VZCZCXRO9139
PP RUEHRG
DE RUEHSO #0010/01 0041653
ZNR UUUUU ZZH
P 041653Z JAN 07
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC PRIORITY 6234
INFO RUEHBR/AMEMBASSY BRASILIA 7315
RUEHAC/AMEMBASSY ASUNCION 2884
RUEHBU/AMEMBASSY BUENOS AIRES 2573
RUEHMN/AMEMBASSY MONTEVIDEO 2241
RUEHLP/AMEMBASSY LA PAZ 3163
RUEHSG/AMEMBASSY SANTIAGO 1947
RUEHRG/AMCONSUL RECIFE 3299
RUEHRI/AMCONSUL RIO DE JANEIRO 7690
RHEHNSC/NSC WASHDC
RUCPDOC/USDOC WASHDC 2669
RUEATRS/DEPT OF TREASURY WASHDC
RHMFISS/CDR USSOUTHCOM MIAMI FL

UNCLAS SECTION 01 OF 05 SAO PAULO 000010 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR WHA/BSC AND WHA/EPSC 
STATE PASS USTR FOR CRONIN 
STATE PASS EXIMBANK 
STATE PASS OPIC FOR DMORONESE, NRIVERA, CVERVENNE 
USDOC FOR 4332/ITA/MAC/WH/OLAC 
USDOC FOR 3134/ITA/USCS/OIO/WH/RD 
TREASURY FOR OASIA, DAS LEE AND JHOEK 
NSC FOR FEARS 
SOUTHCOM ALSO FOR POLAD 
AID/W FOR LAC/AA 
 
TAGS: SOCI PGOV ECON BR
SUBJECT: BOLSA FAMILIA LIKELY TO EXPAND DESPITE CONTROVERSY 
 
¶1.  SUMMARY: Bolsa Familia is the best-known and most popular cash 
transfer program in Brazil.  As the Lula administration's flagship 
social program, it played an important role in 2006 in securing 
support for President Lula among the very poor and thus ensuring his 
re-election.  It currently benefits 11.1 million families and costs 
the federal government approximately USD 4.1 billion per year. 
Similar state and municipal level programs such as those in Sao 
Paulo supplement federal stipends for many poor.  Although 
considered a very successful social program -- it is given at least 
some of the credit for Brazil's recent improved income distribution 
-- Bolsa Familia remains controversial in Brazil as a tool to combat 
poverty.  Experts who support it point to the fairness of its 
requirements, the lack of local political influence in its 
administration, and its impact in improving the standard of living 
of extremely poor families.  While few oppose the program outright, 
its critics argue that its effects in ameliorating the plight of the 
poor are temporary and limited and that in the long run, Bolsa 
Familia will create dependency and perpetuate poverty.  Regardless 
of the continuing controversy surrounding it, Bolsa Familia is 
likely to be expanded in Lula's second term.  End Summary. 
 
OVERVIEW OF THE PROGRAM 
 
¶2.  Bolsa Familia's roots go back to Fernando Henrique Cardoso's 
administration, when several cash transfer programs were established 
on a small scale to assist the poor with food, energy, and education 
costs.  In 2004, in Lula's second year in office, the government 
consolidated four such programs under the Bolsa Familia umbrella. 
The program is administered by the Ministry of Social Development 
and the Fight against Hunger and is operated by municipal offices 
and agencies.  The Social Development Ministry establishes the rules 
and provides the funding.  The rules are simple and broad.  Poor 
families -- those who have a per capita income of 120 Reals (about 
USD 55) or less per month (USD 220 for a family of four) -- are 
entitled to receive from 15 to 95 Reals per month (USD 7 to 45), 
depending on the number of children under the age of 15.  In return, 
they are expected to keep their children in school (85 percent 
attendance), follow the national schedule for vaccinations and, in 
the case of pregnant women, have regular pre-natal medical 
check-ups.  The conditional nature of the cash transfers is viewed 
as the program's most important feature, designed to ensure that 
even Brazil's poorest children have access to health care and 
education in the hope that this will enable them to emerge from 
poverty into the mainstream. 
 
