Income Inequality and Poverty: A Comparison of Brazil and Honduras

July 1, 2015July 13, 2015 COHA

By: Raiesa Ali, Research Associate at the Council on Hemispheric Affairs

It is an unfortunate truth that poverty chronically plagues even the most developed of Latin American societies. Although some countries may flourish economically, the income inequality gap between the impoverished and the rich continues to widen. Brazil, having garnered a reputation for its rapid development and its once rising status as a BRICS (Brazil, Russia, India, China, South Africa) nation, has redefined what it means to be influential in Latin America. Although poverty, as well as environmental shortcomings, continue to be large issues for Brazil, as would be expected for any developing country, Latin America’s powerhouse has implemented a number of initiatives to combat the inequality gap. These policies include increasing the minimum wage and boosting national income. The success of these initiatives, however, has not come without significant social discrepancies. The country has been making strides in its economy, but recently growth has been stagnating and getting slower.

Roughly 3,000 miles away, Honduras faces sluggish economic growth due in large part to the implications arising from the 2009 military coup. Currently struggling as one of the most impoverished and corrupt countries in Latin America, Honduras has attempted to increase its growth through the installment of charter cities, which offer “more reasonable business and trade regulations to attract trade and investment,” according to the news agency teleSUR.[1] However, public reaction to these charter cities has relayed a very different story. Moreover, the increasing infringement of land by U.S. corporations has led many Hondurans, mainly poor farmers, to protest the loss of their land and violation of their human rights. This epidemic has exacerbated the already wide disparity between rich and poor in Honduras and has further increased the likelihood of widespread rural poverty.

In a region with plentiful opportunities to be distributed among all, it seems that no matter the speed of growth or the volume of social upheavals, the gap between wealthy and poor cannot be significantly ameliorated. Although political leaders argue that they are committed to eradicating existing social inequities, these issues are inevitably pushed back as other economic issues take precedence. While it is true that a country’s success can be measured in its GDP growth or its foreign policy plans, it is also imperative to critically assess how well the society is developing as a whole. In pressing matters concerning the abundance of income inequality in Brazil and Honduras, the correlation between the income gap and poverty is overwhelmingly visible. If a chain is really only as strong as its weakest link, then what does a widening income gap have to say about what it takes to make a powerful, developed nation?

Economic Transformations in Brazil

Between 2002 and 2008, Brazil experienced a transformative growth that has continued in this decade as it has consolidated its economic skills. Brazil’s economy began to develop as a result of its comparative advantage in raw materials, which led to a “reduction in the external debt and the increase in the prices of exports on investments.”[2] With main exports of iron ore, crude petroleum, coffee and raw sugar, Brazil has been able to diversify its economy, ensuring that it is not too heavily dependent on one specific trade pattern. Establishing a solid foundation in the late 1990s and early 2000s, Brazil managed to revamp its financial infrastructure by “closing states’ banks and [implementing] stronger supervision and regulation of the private and government-owned banks.”[3] This helped to stabilize the economy and also to eliminate the likelihood of moral hazard within the financial sector. By 2005, Brazil had created the basis for a reliable and sound financial system. Between 2002 and 2005, its semi-manufactured exports rose by 43 percent and the price of its basic products by 59 percent.[4] The country was able to dramatically reduce national debt beginning in 2009, as its net external debt decreased from 200 percent of goods and services related exports to a completely negative amount.[5]

The speed of growth was set back when the 2008 financial crisis rocked the country. However, Brazil was able to recover quite quickly and established a new process to deal with the problem. The country countered the crisis by utilizing preventative strategies that were previously enacted during a similar setback in 1999. As the Brazilian real was devalued because of the financial crisis, Brazil was able to reduce interest rates and utilize “emergency financial aid actions.”[6] This strategy allowed the country to rebound positively. Since then, Brazil has stabilized its economy through agricultural trade, exports of iron ore, and foreign direct investment. The country now boasts the largest economy in Latin America and seventh largest in the world.[7] Although the economy contracted by 0.2 percent within the first few months of 2015, the mining sector grew by 3.3 percent while agriculture also grew by 4.7 percent.[8]

