SPectrum S o c i a l P r o t e c t i o n T h e W o r l d B a n k S u m m e r 2 0 0 4 SP ect rum Social Protection The W orld Bank Summer 2004 Social Protection in ECA during the Transition: An Unfinished Agenda Social Protection Human Development Network The World Bank 1818 H Street, NW Washington, DC 20433 USA Social Protection is a collection of measures SPectrum is published by the Social Protection improve Unit of the World Bank. SPectrum is intended to to or protect raise awareness, enliven debate and present the human capital, ranging from labor market latest thinking around social protection issues, including children and youth, child labor, interventions and publicly mandated disability, labor markets, pensions, social funds and social safety nets. The views presented in unemployment or old-age insurance to the articles are solely those of the authors and targeted income support. Social Protection do not reflect the views of the World Bank. assist Articles appearing in SPectrum may be interventions reproduced or reprinted provided the author(s) individual, households, and communities and SPectrum are cited and a courtesy copy is manage provided to SPectrum. to better the risks that leave people vulnerable. Cover Photo: Anvar Ilyasov "Tandir" ovens made from clay and grass drying in the sun in a local workshop Submissions, letters and story ideas are established by a number of master craftsmen welcome and may be sent to: in Uzbekistan. Raiden Dillard Social Protection Unit The World Bank 1818 H Street, NW MSN G7-703 Washington, DC 20433 USA Tel: +1 202 458 7618 Fax: +1 202 614 0471 Email: rdillard@worldbank.org Contents Editors' Note 3 Hermann von Gersdorff and Robert Holzmann Social Protection in ECA during the Transition: An Unfinished Agenda 5 Poverty and Millennium Development Goals 9 Pension Reforms: Security through Diversity 13 Labor Market Interventions during the Transition in ECA 17 Social Assistance in Transition Countries of Europe and Central Asia 21 Social Protection in Postconflict Environments in ECA 27 Integrating and Empowering the Poor and the Excluded: The Roma and Other 35 "Pockets of Poverty" Protecting the Vulnerable through Programmatic Adjustment Lending 39 Social Funds in ECA: An Effective Tool to Reach Pockets of Poverty 43 Public Works in Europe and Central Asia 47 Conditional Cash Transfers 51 Child Welfare Reform Projects and Initiatives 55 Europe and Central Asia At a Glance: Selected Indicators 35 Table 1. Size of the Economy, Life Expectancy, and Employment 57 Table 2. Millennium Development Goals: Eradicating Poverty and 58 Improving Lives Table 3. Poverty in ECA Countries 60 Lead Editor: Jeanine Braithwaite with guidance from Hermann von Gersdorff, Michal/ Rutkowski, and Sándor Sipos. Edited by Diane Stamm. Welcome Welcome to the SPectrum on Europe and Central Asia (ECA) countries. This issue is the second in a series that focuses on regions of the world where the World Bank is active in social protection, including labor markets, pensions, social assistance, disability, and child welfare. Our goal is to explore key social protection issues in ECA, and describe recent Bank work and other developments in the Region. This issue takes us to a World Bank region that comprises 28 countries, of which 27 are transition coun- tries, and which also includes Turkey. These countries are grappling with a unique set of issues brought on by their transition from state planning to market economies, and social transformations leading to democracy and new public institutions with new mandates for the market-oriented democratic societies. This issue also provides an overview of how social protection has evolved in this diverse and challenging region, which includes both postconflict countries and some middle- and higher-middle income coun- tries. New developments for the Region are pension reform, conditional cash transfers, and multisectoral or programmatic reform programs in which social protection is key. This issue also highlights lessons learned from the first 10 years of transition, the changing agenda as some issues are resolved while others come to the fore, and focuses on the challenge of finding regionally appropriate ways of helping people, as individuals, as household members, and in communities, to better manage risks. We believe that social protection has a strategic role in reducing poverty and improving human development in the Region, and in underpinning efforts of the ECA countries to reach the Millennium Development Goals (MDGs). Social safety nets are critical for addressing the needs of vulnerable populations, social insurance is key for mitigating risk, and the Region faces the major challenge of moving from "safety net to trampoline" by developing social risk management efforts that will enable poor people to move out of poverty. This multisectoral approach is important to integrate health, education, finance, infrastructure, and transportation for such crosscutting issues as persons with disabilities or vulnerable children. Uniting efforts across all sectors is important to the struggle to substantially reduce extreme poverty and hunger, to achieve education for all, to improve health outcomes, and to achieve the other MDGs adopted by the international community in 2000. Eight of the countries in the Region recently joined the European Union (EU) through the accession process, and several others are actively preparing their accession. The eight accession countries will benefit from EU membership, but the EU will also be enriched through its new members because they have a unique experience in recent reform of their social protection systems that can bring new lessons for the previously established EU members. Some of the challenges in social protection reform faced by the accession countries are quite acute in the other EU countries as well, such as the aging of the population and needed pension reform, and the difficulty of mobilizing youth employment. We are proud to showcase our Region, which has a unique legacy of social protection institutions and challenges stemming from transition. We hope that the focus on the ECA region will provide valuable insights to readers interested not only in transition, but in the challenges faced in all countries in building a just and equitable society for all, with special protection afforded to the most vulnerable. Robert Holzmann Hermann von Gersdorff Director, Social Protection Sector Manager, Social Protection Human Development Network Europe and Central Asia Region 3 Social Protection in ECA during the Transition: An Unfinished Agenda Michal/ Rutkowski T he transition from planned to market economies in the countries of Europe and Central Asia (ECA) has created unprecedented challenges as cradle-to-grave social security has disappeared and income differentials have rapidly increased. Even though many people in the region have benefited from the reforms and will continue to do so in the longer term, average living standards have declined, and poverty and unemployment have increased. Many individuals and families have for the first time in their lives had to deal with income uncertainty and other social and economic risks on their own. Countries have approached the breakdown of the old social protection system in different ways. Some have attempted wholesale reform, while others have tried to adapt the old systems to emerging welfare needs and fiscal realities. The World Bank's Social Protection Strategy Since the World Bank became involved in social protection in the ECA transition economies after the end of the Cold War, the Bank's social protection lending has grown tremendously, totaling more than $1.4 billion globally in fiscal year 2003, up from little more than $100 million in 1991. After more than a decade of experience in the region, it is clear that the main challenge for all the transition economies--both those about to join the European Union and those still strug- gling with structural reform--will be to strike the right balance between promoting growth and providing protection. To meet this challenge, all countries must strive to develop competitive but fair labor markets; foster affordable pension systems for everybody; consolidate untargeted social assistance benefits; improve social programs aimed at the most vulnerable, such as the Roma (previously called gypsies), street children, and the disabled; and strengthen community-based interventions. In 2001, the Bank's newly proposed social protection strategy, while sensitive to each country's context, suggested that ECA countries could be broadly characterized into one of two groups-- European, comprised of all the European Union accession transi- Constantin tion economies, and South-East European countries; and Eurasian, Stan comprised of members of the Commonwealth of Independent Photo: States. Countries such as the Russian Federation, Ukraine, Belarus, and Turkey, and to a lesser extent, Kazakhstan and Albania, are now somewhere in between the two groups. But the distinction between the categories still holds--namely that relative to Eurasian economies, European economies have restructured more quickly and more aggressively. All countries in the region share the need for further reform, and still have a long way to go. In the European transition economies the World Bank's analysis stresses labor markets, pensions and unemployment insurance sys- tems, and social services, including social care. Labor markets in these countries need to become more flexible, and collective bar- Photo: Anatoliy Rakhimbayev 5 gaining should be decentralized. Pension and unemploy- cultural dependence on state provision of security toward ment insurance should be made affordable for all. Pension more individual risk-bearing arrangements requires that benefits should be linked to contributions through an the public be educated about market reforms. expansion of defined contributions systems, both in their Policymakers should also be educated on the implications financial and non-financial (that is, notional, or unfund- of tradeoffs among policies of generous protection, fiscal ed) form. Poverty should be addressed through minimum costs, growth, and work incentives. This is a continuous pensions and means-tested social assistance. Social policy process because there are powerful forces in place wanting should also speed up deinstitutionalization and the devel- to retain the old security arrangements, despite the unaf- opment of social welfare and community-based services. fordable costs they entail. Special programs for vulnerable groups should be developed. The articles in this issue of SPectrum explore in more In Eurasian countries, the strategy focuses on promoting detail a range of current social protection issues in the restructuring, institutional development, and poverty region, from pension reform to the applicability of condi- reduction. Macroeconomic stability and high-quality fiscal tional cash transfers and interventions for special vulnerable adjustment should be pursued before attempting fundamen- populations. Collectively, they illustrate the belief of our tal labor market reforms. Until financial and administrative staff and clients that it will be possible to meet the chal- conditions improve, Eurasian countries should consider lenges in ECA countries and create not only adequate flat benefits for pensions and unemployment, or at least social protection, but exciting new growth opportunities benefits that ensure a minimum standard. The limited as well. ability of local governments to collect taxes, and the exis- tence of large informal economies, mean that risk-mitigation and social insurance interventions are difficult to implement in this region. One of the big challenges is to gain a better understanding of how informal safety nets actually function before developing new formal systems. In the meantime, social investments funds and community works programs can help provide temporary employment. Future Efforts The World Bank's Social Protection Unit in ECA will continue to focus heavily on the countries' pension systems, because they invariably constitute the largest public trans- fer program, with immense fiscal and poverty implications. It is also necessary to place greater emphasis on social assistance and labor relations, because they both play a key role in the fight against poverty, and their reforms were neglected during the early years of the transition. Development of innovative approaches will be a priority, as will newer concerns such as postconflict support and ethnic violence, which must be addressed. In the area of social services, deinstitutionalizing the care of children and strengthening community-based services merit further intensive work, along with considering new means of sup- port for the Roma and disabled populations. Conclusion It is crucial to foster ownership and support for the policies within countries. Stakeholders must be deeply engaged in the policy reforms, and public information campaigns should be used to increase understanding of the difficult choices facing countries. The difficulty of moving from Hadar osefY 6 Photo: Poverty and Philip Goldman and Alan Wright Millennium Development Goals There is an increasing awareness that the lack of material quality and access to social services in many countries, the resources reflects just one dimension of poverty. Being focus on human development outcomes appears to remain poor goes well beyond a narrow lack of material consump- a significant priority. Even where income poverty has been tion; it encompass poor health outcomes, low achieve- reduced, the gains have not been equally distributed, and ment in education, and a sense of vulnerability to external significant poverty issues still remain. For example, in events, as well. Armenia, while poverty incidence for 1998/99 was 53.7 percent nationally, it ranged from 36.7 percent in the This multidimensional nature of poverty is recognized by Armavir Marz (region) to 77.3 percent in the Shirak Marz. the Millennium Development Goals (MDGs), which in broad terms, aim to cut by half the proportion of people MDG Challenges in extreme poverty worldwide by 2015, provide education, improve health, and preserve the environment. These Using the MDGs as an analytical framework reinforces eight goals (see Box 1), which were endorsed by 189 the commonly held view about the poor state of some of countries at the September 2000 UN Millennium General the countries in the region. For example, Tajikistan is Assembly in New York, represent a global consensus on unlikely to meet any of the MDG human development development goals, and promote poverty reduction and targets by 2015. Moldova and Uzbekistan are likely to human development as the key to sustaining social and meet only one of the MDG targets. When assessed by economic progress in all countries. While only the first country population, however, a large percentage of ECA's MDG refers directly to poverty, each of them addresses an residents are in countries where MDG achievement is aspect of poverty that is important in its own right and unlikely or unrealistic (see Table 1). which interacts and mutually reinforces the other aspects of poverty. The MDGs present a number of particular challenges for transition countries: In the Europe and Central Asia (ECA) region, at the beginning of the 1990s, social indicators appeared better Data are often not available or of adequate reliability in most transition countries than other countries with to track the MDGs from the 1990 baseline year, or similar income levels. The severe economic downturn in even for subsequent years. v the region left a legacy of a huge social infrastructure (for Kozyre example, schools and hospitals), which many countries For some middle-income transition countries, the uriY could no longer afford. In many cases, rural areas have global MDG targets, if mechanically applied, would been hit particularly hard. The stress of this transition require that they improve their social indicators ahead Photo: resulted in reversals in many social indicators. Income of a developed country standard. Further, the region's poverty levels rose significantly in many countries in the rapid socioeconomic decline began roughly at the region, especially during the early phase of the transition. same time as the 1990 MDG baseline date, and some Now that positive growth levels have emerged in nearly all indicators that are improving today are still "catching ECA countries, some countries such as Russia and the up" with 1990 levels. The types of measures used are Kyrgyz Republic are experiencing reduced poverty levels. also important: in transition countries, measuring It is not yet clear whether there has been comparable poverty at both $1 and $2.15 per capita per day yields improvement in the progress toward meeting the MDGs, a more accurate poverty profile than just a single $1 and because there has been serious deterioration in the measure.1 9 Box 1. The Millennium Development Goals Goal 1. Eradicate Extreme Poverty and Hunger Target 1. Halve, between 1990 and 2015, the proportion of people whose income is less than one dollar a day. Target 2. Halve, between 1990 and 2015, the proportion of people who suffer from hunger. Goal 2. Achieve Universal Primary Education Target 3. Ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of pri- mary schooling. Goal 3. Promote Gender Equality and Empower Women Target 4. Eliminate gender disparity in primary and secondary education, preferably by 2005, and to all levels of edu- cation no later than 2015. Goal 4. Reduce Child Mortality Target 5. Reduce by two-thirds, between 1990 and 2015, the under-5 mortality rate. Goal 5. Improve Maternal Health Target 6. Reduce by three-quarters, between 1990 and 2015, the maternal mortality ratio. Goal 6. Combat HIV/AIDS, Malaria, and other Diseases Target 7. Have halted by 2015 and begun to reverse the spread of HIV/AIDS. Target 8. Have halted by 2015 and begun to reverse the spread of malaria and other diseases. Goal 7. Ensure Environmental Sustainability Target 9. Integrate the principles of sustainable development into country policies and programs and reverse the losses of environmental resources. Target 10. Halve by 2015 the proportion of people without sustainable access to safe drinking water. Target 11. By 2020 to have achieved a significant improvement in the lives of at least 100 million slumdwellers. Goal 8. Develop a Global Partnership for Development Target 12. Develop further an open, rule-based, predictable, non-discriminatory trading and financial system. Target 13. Address the special needs of the least-developed countries. Target 14. Address the special needs of landlocked countries and small island developing States. Target 15. Deal comprehensively with the debt problems of developing countries through national and international measures in order to make debt sustainable in the long term. Target 16. In cooperation with developing countries, develop and implement strategies for decent and productive work for youth. Target 17. In cooperation with pharmaceutical companies, provide access to affordable essential drugs in developing countries. Target 18. In cooperation with the private sector, make available the benefits of new technologies, especially infor- mation and communications. Similarly, while the prevalence of indicators such as "MDG-plus" agenda, which uses the MDGs as a foundation HIV/AIDS in the region is low, the infection rates are for a strategy that may go beyond the global goals. Such extremely high, and present a development challenge strategies might include goals to: that is not immediately captured by the global MDG indicator. Other indicators, such as the one related to Reduce the number of children at risk (orphans, malaria, are not of central importance to the region. disabled) For countries such as Russia, an intensive focus on Improve the living conditions for vulnerable groups, child mortality may have less of an impact on life such as Roma expectancy than a health strategy that also addresses high adult mortality levels. Increase labor force participation For transition economies, it may be advisable to mitigate Reduce hunger or malnutrition of children through social and economic risks through a country-specific stronger safety nets 10 Table 1. Progress of ECA Economies Toward Meeting MDGs, by Economy and Percent of Population* MDG Likelihood of Meeting MDG Goals by Selected ECA Economies (%) Likely Maybe Unlikely Unrealistic Target No Data 1. Malnutrition 10 0 30 0 60 2. School Completion 15 50 30 0 5 3. Equality in School 45 20 20 0 15 4. Child Mortality 20 10 35 30 5 5. Maternal Mortality 10 0 35 55 0 6. HIV/AIDS 5 15 70 0 10 7. Water Access 15 45 5 0 35 Likelihood of Meeting MDG Goals (by % of total ECA population) 1. Malnutrition 3 0 52 0 45 2. School Completion 9 77 13 0 1 3. Equality in School 25 40 19 0 16 4. Child Mortality 25 8 45 20 1 5. Maternal Mortality 7 0 61 32 0 6. HIV/AIDS 1 5 93 0 1 7. Water Access 8 77 6 0 9 *Only the following 20 ECA economies were included in this analysis: Albania, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Georgia, Kazakhstan, Kosovo, Kyrgyz Republic, Macedonia, Moldova, Romania, Russian Federation, Serbia and Montenegro, Tajikistan, Turkey, Ukraine, and Uzbekistan. Ensure that the elderly have adequate means through Support Credits are also being prepared and implemented sustainable and well-administered social insurance (for example, in Albania) to support our clients' ability to programs. develop, implement, monitor, and evaluate their PRSP programs. Further, as part of its economic and sector work The World Bank's Role program, Bank staff from the human development and poverty and economic management sectors regularly pre- The Bank is working closely with a number of transition pare poverty assessments for our clients. While these typi- countries to strengthen their ability to develop, monitor, cally cover an assessment of the poverty situation, analysis and evaluate policy, including MDG monitoring. As part of the impact on poverty of growth and public actions, of our development dialogue with our clients and partners and appraisal of poverty-monitoring and evaluation sys- (such as the United Nations Development Programme), tems, the MDGs are also providing a useful framework for we are also attempting to address the policy challenges looking at the non-income dimensions of poverty. that are particular to the region, so that maximum progress can be made to reduce poverty, strengthen human capital, and improve overall living standards. Within the Bank, there has been an increasing awareness of the importance of the MDGs and the need for them to be reflected in various Bank instruments and analyses. In Endnotes the poorest (International Development Association-eligible) countries, poverty reduction strategy papers (PRSPs) are 1 The $2.15 standard is roughly based on both the lowest absolute poverty providing an important analytical framework for establishing lines in ECA, and a nationally determined minimum food basket plus an allowance for non-food expenditures. (See "Making Transition Work for country-owned socioeconomic development programs Everyone: Poverty and Inequality in Europe and Central Asia," World that are informed by the MDGs. Poverty Reduction Bank, Washington, D.C., 2000, pp. 370­371). 