Guillermo Cabral
Economista País de Paraguay y Costa Rica, CAF -banco de desarrollo de América Latina-
The start of the first mobility restrictions announced on March 10, 2020, was met with enormous uncertainty in Paraguay, as well as around the world. Among all the uncertainties and concerns, one surged over all of them: What will happen to informal workers, since they will lose their source of income and do not have a social safety net?
According to ILOSTAT, 68.9 percent of Paraguay’s jobs are informal. Therefore, people were expecting a great negative effect stemming from the lockdown measures implemented in March. The possibility of social conflicts was not ruled out. The government had to reach a lot of people and fast.
The largest social program had some 190,000 beneficiaries, or 2.6 percent of the population. But this program—and smaller ones—was not enough to reach all potential informal workers who would be affected by the pandemic. Nor were there good databases or public records with sufficient data to identify such individuals. Early in-kind transfer programs ran into a big problem. They generated crowds, which should be avoided at all costs.
The government decided to go down an unorthodox but potentially agile path: giving money to anyone over the age of 18 who falls within a rather lax definition of “informal.” Specifically, the program had the following characteristics:
- A subsidy of 25 percent of the minimum wage, or approximately USD 80.
- Anyone who does not appear in databases such as those including civil officials, contributors to the social security system and others, would be considered informal. The potential beneficiary had to register on a website with an ID card and a cell phone number.
- Payments were made via e-wallets linked to the recipients’ cell phone number, which allow businesses to get paid directly. The goal of avoiding crowds and the need for agility required steering clear of in-kind and bank transfers that drove people into banks.
Transfers began on April 15 and some 1.2 million people (1 in 5 Paraguayans over the age of 18) were reached by mid-May. This program was named Pytyv,õ, a Guarani word meaning “help.”
The Pytyvõ program was ambitious, as it required expanding the social beneficiary base by a significant magnitude, using payment through electronic means rather than in-kind, and leveraging a new technology. After the initial payment, the program was successful, with only minor incidents. Since some beneficiaries do not own a cell phone, a new payment method was added, consisting of payment via the identity card. The program proved a success, with few—acceptable—drawbacks.
A ECLAC study has estimated poverty variations across Latin America in 2020. It stresses that transfer programs prevented extreme poverty and total poverty from increasing significantly despite the crisis. In the case of Paraguay, these transfers, and especially the Pytyvõ program, meant that the total poverty indicator increased from only 19.4 to 19.7 percent, while without the program poverty would have reached as much as 21.5 percent of the population.
In short, the program managed to provide a state subsidy to the most vulnerable groups, who remain outside the formal financial market, through the use of innovative and efficient financial inclusion mechanisms.
