2004 Bridges Summer Research Report Sebastian Martinez Economics "Cash Transfers and Investments: The Bolivian BONOSOL"

Bonosolistas line up to collect their annuity.

During the mid-1990s the Bolivian government embarked on an ambitious plan of
social and economic reforms which resulted among other things in the creation of a cash transfer program for elderly Bolivians. This transfer, called the BONOSOL, was to be financed through a trust using the country’s 50% ownership in the recently capitalized state owned enterprises, valued at approximately $1.7 Billion US dollars (25% of GDP).

Bonosolistas line up to collect their annuity.

Since the program’s creation in 1996, the financial viability of the BONOSOL has been a source of active debate amongst politicians and policy makers, with opponents of the program preferring the allocation of these funds for other social investment and public works projects. Although the transfer has been claimed as a “right” by most elderly Bolivians, little is knows about its impact on the welfare of beneficiary households. This study attempts to help fill in this gap.

A Bonosolista takes some sun in La Paz.

The BONOSOL was designed as an annuity valued at $248 US dollars to all Bolivians age 65 and over. For the hemisphere’s second poorest country where 70% of the population lives under the official poverty line, this amount was equivalent to 40% of an annual minimum wage, and 85% of annual income for the extreme poor. For the majority of Bolivian senior citizens without access to any form of pension or social security, the first BONOSOL payment received in 1997 was the largest capital sum and the first direct government assistance many had ever received.I take advantage of program’s eligibility criteria (age) to estimate the program’s
impact on household investments and consumption using a regression discontinuity.

Putting the BONOSOL to work.

The study attempts to make three contributions. As the first impact evaluation of the BONOSOL program, this paper can help inform the ongoing policy debate surrounding the program. Second, this study contributes to the growing literature on old-age pension programs such as the South African pension, and to research on other cash transfer programs like OPORTUNIDADES in Mexico. Finally, this paper can contribute to the small body of empirical work on the effect of cash transfers to liquidity constrained households.

The Future looks Brighter with the BONOSOL (reading Coca Leaves in Plaza San Francisco).

Preliminary results from the BONOSOL indicate that the net increase in food
consumption for beneficiary households is larger than the transfer amount. About half of the increase in food consumption is from increased home production in agricultural activities. This result suggests that households are boosting consumption by investing the cash transfer in productive activities such as farming. The increased income and consumption from the cash transfer appear to also have positive impacts on children’s schooling and health.

The National Statistical Institute in La Paz.

The generous travel grant from the Center for Latin American Studies at Berkeley
allowed me to visit La Paz to resolve various data assembly questions with experts at the National Statistics Institute, interview economists at local universities and research institutes to learn about the complex BONOSOL program and previous research on this topic, and to collect additional documentation. Given that a large portion of my visit involved computer work and meetings in office buildings, I attempted to capture a snapshot of the activities I encountered on my daily commutes through the city. The following images document with photographs my encounters with program beneficiaries (recipients of the BONOSOL many times refer to themselves as Bonosolistas), many of whom were eager to talk about how useful the transfer was (and why they think they should be given a raise), as well as with the daily marches that paralyzed downtown La Paz.

Daily marches in La Paz.

Daily marches in La Paz.