Government officials this week dismissed speculation that the printing of extra riel is fueling the currency’s depreciation.
However, one National Bank of Cambodia official said additional riel notes have been printed and several others said notes had been taken out of the bank’s riel reserves—both measures to replace old money that ostensibly was subsequently destroyed.
The extent of the problems plaguing Cambodia’s economy and currency remain murky. Senior members of the government and the NBC officially maintain that the riel reserves are stable and the increase of riel in circulation in Cambodia is due to spending by the government on Khmer Rouge defectors, and by political parties gearing up for the July 26 scheduled polls.
But privately, diplomats and some close to the government express concern that the riel could continue to fall and the government’s economic house is near collapse. It is unlikely, they say, that the nation’s riel reserves have gone untouched.
Economists say that dipping into the reserves would negatively affect long-term economic health.
“The government has no choice,” said a senior government adviser. “The government’s financial situation is dire. If they don’t pay civil servants, including the police and the army, they will have big problems.”
Since March, said Teang Seng, NBC general director of the cashier department, new 500-, 1,000- and 10,000-riel notes have been taken from the bank’s reserves in exchange for old notes.
Another NBC official, speaking on condition of anonymity, said Wednesday that 500-riel notes were printed and have replaced an equivalent amount of since-destroyed older notes.
The exact amounts of riel printed and destroyed and the date the notes were destroyed were unavailable. An Asian economic observer noted that, given the problem of security, there was no way to confirm that all the currency was destroyed.
Teang Seng insisted that it is against bank policy to print more money when the government is facing a shortfall—a common strategy by many governments to manage money supplies.
A senior Finance Ministry official said he did not know whether more riel had been printed, but an economic adviser to the Council of Ministers, Te Duong Tara, maintained Thursday the rumors were false.
Economists warned that increasing the amount of riel in circulation by printing more notes would be disastrous.
“If it’s true [the government is printing more money], it’s not good,” government economist Bit Seanglim said Thursday. “When you print more currency, it dilutes the value and fuels inflation. If they start printing money, I think inflation will be very, very bad.”
Teang Seng of the National Bank acknowledged the government has used riel reserve funds in past emergency situations.
“If the government has a budget shortfall to pay government salaries or for any spending, the Finance Ministry can ask the bank to issue reserves,” Teang Seng explained.
He did not know how much was in the riel reserves, but said “there is enough.”
Only Finance Minister Keat Chhon and NBC Governor Chea Chanto know how much is in the reserves, according to Te Duong Tara. Neither official could be reached for comment.
Meanwhile, the NBC continued its attempts to stabilize the riel with another dollar auction Thursday, selling $300,000 at a rate of 3,975 riel to the dollar. By the end of the afternoon Thursday, the riel had appreciated slightly from Wednesday. Currency traders were buying dollars at a rate of 3,995 and selling dollars at 4,005. The NBC’s official rate sat at 3,955.
Tal Nai Im, NBC deputy director-general, said another auction would be held if the riel begins to drop further, but she believes the riel will hold at 4,000 to the dollar.
But Bit Seanglim described the currency auctions as a “last resort” for poor countries such as Cambodia. The practice, he said, just delays the currency’s inevitable drop—it should just be left to the free market.
And many observers say they believe the riel will continue to drop, despite a recent pledge by Chea Chanto to keep the riel at 4,000 to the dollar.
Instead of supporting the currency, said Bit Seanglim, the government should instead focus on expanding its economy and collecting more revenue.
The government’s budget shortfall, caused by the drop in customs revenue, foreign investment and donor’s budget support following the factional fighting last July, has been compounded with additional expenditures for the National Election Committee and the recent mass Khmer Rouge defections.
Te Duong Tara said these two latest events are the cause for the additional riel which has recently begun circulating in the market.
Other officials and observers also continued to blame the usual culprits for the riel’s decline, including a lack of confidence in the currency and the loss of foreign exchange due to the purchase of imported goods being dumped at low prices.
At a press conference on the economy Thursday, Cambodian-American politician and businessman Ted Ngoy said the government must ensure political stability and crack down on corruption in order to attract foreign investment. He recommended Cambodia use Singapore as a model.
(Additional Reporting by Jeff Smith and Chris Decherd)