11 Pension Reforms: Security through Diversity Hermann von Gersdorff and Michal/ Rutkowski One of the main social and economic features of the tran- as-you-go pension system. Several countries raised retirement sition in Central and Eastern Europe and the New ages, sometimes in a very radical fashion. For example, Independent States has been the crisis in pension systems. Georgia raised the retirement age by five years for men The crisis is most acute in Central and Eastern Europe, and women overnight. Indexation rules shifted from wage where the demographic transition has proceeded more to a combination of wage and price indexation. Some rapidly, and the burden of old age pensions weighs more countries introduced legislation to reduce future expendi- heavily on the working-age population (see Figure 1). tures by making changes in the benefit formula and increas- Despite recent declines in health indicators, the average ing the number of years of wages included in the calculation postretirement life span in most Central and Eastern of pension benefits. Furthermore, some of the countries European countries still exceeds that in most Organisation embarked on an expansion of voluntary private pension for Economic Co-operation and Development countries. alternatives, typically with favorable tax treatment or In other words, the states of Central and Eastern Europe matching subsidies. For example, the Czech Republic allows and the New Independent States, with much lower some individuals to save more for old age than can be pro- incomes and tax collection capabilities, have promised vided in the public pension schemes, and to diversify into higher benefits (in relation to their resources) than some other types of investment. A conscious attempt was made of the richest countries in the world, many of which are to link contributions much more closely to benefits, and to now finding their generous welfare systems unaffordable. avoid transfers from one group of participants to another. It is hoped that such changes will provide better labor In most of the Europe and Central Asia countries (ECA), market incentives. At the same time, these changes will pensions as a share of gross domestic product (GDP) put the pension schemes on a sounder long-term footing. increased in the initial years of the transition. Today in Eastern Europe, pension expenditures are frequently the The Shift to Multipillar Schemes largest item in the government budget, reaching about 15 percent of GDP in Poland and Slovenia, and 10 percent An extension of these arguments led to movements toward in Bulgaria, Hungary, Latvia, and Slovakia. From an eco- multipillar schemes in several countries. These reforms nomic perspective, high and often growing pension expen- shift a portion of the mandatory contribution to the pension ditures have burdened stabilization efforts and crowded system to private institutions that have established indi- out other needed government expenditures, such as new vidual defined contribution accounts for each eligible social and economic infrastructure. Countries increased worker. In most reforming countries the introduction of payroll tax rates dramatically to finance these expenditures-- funded defined contribution accounts, as opposed to up to 40 to 60 percent of employees' gross wages. The defined benefit systems,1 was extended to the public system. Dinc ady payroll tax financing of pension expenditures has led to an In the public pension system, through the introduction of Bun increased share of the labor force working in the informal "notional defined contribution" individual accounts, a economy, and to lower demand for labor, leaving the burden close link is established between contributions made and Photo: of paying for pension benefits on those left in the public the total amount accumulated, and the benefits to be col- sector, who cannot evade taxes. lected. The eventual pension is made up of a downsized public pension scheme plus a benefit purchased with accu- For Central and Eastern Europe and the New mulated funds from the so-called second pillar. Independent States, this means scaling back the public pension system while building up new funded, privately This movement follows from several policy conclusions: managed pension schemes to take the pressure off the pay- individual accounts embody desirable incentives both to 13 Figure 1. Evolution of Retirees to transition to the new pension system. The transition typi- Workers in Pension Systems cally will impose some initial welfare losses that some countries are not prepared to assume because of limits on how much of a shift to funding can be debt financed to Albania match those losses over time to economic gains. Latvia The trend we see, of a willing embrace of these reforms in Central and Eastern Europe and the New Independent Bulgaria States, may well be explained by the countries' need to reap the benefits of a funded pillar relatively quickly to Ukraine increase savings and growth, and because after a profound ideological crisis they are willing to emphasize personal Hungary accountability and private savings. Poland Table 1 shows what selected countries have done to intro- Romania duce a multipillar pension system. Other countries not mentioned in the table are in the final stages of the design Slovenia of similar reforms. Slovakia Conclusion Yugoslavia Pension reform has proved to be an ongoing process for all of the reforming countries, but it must be followed by Czech Rebpublic additional reforms. Next steps in the reform process include development of annuity markets, portability issues Macedonia with the European Union, links to capital market regulation, governance issues both in the pension funds and in the Armenia companies where these funds are invested, and issues of Croatia minimum pension guarantees. The World Bank has played a role in most of the reforming countries, not so 0% 20% 40% 60% 80% 100% 120% much in terms of the amount of the financing provided, but with technical evaluation of reform options. During Pensioners/Contributors the next stages the importance of the Bank's technical sup- Pre-1992 port will be even greater because the countries are stepping into areas where they have little experience. Most Recent Year work in the formal sector and to comply with social security contributions; under the right fiscal conditions, funding can increase a nation's savings and investment; and funded accounts can accelerate development of capital market institutions and increased efficiency in capital allocation. The returns on labor and capital differ over time, and a multipillar system thus enables individuals to diversify the risks of the sources of their retirement income. Introduction of a multipillar pension system with a mandatory funded component carries with it complex Endnotes challenges, including conditions in terms of financial market development and in administrative and supervisory capac- 1 In defined contribution systems (DC) the pension benefit is the result of the contributions made, and in defined benefit pension systems (DB) the ities. In addition, countries must have a fiscally feasible benefit is defined in advance and the contribution rate is the result of the strategy to deal with the financing requirements of the level of benefits chosen. 14 Table 1. Transition Economies with or Moving to a Multipillar Pension System Starting First Pillar Size of the Projected Workforce Switching Date Second Pillar Pension in Funded Strategy as Share of Fund Assets Pillar Payroll in 2020 (2002) (%GDP) Hungary January 1998 PAYG DB 6% 31% 45% Mandatory new Operating entrants Voluntary others Kazakhstan January 1998 Guaranteed 10% 30% 100% Mandatory Operating Minimum Poland January 1999 NDC* 7.2% 33% 70% Mandatory <30, Operating Voluntary 30­50 Latvia July 2001 NDC 2% growing to 9% 20% 72% Mandatory <30, Operating (NDC January 1996) Voluntary 30­50 Croatia January 2002 PAYG DB 5% 25%­30% 60­70% Mandatory <40, Operating Voluntary 40­50 Bulgaria January 2002 PAYG DB 2% growing to 5% Mandatory <42 Operating Slovakia January 2005 PAYG DB 9% Mandatory Legislated New entrants Estonia July 2002 PAYG DB 6% 20% 60% Voluntary Operating (opt-out +2%) Lithuania January 2004 PAYG DB 2.5% Voluntary Operating Romania January 2003 PAYG DB 8% 30% Mandatory >20 Partially legislated years from then questioned retirement Macedonia January 2005 PAYG DB 7% 26% Mandatory Legislated New entrants Russia January 2002 NDC 2% (<35) to Mandatory <50 Partially legislated 6% (36­50) and operating Ukraine January 2003 PAYG DB 2% growing to 7% Mandatory new Partially legislated entrants Kosovo January 2002 Minimum 10% Mandatory Partially legislated and operating * NDC = Notional defined contribution; a system that has the same features as a defined contribution system (DC), but is not funded. 15 Labor Market Jan Rutkowski Interventions during the Transition in ECA There are two broad types of labor market policies: policies of activities. The resulting overregulation of labor relations meant to improve the functioning of the labor market, and limits the capacity of firms to restructure and adjust to policies to help workers who are at risk of losing a job or changing economic conditions, which is vital in a compet- becoming unemployed. These are known as Active Labor itive, dynamic economy. Market Programs (ALMPs). These two policies are not independent of each other. Policies aimed at the unem- This legacy of rigid regulations has considerably hindered ployed are as a rule not very effective if the labor market is labor market performance in transition economies. Thus, not performing well. At the same time, well-designed pro- most Europe and Central Asia (ECA) countries have started grams to help the unemployed allow the labor market to to reform their labor market institutions, moving more or function more smoothly and to better match workers to less decisively toward a more flexible labor market. For vacancies. Labor market interventions have the potential to example, Estonia and Hungary liberalized their labor mar- improve labor market performance. Whether this potential kets early in the course of transition, while Poland has is realized, however, depends on a number of exterior and been reforming its labor market more gradually. Serbia interior factors. External factors include stable macroeco- and Montenegro carried out far-reaching labor market nomic conditions, an enabling business environment, and a reforms soon after the collapse of the Milosevic regime, competitive product market. Internal factors include policy while Croatia took a slower route. The common aim of design and implementation. Thus, the positive impact of these reforms has been (a) to improve employment flexi- ALMPs cannot be taken for granted, which points to the bility through lowering the dismissal costs (such as lowering importance of monitoring and evaluating their outcomes. severance pay and introducing temporary employment contracts), (b) to enhance working time flexibility Improving the Functioning of Labor Markets (through, for example, providing for rescheduling of working hours), (c) to increase wage flexibility (for example, Virtually all transition economies have inherited labor through eliminating rigid wage grids), and (d) to reduce market institutions and regulations developed under cen- certain non-cash benefits. More generally, there has been a tral planning, and they have proven to be ill suited to the movement toward the deregulation of labor relations. The needs of a market economy. There are at least three reasons underlying principle is that it is preferable to grant work- for this. First, labor market institutions were designed for ers fewer rights, but to enforce them effectively, than to state- or socially-owned firms operating in relatively closed maintain a wide range of nominal worker rights that are economies where productivity and profit were not the main not or cannot be effectively enforced. objectives. Consequently, they are not adequate for an v open economy dominated by private, often small, firms. Simultaneously with the deregulation of labor relations, aso Ily there has been a movement toward their decentralization. arv Second, reflecting socialist ideology, labor regulations have The role of the State has been lessened and that of social An provided a high level of employment protection, an egali- partners--trade unions and employer organizations-- Photo: tarian wage structure, and generous work-related benefits. increased. Collective bargaining has gained prominence as These provisions are unsustainable in a market economy a means of regulating the conditions of employment. It where firms, in order to survive, must constantly control has proved particularly effective in those countries where costs and improve productivity. both labor and business are well organized and able to articulate their interests, and where the power of social Third, in line with the planning principle, labor regulations partners is balanced, so that neither side can dominate the tended to be very detailed and to cover a very broad range bargaining process. 17 Labor market reforms, especially if coupled with reforms in increasingly turned into an income-support program other key areas of the economy, create conditions for faster largely targeted at the low-skilled, long-term unemployed. job creation and higher productivity, and thereby for The underlying concept, known as workfare, is that able- employment and wage growth. They considerably improve bodied individuals should receive income support condi- labor market prospects of vulnerable worker groups: youth tional on or in return for performing some publicly useful and workers without labor market experience, informal work. Finally, support for self-employment is meant to sector workers, and the unemployed. By lowering the regu- help the unemployed with entrepreneurial skills to start latory costs of operating in the formal sector, they can also their own business by providing necessary information and limit the size of the informal sector. Despite these long-term advice, seed capital, and support during the business mat- benefits, labor market reforms are politically difficult due uration period (for example, through business incubators). to short-term costs. They lessen job security, increase worker and job turnover, and may lead to a temporary increase in The effectiveness of ALMPs varies substantially depending unemployment. They are associated with less employment on the specific design features, implementation capacity, protection and higher labor market risks. This points to an and labor market conditions. It also varies across different important role played by unemployment protection, and worker groups: programs that meet the needs of one par- in particular by the active labor market programs. ticular worker group (such as women reentering the labor market) do not necessarily meet the needs of a different Helping the Unemployed: Active Labor Market group (such as middle-aged men with narrow vocational Programs skills). This points to the need for the evaluation of the cost-effectiveness of different programs for various client The objective of ALMPs is to assist jobseekers in finding a groups and under different conditions, and for developing job. These programs are a useful tool for improving labor programs based on evaluation results. market prospects of disadvantaged worker groups. They cannot, however, eliminate or even substantially reduce In general, job search assistance and counseling have been overall unemployment. The programs can be grouped into found to be the most cost-effective labor market measures five categories: job search assistance, training, wage subsidies, for the general population of unemployed. That is, they public works, and self-employment support. In addition, achieve results similar to other interventions, but at a sig- pre-layoff services are increasingly being provided in large nificantly lower cost. It costs less to place one unemployed enterprises undergoing restructuring and privatization. person into a job through job search assistance and coun- seling than through, say, training or wage subsidy. Each group of ALMPs addresses different types of labor market problems. Job search assistance is meant to address As regards training, the results are mixed. Narrowly targeted frictional unemployment1 by improving the efficiency of and small-scale training programs addressing well-identified matching of the unemployed to vacancies. This includes needs of both the unemployed and the employers tend to collecting information on available vacancies and passing have a positive net impact. On-the-job training (as it on to the unemployed, assisting the unemployed in opposed to classroom training) provided by private firms searching for jobs and improving their job search skills, has proven particularly effective. In contrast, broadly tar- and providing vocational counseling. Intensive job search geted large-scale training or retraining programs, such as assistance and counseling are a key part of pre-layoff (labor for workers laid off en masse, have little impact. Similarly, redeployment) services offered to workers in enterprises training has proved of little effectiveness as a means of undergoing restructuring and privatization. Training and addressing youth unemployment. Training cannot substi- retraining are intended to address structural unemployment. tute for general education, and cannot make up for the These programs provide the unemployed whose skills are failings of the educational system. obsolete or inadequate with new skills that are marketable and sought after by employers. Wage subsides are provided Training is often perceived as the most promising labor mar- mainly on equity grounds to encourage employers to hire ket intervention because it apparently addresses one critical the unemployed belonging to disadvantaged groups, such cause of unemployment, which is poor human capital. as inexperienced youth, the disabled, ethnic minorities, Relatively high job-placement rates for training participants ex-prisoners, and low-skilled, long-term unemployed. The are often cited in support of this view. However, such gross idea is to compensate the employer