Business Watchers Eye Government Stability

Foreign investment will remain low until a new government is formed, financial experts and businessmen across Phnom Penh said Tuesday.

“The new coalition government needs to be created as soon as possible,” economic expert Bit Seang Lim said. “Any delay or dispute will keep investors out of the country.”

Uncertainty over the formation of the new government is one of the few stumbling blocks for the business community in an otherwise stable election period. The value of the riel remains steady against the dollar. The price of goods has not gone up. Though sales have declined in some sectors, business leaders say this election has been much calmer than the national elections in 1993 and 1998.

“The economy has slowed down, but that’s normal for before an election,” said Senaka Fernan­do, chairman of the British Bus­i­ness Association of Cam­bodia. “The economy was much slower in 1998 because in that election, there was much more violence than there is now.”

It is common for investors to wait for political stability, said an official with the Council for the Development of Cambodia. Ex­isting enterprises will continue operations, but new investors will wait one or two months after the election before spending their mo­ney.

Foreign investment is lower than in previous years, the CDC official said, not so much because of the election but because of a global economic slowdown.

The US-led war in Iraq, severe acute respiratory syndrome and lingering effects of the Sept 11, 2001, terrorist attacks in the US have collectively caused a de­crease in foreign investment in  Cambodia.

“The new investors are waiting,” the CDC official said. “If our country remains stable in the next month, investors will be back.”

Before a national election, ac­count holders have a history of withdrawing their money from banks and hiding it under their pillows, said Canadia Bank Vice President Phuong Khinh Hoa.

In 1993, for example, customers withdrew 30 percent of his bank’s total assets, he said. In 1998, customers withdrew 25 percent. This year, he said, customers withdrew just 18 percent—a sign that they are slowly gaining confidence in banks and the electoral process.

“We have not heard gunshots this year,” Phuong Khinh Hoa said. “I can see this year the CPP position is quite peaceful. With Cambodia about to join the World Trade Organization, the government realizes [that] to attract more in­vestors they need stability.”

Though there is yet to be a co­alition, Phuong Khinh Hoa said, Canadia Bank’s customers started re-depositing their money this week.

Acleda Bank, which primarily assists small- and medium-sized businesses, said customers retained their confidence in the bank during the election. While General Manager In Channy thought customers would withdraw their money before the election, he said they kept it in the bank instead.

“If customers flock to our bank to withdraw money, we can tell they don’t trust the political environment,” In Channy said. “Now people have come to trust the bank and the political environment. They realize keeping their money in a bank is safer.”

The value of the riel remained stable during the past few months, according to Acleda. In May, the riel sold for 4,047 per $1. In June, it sold for 4,010 and this month it is selling for 4,000.

Vendors are now returning to the markets, said Sok Kim Heng, chief of Phsar Thmei.

He said he did not seen prices jump or an increase in sales of rice or household goods before the election.

“The situation is much better than 1998,” Sok Kim Heng said. “Vendors went to vote with happiness and returned to the market without concerns.”

Some supermarkets around town, however, saw customers stocking up on canned goods and bread before the election. Though business has remained relatively stable, store owners said there was a slight drop in sales after the election.

“I sold a lot of food on Saturday,” said Pheon Rath, an assistant manager at Veggy’s, a Phnom Penh market. “Since the election, it’s been slow.”

Real estate companies have seen business plum­met in the past month. Song Hak, a law­yer at his Cam­bodia In­ternational Law Firm who handles real es­tate appraisal cases, has seen his caseload drop from one case a day be­fore the campaign season to one or two cases a week in July.

“Some people are scared be­cause of the election,” Song Hak said. “My hope is the new government will be formed quickly.”

Bonna Realty Co Ltd owner Bonna Sung said both foreign and local investors have stopped purchasing property. But he says he does not think it will take long for the new government to take shape.

“This government is strong enough,” said Bonna Sung, who has seen business drop 60 percent in the past month. “If the other parties were stronger then there would be problems.”

Since the strength of the economy is tightly linked with political stability, business leaders agreed that it was in the country’s best interest to form quickly a new government.

Economist Bit Seang Lim even suggested the CPP, Funcinpec and Sam Rainsy Party should come together for the sake of the economy.

“There are good signs for Cambodia’s economic development if there is a coalition of the three major parties,” he said.

“It does not matter that their political platforms are different. They can still sit down and work out a formula to spur economic development.”

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