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Poverty 'needs government cash'

Poverty 'needs government cash'

CAMBODIA must concentrate on more demand-side macroeconomic policies such as

government-funded rural infrastructure projects if it is to beat poverty, an

independent report commissioned by the UN Development Program (UNDP) has

concluded.

The Macroeconomics of Poverty Reduction in Cambodia was

launched on March 27. It calls for a rethink in the country's economic policies

in light of its failure to reduce poverty over the past decade.

"There

are signs that economic growth ... has not produced any significant poverty

reduction. Indeed, there are some signs that the situation is worsening," the

synopsis stated. "Even during high-growth periods [over the past decade],

poverty reduction either did not occur or was minimal."

The report noted

most economic growth was concentrated in urban areas. Co-author Dr Melanie

Beresford said it was time the government considered broader approaches to

economic development.

"The macro-economic policy framework that has been

implemented, largely under the influence of the Bretton-Woods institutions,

particularly the IMF, [has] been rather successful in getting more economic

stability and, in particular, eliminating the main problem of hyper-inflation at

the start of the 1990s," she said. "But basically that framework hasn't produced

the kind of poverty reduction that those institutions would have expected it to

have."

Beresford said the same formula was reflected in the Poverty

Reduction Strategy Paper, the government's approach to tackle the problem. It

left little cushion if the assumed private sector growth did not

materialize.

"That formula ... is that you should limit the budget

deficit, keep the current account deficit low, inflation down and then you have

a number of social sector policies which are kind of add-ons - health, education

and institutional reform," she said. "We felt that didn't look at the demand

side, in particular in those places affected by poverty in rural

areas."

Instead the report proposes a range of policies designed to

stimulate the domestic economy. Setting monetary policy to achieve low inflation

growth "no longer seems appropriate" and the government should allow "some

inflation to 'grease' the economy".

A gradual approach to

"de-dollarizing" the economy and promoting the riel should be undertaken, and a

flexible exchange rate should be pursued. Another recommendation was to expand

budget spending so public investment would target rural development.

The

report claimed that while donors focused largely on health and education

projects, there was significant interest in government to promote rural

infrastructure.

Co-author Dr Rathin Roy said the government did not need

to seek funding outside Cambodia.

"There's an assumption that there's no

money in Cambodia, but that assumption is not true," he said. "There is money

just sitting in the banks [which it could borrow]."

But Roy warned easy

access to soft loans meant the banking system could not develop. "In the long

run the only way that Cambodia can finance development is by using its own

resources."

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