Economic Inequality Not Destabilizing: Says New World Bank Report

The World Bank on Tuesday re­leased a report on social inequality in Cambodia stating that despite the growing gap between rich and poor since 1993, increasing youth unemployment and rural landlessness, such inequality is not structurally destabilizing to the country.

According to the World Bank, between 1994 and 2004 the Cam­bodian economy grew robustly and saw the number of people living below the poverty line drop from 47 percent of the population to 35 percent.

However, the Bank found that per capita consumption of the weal­thiest 20 percent of the population jumped by 45 percent between 1994 and 2004, whereas the consumption of the poorest 20 percent of Cambodians increased by only 8 percent.

World Bank Country Manager Nisha Agrawal said at Tuesday’s launch ceremony that data shows the rise in inequality occurred primarily between 1994 and 1997 in rural areas. In the period from 1997 to 2004, there was no significant change in inequality. Nor was there a significant rise in inequality in urban areas over the course of the decade.

“The findings suggest, therefore, that the current pattern of growth is not structurally destabilizing,” Agrawal said. “In other words, there is nothing inherent in the current pattern of growth that would suggest that Cambodia could not also follow the same path in the future that has been taken in earlier decades by the East Asia Miracle economies—of high and equitable growth and rapid poverty reduction.”

The report did, however, put forward a number of serious challenges that the government faces.

Agrawal said that an estimated 300,000 people enter the labor force each year-a number roughly equivalent to the size of the total employment of the garment sector.

In 2004, only 20 percent of workers were in a paid job, with the remainder being self-employed, Agrawal said.

The government must take steps to improve the investment climate, especially for small and medium-size enterprises, to soak up all these new workers entering the labor market, she said.

Unequal land ownership is a serious issue in mostly agrarian Cambodia, the report adds, with an estimated 46 percent of rural households being landless or owning less than 0.5 hectares of land.

“Without off-farm employment or self-employment alternatives, over half a million landless poor will find it hard to improve their situation or participate in the economy,” Agrawal said.

Steven Schonberger, lead operations officer at the Bank, noted that when land was first privatized in 1989, it was handed out in a more or less evenhanded fashion.

“There was a relatively equal distribution of land in Cambodia not long ago, and very quickly it has become one of the least equal distributions of land in Asia,” he said.

Schonberger added that research has very conclusively shown that countries that have more equitable land distribution have had much stronger growth performance.

He also said that massive land concessions had a questionable record in Cambodia, while small farms with minimal assistance can be as productive or more productive than large farms with most crops.

The World Bank recommended in the report that the government more vigorously implement land management procedures it already has in place to lower ownership inequalities. This includes accelerating and expanding land titling programs and enforcing the subdecrees on economic and social land concessions.

Rob Taliercio, senior country economist for the Bank, said that Cambodia should also increase government revenue and use it for infrastructure improvements.

Tax and non-tax revenue are still low as a percentage of GDP, he said, adding that revenues could be increased by broadening the tax base and more vigorous enforcement of existing taxes to collect more without having to raise rates.

Taliercio also recommended that the government look to pass a property tax.

“Cambodia is one of the few countries in East Asia that does not have a modern property tax, and this is an important source of revenue,” he said.

Prime Minister Hun Sen, who was on hand for the report launch, said that he welcomed the findings and recommendations in the report.

Hun Sen acknowledged that the government has not always been able to implement its poverty reduction policies perfectly because of “limited capability and weakness in our institutions.”

The prime minister also said that relying too much on the garment industry and tourism is risky, adding that diversifying and broadening the industrial sector is a priority, with particular focus on small and medium-size businesses.

The government is reconsidering some of the economic land concessions it has handed out, and could strip the land from recipient companies if they don’t abide by their contracts with the government, Hun Sen said.

He added that on Monday five concession agreements were terminated with companies that had been found to be leaving the land unused.

Hun Sen, however, said that the creation of a wholly equal society was not only impossible, it was undesirable.

“We know that there is not a single government or regime in this world that can guarantee 100 percent socio-economic equity,” he said. “In contrast, we have witnessed the failures of trying to form a society with 100 percent equity,” he said in an apparent reference to the agrarian communism of the Khmer Rouge.

SRP lawmaker Son Chhay, who attended the launch, said that he believed the report was lacking in detail compared to previous World Banks efforts and did not address enough of the problems facing Cambodia.

He added that he was surprised by the litany of reforms that Hun Sen ran off in his speech, but was skeptical about their being implemented.

“If the prime minister puts forward these reforms it would be a great moment for our history and his leadership,” Son Chhay said.

 

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