Cambodia’s economy dependent on garment sector – Report

March 16, 2012
Fibre2fashion News Desk - India

The garment and textile industry in Cambodia is significantly contributing to the country’s economy and can be stated as the backbone of the Cambodian economy, according to a report.

The 309 garments and textile firms in Cambodia employed around 335,400 workers at the end of 2011, with 91 percent of them being women, a Ministry of Commerce report stated.

According to the report, the industry paid out US$ 408 million in worker’s salaries during last year.

Kingdom must diversify its economy, ADB says

Stephen Groff, a vice president at the Asian Development Bank, speaks to the Post earlier this week in Phnom Penh. (Pha Lina/Phnom Penh Post)

Thursday, 23 February 2012
May Kunmakara
The Phnom Penh Post

Asian Development Bank vice president Stephen Groff, who started with the bank in October, sat down with Post reporter May Kunmakara yesterday to discuss the Cambodian economy, its investment environment, as well as the bank’s future in the country.

Cambodia has enjoyed rapid growth over the past decade. How is ADB targeting its grants and loans to ensure more equitable development?

I think when you have an economy that depends on the agricultural sector, there is a need to ensure that we strengthen the linkages between rural and urban areas. Our work also focuses on promoting education so that we can provide better employment opportunities for people living in both rural and urban areas. This is important for the economic growth that we see happening in Cambodia – to be more and more equitable.

Cambodia’s growth has relied on a handful of industries such as tourism, agriculture and garments. Where should investment be targeted to broaden the economic base?

Well, I agree. We need to see much more broadening and deepening of the economy. Much of the economy is largely focused on the agricultural sector and in manufacturing.

Economic Corridor Spells Benefits, and Pitfalls

http://www.youtube.com/watch?v=i1lYLUTm7So&feature=channel_video_title

Industrial development vital to ensure sustainable growth: Cambodian PM [-Cambodia has also an urgent need to change its leaders!]

February 16, 2011
Xinhua

Cambodian Prime Minister Hun Sen said Wednesday the promotion of industrial sectors will be necessary to ensure the sustainable development of Cambodian economic growth.

"There is an urgent need for Cambodia to modernize its economy through promoting the development of industrial sector in order to achieve a sustainable growth," he said during opening the fourth Cambodian Economic Forum.

Cambodia's economic growth was 5.5 percent in 2010 thanks to garment manufacture, tourism and agriculture, he said, adding that the growth this year could be more than 6 percent.

The premier said that the development of the industrial sectors should be focused on capturing more value added of existing core sectors such as in garment industry through establishing raw material factories such as a buttons manufacturing factory and in agriculture via building processing plants.

The Cambodian Case for Dollarization

FEBRUARY 15, 2011
OPINION ASIA
Wall Street Journal

Phnom Penh should use its stock exchange opening later this year as an opportunity to formally adopt the U.S. dollar.

Cambodia doesn't get a lot of attention on the world stage, but it deserves a closer look because of the way its economy has quietly exceeded expectations in recent years. Growth has been running at near double-digit rates over the last decade, and the country is attracting significant foreign investment, particularly in the textile and tourism industries. A big part of this success is due to its use of the U.S. dollar as its primary currency.

The government didn't orchestrate this monetary reform; in fact it resisted most of the way. But Cambodians voted with their wallets, shunning the Cambodian riel and demanding dollars.

Economists remain upbeat despite investment fall

Tuesday, 11 January 2011
Chun Sophal
The Phnom Penh Post

Investment approved by the Council for the Development of Cambodia dropped some 54 percent in 2010, compared with the previous year, but experts believe the decline is not indicative of the Kingdom’s ongoing economic recovery.

Approved projects were worth some US$2.69 billion in 2010, a steep decline from 2009’s $5.86 billion, figures obtained Tuesday show.

Asian Development Bank senior country economist Peter Brimble said late Tuesday it was important to take “lumps” into account, noting a multi-billion dollar island development project approved in 2009 had distorted the figures.

“I certainly do not feel there was a decline of that magnitude [in the Kingdom’s economy],” he said. “We [the ADB] feel there is an economy recovery in 2010.”

IMF Says Broader, Export-Led Recovery Is Underway in Cambodia

Dec 14, 2010
By Rebecca Christie
Bloomberg

Business ExchangeBuzz up!DiggPrint Email .The International Monetary Fund today said Cambodia’s economy is recovering and still faces risks from the fragile global economy, and particularly the country’s dependence on exports to the U.S. and Europe.

“A broadening, export-led recovery is under way,” the IMF said in a statement in Washington. “Near-term risks are tilted to the downside.”

The IMF projects Cambodia will post growth of 4.8 percent in 2010, as measured by gross domestic product, with a 4 percent rise in the country’s consumer price index. Growth is expected to return gradually to a medium-term potential of 6 percent to 7 percent, the IMF said.

