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
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.
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
"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
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
"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
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.
report claimed that while donors focused largely on health and education
projects, there was significant interest in government to promote rural
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