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Reforms still needed, says upbeat ADB

Reforms still needed, says upbeat ADB

The Asian Development Bank (ADB) put a positive spin on projections for the country's

development despite some disturbing financial indicators. On April 30, ADB country

representative Urooj Malik launched the bank's Outlook 2003 report, which analyzes

the region's macro-economic prospects.

Malik said the Kingdom's outlook was favorable, but warned problems loomed unless

it pressed ahead with reform.

"There are many challenges, but there are good prospects provided reform is

done," he said.

Malik noted that the country's fiscal deficit last year was again financed by grants,

and said the ADB, like other multilaterals, had stressed Cambodia needed to lure

more foreign investment if it was ever to make significant gains.

And he noted "quite a drop" in foreign direct investment (FDI) last year

to just $60 million, around half that achieved in 2001. FDI has plummeted since 1998

when it reached $230 million. The reason cited is the country's unfavorable investment

climate, which will require better governance and infrastructure if it is to improve.

However, some progress has been made. Moves to strengthen the banking system showed

financial sector reforms were underway, and Malik praised the planned anti-corruption

law and the creation of the National Audit Authority.

The ADB assessment found the country's growth slowed nearly two percentage points

last year to 4.5 percent. But it predicted GDP growth would climb this year to 5

percent, and in 2004 to 5.5 percent, provided Asia and the wider global economy continued

to recover.

But the ADB cautioned that the effect of the SARS virus was still unclear, and could

drive down those estimates.

Last year's slowdown was attributed to floods and drought that hit the agriculture

sector, which accounts for two-fifths of GDP. The report noted that problems in agriculture

include unclear land ownership, insufficient irrigation and high transaction costs.

Malik said the sector needed reforms. Although its low productivity had been offset

by overall growth in garment exports, garment manufacturing would likely be hit hard

when the preferential tariff agreement with the US expires at the end of 2004.

The country needs to find alternatives for growth, with particular emphasis on generating

employment outside the garment sector, since the end of trade preferences "will

put a lot of pressure on this growth and put growth at risk".

He cautioned that if action was not taken, many of the 200,000 women in the garment

sector might be forced into prostitution.

"Cambodia needs to make very strong preparations now," said Malik. "Clearly

tourism is one area that offers immense potential."

He also saw potential to develop small- to-medium-scale agriculture for export. Fisheries,

crops, fruit juices, milling and refining opportunities were there, provided structural

changes were made to lure FDI. Low-cost niche agriculture, such as orchids for export,

could also help.

"Our analysis shows as China opens up and reduces its barriers, there are opportunities

... If Cambodia wants to, it could become the flower country of the region."

Malik added that it would likely be "OK" if Cambodia - as planned - joined

the World Trade Organisation by the end of the year, because it would be able to

negotiate gradual tariff reductions. However he conceded the ADB has not yet performed

"a robust, detailed analysis of the impact" of the effects membership would

bring.

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