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Economic base needs diversity

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Naoyuki Shinohara, International Monetary Fund deputy managing director, speaks to the Post yesterday in Phnom Penh. Photograph: Vireak Mai/Phnom Penh Post

The International Monetary Fund’s deputy managing director Naoyuki Shinohara talked to the Post's deputy business editor May Kunmakara about the role of Asia in the global economy and plans for regional economic integration, its risks and challenges. He said the region’s product market is huge, but the region’s financial market is still very weak.

Asia’s growth prospects – what are the external and internal risks during this uncertainty with the global economy?

Asia’s growth itself is very good. Of course, the growth rate has slowed down since the start of the financial crisis. Asia as a whole will grow by close to 8.5 per cent this year.

Advanced Asia and emerging Asia, including the ASEAN countries, grew by around 8.5 per cent in 2010, but it will only grow by 5.5 per cent this year. So it has slowed down a little, but compared to other advanced economies the economic performance in this region is pretty good and Asia continues to be the driving force of global economic growth.

Of course, there are some risks, which are mainly related to the resurgence of Europe’s financial crisis. Since Asia is highly integrated into global trade and global activities if something happens in Europe, it will have significant impact on growth in Asia.  

What is the IMF’s view on ASEAN economic integration?

The integration of the economies into a regional trade area is imperative for the countries to grow. If we look at individual countries in this region, the size of the economy is small – not large enough to sustain if they want to grow by themselves. So, economic integration in this region is indispensable for the growth in this region and also is very important for the global economy as the whole.

If you look at the degree of the economic integration in this region, intra-regional trade is expanding very fast, but integration in the financial area is still relatively behind. I think the basic purpose of the integration area is to mobilise domestic saving in this region for investment. And, in order to do that you have to develop the domestic financial market here.

If Cambodia becomes an emerging economy, what is your policy advice for the country to achieve sustainable growth? What should be avoided in order to reduce risks to Cambodia’s economy?

I think one issue that Cambodia has to work on is the diversification of the economic base. The economy still relies on tourism and agriculture. In order to do that, I think that it is important to improve the business climate – the business climate means a lot of things that includes governmental regulations, a stable macro-economic environment and that means good education for the people to produce a highly qualified labour force – all of those things have to come together in order to provide a good business climate for private companies to grow and diversify. So, that is the medium-term goal that Cambodia is pursuing.

Cambodia also needs a strong financial market. I guess Cambodian authorities are now trying to establish trust among the people with the local currency – the economy is still dollarised. So, using the local currency is very important to have an independent monetary policy.

To contact the reporter on this story: May Kunmakara at kunmakara.may@phnompenhpost.com

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