VZCZCXYZ0002
RR RUEHWEB

DE RUEHQT #0830/01 2491626
ZNR UUUUU ZZH
R 051626Z SEP 08
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC 9336
INFO RUEHBO/AMEMBASSY BOGOTA 7718
RUEHCV/AMEMBASSY CARACAS 3159
RUEHLP/AMEMBASSY LA PAZ SEP LIMA 2778
RUEHGL/AMCONSUL GUAYAQUIL 3770
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS QUITO 000830 
 
SIPDIS 
SENSITIVE 
 
TREASURY FOR MEWENS 
 
E.O. 12958: N/A 
TAGS: ECON EAID EFIN PGOV EC
SUBJECT:  ECUADOR'S TARGETED CASH TRANSFER AND HOUSING SUBSIDY 
PROGRAMS MORE SUCCESSFUL THAN OTHER SUBSIDIES 
 
Ref.  Quito 815 
 
¶1.  (SBU) SUMMARY.  The GOE has two targeted subsidy programs, 
direct cash transfers and a housing bond, that aim to improve food 
security, assist in human capital development through child 
education, and provide financing for housing to low and 
middle-income families.  The Correa Administration doubled the cash 
transfer program shortly after taking office, and the GOE has 
dramatically expanded the housing program.  Given their targeted 
structure, these remain two of the most effective subsidy programs 
administered by the GOE, and both have been very popular with the 
electorate in Ecuador's frequent elections.  In contract, most of 
the other GOE subsidy programs, including expensive subsidies for 
fuel and electricity, are poorly focused, and likely unsustainable. 
END SUMMARY. 
 
Human Development Bond (BDH) 
---------------------------- 
 
¶2.  (U) Ecuador's Ministry of Economic and Social Inclusion 
administers the Human Development Bond (Bono de Desarrollo Humano, 
or BDH) through direct cash transfers of $30 per month.  Upon taking 
office in January 2007, the Correa Administration almost immediately 
doubled the monthly payment from $15.  Eligibility is determined by 
a government beneficiary selection database called SELBEN (System to 
Identify and Select Beneficiaries of Social Programs).  The program 
targets individuals in the lowest two quintiles of income.  Those 
over 65 years of age and those with disabilities receive an 
unconditional cash transfer.  Mothers in this economic bracket are 
eligible to receive a conditional cash transfer, dependent upon 
proof of school enrollment for children between the ages five and 
16, among other required documentation. 
 
¶3.  (SBU) In 2007, over 1.2 million Ecuadorians received BDH 
assistance, and the number of recipients is on track to grow nearly 
4% this year.  Research indicates that BDH recipients spend 25% more 
on food than non-recipients of comparable income, which indicates 
that the program is successful in providing additional food 
security.  72% of direct cash transfers went to mothers, and 
although individuals in the lowest two economic quintiles are 
eligible for assistance, program evaluations indicate that only the 
lowest quintile group significantly benefit from BDH assistance. 
 
¶4.  (SBU) Expenditures under the BDH have doubled since it was 
introduced in 2003.  A former program coordinator, Daniela Oleas, 
noted that the program allows mothers in indigenous Ecuadorian 
communities greater independence from their husbands and increased 
control over their resources.  An evaluation of BDH by the German 
development corporation, GTZ, indicates that children in 
participating families are 10% more likely to be enrolled in school 
and 17% less likely to be working.  BDH assistance thus appears to 
be helping to close the gap in school attendance between rich and 
poor Ecuadorians.  Oleas noted, however, that many families feel 
that the poor quality of secondary education in Ecuador prevents 
their children from realizing meaningful gains by not working.  In 
her view, BDH will not achieve its goals without accompanying 
educational reforms.  Some observers believe the BDH should also be 
reformed to exclude second quintile recipients and place greater 
emphasis on lowest-quintile recipients.  However, this reform is 
unlikely given the upcoming constitutional referendum and possible 
general elections in early 2009. 
 
Urban and Rural Housing Bonds 
----------------------------- 
 
¶5.  (U) Housing bonds are provided by Ecuador's Ministry of Urban 
Development and Housing to low and middle-income Ecuadorian citizens 
for the purchase of a new home, housing improvements, or new housing 
construction.  A few months after taking office, the Correa 
Administration expanded the coverage of the program.  Single 
individuals who are at least 35 years of age are eligible for 
housing bonds, as well as heads of households and disabled 
Ecuadorian citizens who are at least 18 years of age.  Urban housing 
bond beneficiaries must also have a savings account with a 
participating financial institution with a balance of at least 10% 
of the cost of new home.  Bond values range between $1500-$3600. 
Beneficiaries must either be in SELBEN's three lowest quintiles of 
income (a monthly family income of less than or equal to $600), or, 
if not registered in SELBEN, they must have an income of $800 or 
less and must be purchasing housing worth between $12,000 and 
$20,000. 
 
¶6.  (U) The program's market-based approach brings together 
 
individuals, private sector firms, communities, international 
donors, and the Ecuadorian government.  Urban housing bonds are 
often called the ABC program because they depend upon 1) Ahorro 
(individual household savings); 2) Bono (the direct transfer from 
the government); and 3) Credito (a financial institution loan at the 
local interest rate to support the difference between the subsidy 
and the cost of home construction).  In practice, however, many 
families cannot take advantage of the credit option due to tight 
credit requirements.  The program is also characterized by heavy 
bureaucratic requirements.  According to the Inter-American 
Development Bank (IDB), the estimated time from the receipt of an 
application until completion of a new home is five years. 
 
¶7.  (SBU) From 2006 to 2007 the GOE increased the number of housing 
bonds awarded from 15,502 to 60,114, an increase of 387%.  GOE 
investment in housing bonds rose from $10 million to $179 million in 
the same period.  Despite the apparent success of the program, some 
observers believe it is unsustainable.  The program was previously 
managed under IDB auspices, but the GOE ended continued funding from 
the bank in an effort to increase local management of the country's 
social programs.  As a result, the IDB claims that the program's 
transparency has suffered, as well as its strategic focus on the 
poor.  Due to lower interest rate ceilings (reftel), the IDB says 
that banks will no longer lend credit to families in the program, 
significantly hurting the construction sector.  Even so, the GOE is 
trying to rapidly expand the program.  Under IDB management, only 
6,000 housing projects per year were inaugurated, as opposed to the 
GOE's 60,000. 
 
Comment 
------- 
 
¶8.  (SBU) The cash transfer and housing subsidy programs are the two 
most focused and cost effective in the growing and increasingly 
expensive stable of GOE subsidy programs.  Capitalizing on existing 
programs was an effective way for the Correa Administration to 
achieve its expressed goal of meeting the needs of the poor.  In 
contract, most of the other GOE subsidy programs are poorly focused. 
 The Correa Administration inherited a very expensive subsidy 
program for refined fuel products, which now costs several billion 
dollars a year, and largely benefits well-to-do consumers.  The fuel 
subsidies also encourage smuggling to neighboring countries.  The 
government has also begun an untargeted electricity subsidy, which 
will cost an estimated $200 million, to lower electricity rates for 
consumers outside of Quito and Guayaquil.  This follows 
implementation last year of a more targeted subsidy program for low 
volume electricity users.  The Correa Administration has also 
implemented subsidy programs for key products such as fertilizers, 
flour and rice that are, at best, loosely targeted. 
 
HODGES