P OLITICAL uncertainty during May caused a big jump in the rate of inflation and

the flight of foreign currency deposits, according to the National Bank of

Cambodia's latest monthly economic bulletin.

The government's plan to

contain inflation to 10 percent this year has been knocked way off course by the

turbulence associated with the Khmer Rouge's April/May offensive which

threatened second city Battambang.

The Consumer Price Index shot up by

5.73 percent in May taking total inflation for the first five months of the year

up to 13.7 percent. The large increase follows a rise of 3.64 percent in April,

which was also attributed to political uncertainty.

The Khmer Rouge

recaptured their headquarters at Pailin in April in a big blow to the Royal

Government.

The report attributed 37 percent of the rise in the CPI in

May to higher rice prices, with some speculative hoarding.

The upsurge

in fighting led to the closure of the vital border crossing with Thailand at

Poipet-Aranyaprathet, choking off supply and causing prices to

rise.

Jittery depositors withdrew 31.9 percent of all foreign currency

held in the banking system during May, the report shows, causing a 34.4 percent

or 78 billion riel drop in money supply as measured by quasi money.

Overall money supply, which had been growing by an average of 7.5

percent during the first four months, fell by 19.3 percent in May, largely

because of the widespread withdrawals in foreign assets from the banking

system.

The riel also softened further against the dollar during May,

losing 1.8 percent in value to reach 2,565 to the dollar.

The weakening

followed a 1.6 percent loss in value by the riel in April. In contrast gold

prices went up by 0.9 percent to 115,000 riel per chi.

The report

applauded the government for a further small fall in credit to the banking

system from 88 billion riel in April to 85 billion in May.

But there was

a huge deterioration in net foreign assets during May, from 266.5 to 185.3

billion riel, a fall of 30.4 percent, or 81 billion riel.

This was due to

foreign liabilities ballooning by 50 percent or 114 billion riel.

The

main factor behind this rise was the government borrowing from non-bank

institutions overseas, the report said. The increase in borrowing abroad was

partially offset by an increase of 33 billion riel in gross assets.