The promise by Cambodia's new government to fundamentally transform the economy is

sending shudders through the investment community.

Some contracts with foreign investors signed with the previous administration are

likely to be canceled amid charges that the government is motivated by political

revenge.

Senior government officials are embarking on a sound policy to eliminate the remnants

of Cambodia's previously-centralized economy, analysts say, after a new leadership

trained in the West has taken control of virtually all key financial and economic

portfolios in recent weeks.

The new government, announced earlier this month, turned over most of the financial

and economic policy portfolios to the Royalist FUNCINPEC party.

Many of the new ministers and economic policy advisors recently returned from exile

in France, and have vowed to begin an aggressive campaign to restructure Cambodia's

tax, investment, banking, and currency laws.

World Bank, IMF, and ADB officials are currently in Phnom Penh advising the new government

as it rewrites existing laws.

Economy and Finance Minister Sam Rainsy, a French-trained economist, told The Post

there would be a new banking act, foreign exchange act, and investment law promulgated

by January, 1994.

He vowed "the first real budget in 20 years" would be submitted by January

and that by 1995 a "stringent" budget, in line with IMF and World Bank

austerity programs, would be in effect.

"We will have institutional reform in order to make the government structure

match the market economy," Rainsy said on Nov. 15.

But he warned that some contracts signed by the previous government would be abrogated

or "revised".

"Most of the contracts are acceptable. Some may need amendments to reflect the

new situation," Rainsy said.

He also said a "handful" of contracts will have to be canceled. "But

the majority of investors do not have to fear."

The first victim is widely expected to be the Thai giant Shinawatra which signed

a 99-year agreement to broadcast IBC television with the Cambodian People's Party

which lost the May elections.

The station went on the air prior to elections and was fined by UNTAC for violating

election laws.

"They gave full support and propaganda to one political faction before the election

and were allowed to operate for 99 years without one Baht - one dollar- for Cambodia.

We should bring things to a normal standard," Rainsy said.

He accused some investors of "giving so much money under the table to corrupt

officials" in previous months with no benefit to Cambodia.

The government signed an agreement with Singapore International Airlines (SIA) last

week to create a new national carrier.

The deal, which gives 40 percent to SIA, 30 percent to the government and 30 percent

to local private investors, effectively abrogates several other contracts signed

between the previous government and private investors.

Rainsy attacked the level of official corruption and called for centralized economic

policy-making and "transparent political power" to root out corruption.

"There should be incompatibility between the status of minister and that of

shareholder of a private company," he said. "Either ministers defend private

interests or the national interest."

He accused government officials of receiving "free shares when some private

companies were created by very questionable interests".

"They should resign from government," he said. "This is the kind of

transparency we want to implement."

The government has also begun an attempt to strengthen the Riel.

"We want to rely on sound macro-economic policy to restore confidence in our

currency by strengthening it's value both domestically and internationally,'' said

Tioulong Saumura, vice president of the Central Bank.

Cambodia has seen four straight months of negative inflation for the first time in

several years.

It reintroduced the 50 riel note earlier this month which had been dropped as worthless

last year in the wake of triple digit inflation.

The aim, according to Tioulong, is to "decrease the dollarization, the use of

foreign currency".

She said the government would "drop two zero's" from the new currency to

be issued next year.

The Riel strengthened 20 percent against the dollar last week in the wake of the

formation of the new government, but Rainsy said they will attempt to stabilize the

Riel between 2,400 and 2,600 to the dollar.

"There is a squeeze in liquidity because we have not printed money in more than

one year, but we will not increase the money supply," he said.

Rainsy said the investment and economic restructuring programs are linked to the

political developments in the country.

"Security and Khmer Rouge issues are both key investment issues...eventually

the best weapon against the Khmer Rouge is economic development and rural development.

"We don't want to make war again against the Khmer Rouge. If we can reduce the

imbalance between the rich and poor, the urban and farmers, reduce corruption, reduce

social injustice. This is the basis of our new policy and we believe then the Khmer

Rouge will disappear," he said.

Rainsy said the new banking legislation will be aimed at weeding out dubious banks

that have opened in Cambodia since private banks were first allowed to operate here

in 1991.

He acknowledged the authorities were aware of Cambodia emerging as a significant

heroin trans-shipment route.

"We are aware of this. There are banks operating with zero capital, no customers,

and run by people with no qualifications - people who have nothing to do with the

banking industry and are laundering money and covering up other illicit activities.

We have to react quickly," he said.

Cambodia currently only requires five million dollars in capital to open a bank "but

even that is only theoretical," said the Finance Minister.