Lack of Finance Holding Back Enterprises: Experts

MSE meeting (Photo: CEN)

Chun Sakada, VOA Khmer
Phnom Penh Wednesday, 10 November 2010

"A lack of long-term financing can hold businesses back for years."

Owners of small and medium enterprises in Cambodia face a lack of capital and low-interest credit, which is hurting their ability to expand their businesses, a group of experts said Wednesday.

More than 300 participants gathered Wednesday for a national forum sponsored by the International Finance Corporation, the private sector arm of the World Bank, to find ways to make smaller businesses prosper.

“The challenges facing small and medium enterprises in Cambodia are lack of capital for expanding business operations, lack of access to credit with low interest rates and long-term credit, limited collateral to pledge for credit, and loans are small and service fees are as high as those of large loans,” said Te Taingpor, a co-chairman of a private-sector SME working group.

Small and medium enterprises, which play a key role in economic growth, cover sectors from agriculture to handicrafts and constitute a labor force of 1.4 million people, he said.

But the enterprises are hampered in getting loans by a lack of collateral, said Matthew Gamser, an IFC adviser for East Asia and the Pacific. A lack of long-term financing can hold businesses back for years, he said.

That means “companies are not growing fast enough to provide the jobs critically needed for Cambodia’s rapidly expanding labor force,” Gamser said. “Each year, an estimated 250,000 young Cambodians reach working age, ready to join the labor force and most of them are in rural areas.”

Ouk Maly, deputy governor of the National Bank of Cambodia, said that challenge for SMEs is a lack of trust of banking and financial establishments, reflecting a lack of information available to them.

Cambodia’s Struggle With Globalization [-Corruption, Corruption, Corruption!!!]

Monday, August 02, 2010
Hal Hill, Jayant Menon & Chan Sopha
East Asia Forum
The Jakarta Globe (Indonesia)

• Legal judgements are routinely for sale
• 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 percent

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

This changing physical landscape reflects broader developments across 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 two 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 internal hostilities almost two decades ago, life expectancy has risen by almost a decade and infant mortality has fallen significantly.

The macroeconomy is stable, with inflation under control, underpinned by very high levels of dollarization, currently about 90 per cent.

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 per cent 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, however, 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 also been rampant.

The local dailies abound with reports of land being awarded to the politically powerful for nominal amounts, and a startling detailed account is presented in the 2008 study by Global Witness entitled “Country for Sale.”

In addition, 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 resource curse thesis put forth by Richard Auty.

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 the following, for example:

• 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 percent, despite the introduction of a broad value-added tax. Thus the country’s infrastructure remains inadequate, in spite of the very large aid flows, and notwithstanding recent improvements.
• The number of banks has increased 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.

Hal Hill is a professor of economics at the Australian National University; Jayant Menon is principal economist at the Asian Development Bank; and Chan Sophal is president of the Cambodia Economic Association.

Requirements for foreign company to use 80% of Khmer work force - Editorial by Ven. Hok Savann

Click on the article in Khmer to zoom in

Development can debilitate

Vendors cross the border in Banteay Meanchey province’s Poipet town last year. A professor from Thailand’s Shinawatra University says new research indicates infrastructure projects such as Poipet’s Cambodian-Thai Friendship Bridge can facilitate trafficking. (Photo by: Steve Finch)

Monday, 10 May 2010
David Boyle
The Phnom Penh Post

In the supermarket, what can we find? Is there anything from Cambodia? There are some natural products packed in Cambodia. But the majority of the stuff is Australian or Thai, or some stuff is Chinese and some stuff is Vietnamese and so on. Almost nothing is from Cambodia.

John Walsh warns that infrastructure projects can exacerbate human trafficking

Though often touted by the government and donors as evidence of development, infrastructure projects can in some cases negatively affect the Cambodian economy while simultaneously fuelling human trafficking, said John Walsh, a professor at the school of management at Thailand’s Shinawatra University, at a regional conference on migration last week.

On the sidelines of the gathering, dubbed the “International Conference on Mobility Patterns of Cambodian and Other Nationals in the South East Asia Region”, Walsh elaborated on his research into Cambodian migrant workers.

Walsh drew from interviews with 59 Cambodian migrant workers employed in jobs he described as “3D” – dangerous, dirty and disgusting. The interviews revealed that the workers gained little long-term financial benefit from their jobs in Thailand, and that they faced both isolation and discrimination.

Could you explain in a bit more detail how you think major infrastructure projects can exacerbate human trafficking?