for higher risk associated placement rates can be highly misleading. They can be high with employing workers from seemingly low-productivity owing to so-called cream skimming, a selection process groups. Public works were initially invented to address the whereby training is offered to the most able and motivated demand deficiency unemployment; however, they have individuals. Such individuals are more likely to find a job 18 even without training. Accordingly, attributing their finding ties (which is admittedly a relatively narrow group) to start a job to training while disregarding the part played by their own business and escape unemployment. However, their personal traits leads to the overstatement of the in this case rigorous program evaluation is more difficult impact of training. The relevant question is not how many due to the critical role played by nonobservable determi- people found a job after receiving training, but how much nants of success, such as entrepreneurial abilities and skills. training improved the chances of finding a new job. Conclusions To answer this question one needs to have a comparison group of similar people who did not receive training, and What are the lessons that can be drawn from the evaluation then compare job-placement rates for both groups. When of ALMPs in ECA countries? At the most general level, such net impact evaluation is carried out, it turns out that evaluation results indicate that ALMPs can significantly the effect of training is considerably smaller than usually improve employment prospects of disadvantaged worker assumed. For instance, in Bulgaria (the example of which is groups. However, their impact on aggregate unemployment representative), in the late 1990s, about 40 percent of train- is limited. ALMPs are not a panacea for unemployment, ing participants found a job within one year of training com- and in particular they cannot substitute for flexible labor pletion. However, some 30 percent of similar unemployed market institutions and an enabling business environment. who did not receive training also found a job. Thus, while At a more specific level, evaluations indicate that the impact the gross impact of training was 40 percent, the net impact of particular interventions cannot be determined without was only 10 percent. This means that training helped only carrying out a specially designed study. It varies, depending 1 in 10 training participants find a job. This still represents on design features, accuracy of targeting, and local labor a statistically significant net impact, but it indicates that market conditions. The same program can be effective for training is a relatively costly way of providing employment. one group of unemployed and ineffective for another. This implies that ALMPs need to be tailored to the needs Despite modest overall effects, training can substantially of the unemployed and employers, and to account for improve employment chances of some specific worker local labor market conditions. To this end, regular moni- groups. For example, in the ECA, training has been found toring and periodic evaluation of ALMPs is required to to particularly strongly improve job prospects of workers determine which programs work for what client groups. with a low level of education. In Hungary and Poland the net impact of training on workers with primary education A sound labor market policy would be to develop a menu was found to be 15 to 17 percent. In Bulgaria it was still of ALMPs on a pilot basis and then monitor and evaluate higher, at about 20 percent.2 These examples show that if their results. Using the results, one should expand those well designed and well targeted, training can be an effective programs that were found most cost-effective, and target labor market intervention. them at those groups of unemployed who benefit the most. However, there are at least three caveats. First, most Wage subsides have also proven effective in helping the programs exhibit diminishing returns to scale. Programs particularly disadvantaged unemployed. For example, in that are effective on a small scale may become ineffective if the Czech Republic and Hungary, wage subsides were expanded beyond the optimum size. Second, ALMPs are found to significantly improve the employment chances of costly; this is particularly visible when costs are related to the long-term unemployed. In Poland subsidized employ- the incremental (net) impact of ALMPs. Opportunity costs ment helped people with low skills obtain jobs. In Bulgaria of expanding ALMPs thus need be accounted for. Finally, a wage subsides turned out to be particularly effective in favorable business environment and reasonably flexible high-unemployment regions. The net impact of wage sub- labor markets are prerequisites for the success of ALMPs. sides typically ranged from 10 to 15 percent. Thus labor market reforms to remove critical rigidities and distortions need to precede the development of ALMPs. Public works as a rule do not improve employment chances of participants, and sometimes their net impact can be neg- Endnotes ative, meaning that participation in public works can lower a person's chance of finding regular employment. 1 Frictional unemployment is associated with workers moving between jobs. Structural unemployment arises if the structure of unemployment (for exam- However, as mentioned, this is largely an income-support ple, by skills, occupation, or location) is different from that of vacancies. program, and should be evaluated as such. Demand deficiency unemployment occurs when the number of job openings is smaller than the number of the jobseekers. Finally, support for self-employment is usually an effective 2 These estimates were obtained using quasi-experimental methods, and measure, helping the unemployed with entrepreneurial abili- thus are approximate and subject to a substantial margin of error. 19 Social Assistance in Transition Countries of Europe and Central Asia Verdon Staines and Dilnara Isamiddinova Social Assistance and its Context services, and special employment opportunities. Some of these programs can be considered risk-mitigation The challenge. The collapse of centrally planned measures; for example, health insurance and childcare economies in Europe and Central Asia led to falls in pro- help smooth income when additional expenditures are duction and income of up to 60 percent in the new tran- needed. sition countries of the region. As government revenue Broader social insurance programs partly offset inter- plummeted, the old social protection strategy--guaranteed ruptions in people's incomes linked to known risks, public employment, heavily subsidized consumer prices, like retirement, disability, widow- or widerowerhood, and generous social benefits for pensioners and socially and unemployment. Social insurance programs--flat- dependent groups--became unsustainable. New programs rate pensions, for example--can also contribute sub- were clearly needed to assist burgeoning groups of poor stantially to income-adequacy objectives. These pro- and vulnerable people, although an adequate resource base grams are risk mitigating because they provide assistance for these programs was not apparent. Moreover, popular for life cycle events when they occur. expectations for living standards had fallen more slowly Many countries channel certain groups at risk of than production. Economically sustainable reform options poverty, like retirees, to social insurance rather than then seemed politically unattractive when compared with social assistance arrangements. For example, Lithuania what was promised, but not deliverable, under past policies. in 1993 set pension rates above the ceiling levels of One key element of the policy response was the introduction income at which means-tested social assistance benefits of new social assistance programs. were payable. That approach assigns these groups to simpler, less overextended, and less stigmatizing Social assistance. Social assistance programs combat administrative systems. (For example, they do not sub- poverty for people with resources below socially recognized ject beneficiaries to income tests or means tests). needs standards. As such, they are risk-coping mechanisms These redistributive social policies all complement provided after poverty has struck. The programs provide policies for macroeconomic stability and growth. nemark cash benefits, cash-like benefits (such as tax credits or However, they can never substitute for widespread Cart vouchers), or in-kind benefits (such as food, clothing, and productive employment and income generation, Cur coal). Eligibility for these benefits is usually limited cate- which provide the income base that SSN and social Photo: gorically, by income or asset tests, or by both.1 insurance policies partly redistribute. These policies neither mitigate risks nor cope with already existing Related programs. Other social policies supplement social risks, but reduce the risks of income inadequacy overall. assistance as risk-coping mechanisms in providing more adequate incomes and living standards for the poorest and Design choices in social assistance. Policymakers face most vulnerable people, and those with special needs. many decisions. Which program models for delivering Ultimately, it is the cumulative impact of all of those pro- social assistance could be implemented successfully? grams on the economic circumstances of families that Which of these will be used? Who will be eligible for matters. social assistance? What factors will affect the amounts they Social assistance programs are a key part of countries' receive? In what form (cash, vouchers, or in-kind) will the social safety nets (SSNs), which can also offer more assistance be provided? What levels of government will be diverse forms of help. Examples include health insurance responsible for policy and rules, funding, administration, or health care subsidies, childcare, job training, social and monitoring compliance with program rules and policies 21 in administering the program? How will the program be guaranteed public employment, widespread price subsidies, financed? and generous earnings-related pensions gave way to alter- Those decisions are difficult because the programs natives more quickly in the European subregion than in have multiple objectives, the different objectives typi- the Eurasian subregion. Children's benefits were a popular cally conflict to varying degrees, conflicting objectives alternative strategy early on. They gradually lost prominence, imply tradeoffs, and tradeoffs create the need for policy however, to approaches that assist individuals or families choices. Program objectives include raising the living based on their personal or household characteristics--par- standards of beneficiaries, preserving favorable work ticularly, measures, indicators, or judgments about their incentives for program participants, maintaining fairness levels of income, assets, or consumption. Subsequent between recipients and nonrecipients of social assistance, experience has highlighted the difficulty of measuring or keeping program costs affordable, and keeping programs estimating family income accurately in transition countries administratively simple.2 with limited administrative capacity, especially when the Because of unavoidable tradeoffs among competing informal sector is very large. Families have incentives to objectives, policymakers must strike an optimal balance misreport their circumstances, and administrative systems among benefit adequacy, work incentives, and pro- for verifying this information easily are limited. Another gram affordability.3 The tradeoffs are often seen as major challenge, it is now clear, is to find an acceptable implying "target efficiency" as an intermediate goal. balance between including too many families and including However, target efficiency does not promote economi- too few. cally efficient resource use. In fact, it usually makes it worse. So target efficiency is only one of several criteria Children's benefits. European transition countries often of good performance.4 substituted universal payments for children as an initial Broader tradeoffs also arise. Social assistance spending step, but found, by the mid-1990s, that their sharply con- to improve income adequacy competes with other strained budgets could not finance adequate payments of public spending, including social insurance spending this kind for all families (World Bank 2000). More narrowly to increase income smoothing and continuity. Current targeted approaches were then adopted by many countries, consumption must be sacrificed to accelerate growth which experienced significant challenges in implementing in future retirement incomes. Economic efficiency can them successfully. For example, in 1993, Turkmenistan be inconsistent not only with target efficiency but also introduced an income-tested family benefit, initially of 20 with equity objectives. Although public social assistance Manats per child per month, to accompany scaling back programs supplement private transfers from relatives, of its universal children's benefit for nonworking mothers friends, and charities, the public programs can also of children under 7 years of age. However, the income test potentially displace these private transfers to some ended eligibility abruptly at a threshold level of per capita degree. income. That created inequities between families just In transition countries where robust administrative above and below the threshold. It also created incentives systems are still emerging, additional constraints on for families to reduce or hold down their incomes, or at policy choices result from the costs and challenges of least to report that they had done so. Such incentives gathering relevant information, weak administrative imply "poverty traps," where people's attempts to improve capacity, and vulnerability to corruption. In particular, their economic position by earning more actually make targeting strategies are more difficult to implement them worse off.5 successfully when it is hard to obtain accurate, verifiable information about applicants' economic resources and Income-tested, asset-tested, or means-tested payments. employment status. That creates special difficulties in Some countries, beginning with Estonia in 1990, adopted the many ECA transition countries with large informal a "guaranteed minimum income" (GMI) approach. This economies. paid families the difference between their actual incomes and a low family income level that allowed only an austere Social Assistance Models in ECA Countries living standard. However, this approach also created, below that income threshold, an effective marginal rate of Trends and issues. A wide variety of basic models for pro- tax (MRT) of 100 percent that served as a disincentive to viding social assistance have been used, singly or in com- work. In 1993 Lithuania, an innovative reformer, introduced bination, within ECA countries. In general, their relative instead a means-tested social benefit structured as a nega- importance has changed over time, and also varies across tive income tax. Initially, this paid half of the difference countries and between ECA's European and Eurasian sub- between a state-supported family income level and a family's regions. As a social protection strategy, the combination of actual earnings. It thereby reduced the MRT to 50 percent 22 but, consequently, also raised the income ceiling for bene- amount and a flat-rate supplement per child under 18. fits to twice the state-supported family income level. The A recent analysis concluded that about 80 percent of broader eligibility was affordable only if the supported the benefits paid went to families that would have income level was lower than that affordable under a GMI been poor if those transfers had been suddenly with- design. Over time, to make possible a larger state-supported drawn, and that three-quarters of recipient poor fami- income level, Lithuania raised the MRT to 90 percent, lies would have been extremely poor in their absence where it remains. (Lithuania also addressed fairness and (Posarac 2002). However, once again, 80 percent of cost issues by imputing income to household plots of families were poor prior to transfers, and over 70 per- land.) In 1995, the Kyrgyz Republic became the first cent of extremely poor families received no assistance. Eurasian country to adopt such a benefit. Although other- Real transfers under this program have fallen by wise like an austere GMI program for the poorest house- almost one-third since its introduction in 1999. holds, the Unified Monthly Benefit program pays benefits only for eligible children within the family. This has made Benefits based on community judgments within guide- the benefit function like a negative income tax program lines. Another unique program within the ECA region is with an MRT that varies with the proportion of adult based on the Mahalla system in Uzbekistan. The Mahalla family members. Albania also has an income-tested benefit tradition involves a group of respected elders who help to for eligible poor families. Although three-quarters of solve social problems and conflicts within the community. Albanian families receiving this benefit are poor, three- It has been adapted to provide a framework for allocating quarters of poor Albanian families do not receive it. The funds for social assistance benefits based on community Kyrgyz experience also reflects a similar pattern of benefits judgments within guidelines. Box 1 provides a detailed that go predominantly to poor households, but that never- description of this program. theless miss most poor families. Selected price discounts. Price discounts for a wide range Means-testing using proxy indicators. An alternative of consumer goods and services, also known as "privileges," approach, which some countries have adopted, predicts were widespread within the region in the early 1990s. which families are likely to be poor using proxy indicators Eligibility was diverse, reflecting meritorious conduct or that supplement or replace measured income. social need or other political judgments. Most ECA coun- In the simplest form of this approach, statistical analysis tries have substantially reduced the range of goods and identifies household characteristics and assets that cor- services covered, the categories of people eligible, and the relate strongly with consumption levels reported in size of the subsidies. Nevertheless, many such privileges household surveys. Those indicators are used to select remain within the region, in Ukraine, and in the Eurasian who will be assisted by the program and to what transition states. Some countries have narrowed their extent. The estimated underlying statistical relationships scope and targeted the subsidies, partly by limiting them capture averages rather than special circumstances, and to poorer social groups, or even to poor families within information on the proxy indicators can itself be vul- such groups. Targeting energy price subsidies has proved a nerable to intentional misreporting. particularly challenging area in countries that are raising Armenia's family poverty benefit is more complex, and energy prices substantially as part of reforms to achieve evolved from the prior Paros system used to allocate financial viability within restructured energy sectors. This humanitarian aid first after the 1988 earthquake, and is particularly so when these countries have very cold win- then after the war with Azerbaijan. It replaced 26 frag- ters or mountainous regions. mented, categorically targeted uncoordinated benefits. The scheme constructs a family need score by multiply- Other approaches. Other approaches have been, or could ing together factors representing (a) family information be, considered. They include: on each member's social risk category and ability to Benefits Linked to Other Behavioral Goals. Conditional work, (b) the household's place of residence and housing cash transfers (CCT) are cash payments to the families status, and (c) the household's income, expressed as a of poor children who regularly attend school or, in some proportion of its estimated minimum income needs. countries, health clinics. Many countries have experi- (The first factor is the most important.) A family is mented with CCT for specific programs, or are condi- eligible if (a) the family need score exceeds a threshold tioning social assistance generally. A companion article level, (b) it has been assessed as eligible for social benefits in this issue, "Conditional Cash Transfers," discusses by a process involving community and government this approach. representatives, and (c) it does not own a car or business. Workfare and Work-Tested Benefits. Some countries If eligible, the family