World Bank: The crisis expels almost five million people from the Latin American middle class

Volunteers distribute food to poor people in Rio de Janeiro in April.
Volunteers distribute food to poor people in Rio de Janeiro in April.André Coelho / EFE

After a long slow ascent, a steep decline. The Latin American middle class emerges from the most squalid pandemic: a reduction of 4.7 million people who fall into a situation of vulnerability or poverty, according to a World Bank report published this Thursday. As a result, Latin America is no longer a region with a majority middle class, a goal achieved just three years ago. Despite the setback, stimulus programs such as those in Brazil have managed to avoid a worse scenario. Without public aid, more than 20 million people could have left the central part of the pyramid.

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In 2018, the middle class, whose size is often taken as an indicator of the development of a society, became the predominant group in the region for the first time after decades of progressive growth. A year later, 38% of the population, some 230 million people, had incomes of between 13 and 70 dollars a day by purchasing power parity (PPP, for its acronym in English), compared to 37% of the vulnerable population , with incomes between 5.50 and 13 dollars, and 22% poor, indicates the report The gradual rise and rapid decline of the middle class in Latin America and the Caribbean. Since 2000, poverty has been cut by almost half and the median household income fell from $ 13.9 in 2008 to $ 17.1 in 2018.

The pandemic has turned the tables. The study authors estimate that the middle class contracted to 37% of the population in 2020, while vulnerable people increased to 38.5%. The stimulus programs were not enough to compensate for the steep 6.5% drop in regional GDP as a result of the lockdown. “The generosity of these policies was quite low around the region,” says the report, which estimates the value of transfers at an average of 15% of household income. In Ecuador and Mexico, it was placed at just 3% and 5% of income, respectively, and covered a tenth of the population or less.

In addition to being scarce, transfers have been concentrated among the poorest and have generally bypassed the middle classes, less needy but also vulnerable, has pointed out the economist Nora Lustig, a professor at Tulane University in New Orleans, during the presentation of the report. “In absolute terms, what happens to the poor is more worrying because any loss is very harmful, but in relative terms the middle sector has probably been the one that has had to face the greatest effort,” the academic has analyzed. did not participate in the study.

The crash could have been worse. Brazil, where 41% of the region’s middle class comes from, and its transfer book to 67 million people mitigated the impact. Thanks to social mobility in the Latin American giant, the decline on a regional scale is contained at 4.7 million and just over one percentage point. “The net loss is less negative than originally projected, thanks mainly to the generous transfer program,” the report says. If this country is left out, the authors estimate that the middle class of the rest of the region lost 12 million people and that from representing 35% of the population in 2019 it went to 31.6% in 2020.

In the same way, Brazilian social assistance also makes up for the significant increase in poverty in the rest of the region. The transfers helped lift 22 million people out of a situation of economic deprivation and Latin America closed 2020 with 400,000 fewer poor people. However, 77% of those who left poverty were Brazilians. If Brazil is excluded, the region added 13.7 million poor people, the study highlights.

Even with the decline, the “new poor,” as the study authors call those expelled from the middle class, retain certain advantages over those already living in poverty. They have better levels of education and greater access to services such as mobile telephony (94% versus 83%). “In the medium term, as the region begins to grow again, those with higher levels of education are the best positioned to benefit from any eventual recovery in employment,” the report reads. Governments must focus, the authors warn, on households that were already poor and now sunk further by the pandemic.

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