Thursday, July 08, 2010

Globalization with weak Institutions: Cambodia

This is a must read research paper by experts from different backgrounds. We can evidently see that in this 30 years after the civil war, the development in all fields are reflectively worse for future sustainability. Political power is extremely strong but national certainty, durability, equality and effectiveness are weak. This paper illustrates many flaws existing in incumbent government. And these flaws absolutely can impede the national survival and national integrity to dominant partners. Government leaders and their colleagues are so proud of fake propaganda, and this propaganda has spread like swine flu viruses contagious to all Cambodian people. But as the authors disclosed: weak bureaucracy, poor civil service, rampant corruption, abuses of power, and lack of political will...all these feasibly imprison Cambodia into a weak state physically, mentally and financially. Integrating into the region with current weak institution is a just a tool to be absorbed by hegemonic partner. If they ask you one word that you could describe, what will you say regarding to the current Ministers of Cambodia who receive only 500$ per month, but those are living their lives lavishly?
Hal Hill, Jayant Menon, Chan Sophal

The charming riverside capital of Phnom Penh, home to about 1.5 million inhabitants, has seen a lot in its turbulent history. But nothing arguably is on the scale of its first sky-scraper, the 42-floor ‘Golden Tower’ now nearing completion, not to mention the university and bank complexes mushrooming throughout this ancient city.

This changing physical landscape reflects broader developments in the country, which has been experiencing rapid economic growth – the sixth fastest in the world in the decade to 2007 – for the first time in its history. More than 2 million tourists now visit this country of 14 million, a 20-fold increase over the figure in the early 1990s. The Cambodian people have better nutrition and access to education and health services than ever before. Since the cessation of hostilities almost two decades ago, life expectancy has risen by almost a decade and infant mortality has fallen significantly.

The macro-economy is stable, with inflation under control, underpinned by very high levels of dollarization, currently about 90%. Debt service is almost negligible, and public debt has fallen sharply, to about one-quarter of GDP.

The economy is highly open, with exports plus imports equivalent to more than 120% of GDP. The investment climate is welcoming, with generous tax incentives and low tariffs. Aid flows are very large, currently almost $1.1 billion in a $10 billion economy. The country’s openness meant that growth dried up in 2009 as the global financial crisis hit. But the economy is now rebounding.

So much for the good news. Cambodia also faces many daunting problems. The country ranks 166th and 135th respectively out of 181 countries surveyed in the Transparency International corruption perception index and the World Bank’s Doing Business indicators. Deforestation and what is referred to locally as ‘land grabbing’ have been rampant. The local dailies abound with reports of land being awarded to the politically powerful for nominal amounts, and a startling but detailed account is presented in the 2008 study by Global Witness entitled ‘Country for Sale’. In an ironic twist, the land price boom has often made some of the most vulnerable worse off, as they have been evicted or forced off their land. The periodic household expenditure surveys report a significant increase in inequality. The country will also miss some of its Millennium Development Goal targets.

These problems are illustrative of the challenges faced by poor transitional economies in the process of opening up, without the institutions to manage the complex process of globalization. In this environment, the recent discovery of oil and gas could complicate things, as articulated in the well known ‘natural resource curse’ thesis. Hence the lessons to be learned from Cambodia are of general interest.

The central challenge is to achieve growth that is durable, equitable, and environmentally sustainable. This in turn requires the development of institutions which, while they may be rudimentary, are effective, trusted and clean. Where to start? Consider for example the following:
  • Cambodia has no shortage of laws, especially after its accession to the World Trade Organization in 2004. But businesses view the courts as the most expensive ‘last resort’ when all else fails. Legal judgements are routinely for sale.
  • Civil service salaries are meagre. A mid- level senior employee with a foreign masters degree receives $70 per month, compared to a private sector alternative of about 20 times this amount. Ministers receive about $500 per month, but some seem to live quite lavishly.
  • The country’s tax effort (its tax revenue as a percentage of GDP) is a paltry 11%, despite the introduction of a broad based VAT. Thus the country’s infrastructure remains inadequate, in spite of the very large aid flows, and notwithstanding recent improvements.
  • The number of banks has been increasing rapidly due to unfettered entry. The lax prudential supervision carries with it the possibility of a future meltdown.
  • Shipping a container from factory to port costs about double the regional average owing to widespread ‘facilitation’ costs, a feature apparently of most transactions with the government.
Five general lessons for ‘late reformers’ stand out from the Cambodian experience.
  • First, liberal and open economies cannot function without due respect for property rights, as exemplified by the widespread land grabs.
  • Second, these liberal regimes need adequate regulatory capacity to manage a modernizing market economy, as illustrated by the banking example above.
  • Third, large inflows of foreign aid and natural resource revenues ought to be viewed as transitory, and invested wisely for broad-based development.
  • Fourth, donors need to better coordinate their work, and avoid imposing excessively on a weak bureaucracy.
  • Fifth, civil service reform has to be undertaken early, with clear incentives and disciplines.
Unless these conditions are met, the danger is that in Cambodia, and many other similar states, the achievements over the past decade in particular could be undone by economic crises, or rising civil unrest driven by outrage at the political and bureaucratic excesses.

The authors are respectively Professor of Economics, Australian National University, Principal Economist, Asian Development Bank, and President, Cambodia Economic Association.

