Thursday, May 9, 2013

IMF: How to grow Cambodia

Cambodia’s economic take-off has been truly impressive. With peace and stability, and the government’s focus on export-led development, growth has averaged about 8 per cent in the last decade, doubling per capita income and halving the poverty rate. 

Cambodia is now poised to enter the next phase of its development and with aspirations to soon join the ranks of emerging markets, the focus now, understandably, is on the continuity of that take-off.

That prompts some deeper questions: What is the recipe for igniting and sustaining take-offs in developing countries? What can Cambodia learn from the previous generation of countries on how to navigate the next phase? 

With over one-third of Cambodians below 15 years and the vast need for job creation, these questions and their answers have profound real life implications for so many.  

Researchers at the IMF have analyzed precisely these questions in the April 2013 World Economic Outlook, which has been published worldwide and presented to policy makers in Phnom Penh a few days ago. 

The research project has sifted through the experience of more than 60 low-income or developing countries over the last 60 years. To add to that, it has featured Cambodia as one of the impressive growth stories since the 1990s.

Before we highlight the main findings, let’s touch a bit on the global growth context.  

In recent economic history, there have been two waves of growth take-offs among low-income countries over the past 60 years. The first wave started around the 1960s and 1970s; the second around the 1990s. 

Cambodia has solidly been a part of the second wave. 

Here is some good news: growth take-offs are now more likely and longer-lasting. 

What explains the higher probability of take-offs? It is mostly due to better structural and macroeconomic conditions, findings the policy makers in Cambodia can fully relate to. 

Unfortunately, the promise of the first wave fell short as many take-offs fizzled out, when the global economy turned sour in the late 1970s and 1980s. 

In fact, one-third of take-offs prior to the 1990s ended with a currency, debt, or financial crisis, and some countries even saw reversals in per capita income levels within 15 to 20 years after take-off. That’s why understanding the shared features of successful take-offs is so critical. 

Although many roads lead to growth take-offs, they usually involve strong investment and export growth, underscoring the importance of policies to improve the investment and business climate and foster trade integration in developing countries. 

Furthermore, recent take-offs have been supported by stronger FDI, higher education levels, lower regulatory burden for businesses, lower income inequality and more stable political conditions. Fortunately, many of these are outcomes of policy choices, not accidents.  

What are the lessons for Cambodia? 

Cambodia’s open trade and investment regimes, and proximity to some of the most dynamic economies in the world, have served it well and provided immense opportunities to continue to attract foreign direct investment and deepen trade links in regional and global markets. 

This will further improve productivity and support activity. But to get there, it has to address many policy challenges. 

First, removing infrastructure bottlenecks, most urgently with respect to power supply and roads, and improving the business climate will remain critical for continuing to attract private investment and further diversify its economy. 

Second, in light of the rapid growth of Cambodia’s banking system and the introduction of new financial instruments and markets, such as the stock exchange in 2012, it is important to keep in mind that financial deepening must continue without compromising financial stability, one critical lesson from the first wave of take-offs. 

That will require managing financial deepening by enabling market participants to better manage risks, and continuously upgrading prudential supervision and regulation. This is especially important in a system like Cambodia’s that is also marked by a high degree of dollarisation and capital account openness. 

Third, mobilising fiscal revenue will help build fiscal buffers and generate the resources necessary to cushion the economy against adverse shocks and meet the country’s development needs. 

The latter concerns in particular human capital development through improved health and education, a goal the government has also embraced.  

It is worth noting that the IMF’s regular policy dialogue with Cambodia has over the years led to a convergence of views on these lessons and has also guided the IMF’s technical assistance in Cambodia, from financial supervision to economic statistics to fiscal management.

An old Khmer proverb advises us to “negotiate a river by following its bends”. Cambodia is fast approaching the proverbial bend of the river of development – transitioning from a developing to an emerging market economy. 

One efficient way to navigate the bend would be to internalise the lessons from the sustained growers and design policies accordingly. 

The IMF is happy to be a part of that journey and to think together with Cambodia’s policy makers on how best to get ready for the next phase.

