Protecting the Poor During Crises: Russia Daria Popova Black Sea Conference on Regional Integration and Inclusive Growth February 23-24, 2009

Poverty reduced by half in following economic growth

Factors of poverty reduction: restoration of incomes and wages to pre-reform level (in contrast to pensions). Higher growth rates in the budgetary sector.

Average values hide growing income disparity: the economic growth was not pro-poor

Rural population, children and unemployed have the highest poverty risks. The extreme poverty is caused by the exit from the labour market. Poverty by population subgroups

The growth in the amount of benefits was due to non-means-tested benefits (monetized privileges), which compensate the flaws in the pension system. Monetary social transfers Share of the benefit in the total amount of benefits, 2006:

What to expect in 2009? Stagflation: recession (official forecast of GDP growth is 0- 2%) and high inflation (official forecast is 13,5%, but the actual figure for January was 2,9%). Decrease in real incomes of the population (in December 2008 they have dropped by 3,3% compared to December 2007). Growing unemployment (in December 2008 the number of unemployed has increased by 1,2 million people compared to December 2007). Poverty rate forecast given the 0% GDP growth, 10% drop in real incomes compared to 2008 and stable inequality is 14,5%.

The government response to the crisis The problem of inflation is beyond the attention of the government, which has focused on the employment protection measures: new law to protect employees in case of voluntary dismissal; increase in the maximum size of the unemployment benefit since January 2009 (up to 107% of the poverty line); allocation of additional funding for active employment policy measures. There were no attempts to limit the violation of employee’s rights in the area of labour remuneration (e.g. wage arrears). Government has pledged to increase the retirement pension up to 130% of poverty line in 2009 in three stages. The fourth indexation has been promised in case of higher inflation rates.

Conclusions The economic growth in the 2000s was more pro-rich than pro-pro poor. The poverty has decreased by more than half between 2000 and 2007, but the poverty reduction potential has been practically worked out by 2008 given the existing system of social transfers. The latter is mainly used to compensate for the flaws in other institutions (the pension system) and does not provide adequate level of support to the poor. The future poverty reduction will be possible only due to the development of the programs of targeted social assistance, based on a combination of measures aimed at stimulating self-sufficiency and money benefits. The design of these programs should be tied to family life cycles. Given the government policy response to the crisis, we are likely to see the repetition of the 1990s scenario (drop in real wages, hidden unemployment, wage arrears, etc.). The working population, in particular those employed in the budgetary sector, which have left the numbers of the poor in 2000s are likely to return to these numbers again. The unemployed are at the highest risk of extreme poverty due to inadequate minimum size of the unemployment benefit. This creates the ground for a prolonged socio-economic crisis and the loss of the achievements in the area of poverty reduction in the 2000s, as well as destroys the ground for formation of the middle class.