A future in the balance

Thursday, 21 May 2009
Written by Rod Brazier
The Phnom Penh Post

"The CPP's legitimacy depends largely on maintaining rapid improvements in the quality of life. Basic, first generation economic reforms are in place, but the high-growth trajectory of recent years will hit limits imposed by rampant corruption and cronyism. Extracting continued rapid growth will require painful choices by the Cambodian leadership that will impinge on the interests of entrenched party elites. This is where the rubber will hit the road for reform: when economic growth is crimped by cronyism."

A few final reflections on the situation in Cambodia from the Asia Foundation's outgoing country director.

THE Cambodian People's Party (CPP) has consolidated its position as the dominant political force in Cambodia. Until the global financial crisis struck, political stability had led to a dramatic increase in investor interest, generating a surge in investment and economic growth.

The CPP won a resounding victory in the July 2008 national elections, elections which were recognised by the international community as free and fair. The CPP enjoys widespread support today owing to the stability and economic growth that have occurred in recent years. Outside, it's not well understood that this government is truly very popular, despite some authoritarian tendencies.

That's because Cambodia has made remarkable progress over the past 15 years. Starting from a very low base, key indicators of human welfare, such as maternal and child mortality, have improved dramatically.

The opening of the economy in the 1990s gave initial impetus to economic growth and job creation. The main drivers of growth have been the garment sector, tourism, construction in Phnom Penh and Siem Reap, and public spending.

Remittances from garment factory workers to the rural country-side have been an important source of income transfer to those areas, while the very large agricultural and fisheries sectors act as buffers against economic turmoil.

All round, a very good picture for a country that was still at war with itself little more than a decade ago.

The political consolidation by the CPP over the last several years has changed the context in which Cambodia will develop over the next few years. One-party rule has replaced fractious politics. Growth and development are top priorities.

The emphasis on economic growth holds promise for increasing prosperity for ordinary Cambodians, but possibilities for re-emergence of an open pluralistic polity are greatly reduced.

In addition, the global financial crisis threatens to undermine the anti-poverty gains of recent years and to exacerbate the nascent social tensions arising from the visible gap between rich and poor.

Therefore, the main challenges for the country over the next few years will be to sustain the current pace of economic development and reduce poverty, while addressing the worst abuses arising from a system of governance that has resisted reform in the past.

I have a few scattered observations about Cambodia, gleaned from almost three years in Phnom Penh. Many of you have been here longer than I have, so forgive me if any observations are shallow.

The international community is woefully under-informed about Cambodia

Compared to the international communities in neighbouring countries, the international community here in Phnom Penh is terribly ignorant about the political economy of Cambodia.

I hasten to add that I include myself in this category. As a group - for there are very few exceptions - we know very little about the politics that matters in Cambodia. There is, of course, the noisy, quarrelsome discourse that is carried out in the headlines between the government and the opposition. Despite the high volume and frankness of the exchanges, I don't think this is where the action is politically. To me, the internal politics of the CPP are more intriguing and far more consequential, for several reasons:

• The CPP is extremely disciplined and little internal friction ever becomes apparent - at least in decipherable ways - in public. A few ripples appeared on the surface after the sudden death of Hok Lundy last November, but otherwise very little specific information about internal dissension ever becomes known outside tight circles. The workings of the CPP are especially mysterious to those of us who do not speak Khmer.
• The CPP's grip on power means that mid-term change and reform is likely to emerge from within the CPP rather than through formal competition with the other parties.
• Those of us who engage with different parts of the government see great variation from one ministry to the next - there are many opportunities to work cooperatively and fruitfully with the government on reform activities. Partners need to do their homework on who should be engaged beyond those listed on the government organagrams.

"I am cautiously optimistic about Cambodia. The focus ... has shifted from winning the political contest and seizing power to governing well and staying popular by delivering infrastructure and services."

The government is not hostile towards all NGOs

Relations between the CPP and NGOs - both local and international - have been occasionally thorny. Broadly, though, relations are improving, and I see two reasons for this:

• The CPP is more confident as it ascends politically and so feels less vulnerable to criticism.
• Reform-minded officials see value in close relations with some NGOs, both as sources of feedback on performance and as providers of expertise. We see this very vividly in our interaction with the Ministry of Interior, where the appetite for cooperation seems to be insatiable. We also see it in our work with the Ministry of Women's Affairs (MOWA) on counter-trafficking. Of course, there are dinosaurs and hold-outs.

There is a general assumption that the draft NGO Law is designed to rein in NGOs. No. NGO laws are a common feature of many countries' legal landscape.

