How Cambodia Can Recover From the Global Financial Crisis

As the ripple effect of the global economic downturn continues to take a deep toll on the rest of the world, a gathering of experts from eight Asean countries convened to deliberate on what it will take to lead the way out of this crisis.

I attended the 34th Annual Conference of the Federation of the Asean Economic Association held in Phnom Penh from Dec 15-16, 2009, where economist and government officials from Cambodia, Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam discussed how their respective countries have been affected by the global economic downturn and how to mitigate the impact on the poor. The occasion was timely, of course, and had a serious purpose: To share insights and country experiences among distinguished experts from Asean economic associations on how the relevant policy lessons are drawn to ensure the resumption of high sustained growth and more effective and rapid poverty reduction.

At the two-day conference, Cambodian economists and government official agreed that Southeast Asia has not been immune to the crisis. Mr Ros Seilava, Deputy Secretary-General of the Supreme National Economic Council, painted an accurate reality of how the global crisis has been affecting the economy of the region, and in turn affecting Cambodia First is the decline in demand for exports, including in the entire production chain. Second is the flight of capital from Asia?s financial and capital markets, which lead to liquidity problems and lost of confidence. Third is the loss of more than 72 million jobs, particularly those in labor intensive and small-medium-sized enterprises. Fourth is the drop in remittances from migrant workers which aggravated poverty. He also mentioned that the magnitude of the impact on Cambodia could be felt through: The felling of approved investment projects and decreasing of actual FDI flows of 82 percent and 54.2 percent respectively, during the first semester of 2009; the decline in export volume by 26.4 percent this year; and the dropping of domestic revenue collection by 11 percent for the first seven months of 2009, as trade and economic activities slowed down.

No one can hide from the current global melt down, as it does not hit only the rich, but it also strikes the poor. The shock wave created by this crisis is felt equally strongly in the rural communities of Cambodia.

Mr Ngo Sothath, a researcher at Cambodian Economic Association, conducted a survey of 15 villages in Cambodia and found that 89 percent of households re-ported multiple difficulties among the urban poor and poorest rural villages where they faced substantial decreases in income, rising health care expenses, debt repayment burdens, and high food prices. At the national level, the impact on employment was stunning with more than 63,000 garment workers being laid off and about 100,000 jobs in the construction sector disappearing. He also noted that the survey found the impact of the crisis was more severe among the urban poor and tourist-dependent villages with 33 percent of such households affected by job losses and of that figure 3.7 percent had at least one member lose their job. The poor have suffered and will suffer the most, with no jobs, no means to pay for medical bills and unable to afford the staggering cost of food. Health care and food are the most important items in the expenditure of the poor.

The hardest hit sector is the garment industry. The-International Labor Organization indicated that an additional 18 garment factories closed down between May and October this year, slashing 12,041 jobs, while the Ministry of Commerce confirmed 93 garment factories closed down in the first 11 month of 2009.

As signs of stabilization begin to take shape, most of the countries with more open economies within Asean are shifting from recession to recovery. However, Cambodia is still facing severe constraints due to a lack of resources, swift policy responses and concrete action to help the poor and near-poor improve their livelihoods and more from felling deeper into poverty.

Lim Sovannara, a representative from the UN Development Program, acknowledged the severity of the crisis on Cambodia, which adversely affected the poor and near-poor due to lower garment exports, declining tourism earnings, the falloff in construction activity?the three drivers of growth in Cambodia?and the annual decline of agricultural yields.

Can we find an exit from the current crisis? What can we do to protect the poor from this crisis? The following are some of my thoughts on measures that should be taken for a timely recovery and hopefully to achieve sustainable development for our nation and people.

First with regards to the growth policy, Cambodia posted a negative growth for the first time (according to ADB -1.5 percent, MF-2.75 percent, WB -2.2 percent) after years of impressive double-digit growth a few years earlier.

What this means is that the real sector of the Cambodian economy has also been adversely affected largely because it is narrowly based, urban-centered and lacks a dynamic rural economy.
Thus, this development policy has proven that Cambodia is particularly vulnerable in times of global crisis, as it is heavily dependent on the garment sector when exports to the US and European Union markets have been reduced sharply, and the reliance on the tourism sector when tourists visiting Sem Reap have declined.

Additionally, foreign direct investment which was related to construction sector in early 2008, has also diminished substantially due to the collapse in the world property market Therefore, we should try to diversify our economic base, preferable to more rural-based sectors like agriculture and a well-managed natural resource sector.

This is part of finding the solution to help our economy, rather than relying on and blaming external factors. This crisis should serve as a wake up call to re-examine where we are heading in terms of economic policy that must put peoples? well-being at the center of the development strategy.

While we strive to achieve broader and more important goals of development such as rising gross national product industrialization, technological progress and social modernization, we must allow this process to trickle down all the way to the lowest base, that is to say to the poor, and for people to expand their real freedom and enjoy their rights in society.

Second with regards to protecting the poor, Cambodia needs to piece together a well-balanced social safety net policy that can create social harmony and act as an effective mechanism in redistributing growth and national resource to the poor.

An appropriate strategy would be to aim at investment in socio-human capital, infrastructures, and the creation of pro poor economic policy initiatives to improve livelihoods, whether in agriculture or other areas of the labor market.

In the long term, an ideal social safety net policy should be developed to assist the poor and vulnerable deal with risks resulting from the economic crisis and social or economic shocks. During this time of global crisis, the poor and vulnerable need all the help they can get from the government to withstand short-term poverty.

Unemployment benefits should be given to those who have lost their jobs and rice subsidies should be provided to those most affected by food shortages.

The government should establish social safety net for education, health care, community empowerment-employment creation, and rice-food subsidy programs. Such programs should be designed to ensure the availability of affordable food, to enhance household purchasing power by creating labor-intensive programs, create easy access to critical social services? mostly health and education?and sustain local economic activities by providing necessary grants for public works and extending small-scale credits.

Third, while some of the short-falls can be attributed to the global financial crisis, factors internal to Cambodia also act to lessen the overall effectiveness of the government?s ability to deliver a more impressive poverty reduction.

The combined effects of low levels of national capacity and inadequate resources in line ministries, and the necessary good governance action that can effectively deal with corruption?legal judicial reform, land management, the unrestrained exploitation of natural resources, plus low agricultural production?have all contributed to an uphill struggle for the government to alleviate poverty.

For Cambodia to exit this crisis and find its way toward sustainable growth, committed leadership must be able to draw on lessons of the past decade to identify new policies that would bring well-balanced development Cambodia needs sound policies and good governance arrangements to bolster growth. What needs to be done is for Cambodia to pay more attention to the necessary reform process and make changes happen.

We have to be able to cure the pain of the global economic downturn and find a way out of this crisis with the least damage. Whatever the explanation, Cambodia can only recover from this depression when government and all stakeholders, particularly the donor community, are able to work together closely, to come up with concrete action plans to increase Cambodia?s competitiveness and diversifies its economy.
We needs sound policies mat can help us reap the benefit of regional integration, harness natural resources in a sustainable way, and promote the development of agriculture, infrastructure, health care, education, social safety nets and human resources.

We also need to ensure progressive good governance reform to serve as a long-term platform for solid growth.

If such a synergy is achieved, it is quite possible for Cambodia to push its development agenda to higher levels, contributing to a number of important welfare and social outcomes that can effectively reduce poverty.

Sourced = The Cambodia Daily