qualifies for a base benefit have responded to concerns about work incentives by 23 Box 1. Mahalla Social Assistance System Mahalla is a traditional body of community self-administration in Uzbek and Tadjik cultures, based on Islamic perception of social functions and conflict resolution. The Mahalla tradition involves a group of respected elders who help to solve social problems and conflicts within the community, including meeting social expectations for wedding feasts and funerals, promot- ing social control and cohesion in families, and assisting poor families. Although the role of Mahallas diminished in the Soviet period, an Uzbek law after independence strengthened their traditional functions. It recognized Mahallas as bodies for citizen self-management in territories with more than 350 households. Mahallas have an elected chairman who must be endorsed by the government's local representative, a secretary, and a rotating group of advisors. In 1994, the state abolished numerous social allowances and delegated to the Mahallas responsibility for the social assis- tance function of allocating cash assistance for low-income households with children. The Mahallas' role was augmented to include, from 1997, targeting children's benefits and, from 1999, targeting maternity benefits to nonworking mothers of chil- dren under two years of age. Also from 1999, Mahalla committees began to collect utility payments from citizens. If these are complete and timely, the Mahalla committees can keep 10 percent of collected payments for discretionary benefits or orga- nizational expenses. In addition, Mahallas can identify elderly people living alone and in need of care and recommend in-kind benefits--mainly foodstuffs. Each benefit is means-tested (with a few categorical exceptions). The law provides guidance on how this should be done, and on authorized benefit levels. (The main criterion is monthly per capita average income for the last 12 months.) Nevertheless, the Mahallas also have considerable discretion; all benefits and the income threshold are dis- cussed and approved in open, general Mahalla meetings. The Mahallas receive revenue from state, central, and local budgets, and from off-budget sources. Social assistance spending under this system fell from 1.4 percent of gross domestic product in 1998 to 0.9 percent in 2001. The fall was concentrated primarily in the number of recipients, rather than the amount per beneficiary in real terms--partic- ularly for the low-income benefit. Coudouel and Marnie (1998) have identified, as strengths of the Mahalla system, that it uses multiple household welfare indi- cators, relies on local knowledge of living standards, incorporates a self-targeting element, discourages false reporting by applicants of their circumstances, is transparent and relatively inexpensive to administer, requires reapplication every three months, and encourages local traditions and responsibility. As disadvantages, they note that it grants discretion to the local Mahalla elders with the associated potential for abuse, favoritism, and discrimination on ethnic or other grounds; does not allow redistribution between richer and poorer Mahalla districts; allows receipt of benefits to create social stigma; and entails administrative costs for 500 Mahallas, including assistance from local labor ministries in processing child benefit applications. imposing work requirements on some or all recipients salary for three or more children. A child support pay- as a condition for receiving benefits. Bulgaria's recent ment of 50 Manats per month per child is payable initiative along those lines is described in a companion from a Central Bank account if the husband pays no article in this issue on public works, "Public Works in child support. This benefit is also available to unmar- Europe and Central Asia." Highly visible U.S. welfare ried women with children (for example, in second, reforms in 1996 combined this approach with job unofficial families). training, subsidies for child and dependent care, reten- Tax-Transfer Linkages. As transition countries develop tion of health insurance assistance benefits, and a ceiling stronger administrative systems, policy linkages on duration of benefits.5 between systems of taxation and social benefits could Mandatory Child-Support Payments. Like many other become more attractive. Family benefits or children's transition countries, Turkmenistan inherited from the allowances illustrate the possible benefits from inte- Soviet era a system of mandatory child support follow- grating or coordinating the tax and income-transfer ing divorce. Husbands' child support obligations are systems. The income tax structure could potentially set by law at 25 percent of salary for one child, 33 assist all families with children, including families with percent of salary for two children, and 50 percent of too little income to pay tax, by permitting a refundable 24 tax credit for each child. But this mechanism requires Endnotes a sophisticated system of tax administration and a 1 Social assistance policy uses government authority to establish programs well-informed, low-income population that applies for compulsory, systematic sharing. Specifying both the structure and successfully for the credit to be refunded. However, financing of benefits makes clear that these programs create both winners (net recipients) and losers (net contributors). Hence, targeting is an inherent because the social insurance system can deliver cash feature of social assistance policies: it consists of determining who will be assistance to a large part of the population, an admin- net winners, who will be net losers, and by how much. istratively simpler alternative would be to pay each 2 Work incentives depend on the proportion of any additional earnings family a children's allowance that varies with family that a worker can keep without an offsetting reduction in the benefit (or, size in the same way as the tax credit. If the income equivalently, on the rate at which benefits are withdrawn when private earn- tax structure included no other preferences for children ings increase). They also depend on the worker's overall resources and, con- sequently, on their ability to "afford" to engage instead in non-work alterna- (such as higher exempt levels of income), then that tives, including home production and leisure. allowance should be nontaxable. Paying the allowance would be equivalent to providing a refundable income Fairness (or equity) is usually viewed as having both vertical and horizontal tax credit within the income tax structure. (In all dimensions. The vertical dimension ranks people according to their resources and implies that related assistance should be targeted toward those other cases within an integrated tax-transfer system, with low incomes or means. The horizontal dimension involves differences however, social security benefits should be taxable, in "needs" among people at any given income level, and implies that related with benefit rates set accordingly.) Alternatively, if pol- assistance should be targeted to those people with special needs (for example, because of family size, illness or disability, or remote or harsh geographic icymakers wished to provide assistance to families in a circumstances). more targeted and selective way, they might prefer to choose instead to do so through means-tested or cate- 3 A policy dilemma arises from the inherently conflicting objectives of cash transfer programs: high levels of assistance to the poorest groups, strong gorical social assistance benefit systems. The latter incentives for them to work, and low overall expenditures on social assistance. approach would reduce the number of families assisted They conflict because they involve three policy variables--the maximum but, for a given level of spending on benefits, would benefit, the effective marginal tax rate, and the ceiling income level for ben- efit eligibility--but only two of these can be set independently. enable larger benefits to be paid to each eligible family. Unfortunately, raising the basic benefit amount for someone without other Administrative costs, however, would be higher. income will also raise total program spending, unless higher spending is off- set by faster withdrawal of benefits as private income increases. But that would worsen work incentives! More generally, policy changes to achieve any of the three goals more completely would worsen attainment of at least one of the other two. So policymakers face unavoidable tradeoffs among the competing objectives, requiring them to strike an optimal balance among benefit adequacy, work incentives, and program affordability. 4 "Target efficiency" refers to the proportion of a program's expenditures that the intended target group receives. For programs to alleviate poverty, it refers to the share of benefits that go to people below the poverty line, Bibliography rather than "leaking" to individuals who are not poor to begin with or Coady, David, Margaret Grosh, and John Hodinott. 2002. "The Targeting "spilling over" by raising some poor people's posttransfer incomes to levels of Transfers in Developing Countries: Review of Experience and above the poverty line. The concept also reveals the tradeoffs among compet- Lessons." World Bank Social Safety Net Primer Series: Processed, April. ing objectives of benefit adequacy, work incentives, and program affordability. For example, a social assistance program that is perfectly target efficient, with Coudouel, Aline, and Sheila Marnie. 1998. "The Mahalla System of no leakage and no spillover, would also imply no incentive to work (or to Allocating Social Assistance in Uzbekistan." Paper presented at United work more) over the range of income below the poverty line. Fiscal analysts Nations Development Programme conference, "Central Asia 2010." often presume that, in a world of limited budgets, a more target-efficient Almaty. program is a better program. However, making a social assistance program more target efficient will usually make the allocation of resources less eco- Garfinkel, Irwin. 1979. "A Proposal for a Universal Child Support Program: nomically efficient by eliminating incentives for participants to increase First Thoughts on Program Design." Paper presented at the National their work effort. Conference on Social Welfare Meetings, Philadelphia, PA, May 14. 5 These problems do not arise because benefits are made dependent on an Kuddo, Arvo. 2003. "Development of Social Assistance Programmes in income test. Rather, they arise because the size of the benefit is reduced too Estonia." SPectrum Magazine. quickly as the private income of the benefit recipient rises. The solution is to restructure the income test so that benefits vary more slowly than World Bank. In press. "Armenia Poverty Assessment 2004." Volume 2. incomes, and so that increases in income lead to benefit reductions that are Washington, D.C. smaller than the income changes that caused them. World Bank. 2000. "Balancing Protection and Opportunity: A Strategy for 6 United States Congress. Personal Responsibility and Work Opportunity Social Protection in Transition Economies." Social Protection Team, Reconciliation Act of 1996, which replaced the old welfare system with a ECA Human Development Sector Unit. Washington, D.C., May. new program, Temporary Assistance to Needy Families (TANF). 25 Social Protection in Postconflict Maniza Naqvi, Philip O'Keefe, and Christian Bodewig Environments in ECA Conflict destroys, displaces, and distorts. A postconflict sition countries. Ironically, therefore, the devastation of environment is therefore one in which society tries to war often weakens the understanding of the need for recover from the death, displacement, and impoverish- reform of the inherited social protection system, because ment of its citizens, and from the physical destruction of present problems are blamed solely on the conflict and its social and economic infrastructure. Often the ensuing not also on the unsustainability of the previous system. realities of war's aftermath distort further the conditions that were the underlying causes of the initial conflict. War has decreased the capacity of states, already under strain in transition economies, to respond to these chal- Social safety net and labor market reforms in Europe and lenges. Administrative capacity in postconflict countries in Central Asia (ECA) are being undertaken in a variety of the region tends to be even lower, and corruption worse, conflict and postconflict settings. Violent conflict, often than in other transition countries. Public finances are in a with a strong ethnic dimension after the collapse of com- precarious state because of very low tax collection and munism, has been the experience in Albania, Armenia, often continued high military spending. Political action is Azerbaijan (Nagorno-Karabakh), Kosovo, Bosnia and constrained by instability or the fear of it. Postconflict Herzegovina, Croatia, Georgia (Abkhazia and South states may also tend to fragment, either formally through Ossetia), the former Yugoslav Republic of Macedonia, complex constitutional arrangements meant to overcome Moldova (Transnistria), the Russia Federation (Chechnya), ethnic rifts (such as in Bosnia and Herzegovina), or infor- Tajikistan, Serbia, and Montenegro. Neighboring countries mally with ethnic groups reluctant to cooperate (such as that were not directly affected by the conflict have had to in Macedonia). deal with side effects such as refugee influxes or slowing investment due to regional instability. It is also important to distinguish the situation among post- conflict countries within the ECA region. Key distinctions The Impact of Conflicts on Labor Markets and Safety include whether the conflict was internal (as in Albania, Nets in ECA Tajikistan, Georgia, and Kosovo), with an external enemy (as in Armenia and Azerbaijan), or some combination of While postconflict countries in ECA share many character- the two (as in Bosnia and Herzegovina); whether war has istics of those in other regions, they also have distinguishing hardened perceived ethnic differences within the country; characteristics. They face a dual transition from a planned whether it engulfed the entire country or only parts of it; to a market economy, and from conflict to postconflict whether in the postconflict period there is a political and/or taugh recovery and development. Most postconflict countries in a military presence or control of the international commu- Mer the ECA region were middle-income countries prior to nity; whether the conflict was prolonged; the scale of conflict, and their citizens had a high standard of living. population displacement; and so forth. The distinctions Michael Preconflict labor and safety-net policies in the ECA region are likely to impact both the scale of necessary social pro- Photo: were socialist, with all-but-guaranteed employment and tection reform, and the political economy of introducing generous welfare systems. However, they were unsustainable. reforms, and point to the importance of considering the As a result, in postconflict ECA countries, citizens have specifics of each country setting within the ECA region. unrealistic expectations of social protection in the new environment, and look back with nostalgia to a "golden There is a range of features of postconflict labor markets age," without realizing that the old system has fundamen- that are shared by ECA countries, though not all charac- tally changed in the intervening years in nonconflict tran- teristics are seen in all countries. They include: 27 Loss of employment during the war. Aggregate employ- young to fight were faced with a suspension or a dete- ment has typically declined--sometimes dramatically-- rioration in their education. In societies where there is during conflict in ECA countries. While there may be widespread, prolonged, and severe conflict, there is a postconflict economic "boom" in terms of GDP also likely to be a significant brain drain both during growth rates, this is usually from a very low base, so and after the conflict, as those with skills and opportu- that GDP and employment growth rates in the initial nities seek new lives abroad. Also, those who are skilled postconflict years are deceptive. are not necessarily left in positions of power or access A high likelihood of low levels of foreign and domestic after a war. Where there is a strong donor and interna- private investment in the economy following the conflict, tional community presence, short-term demand from making the employment response in postconflict highly these high-paying employers may create additional sensitive to scaling back of aid flows. Given the impor- distortions in the labor market, drawing high-skilled tance of political risk perceptions in investor decision- workers away from both public sector jobs and entre- making, these negative effects on investment, and preneurship, often into highly paid but low-skill jobs. hence longer-term growth and employment, often take years to overcome. There is also a range of impacts on the social safety net in Increased informalization of the labor market during postconflict countries in ECA. While a number of these and after the war, while being the primary coping are characteristic of postconflict countries in other regions mechanism and creating new avenues for the private as well, the comprehensiveness and generosity of the sector, also increases the space for criminalization of inherited safety net in ECA transition countries makes the activities due to smuggling and other wartime activities. contrast between the pre- and postconflict systems unusu- Displacement of workers from their prewar residences ally stark. Some key issues faced by ECA postconflict leads to distortions in the regional and sectoral composi- countries in their safety nets are: tion of employment, as some areas remain "off limits" to some or all of the population even after the conflict, Greatly increased claims on social protection budgets due due to continued insecurity, landmines, and other fac- to the increase in poor and vulnerable people, including tors. In ECA, the bias tends to be toward dispropor- specific groups such as the newly disabled, orphaned tionately less employment in rural areas and sectors children, and others who have suffered the most during such as agriculture (at least in terms of formal employ- the conflict. ment). Displacement may also worsen skills mismatches Political demands to prioritize certain groups as social as people with skills suitable for one geographical region protection beneficiaries may be inconsistent with the or sector find themselves in a local labor market with underlying principles of different cash transfer programs. different needs. These effects are made more complex This applies in particular to those with service in or by the disproportionate needs in all transition relationship to the military or security services. These economies for substantial labor reallocation. groups may not on average be worse off than the gen- Higher likelihood of discrimination in the labor market eral population, so that preferences to them may postconflict. This contributes to lower labor mobility in undermine the logic of targeting in the noninsurance the postconflict stage, and in extreme cases under- parts of the system. They may also be given preferen- mines efforts to establish a single economic space in tial treatment in social insurance systems--both in the country. In some cases, such as Bosnia and terms of preferential eligibility and in terms of levels Herzegovina, the response in the public sector has of benefits--further undermining financial balance. In been to impose formal and informal quotas on senior addition, citizens in ECA postconflict countries have positions in the public sector, which may complicate proved sensitive to safety nets reforms that are per- efforts to move toward a merit-based civil service. In ceived as preferential to one ethnic group in cases contrast, there is the likelihood of preferential treatment where the demographic profile of groups formerly in in the labor market for certain groups, not necessarily conflict varies significantly (for example, debates on highly educated or skilled, such as demobilized soldiers. the relative priority of pension and child allowance This may undermine efforts to raise productivity, and reforms and impacts on Albanian and non-Albanian exacerbate difficulties in finding employment for populations in the Balkans). As a result of these various groups such as youth and women, who tend to have influences, the basic notion of who is "deserving" as higher unemployment rates. social protection beneficiaries has therefore often been Exacerbated skills gaps are created in the current and