Official gold imports that had soared to an astounding five and a half tons in February

virtually disappeared in April after the U.N. imposed a 0.3 percent import duty on

the valuable metal.

"I wouldn't even want to speculate what happened," said Michel Delattre,

an economist working with the U.N.'s import monitoring section.

"The tax was deliberately set at such a low level so as not to drive the trade

underground," he said.

According to Customs Department figures, imports for gold totalled 1.8 tons in April,

down from 4.306 tons in March. Official imports for the first ten days of May were

a meager 205 kg.

Phnom Penh customs officials introduced the tax on Mar. 7 at the recommendation of

U.N. economists partly to raise revenue but also as a means of establishing some

control over the massive influx of gold, which they feared would have destabilizing

monetary effects.

Robin Davies, a visiting economics professor at the Institute of Economics, suggested

the reason for the drop was the result of major buyers switching to Vietnam.

"The key word is 'recorded'. The imposition of the duty largely drove the trade

underground. Singapore was previously the main source for gold imported into Cambodia.

Now the main source is Vietnam and the imports into Cambodia remain largely unrecorded,"

said Davies.

Davies noted that Vietnamese bankers had recently begun buying large amounts of high-grade

gold from Switzerland, which he said was the preferred medium of exchange for traders

operating in Cambodia's extensive black market.

He said the main consideration was price.

"Gold imported from the former areas came in by air which added to transport

remittance and security costs. The new tax simply increased price sensitivity. Including

the tax, the total additional charge on gold including the premium amounted to around

U.S. $127 per kg minimum," he said.

But other market analysts speculated that perhaps more sinister forces were at play.

They said gold importers seeking to keep a low profile may have been more discouraged

by stricter recording procedures implemented along with the 0.3 percent duty than

by price.

While demand for gold has been climbing in the run up to the May 23-28 elections,

a result of the traditional use of gold as a hedge during times of uncertainty, the

levels coming into the country completely dwarf feasible local consumption.

Cambodia is one of the world's 10 poorest countries and average annual per capita

income is estimated to be less than U.S. $170. Official imports for all products

for the first six months of 1992 amounted to only U.S. $200 million. Black market

trade is estimated to be three times that of legal trade.

Yet the gold imports for February 1993 alone were worth more than U.S. $63 million.

U.N. economists said they first noticed the rise in gold imports in October last

year. By December, imports had reached two tons, climbing to 4.078 tons in January

and finally hitting 5.507 tons in February.

At the height of the gold-import rush, witnesses said they saw burly men with security

service style haircuts openly exchange gold bars at the Pochentong Airport VIP lounge

for briefcases stacked with U.S. dollars. Customs regulations at the time were notoriously

lax and import certificates were signed by junior-level officials.

Some Phnom Penh businessmen say that even at the peak of the legal import boom, an

additional 2.5 tons of gold was entering the country through unofficial channels.

The flood of gold into Cambodia also came at the same time as foreign traders began

reporting large quantities of gold coming out of the country-although officially

the country does not export any gold.

Cambodia itself has only limited sources of gold but according to one Western businessman

who asked not to be identified, "gold has become the country's largest foreign

exchange earner."

He said the massive devaluation of the riel in March might have been tied to the

disruption the gold supply and not Khmer Rouge intervention as some economists have

suggested.

A Customs Department source said 90 percent of the gold brought into Cambodia is

re-exported to Thailand and other neighboring countries.

The dangers involved in smuggling gold through bandit-infested border areas and the

low margin of return-Thailand only levies a three percent duty on gold - suggests

it is being used as a currency for illegal activities.

"When the cost of smuggling becomes higher than the cost of legally importing

gold because of the transport costs, paying off people and so on, you can only assume

people don't want the imports recorded," said one banker who declined to be

identified.

He said it was possible the gold was used as a form of payment by international drug

dealers and arms smugglers who use Thailand as a their main conduit to international

markets.

The customs official said a well-established route existed for gold going into Thailand

first via domestic flight to Battambang airport where it was shipped to Sisophon

and then across the porous border.

But other industry observers said that the gold may not be destined for Thailand

at all.

While the dramatic fall off in the levels of imports of gold appears linked, for

whatever reason, to the new duty and recording procedures implemented in March, the

question of what prompted such the massive inflow in the first place remains a mystery.

Davies speculated the answer may be found by looking further north to China, where

growing demand for gold has boosted the global price from a seven-year low of U.S.$

326 in March to $369 by May 14.

"China is like a hippo in a pool of normal swimmers," he said of the affect

the run on gold was having on supply and trade trends in neighboring countries.

He said that currently China was awash with the rumors that the Rinminbi was about

to be devalued, fueling greater demand for gold.