Infrastructure, insofar as it means roads and railways and civil aviation and so forth – in this case it means mainly roads – it’s widely thought among the [Asian Development Bank] and the kind of international development thinking people that such infrastructure will inevitably help aggregate economic activity. But there is much less knowledge specifically about who would benefit and who would not benefit – I mean, who would suffer from it.

If we look at the [Cambodian-Thai Friendship Bridge in Poipet town, Banteay Meanchey province], this road is clearly facilitating migration because it’s just making it easier for people to go from one place to another much more quickly. And since we now have greater ownership of personal transportation like motorbikes and so on, people can go seasonally from one country to another and then go back for the harvest season or so forth, so that’s facilitating what’s going on. Since human trafficking is also clearly occurring across the border, then it is abetting human trafficking. That’s just one of the unintended consequences of the infrastructure development.

You think of a big, nice, new road and bridge, you don’t think of that as the standard avenue through which people would be trafficked.

But if, as so many people here have been arguing, there are established authority figures who have been facilitating human trafficking, then it makes sense for them to use the roads over which they’ve got control rather than taking them through the roads and the jungles through which they don’t have control.

What are the economic consequences of the Poipet Friendship Bridge?

Last night, I went to the Lucky Supermarket, because like all business-teaching people I have to see what’s being sold rather than go to the tourist places. In the supermarket, what can we find? Is there anything from Cambodia?

There are some natural products packed in Cambodia. But the majority of the stuff is Australian or Thai, or some stuff is Chinese and some stuff is Vietnamese and so on. Almost nothing is from Cambodia. OK, now, in a situation where very few Cambodian firms can produce and distribute food items on a reliable, high-quality basis, then clearly Lucky Supermarket as a representative of retail is going to get its stuff from overseas. So it’s easier, presumably, to get stuff from Bangkok and drive it across the Poipet border point than it is to try and get someone up-country in Cambodia for the same products.

So in this case, again, the local people, through lack of their own capacity and ability in business and so forth, are going to lose out, and the larger producers – through economy of scale, economy of scope, all this kind of thing – are going to take advantage of the opportunity presented by the road. But that’s a one-way thing because coming to Thailand you’ll find very few Cambodian products coming the other way.

So it’s not like it’s an equal exchange. It seems, so far as I can tell, to be going just in one direction principally at the moment. Cambodia, meanwhile, is exporting labour, and the research that we did said that remittances are so low that they’re not actually making a difference for the families on a day-to-day basis.

But even if the money is just going into, for instance, paying off debts, surely they will eventually pay off that loan and thus benefit?

Yeah, but is it a loan that is going to improve their lives for the long term? Are they buying livestock, are they building a farm or are they just repairing a house in which they have to live in any case? Or is it just a loan to meet living expenses or educational expenses and so on? The sense that I got from our research was that the loans are not making a qualitative difference to peoples’ lives. They’re enabling the families to keep going, but without necessarily improving themselves.

Interview by David Boyle

Typhoon or big bright sun: the economic forecast on Cambodia goes wild

Kralanh (Siem Reap, Cambodia). 28/08/ 2008: Storm or no storm: can statistical projections prove as reliable as weather forecasts... (Photo: John Vink/ Magnum)

24-02-2009
By Laurent Le Gouanvic
Ka-set

Short, poor, ill and corrupt, or, in other words, the new potential composite of the average Cambodian person elaborated on the basis of statistical figures circulated here and there by various international and national organisations intervening in Cambodia. However, despite the profusion of reports, charts, tables and databases supposed to dissect the Cambodian economy and society, finding recent and reliable elements in the jungle of numbers that these statistics made in Cambodia represent remains a hard task. Alarmist views regarding the economic crisis do not help either since they provide indices which take different shapes and prove randomly malleable. And indeed, predictions for 2009 might well make one feel giddy, as they bet on an economic growth rate oscillating between 1% and... 6%, according to sources. Even though analyses disagree on the results concerning the past few years, forecasting Cambodian economy looks like a tough challenge.

Click to Read More...

After months of official denials and upbeat forecasts, Hun Sen admits that Cambodia is not immune to the rising global financial and economic crisis

Cambodia shares the pain

Feb 10, 2009
By Stephen Kurczy
Asia Times (Hong Kong)

"Hun Sen's government should move to stimulate the economy through fiscal outlays towards agriculture, infrastructure and social safety nets" - Stephane Guimbert, country economist for the World Bank, making a statement similar to Sam Rainsy's

PHNOM PENH - After months of official denials and upbeat forecasts, Cambodian Prime Minister Hun Sen said for the first time last week that the country's economy is not immune to the rising global financial and economic crisis. As key business sectors, including garments, tourism and construction, all show signs of weakness, the premier finally said the government must do more to stave off a crisis.

