Study Offers New Plan to Ease Poverty

Poverty in Cambodia, largely unchecked by the economic growth of the last decade, is not likely to lessen and may even increase unless the country’s macroeconomic policies—dictated by the International Monetary Fund—are overhauled, an independent report commissioned by the UN Development Program and released Thursday concludes.

“To date, the macroeconomic framework established under guidance from the IMF has not succeeded in addressing the key elements of poverty in Cambo­dia,” the report states.

While acknowledging that the political instability that plagued the country until 1999 interfered with the economy, it adds, “Even during high growth periods, poverty reduction either did not occur or was minimal.”

The study, conducted by five in­ternational and national experts, recommends radical departures from IMF dogma: It says Cam­bodia should encourage moderate inflation, take on more debt and de-dollarize the economy.

It comes at a time when—worldwide—activists, experts, governments and even the international agencies themselves have begun to question the set of IMF and World Bank prescriptions, couched in classical laissez-faire economics, that many blame for economic disasters from Indonesia to Argentina.

The report offers an alternate, radically different set of prescriptions.

By borrowing from domestic private banks, which currently have more cash on hand than they can lend, the government could raise enough money—perhaps 2 percent of gross domestic product—to increase budget allocations for rural and agricultural development, sectors the report claims have been slighted in favor of health and education because of flawed “donor priorities.”

Only by putting a premium on development of the rural areas where the poor are concentrated can poverty be effectively reduced, the report says. And by borrowing locally, the government need neither shift funds away from other budget items nor ask for more from donors.

One of the report’s authors, Melanie Beresford of Sydney’s Macquarie University, gave this example: The Ministry of Rural Development initiates a small-scale road-building project in a remote area. The project creates jobs, putting money in people’s pockets, at the same time as the road gives them access to markets where they can spend the money.

The money they spend, in turn, generates demand for more market goods. Gradually the rural poor are integrated into the national economy without relying on foreign investment.

In economic terms, these are “demand-oriented” policies, as opposed to the “supply-oriented” policies pushed by the IMF and World Bank and followed by Cambodia, which focus on attracting foreign investment to produce exportable goods.

NGO representatives at Thursday’s conference on the report hailed its innovation. “We welcome any new analysis that questions the Washington [economic] assumptions,” said Mia Hyun of Oxfam America, whose global campaign on trade issues decries the injustice it perceives in international economic organizations’ push for open markets.

By now, it is almost universally acknowledged that the more than 5 percent economic growth Cambodia has enjoyed in recent years has not brought about a corresponding drop in poverty, although the statistics are unreliable.

One 1993-1994 survey had 39 percent of the population living below the poverty line; a 1999 study, not based on comparable data, put it at 35.9 percent; current independent estimates hover between 36 and 38 percent. The UNDP considers the poverty line $0.46 per day.

Based on other indicators, poverty may actually have worsened over the last 10 years—for example, per capita consumption, measured in riel, has declined, and the post-Khmer Rouge regime “baby boom” is starting to produce land shortages and mass unemployment, the study states.

IMF country representative Robert Hagemann did not dispute that poverty reduction has been less than hoped for, but he denied the IMF-dictated policies should be altered.

“We’re not pleased with the fact that poverty has not been reduced, but we don’t believe it has anything to do with the ‘tightness’ of our policies,” Hagemann said, referring to the report’s claim that IMF recommendations are inflexible.

Instead, Hagemann blamed Cambodia’s failure to implement structural and governance reforms.

“That’s the answer,” he said.

The report acknowledges that such reforms are a crucial prerequisite to implementing the macroeconomic policies it advocates.

Most important, it says, the government must disburse funds according to its budgets. Currently, actual allocations rarely match legislated budgets, while millions of dollars disappear into officials’ pockets before they can reach their intended destinations, critics say.

The report also credits the IMF policies with having brought Cambodia much-needed economic stability. But now, with the dollar deflating and the global economy in recession, “the stabilization package would appear to have outlived its usefulness,” the report says.

Cambodia’s economy is no longer in turmoil, but its countryside remains impoverished. It is time, the report says, for a fundamental shift in macroeconomic policy.

The study is one of nine being conducted throughout Asia by national and international experts at the behest of the UNDP. Its authors are Beresford, Ceema Namazie of the London School of Economics, Nguon Sokha of Cambodia’s National Bank, independent economist Sau Sisovanna and Rathin Roy, an adviser based at UNDP headquarters in New York.

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