Prime Minister Hun Sen warned yesterday that the declining value of the US Dollar could increase costs in Cambodia and reduce the spending power of those being paid in US currency.
“I am worried about the woe of the US dollar,” Prime Minister Hun Sen said in a speech at the National Institute of Education in Phnom Penh. “The weak dollar is causing us problems as a lot of people in our country get paid in dollars.”
Economists said that Cambodia’s high trade deficit with non-US countries would make rising costs a distinct possibility as imports become more expensive from countries whose currencies have appreciated against the dollar.
Cambodia’s dollarized economy also means that the central bank is unable to introduce monetary policies such as altering interest rates in order to control the value of its own currency, the riel.
“As a dollarized economy, Cambodia will have to pay more for the same imports from countries whose currencies have appreciated against the US dollar,” said Chan Sophal, president of the Cambodian Economic Association. “Conversely, Cambodia’s exports to those countries may become cheaper and may therefore increase.”
Mr Sophal added that the cost of production in Cambodia could increase as many goods are imported from countries other than the US.
“This limits the competitiveness [that] resulted from the cheaper US dollar,” he said.
According to World Bank figures, Cambodia’s trade deficit amounted to $1.57 billion in 2009, or 16 percent of gross domestic product. In contrast Thailand recorded a trade surplus of $19.4 billion in 2009.
On Friday the US currency slid to $1.4159 per euro, its lowest level since Jan 26, before selling yesterday at $1.3875 in midday trading. The Japanese yen on Friday traded at 80.88 per dollar, its strongest level in more than 15 years.
Still, Ken Loo, secretary-general of the Garment Manufacturers Association in Cambodia, said the garment sector, which accounts for around 80 percent of all Cambodia’s exports, would not stand to benefit much from the weaker dollar as most other currencies in the region are also relatively weak at the moment.
However, buyers in Europe and other non-dollarized countries could take advantage of cheaper exports from Cambodia if the dollar remained low over a sustained period of time, he added.
Nonetheless, as most importers of garments from Cambodia are based in the US, an increase in demand for garments is not expected to be very substantial.
“Retail is always in US dollars, so it doesn’t really affect us,” Mr Loo said. “We are highly dollarized and you are paying your expenses in US dollars.”