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Logo of Phnom Penh Post newspaper Phnom Penh Post - EIU defends report on risk of social unrest in Cambodia

EIU defends report on risk of social unrest in Cambodia

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090401_13.jpg

Economist Intelligence Unit acknowledges wrath of the government, saying assessment of effects of global crisis are based on Kingdom’s vulnerability

BLOOMBERG

A garment factory protest in Takhmao in January. Worker protests have escalated since the onset of the financial crisis, but unrest has been sporadic and contained, without threatening the government.

THE Economist Intelligence Unit (EIU) has responded to criticism of its prediction last month that Cambodia was at high risk of social unrest due to the financial crisis based on what it terms the "high underlying vulnerability" of Cambodia's economy.

The EIU placed Cambodia fourth in a list of countries most at risk from social unrest - equal with Sudan - in its report "Manning the Barricades", prompting a barrage of criticism from government and business leaders in Phnom Penh.

"In response to the Cambodian government, we have tried to assure them that our report was not intended to scaremonger or incite unrest," London-based Cambodia EIU researcher Danny Richards said late Monday.

Prime Minister Hun Sen said last week the EIU had a "political aim", while the International Business Club of Cambodia (IBC) took out a full-page advert in the Post Tuesday refuting the report's conclusions.

Signed by IBC chairman Bretton Sciaroni, the advert said that Cambodia was currently more stable than at any point during the past half decade, adding that the nature of Cambodia's agricultural sector made GDP prosperity assessments difficult to make and often inaccurate.

"We must strongly dispute [the EIU's] conclusions on the prospects for Cambodia which are damaging and constitute a grave injustice to the Royal Government and people in this country," Sciaroni wrote in the open letter.

He was unavailable for further comment Tuesday.

Our report was not intended to

scaremonger or

incite unrest.

In its original report, the EIU did not explain how it came to its conclusion on Cambodia. However, Richards said the Kingdom had responded poorly to the criteria set out in the EIU risk model, which he said was based on the underlying vulnerability of its economy and the intensity of the economic distress resulting from the crisis.

However, irrespective of a country's ranking, social and political unrest is only expected to result under a worse-case scenario, which the EIU index rates as having a 10 percent chance of occurring.

Although Cambodia was given a ranking of eight out of 10, placing it fourth from the bottom, Richards said the assessment should be viewed in "risk clusters, with Cambodia being positioned within the high-risk cluster".

Differences in the index score were small, he added. Nevertheless, Cambodia was ranked two places ahead of Iraq, three places ahead of Afghanistan and 27 places ahead of Sri Lanka, all of which have a recent history of political unrest, albeit not for economic reasons.

Richards acknowledged Cambodia's impressive recent economic record, highlighted in the IBC's open letter, but added: "This year's expected reversal in Cambodia's economic fortunes - as low agricultural commodity prices depress farmers' incomes, and external demand for garment exports collapses, putting thousands of factory jobs at risk - will have a negative impact on political stability during the next two years."

The garment industry has been hit severely since demand began to fall in major export markets last year, causing tens of thousands of job losses and sporadic worker protests. Agricultural commodities have also suffered Thai blockades, particularly of wet cassava, while retail prices have been volatile.

Figures released Tuesday by the Trade Promotion Department show that the price of milled rice dropped 1.6 percent in the first quarter of this year. Mung beans dropped 8.5 percent in the same period and cashew nuts were down 39 percent. Paddy prices increased 8 percent and poultry climbed more than 10 percent.

In its latest GDP growth estimate for March, the EIU forecast a 3 percent contraction for 2009, the lowest forecast thus far and a revision downwards on its 1 percent growth prediction last month. The EIU's GDP figure would be "the worst performance since records began in the mid-1990s", it said.

"Growth will resume in 2010, when the economy will expand by 2.2 percent," it added.

In its open letter Tuesday, the IBC bemoaned what it called "the latest ‘race you to the bottom' [GDP growth] predictions", citing "failure of the experts in the past".

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