration of a dried-up lake, the extension of the electricity grid, and the construction of roads. New organizations are also emerging in the pole, in capacity building, and in community development, such as the Conselho Especial das Associações Comunitárias in the municipality of Assu. Producers and exporters of melon and banana do not complain about the distance to the port, but about the quality of the road, which damages the fruit during transport. 67 Box 3.2: Nuts: A Good Business Opportunity In the small municipality of Serra do Mel, 280 kilometers from Natal, a business opportunity has emerged with cashew nuts. João de Deus Araújo, 53 years old, driving along the region's dusty roads in his old automobile, explains his experience. João is a farmer and he used to spend most of his time producing cotton and dividing his working hours with the landlord. About 10 years ago, he gave up cotton and decided to work with cashew nuts. It is paying off--he has bought a house and car. "My life status increased a lot," he says. After toasting and packing, cashews are worth R$12 per kilogram, which brings João an annual income of R$25,000. To produce 1 kilogram of nuts, 10 kilograms of cashew fruits must be picked. The secret, João says, is in the preservation: "The cashew harvest lasts about four months but its nuts, well stored, could last a whole year." The state is investing in PROCAJU (the cashew nut program), which aims to rehabilitate areas occupied by nonproductive cashew trees. It is estimated that there are about 113,000 hectares of cashew trees in RN, with an average age of 65 years. In 1999, around 30,000 tons of cashew nuts were produced in RN, worth R$26 million. Half were exported to Switzerland and the United States. In 2004, the production is projected to reach about 50,000 tons. Source: Balanço do Estado. 3.21 Cattle and poultry production have performed well since 1985. However, they only account for 5 percent of agricultural GDP in RN and are insignificant in terms of contribution to the state's overall GDP. The main animal products are milk, eggs, honey, and meat. Milk production, in particular has done well. Between 1985- 96, milk production increased by 120 percent in RN, and has continued to grow since. The recent expansion is in large part due to the milk program introduced in 1994 under which milk producers receive a price subsidy (see Chapter 4). The rapid growth of milk production has been mainly on large farms. 3.22 Tropical fruit exports have gained in the state's exports. In 2000, the six fruits--melon, cashew nuts, mango, banana, watermelon, and pineapple--generated US$48.7 million in export revenue. Melon is one of the biggest export items in RN, and the state is the largest melon exporter in Brazil. RN is filling the supply gap of melons in Europe during the winter. 3.23 Although there are no firm numbers for jobs created or income generated in irrigated agriculture in the region, extension workers indicate that 1.5 to 2 direct jobs are created per hectare. The number of indirect jobs created is likely to be higher. Since 1990 the number of formal sector jobs in agriculture has nearly doubled, but is still tiny at 12,000 employees in 1999. 68 Shrimp Farming 3.24 Shrimp farming is another dynamic and fast-growing activity in RN, which is already Brazil's leader in that area (Table 3.9). Shrimp farming is concentrated in the states of Northeast Brazil. In 2000, close to 6,000 hectares produced Table 3.9: Farm-Raised Shrimp in the 24,000 tons of shrimp, and RN led Northeast, 2000 Brazil both in farmed area (1,752 Cultivated Production hectares) and production (7,000 States Area (ha) (ton) tons yearly). In recent years, exports Rio Grande do Norte 1752 7000 of frozen shrimp have increased Bahia 1510 6900 Ceará 982 4960 quickly, and reached US$13.5 Pernambuco 670 2630 million in 2000. In RN there are Piauí 425 1082 150 registered shrimp producers, of Paraíba 420 1300 Maranhão 64 160 which 20 percent are classified as Sergipe 47 188 medium (less than 150 hectares) Alagoas 20 50 and large producers (more than 150 TOTAL 5,890 ha 24,700 tons hectares). It is well known that a Source: Associação Brasileira de Criadores de Camarão. large number of shrimp farms are not registered, and are even located in environmentally protected areas. Moreover, fishery, encompassing fish, shrimp, lobster, and tuna, is the most important export grouping, earning more than US$27 million in 2000. 3.25 One positive effect on poverty from the expansion of shrimp farming is the generation of employment, both direct and indirect. According to the Associação Brasileira dos Criadores de Camarão (ABCC), total employment in the sector reached 26,000 jobs in 1999, and 31,250 in 2000. Technological improvements in the shrimp sector are expected to create an additional 28,000 jobs (13,000 direct and 15,000 indirect) when it reaches its goal of 10,000 hectares in 2005. However, the expansion in shrimp farming needs to be carefully regulated to minimize its adverse environmental impact. Industry and Mining 3.26 Industry has lost part of its importance over the last two decades, and its share of the state's GDP fell from 50.5 percent in 1985 to 34.2 percent in 1998. However, industry's share of the total number of employees increased from 35 percent in 1992 to 40 percent in 1999. The industry created 35 percent of all jobs during the 1990s, almost all in the informal sector. 3.27 The industrial sub-sectors showing the fastest growth were manufacturing and utilities, which grew at annual rates of 5.8 and 9.9 percent respectively. However, minerals and construction grew at respectable rates, out-performing the Northeast and national averages (Table 3.10). Manufacturing and construction accounted for 22.6 and 9.8 percent of state GDP, while minerals and utilities accounted for just 0.8 and 3.6 percent respectively. 69 3.28 Manufacturing output Table 3.10: Industrial Subsector Structure increased by 109 percent and Growth, 1985­98 (percent) during 1985­98. Textiles, garments, shoes, and RN NE BR ceramics accounted for the Industrial Share of Growth Growth largest share of Subsector GDP Growth Rate Rate manufacturing production. 1998 Rate Although aboreo cotton Minerals growing was wiped out, 0.8 5.05 0.80 3.89 textiles and garments were Manufacturing 22.6 5.84 1.91 1.66 among the biggest exports in Electricity, gas, water 3.6 9.91 2.87 4.92 RN generating export Construction 9.8 3.91 3.91 3.01 revenues of US$26.6 million Source: Calculations based on Contas Regionais, IBGE. in 2000. 3.29 Historically, the major minerals extracted in RN were salt and tungsten. RN now produces 95 percent of Brazil's total salt output. However, its importance has declined because prices have fallen from their peaks of about US$80 in the late 1970s to about US$15 in 2000. Similarly, tungsten production was fairly stable until 1985, but then fell to 8 percent of their 1970s peak because of falling prices caused in part by China's entry into the world market. 3.30 Today, oil and gas are the main outputs of the mineral sector. Oil was discovered in Brazil as early as 1939. Oil production in RN accounted for 9.7 percent of Brazil's total in 1996. In 1976, PETROBRAS began to extract natural gas and oil in RN, and by 1979 the value of oil production had caught up with that of salt. Currently, petroleum accounts for around 80 percent and natural gas and salt for 9 percent of the total value added in the mineral sector. Services 3.31 Services, which had accounted for 40 percent of the state's GDP in 1985, had risen to 59 percent in 1998, comparable to the national average of 58 percent. The expansion was aided by the overvaluation of the real through much of the 1990s, which discriminated against tradable goods and contributed to an expansion of non- tradable goods and the service sector. The majority of jobs created between 1985- 1999, 65 percent, was in services. 3.32 The fastest growing subsectors were communications, real estate, transport and storage, domestic services, and financial intermediation (Table 3.11). The public sector, which comprises the largest subsector, grew at 1.6 percent annually. Although communications grew at a brisk 11.6 percent annually, it comprised only 2.3 percent of GDP by 1998. The second-largest service subsector, real estate services, which encompasses real estate brokerage, management, and rentals, expanded rapidly, almost doubling over this period. However, other sectors that one would associate with tourism, such as food and lodging, did poorly. This is surprising since tourism has grown rapidly in RN, with the number of tourists visiting the state doubling in 70 the last five years, exceeding 1.1 million in 1999. Given RN's potential for tourism, it is useful to discuss this sub-sector in greater detail. Table 3.11: Services Subsector Structure and Growth (%) 1985­98 Services Subsector RN NE BR 1998 % share of Annual Annual Annual GDP growth rate growth rate growth rate Commerce 7.5 1.88 3.05 2.74 Lodging and Food 1.9 1.61 4.16 3.18 Transport and Storage 2.1 5.24 5.47 3.99 Communication 2.3 11.63 10.95 9.98 Financial Intermediation 6.3 4.54 2.61 2.24 Real Estate 14.9 5.29 3.76 3.34 Public Sector 15.3 1.61 1.38 1.66 Private Health and Education 3.1 1.70 1.47 1.73 Other Social/Personal Services 1.4 2.15 1.57 2.37 Domestic Services 0.5 4.63 3.47 2.15 Source: Calculations based on Contas Regionais. Tourism 3.33 Global tourism accounts for 1 in 14 workers worldwide and about 12 percent of global GDP. Tourism development may be particularly appropriate for poverty reduction because many of the poor live in areas that provide the natural amenities that tourists demand. In addition, entry-level tourism jobs require low skills, and the tourism industry's links to the informal sector can increase opportunities for low- skill workers. 3.34 The government in RN has undertaken large efforts in expanding the tourism sector in RN. For example, the government has created a tourism council with participants from NGOs, the private sector and the government. It has also made large infrastructure investments via the PRODETUR project to facilitate tourism's rapid expansion in the state (see Box 3.3). 3.35 RN is well suited for a propoor tourism development program because of its extremely high poverty and because of the region's natural assets--notably its long coast, sandy beaches, and plentiful sun. By all indicators, tourism is growing rapidly in RN. Between 1991 and 1998, the total cumulative number of tourists in registered hotels in greater Natal increased by more than 73 percent. The estimated contribution to the state's GDP grew from 3.5 percent in 1996 to 8.1 percent by 2000 (SETUR, 2000). 71 Box 3.3: PRODETUR/NE Investments and the Poor in Rio Grande do Norte PRODETUR/NE is a program that makes investments to promote tourism in Northeastern Brazil. The program's main means of promoting tourism is through investment in tourism- related infrastructure such as airports, roads, and sanitation. PRODETUR/NE's specific objectives are to (a) increase tourism receipts, (b) increase the length of time tourists stay in the Northeast and reduce seasonal fluctuations in tourist numbers, (c) encourage new investments in tourism infrastructure, and (d) generate employment and income through direct and indirect tourism-related activities. The main investment strategy to achieve these objectives focused on basic infrastructure and public services. PRODETUR/NE receives external financing from the IDB, and domestic financing from federal, state, and municipal governments. Loans made to RN for PRODETUR/NE total about US$22.5 million, or about 5.5 percent of the total project funding. The RN subregion that qualified for the loans was a coastal area called Polo Costa das Dunas. Analysis of the loans to RN shows (a) a higher share went to transport infrastructure--airport and roads--than the Northeast average; (b) a smaller share went to sanitation infrastructure; (c) investments in RN were highly concentrated in Natal (about 60 percent of the value of loans), and all the loans for the airport, environmental reclamation, and sanitation infrastructure were for investments in Natal; and (d) a high share of loans to RN are focused on infrastructure built in Ponta Negra, a relatively wealthy beachfront community. These investments benefit the poor to the extent that (a) the poor are employed in the construction industry, (b) the poor are intensive users of the infrastructure, or (c) the spillovers or induced economic activity from these investments largely benefited the poor. 3.36 The RN government's tourism development strategy stresses sustainable development (SETUR 1999). The objectives of the plan are to (a) promote and consolidate the region as a national and international tourism destination, (b) identify local resources and minimize adverse environmental impacts, (c) identify specific localities for tourism development, and (d) build local capacity to work in the tourism industry. While data do not exist on the distribution of benefits among population groups from infrastructure investments, sentiment is growing in the state, reflected both in official documents and in interviews with tourism-related officials, that tourism should be guided more toward achieving social goals now that the infrastructure is largely in place. 3.37 To understand more formally how key tourism stakeholders in RN view the industry, a survey of these stakeholders was conducted for this report.14 The survey data indicate attitudes toward tourism development, and perceptions of its economic, fiscal, social, and environmental impacts in RN since 1995. Of the respondents, 41 percent identified themselves as government related, 21 percent as business related, and 38 percent as being from civil society. 3.38 The vast majority of respondents believed that the poor have not been major beneficiaries of tourism development, even though they agreed that a major objective 14 This survey occurred at a meeting with the Rio Grande do Norte Tourism Council on April 30, 2001 and included 200 major tourism stakeholders. 72 of tourism development should be creating jobs for the poor. However, almost 90 percent of respondents agreed or strongly agreed that tourism had improved quality of life in their community. Tourism was thought to bring jobs to the community, although often the jobs are seasonal, part time, or low paying, with little potential for advancement. Over 90 percent of the respondents also thought that public investments in tourism infrastructure had helped promote tourism growth. 3.39 Social problems associated with tourism growth include rapid population change, crime, and displacement of residents. Respondents felt that young people benefit more than older people and impacts of tourism are gender neutral. Negative social impacts, such as tourism-related crimes, including drugs and prostitution, are widely recognized as problems in the community. Prostitution was the greatest concern. Overall, local governments and communities needed to plan tourism development better and to encourage more local resources to be employed. LOCATION STRUCTURE OF GROWTH 3.40 Economic growth experienced in the last decades in RN is far from homogeneous throughout the state. The large regional differences within the state are associated with the expansion of economic activities in a few of the areas away from the Sertão. Of the eight zones in RN only two, Litoral Oriental and Mossoroense, experienced an above-average expansion of output during 1970­96. In the past three decades these two very-fast-growing zones on the coast also experienced by far the largest population inflow of the eight zones (Table 2.8). The largest real GDP growth, above 500 percent during 1970­96, took place in the capital region (Litoral Oriental) where the industry and service sectors are particularly strong. The second- largest GDP expansion, 312 percent during 1970­96, occurred in the zone of Mossoró, where, in particular, oil, gas, and irrigated agriculture have expanded rapidly in some municipalities and created opportunities for the population. Litoral Oriental and Mossoroense had the largest population growth, 151 and 79 percent, respectively, during 1970­2000 (Table 3.12). 3.41 The large economic and population growth in the capital zone contrasts sharply with the developments in the zones that are mainly in the Sertão and where income opportunities are limited, droughts are frequent, and social protection programs are few (see Chapter 4). A large share of the population in the five zones that are almost completely in the Sertão migrated to the metropolitan area, (Figure 2.6), which resulted in a population growth in these zones of less than a third of the average population growth in the state of 79 percent, and a sixth of the capital zone's. Income growth followed the same path, but it was steeper because in three zones (Serras Centrais, Caicó, and Currais Novos) income contracted rather than grew during the last 30 years. Low-growth agriculture played a key role, and the main causes were the steep decline in cotton production and the end of traditional mineral extraction. 73 Table 3.12: Real GDP, Population, And Poverty in RN's Eight Zones, 1970­2000 Population Poverty Real GDP Growth (%) Annual Per % Growth Capita Earning Zone 1970­ GDP R$205 97.6 97.6 Ages 11­14: Income Primary I Primary II Secondary Attendance R$205 17.0 67.9 86.8 Ages 15­18: Income Primary I Primary II Secondary Attendance R$205 0.0 21.6 52.7 85.1 Source: Calculations based on PNAD 1999. 