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CAMBODIA ADMITS VULNERABILITY


After months of official denials and optimistic economic forecasts, Cambodia Prime Minister Hun Sen admitted for the first time that Cambodia is indeed vulnerable to the rising global financial crisis. Moreover, Prime Minister Sen announced that the government must do more in order to prevent a crisis.


After months of official denials and optimistic economic forecasts, Cambodia Prime Minister Hun Sen admitted for the first time that Cambodia is indeed vulnerable to the rising global financial crisis. Moreover, Prime Minister Sen announced that the government must do more in order to prevent a crisis.

In an address to the Cambodian Economic Forum, Hun Sen said, “It is clear that if the [government fails] to take timely and appropriate 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 the economy to fall into a dangerous crisis.” He also continued to lower the government’s 2009 GDP growth forecast to 6 percent, down from 7 percent. The announcement came on news that Cambodia’s three strongest business sectors, garments, tourism and construction, all showed signs of weakness.

Although the government has finally acknowledged its vulnerability, it may still be too optimistic with its projections. Many outside projects, including the International Monetary Fund (IMF), foresee Cambodia’s growth at a more modest 4.75 percent. However, the announcement that Cambodia is indeed vulnerable marks an important policy shift for the government.

After months of denial, the statistics became too difficult to defend. The independent think tank, The Economic Institute of Cambodia, released numbers that marked a significant difference of opinion. First, export growth shrank from 12.6 percent to 6.7 percent in the first half of 2008. This included a strong drop off from Cambodia’s number one export, garments. At least 22 garment factories were closed in 2008, cutting over 20,000 jobs.

Tourism had also declined significantly. Tourism arrivals were up only 5.5 percent year on year, marking the first time tourism growth was under 18 percent since the 2003 SARS scare. Finally, the booming construction sector was hit particularly hard from the financial crisis. The largest investor, South Korean developer GS Engineering & Construction, announced its plan to halt development on its seven skyscraper complex, valued at $1 billion.

However, the Cambodian Government was not alone in its beliefs. Some analysts and commentators had argued that small, financially underdeveloped Asian economies may be safe from the global financial crisis. They argued that the lack of exposure to the sub-prime market and diversified exports away from the US and European markets would enable such emerging countries to maintain strong economic growth.

The turning point may have originated in China. As China has recently downgraded its growth forecast, the rest of Asia seems to be following suit. The IMF has recently lowered the 2009 growth forecast in Asia to 2.7 percent, down from 5.4 percent.

But all is not lost for Cambodia. Although growth may dip below 5 percent for 2009, Cambodia can return to 6 percent growth by 2009 if well coordinated fiscal and monetary policies are implemented. Assuming inflation can be controlled, market orientated reforms, specifically attracting foreign investment, can help to pull Cambodia out of its recent dip. Although a return to double digit growth seems unlikely, Cambodia is in relatively good shape compared to many Western countries.


Source: www.AsiaEcon.org
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Source: www.asiaecon.org |


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