distorted in ECA countries after conflict. This has emerging labor force because those who fought and had made the customary problems faced by all transition to give up their education and those who were too countries in reforming their social safety nets much 28 more complex in technical and political economy Lessons for Social Protection Policy and Programs in terms. Prioritizing and rationalizing claims on social ECA Postconflict Countries protection budgets due to varying levels of influence by different groups presents political dilemmas for The widespread and sadly prolonged experience of ECA nascent and fragile governments that are seeking sta- countries to date in social protection reforms suggests a bility and longevity. number of lessons. Perhaps the most crucial is that funda- A dramatically reduced tax and contribution base for mental policy reforms should not be ignored in the imme- social protection programs occurs due to the drop in diate postconflict period, though in a number of cases this employment, and the even greater fall in formal sector has not been the case. The often complete breakdown of employment. social safety nets and severe disruptions of labor markets Social insurance programs or programs requiring central- during war can present an opportunity in the immediate ized financing may be resisted because of unpopularity postwar period to undertake fundamental reforms before of interethnic and/or geographical redistribution. This the situation returns to "normal." Given the needs in ECA can result in very decentralized financing for social countries, even prior to conflict, for greater flexibility in welfare, where ethnic homogeneity is highest and labor markets and overhaul of the inherited social safety there is a division of the country into more than one net, such an opportunity needs to be carefully assessed as social insurance system, sometimes along ethnic lines early as possible. The example of Kosovo is perhaps the (for example, Bosnia and Herzegovina used to have most dramatic case in point of where early choices of serious three separate pension systems in the initial years after reforms were made. the war, and still has two). This leads to fragmented risk pools in social insurance programs, and persistent A second important lesson relates to sequencing of inequality among regions and a vicious circle of pover- reforms. In societies where there has been widespread dev- ty. Addressing this is part of an overall effort to reform astation, the key social protection objective is even more intergovernmental fiscal equalization mechanisms, than usual to maximize job creation, because the fiscal affecting sectors beyond social protection. and administrative capacity to sustain even a well-targeted Institutional capacity and administrative problems can social protection system is likely to be limited. In addition prove significant obstacles for social safety nets in a to promoting short-term employment opportunities, this postconflict environment. For example, contributions objective can be supported through ensuring that labor records for pensions may have been destroyed, and the legislation and policy aims for maximum flexibility in the loss of identification documentation can make claims formal sector, subject to protection and promotion of core on the social safety net more difficult or costly. For labor standards. In ECA postconflict countries, this usually systems with means-tested programs, targeting is made means fundamental reform of an inherited labor relations difficult by increased informalization of incomes. A framework, and specific investments and interventions lack of any or quality statistical data complicates social such as public works programs. With respect to the safety policy evaluation and development. Personnel admin- net, policy reforms in the initial stages should focus on istering social protection programs are likely to have social insurance programs, because these are both the most been undermined in several ways, including death, costly programs in transition countries and those where displacement, and out-migration. Even for those who expectations of a return to the previous and unsustainable remain in-country and resume work within the social system are likely to be strongest. For social assistance, protection system, the lack of professional development there is likely to be a "honeymoon" period where humani- during the conflict may have undermined their skills tarian aid will continue to target the most vulnerable base. There are also typically complex transitions from households for a few years postconflict. In addition, the the humanitarian phase during which social assistance lack of reliable poverty data and unusually dynamic devel- is often in the hands of humanitarian aid organizations, opments in the poverty profile in the early postconflict international donors, and nongovernmental organiza- years suggest that more fundamental policy reforms in tions (NGOs), to the postconflict phase where the social welfare might be appropriately made a more medium- domestic public sector starts once more to play an term priority. increased role. While the increased public interventions should coordinate with NGOs and complement their Other lessons include the importance of postconflict activities, this often proves difficult because the post- donor coordination on policy and programs. Donors communist public sector has little experience in doing should speak with one voice on reform, and their assistance this effectively as a partnership, due to the inherited in projects and programs to the country should further system and practices. that reform agenda. 29 Public awareness campaigns are key in building trust and peace accord was signed between the warring factions. transparency in postconflict environments. They are vital Since national and local organizations and agencies were in the management of public expectations, demonstrating viewed with suspicion depending on region and community, progress, building ownership and acceptance of change, the Fund partnered with international relief and develop- assuring citizens of their rights, and dispelling rumors and ment organizations to repair infrastructure and delivery misunderstandings of favoritism and wrongdoing, which services, and through them built local and community tend to be rife in the absence of information during con- capacity for service delivery. One of the successful partner- flict. Many of these issues are relevant in any postconflict ship programs was a microfinance program that increased setting, but the risk of high expectations of a return to the national capacity for microlending, and through solidarity unsustainable previous system has been seen to be much groups the members of which belonged to female-headed stronger in ECA countries. households, increased social integration between previously conflicting groups and targeted the most vulnerable and Individual types of social protection interventions are con- new poverty groups in the country at the time. The follow- strained by postconflict challenges in different ways, and on project focuses on deepening national capacity through open up different opportunities to respond. Moreover, the local organizations for service delivery at the community design of interventions changes from emergency- and level. In Georgia, the Social Investment Fund recently restoration-focused to policy-reform and developmental began operations in breakaway South Ossetia, beginning ones over time, as demands change. The most common to build bridges between former enemies, even though 10 social protection interventions supported by the World years have passed since hostilities ceased. The immediate Bank in the ECA region are as follows. postwar Emergency Public Works Project in Bosnia and Herzegovina focused on emergency reconstruction, and on Social fund operations. These have the advantage of being providing people temporary wage-earning opportunities. adaptable to different emergency situations, particularly The project did not focus on building interethnic alliances when the State's capacity to deliver has been reduced, and directly in the immediate aftermath of war because of a in some cases the inherited formal safety net has collapsed high level of tensions among groups. However, it did create entirely. The main characteristics of social funds are well conditions for return by rebuilding roads and repairing suited to the special requirements of a postconflict situation, infrastructure, and provided a sense of hope and stability, where the immediate needs are reconstruction of destroyed which is an unquantifiable but necessary condition for infrastructure, generation of employment, and infusion of peace and security. The follow-on Community stability and hope at the household, neighborhood, village, Development Project deepened the institutional develop- and town level. These features include procedures for ment of municipalities and their linkages with citizens of identifying local needs, encouraging local participation of all ethnicities in decisionmaking for municipal investments. beneficiaries in decisionmaking, and a transparent process The project narrowed the previous focus from nationwide for resource allocation. Social fund decisionmaking coverage to those municipalities that remained hardest hit processes provide a framework and a forum for citizens to by conflict, and underserved by development assistance return to a process of participation in decisionmaking, and government financing. which usually breaks down during conflict at the commu- nity level, thus promoting a sense of empowerment and Labor reintegration and redeployment programs have stability. Social Funds have been supported by the Bank in taken various shapes in ECA postconflict countries, and Macedonia, Armenia, Albania, Georgia, Azerbaijan, respond to a variety of demands. Immediate needs dictate Tajikistan, Kosovo, and Bosnia and Herzgovina. Social public works responses that create short-term daily wage funds ideally are expected to enhance democratic processes, labor, which acts as a safety net in the immediate postcon- including transparency in decisions, by encouraging flict period and perhaps beyond. The Azerbaijan debate and negotiations between citizens and their elected Rehabiliation and Reconstruction project focused on representatives in planning for local level investments and employment creation and generating income through resource mobilization. If managed carefully, they can microcredits for starting up small businesses, and a small evolve in a period of stability into a long-term development public works program. The Tajikistan Post-Conflict tool for building institutional capacity of the government Reconstruction project in the Karetegin Valley promoted for service delivery, mainly at the municipal and commu- demining to address both employment and security con- nity level. cerns. The balance within active labor market programs is likely to shift over time toward traditional public interven- In Tajikistan the Social Fund, set up under the Pilot tions, such as employment services, building on the private Poverty Alleviation project, began operation before the sector playing a greater role in creating employment. 30 Because of the nature of postconflict environments, a sequenced. First, the post-Milosevic Serbian government major group that requires redeployment and reintegration legislated a major overhaul of the labor code within a year are soldiers, who must be given incentives to desist from of assuming power. This was accompanied by a two-stage fighting again. In Bosnia and Herzegovina, the Emergency reform of the pay-as-you-go (PAYGO) pension system, Demobilization Project focused on all persons who took with initial "stabilization" measures, including an increase up arms during the war, and provided short-term income- in pension age and adjustment of indexation, followed by earning job opportunities, including training. In the context a comprehensive reform of the PAYGO pillar. The author- of immediate postwar economic breakdown, labor-intensive ities then moved with reforms of benefits and programs public works projects purchase peace by providing people for the unemployed, as well as social assistance and child incentives to not take up arms through the creation of protection. The reforms have been supported through a subsistence income-earning opportunities, such as recon- series of adjustment operations: a Social Protection struction of infrastructure. However, public works projects Economic Assistance Grant, a Structural Adjustment are short term, with three-to-six-month wage-earning Credit, and a Social Sector Adjustment Credit. opportunities, and are unlikely to significantly improve reemployment prospects outside the program. The Kosovo represents the most dramatic overhaul in ECA of demand for such programs over a longer term shifts from the inherited safety net in the face of fiscal and institutional demobilized soldiers to retrenched workers in restructured collapse. The move from the complex inherited safety net state-owned enterprises, and from quick short-term to a single "poverty benefit" avoided cementing unrealistic employment to the reallocation of workers to stable jobs. expectations in the immediate postconflict period. The For example, the Bosnia and Herzegovina Pilot basic benefit has been gradually supplemented by a new Emergency Labor Redeployment Project's target group is pension scheme as the resource base stabilizes and institu- discharged professional soldiers. The project tests various tions are built. However, the political economy of Kosovo, labor market interventions with the aim of replicating where reforms were implemented under a UN mandate, some of these interventions in new employment creation also suggests that such options may not be feasible where programs run by public employment services for a wider more typical political arrangements exist. range of the unemployed. The project has had several suc- cesses in placing ex-soldiers in jobs with different ethnicities The nature of the conflict in a country suggests the need from the firm owner and its other workers. for a strong awareness of the social and political feasibility of reforms in the immediate postconflict period. In Bosnia In Bosnia and Herzegovina the Local Initiatives Project and Herzegovina, reforms of the PAYGO pension system (LIP) immediately after the war provided grants to NGOs were less comprehensive in the initial postwar years than for on-lending at market rates to microlevel businesses in was demanded by the new realities, with the result that Bosnia. The focus was on fast disbursement of loans to cash rationing later needed to be imposed by the interna- clients in dire need of income-earning opportunities. In tional authorities mandated under the Dayton peace the second generation of the LIP, the project focuses more accords. Even today, such reforms remain constrained by on institution building and stricter criteria for assessing conflict-induced challenges such as the unpopularity of borrower creditworthiness and institutional solvency. The social insurance involving interethnic redistribution, and project is also assisting in developing a microfinance legal strong resistance to reallocating funds from very generous and regulatory framework. veterans' benefits to better-targeted and more needs-based social assistance. In Georgia, reforming the very rudimentary Promoting policy reforms in social protection through formal social safety net continues to be hampered by the adjustment lending, technical assistance credits, and ana- existence of large politically and strategically mandated lytical work is a key area of support in ECA postconflict transfers to displaced people who receive assistance based countries. In clients such as Serbia and Montenegro, not on need, but on their displacement status. Support Albania, Bosnia and Herzegovina, Kosovo, and Armenia, from various adjustment credits and analytical work has analytical work contributed to increased awareness of the been vital in supporting challenging reforms of the social need to reform preconflict labor policies and cash transfer safety net in such environments. systems. This was followed by adjustment operations that provided support to labor market and social safety net Conclusion reforms. The challenge for social protection reforms in postconflict Serbia provides a positive example of rapid and compre- situations is facilitating employment generation while pro- hensive social protection reforms that have been well viding assistance to the most vulnerable. Experience shows 31 that reforms should be explored as quickly as possible after the conflict, even though the possibilities for introducing reforms need careful exploration of the local political economy. Under all circumstances, proposed reforms need to be explained to citizens as being necessary, equitable, and transparent, and increasing the level of assistance to the most vulnerable in society through a rationalization of the existing system. Social protection reform in postethnic conflict countries has to be cognizant of the flaws in the system that con- tributed to conflict and the new obstacles and challenges created by the conflict, particularly its ethnic nature. Interventions have to be designed flexibly to deal with those obstacles. The challenge remains the ability of policy- makers to move toward equitable systems quickly, even if that means that the first steps taken toward reform begin with second-best solutions. The challenge for policymakers is to create a process of dialogue and change that allows citizens to understand and accept the reform. From a political economy point of view, these second-best solu- tions may be first best, given the context of conflict, because they avoid fuelling the very tensions that led to war in the first place. Delic-Degi Hidajet Photo: 32 Integrating and Empowering the Poor and the Excluded: The Roma and Other "Pockets of Poverty" Sándor Sipos A n increasingly important part of the social protection agenda in Europe and Central Asia (ECA) is integrating and empowering the most vulnerable groups whose fortunes seem to increasingly lag behind mainstream society. There is a concentration of deep and chronic poverty among the long-term unemployed and discouraged work- ers, and among ethnic minorities, most deeply affecting the Roma (formerly called gypsies). This exacerbates social exclu- sion at a time when, in most ECA countries, the mainstream population has started to reap the benefits of more than a decade of arduous transition. Setting an easily distinguishable, vulnerable group on a welfare path different from the rest of society can reap unwelcome consequences. These include increased intolerance, segregation, mass migration and, occasion- ally, civil unrest, as highly publicized cases of confrontation with Roma communities in Bulgaria, the Czech Republic, Hungary, and Slovakia have already shown. These unfortunate, extreme situations, while marginal, are fueled by vast differences in opportunities and the deep poverty of the minority group, and by the intolerance of the most frustrated elements of the majority population. In Bulgaria, for example, the likelihood of being poor is nine times higher for the Roma, and three times higher for Turks, than for ethnic Bulgarians. Intolerance flares easily in an environment where recent welfare gains lifted many of the previously transient poor just above the poverty line, still far away from their aspirations. In most ECA countries, people feel a lot poorer than measurements would justify. This indicates an unusually big gap between societal aspirations and realities, and the fear of falling back into poverty. This fear often translates into prejudice against and intolerance of the Roma and other excluded minorities, especially since the people just above the poverty line often live in neighborhoods next to ethnically distinct nemark Cart "pockets of persistent poverty." The poverty of the neighbors embodies the fears of the vulnerable in the majority society, Cur and engenders rejection. Photo: An Emerging Cycle of Poverty In contrast to the slowly increasing welfare of the majority, a cycle of poverty is emerging among the children of disadvan- taged minorities, like the Roma. In many ECA countries, an unusually high and increasing proportion of children live either in poverty or in institutions. On one hand, this is because disadvantaged minorities tend to have more children than the majority. On the other hand, the number of children is often an important determinant of poverty status. Many of these children end up in institutions. Household surveys and poverty statistics often fail to characterize institutionalized children as poor, since their current consumption might be above the poverty line. However, this measurement ignores what these children miss most: a nurturing family and an accommodating community in which they can grow to become competitive workers and responsible citizens. 