4.34 School attendance. School attendance of poor students in RN increased fast, from 60 percent in 1981 to more than 91 percent in 1999. As in the rest of Brazil, RN children from richer households have on average a higher school attendance, are less likely to repeat a school year, and have more completed years of schooling than children from poor households. In 1999, all secondary-age school children from families with a per-capita household income above R$205 had completed the first four years of primary school (primary I), 21.6 percent had completed the last four years of primary school (primary II), and 52.7 percent were enrolled in secondary education. The respective figures for the poorest are 12.9 percent, 42.5 percent, and 88 7.3 percent. Hence, only 7.3 percent of the poorest secondary-age school children were attending school grades appropriate to their age. 4.35 Poverty and educational Table 4.6: Years of Effective Education, Total attainment. Data reveal a strong and Indigent Poor Population, 1981­99 correlation between poverty and 1981 1999 educational attainment in the Total Indig Total Indig Northeast. The level of Brazil 4.46 2.19 6.41 3.78 education of the extremely poor Maranhão 2.57 1.72 4.28 2.88 is the lowest, and it is also Piauí 2.43 1.56 4.14 2.78 increasing more slowly than Ceará 2.84 1.61 4.75 3.15 average. Average years of Rio Grande do Norte 3.48 1.95 5.57 3.69 Paraíba 3.37 2.03 5.46 3.06 effective education of the total Pernambuco 3.47 2.05 5.36 3.46 active population in Brazil Alagoas 2.61 1.6 4.67 2.83 increased by almost 2 years, Sergipe 3.02 1.64 5.42 3.46 from 4.5 years in 1981 to 6.4 Bahia 3.15 1.86 4.69 3.09 years in 1999. In 1999, average Indig: Below indigence poverty line. Note: Effective education evaluated as years of completed education. years of effective education of Source: Calculations based on PNAD 1981 and 1999. the total population in RN increased by 2.1 years, from 3.5 years in 1981 to 5.6 years in 1999 (Table 4.6). For the indigent poor--with per capita family income below the indigence poverty line--it increased slightly less, from 2.0 years in 1981 to only 3.7 years in 1999. This shows that school attainment of the poor is increasing fast, but the gap between the poor and nonpoor in school attainment is not closing. 4.36 Efficiency. School efficiency, as measured by the repitition rate, is very low in RN. At the primary level, 32.9 percent of students repeated (compared to 24.4 percent nationally). Another measure of efficiency, the average time a student took to complete the eight-year cycle in primary school, has worsened from 9.1 years in 1995 to 9.8 years in 1998. This is the worst figure of any state in Brazil, and in most other states the figure is falling, not rising as in RN. At the secondary level, RN also ranks near the bottom in terms of efficiency, with the average time to complete the three-year cycle rising from 3.5 years in 1995 to 3.7 years in 1998. The completion rate, however, is relatively high at 83.6 percent, up sharply from 62.9 percent. 89 4.37 Test scores. Despite Table 4.7: government efforts to improve the Average Student Achievement Scores, quality of education, students are Grades 4 and 8, 1995­99 learning below the norm for their 1995 1997 1999 grade levels. Indicators show that Grade 4 ­ Portuguese poor quality of education and student RN 178 173 154 learning affect test scores, which are NE 178 178 157 BRAZIL 188 186 171 low in RN and show signs of Grade 4 ­ Mathematics deterioration. Test scores are RN 181 179 166 available in Portuguese Language and NE 179 181 169 Mathematics for the 3rd, 4th, and 8th BRAZIL 191 191 181 grades. These scores show that Grade 8 ­ Portuguese performance by 4th graders in RN is RN 235 236 223 below the other states of the NE 230 240 224 BRAZIL 256 250 233 Northeast, and substantially below Grade 8 ­ Mathematics the rest of Brazil (Table 4.7). The RN 233 240 232 results also show that scores in RN on NE 232 240 235 the whole are declining rather than BRAZIL 253 250 246 improving. During 1995­99, the Source: SAEB. overall reduction in student learning for 4th graders was higher in RN (10.9 percent and 2.8 percent) than in the Northeast (8.7 percent and 0.6 percent). 4.38 Schools and teachers. While the quality of education as reflected in test- scores, repitition rates, age-grade distortion, school attainment, and functional literacy leaves much to be desired, the schools themselves and the qualification and dedication of the teachers were found to be generally good, though the teachers did not always make the best use of school time (Box 4.1). This suggests that targeted teacher training may be useful. Education Policies and Programs 4.39 The progress made in recent decades has been due to increased resources devoted to education, increased priority placed towards primary education, increased responsibility given to municipalities for education delivery, and by a number of federally-funded programs. At present, about half the public funding for education is provided by the state, about 30 percent by municipalities, and the balance 20 percent by the federal government, usually through programs implemented by municipalities. 4.40 Brazil has a complex system of allocating public funds to education. The Constitution requires that the federal government spend at least 18 percent of its tax revenues on education and that the states spend at least 25 percent of their tax revenues, including the proceeds from intergovernmental transfers. Of these resources, 60 percent must go exclusively to primary education. In addition, the Constitution provides for earmarking of a wage tax (the salário educação, 2.5 percent of wages) for expenditures on primary education. The tax is collected by the Fundo Nacional de Desenvolvimento da Educação (FNDE), with one third 90 distributed to the federal programs to attain universal access to primary education and two thirds distributed to state secretaries of education (prorated according to tax collection amounts). Box 4.1 Findings on Education from School Visits in Rio Grande do Norte Physically, most schools in Rio Grande do Norte are in good condition. The state has invested a lot in schools, and most are attractive and clean, with the necessary space for materials and assemblies. RN has fulfilled the prerequisite of having an attractive physical environment that is conducive to learning. Textbooks and instructional materials were present in most, but not all, schools. The large schools near Natal had books and audiovisual equipment, but some rural schools did not have enough. There have been some innovations to improve learning. These include accelerated classes and adult literacy for parents. However, they do not exist in most schools, and many students and parents who could benefit do not have access to them. Teachers and principals have received much training. The teachers in the schools visited were dedicated, well meaning, and diligent in their duties, as they understood them. They had planned their lessons, and they had spent time writing material on the board. However, in the schools observed, the teachers still do not use class time efficiently, and learning is quite deficient. The following problems were observed in schools: (a) larger periurban schools had many audiovisual materials that are underused; (b) much of the class time in the schools visited was spent copying from the blackboard; (c) books are generally available, but they were not used when there was clearly a need (for example, to read and discuss a text rather than copy it); (d) possibly as a result of these practices, students cover little material in classes; (e) many classes of even good schools stop 5 to 10 minutes before the break; (f) teachers were often engaged with one or two students, while the others were unoccupied and running around; and (g) children in grade 4 cannot read. International research shows that once students fall behind in grade 1, they may not catch up, and that boys are particularly vulnerable to low-quality instruction (Fuller, Dellagnelo, and Strath 1999). Research also shows that class size does not make a difference, but the teacher's general education does, and that the home environment accounts for only 10 percent of reading achievement variance. The other 90 percent depends on the quality of instruction, which the government can help improve. The policy recommendation here is to undertake a statewide campaign to economize time, with slogans such as "make every minute count." One of its objectives could be to enable nearly all students to read fluently by the end of grade 1. Source: World Bank school visits in Northeast Brazil, February 2002. 4.41 In 1996 a law was passed to clarify the roles and responsibilities of each sector of government involved in the provision of education (federal, state, and municipal) and to create the Fund for the Maintenance and Development of Primary Education and Enhancement of the Teaching Profession (FUNDEF) (see Box 4.2). The law provides a greater role to municipalities for primary education, while leaving the responsibility of secondary education with the state. 4.42 The federal government has a plethora of programs in education aimed at improving the coverage and quality of education, particularly primary education. These are described in the Appendix. 91 Box 4.2 Basic Education Development and Teachers' Incentive Fund Both states and municipalities operate primary schools in Brazil. While states tend to provide schools in larger urban areas (except Rio de Janeiro), municipalities are often responsible for primary schooling in poorer, rural areas. The Fundo de Manutenção e Desenvolvimento do Ensino Fundamental e de Valorização de Magistério (Basic Education Development and Teachers' Incentive Fund or FUNDEF) is designed to address disparities in education spending by requiring states to pool resources with their respective municipalities to ensure a minimum level of spending per pupil in all primary schools. Under the FUNDEF law, each state government must assign 15 percent of its two principal revenue sources--the Imposto Sobre Operações Relativas a Circulação de Mercadorias e sobre Prestações de Serviços de Transporte Interestadual, Intermunicipal e de Comunicação (Tax on the Circulation of Goods, on Interstate and Intermunicipal Transportation Services, and on Communication Services, ICMS) and the Fundo de Participação dos Estados (State Revenue Sharing Fund, FPE)--to a FUNDEF account. The municipalities within the state must contribute 25 percent of their principal transfer revenues (a share of the state ICMS and a municipal participation fund). If the sum of the state and municipal contributions, divided by the number of primary school students, is less than a standard amount, the federal government is required to finance the difference. The total amount of FUNDEF funds (including the state and municipal contributions) is distributed among the state and its municipalities on the basis of enrollment. Thus a state with a high proportion of students in municipal schools may contribute more to FUNDEF than it receives back. A state with a high proportion of primary school students in state schools would receive more back than it pays in. 4.43 The state government has shown Table 4.8: State Spending on its commitment to improving education Education, 1995 and 1999 (% of GDP) in RN. Education spending there has 1995 1999 been steadily increasing and so has its Alagoas 3.4 3.6 share of GDP. In 2001, RN spent R$565 Bahia 2.6 3.3 million on education, which was 23.5 Ceará 2.7 3.2 Maranhão 5.0 4.5 percent of total spending that year (see Paraíba 3.4 5.3 also Chapter 5), and a real increase of 15 Pernambuco 1.8 2.0 percent over 2000. Of this amount, 70 Piauí 4.8 5.9 percent was allocated to basic education, Rio Grande do Norte 3.4 5.4 6.2 percent to secondary education, 3.4 Sergipe 4.1 4.1 percent to higher education, 1.7 percent Source: Ministério da Fazenda/ IBGE. to special education, and 0.2 percent to preschool. Education's share of total GDP increased 2 percentage points to 5.4 percent during 1995­99 (Table 4.8). Currently, RN spends a larger share of its income on education than any other northeastern state. 92 4.44 In 1997, spending per Table 4.9: Education Spending, 1997 student was only R$369 at the Average Spending Per Student preschool level, R$381 at the Preschool, Primary, Secondary, and Tertiary primary level (less than a quarter (R$) of what was spent in the Federal Pre. Pri. Sec. Ter. District), R$686 at the secondary Alagoas 396 350 1058 9423 level (around the median for Bahia 438 322 395 6939 state spending), and R$14,288 at Ceará 323 361 543 6649 the tertiary level, among the Maranhão 324 319 546 8040 highest in Brazil (Table 4.9). Paraíba 454 354 731 6995 This indicates a large distortion Pernambuco 450 376 557 3917 in spending, biased toward the Rio Grande do Norte 369 381 646 14288 higher levels of education and Source: Secretary of Education, Rio Grande do Norte. regressive in nature, because far more students from the top income quintiles attend secondary and tertiary education than students from lower-income quintiles. 4.45 Policies to improve the quality of education should be the core of the government's poverty-reduction strategy. There are two key policies for improving education of the poor. First, educational investments and reforms concentrated on early childhood and primary education are needed. These include training of teachers on time on tasks, and promoting participation of parents in schoolwork and governance, all with the aim of improving educational outcomes. Second, adult basic education needs to be strengthened. 4.46 Bad classroom practices are at the core of low educational outcomes. Addressing these requires better teachers and school management. Teacher training is substantially lower in RN than elsewhere in Brazil. Only 31 percent of primary teachers, and 75 percent of secondary teachers, had themselves been educated above the secondary level. Low content knowledge and poor teaching skills are common among teachers and contribute to low student achievement and high repetition and dropout rates. The management of schools also needs improvement. The role of principals should be to supervise. RN has full-time principals in most schools and some form of incentives may be needed. 4.47 RN lags in preschool and Early Childhool Development (ECD) programs. The group of children that has suffered the greatest lack of educational attention is the preschool group. As the legal responsibility for the provision of preschool has shifted to the municipal level, the number of preschool places in RN actually declined by 20,000, to 96,506 (both private and municipal schools) during 1995­ 2000. Daycare and early childhood education represent a future investment in the human capital of the state, and should be a priority over the long term. Studies have shown that children who have attended preschool perform better academically than those who have not. Programs have been in place to monitor and improve the health outcomes of small children--from early pregnancy through the first years of life. Given the high incidence of poverty and vulnerability among families with children under age 5, and given the increased economic participation by women, a program of financial transfers linked to early childhood development and education centers 93 (along the lines of Bolsa Escola and PETI, see below) could be influential in reducing poverty. The federal government is currently launching and piloting the Bolsa Alimentação, a program of financial tranfers to the mothers of children age 5 and younger, linked to stringent prenatal, postnatal, and developmental checkups by health professionals. This type of program could be linked to and used as the vehicle for strengthening and expanding early childhood education and care. In RN this might be a more effective way to improve child health outcomes and reduce poverty than the current Milk Program. 4.48 Despite the school programs promoting lunches and milk, malnourishment continues to be problem and is a serious impediment to student learning. Ways to address this problem include reforming the milk program (see below) and expanding the scope of the Bolsa Alimentação. There is also a need to carry out better monitoring and evaluation of programs. The education process needs to be evaluated, both in terms of increasing time on tasks for students and in terms of their learning achievement. HEALTH 4.49 Despite enormous advances in recent decades, the Northeast of Brazil and RN have poor health outcomes relative to Brazil's per-capita income. Poor health is bound to affect economic growth and welfare. It also affects learning and economic productivity, is a drain on private and public resources, and reduces the quality of life. Improving health outcomes is key to reducing poverty. This section describes the health status of RN, evaluates government policies and expenditures, and makes recommendations to improve outcomes. Health Status 4.50 Both infant mortality and life expectancy at birth Table 4.10: Health Indicators have improved dramatically Indicator/Region 1970 1980 1991 1999* over the last three decades and Infant Mortality Rate (per 1000 live births) are getting closer to the Rio Grande do Norte 235.6 169.3 90.5 48.7 average for the country (Table Northeast 179.2 131.3 82.5 53.0 4.10). RN has also gone from Brazil 123.2 85.2 49.5 34.6 performing well below the Life Expectancy at Birth (years)* Northeast average to above it. Rio Grande do Norte 44.4 51.0 60.6 66.4 And while infant mortality has Northeast 48.1 54.0 60.6 65.8 declined substantially, it is Brazil 51.4 56.9 63.3 68.6 still unacceptably high at 48.7 * Life expectancy figures are for 2000. Source: Ministry of Health. DATASUS. per 1,000 live births in RN, especially since many of the deaths are preventable or curable with access to appropriate health and sanitation services. As a result of economic growth, urbanization, and past investments in education, health care, water, and other social programs, the infant mortality rate has fallen over the last decades (World Bank 2000b). Filmer and Pritchett (1997) find that a 10 percent increase in income is 94 associated with a 6 percent lower infant mortality rate. Malnutrition of children is also a problem. 