Government Scrambles to Keep Riel from Crashing

Cambodia’s central bank and key ministers are scrambling to figure out ways to stabilize the country’s currency in the run-up to the scheduled July 26 elections.

Finance and commerce ministers and cus­toms officials have been meeting in recent days to consider proposals by the Na­tion­al Bank of Cambodia to strengthen the riel. The currency has slid steadily since July, when it stood at 2,700 to the dollar. In the past month it has dipped noticeably, and now hovers ar­ound the 4,000 mark.

Without intervention, some ex­perts say, the riel could drop to 5,000 by election day, re­peating a pattern experienced in 1993.

That could especially hurt poorer citizens who buy commodities in riel. It also could mean higher-priced imports. The drop in the riel is less likely to affect those who buy in dollars.

Already, prices for such commodities as eggs, chicken, rice and sugar have increased by about 20 percent in recent weeks in some Phnom Penh markets.

The riel recently dropped to its lowest level since February, when it temporarily hit the 4,000 mark. It was at 3,875 on Tuesday.

National Bank officials have blamed the decline on the country’s heavy reliance on dollars, the government’s failure to collect tax revenues and an increase in the price of goods imported from Thailand. In the last case, the Thai baht has been strengthening.

“The country’s financial condition right now looks bad, but we are preparing to stop the [price] rise of goods to keep the riel stable,” said Chea Sok, general director of the National Bank.

Chea Sok said 10 proposals are on the table, many of them having to do with import-export is­sues and technical bank payment issues.

One proposed measure would request vendors to keep prices stable, in part by listing prices on items. In the past, the bank also has used currency auctions to support the riel.

The goal, Chea Sok said, is to agree on some measures by this weekend after at least one additional meeting.

Jean Morel, an economic adviser to the Council of Ministers, said that two or three months ago he was predicting the riel would be at 4,000 to the dollar at election day. “I’m surprised that it’s gotten there so quickly,” he said, guessing it might to 5,000 if the government doesn’t intervene.

“The finances are not so good because there’s not a lot of investors and expenditures continue to go up,” he said.

Some diplomats and economic experts are more blunt, saying the government is facing a severe cash crunch and is not far from being broke.

Aun Porn Moniroth, an adviser to the Finance Ministry, confirmed on Tuesday that Finance Minister Keat Chhon has met with key ministers to discuss what measures to take.

“Everybody knows what [the country’s financial condition is],” Aun Porn Moniroth said. But he said he wasn’t involved in the meeting, so couldn’t comment about what was discussed.

Other finance ministry officials couldn’t be reached for comment on Tuesday.

Even if the riel slides further, experts said they don’t expect that to have a big impact on post-election investment.

An economist noted that many countries experience similar situations leading up to an election, and that Cambodia’s problems may be exaggerated only because of the political uncertainty here.

Craig Martin, executive director of IMIC International, an investment consulting firm, said that for new investors, waiting two to three months doesn’t make much difference.

“For the new investor especially, they’re saying, ‘There’s no point to investing now, let’s wait]’” until after the elections, he said.

In the meantime, he said, many are preparing to invest in Cambodia—in the garment and other basic manufacturing industries, tourism and agriculture.

And he predicted investment will increase rapidly in Cambodia after the elections, as long as investors see political and legislative stability, and international acceptance of the results.

“A weak or split government is not for investors, that’s been the problem over the last 18 months,” said Martin, alluding to the unsuccessful power-sharing arrangement between CPP and Funcinpec. “Investors want a stronger government, some stability.”




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