FINANCE Minister Keat Chhon has forecast modest economic growth for 1998, but said

at the start of the National Assembly's debate on the budget that the loss of revenue

after the political turmoil in July meant the government would have to cut spending

by 5 percent.

"We have to tell all ministries to reduce their spending as much as possible,"

Keat Chhon told members of the Assembly.

He proposed to parliament a 1998 budget of 1.425 trillion riel ($419 million), down

from 1.497 trillion riel ($440 million) in 1997.

The Finance Minister presented a bleak picture of the economy following the July

ouster of former First Pime Minister Prince Norodom Ranariddh by his coalition rival,

Second Prime Minister Hun Sen.

Cambodia's gross domestic product (GDP) had been growing at 6 percent in the six

months preceding the coup, but growth is now expected to end up just over 2 percent

for 1997 and about 3.5 percent for 1998, he said.

That growth is sharply slower than the 6.5 percent registered in 1996 and 7.5 percent

in 1995.

Customs revenue was down 35.7 percent since July and domestic tax income down 12.3

percent, he said. For the year, government revenue dropped 11 percent.

Keat Chhon said he expected the economic situation to improve after elections scheduled

for July 26.

"I expect Cambodian economic growth in 1998, because after the election, we

will have more investment," he said, adding that the government was also taking

positive steps to boost revenue.

One area unlikely to suffer from any cutbacks is defense. The proposed 1998 budget

earmarks 20 percent of total spending for the Defense Ministry.

Opposition members have criticized the government for skimping on health and educational

programs to bankroll factional fighting along the Thai-Cambodian border between government

troops loyal to Hun Sen and resistance fighters loyal to Ranariddh.

Cambodia, which has a tiny tax base and a per capita GDP of less than $300 a year,

is heavily dependent on foreign aid to help subsidize social programs.

In past years, aid has accounted for nearly half the national budget, but the 1998

proposed budget forecasts only $110 million in foreign aid, down from $147 million

last year.

Donors such as the United States, World Bank and the International Monetary Fund

have cut aid to Cambodia for 1998.