4.51 The life expectancy of men in RN, as in many parts of Brazil, is 6.6 years below that for women. There are no health programs oriented towards men. Health programs--including sexual and reproductive and general health programs--have traditionally been directed at women. For example, prevention programs have been established for breast and cervical cancer, but no parallel efforts have been made to address prostate cancer among men. Similarly, reproductive health programs have tended to exclude men. As a result, contraceptive use among men is minimal. Of particular concern is that most men do not report using condoms, which puts them and their partners at risk of contracting HIV/STDs. Other areas of concern include the high levels of alcohol and substance use and abuse by men, and the links between alcohol use and violence. 4.52 RN has made substantial progress in prenatal care in recent years. Eighty-five percent of pregnancies received some form of prenatal care in 1996, compared to 64 percent in 1991 (BEMFAM 1998a). However, the rates of at-risk pregnancies, teenage pregnancy, and maternal mortality are still too high. Teenage pregnancy remains high in RN, and few programs exist specifically targeting the reproductive health needs of adolescents. Women are also contracting HIV and AIDS at a faster rate than men, although in absolute terms more men have AIDS than women. 4.53 The fertility rate in RN is still high at 2.6, and higher than the desired 1.9 as earlier mentioned. In 1996, according to the national survey on demography and health (Pesquisa Nacional sobre Demografia e Saúde, PNDS) 72 percent of women aged 15 to 49 and living with a partner in RN were using some form of contraception, slightly up from 70 percent in 1991. This is lower than the national average of 77 percent and compares with rates of 84 percent and 88 percent in the South and Mid-West of the country (BEMFAM 1996, 1998a). Although male sterilization is a simpler, safer, and less costly intervention, female sterilization is by far the most common form of contraception in Brazil. In RN, in 1996, this was the method of contraception chosen by more than 40 percent of women aged 19 to 49 living with a partner. Health Policies and Spending 4.54 RN's impressive progress in health outcomes is due in no small measure to federal and state support for health, especially at the primary care level. In 2001, the state spent R$230 million--roughly 2 percent of state GDP--on health and sanitation, a real increase of 11.1 percent over 2000. Despite the increase, the health sector share of the total expenditures fell slightly from 11.5 percent in 1995 to 10.4 percent in 2000. 4.55 The federal government funds much of RN's health expenditures. To fulfill the public universal right to all-inclusive, free-of-charge health services under the Constitution, the Unified Health System (Sistema Único de Saúde, SUS) was created 95 in 1990, which increased federal funding for health and decentralized provision to the municipal level (see Box 4.3). Box 4.3: Unified Health System The Brazilian Constitution of 1988 established a universal right to free health services to be provided by the public sector. To operationalize this mandate, the federal government created the Sistema Único de Saúde (Unified Health System, SUS). SUS was originally a federally financed prospective payment system which directly reimbursed private and public providers for specific treatments based on a fee schedule set by the Ministry of Health. Since then, the system of direct reimbursements to providers has been replaced by one based on annual budget ceilings (Tetos Financeiros Globais, TFGs) assigned to each state. [The law also provides for direct payments to municipalities that have been declared eligible for full municipalization (Gestão Plena do Sistema Municipal.)] Because SUS transfers are insufficient to cover the costs of the services the state wishes to provide, the state supplements them with its own funds. 4.56 Two of the major federal programs in this area are the Programa de Agentes Comunitários de Saúde (PACS)20 and the more recent Programa de Saúde Familiar (PSF).21 Today, PACS covers almost 90 percent of RN's population. The PSF now has 397 teams in place and covers 48.6 percent of the state's population. In addition, a professional program in reproductive health has been implemented in partnership with Sociedade Civil Bem-Estar Familiar (BEMFAM). 4.57 The PSF program was specifically designed to change the prevailing health care model to a preventive one, and address some of these quality-of-care issues. While it certainly has made some progress in providing preventative, humanized, and culturally sensitive care, it still has some way to go in addressing these issues. It has, for example, introduced a system where the Community Health Agents make medical appointments at specific times at the health clinic for their clients. This makes an enormous qualitative improvement over the usual practice of going to the clinic with the possiblity of having to wait all day without being seen. A longer-term objective is for patients themselves to make these appointments, thereby taking responsibility for their own, especially preventive, health care needs. 4.58 Continuing expansion of the PSF program, particularly to areas that are difficult to serve, is a priority of the state. While an expansion is desirable as access to health care is still a concern, quality of care still needs to be maintained and improved. There are still issues related to poor technical and managerial skills, still more emphasis that could be placed on preventative as opposed to curative care, still 20The PACs transfers money directly to the municipalities for expanding primary care through a team of community health workers, who typically reside in rural areas and serve an average of 150 families. 21The PSF transfers funds to municipalities for expanding primary care through a team of health professionals (a doctor, nurse, health assistants, and community health workers) who provide services to an average of 600-700 families within a specific geographic area. 96 a problem with uncommitted and demoralized health professionals, and still patients who are maltreated. The recruiting and retention of qualified medical doctors in the more remote and poorer municipalities is an ongoing struggle for the public health system in RN, as it is in the rest of Brazil. This also remains one of the main obstacles to expanding the PSF into these areas, even at the much higher salaries the program offers. 4.59 Rapid decentralization may be partly responsible for these problems. Decentralization entails the transfer of financial resources, the public sector's infrastructure and human resources, and resources for contracting with the private sector. In essence, states had to change their roles from important providers of health care and other interventions to one of supervision, support, monitoring, and normalization. Municipalities had to accept new responsibilities both in traditional areas and in those with which they had no previous experience--specifically, they had to acquire basic management skills such as planning, finance, monitoring, evaluation, and execution. Theoretically, planning had to be an upward process in which municipalities formulated their plans, which were then adjusted and integrated by the State Secretary into the state plan. In practice though, planning has been mostly a centralized process marked by various tensions between states and municipalities. 4.60 While the decentralization efforts are to be welcomed--and the two major programs PACS and PSF have received high marks--the rapid pace of decentralization and the shift in the structure and relations of SUS it has brought about have raised concerns. Some doubt the technical and administrative capacity of municipalities. A recent report by the federal government's Health Auditing Department points out municipal deficiencies in the areas of planning and programming, health counsel's operations, accounting and financial control, general management and management information systems, availability of municipal counterpart funding, and proper use of public funds. Concerns have also been raised about high administrative costs, losses of economies of scale, and fragmentation that may arise from the small size of many municipalities. 4.61 Two main problems were identified by Akhavan (2001): · Misalignment of Capacity. These resulted from the new roles required of State and Municipal Health Secretaries, which in turn demanded new capacities. These capacities could not be acquired overnight and the result was a deficiency in necessary skills with varying degrees of dysfunction in the health system. This misalignment occurred in a situation of chronic human resource deficiencies that only aggravated the effects of new demands on capacity. A decentralized SUS also provided more opportunity for the public to influence the functioning of the system. Requiring new awareness and skills, the public has to understand its rights vis-à-vis health and the channels to provide input into SUS. 97 · Misalignment of Incentives. Previously, resources and supervision flowed to the municipalities, and compliance and data flowed back to the states. This coupling of flows served as an incentive to the municipalities to carry out their functions. Decentralization dissociated the flow of funds, which could now come directly from the federal level, from other essential components. Many municipalities had less of an incentive to comply with state supervision and carry out data transmission and other duties in a timely fashion. This problem was exacerbated by the fact that initially, the role of the state in a decentralized SUS was unclear. Recommendations 4.62 Based on the health status and an evaluation of the government programs in health, the following suggestions are offered with a view to improving health outcomes: · Continue with the emphasis on preventive care embodied in PSF and PACS that is aimed at reducing infant and maternal mortality by: (i) paying greater attention to the provision of clean water and sanitation (see Infrastructure section), (ii) in remote areas, increasing the training and hiring of nurse-practitioners (enfermeiros comunitários) and nurse-midwives, and revitalizing the practice and use of Casas de Parto (small maternity hospitals), and mobilizing NGOs and community-based organizations to provide basic care, (iii) providing information and basic services during pregnancy and after birth, including information on child nutrition and tetanus immunizations to reduce the risk of infections during and after pregnancy, and (iv) improving access to family planning services for teenagers and the poor · Targeting men as partners in reproductive and sexual health programs as well as in child care and nutrition to promote their roles as husbands, partners, parents, and care providers. To do so may require: (a) extending clinic opening hours to be more compatible with men's work schedules; (b) holding clinics just for men; (c) increasing the number of urologists on staff, and the number of laboratories for preventive work; (d) running education campaigns and activities aimed at men; and (e) improving coordination between general clinics and family planning clinics to "capture" men seeking services. Addressing these types of gender differences in health programs has the potential to make traditional family health programs more effective, and improve health outcomes for both men and women · Enhancing training and capacity building at both the state and municipal level. At the state level, priority should also be given to preparation and funding of state plans for training municipal personnel in the basics of the management of SUS such as planning, monitoring, evaluation, and execution. At the municipal level, municipal secretaries of health should undertake a sustained effort in training personnel and forming a core group of skilled personnel. This would make the 98 municipal health system more robust to political and other changes which frequently disrupt its proper functioning. 4.63 Maternal and child health, in particular, can improve by applying a performance and output based approach to health care. One such four-pronged approach consists of: setting goals, implementing basic actions to achieve the goals, introducing measures to improve the quality and effectiveness of care, and performing evaluations.22 Some guidelines on how to do this are outlined below: · Goals. More aggressive targets for maternal and child health are both desirable and feasible. The easiest indicator to utilize is the infant mortality rate. · Basic Actions to Achieve the Goals. Because health indicators are so much worse for the poorest part of the population, it makes sense to focus efforts on the rural areas, and on the poor, which are overlapping population segments. Priorities for these areas are inter-sectoral programs that reduce poverty and increase education. In addition, health initiatives on the management of childhood illness, family planning to improve birth spacing, breastfeeding promotion, and improved antenatal and delivery care are priorities. Those interventions could prevent as many as 40% of deaths among children under five in Northeast including RN. Because perinatal mortality is the largest component of infant mortality and because maternal mortality has been stagnant for a decade, quality improvements in antenatal, delivery, neonatal, and postpartum care and breastfeeding promotion are needed. Another priority for all regions is the introduction of the Haemophilus influenza type b (Hib) vaccine, whose effectiveness was demonstrated in studies in Gambia and Chile. Those health initiatives, along with better case management of infectious diseases, could prevent one-third of all deaths among children under five. · Measures to Improve the Quality and Effectiveness of Care for Mothers and Children. Improve the referral and data systems. Of particular value to maternal and child health are systems in which pre-designated providers offer antenatal, delivery, and postpartum care to every pregnant woman and newborn. The activities of Family Health teams and municipal health secretariats are not driven often enough by local data and community priorities. A promising and feasible way to address this problem is to expand contracts with NGOs and community- based organizations for the development of educational materials and for community-level work in nutrition education, family planning, reproductive health, and the prevention and treatment of infectious diseases. · Evaluation. Data on the causes of death are based on a facility-based reporting system and liable to under-reporting. More timely measures of maternal and child health would help policy makers evaluate initiatives and adjust programs quickly. Conducting household surveys once every two years that collect information on mortality rates, the causes of death, and morbidity across all age 22More detailed analyses and recommendations are published in the World Bank report (2002b): "Brazil: Maternal and Child Health". < Report No. 20693-BR> 99 groups, sexes, regions, and income levels would facilitate evaluation and planning. SOCIAL PROTECTION 4.64 Recognizing that economic growth and social investments in education and health will still leave many in extreme poverty, the state and federal governments have a variety of programs aimed at reducing economic insecurity and targeted poverty reduction. The programs fall into three categories: (i) those dealing with life-cycle considerations such as social security and pensions; (ii) those dealing with income volatility such as unemployment insurance; and (iii) those dealing with social protection, aimed at improving the well-being of specific vulnerable groups. 4.65 The social protection programs include income transfer schemes, an employment and income generation program, a youth program, a milk program, and programs to combat child labor and sexual abuse. In addition, there are health and education programs aimed at building sewerage and keeping children in school. This section will describe some of the social protection issues and assess the policies of the government in dealing with them. In doing so, it will focus on three major social protection programs: the federal-funded Bolsa Escola and PETI (Child-Labor Eradication Program), and the state-funded Milk Program. 4.66 Each age group faces challenges. Children are among the most vulnerable. The 0-to-5-age-group faces the risk of stunted development. In RN, public policy seeks to address this via early development programs. The education sector plays an important role by improving access to preschool and kindergarten, particularly for the poor. However, given fiscal constraints, this group receives low coverage. The Milk Program (see below) is also aimed at this group. 4.67 The 6-to-14-age-group faces the risk of low-quality education, child labor, and sexual abuse. The social assistance programs in RN to assist this group are Bolsa Escola (to increase school access), PETI (to eradicate child labor), and Sentinela (to attend to sexually abused children and youth). This age group has good coverage, but demand is still not fully met (see the analysis below). 4.68 The 15-to-24-age-group faces the risk of poor secondary education, including poor school attendance, completion, and quality. In addition, the labor market participants from this group face the same risks as those in the 25-to-65-age-group (see below). The same policy responses apply as to the 6-to-14-age-group. However, the poor from this age group are less well covered because there are no Bolsa Escola programs available for them. However, RN assists socially vulnerable youth via the Agente Jovem program, which reaches about 60 municipalities. 