"It is clear that if the [government fails] to take timely and appropriate measures to manage the crisis, the effects of the global financial crisis and economic downturn will become a real cause for Cambodia's financial system and economy to fall into a dangerous crisis," Hun Sen said during an address to the Cambodian Economic Forum. He also took the occasion to lower the government's 2009 gross domestic product (GDP) growth forecast to 6% from 7% previously.

Although still higher than most outside projections - including the International Monetary Fund's 4.75% growth forecast - economists say the premier's disclosure represents a significant policy shift. The day before the February 5 forum, Cheam Yeap, a lawmaker from Hun Sen's ruling Cambodian People's Party and the chairman of the National Assembly's Finance Commission, said the global financial crisis would have "no impact" on Cambodia.

Those denials, however, had become statistically difficult to defend. The Economic Institute of Cambodia, an independent think tank, showed that exports in the first half of 2008 grew by only 6.7%, or about half the 12.6% rate recorded over the same period the previous year. That included a severe downturn in the crucial garment export sector: at least 22 garment factories were closed by the end of last year, shedding over 20,000 jobs in the process.

Tourism also saw declining growth in the second half of 2008, with arrivals dampened by an armed border dispute with neighboring Thailand and the closure of Bangkok's Suvarnabhumi Airport, through which many tourists transit to Cambodia. Tourism arrivals were up a mere 5.5% year on year, the first time annual growth was below 18% since the 2003 severe acute respiratory syndrome (SARS) scare of that year. It was also the first year since then that visits to Angkor Wat dropped, with visitor numbers down about 50,000 visitors to 1.05 million overall.

The booming construction sector, which had been driven largely by South Korea investors, has also been hit by the global turmoil. Douglas Clayton, chief executive of Cambodia's first investment fund, Leopard Cambodia, warned last September that local land values would fall as Korean investors pulled out of ventures because of sub-prime loan related problems back home.

By November, South Korean developer GS Engineering & Construction announced it was halting for at least one year construction on its US$1 billion, seven-skyscraper complex, and that it would scale back its original plan to only three buildings. With the economy slowing and South Korean investors heading for the exits, it's increasingly unclear from where the high-spending expatriates will arise to fill the high-end, high-rent complex.

Economically linked

Some analysts and commentators had earlier suggested that small, financially undeveloped Asian economies like Cambodia, which lacked exposure to toxic subprime products and had diversified their past reliance on exports to US and European markets, might "decouple" from deteriorating financial conditions in the West and maintain strong growth momentum.

But recent statistics show that "we can't say anymore that Cambodia is decoupled" from the wider global turbulence, said Stephane Guimbert, country economist for the World Bank. "Since we prepared [our 4.9%] projection [for Cambodian 2009 growth] in November 2008, most of the developments in the global economy have pointed to a deeper crisis than expected at that time," he said.

In part that's because Chinese demand for the region's products, many of them intermediate goods destined finally for Western markets, is not holding up as strongly as some had hoped. The IMF recently halved its 2009 growth forecast for Asia to 2.7%. During a February 2 teleconference announcing the Asia revision, IMF managing director Dominique Strauss-Kahn referred to the previous decoupling theory as "a funny story". "We have always been arguing here that there was not such a thing [as decoupling]," Strauss-Kahn said.

John Nelmes, the IMF's local resident representative, predicts Cambodian GDP growth will likely fall below 4.8% in 2009 and only recover to 5% to 6% next year if larger global economies implement well coordinated fiscal and monetary policies. If accurate, Cambodia's growth is expected to fall by half of recent trends; between 2004 and 2007, GDP growth averaged 11.1% annually.

"Looking forward to the near term, the global crisis is likely to take a heavy toll on Cambodia," Nelmes told Asia Times Online.

Until now, integration with global markets had buoyed the Cambodian economy. With the implementation of more market-oriented reforms, including measures to lure foreign investment, average per capita annual income more than doubled to $593 in 2007 from $285 in 1997. Now many fear a reversal of fortunes that could drive more Cambodians, already estimated at 35% of the population, back under the poverty line. Cambodia's poor were already hard hit by last year's spike in inflation, which soared to 25% last May before moderating to an overall annual rate of 13.5%.

Guimbert and others say Hun Sen's government should move to stimulate the economy through fiscal outlays towards agriculture, infrastructure and social safety nets. The World Bank also recommends more structural reforms so that Cambodia will be better-positioned to benefit when the global economy rebounds. Those suggestions include streamlining export processes and the establishment of a national arbitration center to allow foreign investors to bypass the country's notoriously corrupt courts for business disputes.

The World Bank ranked Cambodia 135 out of 185 countries surveyed for their overall business climate and in mid-2008 ranked it below every other Association of Southeast Asian (ASEAN) nation except Myanmar in three main categories: control of corruption, government effectiveness and rule of law.

