NEED AN UPSCALE HOME IN PHNOM PENH?

Businessman Khaou Pallaboth stands in front of the mostly vacant Northbridge Communities. Several of his investments have suffered since last July's fighting and regional financial crisis.

CAMBODIA'S July 26 election will not solve the country's economic woes despite high

hopes the polls will bring political stability, according to a leading businessman.

Politicians are banking that a fair and peaceful election will attract foreign investors

back, but the president of the Khaou Chuly Group, Khaou Pallaboth, said many big

investors will not return because they can't afford to.

"I'm not really optimistic about the short-term prospects for Cambodia, investment-wise,"

Pallaboth said on June 25. "I don't believe, being in touch with the regional

economy, that a lot of investment will come to Cambodia."

"Unfortunately many investors - from Taiwan, South Korea, Thailand and Malaysia

- are affected by devaluation and domestic economic crises," he added.

Annual inflation of nearly 15%, low foreign investment and a weakening currency are

some of the most pressing concerns facing Cambodia's 5.5 million voters.

Also, Japan's economic downturn and its possible effect on China present even bigger

long-term worries, said Pallaboth, whose company is one of Cambodia's largest builders

of infrastructure, housing and factories.

It also owns a security guard firm, a paint factory and a swimming pool dealership.

Prior to the Khmer Rouge regime of 1975-79, the Khaou Chuly Group built Chamkarmon

Palace - home of then-Prince Norodom Sihanouk - Phnom Penh University and the Olympic

Stadium.

Foreign companies looking to set up in Asia now have even more incentive to locate

in countries such as Indonesia and Thailand, where the US dollar now goes further,

the infrastructure is better developed and the labor pool is better trained, Pallaboth

said.

To counter the increased competition, Cambodia's new government must concentrate

on improving infrastructure and must add more incentives to its investment law, he

said.

All the main political parties contesting the election advocate a free market, promising

to boost foreign investment and alleviate poverty.

Pallaboth said two main events in July last year combined to damage Cambodia's investment

climate: Ranariddh's violent ouster and the Asian economic crisis, which began with

the July 2 devaluation of the Thai baht.

"We were deeply affected by those happenings," said Pallaboth. "It's

very difficult to find capital funds to invest in Cambodia, more than ever."

Before the Asian economic crisis hit, his company had signed a deal to build a $200

million cement plant with South Korea's Tong Yang Group.

It had almost completed Northbridge Communites Ltd, a $20 million housing and school

development on the outskirts of Phnom Penh, and was involved in a $15 million telecommunications

project.

Since then however, the cement plant has been put on hold and the housing development

has not sold as many units as expected.

The Khaou Chuly Group has had to shift its sights to more modest ventures with small

and medium-sized firms from Europe and North America. In addition, it has recently

launched a company that sells tickets for foreign lotteries.

International donors contribute nearly half of Cambodia's annual budget, set this

year at $419 million. So far this year Cambodia has approved investment projects

worth $422 million, the government says, compared with $759 million for all of 1997.

Pallaboth said the government must also ensure security. Phnom Penh's business community

has recently been rocked by a rash of kidnappings, including Pallaboth's sister,

advertising executive Khaou Veary, who was taken in May and only released after the

family paid a ransom of $180,000.

Pallaboth was also critical of recent strikes at garment factories, saying factory

owners have yet to establish operations firmly enough to pass profits on to workers.

"You have to feed the cow first, to be fat, before you can take the milk,"

he said.