4.69 The 25-to-65-age-group faces risks of low income, underemployment, and unemployment. Job-creating growth programs and labor market reforms are key to reduce these risks. Current social policies--unemployment insurance, severance pay (FGTS), and the pension system--cover employees in formal employment (33 100 percent of the labor force) for loss of income or job. Formal sector workers are well covered, perhaps excessively so. The group at risk is the two-thirds of the labor force working in the informal sector that does not have access to any social insurance programs, except for income loss in drought, which gives access to low-paid workfare programs, constituting a form of basic risk coverage. The Programa Nacional de Geração de Emprego e Renda (National Program for Job and Income Generation, PRONAGER) helps the unemployed to increase their job opportunities, but it covers only seven municipalities in RN. 4.70 The group age 65 and older faces the risk of low income. The role of social protection is to supply pensions to this age group. The contributors to the social insurance system (contributory pensions) face little risk because they are insured. The role of social assistance is to provide income transfer to the group that is not insured. The risk for this age group is currently fairly adequately covered. 4.71 Many of the programs find it difficult to reach the very poorest. A recent study found that of the total spent on social programs, 14 percent accrued to the first quintile of the income distribution (World Bank 2001). Many programs lack broad reach amongst the poor, good targeting, or both. Some guidelines for the design of good social programs are provided in Box 4.4. 4.72 Spending on social protection by RN is slowly increasing. In addition to the federal and municipal programs, the state spent R$93.3 million in 2001 on social action programs, an increase of 9.3 percent over 2000. The share of social action programs in total public expenditure increased from 3.9 percent in 1995 to 4.4 percent in 2000. For comparison, the state spent 6.2 percent of its total public expenditures on safety. There is probably scope to expand social programs. However, this will require ensuring that existing programs are well targeted and effective. With this in mind, an assessment of three major social protection programs is carried out below. Programa de Erradicação do Trabalho Infantil and Bolsa Escola 4.73 The federal-financed Bolsa Escola and Programa de Erradicação do Trabalho Infantil (Child-Labor Eradication Program, PETI) programs are designed to increase school attendance and attainment and to reduce child labor by providing financial transfers (grants) to families who abide by certain rules. The target group is children aged 7 to 14 from poor households. The programs are widely seen as successful, both in terms of improving educational outcomes and improving family welfare of the recipient families. In RN, 43,000 children participated in the PETI program and 227,000 children participated in the Bolsa Escola program in 2001. 101 Box 4.4: Design of Social Programs Better targeting requires different approaches for different programs. For universal programs, such as education, health, and urban services, the targeting of public spending can be improved without abandoning universality. True universalization of services from which the poor are mostly excluded is, in fact, synonymous with targeting the poor for service expansion. Several principles are useful to follow. First, public spending should focus on spending items that disproportionately benefit the poor (such as schools, health facilities, and water supply in poor areas, or education initiatives targeted at reducing repetition rates in school). Second, some government services could require cost recovery for the nonpoor. For insurance programs, such as pensions and unemployment insurance, contributions and benefits should be set such that public funds are used only for transfers targeted to the poor. Income transfers and related programs should be strictly tied to a means-testing procedure. In particular, public spending for income transfer programs should be focused on the very poorest. Third, often an effective way of targeting the poor is the provide goods which are not well-liked by the non-poor, such as a cheap but nutritious food. There needs to be rigorous monitoring of the efficiency and effectiveness of social programs. Demand and willingness to pay serve as the basic guidelines to estimate program benefits. Investments and current transfers should be compared on the basis of cost­benefit and transfer effectiveness analyses. Redistributive objectives should not be used to justify bad investments. Social investments should pass an efficiency test demonstrating that they are more cost-effective than income transfer programs in bringing monetary or non- monetary benefits to the poor. The design of social programs should correspond to the demand of the beneficiary population and include genuine beneficiary participation. In general, this implies that service provision should be at the level of willingness to pay. Cash and voucher programs are preferable to in-kind service provision, unless the latter is justified by better targeting or externalities. In some cases, a switch from in-kind to voucher financing can be an effective means to increase transparency, consumer choice, competition, and internal efficiency. Beneficiary participation in program design, implementation, monitoring, and evolution is essential. An increasing share of social policy is implemented at the state and municipal level, especially in education, health, and social assistance. Thus, any social spending reform must include reforms at the state and municipal level. Social spending reform at the state and municipal level revolves around three objectives. First, reforms should improve incentives for providing service to the poor. This could include conditional fiscal transfers. Second, the responsibilities of the different levels of government should be clarified where they are unclear. Finally, reforms must attempt to strengthen the capacity of states and municipalities to deal with poverty-related issues. Source: World Bank (2001). 4.74 One welcome side effect of these two programs stems from the way that they are administered. The programs specifically give the money to mothers of the participating students. The thinking is that this will increase the likelihood that the funds would go to the improvement of the welfare of the family as a whole and of 102 the children in particular. This is the first time many of these women have been entrusted with this kind of financial responsibility, or have opened a bank account. This "official recognition" has also led to a greater recognition and valuation of women's role in the family--including by their partners--and in many cases has increased the women's self-confidence. In field visits by the World Bank, the money received by the mothers through the Bolsa Escola and PETI programs is repeatedly mentioned by both men and women as one way in which gender relations and the roles of men and women are slowly changing. 4.75 Given the success of both Bolsa Escola and PETI, it is worth exploring whether the programs should be expanded. Simulations for two income transfer schemes, a Bolsa Escola-type program, and minimum income scheme, were carried out to assess their potential impact on poverty reduction as well as their fiscal cost. The program impacts are also assessed when combined with a 2 percent annual per capita growth scenario after 5 and 15 years. The same model as in Chapter 2 is used with an indigence poverty rate of 41.4 percent (Table 4.11). 4.76 The transfer schemes simulated under Program A are variations on the Bolsa Escola program, targeted to poor families with children aged 7 to 14 with required school attendence. Two program designs are simulated. The Bolsa Escola transfer (1) with benefits of R$15 (maximum R$45 per family) monthly will reduce the headcount poverty ratio by 1 percentage point for the indigent poor, at a cost of R$39.6 million. Raising the benefit level to R$25 per student with a maximum transfer per family of R$75 (Bolsa Escola transfer (2) in Table 4.11) would provide additional reduction in indigency of 2.5 percentage points. 4.77 Given the minimal impact on poverty despite the relatively high fiscal cost, an additional simulation was carried out to ensure a minimum income. Under this scheme (Program B in Table 4.14), transfers would be provided to each family below the poverty line. The transfers would equal the difference between their per-capita income and either the poverty or indigence line. This program has a huge impact, reducing indigent poverty to 7.2 percent. This transfer scheme is, however, expensive, with an annual cost of R$349 million even before considering the administrative costs or costs due to leakage. Moreover, it would have a detrimental affect on work, since households would receive the same income whether they worked or not. 103 Table 4.11 Poverty Impact of Expanding Bolsa Escola (static situation) Before After Annual Transfer Transfer Cost of (%) (%) Transfer (R$m) A. Bolsa Escola Transfer (1) R$15 / child age 7­14 (max. benefit R$45) Poverty rate 69.1 68.3 R$57.5 Indigence rate 41.5 40.5 R$39.6 A. Bolsa Escola Transfer (2) R$25 / child age 7­14 (max. benefit R$75) Poverty rate 69.1 67.7 R$95.9 Indigence rate 41.4 38.9 R$66.0 B. Minimum Income Scheme Family receives difference between poverty or indigence poverty line and per capita family income Poverty rate 69.1 16.7 R$1,358 Indigence rate 41.4 7.2 R$349 Poverty Impact of Expanding Bolsa Escola (with 2% per-capita growth) BEFORE (1999) AFTER 5 Years (2004) AFTER 15 Years (2020) Poverty Indig. Poverty Indig. Poverty Indig. Rate Poverty Rate Poverty Rate Poverty Rate Rate Rate Bolsa Escola Transfer (1) R$15/child 69.1 41.4 64.5 36.5 58.3 29.5 age 7­14 (max. R$45) Bolsa Escola Transfer (2) R$25/child 69.1 41.4 64.1 35.4 57.8 28.0 age 7­14 (max. R$75) Source: Simulations based on PNAD 1999. 4.78 The final set of simulations consider the same expansion in programs but this time under the assumption that per-capita income would grow by 2 percent annually. As shown in Table 4.11, indigent poverty could be reduced by around 5-6 percentage ponts after 5 years, and by 12 to 14 percentage points after 15 years. While these results are more encouraging, much of the reduction in poverty is due to economic growth. Thus, while the programs are good, expanding the schemes substantially or introducing a new income transfer scheme is infeasible without substantial federal support and may not be the most effective way to reduce poverty in the short to medium term. 104 The Milk Program 4.79 The government of RN has made large efforts to reduce poverty, including infant mortality. In so doing it has launched various social protection initiatives. The largest and most rapidly expanding is the state's milk program, under which targeted families receive free pasteurized milk. The size of the program has grown more than five-fold since 1995. By 2000, it provided 130,000 liters of milk/day to each of the 166 municipalities of the state and covered about 15-20 percent of all families. The milk program has two aims: (i) to improve the health and nutritional status of young children and pregnant and lactating mothers in poor households and (ii) to provide a stimulus to milk producers, especially small-scale producers and milk pasteurizing and processing business. 4.80 The program is a flagship of RN's government. The cost of the program reached about R$34 million in 2000. The cost of the milk to the government of RN was R$0.74 per liter. This is roughly equivalent to R$22 per benefiting family per month. 4.81 The program purchases milk from local milk-processing plants, and the milk must be from farms in RN. The purchase of pasteurized milk is coordinated with the association of milk producers, which decides on the production quotas for each of the 24 plants. Each plant, in turn, buys unpasteurized milk from a number of small- and large-scale producers. By law, the plants must pay the milk producers at least half the price the program pays the plants. 4.82 The milk distribution within a municipality is coordinated by an association that has an agreement with the program. This association is responsible for storing the milk, distributing it at one or more sites within the municipality, and selecting the beneficiaries. Beneficiaries receive milk at the distribution sites every day, or every second day. 4.83 In RN, there is a segmentation in milk production between large- and small- scale producers. Processing plants tend to favor medium- and large-scale producers because only they can ensure a steady supply of milk in the dry season. Calculations suggest that substantially less than 5 percent of the total raw milk bought by the processing plants comes from small-scale producers (IDEMA 2000). Hence, milk production has increased in RN since the program began. In addition to its effects on the production of raw milk, the Milk Program has had large effects on milk processing in the state. The Milk Program ensures that processing plants have a predictable demand for pasteurized milk, at relatively high prices. This has resulted in an increase in the number of milk-processing plants, and the total volume of pasteurized milk produced has more than doubled, while the small producer finds it difficult to compete with free milk being provided by the larger producers. 4.84 In providing free pasteurized milk to recipients, the Milk Program has two distinct effects on the welfare of recipient households. First, it increases the amount of resources available to the household, the "income" effect, which is likely to be 105 smaller than the comparable effect if income were transferred directly. Second, if milk transfers are marginal, so that the amount of milk transferred by the program is larger than the amount which households would have consumed on their own, the program may also stimulate the consumption of pasteurized milk, the "substitution" effect. Substitution into milk may also have harmful effects, however, if children who should be breastfeeding are encouraged to drink milk provided by the program. By encouraging the displacement of breast milk by cow's or goat's milk, the Milk Program in RN could have a detrimental effect on infant mortality and child nutritional status. 4.85 Moreover, milk production under the program is less competetive than expected. Milk produced in the southern states of Brazil sold at an average price of R$0.37 to R$0.34 per liter in 2001.23 The price per liter of milk produced in RN was more than twice that, at R$0.74. Hence, currently the state of RN does not appear to have a comparative advantage in the production and processing of cow's milk. 4.86 In light of these findings, the government could consider restructuring the Milk Program to focus on the objective of improving the nutritional and health status of young children. One way of doing this would be to replace the current program with a program of cash transfers conditional on behavior, such as vaccinations, growth monitoring, and regular checkups of pregnant women. This has been shown to be an effective way of improving health status in Mexico. Brazil, too, has a great deal of experience with targeted cash transfer programs which seem to work well-- ranging from the recently extended pension program to programs like Bolsa Escola and PETI. 4.87 If the government wishes to provide commodity aid to more directly affect nutrition, it should consider distributing a different food commodity, or distributing powdered milk. Liquid milk is a cost-ineffective source of calories, and provides very little nutrition per dollar transferred. Basic grains, legumes, and tubers are much more cost-effective in terms of nutritional value. Even powdered milk, supplemented with Vitamin A, would be preferable to the distribution of fresh pasteurized milk. Powdered milk is cheaper, stores longer, and is likely to be an inferior good, which helps ensure self-targeting. 4.88 A third option would be to transform the program into a set of block grants to municipal governments, community-based organizations, or NGOs to fund activities which aim to improve child health and nutritional status. These activities could include the distribution of foodstuffs, including milk, but could also include other initiatives such as nutritional education, supply of sewerage service and clean water, or health interventions. If appropriately designed, such a system could result in an increase in efficiency and a larger impact as local knowledge about child health and nutrition problems and effective solutions is put to good use. 23Calculations based on data from http://www.milkpoint.com. 106 ENVIRONMENT 4.89 The two biggest enviromental challenges in RN are to reduce: (i) the inappropriate disposal of urban sewage, solid waste, and industrial discharges that lead to major health problems and inhibit economic growth and (ii) degradation of some very important natural ecosystems, including mangroves, wetlands, scrub savanna, and forests, which threatens biodiversity increases soil salinization, and reduces agricultural productivity. 4.90 Pollution by Urban Effluents. One of RN's major problems is the pollution of water resources by the discharge of untreated domestic sewage onto soil or into streams, and also by the poor quality of the individual cesspits. Sewage pollution is more significant in medium and large cities, particularly Natal, Mossoró, and Caicó. They have sewerage systems which serve just 27, 17, and 7 percent of the households, respectively. The large majority of municipalities (133) do not have any type of sewerage system. The growth of cities toward their water supply areas increases the risk of contamination of the city's supply water. The sewage and industrial effluents are threatening to contaminate ground water sources, which is the source of water supply for many residents. The situation of the aquifer supplying Natal, with a population of 1.1 million, is quite worrisome. 4.91 Solid Waste Disposal. The systems for packing, collecting, and disposing of urban solid waste used in the overwhelming majority of municipalities are inappropriate and do not comply with technical norms. There is no selective collection, the sanitary fills or depots are not impermeable, and there is no rainwater drainage treatment. Indeed, almost all the so-called "sanitary landfills" are actually garbage piled on empty lots along the roadside, often near streams and environmental protection areas. The public solid waste collection systems are deficient in most urban centers, particularly in the slums. Only in Natal hospital waste is separated; in other cities, it is mixed with common urban garbage. 