Delegates at the 35th ASEAN Economic Ministers Meeting (AEM) in Phnom Penh on September

2 said they were optimistic about the prospects for continued economic growth in

the region.

The meeting was the first in a series of meetings held in the capital aimed at thrashing

out Asian economic integration.

The ministers predicted that the region would grow between 4 and 4.7 percent in 2003

despite the effects of Severe Acute Respiratory Syndrome and terrorist activity across

Southeast Asia. The region's economies grew at 4.2 percent in 2002, up from 3.2 percent

the previous year.

But it was not all good news.

Foreign Direct Investment (FDI) declined by 18 percent across the region to $12.4

billion. The third year in a row it has done so.

Cambodia fared worse than most with a sharp drop in foreign investments between April

and June of this year, reported the Cambodian Development Resource Institute. Investment

during that period declined 53 percent to just $48 million compared to the previous

quarter.

But Commerce Minister Cham Prasidh put a brave face on the situation, choosing to

focus on investment applications instead.

Speaking at the Cambodian launch of the World Investment Report on September 4, he

said that Cambodia was affected by the regional slide in FDI.

However, he added that investment applications to the Council for the Development

of Cambodia (CDC) had increased by 200 percent in the first half of 2003. Applications

were up from about $47 million in the first six months of 2002 to $152 million for

the same period in 2003.

"I am upbeat that FDI flows to Cambodia will increase in 2003 and 2004, and

will remain robust well into the foreseeable future," he said. "The reasons

for this positive outlook are the improving global and regional economy, including

the regional integration process in which Cambodia is actively involved."

"Regional integration" also moved a step closer during five days of meetings

in the capital.

An AEM statement recommended that a task force be established to formalize the ASEAN

Economic Community and integrate ASEAN as a single market and manufacturing base

by 2020.

Prasidh promoted the idea at a press conference after the meeting by describing a

new line of "Made in ASEAN" products such as regionally produced cars and

electronic equipment.

"It could be favorable to all ASEAN countries to produce some products that

are both very competitive and have market access as well," he said. "We

are considering manufacturing products where all the components are made in [one

or more] countries in ASEAN and then assembled in another ASEAN country for export."

Prime Minister Hun Sen used his opening address to the meeting on September 2 to

propose lifting all tariffs on goods exported to other ASEAN countries from Cambodia,

Vietnam, Laos and Burma by next year.

ASEAN Ministers also held a consultative meeting with Chinese Minister of Commerce

Lu Fuyuan. ASEAN and China are seeking to create a free trade area in 2010 with the

richer ASEAN nations. Cambodia, Myanmar, Vietnam and Laos could join by 2015. China

indicated it would push for a faster timetable.

"We want to accelerate the tariff reduction [to move towards the] ASEAN-China

Free Trade Agreement," said Fuyuan.

ASEAN ministers stressed that China's rapid economic development would provide a

significant boost to trade and investment relations between the China and ASEAN nations.

That trade was estimated at $34 billion for the first six months of 2003. China imported

$20 billion worth of goods from ASEAN nations. That represented a 55 percent increase

and made ASEAN China's fourth largest supplier.

The volume of ASEAN-China trade has risen significantly in recent years. It grew

45 percent in the first six months of 2003 alone. The ministers predicted that by

the end of the year the trade volume could reach $70 billion.

There were still jitters about the failure of the main political parties to form

a government after the election.

Speaking at Hotel Le Royal on September 4, Hun Sen tried to reassure about 200 foreign

investors and other private sector representatives that a new government was close

to being formed.

He said that the new government would ensure a legal framework to provide a fair

competitive environment for business, as well as transparency and accountability

for future investors in Cambodia.

"We expect Cambodia to attract FDI, generate income, improve the living standards

of Cambodians and make Cambodia competitive in labor-intensive manufacturing,"

he said.

Hun Sen told the meeting that Cambodia's economy had grown dramatically by promoting

the garment and tourism industries.

Garment exports, he said, had reached $1.3 billion in 2002, and Cambodia experienced

an average economic growth rate of 6.7 percent annually over the last five years.

He reiterated his plan to create six "priority sectors" for investment

including agriculture, transportation and telecommunication, electricity, tourism,

human resources and export processing.

"The government acknowledges that everything is not always perfect or smooth,

but the most important thing is that the government has the strong political will

to make necessary reforms that will improve the investment environment," said

Hun Sen.

However, independent economist Sok Hach, director of the Economic Institute of Cambodia,

warned that the current uncertainty surrounding the formation of a new government

was affecting Cambodia's economy and ability to integrate into global trade.

Hach said he was concerned that Cambodia's producers could not hope to be competitive

in global trade while they were hampered by rampant corruption, weak public administration

and a lack of reform.

Bureaucracy has created a high barrier to entry for investors in Cambodia's market,

he said.

"I think that to make the country develop and have an economy that is not just

based on natural resources, the most important thing is a good leader," said

Hach. "When the power in the ruling party is strong and the state institutions

are weak then there can be no political stability."