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Long-term policy vital to reopen economy

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Royal Academy of Cambodia economics researcher Hong Vanak says the government’s approach was a huge step, which has made history. Photo supplied

Long-term policy vital to reopen economy

Countries around the world are slowly lifting Covid-19 lockdowns and cautiously reopening their economies to varying degrees in a bid to contain the fallout of the pandemic.

Aiming for a gradual return to normal life and a rebound in economic activity, the Cambodian government recently issued a proclamation allowing the reopening of shops, restaurants, schools and casinos, requiring businesses to maintain high hygiene and safety standards for their customers.

Royal Academy of Cambodia economics researcher Hong Vanak sat down with The Post’s May Kunmakara to talk about the financial repercussions of Covid-19 and the economic recovery game plan laid out by the government in response.

What will current government measures do to help in economic recovery and social protections?

The government has spent some $25 million monthly to help poor households – this is just a short-term bailout to deal with the Covid-19 epidemic and there may be a further injection of capital if it pushes more families closer to and below the poverty line.

But taking a quick glance at its long-term economic diversification strategy for beyond the crisis, the government has nearly completed a free trade agreement with China, the region’s largest economy.

It is also negotiating a similar deal with South Korea and is studying the possibility of establishing one with India as well.

How will reopening the country sooner, rather than later, help ease the strain on the economy?

Though the Covid-19 situation does not seem to have abated much, it is paramount that countries around the world remove the measures that increased economic risks.

Of note is the US and Europe, where the unemployment rate is fairly high. The US’ job creation did little to remedy the losses, especially in the small and medium-sized enterprise (SME) sector.

Whether the predicament posed by the disease is tapering or not, I figure that all countries will eventually pursue reopening policies. But we must all learn to live within the “new normal” of infection prevention.

National reopening is a critical gateway to economic restoration. Here in Cambodia, many economic activities are gradually starting to pick back up, such as hotels, restaurants, shops, markets and schools.

Reopening the economy is the starting point, and is key in keeping it afloat. The debt crisis will only ratchet higher if we do not do so within the coming three to six months.

Just reopening will not alleviate the mounting debt burden among our people who remain indebted to the banking and microfinance sector as they cannot earn income, with some asking for loan restructuring.

What is your take on the steps the government has taken to shore up the SME sector?

The government has set up an SME-focused bank, which is a first for Cambodia. These have existed for a long time in developed countries in the region and around the world to help promote their SMEs.

In developed countries, the SME sector is a pivotal engine of the national economy that churns out jobs, generates substantial tax revenue and helps curb capital outflow. For instance, the Japanese and South Koreans all consume their own products.

It is the choice of the consumer whether to consume imported products or not.

Thus the increased consideration in reinforcing the local SME sector bodes well for our economic resilience.

How effective have the government’s economic restoration plans been?

I think that the policies the government has put in place are quite respectable and have resulted in a moderate response.

Though the State’s performance falls short of the level of developed countries, I stand firm in my belief that the government’s approach was a huge step, which has made history.

We’ve never had institutions such as the Small and Medium Enterprise Bank of Cambodia or the Agricultural and Rural Development Bank of Cambodia here before.

What will global economic recovery look like compared to the 2008-2009 Financial Crisis?

Of course, the 2020 health crisis far surpasses the 2008-2009 Financial Crisis and other crises in recent memory. Containing the Covid-19 disease soon would lead to the global economic situation making the speediest recovery from crisis on record.

Everything is springing back into action and cash is flowing anew, unlike the stagnation seen during the peak of the financial crisis.

Many countries are opening up, and a vaccine against Covid-19 would further accelerate the recovery.

This interview has been edited for length and clarity.

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