Logo of Phnom Penh Post newspaper Phnom Penh Post - Economic effects: immediate and lasting

Economic effects: immediate and lasting

Economic effects: immediate and lasting

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The violent riots that rocked Phnom Penh throughout the day and night of January

29 have brought visible financial crises to the city. Buildings worth millions of

dollars stand gutted or ransacked, and the Thai government is demanding Cambodia

fully compensate it and the Thai businesses.

A policeman watches a looter at the Royal Phnom Penh Hotel.

But the long term economic damage wrought by one night of vandalism will be more

damaging, said observers and government officials.

Bretton Sciaroni, a practicing lawyer and a long-time economic observer, said the

government had to ensure the stability of the country was upheld or investors would

stay away.

"Anytime you have a situation like this, it is not helpful," he said. "Any

business is going to think twice when anarchy prevails."

That was echoed by a foreign embassy official based in Bangkok, who told the Post

that repercussions were inevitable.

"There are not many investors from the West who will invest in Cambodia - there

is corruption ... and now you have this," he said. "Either this [was perpetrated]

by a group who have an interest in doing this, or they cannot judge [how serious

it will prove]. The Thais are now going to think about whether to invest in Cambodia

in the future."

Thai investment in Cambodia totaled around $200 million over the past ten years,

said one economic consultant. Although that is a relatively small proportion of overall

foreign investment, he said, the TV pictures of torched factories and businesses

would damage investor confidence. And that has the government worried.

Chhim Narith, under-secretary of state at the Ministry of Commerce, said foreign

investors may no longer trust the government.

"It will affect investors, because they will look at our history," he said.

"We have just started to rebuild our reputation. After each event, we try to

rebuild our image, then something else happens. It is difficult for investors to

believe it."

Michel Horn, general manager of the Cambodiana Hotel, echoed that when he spoke about

the unpredictability of the investment situation.

"I can't stop thinking, what if Singapore [or] Malaysia is next?" he said.

"We need assurances."

The government will certainly need to provide some comfort. In mid-January Minister

of Commerce Cham Prasidh spoke of a big push for foreign investment in 2003 and 2004.

He said the government had identified Thailand as a key investor, with Economic Processing

Zones (EPZs), which offer preferential tariffs to investors, slated for development

in Koh Kong near the Thai border.

"We have projects to push for more investment ... we are going to create magnets,"

he told the Post at the time. "EPZs next to the Thai border will attract investment,

particularly Thai investment."

The ministry recognizes damage has been done, but Narith said he felt the situation

had not changed. Besides, he said, the country has little choice but to continue

with the EPZ scheme.

"The Cambodian economy is slowing down, and we have to compete with other countries,"

he said. "[The EPZs] must go ahead because we have no other options."

Immediate knock-on effects emerged on January 30. The February 5 public-private sector

forum, which aims to build a dialog between the private sector and the government,

was postponed indefinitely.

On the same day the Thai government released a statement through its Ministry of

Foreign Affairs declaring that economic cooperation between the two countries would

be severed until Cambodia explained what had happened and paid compensation.

Although Thailand was just one of many countries that provides assistance, said Narith,

the impact of its reaction would still be felt.

"It will have an effect as Cambodia mostly depends on donors and bilateral agreements,"

he said. The public would feel the economic effects directly, he added, if Thai products

were unable to get through the border causing prices to rise.

The consensus was that the problems between the two countries could be resolved,

but this would not undo the impact the events of January 29 had inflicted on potential

investment from around the world.

"We have to explain the events to the Thai government ... we can bring everything

to the table to discuss," said Narith. "But whatever you discuss, it is

difficult to rebuild [trust] when the damage has been done."

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