35 that they are dominated by the majority group, and thus might be biased against disadvantaged minorities. In that situation, social funds can play an important role in empowering the communities of poor by making resources directly available, and transferring knowledge of how to identify priorities in the communities and how to acquire and manage resources to address these priorities. Social funds are helpful where the disadvantaged commu- nities are the weakest, namely building social capital in the communities of the poor. In addition, social funds and community-driven initiatives can create a very powerful bottom-up loop in the process of the articulation of interests between higher and lower levels of public administration and between the State and civil society. Microcredit institutions would seem to be another "must" instrument to address pockets of persistent poverty. However, ECA lags in developing this instrument due to a lesser role of the informal economy than in typical devel- Photo: Petra Vehovska oping countries. Also, financial sector regulators are often unwilling to sanction microcredit institutions out of fear that they might serve as covers for pyramid schemes, All ECA countries have an interest in reversing this trend which plagued ECA in the early stage of the transition. of exclusion and in starting to integrate and empower the The existing microcredit institutions operate on the basis excluded. In addition to the obvious dangers of segregation, of special exceptions, and are usually run by foreign devel- a special interest lies in the requirements of the European opment agencies such the U.S. Agency for International integration for the accession countries.1 Accession aside, Development, Catholic Relief Services, and the Open with declining populations, most ECA countries cannot Society Institute. These special arrangements are unlikely afford to leave an increasing part of their working-age to lead to a sustainable microfinance industry in the population idle because they never learned the skills to absence of favorable legislative and regulatory changes. compete in the labor market, or because they lost their skills during long periods of unemployment. Public works and other temporary employment programs are increasingly used in ECA to address chronic poverty, and How Can the Excluded Be Reintegrated? not for the sole reason of covering unemployment spells, but also to reach out to the pockets of poverty. Impact analysis Clearly, reintegrating the excluded "pockets of poverty" of early public works programs has shown a high level of and breaking the emerging cycle of poverty will require interest from the pockets of poverty in some countries. special efforts from the governments and civil society in However, with unemployment slowly subsiding in the ECA countries. These efforts include legislating and majority populations, this previous self-selection of disad- enforcing antidiscriminatory rules, earmarking additional vantaged minorities might turn into a de facto, selective, and resources for this purpose, and experimenting with new therefore discriminatory, application of workfare principles social policy instruments. Building durable institutions by the State toward these minorities. There is a fine line here both top down by the State and bottom up by civil society that is less likely to be crossed if a robust legal and institu- seems a condition for sustainable success. tional framework is developed to prevent discrimination. Social funds and other community-driven initiatives are Similar caution should apply to conditional cash transfers, explicitly targeted on these "pockets of persistent poverty." which, instead of, or in addition to, demonstrated willing- In countries, where local governments are relatively large, ness to work, require some form of positive behavior from such as Bulgaria, the communities of disadvantaged recipients, such as school attendance of children. Again, minorities are often concentrated in isolated villages, ham- decisions on what constitutes positive behavior can easily lets, or sections of settlements that could easily be out of lead to discrimination, and might penalize children for sight of even the lowest level of local government. The their parents' behavior. These programs are not yet wide- larger the local governments are, the higher is the probability spread in ECA. Turkey recently launched a conditional 36 cash transfer program, and various other countries are Innovative new investment loans were provided to considering introducing them. Bulgaria and Romania to support child welfare reforms with the explicit goal of deinstitutionalization, including Deinstitutionalization can become a powerful means of changing the physical environment and the way the police breaking the cycle of poverty and reintegrating disadvan- interact with children who spend a lot of time on the taged groups, especially their children. Romania and streets. Similar, stand-alone, child welfare reform projects Bulgaria have launched ambitious reforms to reduce the are also being prepared in Georgia and Russia. In Albania, large number of children raised in institutions. Many Armenia, Latvia, and Moldova child welfare reform com- other ECA countries have similar problems because the ponents were included in broader investment projects. rationale for institutionalization emerged in the context of the needs of the planned economy and rapid nuclearization The Bulgaria and Romania ethnic integration institution- of families2 during socialist times. With full employment al development (IDF) grants have played a key role in and two wages needed to provide a decent standard of liv- developing antidiscrimination legislation, and in launching ing, childcare, eldercare, and any distraction from the initiatives to form a more open and accommodating public availability to work was referred to institutions. While the opinion. Japanese Social Development Grants have helped nuclear family remains the dominant model in the post- pilot community initiatives and targeting on disadvantaged transition era, in many ECA countries there are both state communities in several countries. and civil society programs to strengthen the capacity of communities to prevent institutionalization and to move In addition to lending and grant instruments, the World children to a more sympathetic and supportive environ- Bank can also facilitate transferring knowledge about ment, preferably to families, rather than large childcare promising new instruments to fight chronic poverty. institutions. One such example is in Turkey, where the Bank supported Some ECA countries face specific expectations in the the design and introduction of conditional cash transfers to European Union (EU) accession process to reduce the increase motivation for school attendance and health care number of children in institutions, and all accession coun- use by children. Another, joint initiative with the United tries will increasingly benefit from earmarked EU resource Nations Children's Fund (UNICEF)--Changing Minds, transfers for programs that promote integration. Others Policies, and Lives--creates a multicountry instrument to will need to rely more on themselves and other interna- address systemic issues related to child welfare reform, tional agencies, such as the World Bank. such as setting child welfare standards and enforcing them. How Can the World Bank Help Address Chronic With these instruments the Bank is uniquely positioned Poverty? to assist ECA countries to fight the most damaging chronic poverty of disadvantaged minorities, such as the Roma, The World Bank offers a wide range of new instruments and help cut the cycle of poverty among the children--for that can be used to address chronic poverty in the pockets as long as it is needed, and for as long as it takes. of disadvantaged communities. The new programmatic adjustment lending instruments (PALs) are designed to reward measures to monitor and fight long-term poverty. The Bank also played a pioneering role in fostering social funds in ECA. Currently there are 29 successful projects, which clearly increased direct interaction with disadvan- taged communities. The Bank put a great emphasis on Endnotes elaborating poverty maps to improve targeting the activities 1 Estonia, the Czech Republic, Hungary, Latvia, Lithuania, Poland, of social funds to the most affected communities, and on Slovakia, and Slovenia joined the European Union on May 1, 2004. The the facilitation process used to mobilize these communities. accession of Bulgaria and Romania to the European Union is scheduled for 2007. Croatia aspires to join the 2007 wave of accession. The facilitation process is critically important in making community initiatives sustainable. The Bank requires reas- 2 Rapid socialist industrialization brought large rural masses to urban cen- surances that the facilitation applied will increase the ters where there was neither need nor appropriate conditions (especially housing) for maintaining multigenerational families. With nearly full social capital of the disadvantaged community, empowering employment, women decided to have only one or two children, and hence it to design and implement similar projects after Bank- by the mid-1960s, in most Central European countries, the nuclear family supported projects are completed. model became dominant. 37 Protecting the Vulnerable through Programmatic Galina Sotirova, Philip Goldman, and Boryana Gotcheva Adjustment Lending A New Power Tool Country Examples Programmatic adjustment lending (PAL) is a new tool Thus, in Albania, the Poverty Reduction Support Credit in the arsenal of protecting the vulnerable in developing (three single-tranche operations totaling $50 million) countries. By addressing broad, sectorwide, and cross- supports the development and implementation of policies sector issues, these operations support medium-term and structural reforms. It is structured around four com- broad Government programs of poverty reduction and ponents: (a) promoting sustainable growth and supporting sustainable growth. In International Development private sector development, (b) strengthening the capacity Association countries, they form the backbone of to monitor and evaluate the policy agenda, (c) improving support for the implementation of poverty reduction service delivery and social safety net effectiveness, and (d) strategies, which build on the developed Poverty improving core public sector functions and institutional Reduction Strategy Papers (PRSPs). Programmatic arrangements. adjustment operations are usually designed as a series of one-tranche loans with clearly defined benchmarks and The Ukraine PAL (three operations totaling $800 million) milestones that need to be achieved before the operation supports the government's program of identifying and is presented to the Board of Directors of the World removing critical institutional bottlenecks that currently Bank. The benchmarks and milestones represent moni- hamper economic reforms, increase transactions costs, torable indicators of progress in the reform process, and weaken property rights, and favor soft-budget constraints. in meeting the objectives of protecting the poor and PAL II also supports the government's efforts to improve the vulnerable in the restructuring process and beyond. effectiveness of the state in the provision of social services, protection of the poor, and protection of the environment. To date there is little experience in Europe and Central To that end, PAL II seeks to complete and streamline the Asia (ECA) with programmatic adjustment operations. institutional framework and significantly improve public Only three--in Albania, Bulgaria, and Ukraine--have and private sector governance. It is organized according to been developed so far. The overall objectives of the five interrelated themes: financial discipline, regulatory operations focus on broader economic reform, such as framework, property rights, public sector accountability, ensuring sustainable economic growth through restruc- and management of social and environmental risks. turing, promotion of private sector investment, and private sector development. However, cross-sectional In Bulgaria, the overall PAL (three operations totaling goals also include public sector accountability, good $450 million) objectives are to sustain economic growth governance, improved public sector institutions, protec- and reduce poverty through (a) creating an investment cli- akulskiP tion of the vulnerable population, empowerment and mate that promotes private sector investment, restructuring, Jan participation in economic growth, better social services, and productivity leading to growth; and (b) empowering the and effective social safety nets. population, especially the poor, to participate in economic Photo: 39 growth. To implement the growth and poverty reduction continuous manner, and allows close monitoring and the strategy, the PAL-supported medium-term reform is built flexibility to adjust the details of the program as needs on five pillars: (a) sustaining structural reforms in the arise in the course of development and implementation. enterprise sector focusing on the restructuring of the energy, railway, telecommunications, and water sectors; (b) estab- Second, reforms in the social sectors cannot be effective lishing a market-friendly business environment, focusing unless key public sector and broad economic reforms are on entry and exit policies, regulatory costs, delivery of implemented, such as strengthening the effectiveness and public services, competition, and market institutions; (c) accountability of the public sector in general. Thus the deepening the financial system, addressing the constraints cross-sectoral nature of programmatic adjustment lending on increased lending by the banking system and the devel- allows viewing the social protection agenda as an element opment of financial markets; (d) improving public sector of a comprehensive reform, and to link it with other governance, including implementing an anticorruption sectoral reforms. For example, issues related to labor market strategy, strengthening local governments, reforming the flexibility can be linked to the creation of a favorable judiciary, and pushing administrative reform; and (e) business environment; energy sector reforms and cost investing in human capital and strengthening social pro- recovery can be linked to an effective social safety net; and tection, focusing on education, health, and pension pension reform can be linked to an improved financial reforms and social assistance effectiveness. and fiscal environment. This comprehensive approach allows assessment of the possible adverse effects on welfare, Focus on Social Protection and particularly on the vulnerable, of certain structural reform measures, and thus focuses the attention of the All three adjustment operations have well-articulated Government and the World Bank on issues of vulnerability social protection components that support the medium- and the importance of social protection. Third, close moni- term reform agenda for the protection of the poor and toring, identification of monitorable indicators, and vulnerable population. Old age security is sought through achievement of targets focus efforts on building an effective the establishment of financially sustainable pension systems, monitoring system, analysis and monitoring of poverty, ensuring reduction of poverty among the elderly population. and welfare developments. Important benchmarks in program implementation are support for reforming and strengthening of social assistance Effective protection of the poor requires building institutions through better targeting of benefits to the poor, including and making a significant investment in the improvement of phasing out of non-poverty-targeted benefits, and phasing capacities and services. Such focused investments and the out of privileges in the case of Ukraine, to improve coverage technical assistance required are not easily provided of social assistance and the effectiveness of energy assistance through mechanisms of adjustment lending, and therefore programs. The Ukraine PAL focuses especially on commu- would require that supporting investment and technical nity-based social care as a way to improve care, and on assistance projects be designed and implemented along creating a regulatory environment for the provision of with the programmatic adjustment lending, with coordi- diversified services and improved standards. The Bulgaria nated goals, timing, and adequate scope. PAL pays special attention to the improvement of social care, and foresees the development of minimum standards for social services and the building of the capacity to analyze and monitor poverty and living standards. Although it is too soon to gauge the impact and assess the effectiveness of programmatic adjustment lending on poverty reduction and the protection of the poor compared to standard adjustment and investment operations, a number of characteristics suggest that it might be better suited. First, social protection reforms and ensuring effective protection of the vulnerable is a medium-term agenda-- most of the reforms require much longer time, and more consistent, uninterrupted support than could be provided within the traditional adjustment and investment opera- tions. In that respect, programmatic lending provides an opportunity for assisting a medium-term program in a 40 Box 1. Preconditions for Effectiveness There seem to be a number of preconditions that could ensure the effectiveness of programmatic lending or, if not present, could jeopardize success. A partial list includes the following: A viable government medium-term reform program Continuity of previous adjustment and investment operations, and additional ones as well Strong reliance on the existing investment projects--PAL results could be doubtful if not adequately supported with invest- ments Adequate economic and sector work like Poverty Assessments,Country Economic Memoranda,Public Expenditure Reviews, and sectoral notes and reports Continuity of cross-sectoral Bank and Government teams Flexibility of the PAL agenda, changes in benchmarks and triggers in the context of a dynamic environment, and possible newly emerging reform challenges Linkage and synchronization of PAL benchmarks, outcomes, and performance indicators with the countries' MDG business plans A close link between the PAL medium-term reform agendas and the European Union (EU) accession requirements (rele- vant for the countries that are candidates for EU membership and that align their legislation along the EU acquis com- munautaire, which is the body of rules and regulations that EU accession countries must adopt in order to join the EU). 