The ongoing financial crisis and the anticipated global economic slowdown could have dire consequences for the well-being of people in the developing world. Poverty could increase sharply in countries where a large share of the population are already very poor.
And if many of these poor families—already weakened by the food and fuel crises—cut back on investments in the education, health, and nutrition of their children, this could have serious long-term consequences for these children as adults.
As policymakers in the developing world face these potential threats, a search is on for the right tools to help the world’s poorest households through the worst of the crisis. This 2009 World Bank policy research report asks if conditional cash transfer (CCT) programs, with their focus on poor households with children, can be part of the solution.
The report shows that CCTs can indeed help poor households weather shocks ranging from an economic crisis to unemployment, illness, or death of a breadwinner. CCTs can also help ensure that households don’t cut back on children’s basic health and schooling.
That said, CCTs are really designed to help get rid of long-term structural poverty than deal with sudden, short-term, income shocks, which require a more flexible social insurance instrument.
The ideal transfer program to deal with transient poverty (i) does not involve a long-term commitment such as school enrollment, (ii) is self-targeted and doesn’t involve complex administrative decisions for exit or entry, and (iii) involves the participation of beneficiaries in activities (for example, job-related) that address the source of the shock.
While workfare programs or unemployment insurance are better suited to deal with transient poverty, having a CCT program in place during a crisis is clearly much better than not having any large-scale social assistance program at all.
Several Latin American countries such as Chile, Ecuador, and Mexico have temporarily increased the level of payment to CCT beneficiaries, describing these increases as supplemental payments made on an exceptional basis. This leaves room to scale back.
CCT programs have a role to play in the context of a “permanent safety net”. Design features that make them more nimble in response to sudden changes in aggregate economic conditions may be useful.
However, the main goals of CCTs should remain to reduce structural poverty and increase investments in children, especially when these investment levels are low.