Poverty in Peru

Poverty is considered a multidimensional phenomenon, and it’s not easy to define it. But in theory, poverty is the inability of affording the basic food basket and making ends meet and. There are several methods to go about this problem. They generally classify poverty this way: poor, medium class, wealthy and rich.

Poverty in Peru | Indigenous child
Poverty in Peru | Indigenous child

The Multidimensional Method

A family is in the extreme poverty line when it’s impossible for a household to afford the basic needs. If we combine both concepts, we conclude there are at least three types of poverty: extreme, moderate and slight poverty.

Of course, other methodological approaches categorize it differently, but this multidimensional method is the most common way to understand this social issue. Poverty in Peru has been measured for many years following the patterns of the multidimensional methodology.

As in any other country, in Peru, the government plays an essential role in the fight against poverty and inequality. Tackling poverty issue at its root must be a priority to improve the economic situation.

Poverty is seen as a vicious circle which has a negative impact on the standard of living, the development of the economy and socio-political stability. Poor families are struck by malnutrition, bad health service and an unequal distribution of wealth.

The national income can improve only under adequate conditions which at the same time increases life expectancy. Another factor that can increase life expectancy is the good handling of infectious diseases like dengue, malaria among others.

In addition to this, life expectancy depends a lot on the preparation and education level.

In Peru, 18% of people with a college degree make it to 80 years, in contrast with those without college studies, whose life averages 65, because of bad eating habits which cause lethal health problems such as hypertension, diabetes, high blood pressure and cancer.

Dietary food is generally more expensive than the high-calorie one, but that’s not a problem for the Peruvians with an income level above the average.

In the last 10 years, the number of social programs in Peru increased significantly.

Although the plans need modification, they have diminished the poverty rates at a rapid pace since 1997. However, the economic recession of the last 2 years, 2015-2017, has deteriorated the Peruvian productive system, according to some reports regarding social indicators such as education, and human rights.

All things considered, it is necessary to allow for some factors related to poverty and destitution in order to provide a complete analysis on the factual magnitude of this socio-political problem..

How severe is poverty in Peru?

As per the census in 2016, there are 24 million inhabitants in misery. There are around 6 million Peruvians living in extreme poverty, that is to say, people who can’t afford the basic necessities of life: food, public services, education, and health.

A family is considered poor when the basic income is much lower than the expenditure. In 2014, 5 out of 10 people were economically unable to afford the three daily meals. The poorest communities reside mostly in the suburbs and in the countryside (farmers and Peruvian natives)

From 2015 to 2016, according to a research, poverty levels have increased from 41.2% to 44.2% respectively. In 2012, the country experienced serious problems clearing the external debt, reducing high inflation, halting flight of capital, and handling crisis and balance of payments. But Peru has never turned a blind eye to these issues.

From March to June in 2016, the Peruvian government managed to reduce inflation up to 2.650%. As for gross domestic product, it unfortunately fell up to 1.2% from 2011 to 2014 but things got better in 2016. Peru partnered with Argentina, Uruguay and Belgium and the foreign investment increased 3.6% in 2017.

The agreements among Latin America and the Caribbean

In the last decade, from 2000 to 2010, the great part of the Latin American governments has created the conditions to promote the free trade. So far, that move has reaped some benefits:  the region has been growing economically at a rate of 3.3% since 2000.

Inflation started to go down from 19% to 10.2% in 2002, and the foreign investment increased five times ($35 million – $67 million) If we take a look at the variables, we can notice the positive and negative impact on the social sectors.

The negative impact ensues from wrong political decisions that have disrupted the development in the region.

Natural phenomena like El Niño slowed up the agricultural production, fishing activities, housing provision, and weakened the infrastructure system. Also, the financial crisis in Asia struck the coal industry, metal production and free trade in Peru and in the Latin American region.

Peru | dry season

It is evident that Peru couldn’t escape the international crisis and the inflation rates increased 2.3 percentage points during the dry season.

Another element that affects the Peruvian economic growth is the extreme poverty. Yet, the weakening of the economy and the reduction of poverty don’t coincide in numbers at times. The economic development has a lot to do with the production of labor opportunities, in other words, unemployment rates are closely associated with the poverty decrease and financial development.

Situation with external debt and possible settlement in 2018

In two decades, the public debt averaged 78% of the total external debt, a decrease of 5 percentage points since 2014. Fortunately, by the end of 2014, Peru signed a treaty with Canadian traders to tackle the public external debt.