41 Social Funds in ECA: An Effective Tool to Reach Pockets of Poverty Anush Bezhanyan, Caroline Mascarell, Vilija Kostenickiene, Ana Maria Sandi, and Peter Pojarski Social Funds (SFs) are relatively new to the Europe and Mobilizing Poor Communities Central Asia (ECA) region. The first fund started in Albania as a pilot Rural Development Fund in 1993. The The Social Development Fund (SDF) project in Romania Armenia Social Investment Fund became effective in is an example of an SF that seeks to contribute to poverty 1995, and was followed by one in Tajikistan in 1997, and alleviation in the poorest small and isolated rural commu- in Georgia in 1998. Today the portfolio of Social Funds in nities that usually have a passive population. Like in other ECA consists of 29 projects in 14 countries. A total of East European countries during the recent communist $737 million is invested in the SFs, of which $518 million past, freedom was repressed, association was banned, is World Bank lending. The SFs managed to attract signif- collective action was forced and thus perverted, civil society icant cofinancing by the governments, local communities, was destroyed, and people became suspicious and distrust- and donors (including the European Union, the U.K. ful of each other and of authorities. In that context, for Department of International Development, the Swedish any development initiative to succeed, there was a need to International Development Agency [SIDA], the enhance trust, promote democratic participation, increase KfW­Development Bank of Germany, and the Soros cooperation and collective action, and create local capacity Foundation). Having increased from $120 million in for organization. The Romanian SDF responded by 1998 to almost $740 million in 2003, it is one of the having the specific objective of "promoting social capital fastest-growing portfolios in ECA. enhancement and civic engagement." This objective is achieved through the following project design and imple- The success of SF operations has demonstrated to political mentation features. leaders that they are an effective mechanism for delivering benefits rapidly and effectively to poor and disadvantaged Proposals for subproject financing are accepted only if communities and vulnerable populations during the eco- communities can show evidence that community members nomic transition. Benefits emanate from improved roads met, discussed their problems, established priorities, and and bridges that provide better access to marketplaces and selected a project that would respond to their needs, and social services; improved water supply systems that con- signed minutes of the meetings are registered with the tribute to better-quality water and improved health indica- mayor's office, thus earning the community legal status in tors; better schools managed by parent and teacher associa- its relationship with the Fund. Poor communities from v tions with improved teaching methodologies and innovative the poorest counties receive the help of facilitators, who aso Ily programs; improved health facilities and other social care are local people who received training from the Fund in arv An services for street children and other disadvantaged community capacity building. They contact community groups; and microcredit for new entrepreneurs financed members and help them come together, listen to each Photo: through SFs. Success has generated interest in the region other, and express their demands and agree on priorities. in using SFs to develop infrastructure, attract and channel Once a proposal is approved, the elected leaders of the public and private investment resources, create temporary community-based organization (CBO) are trained by the jobs as income support, develop private businesses, SDF on community organization, project management, and strengthen transparency and the capacity of local govern- implementation. Communities implement projects by being ments, foster civic responsibility and community initiative, the recipients of the grant and making all procurements. and contribute to postconflict reconstruction. The project cost is partially covered from community con- tributions (cash or in kind). Appraisal and supervision by the Fund is conducted in a structured manner; appraisers 43 and supervisors are trained by the Fund in order to eliminate for students, teachers, and community members, including patronizing behaviors and imbue positive, constructive atti- new learning methodologies, improvement of management tudes. Facilitation is also conducted during project imple- skills, seminars on education for democracy and human mentation, whenever the social dynamics of the community rights, legal issues, tolerance, health education, and thematic need it. The SDF supports networking and knowledge- study trips to museums. The PTA has raised private funding sharing activities for the participating communities. which is matched with equal amounts by the MSF for implementation of this plan. A regional training center Many of the SFs in the region use a similar approach and has been established in the Rachesti School, and a school procedures, but they have different objectives and target principal has become a trainer and is using his skills to different population groups. This is highly dependent on help the MSF as a community facilitator in new commu- the particular country context, overall development level, nities participating in the MSF. Currently, the MSF is and program. evaluating the impact of the project to determine whether the outcomes are improved. For example, a 100-year-old school in Rachesti, a very poor and remote village of approximately 1,000 inhabitants in Addressing Multiple Disadvantages the Soldanest region of Moldova, had not been renovated in 15 years. The building was badly deteriorated. The In Bulgaria the Social Investment and Employment school principal and the mayor participated in the MSF Promotion (SIEP) Project is focusing on the populations introductory workshop in the regional center, and were that are locked in persistent "pockets" of poverty that are among the first to submit a proposal for the reconstruction concentrated regionally, among the long-term unemployed of a half-finished residential building that was abandoned and ethnic minorities (including Roma). These vulnerable after the collapse of the Soviet Union. The community groups suffer from multiple disadvantages, including estimated that the microproject would cost about exclusion, weak social capital, poor access to markets and $50,000, and committed to contribute 15 percent of it basic services, and low levels of education and employment. ($7,500) in cash, labor, and construction materials. The A distinct feature of the project supported by the Ministry community entrusted five elected members of the of Labor and Social Policy is that under its Bulgarian Microproject Committee (MPC) to manage the micropro- Active Labor Market Initiative it is aiming to increase pro- ject on their behalf. The MPC handled the design of the ductivity and reduce poverty by assisting the unemployed project, negotiations with the MSF, procurement of the in poor communities to extend and use their skills in contractor and local supervisor, and supervision of the response to changing economic and labor market condi- work, and signed off on payments. tions. It helps the depressed communities receive additional resources to support labor market services that will help During the course of the microproject implementation the people find jobs (through, for example, employment serv- teachers and parents organized themselves into a ices, retraining, and small business assistance). The Parent/Teacher Association (PTA) and registered it as a employment agency will provide these services through nongovernmental organization (NGO). Under the part- municipal labor offices in close collaboration with NGOs, nership arrangement with the MSF, the teachers received private companies, and employer and employee organiza- training from the Soros Moldova Foundation, and intro- tions. About 25,000 people seeking work will receive such duced new child education programs in the primary services, which will promote their competitiveness in the grades. The newly created NGO received a $300 grant labor market. from the Soros Foundation for program implementation. The PTA also received donations from private sponsors The Armenia Social Investment Fund (ASIF) provides a (TV set, toys, books, supplies, and so forth). The MSF clear example of how the SFs can create opportunities for provided the NGO with training in community strategic effective decentralized systems, building upon the interactive planning, facilitation, and fundraising. partnership between the public and the government. The participatory process promoted under the project consists Recently, the Rachesti PTA (among nine others) received of gradually preparing governments and communities in a $5,000 grant from the Government of the Netherlands the fundamentals of participation, project management, for early childhood education programs. Using the skills and accountability. The activities under the project developed through the MSF training program, the PTA involved redefining the roles and responsibilities of has prepared a two-year action plan for improving both municipal authorities and citizens in the delivery of education in the school and education outcomes. The municipal services, and disseminating accurate and accessible action plan included extracurricular development activities information to the public. The recent Beneficiary 44 Assessment notes that the project served as an effective the development of new initiatives, centers, and new catalyst for institutional development and social capital approaches to the socially vulnerable and their integration formation. More important, the institutional linkages in both the pilot and other municipalities. During the five strengthened under the framework of the project increased years of the project all planned 14 pilot centers in six the efficiency of local communities and government entities municipalities were fully renovated and furnished with in service delivery, and created effective social capital. special equipment, and 130 staff were trained. More than 10,000 clients benefited in some way from these improved Community infrastructure microprojects served as an services. The centers provide daycare for 100 disabled chil- effective framework for promoting the complementary dren daily, allowing their parents to work full time and interaction between institutionally strengthened local gov- become self-sufficient. The project has not solved all social ernments, mobilized community members, and created problems of provision of efficient social assistance, but it linkages between local governments and communities. In earmarked a new efficient approach and a way to address addition, the active engagement of community leaders poverty and social exclusion through well-prepared, com- with their constituents under the ASIF microprojects munity-based development. enhanced interpersonal trust and strengthened intracom- munity bonds and cooperation. The ASIF provides an Albania is the only country in the region that did not rely effective decentralized development framework wherein on residential care services for the population groups that the poor become empowered to meet their own needs needed social care services, and it ended up having almost facilitated by community investments, institution building, no services. The Government and the World Bank agreed and partnership formation. to prepare and implement a program that would help develop a national system of social care services. The project Social Services for the Vulnerable uses the SF mechanism to provide grants to local govern- ments, on a competitive basis, for creating community- Lithuania, like many other countries in the region, has based services. Based on demand, these services might inherited a Soviet system of social care services that is include home delivery programs for the elderly, battered largely based on the residential care provided by the State women's shelters, youth centers, facilities for children such in costly and inefficient institutions. As an alternative to as daycare centers, and counseling services for vulnerable this system, the Government of Lithuania, together with groups. Their goals are to (a) improve the quantity and the World Bank and in collaboration with SIDA, imple- quality of community-based social services; (b) promote mented a community social services development pilot. new and innovative initiatives in community-based social The objective of this pilot is to develop, test, and replicate services, including awareness, prevention, and early detection a new community-based social service model for different programs, among social workers, teachers, and others; (c) groups of vulnerable people to ensure their social integration increase the involvement of beneficiaries in the design and and prevent institutionalization and social exclusion in a implementation of community-based social services; (d) decentralized environment of social assistance provision in increase the involvement of civil society (NGOs and CBOs) the country. The intention is to provide a level of service in service delivery programs; (e) improve partnerships provision that would reduce the need for residential care, among local government, civil society, and community; and but at the same time allow parents the freedom to work (f) increase community awareness and improve social full time. The target groups were mentally disabled children cohesion in participating communities. The project also and young adults, battered women and children, the elderly, helps the Government develop policy and institutional drug abusers, and ex-prisoners. While this project is not frameworks for a modern system of social care services. intentionally targeted at the poorest, these populations and their families are among the poorest, due not only to Conclusion inability to care for themselves and earn a living, but also to social stigma and exclusion related to it. The diversity and variety of the SFs in the region demon- strate that they are an effective instrument for addressing the The early success of the project and the impact it has had priority issues in the particular context and focusing on the on the vulnerable themselves, on their family members, most vulnerable and disadvantaged population groups. and on social workers and communities have inspired the Government to develop an additional and still ongoing Endnotes program of social service infrastructure development, and 1 The midterm progress and positive impact of the project were presented to put more emphasis on the development of programs to in the article, "A Model for the Future. Innovative Social Policy in train social workers.1 The project served as a catalyst for Lithuania," that appeared in the first issue of SPectrum in Fall 1999. 45 Public Works in Europe and Central Asia Arvo Kuddo Temporary relief work or public works play a central role temporary in nature, and often do not help increase wage in the offerings of the public employment services (PES) or employment prospects (Betcherman 2000). Since in in many countries. In the recommendations of the many transition countries, highly skilled labor prevails European Community (EC) Commission on among the unemployed who were previously engaged in Employment, published in early 1993, the organization of capital-intensive industries, their participation in unskilled public works was regarded as one of the principal levers jobs might be shameful to them. In several countries, for reducing unemployment. In many EU countries, such most public works are organized in the regions of high as Denmark and France, the unemployed are obliged to economic growth and low unemployment, not in the accept temporary jobs in the public sector, or to work part regions of high unemployment. In many countries, fiscal time. However, public works, where they exist in transition limitations restrict local authorities, potentially the major economies, tend to be the responsibility of local authorities purchasers of such services, from using them, while local that may lack the capacity to manage them effectively. employment services are not very active or experienced in Additionally, there are both costs and benefits of public organizing public works. works that may have kept transition economies from adopting them more comprehensively. In addition, public works are usually seasonal--there are few temporary-employment offers during the highest unemployment periods from autumn to spring. Further, Advantages and Disadvantages of Public Works the organization of public works is often complicated due to a mismatch in the skills needed and the qualifications Advantages. In most transition countries, unemployment possessed by the job seekers. In certain countries and benefits are low, so salaries earned by participating in public regions, public works are complicated to organize due to works could be a sufficient economic support to the ethnic or gender issues. There are also some social and unemployed, especially if they are targeted to the neediest psychological aspects of participation in public works, job seekers. Participation in public works also allows the such as low prestige and low qualifications for the work, PES to test and monitor the willingness of registered that are not desirable or sufficient to satisfy certain job unemployed to participate in other labor market programs. seekers. Based on the evaluation of outcomes of relevant Temporary work can provide informal sector workers and programs in the world, Dar and Tzannatos (1999) con- the poor with income support where administrative capacity cluded that public works can help the more disadvantaged is weak. It allows some of the unemployed to establish groups (older workers, the long-term unemployed, those v contacts with employers, and provides information on the in distressed regions) as a poverty/safety net program. Kozyre local labor market. Often temporary employment turns to uriY permanent employment. In certain areas, such as in envi- The Bulgarian Example ronmental protection programs or in the social services Photo: sphere, public works might significantly contribute to the Currently, Bulgaria is implementing a large-scale temporary well-being of the local community. employment program called From Social Assistance toward Employment. Under this program, unemployed Disadvantages. On the other hand, public works are not individuals--recipients of social assistance--are given an very popular among employers or job seekers themselves. option of either accepting temporary jobs or risking a Such works are criticized as being too expensive per addi- reduction or cutoff of their social assistance benefit. The tional job created, entail large non-labor costs, are often program created 117,800 temporary jobs in 2003, and 47 79,400 people participated on average per month. The References program significantly reduced the number of claimants of Betcherman, G. 2000. "An Overview of Labor Markets World-Wide: Key social assistance benefits. BGN129 million (around $62 Trends and Major Policy Issues." Human Development Network, Social million) was spent on the program that year. Protection. Washington, D.C.: World Bank. Dar, A., and Z. Tzannatos. 1999. "Active Labor Market Programs: A Tripartite labor councils at the local and regional level Review of the Evidence from Evaluations." Human Development select project proposals based on bidding procedures. The Network, Social Protection. Washington, D.C.: World Bank, January. priority for participation is given to long-term unem- ployed--those registered at the employment agency and out of work for more than 24 months and receiving social assistance for more than 18 months; member of the family in which parents are unemployed and are receiving social assistance; and unemployed single-parent recipients of social assistance. For some of the participants from ethnically mixed regions, employment will be combined with literacy enhancement and vocational training. The target is to employ around half of participants in construction and renovation works and in social and other such works, and around 30 percent in environmental cleanup. It is antici- pated that the person can stay in the program for not more than three years. Wages are set at around 110 Leva (minimum wage) to 125 Leva (around $60 to $70), but those employed have to give up social assistance benefits (on average 40 Leva per recipient in 2002). So the net cost of the program to the state budget would have reached 80 million Leva in 2003. The program is supported by a vast majority of participants, and only around 4 percent of those offered participation refused (half of them for medical reasons). Among the reasons for the attractiveness of the program might be that the participants are also covered by pension and health insurance (including maternity benefits). v Kozyre uriY Photo: 48 Conditional Cash Transfers Jeanine Braithwaite Conditional cash transfers (CCTs) are cash payments to targeting. Using this technique, the household's living the families of poor children who agree to fulfill a certain standards are estimated based on a series of indicators that obligation or responsibility in exchange for the payments. are found to correlate with poverty in that country. The For example, families might receive CCTs if their children indicators are typically things like the number of children regularly attend school or visit health clinics. Many countries and elderly in the household, the housing construction have experimented with CCTs for various programs, and material and amenities (such as water and electricity), are conditioning social assistance generally. In fact, the number of rooms and, often, consumer durable goods trend in international best practices is to condition social (refrigerators, cars). In agricultural areas, household holdings assistance on some form of positive behavior. For example, of livestock and land are also considered. in France there is a "reinsertion contract" to bring the recipient fully back into productive society, which requires CCTs in Turkey behavior such as dealing with substance abuse, becoming literate, or obtaining a driver's license. Another example is Turkey has embarked on a far-reaching effort to improve the Temporary Assistance to Needy Families (TANF) pro- the attendance of school children and to