Bolsa Família in Brazil

To combat the poverty gap, the Bolsa Família program was initiated in 2003 by then-President Luiz Inácio “Lula” da Silva and the immensely popular program was continued by his successor and protégée, President Dilma Rousseff. The program provides cash transfers between 35 to 135 reais a month ($11 to $45 USD) to low-income families in exchange for their children to be enrolled in school and be given health examinations. This system would encourage more educational access to students living in poverty by granting them financial stability and assistance. The conditional cash transfer program has been extremely useful in minimizing the income inequality that is flagrant in the country. The government-issued ID card, which stores an allotted amount of money and can be used to purchase food, is usually given to the female head of the household. Believed to be more reliable, mothers are given the card because they are more likely to “use the money to help their children, while men might squander the cash or skip town with it,” according to an article in The Atlantic.[9] This has helped in female empowerment, with more women taking on an active role in handling family finances. Bolsa Família has allowed women to assert themselves in a sphere that is mostly dominated by men. In declarations to The Guardian, Tereza Campello, Brazil’s Minister of Social Development said, “It’s their only source of income, so it means they are less dependent on their husbands, more likely to share in decision-making, and have higher self-esteem.”[10] Apart from its positive impacts on women’s role in society, Bolsa Família has also helped to reduce the wage gap. According to a survey by Brazil’s Institute of Applied Economic Research, the social welfare program contributed to a 28 percent decrease in total poverty.[11] By 2013, about 1.7 million citizens on the cash transfer program were able to rescind their membership, since fortunately, they no longer met the criteria.[12]

Although Bolsa Família has received much praise, others argue against the program’s effectiveness in actually eradicating widespread poverty. While the program decreased income inequality by about 15-20 percent, the remaining decrease may have been contributed to rising work wages. Studies produced by the University of São Paulo showed that shifts in labor income accounted for 55-60 percent of the decrease in income inequality in the country.”[13] According to research from the National University of La Plata in Argentina, “a combination of public policy and favorable market factors led to substantial declines in inequality in Brazil.”[14] An increased need for productivity and laborers in addition to a raise in the working wage could have also helped in decreasing income inequality. The program also faces criticisms from right-wing polemicists, who equate these cash transfer programs with handouts that will breed complacency among the poor. They fear it will bring societal stagnation by creating a middle-class that is prepared to be solely dependent on government handouts.

Race, Income, and Poverty

The undeniable rise of the Brazilian GDP did not necessarily translate into equal growth across all sectors of the country. As Brazilians bask in the light of their newfound global status among influential actors, uneven development continues to plague the rest of the country. The social divisions along racial and income lines have hindered Brazil from furthering as a whole, contributing directly to poverty and inequality.

The Gini coefficient, a measure of income distribution across a section of a country’s residents, is used to reveal income inequalities within a given society. In 2013, Brazil’s Gini coefficient score of 0.55 reflected the country’s uneven income distribution.[15] While people living in metropolitan areas enjoy greater access to education and a healthier infrastructure, many still residing in rural areas do not have the same opportunities. Leaving the instability to be found in rural areas, many poor people journey to other areas in search of better job opportunities. This internal migration contributes to the rise of favelas, Brazil’s notoriously dangerous and impoverished urban slum communities. The people living in these slums largely come from similar racial backgrounds. According to The Economist, “more than half the people in Rio de Janeiro’s favelas (slums) are black. The comparable figure in the city’s richer districts is just 7 percent.”[16]

