As volatility strikes Asian markets in anticipation of the US Federal Reserve winding down quantitative easing – the practice of injecting money into the economy – the National Bank of Cambodia says the Kingdom will remain largely insulated thanks to an investment market still in its infancy.
National Bank of Cambodia director general Nguon Sokha told the Post yesterday that while the country may have benefited from the Fed’s stimulus that began in 2008 in response to the global financial crisis, the expected wind-down will have little impact due to the Kingdom’s nascent securities market, its non-existent bond market and its favourable conditions for foreign investment.
“For Cambodia, we have a different environment compared to other countries in Asia,” she said.
Asian markets tumbled yesterday, continuing a slide from last week after the Fed indicated it would pull back from stimulus later this year, AFP reported.
Cambodia’s emerging market “means capital coming in is mostly in the form of foreign direct investment, which means long-term and not speculative investment [short-term capital flow],” Sokha said. She said other countries in the region with short-term markets are vulnerable because capital could flow just as quickly in or out.
Sokha said Cambodia’s welcoming economic climate will also mitigate any impact from the potential slowing of foreign direct investment from a lack of global liquidity.
“In terms of competition for FDI, we have to look at whether Cambodia has favourable conditions for investors to come compared to Myanmar,
compared to Vietnam. Our legal framework, our infrastructure, our administration, are good enough for foreign investors to have a long-term interest in our economy, that is the difference between foreign direct investor versus a portfolio investor [short-term investor].”
On the question of currency pressure, Sokha expected the riel to remain stable if the demand for the US dollar increases.
“We are also a dollarised economy. . . which means we don’t need to sterilise; if other countries have to sterilise, they have to absorb the capital inflow by issuing local currency,” she said.
Kang Chandararot, president of the Cambodian Institute for Development Study, is more cautious.
“Tightening the quantity of the dollar would directly constrain Cambodia’s growth. We will face stiffer competition to attract FDIs.” he said.