Monday, May 6, 2013

Sons of the party anointed

At least eight candidates standing in the upcoming July election are sons of high-ranking Cambodian People’s Party officials, a CPP registration list released yesterday confirms. 

The list puts an end to speculation concerning the children of a number of party stalwarts. Previously, the names of only a handful of scions had been released by the party, which has created an unprecedented push to exploit family ties come July. 

Deputy Prime Minister Sok An’s son, Sok Sokan, 30, becomes the latest child of a member from the party’s upper echelon to be confirmed as a CPP candidate, and will run for a seat in Takeo province.   

Prime Minister Hun Sen’s youngest son, Hun Many, 31, and his son-in-law, Dy Vichea, 32, will run as lawmakers in Kampong Speu and Svay Rieng, respectively. Sar Sokha, 31 – the son of Interior Minister Sar Kheng – will run in Prey Veng. 

Say Sam El, 34, son of Senate deputy president Say Chhum, is to stand in Kampong Cham, and Dith Tina, son Supreme Court president Dith Monty, in Kandal. Royal Cambodian Armed Forces deputy commander-in-chief Kun Kim’s son Kim Rithy, 33, will run in Kandal; senior CPP lawmaker Cheam Yeap’s son, Cheam Chansophoan, 40, will run in Battambang. 

Ban Srey Mom, 39, the wife of Pailin provincial governor Y Chheam, is running along with five others believed to be the children and nephews of high- and mid-ranking CPP officials. 

Puthea Hang, executive director of the Neutral and Impartial Committee for Free Elections in Cambodia, said the CPP’s push to stand so many of its members’ children – though unique in this election – followed a long political tradition. 

“It’s a habit of politicians in Cambodia,” he said. “We have seen that people who have no family line have lost opportunity [over time].”

The opposition Cambodian National Rescue Party has not yet registered, and it is unclear how many, if any of its members’ children will run. 

CNRP vice president Kem Sokha said yesterday he did not have the names yet of candidates and couldn’t say whose children were running. Personally, he said, his would not be. 

Speaking at a pagoda opening last week, Hun Sen defended the CPP policy, insisting that there was no nepotism involved and saying it was an important way to ensure continuity of the party.

Source: Phnom Penh Post, 06 May 2013
By Meas Sokchea

Export growth to US slows

Cambodia's exports to the United States, the Kingdom’s largest market, were valued at $695 million for the first three months this year, a rise of only 0.2 per cent from $693.3 million in the corresponding period last year, according to statistics from the US Department of Commerce.

Experts attributed the slow growth in exports to the gradual recovery of the US economy as well as Cambodian efforts to focus on other international export markets.

“Even though the US economy is recovering, it is still slow,” said Doung Poullang, senior economics officer at the Asian Development Bank. 

“Also, the slow increase of consumer demand makes the volume of exports to the US grow slowly.”

He added that Cambodia is attempting to diversify its export destinations instead of relying largely on the US market as it had in the past. 

The Kingdom’s exports to European and Asian markets such as China and Japan are on the rise, he said. 

Cambodia sold mainly garments, textiles and footwear, milled rice and agricultural products to the US this year, according to data from the US embassy in Cambodia.  

Data from the Garment Manufacturers Association in Cambodia (GMAC) shows that the Kingdom exported about 27.5 per cent fewer garment products to the US market, a decline from $501 million in the first three months of 2012 to $363 million in the same period this year. 

“The major reason behind the decrease of exports is because we have got less orders from the US market,” Ken Loo, GMAC secretary general, told the Post yesterday. 

In 2012, Cambodia exported goods worth about $2 billion to the US market, which totalled 36 per cent of the Kingdom’s export market value of $5.5 billion, figures from the Ministry of Economy and Finance show.

The bilateral trade volume between Cambodia and the US reached $758.3 million in the first quarter of this year, a slight rise of 0.8 per cent 
compared with $752.4 million in the corresponding period last year. 

The total volume of Cambodia’s exports reached over $1.65 billion in the first three-month period of this year, a jump of 21 per cent from the goods exported during the same period last year, according to the Ministry of Commerce’s export data.

Source : Phnom Penh Post, 06 May 2013
By Hor Kimsay

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