That assessment was echoed last week by the United Kingdom-based environmental watchdog Global Witness in a new investigative report that accused Hun Sen's government of cornering and "pillaging" the country's growing mineral and petroleum industries. [See accompanying story]

Hun Sen says such assessments represent a double standard in light of the recent incompetence and corruption witnessed in the Western financial industry. "Rich countries are only blaming poor countries for corruption - they never blame one another," Hun Sen was quoted saying in the local media. "Powerful nations no longer have the right to advise small countries."

Stephen Kurczy is a Cambodia-based journalist.

The Rielisation Of The Dollarised Economy

Opinion by Khmerization
13th December, 2008

“The Riel of today is heading the way toward its demise. Unless we “Rielise” this dollarised Cambodian economy any sooner, the Riel will lose its relevance in the Cambodian economy and the poor peasants, who are unable to have their hands on the dollar, will be the ones to bear the greatest brunt of this financial model of the foreign economic mastery.”

For the last 17 years or so, the Cambodian people have lost faith in the Riel, the Cambodian currency, and depended on the U.S dollar in their everyday livelihood. Most of Cambodian financial transactions, from multi-national transactions down to the petty transactions in the local economy, have been carried out in U.S dollar since the time of the United Nations Transitional Authority in Cambodia (UNTAC) in 1991. Since then, the Cambodian economy has become a dollarised economy- the sort of a dollar-dependent economy. And since then, there have been calls for the Rielisation - the use of the Riel in all financial transactions - and the de-dollarisation of this dollarised economy by restricting the use of the dollar in the local economy.

The Cambodian economy has always been at the mercy of the world economy. Since Cambodia gained independence from France in 1953, Cambodia had, one way or the other, depended on international aid in order to survive. The 1950s was when Cambodia became dependent on French aid to sustain the national economy. In the 1960s, at the time when America was vying for Cambodia’s supports for the Vietnam War, America had injected substantial amount of aid to Cambodia.

During the Khmer Republic regime of Marshall Lon Nol from 1970-1975, Cambodia had almost totally depended on American aid to support the survival of a regime that was facing an onslaught by the ultra-nationalist Khmer Rouge and the North Vietnamese Army.

When the Khmer Rouge ruled the country from 1975-1979, in trying to establish an agrarian Utopia, Pol Pot had abolished the money, which have seen the demise of the Riel, and Cambodia became heavily dependent on Chinese aid. When the Khmer Rouge regime was toppled in 1979, Cambodia was again heavily depended on the Russian and Vietnamese aid until 1991. The Vietnamese-backed regime of Prime Minister Hun Sen had tried to re-energise the Cambodian currency and stimulate the defunct Cambodian economy by re-introducing the money into the national economy but the people don’t have the confidence in the local currency and gold had become the only most trusted unit of currency for most financial transactions.

From 1991, during the time of UNTAC rule until today, Cambodia had survived on an average of $700 million of foreign aid annually. The U.S dollar flooded the Cambodian economy and it had become the most single trusted currency beside gold in the Cambodian financial transactions.

This sort of aid-dependency and a dollarised economy has put Cambodia at the mercy of world economic situations and makes the Cambodian economy susceptible and prone to world economic woes.

The Cambodian economy, if it is to survive competitively, must Rielise and de-dolarise all financial transactions. After all, our neighbours, like Laos, Vietnam and Thailand have, for decades, never allowed foreign currencies to flood their financial markets and their economies have survived and thrived until today. The de-dollarisation and the Rielisation of the Cambodian financial markets is essential to boost local confidence in the national currency during the time of world economic slowdown, precipitated by the perceived collapse of the U.S economy that could cause the Domino Effect. With a dollar-dependent economy, Cambodia could suffer adverse economic effects and financial collapse, dragged down by the apparent collapse of the U.S economy of which Cambodia is heavily dependent on its dollar for all major financial transactions.

Cambodia, if it is to sustain deep financial crisis, must devise plans to tackle the anticipated world economic meltdown, similar to the measures taken by Malaysia during the 1997 Asian financial crisis. During that time, George Sorros, the American financier and financial speculator was flooding the U.S dollar in the Malaysian financial markets. Realising that George Sorros was deliberately attempting to destroy the Malaysian economy and fearing the collapse of the Malaysian financial markets, Prime Minister Mahathir Mohamad restricted the U.S dollar from the Malaysian financial markets and banned the exchange between the Malaysian Ringgit and the U.S dollar. The Malaysian economy had survived the Asian financial crisis unscathed.

The Cambodian currency, the Riel, had suffered image problems and confidence since Cambodia plunged into civil strife in the 1970s. Since then, people depended on gold, and foreign currencies for their financial transactions instead of the local currency.

