Breaking the poverty-conflict trap

March 24, 2006
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Nepal now needs to break the double trap of poverty and conflict simultaneously

By Shiv Raj Bhatt

Despite the mass poverty, Nepal used to be recognized until a few years ago as a ‘Peace Zone’ by most of the friendly nations and people around the world. However, the country is now gripped in double trap of poverty and conflict these days. Poverty and efforts to alleviate it is not a new phenomenon, but the armed conflict in Nepal is.

With support from the donors, Nepal has introduced many plans and programmes with very impressive objectives, strategies and instruments to break the vicious circle of poverty. But with poor implementation, lack of transparency and system of monitoring and evaluation along with poor governance and rampant corruption, results are not as desired.

As a multidimensional phenomenon, poverty alleviation needs a lot of efforts – committed, well planned, and rigorous. To break poverty trap we should first identify its root causes. In Development Economics, the concept of ‘vicious circle of poverty’ simply says ‘a country is poor because it is poor’. A beautiful explanation of a multidimensional concept in merely eight words nicely reflects the reality of poor nations. The vicious circle of poverty is strong enough to produce many other vicious circles- creating a domino effect. We Nepalis are poor because of our poverty. But the important question arises- is it possible to break the trap? If yes, how? What could be the economists’ prescription?

The textbook solution is very simple- we have to increase investment that provides us employment as well as income in order to lift us from the poverty trap. But the same textbooks further say that higher investment requires higher saving that again needs a higher income level.
The textbook solution is very simple- we have to increase investment that provides us employment as well as income in order to lift us from the poverty trap. But the same textbooks further say that higher investment requires higher saving that again needs a higher income level. How is higher saving possible in a country like ours where the majority of people do not have enough resources to fulfill their basic needs? Moreover, increasing savings and investment is a daydream when the possible saving agents (the people who earn more than they spend, mostly the business people with few others) are in debt trap (as the name of “black listed” big business peoples recently published in news reports show).

Our policymakers have an alternative solution, foreign aid. In the name of poverty reduction, vast resources have been disbursed in the past. But it hasn’t helped much due to wrong targeting and lack of transparency. As a result problem of poverty is still with us-it has only intensified. Intensified vicious circle of poverty leads to the vicious circle of conflict. Therefore, Nepal now needs to break the double trap of poverty and conflict simultaneously.

Many factors- religious, ethnic, political, and most importantly economic determine conflict. Statistics from all over the world show that war/conflicts and poverty are closely linked, and civil war is more frequent in countries where the poverty is massive. In Nepal, remote and backward areas where poverty is massive are highly affected by conflict. On the basis of this fact one can argue that there is a positive link between Nepal’s poverty and conflict. Therefore, an answer to poverty and development of underdeveloped areas is a must to solve the crisis.

Breaking the conflict trap needs many new and innovative approaches that also address the poverty. The most important are: (i) elimination of root causes, basically grievances such as inequality and discrimination; (ii) removal of secondary causes (catalyst) that fueled the problem such as political instability, corruption and bad governance; and (iii) mainstreaming of rebels (insurgents). All of these call for a multidimensional approach that range from economic, fiscal, political, and social to moral.

Fiscal dimension is the important one. Historically and empirically, fiscal policies are observed and proved as one of the most important instrument of poverty reduction and conflict management in the hands of any government. Therefore, to overcome dual trap of poverty and conflict, simultaneously, a prudent fiscal policy that includes progressive taxation, huge expenditure in social priority sectors, reduction in unproductive expenditure, corruption control and targeted poverty reduction programs are required in Nepal. Unfortunately, development work has come to almost halt and security and other unproductive expanses are on the rise in Nepal. Will all these lead to road of peace and prosperity in sustainable way? Not at all, as deepening crisis shows.

(Bhatt is a development economist based in Kathmandu. Please send your comments/suggestions to [email protected] or [email protected])

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