Cambodia's foreign debt could become a dangerous burden if more care is not taken,
said an economist at the Cambodia Development Resource Institute (CDRI), a leading
independent economic research body.
Outstanding debts to the World Bank and Asian Development Bank (ADB) total over $500
million, said Sok Hach, during a seminar August 28 to discuss a summary of the CDRI's
latest annual economic review.
The institute's figures show that Cambodia received $91 million in loans in 2001.
Hach warned that these debts, despite carrying low interest rates and long repayment
periods, were becoming a "habit" that could harm the Kingdom.
"If we continue like this in the next ten years we'll reach 50 percent of our
GDP [Gross Domestic Product]," he said.
However the figures presented by Hach only showed the government's debt to the World
Bank and the ADB since 1993. One attendee from the Council for the Development of
Cambodia (CDC) pointed out that Cambodia's pre-1992 debt was not part of CDRI's equation.
The country received over $1 billion from the former Soviet Union, the US and China
in previous decades. World Bank representative Bonaventure Mbida-Essama told the
seminar "it would be helpful to clarify" Cambodia's overall debt.
Despite his warning about debts accumulated over the last ten years, Hach said the
economy did "OK" in the face of the global downturn, diminishing foreign
investment, and natural disasters.
CDRI figures showed that GDP grew 5.3 percent last year, almost the same performance
as 2000. Different data collecting techniques meant that number differed from the
government's estimate of 6.3 percent.
The International Monetary Fund (IMF) representative Robert Hagemann told the seminar
that either figure presented "the same story" that growth was "inadequate
[for] reducing poverty". He added that poor infrastructure, low productivity
in agriculture, and high trade facilitation costs such as port fees, harmed growth.
CDRI reported that foreign investment last year was $72 million, a drop of almost
9 percent, even though the productivity of existing investments increased.
Hach said there was a further decline in the first semester of 2002, but a representative
from the Council for the Development of Cambodia (CDC) told the seminar that trend
should end soon since CDC planned to approve several large investments in the near
future.
The undeveloped agricultural sector was singled out as a hindrance to the economy.
Agriculture expanded by less than 1 percent in 2001, although that was better than
2000 when flooding caused it to drop.
The World Bank's Mbida-Essama said achieving good returns in agriculture was "quite
possible with very minimal investment", and the IMF's Hagemann pointed out there
was a "remarkable amount of land uncultivated" in Cambodia compared with
Vietnam.
In the presentation of his study on private sector development in Cambodia, the CDRI's
Dr Sarthi Acharya said the need to get away from subsistence agriculture was part
of "the development problem", while the economy as a whole was "shallow"
with limited areas for growth other than tourism or garment manufacturing.
He pointed out that the garment industry, the country's largest employer, did not
engage in much value-added activity and was responsible for only 30 percent of the
finished product. Garments made in China and India, on the other hand, were fully
made in those places through all stages of spinning, weaving and stitching.
Dr Acharya said he had also found that the successful businesses in Cambodia were
those profiting from domestic demand, such as the poultry industry and "not
companies that would have competition with ones in other countries".
He also found that most were family run, although many did not realize the need for
specialized management.
"If it continues for a longer period, the businesses will lose out when it comes
to international competition," he said.
And ironically, given the level of government debt, Dr Acharya said private companies
had virtually no access to credit as there was "a psychology that if you borrow
money you're exposed" so "equity is better than debt". He gave the
example of one company with a $1.2 million budget that did not have a bank account.
The study also noted that informal payments added to costs, a common complaint of
attendees. After the meeting, democracy advocate Lao Mong Hay questioned why everyone
used the term "unofficial fees" rather than corruption.
"Why not call a spade a spade?" he asked.