Brazil publicizes its supposed racial democracy without acknowledging that some citizens have been able to benefit from the system much more than others. Wealthier, lighter-skinned Brazilians are able to send their children to better private schools, thus guaranteeing their acceptance into even more prestigious colleges and universities. These children go on to find proper jobs, higher salaries, and greater economic benefits. In 2012 alone, a report by BBC News showed that “the average income of a white worker in Brazil’s six main capitals was 2,237 reais ($712.65 USD) a month; for a person of African descent it was 1, 255 reais ($399.81).”[17] On the outskirts of Rio de Janeiro, a slum named Maré houses a population of 140,000 residents. Less than 1 percent of these residents have attended a public university.[18] “Only 2.2% of Brazilians of African descent have access to higher education,” according to an article by Taylor Evensen.[19]

President Dilma Rousseff’s approval of the Lei de Cotas Sociais (Law of Social Quotas) was an attempt to level the playing field regarding more opportunities for darker-skinned Brazilians. Through a new quota system, Brazilian schools are now required to leave at 25% of spots open to students in public schools, most of who are darker-skinned.[20] Students applying under affirmative action must take an exam and must then submit photo identification, where a panel decides if they are actually black.[21] Although the law is supposed to help give Brazilians of all races equal opportunities, blacks may feel that they are only being accepted to fulfill a quota, and not on their merits. Lighter-skinned Brazilians may now feel that there is an unfair advantage aimed against them.

The inequality in Brazil transcends income and brings awareness to the even larger issue of racial segregation. The South American country does not have adequate legislation to address how its history of slavery has led to a legacy of economic inequality along racial lines. While some Brazilians may feel that they are equal, it is evident that the poor community has no voice in affecting any kind of change for itself. The growing socio-economic gap in Brazil is already apparent, yet there is no strong vocalization about this ever-widening financial disparity.

Honduras’ Economic Options for Growth

Despite monumental growths in the Latin American region within the past decade, Honduras continues to be the second poorest country in Central America. Since the Football War between Honduras and El Salvador in the late 1960s, the country has faced profound political and economic unrest. Today, Honduras’ economy depends largely on agriculture, manufacturing, and remittances from overseas, mainly the US. Between 2006 and 2008, the GDP grew at a rate of 5.7 percent.[22] After the overthrow of President Manuel Zelaya in 2009, GDP growth between 2010 and 2013 slowed to a rate of 3.5 percent.[23] The economy has stagnated, even with diversification of its market sector. Compared to Brazil’s seventh place, Honduras’ economy in 2013 ranked 51st in the world. Over 60 percent of the population currently lives below the poverty line and are still heavily dependent on remittances as a source of income.

Honduras is similar to Brazil, however, in terms of the grossly uneven level of income distribution. The Honduran Gini coefficient score stood at an exact 0.57 in 2013, just slightly behind powerhouse Brazil. The distribution of income in Honduras is extremely uneven, with urbanization and poverty creating two strong, polarizing forces in the country. As elites clamor to grow wealthier through increased industrialization, the poor continue to be left out of the country’s decisions, due to a lack of communication, and frankly, of indifference. The lack of communication has obviously strained the relations between the government and the poor. This disregard for the poor by the government has also exacerbated the crime rate, with some people turning to violence due to a lack of income. Honduras has one of the worst income inequality gaps in the world, which is directly linked to increased homicide rates in the country. In fact, about 90 people of every 100,000 citizens were murdered in 2012, according to studies by the Pew Research Center.[24] Motivated by its previous setbacks, Honduras is ready to propel into economic expansion at the prospects of finally raising its GDP and lowering unemployment and poverty rates. The country has shown interest in making an international partnership with fellow North American Triangle countries Guatemala and El Salvador. By encouraging its productive sector and developing resources, Honduras hopes to be able to overcome “infrastructural and logistical problems that curb growth…and harmonize…quality standards to put them on par with what the global market requires.”[25] The stimulation of economic growth along with greater attention to human security will enable Honduras to grow more steadily and evenly, while reducing poverty. If successful, Honduras will begin to raise itself out of poverty and compete in the global market. However, if its road to success arises from alienating and suppressing the poor, then it will surely lead to further demise. In the battle against unequal distribution of wealth, Honduras must first realize that sustainable growth can never be achieved by exploiting and suppressing the poor.