Currently, Cambodia, to a certain degree, has been flooded with three foreign currencies. In Phnom Penh and provincial towns and even in the rural areas, the U.S dollar is widely used and are in large circulations, at the expense of the Riel. In the eastern provinces of Kampong Cham, Svay Rieng, Ratanakiri, Mondulkiri, Takeo and parts of Kampot, the Vietnamese currency, the Dong, has been widely used. And in the western provinces of Battambang, Siem Reap, Pursat, Pailin, Koh Kong, Oddor Meanchey and Preah Vihear, the Thai currency, the Baht, had become the de facto local currency. This has caused the Cambodian Riel to become worthless, idle and unacceptable currency in most parts of its own financial markets. As a result, people have refused to accept the Riel in financial transactions. In one example, during the UNTAC period, foreign businesses jokingly asked to be paid in “real money”, not “Riel money”. This is because they do not have the confidence in the unstable Cambodian currency and due to the fluctuations in the Riel-dollar exchange rate and the instability of the Riel.

There are legitimate reasons and rational arguments for the restrictions of the circulations of foreign currency, in particular the U.S dollar, the Thai Baht and the Vietnamese Dong, in the Cambodian financial markets, in order to boost confidence in the Riel. The de-dollarisation, the de-Dongisation and the de-Bahtisation in the Cambodian financial transactions is essential if the Cambodian currency, the Riel, is to have any chance of survival and maintain its significance and relevance in the Cambodian financial markets at all. The widespread circulations of foreign currencies in the Cambodian financial markets have eroded the confidence in the Riel and if measures are not taken to re-energise and re-articulate the use of the Cambodian currency by local people, we could see the demise of the Riel in the not too distant future.

For argument’s sake, there are valid reasons to revitalise the use of the Cambodian Riel. Cambodia, by allowing the widespread circulations of the foreign currencies in the local economy, has lost its economic independence. Instead it will be at the mercy of those countries whom their currencies flooded the Cambodian economy. If the economies of those countries go under, by the theory of the Domino Effect, the Cambodian economy will follow suit.

One other subtle evidence for the revitalisation of the Riel was the important role it played in the stabilisation of the Cambodian economy during the Sangkum Reatr Niyum in the 1950s and 1960s. The Cambodian economic growth was slow then, but due to the ban of foreign currencies in the local economy and the widely use of the Riel, its valuation was very stable and it was widely acceptable as a single unit of currency in the local economy. The Riel exchange rate was on par with the Thai Baht. Teachers, public servants, bureaucrats and ordinary workers were well paid. The living standards for most families were similar to the living standards of the people of Thailand.

On the contrary, there are also legitimate arguments for not allowing the circulations of foreign currencies in the Cambodian local economy. Currently, the Cambodian economy is a dollar-dependent economy. And presently, most dollars are hoarded in the hands of a few privileged people in Phnom Penh and the provincial towns. Most of these people, mostly businesspeople, politicians and bureaucrats, have foreign bank accounts. Most of the dollars that have been injected into the local Cambodian economy will end up in the foreign bank accounts of those few people. And as such, most of the money and funds that are supposed to be in circulations to support and stimulate the Cambodian economy are sitting idle in the foreign bank accounts of those privileged few Cambodians in Switzerland or in Singapore. As a result, the Cambodian economy has been deprived of its much needed fund injection and a stimulus factor to stimulate the growth.

The Riel of today is heading the way toward its demise. Unless we “Rielise” this dollarised Cambodian economy any sooner, the Riel will lose its relevance in the Cambodian economy and the poor peasants, who are unable to have their hands on the dollar, will be the ones to bear the greatest brunt of this financial model of the foreign economic mastery.
-------------------------------------------
Khmerization is not an economist nor has he claimed to be one. The views expressed here are not arguments based on economic rationale, but rather they are purely the personal opinions of the author.

Cambodia Braces for Global Finance Woes [-Cambodia's economic growth could drop to 6.5%: ADB]

An investor looks at the stock price monitor at a private security company in Shanghai Wednesday, as Chinese shares fell to a 22-month low. Analysts worry that weakened Asian markets could hurt Cambodia.

By Ros Sothea, VOA Khmer
Original report from Phnom Penh
17 September 2008

Click here to listen to the Khmer audio program

Economic turbulence in the US and Asian markets this week will indirectly affect Cambodia's industries, even as inflation and other factors have weakened the economy so far this year, economic and finance experts said Wednesday.

The bankruptcy announcement by US financial firm Lehman Brothers and the sale of brokerage firm Merrill Lynch to Bank of America this week upset US and Asian markets and led to worries of a global economic crisis.

"The longer term concern is that the world economy will be impacted and that will have follow-on effects for Cambodia, but how big those effects will be remains to be seen," said Stephen Higgins, chief executive officer of ANZ Royal Bank.

