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The SIFs are financed largely by multilateral lending institutions, UN agencies, and Northern govern- ments and private aid agencies. In most cases, only a small percentage of the total budget of the SIFs comes from local governments.
Even though funding is pre- dominantly international, the strict control exercised by the executive permits governments to use the SIFs as tools of political patronage, especially around election time. Resources are distributed according to an application process in which local groups and organizations solicit funding for a specific project within the funds' estab- lished guidelines.
The SIFs themselves do not carry out social programs or projects. The funds operate more as development banks that finance projects implemented by groups in civil society. While the SIFs presumably are aimed at helping the poorest, the application process actually favors local groups, professionals and NGOs that already have experience formulating and imple- menting projects.
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NGOs often become mediators between the state and the target groups, and derive financial benefits from the funds. It was created by the UNDP in to alleviate the social costs of the structural-adjustment program implemented that same year. The FHIS, however, goes beyond just supplementing the work of the ministries; it is increasingly being used to substitute for functions and duties that the government ministries used to perform. The FHIS, which is largely funded from international credits and loans, thus releases the Honduran government from fulfilling some of its basic responsibilities.
It is doubtful whether the FHIS benefited the most vul- nerable groups in society--those purportedly targeted by the fund. Urban areas were also favored, even though the poverty rate is much higher in rural areas. This neglect was also due, however, to the political manipulation of the FHIS by the ruling National Party, which channeled government spending to the well-populated urban areas, where most voters live, in anticipation of the elections.
Moreover, it was subordinated to the Ministry of Planning and Cooperation rather than under the direct control of the president.
Finally, it was conceived as a complement to, rather than a substitute for, other social- policy measures. While most SIFs in Latin America emphasize short-term strategies of emergency employ- ment and assistance programs, the FOSIS has adopted a long-term perspective to address the structural causes of poverty.
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Compared with the social-investment fund in Honduras, for example, the FOSIS financed more projects in the poorest regions of the country. The experience of the social-investment funds in Latin America has revealed that creating temporary institutions to deal with growing poverty is inadequate. As the case of Chile suggests, the SIFs can be more effective if they are conceived of as long- term programs that address the structural problems of poverty.
In general, however- even in Chile-the poorest of the poor do in a not benefit from the SIFs. Indeed, the demand-driven model of the SIFs leads to competition among the poor for scarce resources, fomenting fragmentation among the poor instead of social solidarity. The external funding of the SIFs is also problematic.
Many of the funds are highly dependent on grants or loans from Northern governments, private aid agencies, and multilateral lending institutions like the World Bank and the IDB. Thus, the continuity of these pro- grams depends on securing international funding in the future.
In general, however, there are no guarantees of funding in the medium term, leading the SIFs to focus on short-term emergency programs. This growing dependency on foreign resources is contribut- ing to the "denationalization" of social policy in many Latin American countries.
At the same time, financing social policy with foreign loans will increase Latin America's large and looming debt burden, even if the World Bank lends money at relatively low interest rates for social programs.
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In many cases, the existence of the SIFs leads to the deterioration of existing state social agencies. The case of Honduras reveals the tendency for governments to use the SIFs to supplant traditional government min- istries, releasing the state of its most basic obligations to society.
The external funding of social policy takes the pressure off political elites and national govern- ments to use social reforms and redistributive policies to reverse the growing inequalities in the region. Not only do the SIFs not contribute to a progressive redis- tribution of wealth, but they serve to legitimize neolib- eral economic policies that have increased income con- centration and polarization in Latin America.
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