T HE deputy governor of the National Bank of Cambodia is playing down fears surrounding the increasing rate of inflation.

Tioulong Saumura declared: "I have great confidence in Cambodia's economic potential provided the questions of political and economic stability are resolved."

"The current high rate of inflation [an annualized 13.7 percent over the first five months of the year] is seasonal and quite normal. The price index is calculated using indicators such as foodstuffs. Rice constitutes 60 percent of the indicator.

"At present we are in between rice harvests and on commodity markets rice is fetching high prices. Moreover, flooding has probably jeopardized 180,000 to 200,000 tonnes.

"In any case the rate of inflation has started to decrease. We have also taken steps to remove the seven percent duty on rice and sugar imports."

Saumura said the country was experiencing a state of transition from a centrally planned to a free market economy.

She said: "The economy already has a flourishing private sector which is very dynamic. This has partly been possible due to a lack of legal regulations.

"The legal framework is not yet completely set up. The process should take a year or two. We need to give guarantees to investors.

"The current situation can be compared to an overgrown garden which needs a bit of pruning."

The Deputy Governor said she is a great believer in economic liberalism and is passionately against protecting infant industries.

She said: "Look at the case of Australia, they protected infant industries and look at the result, now they have retarded children."

Saumura said currently a law was being drafted to grant the National Bank of Cambodia a fairly good measure of independence from the government.

She said under the proposals the King would appoint the governor and deputy governor of the bank for a period of time longer than the political electoral cycle.

As far as private banks and alleged money-laundering are concerned, the Deputy Governor differs with her husband Sam Rainsy, the Minister of Finance.

She said: "I don't hold with my husband's opinion of banks. Until we have a law then it is very difficult to have a definite position on the subject.

"Currently banks have to ask for a license to operate in Cambodia. The Ministry of Justice is now working on drafting a law on money laundering."