Reading the latest draft, one can't find so much that's objectionable. One clause on political activity is problematic, and the sanctions for some types of non-compliance are rather heavy, but it is still a draft. I have begged my colleagues to view it as a draft and to take up the government's offer to consult. But perceptions are stubborn, and some letters have been written that have been counter-productive. The Asia Foundation has not signed those letters because we want to enter consultations in good faith.

Inequality and under-investment in education are growing as concerns

Cambodia is probably on a very positive and well-trodden Asian path to development. In several respects, though, it is deviating in ways that could threaten long term development prospects:

• Inequality. Newly Industrialising Countries (NICs) have typically seen gini co-efficient, a numerical expression of inequality used by social scientists, narrow; it's getting wider in Cambodia. Eventual social consequences but also political and welfare concerns should be a cause for concern in this area.
• Education. Investment in education is dismal. All the latest and finest academic work shows that governments can make no better single investment than in education. Dollar for dollar investment in education brings greater benefit to a country and its people than any other. I don't see Cambodia investing enough in its people's education. Certainly, we see a hunger for personal improvement and a new generation of bright and ambitious young Cambodians seems to be emerging. But not all will be able to secure international education.

External perceptions of Cambodia are sticky

It's only a little more than a decade since Battambang was captured briefly by the Khmer Rouge. Cambodia is small, and positive developments here are seldom heard in the din of the 24-hour news cycle. This is unfortunate. A vivid demonstration of this is the Economist Intelligence Unit (EIU) report.

The EIU published two reports in March 2009. One was the regular Country Report about Cambodia. Nothing in that report was objectionable.

In fact it was a sober, sensible report that no one in this room would likely find controversial.

The report that has caused so much anger here is called Manning the Barricades, a 32-page report that mentions Cambodia once.

Manning the Barricades with global coverage that purports, among other claims, to rank countries by the risk of political instability. Some of the indicators included were: inequality, state history, trust in institutions, and corruption. These are reasonable.

The government erred badly in complaining so loudly about this report because the complaints brought prominence to a single mention of Cambodia on page 16 of the report that would otherwise have gone largely unnoticed. The rush by business groups and others to condemn the EIU was equally unhelpful and merely nourished an incorrect perception.

Sustaining rapid economic growth: not a straight shot

The CPP's legitimacy depends largely on maintaining rapid improvements in the quality of life. Basic, first generation economic reforms are in place, but the high-growth trajectory of recent years will hit limits imposed by rampant corruption and cronyism. Extracting continued rapid growth will require painful choices by the Cambodian leadership that will impinge on the interests of entrenched party elites. This is where the rubber will hit the road for reform: when economic growth is crimped by cronyism.

This problem is most dramatically illustrated in problems related to land issues. Foreign investors say that uncertainties over land are the single biggest concern, and often the reason that potential new investors walk away. It's worth noting that the prime minister himself has warned countless times about the dangers of continued land-grabbing. Yet it persists. Other similar pressures will emerge over time to test the government's commitment to market-led growth.

The government must reduce these vulnerabilities by fixing fundamental policy weaknesses. A key to improving economic governance will be to nurture and empower the small group of Western-educated technocrats within the Ministry of Economy and Finance, and scattered throughout other ministries and departments.

This group is more outward looking and reform-minded and is believed to have close ties to the pragmatic Prime Minister Hun Sen. We need to nurture and support these people, for they will face heavy challenges in the coming years that will determine the pace and trajectory of economic reform and development in Cambodia.

I have spent some time listing weaknesses and vulnerabilities. But we must also acknowledge the enormous strides that the Cambodian people have taken.

From civil war and unimaginable sorrow and misery just a generation ago, to a normal, developing country encountering the typical range of challenges that every other country in the region has faced. The good news is that others have shown it is possible to overcome these impediments.

But it is long, slow work and, in some respects, the early years are the easiest. I am cautiously optimistic about Cambodia. The focus of government has shifted from winning the political contest and seizing power to governing well and staying popular by delivering infrastructure and services.

This is a watershed transition that hasn't been noted enough. In the words of my friend His Excellency Roland Eng, who said five years ago: "We used to talk politics, now we talk policy."
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The Asia Foundation's Cambodia country director Rod Brazier has been in Cambodia for three years. He is leaving the Kingdom shortly to take up a position with the Australian government in Canberra. On April 24, 2009, he spoke to the American Cambodian Business Council. What follows is an excerpted version of his speech to AmCham members.