improve health gram in the United States, which now requires individuals care use of children through a CCT program. The to look for a job or to study in order to receive welfare Government of Turkey supports this program, as does the payments. In Latin America, CCT programs are widespread. World Bank through the Social Risk Mitigation Project (SRMP). The SRMP includes cofinancing for the actual Impact on Education CCT payments themselves, and financing for the computer infrastructure and technical assistance to implement the There is a large CCT program in Mexico in which poor CCT in the 931 districts of Turkey, where the program is school children and preschool children receive cash pay- administered by the district-level Social Solidarity ments provided that they attend school or health clinics. Foundations. In evaluating the Mexican Education, Health and Nutrition Program (PROGRESA, now called Scoring formula and community targeting in Turkey. Opportunities), the program was found to have a net posi- Using household data, a scoring formula for CCTs in tive impact on enrollment, particularly of girls in secondary Turkey has been developed, but with special consideration school. There was also a positive effect, although not as for the role that community targeting has played in the large, on attendance. There was no net impact on achieve- country. While wanting to modernize its approach to tar- ment test scores, but this could be due to an insufficient geting through adopting a scoring formula, the Government sample size for adequate comparison. also wanted to retain the benefits of the community approach. As a result, the scoring formula will be the usual Targeting Issues determinant for eligibility, but there will also be an appeals committee including community representation that will Most governments cannot afford to provide universal oversee the process and consider special circumstances. social benefits because of their very high cost. Most coun- tries choose to target their assistance to the poor or poorest Piloting CCTs in Turkey. Since CCTs are a new innovation Hadar on grounds of equity and fiscal constraints. Several methods in Turkey, it was decided to begin with six pilot districts osefY have been used internationally to target benefits to the poor, to troubleshoot the new program and the scoring formula, but the most prevalent for CCT programs are scoring for- which was modified based on pilot experience. These six Photo: mulas, also called proxy means tests or combined indicator districts were chosen as being broadly representative of 51 Turkey's diverse regions, but with enough administrative capacity to undertake the program. The first payments were made in five of the districts in April 2003 to 22,000 beneficiaries. Rollout of CCTs across Turkey. Provinces were randomly selected for reasons of equity (each province had an equal chance of receiving the new program), and for evaluation purposes (so that a control group could be formed of the untreated areas until each province adopted the program). According to the rollout schedule, 23 percent of Turkey was to have been covered by November 2003, and the rest of the country will be covered in 2004. As of March 1, 2004, there were 220,000 beneficiaries enrolled. CCTs for Turkey: Spotlight on girls' education. Turkey is strongly committed to the goal of education for all, and in particular, is aware of the need to improve attendance of girls in compulsory education (through grade 8) and to increase the enrollment of girls in secondary school, par- ticularly in the Southeast Anatolia region of the country. In addition, in some areas there is a problem of access to health care for unregistered children. While the Government works on the supply side to provide education and health services and to improve their quality (through various projects including support from the World Bank), the CCT program will work on the demand side to increase incentives to use these services. Conditional Cash Transfers in Europe and Central Asia CCTs are an obvious choice for any country in the Europe and Central Asia region that needs an incentive on the demand side, particularly for improving girls' education and use of primary health care among the poorest. Countries that would likely benefit from CCTs include Central Asia and Azerbaijan. In addition, all countries in the region would benefit from conditioning social assistance more generally, as is best practice in the European Union. Attendance at school and health clinics would be an important condition for child allowances and general social assistance. v aso Ily arv An Photo: 52 Child Welfare Reform Projects and Initiatives Alexandra Posarac and John Innes The economic and social shocks of transition from a coordination with programs in health and education and socialist economy to a free market economy have had an cash programs in social assistance, provide a range and a adverse impact on the capacity of many families in the continuum of care to poor and vulnerable families so as to Europe and Central Asia (ECA) region to manage risks, strengthen their capacity to take care of their children. and on the capacity of the State to provide meaningful support. As a result, the well-being of children across the The World Bank's ECA Social Protection group has initiated region, and in particular in former Soviet countries, has a series of country-specific child welfare studies and Policy deteriorated. Children face an increased risk of being poor Notes, which serve as an analytical base for the policy dia- and extremely poor, particularly if they live in multichil- logue and which provide a framework for the reform of dren or single-parent families. Their health and nutrition child welfare policies and institutions, the first being for status has worsened. Access to education, and in particular Romania in 1997. Two more recent studies were completed to quality education, has deteriorated as well. Children are in 2003: the "Armenia Child Welfare Note," and "Child more likely to be deprived of birth family upbringing and Welfare Outcomes During the 1990s: The Case of to be placed in an institution; to be neglected, homeless, Russia." A study on "Child Welfare in Georgia" will be or abused; to become an alcoholic; and to commit a completed in 2004. crime. These developments challenge not only the imme- diate welfare of poor and vulnerable children in ECA, but Child Welfare Reform Projects also their longer-term prospects, because by falling behind in human capital development, they may not be able to A number of social protection investment projects have grow out of poverty. Beyond the adverse implications for had either a child welfare component or are solely focused the individual, however, the deteriorating health and edu- on child welfare. The Albania Social Services Delivery cational status of a country's population is likely to lead to Project has a component aimed at improving community- increased social, financial, and economic costs, and to hin- based social services. The Romania Child Welfare Reform der the country's participation in the labor market, and Learning and Innovation Loan, recently completed, aimed thus its economic performance. at developing community-based child welfare services and developing services for street children. The Moldova Fodor tin Pioneering Sector Work Social Investment Fund Project includes a component Mar aimed at strengthening children's social development and Throughout the years of World Bank involvement in deinstitutionalization. The Latvia Welfare Reform Project Photo: ECA, improving child welfare has been one of the pillars included piloting of community-based services, including of the social protection dialogue with the client countries. those to vulnerable families and children. The Bulgaria The dialogue has focused on, among other things, the Child Welfare Reform Project has three components: (a) trends in child welfare, reforms of the institutional and developing the legal and institutional framework to manage regulatory framework for family and child welfare policies, child welfare reform effectively; (b) reforming the system of development of child- and family-centered policies and institutional care through the development of alternative institutions, strengthening implementation arrangements forms of child care, deinstitutionalization, and family and and capacity building, and improving resources management societal reintegration programs for children and youth efficiency. Particular attention has been paid to the devel- leaving institutions; and (c) preventing abandonment by opment of previously nonexistent preventive community- mothers and/or fathers in high-risk groups, and developing based child and family welfare programs that would, in forms of interventions for the improvement of the welfare 55 of street children. The Armenia Japanese Social based care for vulnerable individuals, including children at Development Fund Grant is financing the piloting of two risk and those deprived of parental care. It focused on community centers that would provide social work and supporting the implementation of a comprehensive care services to families and children in need, including national strategy grounded in concerns for both human dysfunctional families, orphans, socially maladjusted chil- rights and cost-effectiveness. dren and youth, and disabled children. The project strategy was to develop reform proposals for Two new projects are currently under preparation: the three family and child welfare system regulators-- Russia Child Welfare Development Project, aimed at finances, standards, and decisionmaking processes--which developing preventive social care services for families and were identified as key to the reform process. This strategic children, developing family-based care solutions for children approach is expected to influence changes in a child protec- in need of care, and deinstitutionalization of care of vul- tion system that will (a) ensure family-centered outcomes nerable children; and the Georgia Social Protection through appropriately defined standards of care and meas- Reform Project, which includes a child welfare reform urement of outcomes; (b) redirect resources to community- component. based services by changing financing flows in support of families at risk and family-based care alternatives; (c) In assisting client countries to reform their child welfare reshape the gatekeeping system by legislating and imple- systems, the World Bank has built partnerships with other menting rights-based policies and procedures for special donors, in particular the United Nations Children's Fund protection of families and children at risk; and (d) create (UNICEF) and international and local nongovernmental an environment supportive of the reform process by iden- organizations and civil society groups and organizations. tification and documentation of good practices. Changing Minds, Policies, and Lives Project For each of the regulators--finances, standards, and deci- sionmaking processes--a technical instrument, or toolkit, Since the early years of transition, a tendency has been was developed. Each toolkit includes concepts, guidance observed in many ECA countries to rely extensively on for reform of regulators, and proposals for design and long-term institutionalization of vulnerable children, implementation of the change. The toolkits were tested in including children deprived of birth parental care, and Bulgaria, Latvia, and Romania. They are currently being disabled and poor children. Institutional care has long reviewed and will be published in both English and been proven to be ineffective, inefficient, and detrimental Russian. They will also be available on the World Bank to child development. Hence, many governments in the and UNICEF websites. ECA Region have identified deinstitutionalization, devel- opment of family-based care options, and development of preventive services as key components of their family and child welfare reform. To support and facilitate the ongoing reform processes in the region, UNICEF and the World Bank jointly launched the "Changing Minds, Policies, and Lives" project. The project also addresses two important strategic concerns of both organizations. For the World Bank, systemic change is one of the cornerstones of its social protection strategy in ECA. This includes deinstitutionalization and development of new cost-effective approaches. For UNICEF, prevention of institutionalization, including support to families and provision of rights-based alternative care, for children deprived of parental care is one of key priorities in the region. The Changing Minds, Policies, and Lives project, com- pleted at the end of June 2003, was aimed at contributing to a permanent shift from reliance on state institutions to provision of rights-based, and family- and community- 56 Europe and Central Asia At a Glance: Selected Indicators Table 1. Size of the Economy, Life Expectancy, and Employment Population Gross Gross National Gross Life Expectancy Unemployment National Income Domestic Product at Birth Income per Capita Per Male Female Total Capita Male Female % of Male % of Female % of Total Millions $ Billions Rank $ Rank % Growth % Growth Years Years Labor Force Labor Force Labor Force 2002 2002b 2002 2002b 2002 2001­02 2001­02 2002 2002 1980 2000­02a 1980 2000­02a 1980 2000­02a Albania 3 4.6 120 1,450 120 4.7 4.1 72 76 -- 18.8 -- 28.4 5.6 22.7 Armenia 3 2.4 145 790 144 12.9 13.6 71 79 -- -- -- -- -- -- Azerbaijan 8 5.8 108 710 146 10.6 9.8 62 69 -- 1.1 -- 1.5 -- 1.3 Belarus 10 13.5 80 1,360 124 4.7 5.2 63 74 -- 1.9 -- 2.6 -- 2.3 Bosnia and 4 5.4 112 1,310 125 3.9 2.5 71 77 -- -- -- -- -- -- Herzegovina Bulgaria 8 14.1 78 1,770 111 4.8 5.5 69 75 -- 20.2 -- 18.4 -- 19.4 Croatia 4 20.3 66 4,540 71 5.2 5.2 70 78 3.4 13.4 8.2 18.5 5.3 15.2 Czech Republic 10 56 46 5,480 68 2 2.1 72 79 -- 5.9 -- 9 -- 7.3 Estonia 1 5.7 109 4,190 75 6 6.5 65 77 -- 12.9 -- 12.2 -- 12.6 Georgia 5 3.4 135 650 151 5.6 6.6 69 78 -- 11.6 -- 10.7 -- 11.0 Hungary 10 53.7 49 5,290 69 3.3 3.6 68 77 -- 6.1 -- 5.4 -- 5.8 Kazakhstan 15 22.6 62 1,520 117 9.8 10.1 57 67 -- -- -- -- -- -- Kyrgyz Republic 5 1.4 158 290 181 ­0.5 ­1.5 61 70 -- -- -- -- -- 8.6 Latvia 2 8.1 95 3,480 86 6.1 7 65 76 -- 14.1 -- 11.5 -- 12.8 Lithuania 3 12.7 81 3,670 83 6.7 7.1 68 78 -- 19.7 -- 14.2 -- 13.8 Macedonia, FYR 2 3.5 132 1,710 116 0.7 0.6 71 76 15.6 31.7 32.8 32.3 22 31.9 Moldova 4 1.7 155 460 164 7.2 7.6 63 71 -- 8.7 -- 5.9 -- 7.3 Poland 39 176.6 22 4,570 70 1.4 1.4 70 78 -- 19.1 -- 20.9 -- 19.9 Romania 22 41.7 53 1,870 108 4.3 4.8 66 74 -- 7.1 -- 5.9 -- 6.6 Russian 144 306.6 16 2,130 99 4.3 4.8 60 72 -- 9.3 -- 8.5 -- 8.9 Federation Serbia & 8c 11.6c 84 1,400c 123 4 35.7 70 75 -- 22.6 -- 22.1 -- 22.3 Montenegro Slovak Republic 5 21.3 63 3,970 80 4.4 4.4 69 77 -- 18.6 -- 18.7 -- 18.6 Slovenia 2 20.4 65 10,370 52 2.9 3.6 72 80 -- 5.6 -- 6.3 -- 5.9 Tajikistan 6 1.1 164 180 197 9.1 8.5 64 70 -- -- -- -- -- -- Turkey 70 173.3 24 2,490 95 7.8 6.1 68 73 9 10.9 23 9.9 10.9 10.6 Turkmenistan 5 -- -- --d -- 14.9 13.1 61 68 -- -- -- -- -- -- Ukraine 49 37.9 56 780 145 4.8 5.6 63 74 -- 11.2 -- 11 -- 11.1 Uzbekistan 25 7.8 98 310 176 4.2 2.9 64 70 -- -- -- -- -- -- Source: 2004 World Development Indicators, World Bank. a. Data are for the most recent year available. b. Calculated using the World Bank Atlas method. c. Excludes data for Kosovo. d. Estimated to be lower-middle income ($736­$2,935). 57 Table 2. Millennium Development Goals: Eradicating Poverty and Improving Lives Eradicate Extreme Poverty Achieve Universal Promote Reduce Child and Hunger Primary Education Gendere Quality Mortality Share of Poorest Quintile in Ratio of Female to Male National Income Child Malnutrition Primary Enrollments in Primary or Consumption Weight for Age % of Completion Rate and Secondary School % Children Under 5 % % Per 1,000 Live Births 1990­2002ab 1990 2002 00/01­02/03ac 1990/01 2001/02c 1990 2002 Albania 9.1 -- 14 100 90 102 42 24 Armenia 6.7 -- 3 74 -- 104 60 35 Azerbaijan 7.4 -- 17 100 94 98 106 96 Belarus 8.4 -- -- 131 -- 102 21 20 Bosnia and 9.5 -- 4 77 -- -- 22 18 Herzegovina Bulgaria 6.7 -- -- 94 94 98 16 16 Croatia 8.3 -- -- 90 97 101 13 8 Czech 10.3 1 -- -- 94 101 11 5 Republic Estonia 6.1 -- -- 103 99 99 17 12 Georgia 6.4 -- -- 92 94 105 29 29 Hungary 7.7 2 -- -- 96 100 16 9 Kazakhstan 8.2 -- -- 99 -- 98 52 99 Kyrgyz 9.1 -- 6 94 100 99 83 61 Republic Latvia 7.6 -- -- 90 96 101 20 21 Lithuania 7.9 -- -- 106 93 99 13 9 Macedonia, 8.4 -- -- 95 94 98 41 26 FYR Moldova 7.1 -- -- 80 103 -- 37 32 Poland 7.3 -- -- 95 96 98 19 9 Romania 8.2 6 3 94 95 100 32 21 Russian 4.9 -- 6 99 -- 100 21 21 Federation Serbia & -- -- 2 -- 96 101 30 19 Montenegro Slovak 8.8 -- -- -- 98 101 15 9 Republic Slovenia 9.1 -- -- 96 97 101 9 5 Tajikistan 8 -- -- 101 -- 88 127 116 Turkey 6.1 -- -- 95 77 85 78 41 Turkmenistan 6.1 -- 12 -- -- -- 98 86 Ukraine 8.8 -- 3 98 -- 100 22 20 Uzbekistan 9.2 -- -- 98 -- 98 65 65 Source: 2004 World Development Indicators, World Bank. a. Data are for the most recent year available. b. See Table 2 (next to Gini index) for survey year and whether share is based on income or consumption expenditure. c. Data are preliminary. d. Less than 0.05. Improve Maternal Health Combat HIV/AIDS Develop a and Other Diseases Global Partnership for Development Maternal Mortality HIV Prevalence Incidence of Ratio Per 100,000 Male Female Tuberculosis Unemployment Live Births Births Attended by Skilled % Ages % Ages per 100,000 % Ages Modeled Estimates Health Staff % of Total 15­24 15­24 People 15­24 2000 1990 95­00a 2001 2001 2002 2002 55 -- 99 -- -- 27 -- 55 -- 97 0.2 0.1 77 -- 94 -- 84 0.1 0d 82 -- 35 -- 100 0.6 0.2 83 -- 31 97 100 -- -- 60 -- 32 -- -- -- -- 48 38 8 -- 100 0 0 47 37 9 -- 99 0 0 13 16 63 -- -- 2.5 0.6 55 22 32 -- 96 0.1 0d 85 20 16 -- -- 0.1 0d 32 13 210 -- 99 0.1 0d 146 -- 110 -- 98 0 0 142 -- 42 -- 100 0.9 0.2 78 21 13 -- -- 0.2 0d 66 29 23 -- 97 0 0 41 -- 36 -- 99 0.5 0.1 154 -- 13 -- 99f 0.1 0d 32 44 49 -- 98 0d 0d 148 18 67 -- 99 1.9 0.7 126 -- 11 -- 99 -- -- 38 -- 3 -- -- 0 0 24 37 17 100 100 0 0 21 16 100 -- 71 0 0 109 -- 70 -- 81 -- -- 32 20 31 -- 97 0 0 94 -- 35 -- 100 2 0.9 95 24 24 -- 96 0d 0 101 -- Table 3. Poverty in ECA Countries National Poverty Line International Poverty Line Poverty & Inequality Population Below the Population Below the Population Poverty Population Survey Gini Poverty Line Poverty Line Below Gap at Below Year Index Survey Rural Urban National Survey Rural Urban National Survey $1 a Day $1 a Day $2 a Day $2 a Day Year % % % Year % % % Year % % % % Albania 2002 29.6 -- 25.4 -- -- -- 2002a <2 <0.5 11.8 2.0 2002cd 28.2 Armenia 1996 48.0 58.8 54.7 98­99 44.8 60.4 53.7 1998a 12.8 3.3 49.0 17.3 1998cd 37.9 Azerbaijan 1995 -- -- 68.1 2001 -- -- 49.6 2001a 3.7 <1 9.1 3.5 2001cd 36.5 Belarus 1998 -- -- 33.0 2000 -- -- 41.9 2000a <2 <0.5 <2 0.1 2000cd 30.4 Bosnia & 2001­02 19.9 13.8 19.5 -- -- -- -- -- -- -- 2001cd 26.2 Herzegovina Bulgaria 1997 -- -- 36.0 2001 -- -- 12.8 2001a 4.7 1.4 16.2 5.7 2001ef 31.9 Croatia -- -- -- -- -- -- 2000a <2 <0.5 <2 <0.5 2001cd 29.0 Czech -- -- -- -- -- -- 1996b <2 <0.5 <2 <0.5 1996ef 25.4 Republic Estonia 1995 14.7 6.8 8.9 -- -- -- 1998a <2 <0.5 5.2 0.8 2000ef 37.2 Georgia 1997 9.9 12.1 11.1 -- -- -- 2001a 2.7 0.9 15.7 4.6 2001cd 36.9 Hungary 1993 -- -- 14.5 1997 -- -- 17.3 1998b <2 <0.5 7.3 1.7 1999cd 24.4 Kazakhstan 1996 39.0 30.0 34.6 -- -- -- 2001a <2 <0.5 8.5 1.4 2001cd 31.3 Kyrgyz 1997 64.5 28.5 51.0 1999 69.7 49.0 64.1 2001a <2 <0.5 27.2 5.9 2001cd 29.0 Republic Latvia -- -- -- -- -- -- 1998a <2 <0.5 8.3 2.0 1998ef 32.4 Lithuania -- -- -- -- -- -- 2000a <2 <0.5 13.7 4.2 2000cd 31.9 Macedonia, FYR -- -- -- -- -- -- 1998a <2 <0.5 4.0 0.6 1998cd 28.2 Moldova 1997 26.7 -- 23.3 -- -- -- 2001a 22.0 5.8 63.7 25.1 2001cd 36.2 Poland 1993 -- -- 23.8 -- -- -- 1999b <2 <0.5 <2 <0.5 1999cd 31.6 Romania 1994 27.9 20.4 21.5 -- -- -- 2000a 2.1 0.6 20.5 5.2 2000cd 30.3 Russian 1994 -- -- 30.9 -- -- -- 2000a 6.1 1.2 23.8 8.0 2000cd 45.6 Federation Serbia & -- -- -- -- -- -- -- -- -- -- -- Montenegro Slovak -- -- -- -- -- -- 1996b <2 <0.5 2.4 0.7 1996ef 25.8 Republic Slovenia -- -- -- -- -- -- 1998a <2 <0.5 <2 <0.5 1998­99ef 28.4 Tajikistan -- -- -- -- -- -- 1998a 10.3 2.6 50.8 16.3 1998cd 34.7 Turkey -- -- -- -- -- -- 2000a <2 <0.5 10.3 2.5 2000cd 40.0 Turkmenistan -- -- -- -- -- 1998a 12.1 2.6 44.0 15.4 1998cd 40.8 Ukraine 1995 -- -- 31.7 -- -- -- 1999b 2.9 0.6 45.7 16.3 1999cd 29.0 Uzbekistan 2000 30.5 22.5 27.5 -- -- -- 2000a 21.8 5.4 77.5 28.9 2000cd 26.8 Source: 2004 World Development Indicators, World Bank. a. Based on expenditure. b. Based on income. c. Data refer to consumption shares by percentiles of population. d. Ranked by per capita consumption. e. Data refer to income shares by percentiles of population. f. Ranked by per capita income.