Cambodian and international economists said Wednesday falling markets could harm Cambodia's leading sectors: garments and tourism.

The US is the top importer of Cambodian garments, and the sector, which is Cambodia's economic engine, already has seen weakened growth in 2008, analysts said. Tourism, the second-highest earner for Cambodia, could be hurt as potential visitors stay at home to weather the economic storm.

Cambodia could also be affected by a drop in foreign investment from its Asian neighbors.

"One thing that we would need to keep a close watch on is sort of providing finance to Cambodia in terms of foreign direct investment," said Eric Sidgwick, an economic officer at the Asian Development Bank in Phnom Penh. "You know, China, Korea, Thailand and other countries. How will they be affected by the turmoil in the US? They may in turn have less resources to bring to Cambodia."

Meanwhile, the Asian Development Bank said in an outlook report released Tuesday that Cambodia's economic growth would drop to an estimated 6.5 percent, down from 9.6 percent in 2007.

The decline in economic growth was a product of a garment sector suffering from the decline of US consumption, as well as inflation and the drop in value of the US dollar, the ADB said.

Hun Sen's diplomatic juggling act

Jul 18, 2008
By Geoffrey Cain
Asia Times (Hong Kong)

PHNOM PENH - More than any other Southeast Asian country, Cambodia finds itself caught in the middle of competing United States and Chinese diplomatic overtures. With Washington offering bilateral strategic initiatives and Beijing rich financial assistance, Prime Minister Hun Sen has deftly balanced the country's diplomacy between the two superpowers to his government's political advantage.

In 2006, the US opened a massive new embassy in Phnom Penh, underscoring Washington's new diplomatic commitment to the country. The facility includes office space for fighting global terrorism, including a large US Federal Bureau of Investigation (FBI) presence and a new joint National Counterterrorism Committee, established in 2007.

FBI director Robert Mueller pointed to the fact that Jemaah Islamiyah operative Riduan Isamuddin, alias Hambali, had taken refuge in a Cambodian Muslim school before his capture in Thailand in 2003 as one reason for setting up the new counterterrorism agency. US Ambassador Joseph Mussomeli chimed in that unnamed radical Muslim groups were bidding to impose with funding a stricter interpretation of Islam on the local Muslim Cham community.

China, on the other hand, has deployed commercial resources to win influence. Since 2005, Beijing has offered up around US$600 million in annual economic aid, with funds earmarked for roads, bridges and dams. Unlike the previous aid received from Western donors - which in recent years accounted for over half of the country's national budget - Chinese money comes with no pre-conditions that Hun Sen’s government fight graft or move towards more democracy.

In February this year, the Chinese government promised to help electrify Cambodia's power-starved countryside, including a $1 billion commitment for two major dam projects. Those projects will alleviate chronic power shortages, which the World Bank says have led to the world's highest energy costs.

The projects will also help power operations of the more than 3,000 Chinese companies now situated in Cambodia and which in 2007 produced US$1.56 billion in revenues, accounting for 7% of gross domestic product (GDP), according to Economic Institute of Cambodia statistics. China now employs a sizable proportion of the national workforce, supplanting the mostly Western non-governmental organizations and garment factories which dominated the local economy in the 1990s, when the country first emerged from decades of war.

Cambodia's economy is expanding at double digit growth rates and China's economic interest in the country has intensified since 2005, when US oil company Chevron discovered what some have projected are large stores of oil and gas off the country's southern coast. Those growing commercial ties were witnessed in the establishment in February of a special economic zone at the coastal town of Sihanoukville, from which goods will be produced for export duty free to China.

At least six Chinese companies have so far signed contracts with the zone's two Chinese and Cambodian developers. Once a second phase of construction is completed in 2011, the Sihanoukville zone will have the capacity to accommodate 150 companies and 40,000 workers. The Chinese developers hope the zone will export $2 billion worth of products per year by 2015, according a joint press release.

Hun Sen attended the SEZ's launch and noted after signing an official agreement with the project's developers that the new facility would stoke growth in the Cambodian economy and strengthen bilateral ties with China. Beijing has donated nine patrol boats to the Royal Khmer Navy to help secure the new facility against piracy and trafficking.

While China's economic influence grows, that of the US is on the wane. In recent years the US has given around $150 million in annual economic aid, a small fraction of China's commercial patronage. At the same time US-Cambodian trade ties have fallen off, seen in the 30% year-on-year decline in garment exports to the US in 2007. The US has long been the primary importer of Cambodian textiles, which is still the country's largest export item.

