Cambodia's war-battered economy is expected to grow at a much slower rate of three
percent this year, down from 10 percent as originally forecast, following a second
straight quarter of almost stagnant economic activity, a U.N. report said.
The survey of economic indicators for June said business activity remained "very
depressed" through the second quarter because of uncertainty over the political
situation in the period surrounding the May 23-28 election.
With the 23,000-man U.N. peace mission pulling out in the third quarter, the downturn
is expected to continue over the next three months.
In the aftermath of the polls, an interim coalition administration was formed, joining
together the former Phnom Penh-based government with the royalist FUNCINPEC Party
and two smaller parties. The radical Khmer Rouge boycotted the election, but has
pledged to recognize the results and is currently negotiating for a role in the new
government which will be formed in three months after a charter is drawn up.
While foreign investors and local businessmen welcomed the peaceful outcome of the
election, the U.N. report said they would likely adopt a wait and see posture during
the interim period.
"Prospects of economic recovery are clearly contingent on the resumption of
revenue , aid flows and foreign private investment which hopefully will occur when
the government is fully in place in the fourth quarter," it said.
The report said "unrestrained price increases exacerbated the poor economic
outturn for the quarter."
Inflation rose 12 percent at the end of May, largely as a result of increases in
the price of food goods, particularly the price of meat, fish and eggs which rose
by 20-50 percent. These rapid increases were offset, however, by the reasonable stability
of other major food items notably rice so that the composite food index rose by only
Prices of clothing items rose by 14 percent and other imported household goods at
a slower seven percent.
The poor fiscal performance and resurgence of inflation was accompanied by the weakening
of the riel. This gave an impetus, in turn, to speculative hoarding. In the three
months since mid-March, the international value of the riel has been dictated by
the political situation.
In the aftermath of the elections the riel has continued to strengthen through the
early weeks of June and by the middle of the month it was back to the level of the
begining of the year, the report said. The rise and fall of the riel was reflected
by similar movements in the gold market.