4.92 Wetlands Degradation. Substantial landscape change is occurring, with the decrease of the wetlands and consequent decrease in the numbers of fish species. Salt-making activities are associated with the disappearance of extensive wetland areas and the interruption of the natural water flow in the estuary. This results in increased water salinity, which in turn leads to the disappearance of more sensitive fauna species, and to soil salinization. Shrimp farming has also contributed to wetlands degradation, because it requires cutting the vegetal cover and leveling. Finally, the leveling of wetlands for the building of slums and low-income neighborhoods, sewage discharges and solid waste deposits, sand removal from fixed and semifixed dunes, wood clearing in areas of dunes with the purpose of home building have all contributed to the destabilization of these ecosystems, and may in the future further aggravate the loss of wetland areas. 4.93 Environmental solutions will require a three-pronged approach. First, sewage collection coverage needs to be expanded by providing appropriate incentives for the expansion of sewerage (see Infrastructure section). Given externalities in sewage 107 collection, the state may need to pay a small subsidy for it and, once sufficient coverage of sewage collection is achieved, for sewage treatment as well. However, consumers will need to finance the most of the costs for both sewage collection and treatment, a difficult challenge given the low levels of income in the region. 4.94 Second, the environmental agency needs to be strengthened and better financed in order to allow it to carry out its mandate. It presently lacks equipment and inspectors and is unable to enforce zoning or environmental laws on industrial pollution and urban discharges. Third, an environmental education campaign could be carried out, increasing awareness on the dangers of environmental degradation and encouraging the public to report non-compliance with environmental laws. SAFETY AND VIOLENCE 4.95 While crime levels in Natal may be lower than in the other main metropolitan areas of Brazil, they cannot be ignored. Attention to crime is important from the point of view of growth and poverty reduction. High crime levels deter investment and hence growth. Furthermore, high crime levels are often linked with poverty, with the poor most often being the victims of crime. 4.96 Statistics show that crime is increasing only marginally in RN, but it is well known that domestic violence and other types of crime are often not reported. Domestic violence appears to be increasing, with women, in particular, being victims of aggresion. Both men and women face violence in Brazil and it has become a serious public health issue. Violence is also a strongly gendered issue; that is, studies indicate that prevailing types of conflict vary by gender, resulting in a bipolar public/domestic pattern. Men are more involved in violence related to labor conflict and crime. Women are more involved in conflict related to conjugal breakups, inheritance, and problems with neighbors. The same patterns of public (male) victimization and private (female) victimization emerge once the gender of the victims and aggressors are taken into account. For example, aggression against men tends to involve acquaintances and strangers, but rarely family members. Women, on the other hand, are attacked equally by acquaintances, strangers, and relatives. 4.97 In the municipality of Natal, the rate of crimes against women is high. In 1998, the women's police station (Delegacia da Mulher) in Natal registered 2,999 cases of physical and sexual violence against women. Of these, 67 percent involved bodily injuries and 20.4 percent involved the credible threat thereof. It is important to keep in mind that the real numbers are much higher, because many women who are victims of violence do not report it to the police (DEDAM 2000). 108 4.98 Considerable resources are spent Table 4.15: Public Spending on fighting crime and improving safety in Brazil. Safety in RN as a Percentage of RN spends a good share of GDP on safety--1.3 GDP, 1995 and 1999 percent in 1999 (Table 4.15). The share of total 1995 1999 spending devoted to safety increased from 5.5 (%) (%) percent in 1995 to 6.2 percent in 2000, a real Bahia 0.9 1.2 growth of 84 percent (Table 4.1). Ceará 0.8 1.0 Maranhão 1.3 1.2 Paraíba 0.9 0.1 4.99 Although violence against women is on Pernambuco 1.3 1.5 the agenda, the state of RN does not have a Piauí 2.3 2.2 comprehensive program in place. Natal Rio Grande do Norte 0.8 1.3 currently has only one Delegacia da Mulher, Source: Secretaria do Tesouro Nacional/Ministério da Fazenda/IBGE. and there are few shelters for victims of violence. The Delegacia in Natal reports an expressed desire by women in other municipalities in RN for a Delegacia da Mulher. Indeed, the Delegacia da Mulher regularly receives requests for help from women living outside the municipality of Natal, over which it has no jurisdiction, and health workers report that one of the main problems when working with victims of violence is that there is nowhere to refer them to. 4.100 RN could develop a policy approach to crime and violence that is preventive in nature. The education system, for example, can change existing cultural values that promote aggressive behavior among boys and docile behavior among girls. Possible interventions include retraining teachers and eliminating gender stereotypes in textbooks, and developing special programs to teach children nonviolent resolution skills and promote civic values. Community-level programs can be used to provide informal education programs, teach citizens about legal sanctions against violence, establish violence-prevention strategies, and provide social services for victims of violence. The media can be used to promote nonviolence and counteract the aggressive images and behaviors currently transmitted through the media. Finally, better data on crime needs to be collected in order to identify the sources and victims of crime with a view to improving targeting efforts to reduce it. GOVERNANCE 4.101 Like other countries and states, RN is struggling to improve the quality of public sector governance. The problem in governance in RN is how to build on the existing foundations of democracy and participation to make government more open and responsive to the needs of the poor. The state, in particular, is struggling to increase social inclusion, improve sectoral integration, and increase the quality and transparency of public sector decisions. In each of these three areas, there are interesting examples of progress in RN, but more is needed. Making Decionmaking More Inclusive 4.102 Making decisionmaking more inclusive by giving those who are now excluded, including the poor, more voice, is key to improving governance in RN. 109 Historically, public spending has benefited elites, and this is a pattern that is difficult to break. The capture of state policies, laws, and resources by elite interests often biases incentives and public expenditure toward less socially productive assets and, by eroding the benefits that would go to society, reduces the impact on welfare (Thomas et al. 2000). Good models of participatory decisionmaking do exist in RN, such as the Project for Combating Rural Poverty (Projeto de Combate à Pobreza Rural, PCPR), Water User Associations, and Comunidade Solidária. These initiatives have included many of the previously excluded in the decisionmaking process and are discussed below. 4.103 The PCPR was perhaps the starting point for the recent efforts at structured participation in RN. To qualify for PCPR funding, a community must be organized into a legal community association, which increases the participation of the beneficiaries. Associations can obtain support for collective water systems, collective small factories, and so on. This association must elect its president, administer the budget, and prioritize and develop project proposals. When the program began, these local associations had to be coaxed into existence, but now that the program has gained wider recognition, communities are founding their own associations. At the next level, municipal- and state-level PCPR councils approve project proposals and disburse the funds. In the beginning, the municipal councils of the PCPR were dominated by the mayors, but they are now more autonomous, and the PCPR is seeking to work together with existing social organizations. The PCPR is not only gaining considerable and valuable experience with participation in RN, but also appears to be reaching some of the most needy of the population. 4.104 Another participatory exercise has been the establishment of the Water Users Associations (Associações dos Usuários de Água), which are promoted by and receive technical assistance from the Secretariat of Water Resources. These associations are responsible for the administration of the small water systems installed by the State Secretary for Water Resources (Secretaria de Estado dos Recursos Hídricos, SERHID)--wells, cisterns, dams, and so on. Today, there are more than 100 associations, most of which are operating well. Those associations that work well will often evolve to demand participation in other programs, such as obtaining a health post in their community or developing income-generating activities. SERHID sees its mission, in part, as strengthening and building capacity in these communities and forming partnerships with other agencies. 4.105 The Solidarity Community Program (Programa Comunidade Solidária) is another success. It is a subprogram of UNISOL, the Solidarity University in which staff from the university and from the poorest municipalities in the state develop participatory planning methodologies. The communities decide about their priorities and investments, which are made by the municipalities themselves or the Programa Comunidade Ativa, the Active Community Project, a part of the Solidarity Community, which helps the poorest municipalities in Brazil. 4.106 The main lessons are that for a community to be successful, participation in the economic and social development of RN must involve all groups in society, with 110 broader use of participatory local councils and so on to increase the participation of those who are now excluded from the public decision making process. Women, while very active participants at the local level, are often invisible at the leadership and decisionmaking levels. Efforts need to be more inclusive of them and to integrate more their needs and concerns. Similarly, greater efforts need to be made to involve blacks, who have the lowest social indicators in the state, and are often under-represented in association. Intersectoral Integration and Coordination of Policies 4.107 Improving intersectoral integration and coordination of policies is fundamental for good governance. Too often, policies and programs in RN are uncoordinated and sectorally segmented, which dissipates public resources. The state's Sustainable Development Plan (PDS) and the Seridó Plan are models for how to overcome this. Participatory processes are important for good governance and social inclusion, but they need to be based on actual resources available and grounded in elected institutions. 4.108 During 1995­96, the state prepared its PDS, and identified the following institutional issues: (a) low levels of organization and participation of social groups, (b) poor coordination between government policies and the demands from society, and (c) a lack of inter- and intragovernmental coordination and integration. While civil society has not organized itself sufficiently to participate fully in wider societal and governmental matters, the government itself has not yet articulated a structure for the sustained participation of civil society. It is widely recognized--even by those not directly involved with the plan--that the PDS was widely discussed and participatory in nature. 4.109 The Sustainable Development Plan produced in Seridó is one of the most impressive participatory plans in Latin America. After the PDS for the whole state was completed, the Seridó (Caicó Region)--which from the beginning to the mid- 20th century was an economically thriving region, but from the 1960s has suffered severely from economic shocks and recurrent droughts--started a process of political articulation, through the Catholic Church. The plan was based on the PDS framework using an impressive participatory methodology, reflecting local concerns, demands, and priorities for economic and social development in the Seridó Region. 4.110 In the first half of 2000, 10 technical advisers from the Instituto Interamericano de Cooperação para a Agricultura (Inter-American Institute for Cooperation on Agriculture, IICA) took the basic outlines of a plan to the Seridó. Afterward, proposals for discussion by the community were developed. The Council for the Sustainable Development of the Seridó was created. It has representatives from the industrial federations, the rural trade unions, Sebrae-RN (Serviço de Apoio às Micro e Pequenas Empresas, which supports services to small and microenterprises), the diocese of Caicó, and municipal associations. After months of discussion, a plan for economic, social, environmental, and institutional development was approved. 111 4.111 The participatory planning in the Seridó is widely held up as a model for other parts of RN, and indeed for regions beyond the state. Some of the reasons it was so successful in the Seridó are (a) the Seridó has a strong local culture and sense of self-identity, which was instrumental in formulating the initial demand for community participation and consultation; (b) there are strong local community organizations, in particular the Catholic Church, which took a lead in formulating this demand; (c) there was strong local leadership from the Bishop, Dom Jaime; (d) the state entered the exercise with an open mind and with a credible commitment, particularly to follow-up and implementation; (e) the presence of skillful and neutral facilitators in the form of IICA played a fundamental role; and (f) in the local communities there already existed high levels of social capital and experience with participatory development projects, much of it as a result of the PCPR projects. As a result, the community wanted to be involved. The question is whether the process is replicable elsewhere. The plan is to replicate it in the Litoral Norte region, and it is foreseen that more community capacity building will be needed there than in the Seridó. Quality and Transparency of Public Decisionmaking 4.112 Increasing the quality and transparency of public decisionmaking is fundamental to good governance. Progress includes more comprehensive budget coverage in Brazil overall, and publication of public accounts. However, more needs to be done to improve the technical underpinnings of policy choices, such as establishing routines of program monitoring and evaluation and building technical capacity in state government. The problem in RN is one of limited practice and culture of public policymaking and the limited transparency of the public sector. 4.113 In RN, as in most states in Brazil, policy coordination, the development of an evaluation culture, and improvements in data and analysis are required to continuously improve the quality and targeting of social spending. Currently, efforts to fight poverty are still dispersed among different sectoral agencies, each pursuing their own agenda. These agendas do not necessarily fit together, and since there is no strategy, there is nothing that ensures that they will fit. 4.114 Three steps can be taken to coordinate policies and establish a culture of program evaluation and analysis.24 First, the development and implementation of a poverty-reduction plan could serve as a vehicle for coordinating activities of different entities and orienting systematic and cost-effective action. The poverty- reduction plan would combine technical analysis with a participatory process for the determination of priorities and actions. Second, rigorous analysis and evaluation are critical for the better targeting and effectiveness of social programs. Analysis and evaluation procedures need to be strengthened and built into any social program. There should be a central office, for example in SEPLAN, which defines criteria for impact evaluation and compares the findings across programs. Third, poverty research and analysis should focus on poverty dynamics, the relationship between 24This section is based on World Bank (2001). 112 the pattern of growth and poverty reduction, and the two-way relationship between poverty-reduction interventions and the formation of social capital. 4.115 A good way of building upon the state's success in these areas while ensuring support and coordination for the poverty reduction effort is by sponsoring an initiative that would enhance the quality and transparency of public decision-making, while building consensus around a development agenda for the state. Following a participatory process, the proposed initiative would seek to identify, and subsequent implement, a poverty-reduction plan. Such a process could also serve as a vehicle for coordinating activities of different entities and orienting systematic and cost- effective action. To assist in improving the effectiveness of policies and programs, rigorous analysis and evaluation should be built into the program. Presently, RN has substantial bureaucratic control on its policies and programs but carries our little monitoring and evaluation of them. 113 5. FISCAL SITUATION AND PROSPECTS 5.1 Currently, Rio Grande do Norte (RN) is in a sound fiscal situation. Revenues are rising--the state value added tax (ICMS) and constitutional transfers have performed well. Fixed costs--debt service and personnel--are low. The stock of debt is modest. But these results have been achieved through tight controls on the wage bill, and by using proceeds from the sale of the state power company to finance capital works. The main threats to continued good fiscal performance include a rise in spending on personnel that could emerge from wage pressure, increasing pension payments, or additional employment needs, and pressure to spending on infrastructure and social protection programs. Nevertheless, a fiscal scenario with a zero overall deficit and no real debt growth would appear to be feasible. 