Inequality a Defining Challenge for Cambodia

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Some 41 percent of the population in Cambodia are left behind and still live on less than $2 per day.

Leading economists have warned that income inequality is the defining global challenge of the 21st century. In Cambodia, a country where many live in poverty while ever-increasing numbers of luxury cars ply the streets, that challenge is particularly acute.

The nongovernmental organization Oxfam America recently called for action across the world to address inequality, arguing in report “The gap between the rich and poor is spiraling out of control.”

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“Just 80 individuals have the same wealth as half the people on our planet,” Oxfam said. “Such extreme economic inequality is standing in the way of ending global poverty, and widening other inequalities like the gap between women and men.”

Perhaps unexpectedly, backing for the group’s rallying cry has come from the International Monetary Fund (IMF). The group earlier this month invited experts from the Fund to present research on the drivers of inequality and on the impacts inequality has on societies.

Era Dabla-Norris, deputy chief of the IMF’s strategy, policy, and review department, said that inequality was an issue of fairness and justice.

She pointed out that lifting the incomes of the poor and the middle class not only reduce inequality, but also boost economic growth.

“There is a lot of talk in the media, in academic articles, elsewhere, about the importance of the poor and middle class, and we want to say, why does equality matter?” she said. “Early work at the IMF shows that inequality matters for sustainability of growth as well as for the level of growth.”

IMF data shows that in both emerging and developing economies between 1980 and 2012, inequality had been exacerbated, putting this down to the unequal distribution of the benefits of technological progress, weak labor unions, the effects of globalization, and failures by governments to implement progressive tax policies.

Florence Jaumotte, a senior economist at the IMF, said that lower levels of unionization in the labor force had been shown to be linked to growth for the wealth of those at the top.

“There is something unexpected, you know. You couldn’t think a theory that a lower unionization leads to higher top income share,” she said.

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IMF economists called on policymakers to remove tax relief, such as reduced taxation for capital gains, which benefits mainly high income groups. Doing so would “increase equity and allow a growth enhancing cut in marginal labor income tax rates,” according to an IMF report titled Causes and Consequences of Income Inequality: A Global Perspective.

Cambodia’s recent development is the result of more than two decades of economic growth and efforts to reduce poverty. For many economists and politicians, Cambodia is a success story as a country that went from a low-income to a lower-middle income status. The official distinction between different statuses is based on Gross National Income (GNI) per capita with low-income being less than $1,025 and lower-middle income being between $1,026-$4,035.

Causes of poverty in Cambodia were largely due to ineffective and oppressive governments, which failed to lift Cambodia out of poverty after the civil war between 1959 and 1975. The country struggled for many years even into the early 2000s with political unrest and turnover. However, with international aid and support as well as the slow integration of governmental elections, Cambodia has seen growth and stabilization of its economy.

Poverty fell from approximately 50 percent to 20 percent between 2007 and 2012, and since then has fallen even more. Cambodia’s significant progress meant that it surpassed the Millenium Development Goals poverty target, becoming a symbol of economic rehabilitation for many Southeast Asian nations.

Now, the economy is dominated by garment-making and labor, but the Cambodian government has made efforts to use tourism as a means of bolstering the economy. It also hopes to develop its technology and attract foreign investors to extract offshore oil and gas resources, but struggles due to territorial disputes with Thailand.

Despite the economic growth Cambodia has enjoyed, its economy is still fragile, and its people are at risk of falling back into poverty, with at least 70 percent of Cambodians living on less than $3 a day. Many of its 14.5 million people live as subsistence farmers in rural areas, a lifestyle which is largely reliant on suitable and reliable weather. Now, causes of poverty in Cambodia predominantly lie upon these farmers being unable to support themselves as the result of poor yield.

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With approximately 90 percent of the population living in the rural areas, efforts to address the causes of poverty in Cambodia will be through sustainably urbanizing these areas to provide easy access to necessities, such as clean water and healthcare services. Furthermore, ensuring children remain in education will also be a priority in preventing Cambodia from dipping back into a low-income status country.

In efforts to continue economic growth and ensure stability in Cambodia, the Asian Development Bank (ADB) has partnered with the country in a Country Partnership Strategy, which started in 2014 and is due to end in 2018.

Thus far, Cambodia has made notable strides in eradicating poverty and pulling itself up into a lower-middle income status country. The priority now is to maintain this growth and successfully do this in a sustainable manner, which also respects the human rights of its people.

Sources: VOA  Images: Khmerization

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