12 comments:

Son of a farmer said...

I kinda agree with ya,
but more importantly we Khmer should initially attempt to understand what exactly has happened during the midst of 77's, why Da Viet simply invaded us thrice, first Takeo, Kompong Cham, then Svay Rieng and who was secretly behind the fail attempts of Pol Pot's assassination?

If these events were not taken place, did Pol Pot insansely killed the Easterners or all Khmers, including his own comrades or Da Viet simply had the ultimate excuse to invade us?
W

Anonymous said...

Thank you for the three accademics who illustrate the reality of the economic path way of cambodia. There are improvement in infrastructure, however there are more to be improved in laws enforcement area in order to reduce rampant corruption which has widen the social gap between the rich and the poor very visibly.

There are more available new generation of human resource but unutilised as corruption still persists.

To be in global world, change has to be taken place in administrative system as pointed out.RGC has in fact to agree to a failed judicial system that becomes a burden to all sources.

As I mentioned, our constitution is our golden key if we were to collaborate for our advancement. New available human resources are to be placed accordingly,thus the old ones are replaced.China and vietnam have done just that,after communist era,to emerge in new global world.

These flaws are in fact the mismanagement of current RGC.If that continues to be ineffective, the king has to fullfil his ACTIVE social roles inclosing that social gap as well as improving the judicial system currently ineffective.

Restructuring of CPP is imperative otherwise new government is to happened.With endorsement of candidate of CPP,chance of getting into global world is slim and cambodia is contiued disavantaged.

Best comes about unless everyone participate at good will and openminded.

Peasant

Son of a farmer said...

My beloved Peasant!

I undeniably agree with ya, except our useless Constitution!

Forgive me for my humanly uneducated behavior, because
our Constitution ain't lawfully and rightfully suitable
for any of Khmers, but.only poliSickally rightful for leaders such as SihanoukVarman and SenVarman. Until we can constitutionally exercise it, then we can more likely choose our right leader. Otherwise our Constitution is just continuously only a useless paper!

Anonymous said...

sounds like most areas in gov't beaucracy need reforms in some way. of course, if it's not working change it! that is called smart and clever, etc...

Banksy said...

'If it's not working, change it'

?? Isn't that what both Pol Pot and Lol Nol said about the government of their time??

Ultimately, unless their is a truly representative democracy (one in which leaders and politicians actually change and leave their positions after serving their nation), there will be no real incentive for any major improvements: if you build no schools or provide no jobs yet you still get voted in then why should you start building schools or providing jobs. If your ability to make money rests upon staying in power and looking after those friends who put you there, then why should you give a f*ck about the voters? Also, if you keep a majority of your population in the countryside with little ability to be informed or meet with others, then it is unlikely you will demand changes. If you could speak with others similar to you and discover that they have the same problems, then maybe you could organise and get a response from those who want your vote.

As it is, politics here is about making yourself rich - it's not about governing a country. Have you noticed how laws benefitting the government get passed really rapidly (anti-corruption, pay increases etc.) yet laws not benefitting the government don't get passed or spend decades being decided upon (anti-corruption etc.).

The interests of the people and the voters don't seem to matter.

Anonymous said...

I guess most CPP leadership at the top echelon is nothing but a retard and coward ass hidding behind their powerful iron curtain and the suffering reality of the poor evictees. Sooner or later, Cambodia is a Suharto like era in da making .... too bad, average khmers continues to be stupid fools and be fooled by CPP ...funcinpec is pathetically asholes after all .... Autocratice Sam Rainsy is just another kind of SRP dictotators.....

Anonymous said...

how can any one talk about a country that gets HUGE foreign aid, grants and concessional loans propping up its decrepit fiscal budget and governmental apparatus a success story? worse the way our leaders are opening up our country when the premises of globalization are shown to be deficient - that's got to be INSANE.

Anonymous said...

How did you get the article to be posted here? Did you get the permission from the author? It's just that they wanted to get it published in a renown international newspaper before making it available to Cambodia. That's when KI media needs to rethink about copy right issue! Even it's a blog, some ethical concerns must be taken into consideration to earn respect from the public.

Anonymous said...

3:22PM

Do you call this part of introduction a paper? I think you are so bossy with this. If I am not wrong, KY got this introduction from a public email or public forum.

Of course, the authors are grateful to ads their introduction in the public for free in this popular blog.

KI doesn't violate any property rights you mentioned.

Anonymous said...

I know the authors, who are trying to get their article published internationally. How can they do it now when it's already out here? It's may be true they got it from a public forum, but are you suggesting that if one person pirated a software programme and you copied the pirated cd from that person, then you did not violate any copy right laws??? Then you are making terrible sense, I guess.

Anonymous said...

11:45 AM

Don’t belittle Khmers, and don’t make presumed judgment about SRP when you don’t even know what the SRP is fighting for. I guess you like foreign power to lead Cambodia like the France gave Cambodia land to Vietnam. The living condition under the France rule was worst than now. And that was why many Khmers jointed the Khmer Freedom Fighter in 1950s.

Anonymous said...

3:34AM

Why have you tried to allege the post of this introduction part as illegal? It is just an introduction part, not the whole paper, you get that?

The authors just highlighted their introduction to advertise to the world.

You are moronic!