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Prices Fall Further

Prices Fall Further

Cambodia's volatile economy continued to stabilize in the wake of U.N.-sponsored

elections in May but the departure of the U.S. $2 billion peacekeeping mission is

the next few months is expected to have a "considerable negative impact",

a U.N. survey released Aug. 4 said.

The riel, widely regarded as the most reliable barometer of business confidence in

the war-shattered economy, continued to appreciate in July after gaining 33 percent

in June, trading at around 2,700 to 2,800 against the dollar by the end of the month.

"Most prices continue to adjust broadly downwards in line with the strengthening

of the riel and with the easing of speculative pressures spawned by earlier political

uncertainties," the report said. Prices of most domestically produced meat and

poultry products declined by 10 to 30 percent over the previous month. The composite

index for imported clothing items fell an average of 27 per cent.

The report cautioned, however, that continued deterioration in the fiscal deficit

"will quickly lead to a reversal of this trend unless direct budgetary support

from external sources is readily forthcoming."

The government has failed to meet the deficit since it stopped printing extra riels

in Oct. 1992.

The United Nations announced on July 21 that it would provide an initial three million

dollars in budgetary support although most observers estimate $60 million will be

needed to help prop up the new government until official efforts to raise greater

domestic revenues can be put in place.

The survey said the fiscal situation would be boosted in the future as civil service

reforms were carried out along with anticipated inflows of longer term international

financial and project support.

Phnom Penh-based businesses and in particular the housing, hotel and service sectors

are expected to be hardest hit by the pullout of the relatively high paid, 22,000-man

U.N. mission.

The termination of the operation will also result in the retrenchment of more than

4,000 local staff and the loss of income estimated in the region of $17 million per

anum. With the exception of a small minority, most of these staff are unlikely to

find alternative employment given the present slow pace of investment activity in

the economy, it said.

In the short term it is unlikely that an influx of tourists and business visitors

will compensate for the departing UNTAC staff because of international uncertainty

about the security situation in the country. "Some hotels and restaurants which

have depended on UNTAC patronage may well face bankruptcy," the survey said.

The rental market was also forecast to weaken further and transportation services

will be hit, it said. The fall in income generated by these sectors is likely to

further hurt the government's revenue collecting efforts.

The fall in income generated by all the above sectors will impact begaityibvely

on government tax revenues primarily through lower siness receipts and sales turnover

tax and a dceline int the purchase of imp;orted inpuits.There will be a fall in another

sector the post and telecommunicationsw sector, which is one of the few state owned

enterprise that operaties wiht a suplus on its activites and contributes to the central

budget revenues.

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