Reforms Needed To Tackle Crisis, Forum Told

To avoid dire consequences from the world financial crisis, Cam­bodia must improve its ability to compete economically, diversify its sectors and speed up reforms, Prime Minister Hun Sen and donor organization officials said Thursday.

Speaking at the 3rd Annual Cam­bodian Economic Forum, Hun Sen warned of serious consequences if the government doesn’t act.

“It is clear that, if the [government] fails to take timely and appropriate proactive 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,” he said.

The government’s Supreme Na­tional Economic Council held the forum in cooperation with the World Bank, Asia Development Bank and UN Development Pro­gram. Only the first session was open to the media, while the second two were closed.

World Bank Country Director Qimiao Fan told the forum that af­ter a decade of growth averaging about 9.5 percent a year, 2008’s growth was about 7 percent, ac­cording to a copy of his prepared remarks.

Last year’s growth decline is “un­fortunately, just a warning before the sharpest slowdown expected for 2009,” he said. The World Bank has predicted 4.9 percent growth in 2009.

A World Bank report prepared for the forum states that Cambo­dia’s economic growth in its current form is “unlikely” to be sustainable, but if necessary steps are taken growth could resume at 6 or 7 percent.

Cambodia’s growth has been too narrowly based in the last decade on four sectors: garments, tourism, construction and agriculture, ac­cording to the report, with garments accounting for 88 percent of exports.

“The achievements of the past decade are very fragile and leave many Cambodians poor with few assets. The base for this economic growth appears narrow. And the winds that once served Cambodia well—global trade and investment flows—have lost their strength, at least temporarily,” the report stated.

Since the 1990s, the policies of the International Labor Organiza­tion’s Better Factories Cambodia program have encouraged garment exports to the US and Europe by promising good working conditions for workers, and Cambodia must now generate other such policies to develop other sectors, the re­port stated.

The Cambodian economy must also trade more regionally, the re­port stated, noting that only 13 percent of its trade is within the region. Cambodia’s neighbors, by contrast, on average conduct 49 percent of their trade within the region.

And although natural resourc­es, particularly minerals and energy, continue to show potential, more oversight must be created to en­sure accountability, the report said.

Corruption and the lack of an ef­fective court system continue to be constraints on entrepreneurs, the report stated, and a lack of infrastructure and electricity continues to be a problem.

Finance Ministry Secretary-Gen­eral Hang Chuon Naron explained that the global financial crisis has lowered demand for garments and tourism, according to a copy of slides for a forum presentation that was not open to the media.

Garment export growth in 2008 decreased 2 percent after steadily increasing by 15 percent from 2002 to 2007, according to Hang Chuon Naron’s presentation.

The global crisis has also dried up investment in construction, particularly from South Korea, the presentation continued.

Arjun Goswami, country director of the ADB, said the global financial crisis “may turn out to be the outset of one of the severest recessions in decades in several of Cambodia’s key export markets,” according to a copy of his prepared remarks.

He predicted the crisis would curtail garments, tourism and construction for at least two or three years as 250,000 people enter the job market every year.

Cambodian agriculture needs more investment in infrastructure, technology and training, he said.

Hun Sen agreed that more must be done.

“In the current context, the Royal Government clearly sees the op­portunity and needs to push forward the systematic and interrelated reforms, which aim at improving investment and business climate,” he said at the forum.

The government and private sectors need to cooperate more to re­duce legal procedures and re­quire­ments that raise the cost of doing business and may hinder investment, the prime minister said.

The government will also pass legislation to encourage food processing and production, particularly in rice mills, he said. The government must increase job training to expand other sectors, he said.

But Hun Sen rejected an opposition recommendation of a $500 million stimulus package as “unreasonable” for Cambodia given its budget.

SRP lawmaker Mu Sochua, who was barred from entering the for­um Thursday morning, said by tel­ephone that Cambodia needs the money for things like microfinance loans to farmers and vocational training.

She added that many reforms, such as anti-corruption measures, as well as better funding to spawn growth in the agricultural sector, could have been made years ago.

“I think there’s a very serious situation and we cannot allow the situation to go on much further than this,” she said.

 

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