By offering more aid through strategic initiatives, the US policy towards Cambodia has apparently shifted after emphasizing throughout the 1990s the promotion of democracy and the rule of law. That frequently put the two sides at diplomatic loggerheads, notably over an FBI investigation into a March 1997 bomb attack against a rally held by opposition politician Sam Rainsy in the capital Phnom Penh which killed at least 16 and injured 150 people, including a US citizen.

According to a Washington Post story from June 1997, which quoted four US government sources with access to classified material, the FBI had tentatively pinned responsibility for the blasts and subsequent interference in their investigations on Hun Sen's personal Brigade 70 bodyguard unit. The US has never publicly released the investigation's findings, although US-based Human Rights Watch earlier this year called upon Washington to re-open its long-stalled investigations. "Instead of trying to protect US relations with Cambodia, it should now finish what it started," the rights group said in a statement.

Terror ties

Instead, the US State Department claimed in a recent report on trafficking in people that the human rights situation in Cambodia is improving under Hun Sen's watch. It praised in particular his government's efforts to combat human trafficking. More controversially, the FBI in April last year invited national police chief Hok Lundy to Las Vegas for discussions on counterterrorism, even though Lundy has been implicated in a number of serious human rights abuses.

According to Human Rights Watch, which said it has presented its own evidence to the US government, Lundy was part of the conspiracy that carried out the 1997 grenade attack, an act the FBI had previously classified as a "terrorist act". He also commanded battalions loyal to Hun Sen that carried out the July 1997 coup that ousted co-prime minister Norodom Ranariddh, where some opposition party members and supporters were killed in extrajudicial fashion and many more fled into exile.

Last week's murder of a Sam Rainsy Party-aligned journalist, Khem Sambo, also raises questions about possible government actions in the run-up to general elections scheduled for July 27. Former co-prime minister and now the leader of a political party under his own name, Norodom Rannaridh, recently sought refuge in Malaysia after the government leveled defamation charges against him.

The US's upbeat assessment of Cambodia's human rights record may be seen as a diplomatic response to China's more unconditional and commercial approach to bilateral relations. There is also the historical guilt factor, shared by both the US and China, and a major complication in winning over Hun Sen's trust. Beijing famously backed the murderous Khmer Rouge regime, both while the radical Maoists were in power from 1975-79 and after they were overthrown by Vietnamese forces in 1979 and took up guerilla arms around the Thai border.

The genocidal regime is now held responsible for the deaths of as many as 2 million Cambodians, including ethnic Chinese businessmen. Meanwhile, the US is estimated to have killed over 500,000 Cambodians during its secret bombing campaign from 1969 to 1970, which intensified the country's civil war. The US also backed the 1970 Lon Nol-led coup which deposed Prince Norodom Sihanouk as head of state.

Some estimate China now has the upper hand over the US in terms of relations with Cambodia. While Hun Sen welcomes US counterterrorism initiatives, which will likely go a long way in improving the government's surveillance capabilities, the premier's statements about the actual risk of terrorism to Cambodia have been conflicting.

After a foiled bomb attack of the Cambodia-Vietnam Friendship Monument in July 2007 by a group of local radicals, Hun Sen asserted his government's will to combat terrorism. But by February 2008, he apparently flip-flopped his position by saying that there were no terrorists in Cambodia.

More clearly, Hun Sen's cooperation on US counterterrorism initiatives is subordinated to his government's drive to promote more Chinese trade and investment. Foreign investment approvals from China amounted to $763 million in 2006, nearly double the 2005 figure, according to the Council for the Development of Cambodia. Those figures were expected to be even higher last year with the various deals signed by the two sides.

While the US tries to deflect China's commercial diplomacy, Beijing has simultaneously landed on ways to unite economically and culturally with Cambodia, including through outreach to politically influential ethnic-Chinese entrepreneurs. It's also apparent, some say, in the fading popularity of the English language over Mandarin Chinese, also known as Putonghua, in local schools. Cambodia is now home to the largest Chinese school in Southeast Asia, Duan Hua, which currently enrolls over 8,000 students. The most popular Chinese courses are specifically geared towards business, with students reasoning that English language capability may help to land jobs with international aid organizations, while Mandarin, which is taught across mainland China as the official language, will catapult them into more lucrative positions in business.

Another indication that China is winning the struggle for hearts and minds came in January, when Cambodian police halted and threatened to deport US activist actress Mia Farrow for attempting to stage a protest against China's commercial relationship with Sudan's murderous regime. Farrow said she picked Cambodia as a symbolic place for her protest, given both Sudan's and Cambodia's genocidal experiences while receiving Chinese assistance. Government spokesman and Minister of Information Khieu Kanharith said at the time that authorities banned the protest because it had "a political agenda against China", a stance Hun Sen's government clearly doesn't share.

Geoffrey Cain is a Cambodia-based journalist. He may be reached at
geoffrey.cain@gmail.com