Economic Development Spurs Social Outrage

With limited developmental options, Honduras has agreed to cultivate charter cities by selling the country’s available rural land to foreign investors. Beginning in 2014, the Honduran government planned to “create autonomous free trade zones that are governed by corporations, instead of the countries in which they exist.”[26] These Zonas de Empleo y Desarrollo Económico, (Zones for Employment and Economic Development; ZEDEs) are meant to provide job opportunities for Hondurans and help raise revenue for the country. However, they will allow foreign companies to take full control over the land. Foreign companies can set rules and regulations within ZEDEs and develop any type of industry they find profitable. In addition, they will operate outside of Honduran law, thus enabling them to create their own guidelines without being pressured to adhere to international law. Although no construction on ZEDEs has begun just yet, Hondurans want to ensure that these zones will materialize.

The Committee for the Application of Best Practices will oversee the future preliminaries. However, only three of the 21 members are actually from Honduras.[27] Many fear that the country will be underrepresented among the panel of mostly Americans, leaving the poor to once again be forgotten among some of its overbearing countries. The common people in Honduras are fighting against the installation of the ZEDEs because they feel it is a trap to attract more foreign investment at the expense of the country’s severe control of its land. By dividing up the land, the residents trapped on it will be used to create ZEDEs will see the rise of additional transnational corporations in their own neighborhoods. Houses will be destroyed, people will be internally displaced, and the government will not be able to intervene because of its prior commitments to these multinational companies. Their greatest fear lies with environmental degradation, human rights violations, and an overall loss of their country.

At the price of heritage, the government elite of Honduras is usurping the country’s own land and people for monetary gain and international recognition. Hondurans against these new institutions believe that, “charter cities will be founded on mass land theft, violation of human rights, and repression and criminalization of popular movements fighting to defend their communities.”[28] If successful, the elite in Honduras will inevitably merge their assets with the multinational corporations responsible for ZEDEs. Poverty-stricken farmers and lower classes, however, will have few choices to survive, as they will be stranded.

Hurdles to Progress

Income inequality and poverty have become synonymous when addressing issues concerning Latin America. Although Brazil and Honduras seem to be on opposite economic trajectories with radically different GDPs, they are inextricably bound together by the same issues that impact the entire region. Although Brazil has achieved impressive economic growth and garnered itself a strong reputation within the international community, it is hardly immune to the social issues that may arise in smaller countries, such as Honduras. Its economic strength cannot withstand the weaknesses of social injustice and inequality without collapsing into the insurmountable gap between dark and light skin and between wealth and poverty. In the Honduran case, the economic advantages that may come from its foreign relations are not always worthwhile. Though the infiltration of multinational corporations might help stabilize the economy, the country must first ask itself what it is willing to sacrifice in order to gain revenue. While foreign companies might provide more job opportunities and wealth, this does not equate to wealth for the poor. Honduras is notorious for its income gap, and it is highly probable that charter cities will exacerbate the uneven distribution of wealth. Unfortunately, profit for the country does not necessarily mean profit for everyone at a specific period.

It is unfair to solely single out these two countries because these issues can be found throughout all of Latin America. Income inequality and poverty are plagues that no country in the region has been able to cure as of yet. It would be unjustified to expect a country to be perfect in its economic advancements, treatment of the poor, and overall policies as whole. However, a country should be expected to remedy the outcries of its poor population and to make it a better place, not just for the rich, but for the population as a whole. If economic advancement is the goal, then perhaps the governments should discuss plans where civilians do not have to sacrifice their land or heritage in order to get ahead. There must be a balance between financial gain and social welfare.