The treaty called Brady Plan caused an important cushioned the impact of the national expenditure. In monetary terms, the debt passed from $34 million to $29 million in 2014. $47 million are calculated to be reduced from 2016 to 2019.

Different methods have been utilized to measure Peru Poverty rates:

  • Indirect method or poverty line. This type of calculation is based on one indicator: income or expenditure.
  • The direct method or method is used to measure basic necessities. It allows assessing the availability of the basic services.
  • Integrated method, which is the combination of different strategies.

The numbers show that misery levels dropped from 26% in 2013 to 14.7% in 2016, 11% less than in previous years. The government expects to obtain the same results in 2019. 

According to the Ministry of Labor, the main factors that usually shake the Peruvian economy are:

  • The demographic explosion of the last three decades. The labour market is currently collapsed because of the number of unemployed professionals.  
  • Wrong policies to address unemployment.
  • Lack of bills and laws to boost the number of jobs available for the jobless.
  • The enterprises are not generating enough employment opportunities.

As it is widely known, extreme poverty is the inability to afford the basic needs because the income is so low that buying food and meeting the basic needs are well-nigh impossible.

For example: somebody who invests all the earnings in food hardly ever has the three daily meals: breakfast, lunch and dinner. However, a family that invests 70% of the total income in food and 30% in other stuff is not considered in extreme poverty line. Actually, an individual’s not in misery when he has enough money to afford other necessities like clothing, cooking, housing, health and education.

So, extreme poverty can also be defined as the condition of being far from overcoming misery and lack of money.

The gap between extreme and moderate poverty may change since the consumption patterns of each country are different. In this regard, the concept of extreme poverty may be a little ambiguous.

Extreme poverty and the economic activities

To determine the level of extreme poverty, it is necessary to analyze the different economic sectors of the society and other factors. Let’s read some of them:

  • Economy dependant on hotels, restaurants, retailers, transportation, telecommunication, real estate and the agrarian sector. The agrarian sector produces more profits than the hotel and transportation. However, ¾ of the population working in the countryside lives in poverty and 9.8% of retailers are also in the same situation.
  • Vehicle repair, public administration, electricity and water businesses, wholesale enterprises and construction: public administrators belong to the percentage of the population considered out of poverty. If we compare Lima’s situation with the inland states’, 50% of people working in the transportation and communication sector lives in poverty while the real estate agents have one of the highest monthly incomes in Peru.

On the other hand, in Lima, the worst paid occupations are manufacture, agriculture and cattle farming, while car repairing and wholesale traders stand out as the best paid in the capital city. It’s important to say that the situation in the other districts is totally different.

Poverty in the rural areas, according to the analysts Escobal, Saavedra and Torero (2015-Dec 2016)

Today, 9.3% of the population living in the cities is poor. But when it comes to the countryside, 25.4% of people live in huts and from hand to mouth.

The situation in the countryside has been improving since 1994 when the poverty percentage in the big cities was 12.9% and 29.5% in the outlying towns, but the social problem is still dramatic. One of three inhabitants lives in extreme poverty.

Peru  - One of three inhabitants lives in extreme poverty
Peru – One of three inhabitants lives in extreme poverty

The experts associate poverty in the country to productive assets (land, cattle, technology and credit) and a low-quality education system, according to a research by Escobal, Saavedra and Torero in 2015.

Most Peruvians have a daily income of 15 soles or less to cover basic basket expenditures, transportation, clothing and health services. 8 million Peruvians are on the same boat, as per Escobal, Saavedra and Torero. The report showed that the free trade wouldn’t develop unless the economic policies changed or upgraded.

Besides that, fast demographic growth and migration are two leading causes of the increasing poverty in Lima and other cities. The poorest population also resides in the Southern Andean highlands and in the surroundings of the Amazonia.

Another study by Cecilia Lévano and Pedro Llontop from the Peruvian Research Institute revealed that the GDP has increased in the outlying towns, something that has benefitted a lot of aboriginal communities.

Per capita expenditure has decreased at a rate 0.6% in the last five years, yet, it is calculated that there are approximately 4500 families receiving an income of 700 soles, which is 2% less than the minimum.

For these reasons, many children are forced to work to help their parents with the overall household expenditure.