¶3.  Bolsa Familia has been viewed as a success largely because of 
its efficient operating system.  Enrollment of families is done by 
local governments through offices established for that purpose.  As 
most of Brazil's 5,563 municipalities are relatively small 
communities, it is easy for them to register poor families and 
compile such pertinent information as address, income, educational 
profile, and number of children.  This information is then sent to 
the federal Social Development Ministry, where it is added to a 
national database called "cadastro unico". This social database is 
supposed to compile a list of all poor families in Brazil.  The 
Social Development Ministry selects the families for Bolsa Familia 
from the national database.  Once accepted into the program, each 
beneficiary family receives an electronic bank card, by mail or 
through the local government, to withdraw their monthly Bolsa 
Familia stipend from the Caixa Econtmica Federal (CEF - 
federally-owned bank).  The bank card is usually given to the adult 
female of the family on the grounds that she is more likely to spend 
the funds responsibly. 
 
¶4.  CEF's status as a nationwide public institution with branches in 
almost every city is key to Bolsa Familia's operation.  Moreover, 
small businesses, such as grocery stores and post offices, also 
function as independent bank agencies, disbursing social benefits 
and receiving tax payments.  This structure helped the Bolsa Familia 
program spread quickly.  In 2004 there were 6.5 million families 
enrolled in the program.  By mid-2006, the number had grown to 11.1 
 
SAO PAULO 00000010  002 OF 005 
 
 
million families, according to official statistics published by the 
Social Development Ministry. 
 
HOW IT WORKS IN SAO PAULO 
 
¶5.  Most state governments have their own complementary cash 
transfer programs, as do the governments of some large cities, 
including not only Sao Paulo but also Campinas and Ribeirao Preto, 
both in the interior of the state.  The state itself has a program 
called Renda Cidada (Citizen Income), and the city of Sao Paulo has 
a similar program called Renda Minima (Minimum Income).  Thus, a 
poor family living in the city could qualify for funding from three 
different sources at the same time.  Though the municipal government 
is responsible for administering all three programs, they are 
operated separately, and each issues its own bank card, using 
different banks.  (Sao Paulo uses state-owned Nossa Caixa; the city, 
Banco do Brasil.)  For political reasons, federal, state, and local 
governments each want to receive credit for their largesse.  Each 
program also has its own database of enrolled participants, though 
the databases are not fully integrated.  For now, it is possible to 
compare the list of beneficiaries from Bolsa Familia to that of 
Citizen Income or Minimum Income, but the databases do not 
interface.  When one family is found to be listed on Bolsa Familia 
and at the same time on Citizen Income or Minimum Income, the 
stipend is recalculated so as not to exceed a maximum of USD 180. 
 
¶6.  The city's Minimum Income program is broader than Bolsa Familia; 
it covers more families and pays better stipends - the maximum value 
under Minimum Income is approximately USD 100 per month for a family 
with a monthly per capita income of USD 90.  The minimum benefit is 
USD 75.  The program covers those whose income is not low enough for 
them to qualify for Bolsa Familia.  When the program was inaugurated 
during the administration of Mayor Marta Suplicy, the maximum 
payment was USD 180, but in December 2006, the City Council adopted 
a proposal by Mayor Gilberto Kassab to reduce the maximum payments 
and increase the minimum in order to focus the program better on the 
poorest members of the population. 
 
¶7.  Sao Paulo state's program, Citizen Income, runs in parallel with 
the Bolsa Familia and targets the same social and economic class. 
Families who qualify on the basis of income can register in local 
offices installed throughout the state and within the metropolitan 
area.  The stipend is fixed - USD 30 per family per month. The 
requirements are the same as for Bolsa Familia, but applicants must 
also have resided in Sao Paulo state for at least 2 years.  If a 
family is found to be receiving benefits from both the federal and 
state government programs, the stipends are combined up to the Bolsa 
Familia maximum of USD 45.  Felicidade Pereira, coordinator of the 
program at the state level, says that clerks are trained to enroll 
families in the program - federal, state, or local, or combination 
thereof - that best fits their needs. "It's a common procedure", 
Pereira said, "because there are more families waiting for the 
benefits than funds available to assist them." 
 
¶8.  In addition to its Citizen Income program, the state also has 
Acao Jovem (Youth Action), which is focused on adolescents and young 
adults between the ages of 15 and 24 years old. The stipend of about 
USD 25 per month goes directly to the young adult.  The program's 
purpose is to encourage the beneficiary to continue his/her 
schooling. There are no legal or ethical restrictions that would 
prevent an individual or family from receiving Bolsa Familia and 
Youth Action stipends at the same time, or receiving both Youth 
Action and Citizen Income benefits. 
 
