The promise by Cambodia's new government to fundamentally transform the economy is
sending shudders through the investment community.
Some contracts with foreign investors signed with the previous administration are
likely to be canceled amid charges that the government is motivated by political
Senior government officials are embarking on a sound policy to eliminate the remnants
of Cambodia's previously-centralized economy, analysts say, after a new leadership
trained in the West has taken control of virtually all key financial and economic
portfolios in recent weeks.
The new government, announced earlier this month, turned over most of the financial
and economic policy portfolios to the Royalist FUNCINPEC party.
Many of the new ministers and economic policy advisors recently returned from exile
in France, and have vowed to begin an aggressive campaign to restructure Cambodia's
tax, investment, banking, and currency laws.
World Bank, IMF, and ADB officials are currently in Phnom Penh advising the new government
as it rewrites existing laws.
Economy and Finance Minister Sam Rainsy, a French-trained economist, told The Post
there would be a new banking act, foreign exchange act, and investment law promulgated
by January, 1994.
He vowed "the first real budget in 20 years" would be submitted by January
and that by 1995 a "stringent" budget, in line with IMF and World Bank
austerity programs, would be in effect.
"We will have institutional reform in order to make the government structure
match the market economy," Rainsy said on Nov. 15.
But he warned that some contracts signed by the previous government would be abrogated
"Most of the contracts are acceptable. Some may need amendments to reflect the
new situation," Rainsy said.
He also said a "handful" of contracts will have to be canceled. "But
the majority of investors do not have to fear."
The first victim is widely expected to be the Thai giant Shinawatra which signed
a 99-year agreement to broadcast IBC television with the Cambodian People's Party
which lost the May elections.
The station went on the air prior to elections and was fined by UNTAC for violating
"They gave full support and propaganda to one political faction before the election
and were allowed to operate for 99 years without one Baht - one dollar- for Cambodia.
We should bring things to a normal standard," Rainsy said.
He accused some investors of "giving so much money under the table to corrupt
officials" in previous months with no benefit to Cambodia.
The government signed an agreement with Singapore International Airlines (SIA) last
week to create a new national carrier.
The deal, which gives 40 percent to SIA, 30 percent to the government and 30 percent
to local private investors, effectively abrogates several other contracts signed
between the previous government and private investors.
Rainsy attacked the level of official corruption and called for centralized economic
policy-making and "transparent political power" to root out corruption.
"There should be incompatibility between the status of minister and that of
shareholder of a private company," he said. "Either ministers defend private
interests or the national interest."
He accused government officials of receiving "free shares when some private
companies were created by very questionable interests".
"They should resign from government," he said. "This is the kind of
transparency we want to implement."
The government has also begun an attempt to strengthen the Riel.
"We want to rely on sound macro-economic policy to restore confidence in our
currency by strengthening it's value both domestically and internationally,'' said
Tioulong Saumura, vice president of the Central Bank.
Cambodia has seen four straight months of negative inflation for the first time in
It reintroduced the 50 riel note earlier this month which had been dropped as worthless
last year in the wake of triple digit inflation.
The aim, according to Tioulong, is to "decrease the dollarization, the use of
She said the government would "drop two zero's" from the new currency to
be issued next year.
The Riel strengthened 20 percent against the dollar last week in the wake of the
formation of the new government, but Rainsy said they will attempt to stabilize the
Riel between 2,400 and 2,600 to the dollar.
"There is a squeeze in liquidity because we have not printed money in more than
one year, but we will not increase the money supply," he said.
Rainsy said the investment and economic restructuring programs are linked to the
political developments in the country.
"Security and Khmer Rouge issues are both key investment issues...eventually
the best weapon against the Khmer Rouge is economic development and rural development.
"We don't want to make war again against the Khmer Rouge. If we can reduce the
imbalance between the rich and poor, the urban and farmers, reduce corruption, reduce
social injustice. This is the basis of our new policy and we believe then the Khmer
Rouge will disappear," he said.
Rainsy said the new banking legislation will be aimed at weeding out dubious banks
that have opened in Cambodia since private banks were first allowed to operate here
He acknowledged the authorities were aware of Cambodia emerging as a significant
heroin trans-shipment route.
"We are aware of this. There are banks operating with zero capital, no customers,
and run by people with no qualifications - people who have nothing to do with the
banking industry and are laundering money and covering up other illicit activities.
We have to react quickly," he said.
Cambodia currently only requires five million dollars in capital to open a bank "but
even that is only theoretical," said the Finance Minister.