5.2 This chapter assesses government receipts and expenditures, and concludes with a section on overall results and a prognosis. REVENUES 5.3 The Value Added Tax. RN derives about half its gross Table 5.1: Trends in Current Revenues revenues25 from taxes and, as (R$ millions of June 2001) Table 5.1 shows, more than 90 1997 1998 1999 2000 2001 percent of tax revenue is from a Current revenue* 1288 1518 1660 1837 2094 single source, the state value Taxes 593 644 766 913 977 added tax (ICMS). The ICMS is ICMS 561 605 701 846 906 imposed on the sale or Transfers 649 739 824 856 950 distribution of merchandise and FPE 500 539 578 643 705 on selected services (principally Other current 46 135 70 69 167 telecommunications, electric * Excludes withdrawals of gross receipts from state FUNDEF Index: IPCA energy, and intercity bus transportation). The tax is administered by the state, though the federal government sets the rates on interstate sales. Rates on sales within the state are set by the state government, subject to parameters fixed at the federal level and agreements with other states. 5.4 In principle, the ICMS is assessed by applying a tax rate to the gross value of goods or services sold by each firm at each stage of production and distribution, and subtracting a credit for the ICMS taxes paid by the firms' suppliers. Because small firms and informal bookkeeping practices are common, and the system of multiple tax rates on interstate and intrastate sales is complex, ICMS evasion--particularly at the retail level--is widespread. This is being addressed in two ways. 25Gross of mandatory state tax sharing with municipalities. 114 5.5 First, like all Brazilian states, it seeks to capture the unreported activity indirectly through taxes on utility firms and on the production of a small number of manufacturing firms. In this way, RN collects most of the ICMS at stages of production in which a large volume of taxable activity is flowing through a small number of collection points. In the case of fuels, automobiles, and beverages, taxes are assessed at the production stage on the basis of imputed retail prices. Thus value added through the entire sequence of production and distribution can be taxed at a single point--the factory--eliminating the need to assess and collect taxes at the wholesale and retail level. Telecommunications and electric energy also make a major contribution to ICMS revenues, as the tax can be imposed on a relatively small number of firms, at the production stage. 5.6 Second, RN relies heavily on border controls to enforce the ICMS. A large proportion of the goods sold in Rio Grande come from other states. To ensure that these goods are taxed, the state has established border stops at all 16 points of entry to the state. Certain products--construction materials, auto parts--are subject to taxation at the border itself. The border checks also help identify goods bound for sale within the state that otherwise might not be declared by their recipients. Trucks entering the state must show their bills of lading, identifying the dealers to which the goods are to be delivered. If the dealer has been delinquent on past ICMS taxes, the state demands payment on the spot or turns back the truck. 5.7 ICMS revenues have continued to grow Figure 5.1: Trends in RN's ICMS 1987­2000 despite a slowdown in the (R$ millions of Dec. 2000) economy. As shown in 900 Figure 5.1, ICMS 800 700 revenues have grown 600 steadily and rapidly since 00ceDfo 500 n 400 price stabilization under m 300 the 1994 Real Plan. As in R$ 200 100 most states, the ICMS 0 rebounded immediately 19871988198919901991199219931994199519961997199819992000 after the Real Plan. Unlike most states, RN has managed to continue the growth of the ICMS, despite a subsequent slowdown in the economy.26 As shown in Figure 5.2, the state's economy fell into recession in 1998, and rebounded only modestly in 1999.27 ICMS revenues nevertheless continued to grow throughout the period. (Oil is exempt from the ICMS; see Box 5.1.) 26Trends in 1999 are sensitive to the inflation index. Figures in Figure 5.1 are adjusted to constant terms on the basis of the IGP-di, which totaled 19.98 percent. The rate for the Indice Nacional de Preços ao Consumidor Amplo (IPCA) was only 8.9 percent. 27GDP data for 1987-98 are from IBGE, Contas Regionais and differ significantly from figures provided by the state (based on SUDENE). The figure for 1999 is from SUDENE. 115 5.8 Revenues stayed strong largely because of improvements in tax administration. After the 1998 elections, the returning governor installed a new management team in the Secretariat of Revenues, which carried out administrative reforms. First, it stepped up monitoring and supervision of the largest ICMS taxpayers. It also improved coordination with taxing Figure5.2:TrendsinGDPinRN1987­99 authorities at the federal and (R$billionsof 2000) municipal level in order to 8.0 identify firms now missing 7.5 from the cadastre of ICMS 00 7.0 taxpayers and cross-check of 20 of 6.5 the amounts reported on ICMS bn tax declarations against figures $R 6.0 reported to the federal tax 5.5 authorities. Further 5.0 improvements are in the works. 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Physical improvements to border posts will be completed this year, as will the upgrading of regional tax offices in 10 municipalities in the interior. In an effort to encourage delinquent taxpayers to pay their arrears, the state also offered a tax amnesty. Under legislation passed in October 2000, taxpayers were permitted to refinance their arrears for up to 10 years. Taken together, these measures were sufficient to compensate for declines in the state economy during 1999. Evasion and non-payment nevertheless remains a problem. Total arrears are estimated at R$373.3 million. The state considers most of this to be uncollectible. 5.9 In principle, the state could increase Box 5.1: Taxation of Petroleum ICMS revenues further Although Rio Grande do Norte is an oil-producing state, by reducing exemptions. the petroleum sector is not a major source of state A significant part of the revenues. The state's oil is extracted by the national oil ICMS tax base is company, PETROBRAS. It is then shipped to the state of already exempt under Bahia for refining. Under federal law, this transaction is the 1996 federal tax exempt from the ICMS. Sales from the PETROBRAS revision statute known refinery to distributors are taxed in the state where the as the Lei Kandir, under sale occurs. In RN, the PETROBRAS docks in São Luis are considered to be the point of sale for such which international transactions. The state therefore can tax fuels sold within exports of raw and the state boundaries, including value added in extraction "semiprocessed" and refining. But RN oil that is resold in other states is agricultural products are beyond the reach of the state's tax authority. exempted from the The state is also entitled to royalties from oil extraction. ICMS. This exemption These totaled only R$86 million in 2000, or 5 percent of extends back through all net current revenues. stages of production and 116 distribution. Farmers who produce for export are therefore exempt from the ICMS.28 The Lei Kandir also requires the state to grant a tax credit for capital equipment at the time it is placed in service. The state is not in a position to eliminate the Kandir exemptions, but it exacerbates their impact with additional exemptions of its own. First, it exempts the production of raw or semi-processed agricultural products destined for domestic sales. Fruits are exempt throughout all stages of production and distribution. Other agricultural products are exempt at the production level, but are taxable at subsequent stages of processing and distribution. (As a result, value added in the production of such products is captured at subsequent stages of processing or distribution). 5.10 The state also exempts capital equipment. Because capital goods are Box 5.2: PROADI not purchased for resale, they are The states of Brazil all have programs using subject to a separate ICMS tax incentives--tax exemptions and financial and regime. Normally, the ICMS on a other benefits--to attract businesses, and have capital good would be assessed on the often been in direct competition with each other. basis of its purchase price, with the RN's program, known as PROADI, was established in 1985. burden of the tax divided between the seller and the purchaser. But in RN Benefits offered by Northeast states to attract the purchaser is allowed to defer its new industrial investment (by state and incentive) share of the ICMS until the good is reveal that RN has been far less aggressive than other states, such as Bahia (Gomes 2001). The taken out of service. At that time, the PROADI program offers investors tax breaks and tax is assessed on the basis of the other firm-specific incentives: tax incentives good's original purchase price without (postponing payment of ICMS, the state value monetary correction, less added tax, for up to 10 years), favored treatment depreciation. This is typically an by state banks (for payment of ICMS and for inconsequential sum. Because the Lei technological updating), and infrastructure- Kandir requires the state to grant a related incentives (rebates for land and building acquisition). The proportion of tax subject to credit for capital equipment, the state deferral is 60 percent in the metropolitan area of finds itself owing money to taxpayers, Natal and 75 percent outside it. rather than vice versa. 5.11 The state also sacrifices F igu re 5.3: C ost of P R O A D I T ax part of its tax base through tax E xem p tion s in R N , 1995­2001 (cu rren t R $ incentives aimed at new 70 investment. Under the state's 60 n economic development m 50 $R 40 program, PROADI (Box 5.2), 30 75 percent of a firm's ICMS entrr Cu 20 obligation can be deferred for 10 up to 10 years. To evade federal 0 19 9 5 19 9 6 19 9 7 1 9 9 8 1 9 99 2 0 00 20 0 1 28In fact, export firms can accumulate tax credits rather like tax liabilities under Lei Kandir. Because their sales are exempt from ICMS, they can claim a credit for ICMS paid on non-agricultural inputs. In practice, it allows them to sell their credits to firms that have positive tax liabilities. 117 and CONFAZ (the national organization of state finance secretaries) prohibitions on tax incentives, the deferral takes the form of a loan, at a subsidized rate of interest, without monetary correction on principal. In 2000, the exemptions cost the state R$40.9 million, or 2.5 percent of net current revenue. As shown in Figure 5.3, this is expected to increase substantially in 2001. 5.12 Evidence from other countries suggests that while such incentive programs are not inconsistent with successful economic development strategies, they are also not without risks. One risk is wasting money by giving tax incentives to firms that would have invested in the state anyway. Another is that some firms induced to relocate by incentives may not be able to operate profitably without them. A third is that even if the investments prove viable, they will fail to generate broader growth in the local economy because local linkages are not always developed. It has been argued that neither RN nor any other state has anything to lose in offering tax incentives to potential investors. If it did not offer tax breaks, it is said, the firms would not have come at all. While this may apply to any individual state, it is not true of Brazil as a whole, because in the absence of incentives, the firms would presumably have located somewhere in the country to tap its large market. In this sense, the incentives represent foregone revenue to some state government, if not RN's. 5.13 Assuming that the firms would have Table 5.2: Actual Investments and Jobs Created invested in RN even with Incentives from PROADI, RN (1995­2000) without PROADI, the Sector Firms Invest. Jobs Invest./ employment impacts # (R$ mn) # Job corresponding to their (R$000s) investments are presented Foods 15 89 4240 21 in Table 5.2. They show Drinks 6 19 620 30 that the average Textiles and 19 237 7580 31 investment cost per direct clothing Minerals and 3 15 248 60 job among the benefiting chemical products firms was R$33,000 Meats 2 13 305 43 during 1995­2000. Ceramics 3 2 97 16 Creating a job was most Other 17 149 2579 58 expensive in chemicals Total 65 522 15669 33 (R$60,000), and least Source: Calculations based on SINTEC (2001) data. expensive in ceramics (R$16,000) and foods (R$21,000), but they are all very expensive compared to jobs in other sectors. Creating a job in agriculture can cost as little as R$800. The investment cost per job in RN is in line with that in Ceará, but low compared to figures in, for example, Bahia (R$133,000; projected). It is to RN's credit that it has monitored data on investments and direct employment created by PROADI, which allows it to make a more informed decision on whether and how to reform it. 118 5.14 Critics portray the fiscal incentive programs in the Northeast as a failure for at least three reasons: first, the policies have perpetuated clientelism and corruption and created opportunities for new and more modern variations of these problems; second, the results are excessively capital intensive and concentrated in the metropolitan regions of the Northeast's coastal capitals, and involve little local capital; and third, the mechanism has contributed too little toward reducing unemployment and poverty (Tendler and Locke 1996). 5.15 Should the state cut the exemptions? The revenue impact of such cuts must be weighed against their possible regressive incidence and their adverse impact on economic growth. Cutting the exemption of agricultural products would probably have very little impact. Agriculture accounts for less than 6.5 percent of the state's GDP, and much of this is either exempt under federal law or is taxed at subsequent stages of production. As noted earlier, products destined for export are exempt under the Lei Kandir. And (except for fruits), value added in products destined for domestic consumption is taxed at subsequent stages of processing or distribution. Eliminating the state exemption would therefore have little impact on revenue. By the same token, it would not affect the prices received by agricultural producers (except in the case of fruits) or the price charged to consumers, and would therefore have little impact on income distribution or growth. 5.16 Cutting the state tax breaks for capital equipment and new investment deserves consideration. While data on the costs of exempting the purchase of capital equipment are not available, PROADI exemptions are known to cost the state about 2.5 percent of net current revenue. As noted above, this figure is expected to grow. In theory, industrial incentives can lead to long-term growth in the economy, and thus pay for themselves by adding to the tax base. But there are risks associated with this logic. The first is that the state may be simply wasting money by giving tax incentives to firms that would have invested in RN anyway. The second is that firms that are induced to relocate by incentives may not be able to operate profitably without them. Under these conditions, such firms may close down. Or worse, they may bring pressure on the state to renew their incentives, becoming permanent wards of the government. 5.17 Over the long term, the state should avoid offering tax incentives to firms. The risks that this may lead to reduced investment cannot be evaluated with the data at hand. They may or may not be significant. However, a survey of firms in the Pernambuco suggests that most firms would invest anyway. It also bears noting that similar incentives are offered by all the states surrounding RN. For the time being, the state may therefore have to continue to offer such incentives merely to maintain a level playing field for new investment. Over the long term, the state would be well advised to support federal efforts to prohibit all states from offering tax incentives to firms. 5.18 Apart from taxes, the state's principal source of revenue consists of transfers from the federal government. By far the largest of these transfers--accounting for 75 percent of the total--is the Fundo de Participação dos Estados, the FPE. FPE 119 resources are derived from fixed shares of the federal income and industrial products taxes. These resources are distributed among the states and the federal district according to a formula based on population and the inverse of GDP per capita. The state also receives earmarked transfers under the national health care system (SUS) and shares of other federal taxes. Transfers increased at an annual real rate of 10 percent between 1997 and 2001, as shown in Table 5.1. EXPENDITURES 5.19 RN has sharply restrained the growth of current expenditures over the past four years. Both personnel costs and other current spending--interest, subsidies, and equipment and supplies--have remained roughly constant in real terms. The result has been a growing surplus of revenues over current expenditures. 5.20 Personnel. Personnel are the largest single item of state Table 5.3: Trends in Personnel Costs in expenditure. As shown in Table Rio Grande do Norte (2001 R$ mn) 1997 1998 1999 2000 2001 5.3, staff costs consumed about Total half of net current revenue in 842 910 869 884 998 Direct 2000. This proportion has fallen Administration 727 740 692 718 822 sharply over the last four years. In Active 566 600 542 560 635 real terms, personnel costs grew at Retired 167 145 155 158 187 an average of only 1 percent per Transfers to Indirect year between 1997 and 2000. Due Administration 109 164 172 166 175 to the growth in revenues over Personnel as %RCL* 75% 70% 62% 57% 56% that period, the proportion of * RCL (Receita Corrente Líquida): Gross revenues less constitutional revenues consumed by personnel transfers to municipalities and receipts from state education fund. has declined by one third. 