Sam Rainsy: The Real Causes of Accelerating Inflation in Cambodia

11 January 2008

THE REAL CAUSES OF ACCELERATING INFLATION IN CAMBODIA

In a 9 January 2008 letter responding to questions from union leader Rong Chhun about the causes of accelerating inflation in Cambodia, Prime Minister Hun Sen cited four reasons to try to explain the phenomenon:

1. Increase in consumer demand associated with Cambodia's economic growth.
2. Increase in crude oil price on the international market.
3. Avian flu and pig diseases in neighboring countries.
4. Fall of the American dollar on the currency market.

I do not agree with the Prime Minister. Actually, the main reasons why consumer prices have increased so sharply over the last 12 months are the following:

1. There is no effective competition in our country because of countless de facto monopolies associated with government corruption. No or weak competition leads to higher prices.
2. Taxes on petroleum products, especially gasoline, are much higher in Cambodia than in neighboring countries (1,200 Riels per liter for gasoline in our country versus 500 Riels in most countries in our region).
3. The Riel, our national currency which is practically pegged to the US dollar because of the weak foundations of our economy, has fallen sharply against other currencies in the region (the Filipino Peso and the Thai Baht have appreciated by 20 percent vis-à-vis the US dollar over the past 12 months).
4. The National Bank of Cambodia have issued bank notes (paper money) without any independent and proper control and monitoring of the money supply increase, in order to meet political and election requirements of the ruling CPP (vote buying), thus fueling inflation.

Sam Rainsy, MP
Opposition leader
Former Finance Minister