¶9.  Official statistics from the state and federal governments show 
that 1.1 million families in the state are receiving cash transfers 
from at least one of the programs, out of a total of 1.3 million 
families with income low enough to qualify.  This means there is a 
waiting list of 200,000 eligible poor families who are not now 
receiving benefits.  The state's Citizen Income program reaches 
slightly over 167,000 families, while Minimum Income provides 
 
SAO PAULO 00000010  003 OF 005 
 
 
benefits to just over 37,000 families.  Some 66,000 families receive 
some combination of Citizen Income and Bolsa Familia. The remainder 
- approximately 940,000 families - receive only a Bolsa Famlia 
stipend. 
 
PROS AND CONS 
 
¶10.  Although Brazil's cash transfer programs have been the subject 
of numerous studies, their social and economic impact is not fully 
understood.  Because the programs are still relatively new (Bolsa 
Familia was consolidated into a single program in 2004), there isn't 
enough data to formulate reliable results.  This lack of conclusive 
research fuels the controversy surrounding Bolsa Familia.  Following 
are some of the most common arguments in favor and against Bolsa 
Famlia: 
 
¶11.  Focus: The program is considered well-focused, providing money 
directly to families who need it most.  In the past, governmental 
social programs rarely reached the poorest communities because of 
lack of infrastructure, and earlier programs were plagued by 
corruption.  Bolsa Familia reaches all the regions in the country. 
Some observers argue that many poor people remain outside the social 
safety net system, and advocate an income cutoff lower than USD 55 
per month. With this measure, the program would reach more people in 
the base of the social pyramid. Despite this criticism, Bolsa 
Familia is generally acknowledged as a program where the benefits 
hit the right beneficiaries. 
 
¶12.  Fairness: The program is respected because it distributes 
stipends according to need and avoids political influence. The 
Ministry of Social Development in Brasilia decides who is eligible 
to receive benefits based on technical criteria, and funds are 
disbursed from the CEF. In the past, state and local leaders could 
manipulate the distribution of social assistance according to 
political loyalty or, worse, could even divert funds to themselves 
or to family and friends.  By consolidating the program within the 
federal bureaucracy, the Lula administration has kept Bolsa Familia 
free of local political taint. 
 
¶13.  That said, while no one accuses the government of distributing 
Bolsa Familia funds as a form of patronage, many in the opposition 
accuse Lula of using the program as an electoral propaganda tool. In 
April 2006, the Ministry of Social Development increased the 
program's income threshold from about USD 45 to USD 55 per person, 
instantly expanding eligibility. In June 2006, just before the 
presidential campaign officially began, 1.8 million families became 
beneficiaries of Bolsa Familia for the first time.  The increase in 
the number of families in one single month was equivalent to 62 
percent of beneficiaries in 2004.  In addition, whereas in the past, 
the electoral capital of social programs was shared among different 
levels of governments and candidates, Bolsa Familia benefits are the 
sole province of the federal government, further enhancing Lula's 
image as "father of the poor."  His political opponents complained 
bitterly about his appropriation of a program that had been 
initiated by his predecessor, and accused him of relaxing 
eligibility requirements and enforcement as a means of boosting the 
number of recipients for his own political benefit.  During the 
campaign, Lula also suggested, without evidence and despite denials, 
that his opponent would sharply curtail or even eliminate the 
program. 
 
POVERTY REDUCTION... 
 
¶14.  The most controversial question related to Bolsa Familia is 
whether or not it helps reduce poverty.  Economists and scholars 
agree that there has been a reduction in the number of people living 
below the poverty line in the past few years, and a reduction in 
social inequality.  According to IPEA (Institute of Research on 
Applied Economy of the Ministry of Planning and Budget), between 
2001 and 2005 the number of Brazilians living below the poverty line 
fell by 4.5%. In the same period, the gap between the richest and 
 
SAO PAULO 00000010  004 OF 005 
 
 
poorest among the population fell by 4.2%.  However, Bolsa Familia 
is only one part of governmental cash transfers.  For example, the 
GoB pays social security pensions for 30 million retired rural 
workers, who made minimal or no contributions into the social 
security system, at a cost of approximately USD 35 billion per year, 
which likely has a much greater impact on poverty than does Bolsa 
Familia.  At least one academic study the Mission is aware of has 
found that the rural pensions had the biggest impact on poverty in 
Brazil over the last decade. 
 