5.21 The state's ability to control personnel costs is constrained by Brazil's 1988 Constitution, which prohibits the dismissal of statutory employees and outlaws nominal cuts in salaries. The state's crackdown on personnel costs has occurred within that framework. First, it has imposed a virtual freeze on hiring. As shown in Table 5.4, this reduced the number of active staff by about 2 percent between December 1998 and August 2000. The state also took a number of steps to restrain wages. In 1999, RN eliminated half of all Table 5.4: Trends in Number of political appointments, reducing the number Personnel in RN (thousands), from 6,200 to about 3,000. (This was 1998­2000 accomplished simply by declining to renew 1998 1999 2000 the contracts of holdovers from the previous (Dec.) (Dec.) (Aug.) term.) Since most of the political appointees Staff 83.3 83.9 83.1 were also statutory employees, this did not Active 71.0 70.9 69.7 reduce staff numbers much, but it did reduce Retired 12.2 13.1 13.5 the wage bill by reducing the special bonuses Dependent 2.4 2.4 2.3 Survivors granted to staff occupying political positions. Note: Includes only staff paid by Treasury. The state also ended the practice of Source: SEARH/CODIN. permanently incorporating these special bonuses into the wages of staff once they 120 returned to their regular positions.29 Finally, the state imposed tight controls over salary increases, granting increases only to police, health workers, teachers, and employees of the tax department. The result was a relative decline in the wage bill of active staff from 50 percent of net current revenues in 1997 to 36 percent of net current revenues in 2001. 5.22 While RN has done a commendable job in controlling salaries and wages, pension costs have been more difficult to control. Federal law fixes the parameters of RN's pension system. Under current federal law, statutory employees are entitled to pensions equal to 100 percent of their exit salaries (a benefit termed the salário integral.) Male staff can retire after 35 years of service, females after 30 years, with an additional five-year reduction for teachers of either gender. Under the recently enacted 20th Amendment to the Constitution, a staff member must also (a) have 10 years of service in the public sector, (b) have five years in the position from which he or she is retiring, (c) meet minimum age criteria (60 years of age for men, 55 for women), and (d) meet a years-of-contribution criterion (35 for men, 30 for women). (The last criterion applies only to new and recently hired staff.) 5.23 The number of staff going on pension is expected to increase rapidly. This is due in part to the aging of the labor force, many of whom were hired during the boom years of the Brazilian economic miracle and have now reached retirement age. It also reflects the impact of a change in public sector employment regimes introduced in 1988. Prior to 1988, state staff could be employed under either of two pension systems. The first--the statutory regime--required the state governments to pay pensions directly to employees out of general revenues. The second--the Consolidated Labor Code (CLT) regime--placed staff under the federal pension system, the INSS. State pension obligations to CLT staff were limited to a 21-percent payroll contribution to the federal system. 5.24 Brazil's 1988 Constitution changed that. It required states (along with all other government bodies) to adopt a single regime for their employees. In effect, states were required to absorb former CLTistas into the statutory regime, along with their pension liabilities and the guarantee of the salário integral. Many of these former CLTistas are now reaching retirement age, adding to the expected increase in pension costs. 5.25 Pension costs will therefore increase. Spending on retirement benefits in RN increased 32 percent in real terms between 1998 and 2001. A recent actuarial study by the Banco do Brasil projects a doubling of retirement costs over the next 10 years (Figure 5.4). By 2012, retirement benefits are projected to consume 40 percent of the personnel budget. 29Previously, staff that had occupied a political appointment for five years had 20 percent of their bonuses permanently incorporated into their normal salary. Staff occupying political appointments for over 10 years had 100 percent of their bonuses permanently included in their normal salaries. 121 5.26 The state has taken steps to address the pension problem. Figure 5.4: Projection of Growth in It has introduced a mandatory Retirement Costs in Rio Grande do Norte 1000 8.5-percent wage deduction, earmarked for pension benefits, 800 and has eliminated a 20 percent 2000fo 600 retired salary bonus that was normally n m 400 active given at retirement. The state is R$ also contemplating the creation 200 of a pension fund. To this end, it 020 20 20 20 20 20 recently contracted Banco do 01 03 05 07 09 11 Brasil to evaluate its funding options. Under Banco do Brasil's base-case scenario, RN's pension fund would begin with a modest capitalization of R$17 million, derived from real estate assets. (Unlike other states, which allocated part of their recent privatization proceeds to capitalize pension funds, RN exhausted the proceeds from the sale of its power company on capital works, debt service, and salaries.) The state would build up the fund's assets by increasing the employee contribution rate (from 8.5 percent to about 11 percent in 2010) and substantially increasing its own contribution. (In addition to matching the employees' contribution, the state would make additional contributions to the fund starting at R$100 million in 2001 and leveling out at R$350 million per year from 2010 to 2045.) According to the Banco do Brasil analysis, the fund would be actuarially sound and self-sustaining, in the sense that the combination of employee contributions, state matching contributions, and yields on assets would be sufficient to fund ongoing pension benefits by 2045. 5.27 Controlling pension costs will require cuts in benefits. Analysis of this issue is beyond the scope of this report, but the scale of the projected growth in pension costs, and the size and duration of state contributions required to achieve actuarial soundness, nevertheless suggest the size of the problem. Recent work by the World Bank suggests that the establishment of pension funds, in any event, will not be sufficient to solve the problem (World Bank 2000). It argues that any solution will ultimately require some reduction in pension benefits. Reducing the "acquired rights" of existing staff has proven to be extremely controversial in Brazil. As a constitutional mandate, it is outside the authority of RN. But because the problem is common to all Brazilian states, it is possible that some relief will eventually come, in part, from the federal government. 5.28 Debt Service. RN has relatively little debt. In December 2001 its debt­ revenue ratio was 0.57:1. Virtually all the state's contractual debt is owed to the federal government. Much of it consists of long-standing debts that have been assumed and/or rescheduled by the federal government over the past 10 years. The largest block--R$430 million, or about 45 percent of the total--consists of loans originally contracted from federal banks prior to June 1993. These were rescheduled in 1993 (under Law 8727) for a period of 20 years (Table 5.4). Interest rates are based on the weighted average of the rates established in the original contract of each debtor, and interest averages 5 percent. Principal is indexed to inflation. Other major 122 blocks of rescheduled debt include two groups of debt to foreign creditors that were assumed by the federal government and rescheduled in 1990 and 1994, respectively. These debts were rescheduled for 20 years. Interest rates are based on the original contracts (an average 8 percent and 7 percent, respectively). Principal is indexed to the foreign currency in which the loans were originally contracted. The stock of rescheduled debt also includes loans contracted in 1997 from the federal savings bank (Caixa Econômica Federal) under Law 9496 to pay severance payments and arrears. 5.29 In the last two years, borrowing has been virtually nil. RN's last major borrowing operations occurred in 1999, when the state borrowed funds to pay outstanding obligations of the state bank (which has been under federal control since 1990) and finance education transfers to municipalities, as required by recent legislation. In 2000 and 2001, new borrowing has averaged about 1 percent of net current revenues. 5.30 All RN's Table 5.4: Composition of Debt Stock, RN rescheduled federal Title Balance as Year Description debt is subject to a of 31/12/01 Contracted debt service ceiling. If (R$ Mn) the sum of debt Domestic Contractual Debt service on the Lei 8727 430 1994 Rescheduled debt to federal rescheduled debt banks exceeds a fixed Lei 7976 81 1990 Rescheduled debt to foreign creditors percentage of net DMLP 87 1994 Rescheduled debt to foreign current revenues, the creditors amount in excess is Lei 9496 76 1997 Rescheduled PDV and automatically ARO debt (Res 162) rescheduled until such BADERN 137 1998 Liquidation of state bank time as debt service FUNDEF 56 1999 Transition costs of falls below the FUNDEF ceiling. Until 1996, BNB- 1995 Tourism PRODETUR the ceiling was fixed Parcelamento do 29 various Rescheduled arrears on at 11 percent of net FGTS severance current revenues. External Debt Under the 9496 PCPR 47 1997 World Bank PCPR project rescheduling TOTAL 978 agreement 394500, it contractual debt was increased to 11.5 Accounts 25 percent in 1997, 12 payable percent in 1998, 12.5 percent in 1999, and 13 percent in 2000 and all subsequent years.30 30The ceiling applies to certain other debts to the federal government, including arrears on federal unemployment and pension programs (FGTS and INSS). 123 5.31 Overall, the carrying costs of this stock of debt are small. The ceiling is presently moot. RN's interest and amortization obligations in 2001 totaled only 7 percent of net current revenues, far below the level subject to the ceiling. Interest payments in 2001 consumed only 3 percent of net current revenues. The long maturities of virtually all the debt ensure that amortization costs are small, and that the state faces no immediate need to refinance its existing debt. The debt stock is nevertheless rising in nominal terms, due to the indexation of principal. In real terms, the stock of existing Real-denominated debt has declined only slightly since 1997. Due to the fall of the Real against the dollar since 1999, the stock of foreign- currency-denominated debt has increased sharply. Because such debt constitutes only a small part of the total, its impact on RN's total debt stock has not been significant. 5.32 Other Current Spending. State spending on health is considerable. RN's other recurrent spending obligations largely consist of transfers to federally mandated health care and primary education funds, and expenditures on equipment, supplies, and similar overhead costs. Part of this was financed from earmarked federal grants (Box 4.4). The state's own contributions to the health fund are nevertheless substantial. 5.33 Subsidies to the state education fund (FUNDEF) account for a somewhat smaller proportion of recurrent spending. The FUNDEF funding mechanism is somewhat complicated. As described in Box 4.3, the state contributes to the fund on the basis of current revenues, and receives funds back on the basis of enrollment. (Because spending per pupil in the state exceeds a federally determined minimum threshold, the fund receives no federal assistance.) A majority of RN's primary school students are enrolled in municipal schools. As a result, the state contributes more to FUNDEF than it receives back (see Box 4.3 and Chapter 4). In 2001, state payments into the fund totaled R$208 million. Receipts from the fund totaled only R$148 million. Net subsidies to municipal schools thus totaled R$60 million, or about 3 percent of net current revenues.31 5.34 Capital Spending. Trends in capital spending have Figure 5.5: Trends in Spending on Capital in Rio been highly variable (Figure Grande do Norte 5.5) and have mostly depended 300 on variations in the availability 01 250 20 of financing. The state received 200 a large injection of cash from uneJfo 150 sale of the state power company n 100 m (COSERN) in late 1997. The $R 50 state law authorizing the sale 0 1997 1998 1999 2000 2001 provided that proceeds could be 31Note that the state reports FUNDEF transactions on a gross, rather than net, basis in its accounts. In the state accounts, "current revenues"therefore include gross receipts from FUNDEF and "current expenditures" include gross transfers to the fund. 124 used only for capital investment (through a newly created Social and Economic Development Fund (FDES) and for reductions in the stock of debt. According to a recent official report (Tribunal de Contas do Estado 1999), the state netted a total of R$552.8 million from the sale of COSERN. Of this, R$276.5 million was disbursed by the FDES during 1998. Total disbursement by FDES, including spending financed from other sources, was R$355 million in 1998, of which R$90 million was spent on rural water pipelines, R$65 million on dams, R$40 million on housing construction, R$32 million on urban water and sewerage, R$30 million on roads, R$34 million to pay arrears on school construction, and the remaining R$64 million on miscellaneous other activities. Another R$160 million of the COSERN proceeds was used to pay scheduled amortization and reduce accounts payable. (The Tribunal de Contas report notes that because debt reduction was limited to scheduled amortization and reductions in arrears, it had no incremental effect on the stock of contractual debt.) R$40 million was used to pay salaries (in violation of the original terms of the law), R$24 million was used to pay electricity bills and other operating costs, and R$4.6 million was used for drought relief. As of December 1998, only R$47.8 million remained. With the exhaustion of COSERN receipts, spending on capital works collapsed in 1999. It recovered somewhat in 2000 and 2001, largely due to a growing state current account surplus. OVERALL RESULTS AND PROGNOSIS 5.35 The state's fiscal condition has steadily improved over the last four years. The steady increase in ICMS revenues, coupled with restraints on personnel spending and the state's limited interest obligations, have produced a growing current account surplus. As shown in Figure 5.6, in 1997 the state ran a current account deficit equal to 5 percent of net current revenues. Figure 5.6 Trends in Fiscal Indicators By 2001, that had become a current surplus of 20 percent. 80% The state's practice of trimming 60% capital spending to fit the se nu 40% availability of own-source 20% revenues has resulted in a steady veerten 0% improvement in the overall % 1997 1998 1999 2000 2001 -20% deficit as well. Excluding capital works financed by FDES in -40% current balance overall balance 1998, the overall balance has capital works debt:revenue shifted from a deficit of 26 percent of net current revenues in 1997 to a surplus of 6 percent of net revenues in 2001. The state's debt stock, while not declining, remains relatively small. At 57 percent of net current revenues, it is slightly below its level in 1997. 5.36 The outlook for revenue growth will depend upon growth in the national and regional economies. The medium-term fiscal outlook for RN largely depends on three factors. The first is growth in the economy--both nationally and regionally. 125 National economic growth affects the yield of the federal income and industrial products taxes, which in turn affects the volume of federal transfers. Regional economic growth affects the base of the ICMS, the principal source of own-source revenues. Brazil's economy grew only 1.9 percent in 2001, because concerns about Argentina outweighed the impact of the government improving fiscal performance. Upcoming federal elections in 2002 cast some doubt over the immediate economic prospects. Provided that the state government's present fiscal policies are sustained during and after the elections and that global financial conditions (particularly the U.S. economy) improve, the prospects for modest growth are considered to be fairly good. Historically, RN's economic growth rate has paralleled that of the nation as a whole (see Chapter 3). If that relationship persists, the prospects for growth in the base of the ICMS are also modestly bright. 5.37 However, personnel costs may increase. Restraining the wage bill has been critical to reducing the state's overall deficits, but it is not clear that further cuts in staff are possible without harming essential services, or that the current wage freeze can be maintained without damaging staff morale. (The state has contracted with São Paulo's state research agency, FUNDAP, to look into its staffing needs.) Pension costs are certain to rise. Given the present constitutional provisions on pension benefits, there is little the state can do to address this problem on its own. As noted earlier, because state pension funding is a problem throughout Brazil, some form of resolution at the federal level is not out of the question. 