Kingdom of Cambodia

Nation Religion King

Keynote Address by

Sr. Minister KEAT CHHON,
Minister of Economy and Finance

At the

Launching of World Development Report 2006 Hotel Le Royal
13th June 2006
 

Your Excellencies,
Ladies and Gentlemen:

May I first, on behalf of the Royal Government of Cambodia, congratulate and appreciate the World Bank for the release of this World Development Report 2006 and for organizing this launching workshop that would hopefully provide a useful starting ground for drawing the attention of important stakeholders to the important issue of equity in Cambodia. Taking this opportunity, I would like also to thank the Bank for agreeing with us to focus on the theme of “Growth with Equity” for the next WB report for 2007 Consultative Group Meeting for Cambodia.

Indeed, the report tackles the very fundamental issue of development, “Equity”, as it is so important for the pursuit of long run prosperity. I am delighted to note that the World Bank is now placing more attentions on how to address the equity issues both within and between nations, as we all are aware that inequity exists in many different levels of the economic and political hierarchy, international and national levels.

In this regard, I think this workshop would serve as an important forum for us all to revisit the reasons leading to this rising inequality and to find out its causes and consequences. Thus, our discussion and dialogue would help shape our future course of actions in addressing this issue together, so that our long term development is equitable and sustainable.

In my address today, I would like therefore to outline some of the critical issues of equity for your further deliberation and discussion, drawing from my own experiences in the Royal Government whose ultimate mandate is to fight poverty and ensure equity for every citizen of the country.

Your Excellencies,
Ladies and Gentlemen:

The idea of equity is as old as the human civilization, albeit its concept evolves and has been interpreted differently by different generations and civilizations. Therefore, the principles are understood differently from one society to another. More importantly implementing them remain a daunting challenge for all societies.

The World Development Report 2006 defined equity as equality of opportunity and freedom from deprivation. It argues that equity is supportive of prosperity, or complementary to prosperity, which implies that equity is necessary for prosperity, and equity is also needed for development growth.

Even many countries, both developed and developing, experience spectacular economic growth in the last decade, the inequality still exists and is on the rise. Moreover, inequality tends to be higher in developing countries than in industrialized countries.

In Cambodia, we have achieved more than 7 percent of economic growth in the last decade and reduced the poverty rate from 47 percent in 1993/1994 to 35 percent in 2004. Cambodia has also achieved a respectable degree of peace and implemented a considerable level of development. At the present, people enjoy a reasonable level of security, employment opportunities, intellectual freedom, political order and social development.

The movement from the egalitarian society toward the market economy has further contributed to the inequality as the access to economic opportunities is not equal for everyone. Many of us take for granted and assumed that the free market economy guarantees equal distribution and growth.

Excellencies,
Ladies and Gentlemen:

The report illustrates an important fact: Disparities in opportunity translate into different abilities to contribute to the development of a country. Equity is complementary to the pursuit of long-term prosperity. Institutions and policies that promote a level playing field contribute to sustainable growth and development. Greater equity enables to enlarge the possibilities granted to the poor to fully participate in development.

In this regard, I would like to make two observations. Firstly, according to the report, with so many market failures, resources may not flow where returns are highest. The distributions of wealth and power affect the allocation of investment opportunities. In case which remedy the markets failures are too costly, the improvement of access to services, assets or political influence can increase economic efficiency.

Secondly, high levels on economic and political inequality tend to lead to economic institutions and social arrangements that favor the interests those with more influence. Society, as a whole, is likely to be more inefficient and to miss out on opportunities for innovation and investment.

Talking about equity is certainly quite different from implementing it. There are costs involved in increasing equity and overcoming inequity, which requires structural reforms, efficient allocation of resources and investing in the human capital.

The Royal Government understands clearly about challenges in improving equity. The government also clearly understands that inequality will reduce the impacts of growth on poverty reduction and foster social and political conflict. In order to make sure that the benefits of development is equally shared among all people and inequity is addressed, the government has laid out the “Rectangular Strategy”, in which Equity is clearly stipulated as one of the main goal to be achieved by the government.


Excellencies,
Ladies and Gentlemen:

Institutions and policies that promote a level playing field—where all members of society have similar chances to become socially active, politically influential, and economically productive—contribute to sustainable growth and development is another tool for inequality reduction. Greater equity is thus doubly good for poverty reduction: through potential beneficial effects on aggregate long-run development and through greater opportunities for poorer groups within any society.

Moreover, it is also crucial to make market work better for the poor. The constraint of legal, institutional and social issues, which prevent the poor from gaining access to assets, labor markets and essential infrastructure and services such as property right, creation of micro finance bank, private sector development and market information access. The support for expanding access to formal rural financial institutions will be important for farmers and rural entrepreneurs to enable them expand their scale of operation and diversify towards more profitable and sustainable activities.

Other than these services, land is our most important natural resource. It must be equitably distributed to provide people with a greater stake in their homeland. The opportunity to own a home, develop a farm and start a business with access to credit and skills training are the ingredients of wealth creation to break out of the poverty trap. However, easing the land constraint will require speeding up the land-titling efforts as part of creating a transparent and secure land market.

Excellencies,
Ladies and Gentlemen:

To win over this challenge, the government has invested considerable efforts in strengthening the education and health sectors. The government has achieved some success as the number of children enrolment increased significantly, especially female students. In the health sector, the infant mortality rate has declined while the life expectancy has increased. However, these achievements are far from total success. Just to have higher number of enrolment is not good enough. We have to start considering about the quality of education, teachers’ incentives and schools’ infrastructure, and more importantly, we have to educate parents to understand about the importance and investment in education for their children. In the health sector, we have to make sure that we may have to start thinking about the public provisioning or regulations that provides some insurance for all.

Moreover, in order to exit the “inequality trap”, the report proposes three recommendations.

First, the application of unique rules leads to reduce the differences in knowledge gain. Indeed, even with genuine equality of opportunities, one would always expect to observe some differences in outcomes owing to differences in preferences, talents, efforts, and luck.

Second, public action should focus on the distributions of assets, economic opportunities and political voice rather than directly on inequality in incomes. It means that action should focus on greater investment in human resources of the poorest; access to public services, information, and markets must be wider and more equitable; property rights must be guaranteed for all; and greater fairness must reign on the markets.

Third, there may be various short-run policy-level tradeoffs between equity and efficiency. Greater equity implies more efficient economic functioning, reduced conflict, greater trust, and better institutions, with dynamic benefits for investment and growth. However, if income redistribution schemes tax investment and production too steeply, the result will be less innovation, less investment, and less growth.

Excellencies,
Ladies and Gentlemen:

Tackling the inequity is not only the matter within the nation, but it is a global efforts. We know that the global market is so imperfect. The large and more developed countries have benefited significantly from the free trade and globalization, while less developed countries receive less benefit and rely on aid. This means that the international economic system has much to be improved. To reduce inequity, we need global actions that help to compensate for this unequal endowment through public investment in human development, infrastructure and governance structure.

Let me stop here! “Development and Equity” is a topic we all care about and we can talk about it endlessly. Let me conclude that while Cambodia should take pride in our significant achievements in economic development since early 1990s, there is still so much, much more work to do in generating more growth, reducing the poverty and eliminating the disparities or inequality. Thus, I wish to take this opportunity to thank the World Bank and all other development partners for helping us build a vibrant and more equitable economy over more than a decade ago!

Finally, I wish this seminar success and hope that all the participants will bring out many good ideas on how to promote equity in Cambodia.

 

Thank you !