...OR SOCIAL DEPENDENCE 
 
¶15.  In November, the National Conference of Brazilian Bishops 
(CNBB) criticized Bolsa Familia as an ill-advised program because it 
would make poor people "addicted to the money."  Other church 
officials have characterized Bolsa Familia as a good emergency 
assistance program enabling poor people to eat better but not a real 
poverty-reduction program.  This is the most serious concern about 
the program, that it only temporarily alleviates the plight of the 
poor but doesn't offer sustainable improvement of their 
socio-economic situation.  One political analyst claimed to have 
seen cases where, instead of going out to work, students repeated 
the last year of school to avoid losing their family's eligibility 
for assistance.  Other commentators allege that some poor adults 
decline low-paying jobs in the formal sector for the same reason. 
Critics argue that Bolsa Familia should be temporary and focused on 
the poorest regions of the country instead of being both long-term 
and national.  In addition, they say it will only work if integrated 
into a broader strategy of investment in education, health care, 
infrastructure, and economic opportunity.  Brazil needs more 
economic growth to create jobs and gradually make Bolsa Familia 
unnecessary. The current model, they say, doesn't offer the poor - 
or the government - a way out of the program. 
 
¶16.  Supporters, on the other hand, stress that the money from Bolsa 
Familia is a way to ensure that poor children get an education and 
access to health care. "Bolsa Familia is a program for the future", 
wrote professor and economist Jos Marcio Camargo, of the Catholic 
University of Rio de Janeiro in an article published in Folha de Sao 
Paulo newspaper in late October.  According to the professor, the 
income provided by Bolsa Familia helps poor families keep their 
children in school.  Otherwise, they would start working at an early 
age and would remain at a severe disadvantage all their lives.  They 
would likely not receive adequate health care in childhood, 
exacerbating their precarious situation and perpetuating Brazil's 
large social and economic disparities. 
 
¶17.  However, there is no way to determine with any reliability 
whether beneficiaries of cash transfer program are fulfilling the 
conditions.  In contrast to the efficiency of the enrollment, there 
is no efficient system of monitoring compliance.  Municipal 
secretariats of health and education are supposed to provide 
 
SIPDIS 
statistics on children's school attendance and vaccinations, but 
their reports are often delayed and incomplete.  Representatives of 
all three levels of government assert that they suspend payments if 
a family falls out of compliance with the conditions, but they also 
recognize there's no way to be sure.  Some observers claim that no 
beneficiary has ever lost benefits due to non-compliance, which, if 
true, would render the conditional aspects of the program toothless. 
 Certainly the complexities of the overlapping programs and the 
sheer size of the databases make it hard to monitor compliance and 
prevent abuses, although the vigilant Brazilian press has exposed 
some cases of abuse.  From the point of view of local, state and 
federal governments, expansion of social programs for its own sake 
is often considered a political achievement showing that they're 
taking care of people, so they have a stake in not removing people 
from the rolls. 
 
COMMENT 
 
¶18.  Given the visibility it attained during the election campaign, 
 
SAO PAULO 00000010  005 OF 005 
 
 
it is likely that Bolsa Familia will continue to expand and evolve. 
A Senator recently introduced a bill that would give Bolsa Familia 
recipients a 13th month stipend, as if they were workers, though 
this proposal is unlikely to go anywhere.  The GoB is reportedly in 
the process of increasing the size of monthly stipends, at an 
estimated cost of 1.2 billion Reals (USD 550 million), to fulfill 
one of Lula's campaign promises.  Despite its rapid growth, the 
program still does not reach all of Brazil's poor.  It is still a 
relatively new program and remains a work in progress.  Officials of 
Lula's Workers Party (PT) acknowledge that Bolsa Familia by itself 
is not enough, and talk about improving it and bolstering it with 
complementary social investment.  While it remains a small tool in 
the fight against poverty, it has the potential to become much more. 
 End Comment. 
 
¶19.  This cable was coordinated/cleared with Embassy Brasilia. 
 
MCMULLEN