5.38 Pressure may mount to increase capital Box 5.3: Rio Grande do Norte's Compliance with spending. The state is Federal Fiscal Targets currently comfortably Under its most recent debt refinancing agreement with below the ceilings set on the federal government, the state agreed to pursue borrowing by its specific fiscal targets. These are annually adjusted in refinancing agreement with light of the performance in the previous year. The the federal government. Its principal targets for 2000 are shown in Table 5.5. As ratio of debt stock to shown in the right-hand column, the state is in compliance with all of them. revenue, at 55 percent of net current revenues, is Table 5.5: Principal Fiscal Targets for 2000 well below the target, as is the proportion of revenues Target Results Debt revenue ratio 0.55 spent on debt service (Box <.64 Debt service/rlr <7.6% 6.90% 5.3). The state also has Primary surplus > $56 mn $69 mn ample room to borrow Personnel RLR <60% 50% under the more liberal Increase in revenues >7.3% 13% Other current exp. <39% 2% ceilings set by the Senate. Under Senate Resolutions 40 and 43, new borrowing is prohibited if (a) the total volume of borrowing in the budget year exceeds 16 percent of net current revenue;32 (b) debt service exceeds 32Within this ceiling, short-term revenue anticipation borrowing (AROs) cannot exceed 7 percent of net current reveues, and guarantees cannot exceed 22 percent. 126 11.5 percent of net current revenue; or (c) the total stock (including previously rescheduled debt) exceeds two times net current revenue in the case of states, and 1.2 times NCR in the case of municipalities. Each level of government has 15 years to achieve these targets. RN falls well within these boundaries. Increased borrowing, however, implies increased interest costs in the future. This could rapidly consume most of the current surplus that the state has historically relied upon to finance its capital budget. 5.39 To evaluate the impact of alternative fiscal strategies, a medium-term fiscal projection was prepared. The projection is based on the state's final accounts for 2001. The base case assumes (a) 2.5 percent annual real growth in net current revenues, (b) 2.5 percent growth in the wage bill of active personnel, and (c) payments to pensioners as projected by the recent Banco do Brasil study (base case). Interest and amortization on existing debt are based on projections provided by the state Planning and Finance Secretariat. The state is assumed to undertake no new borrowing, other than to refinance the amortization of existing debt. (The interest rate on refinanced amortization is assumed to be 8 percent in real terms.) Current expenses other than personnel and interest are based on the ratio of such expenses to net current revenue in 2000. The projection "solves" for capital spending; that is, the overall deficit is assumed to be zero, and the level of capital spending is calculated to achieve that result. Given the constraints on the supply of credit (see Box 5.3), a projection using the deficit as a dependent variable was considered unrealistic. Box 5.4: Federal Controls on the Supply of Credit Rio Grande do Norte's prospects for new borrowing are limited by federal controls over the supply of credit. National Monetary Council Resolution 2653 (1999) authorizes the Central Bank, in its capacity as supervisor of the domestic banking system, to control the supply of credit to subnational governments by domestic banks. Under the resolution, outstanding loans to the public sector may not exceed 45 percent of any bank's equity. "Public sector" in this case includes the federal government, states, and municipalities (as well as the public enterprises controlled by them). "Bank" means both private and public banks. This resolution is particularly binding on the principal source of long-term credit to subnational government, the national savings bank, Caixa Econômica Federal. Because the Caixa Econômica is already close to its maximum lending level, new long-term credit from the banking sector is largely nonexistent. 5.40 Projections suggest that an overall fiscal balance could be maintained while financing a significant capital program out of current revenue. The result of the base case assumptions is a current account surplus equal to about 15 percent of net current revenue (Figure 5.6). This could be used to finance capital works, while maintaining an overall balance of zero and a debt stock that remains constant in real terms. 5.38 Overall, RN would be well advised to persist in its conservative fiscal policies. While the state has a large current account surplus, a small deficit, and a 127 relatively light debt burden, it operates on a narrow margin. Like all Brazilian states, RN is vulnerable to external shocks and has little flexibility to respond to them. It has no control over the level of transfers it receives, and little policy control over the ICMS. Its ability to control its principal item of expenditure--the wage and pension bill--is limited by federal regulation. Under these conditions, it is prudent to ensure that recurrent revenues exceed recurrent expenditure obligations by a wide margin. The resulting surpluses can be used to finance discretionary capital works when times are good. They can be diverted to compensate for revenue shortfalls or unexpected increases in spending obligations when times are less favorable. This suggests that the state should therefore continue to (a) work on improving ICMS tax administration, while (b) restraining growth in the wage bill, and (c) relying on current surpluses to finance most of its capital investment. 128 REFERENCES Abreu, Marcelo Paiva de, and Dorte Verner. 1997. "Long-term Brazilian Economic Growth: 1930­94." Paris: Organization for Economic Cooperation and Development. Akhavan, Dariush. 2001. "Decentralization in the Administration of SUS--Strategic Issues in Northeastern Brazil." Washington, D.C.: World Bank. Alves, Markell Ferreira. 2000. "A Evolução do Setor Agropecuário do Rio Grande do Norte 1970­1997." Resumo de Relatório de Pesquisa para o Ministério da Educação e Desporto, Universidade Federal do Rio Grande do Norte, Centro de Ciencias Sociais Aplicadas, Departamento de Economia. Natal. Araújo, L. M., and B. Bramwell. 1999. "Stakeholder Assessment and Collaborative Tourism Planning: The Case of Brazil's Costa Dourada Project." Journal of Sustainable Tourism, 7 :356­378. Ataliba, F., P. Jorge Neto, and E. Tebaldi. 2001. "Desigualdade de Renda e Crescimento Econômico no Nordeste Brasileiro." Revista Econômica do Nordeste. Volume Especial. Azzoni, Carlos Roberto. 1999. "Concentração Regional e Dispersão da Rendas Per Capita Estaduais: Análise a Partir de Séries Históricas Estaduais de PIB, 1939­1995." São Paulo, USP. BEMFAM. 1996. "Pesquisa Nacional sobre Demografia e Saúde (PNDS)." Rio de Janeiro. ______. 1998. "Estruturação e Melhoria da Saúde Reprodutiva no Estado do Rio Grande do Norte." Natal. ______. 1998. "Pesquisa Nacional Sobre Demografia e Saúde (PNDS): Rio Grande do Norte." Natal. ______. 2000. Population Council. "Saúde Reprodutiva no Estado da Bahia: Adolescentes e jovens nos serviços de saúde reprodutiva." Salvador. Blom, Andreas, and Carlos Vélez. 2001. "The Dynamics of the Skill-premium in Brazil; Growing Demand and Insufficient Supply?" Washington, D.C.: World Bank. Blom, Andreas, Nina Pavcnik, and Norbert Schady. 2001. "Trade Liberalization and Labor Market Adjustment in Brazil." Washington, D.C.: World Bank. 129 Cavalcanti, Pedro, and De Goes. 1996. "Convergência entre a Renda Per-Capita dos Estados Brasileiros." Revista de Econometria, May. Census 2000. http://www.ibge.gov.br/home/estatistica/populacao/censo2000. Currie, Janet. 2001. "Early Childhood Development Programs." Journal of Economic Perspectives, 15 (2) :213­38. DEDAM (Delegacia Especializada em Defesa da Mulher). 2000. "Ação preventiva de combate à violência contra a mulher." Divulgação do trabalho realizado pelo DEDAM­ Natal/RN. Ferreira, Francisco, Peter Lanjouw, and Marcelo Neri. 1998. "The Urban Poor in Brazil in 1996: A New Poverty Profile Using PPV, PNAD and Census Data." A Background Paper for the World Bank's Urban Poverty Strategy Report. Fiess, Norbert Mathias, and Dorte Verner. 2001. "The Dynamics of Poverty and its Determinants: The Case of Rio Grande do Norte and the Northeast of Brazil." Washington, D.C.: World Bank. Forbes, Kristine J. 2000. "A Reassessment of the Relationship Between Inequality and Growth." American Economic Review, 90 (4) :869­887. Fuller, B., L. Dellagnelo, and A. Strath 1999. "How to Raise Children's Early Literacy? The Influence of Family, Teacher, and Classroom in Northeast Brazil." Comparative Education Review, 43 :1­35. Gallup, J. L., and J. D. Sachs. 1999. "Geography and Economic Development." Harvard Institute for International Development, Consulting Assistance on Economic Reform II, Discussion Paper No. 39, March. Cambridge, MA. Gomes, Gustavo Maia. 2001. "Regional Development Institutions, Instruments and Programs for Northeast Brazil." Washington, D.C.: World Bank, unpublished. Gomes, Raquel S. 2001. Ph.D. proposal, International Development and Regional Planning, Department of Urban Studies and Planning, Massachusetts Institute of Technology. Heckman, James. 1999. "Policies to Foster Human Capital." Working Paper No. 7288. Cambridge, MA: National Bureau of Economic Research, August. IBGE. Censo Agropecuário 1995­1996; Pesquisa Agrícola Municipal (PAM); Levantamento Sistemático da Produção Agrícola (LSPA). _____. Contas Regionais do Brasil. 130 _____. Census 1970, 1980, and 2000, IBGE. _____. PNADs 1981-99, IBGE. _____. Síntese de Indicadores Sociais 2000. IDEMA. 2000. "Programa de Leite." Natal, RN. Kremer, M., A. Onatshi, and J. Sotck. 2001. "Searching for Prosperity." Working Paper No. 8250. Cambridge, MA: National Bureau of Economic Research. Kuerger, A. B., and M. Lindahl. 2000. "Education for Growth: Why and for Whom?" Working Paper 7591. Cambridge, MA: National Bureau of Economic Research, March. Magalhães, Antônio Rocha. 1992. "Understanding the Implications of Global Warming in Developing Regions: The Case of Northeast Brazil." In Judith Clarkson and Jurgen Schmandt, The Regions and Global Warming ­ Impacts and Response Strategies. New York: Oxford University Press. Ministry of Education. SAEB 1995,1997,1999. Ministry of Health. 1998. Secretaria Executiva, Departamento de Controle, Avaliação e Auditoria. Sistema Nacional de Auditoria ­ SNA Componente Federal, Atividades ­ 1o. Semestre/98. Brasília. _____. DATASUS. 2000. SEBRAE-RN. 1996. "Pesquisa Sobre o Impacto Sócio-econômico do Turismo na Grande Natal." SEBRAE. SETUR (Secretaria Estadual de Turismo). 2000. Indicadores Básicos de Turismo do Rio Grande do Norte, 1995­1998. Governo do Estado do Rio Grande do Norte. Tendler, Judith, and Richard Locke. 1996. "Proposal for MIT/BNB collaborative research." Departments of Urban Studies and Planning, and Sloan School of Management and Department of Political Science, Massachusetts Institute of Technology, 12 December. Thomas, Vinod, Mansoor Dailimi, Ashok Dhareshwar, Daniel Kaufmann, Nalin Kishor, Ramon Lopez, and Wang Yan. 2000. "The Quality of Growth." World Bank. NY: Oxford University Press, Inc. Tribunal de Contas do Estado. 1999. "Contas do Governo Exercício de 1998." http://www.tce.rn.gov.br/, Natal, RN. 131 Vasconcelos, J. R., and J. R. Vergolino. 1999. "Pernambuco: Economia, Finanças Públicas e Investimentos nos anos de 1985 a 1996." Instituto de Pesquisa Econômica Aplicada, Texto para Discussão No. 628, February. Verner, Dorte and Edinaldo Tebaldi. 2002. "Municipal Growth in Rio Grande do Norte, Brazil." Washington, D.C.: World Bank mimeo. World Health Organization. 1999. "Violence Against Women Information Pack: A Priority Health Issue." World Bank. 1997. "Alcohol Policy as a Means of Controlling Crime and Violence: A Review of the Research." Washington D.C.: World Bank. Unpublished. ______. 1999. "Brazil: Regulations for better Water and Sanitation Services." Report No. 19568-BR. Washington D.C. ______. 2000. "Brazil--Critical Issues in Social Security." Report No. 19641-BR. Washington, D.C. ______. 2000a. "Poverty Reduction, Growth and Fiscal Stability in the State of Ceará." Report No. 19217-BR., Washington, D.C. ______. 2000b. "Brazil: Private Participation in the Water Sector ­ Case Studies, Lessons and Future Options." Report No. 19896-BR. Washington, DC. ------. 2001. "World Development Report 2000/2001." Washington, D.C. ______. 2001a "Public Expenditures for Poverty Alleviation in the Northeast." Report No. 22425-BR. Washington, D.C. ______. 2001b, "Broadening the Base for Growth: A Report on the State of Bahia." Report No. 21377-BR. Washington, D.C. . ______. 2001c, "Rural Poverty Reduction in Brazil: Towards and Integrated Strategy." Report No. 21790-BR. Washington, D.C. ______. 2002a. "Growth and Poverty Reduction in Pernambuco." Report No.20754- BR. Washington, D.C. ______. 2002b. "Brazil--The New Growth." Report No. 22950-BR. Washington, D.C. ______. 2002c. "Brazil: Maternal and Child Health." Report No. 20693-BR. Washington, D.C. 132 APPENDIX: FEDERAL EDUCATIONAL PROGRAMS RN is able to take advantage of a number of federal programs aimed at improving educational outcomes. A listing of the major programs follows below (from World Bank 2002a): School Development: Fundo de Fortalecimento da Escola (FUNDESCOLA), a R$1.3 billion fund (with World Bank financing) aims to improve access, attendance, quality, and the administration of primary education in several municipalities in the North, the Northeast, and the Center-West. The program aims to provide schools and parent associations with more control over financial resources; make sure that schools meet minimum operation standards with regard to teacher qualification, pedagogical inputs, and equipment and physical conditions; design and implement school development plans; implement school improvement projects, which comprise actions and measurable learning improvement targets; and develop, test, and disseminate various pedagogical and organizational frameworks that could improve learning. The fund finances inputs, development plans, and technical assistance to primary schools. Direct Financing of Schools. The Direct Cash at Schools Program (Programa Dinheiro Direto Na Escola) provides money to meet basic school needs. Schools with more than 100 students that have an established managing unit (a PTA at public schools or an NGO) and a bank account are eligible for this program, which transfers cash directly to the school for use by the managing unit on the basis of the number of students. The program is funded by the National Education Development Fund (Fundo Nacional de Desenvolvimento da Educação, FNDE), which is an autonomous department the goal of which is to get financial resources in order to finance educational projects. Teacher Training. The government's Teacher Training Program (Programa de Formação de Professores em Exercício, PROFORMAÇÃO) is targeted to the North, Northeast, and Center-West. It is financed by FUNDESCOLA and implemented through the Government's Distance Education Program, both computer based (Programa Nacional de Informáticana Educação, PROINFO) and TV-based (TV- Escola). Curricular Benchmarks The Parâmetros Curriculares Nacionais comprises development and training with respect to six flexible modules of curricula covering preschool, reading and writing, the first four years of formal schooling, years 5 to 8 of formal schooling, young and adult education, and education for indigenous populations. Textbooks. Includes a continuous assessment of existing textbooks (Avaliação do Livro Didático) for the first four-year series of the primary education cycle and a program (Programa Nacional do Livro Didático, PNLD) of free distribution of 133 primary education textbooks for Portuguese, mathematics, science, social studies, history, and geography. Libraries. The National School Library Program (Programa Nacional Biblioteca da Escola, PNBE), introduced in 1997, distributes reference and literature books to schools, with complementary teaching and library administration materials. A total of 8 million books have been distributed to 56,000 schools. Evaluation of Results. Sistema Nacional de Avaliação da Educação Básica (SAEB) evaluates educational outcomes at the end of the schooling cycles (4th, 8th, and 11th years). Surveys for 1995, 1997, and 1999 have been completed. Eradication of Child Labor. The primarily rural Programa de Erradicação do Trabalho Infantil (PETI), managed by the Social Security and Social Assistance Ministries, provides transfers to local schools per child in the program, and income to selected poor families (Bolsa Criança Cidadã). The program is aimed at families with an income below one half the minimum wage with children of school age (7 to 14). Student Health. The Student Health National Program focuses on ensuring good sight and hearing. It includes a sight rehabilitation campaign (Olho no Olho and Quem Ouve Bem, Aprende Melhor!), distribution of training and evaluation materials, medical treatment to students with sight problems, and distribution of glasses and hearing aids. The programs are funded with FNDE and Ministry of Health resources. Student Nutrition. Introduced in 1955, the well-known school lunch program merenda escolar (or Programa Nacional de Alimentação Escolar) is aimed at providing 15 percent of students' daily caloric and protein needs. It is funded by FNDE. Student Transportation. FNDE finances municipal acquisition of vehicles for transporting students that live far away from schools. Education Statistics. A national school census is conducted every year. It comprises three surveys--of school education, university education, and education financing. In addition, a census of teachers was conducted in 1997. Secondary Education. Benefits from federal programs to improve access and quality, including the School for Youth Project (Projeto Escola Jovem), which seeks improvements in curricula, teacher training, libraries, and laboratories, distance education, expansion of capacity, and administration of school systems. The project is financed by the IDB with cofinancing from the federal and state governments. Distance education for teachers is also available through TV-Escola. A specialized test for secondary education (Exame Nacional do Ensino Médio, ENEM) was introduced in 1998. This is in addition to the SAEB test, which covers all basic education including secondary education. 134