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Logo of Phnom Penh Post newspaper Phnom Penh Post - Short-term pain for long-term gain

Kang Chandararot, president of Cambodia Institute for Development Study
Kang Chandararot, president of Cambodia Institute for Development Study, speaks to the Post from his cafe in Phnom Penh. Vireak Mai

Short-term pain for long-term gain

The prices of imported goods are up and Cambodia’s low-income households are feeling the pinch. President of the Cambodian Institute for Development Study, Kang Chandararot, told the Post’s Chan Muy Hong that while there will be impacts in the short term, tax reforms are a positive sign for long term economic growth of the nation.

The government set a deadline for the customs department to stamp down on corruption. It has led to a price increase for goods on the market. What is your view about the move?
I think it is the right thing to do now, because Cambodia owes a lot of money to other countries. I congratulate the move and it is a good start for anti-corruption in the state’s financial offices. We have, so far, depended on foreign aid and funding. And the deadline for returning the debt is near. We need to find sources of income to support development and to set a foundation for he economy. AEC 2015 is approaching; Cambodia will be required to do a lot more from the region with regards to the implementation of economic law and policy.

Do you think the move will encourage local producers in gaining greater market share?
Logically, once tax policy is implemented, the price of imported goods will rise. What will happen when imports price rise? Firstly there will be changes in the investment sector. Secondly, the will be more opportunity for local business to grow. In one or two years time the country will see some change in the economy’s structure. The policy will increase local production. There will be more local products to replace imported products. Right now, I believe we will not see anything come in the big picture just yet, but in one year’s time the picture will become clearer to you.

The policy has caused prices in the markets to increase. Who do you think are the most vulnerable?
Everyone is affected by the rising price of products in the local market now. Tax will increase the price. The thing is we have to accept the impact now. Once the market adjusts to the tax policy, things will be better for everyone when there are local products to substitute the imported ones. Then the price becomes more stable for consumers, suppliers and the whole market. First reaction from the policy will see consumers as the victims of high prices. More importantly, the policy should encourage investment in local products rather than investment in imported products.

I think the high price of products will come down by next year. Meanwhile, there should be more local investment opportunity created, so that local products will come to substitute the higher priced products now.

Will there be further action taken by the government on this issue?
The government should start thinking about cutting ineffective spending. More policy should be created to attract both local and foreign investors to invest in the local production chain. By now, there should be a reform in investment law. The government should pay more attention toward energy resources that drives local production and investment. One year is a short time. It will reduce the inflation impact on consumers. Long term inflation for products in the market will cause problems for economic growth.

The ministry of commerce announced reforms for import and export processes to ease the flow. How effective do you expect it to be?
It is part of what attracts more investors to Cambodia. If the process of getting the products in and outside the country requires too much time and money, they will not want to come here. It is a step that encourages more investment. What the government is doing now is a very good response to the private sector. They are giving more space to the private sector to expand their business.

What is your projection for the Cambodian economy?
Economic growth in 2014 is disturbed by political crisis. There will be growth, but will not exceed what we have in 2013.
The thing is Cambodia’s economy next year will grow in terms of quality comparatively to previous years. The growth will no longer depend on trading, tourism or by selling service anymore. It will be growing according to the increase of local production.

This interview has been edited for length and clarity.

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