Logo of Phnom Penh Post newspaper Phnom Penh Post - Warning sounded on foreign debt burden

Warning sounded on foreign debt burden

Warning sounded on foreign debt burden

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.

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