According to the Outlook on the Global Agenda, “in developed and developing countries alike, the poorest half of the population often controls less than 10% of its wealth.”[29] This leaves behind around 90 percent of wealth available for others to control. It would be more sensible to distribute wealth evenly so that progress can occur equally among all levels of society. This rarely happens, though, and so we must face a world in which quotas must be implemented to ensure darker-skinned people are accepted to universities and campesinos must surrender their land for the good of multinational corporations. If this is the truth of the world, then perhaps all countries, not just those in Latin America, need to re-evaluate both their financial infrastructure and the moral judgments underlying things.

By: Raiesa Ali, Research Associate at the Council on Hemispheric Affairs

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Featured Photo: Favela in Rio de Janeiro, Brazil From: Pixabay.com

[1]Gies, Heather. “US Activists Protest Charter Cities: An ‘Assault on Honduran Sovereignty'” 2015.

[2] Cardoso, Eliana, and Vladimir Teles. “A Brief History of Brazil’s Growth.” 2009.

[3] “Brazil’s Economic Success Is Based on More than the Demand for Natural Resources. | Americas Quarterly.” Brazil’s Economic Success Is Based on More than the Demand for Natural Resources. | Americas Quarterly. 2012.

[4] Cardoso, Eliana, and Vladimir Teles. “A Brief History of Brazil’s Growth.” 2009.

[5] “Brazil’s Economic Success Is Based on More than the Demand for Natural Resources. | Americas Quarterly.” Brazil’s Economic Success Is Based on More than the Demand for Natural Resources. | Americas Quarterly. 2012.

[6] Cardoso, Eliana, and Vladimir Teles. “A Brief History of Brazil’s Growth.” 2009.

[9]Khazan, Olga. “Brazil’s Government Gives Money to Women Because ‘They’re More Reliable'” The Atlantic. April 8, 2014.

[10]http://www.theguardian.com/global-development/2013/dec/18/brazil-bolsa-familia-women-empowerment

[11]http://www.theguardian.com/global-development-professionals-network/2013/nov/05/bolsa-familia-brazil-cash-transfer-system

[12]http://www.theguardian.com/global-development-professionals-network/2013/nov/05/bolsa-familia-brazil-cash-transfer-system

[13]http://fivethirtyeight.com/features/lessons-from-brazils-war-on-poverty/

[14]http://fivethirtyeight.com/features/lessons-from-brazils-war-on-poverty/

[15] “GINI Index (World Bank Estimate).” GINI Index (World Bank Estimate).

[16] “Affirming a Divide.” The Economist. January 28, 2012.

[17]Carneiro, Julia. “Brazil’s Universities Take Affirmative Action – BBC News.” BBC News. 2013.

[18] Garcia-Navarro, Lourdes. “In Brazil, Race Is A Matter Of Life And Violent Death.” NPR. 2014.

[19]Evensen, Taylor. “Affirmative Action in Brazil: Is Brazil a Racial Democracy?” The Think Tanks and Civil Society Program. 2014.

[20] http://www.ipsnews.net/2012/08/quotas-in-brazils-public-universities-to-democratise-education/

[21] http://gotothinktank.com/affirmative-action-in-brazil-is-brazil-a-racial-democracy/

[22]http://www.cepr.net/documents/publications/Honduras-2013-11-final.pdf

[23]http://www.cepr.net/documents/publications/Honduras-2013-11-final.pdf

[24]http://www.pewresearch.org/fact-tank/2014/08/11/5-facts-about-honduras-and-immigration/

[25] http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=39224238

[26]http://www.newrepublic.com/article/120559/honduras-charter-cities-spearheaded-us-conservatives-libertarians

[27]http://www.newrepublic.com/article/120559/honduras-charter-cities-spearheaded-us-conservatives-libertarians

[28]http://www.telesurtv.net/english/analysis/US-Activists-Protest-Charter-Cities-An-Assault-on-Honduran-Sovereignty-20150606-0011.html

[29] Mohammed, Amina. “1. Deepening Income Inequality.” Outlook on the Global Agenda 2015. 2015.