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Between Covid-19 and a hard place

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Factory suspensions have resulted in hardship among garment workers as Khmer New Year looms. Hong Menea

Between Covid-19 and a hard place

It’s simply a case of ‘Damned if you do, damned if you don’t!’. The state has put in place soft lockdown measures, possibly to avoid sending the economy into a shockwave but the effects of the virus are already shaking the core of its population, starting with job losses. With an order to remain at work as the infection rate creeps up, Cambodia could be backing itself into a corner

Are Cambodia’s anti-Covid-19 measures presenting themselves as a double-edged sword? While they are calculated and weighed against the budget, the Kingdom is faced with increasing costs to protect the health of its people.

This is clear from its shocking decision to cancel the annual Khmer New Year holidays (April 14 to 16) and impose travel restrictions to limit the spread of the Covid-19 infections.

But deferring implementation of a state of emergency infers more than that related to the pandemic.

For starters, the staggered orders to close educational institutions, casinos, karaoke centres, cinemas, gyms, nightclubs, bars and other venues are inconsistent with Prime Minister Hun Sen’s latest call to private and public sectors to carry on business-as-usual next week.

He said it would be “safer” for employees to remain at work than travel around during the holidays as the latter puts the country at risk of higher infection.

“So please understand the difficulties the country is facing now. It is not just the government that is facing hardship. It is the people who will suffer the most,” the premier pointed out in the live telecast of his address on Tuesday.

The government’s decision is based on stemming the infection rate, particularly via mass prayers and large social gatherings, which are admittedly difficult to control.

However, imposing a state of emergency is not urgent as yet due to the low probability (0.1 per cent) of infections, meaning the situation is still under control.

Comparatively speaking, Cambodia’s handling of the situation is slow-paced compared to other Asian countries, including Hong Kong and Taiwan, which were quick to impose lockdowns after learning bitter lessons in the equally debilitating Sars outbreak in 2003.

And herein lies its quandary. The Kingdom is between a rock and a hard place.

On one hand it is determined to keep the population safe from the Covid-19 pandemic, but on the other, the Kingdom is reeling from the escalating human cost in light of job losses in the garment and tourism industries.

Some 100,000 workers in these industries have been made redundant upon the suspension of factories due to a lack of raw materials and the fall in tourist arrivals following travelling restrictions around the world.

Instituting a strict lockdown or a state of emergency in Cambodia would require a colossal stimulus package with cash and even food allocations to households and individuals.

Adjustments will also have to be made across macroeconomic policies to help the people and industries cope with the downturn.

This would be a tall order for Cambodia, which is already dipping into its conservative state coffers where some $8.2 billion had been set aside for overall expenditure in 2020.

The Covid-19 budget is mostly banded together from tax revenues, savings from ministries, corporate and individual donations, and borrowings, including a $20 million credit line from the World Bank.

To date, some $918 million out of its top-end Covid-19 budget of $2 billion has been expended to tackle the coronavirus outbreak and purchase of urgent medical supplies and equipment.

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However, the breakdown of the funds’ actual usage has not been revealed.

One expenditure is the government’s commitment to pay $40 each to garment workers who are temporarily laid-off due the closure of some 100 factories, and tourism-related employees, such as tour guides and hotel workers.

This is a revision from the government’s initial 20 per cent obligation towards garment workers’ wages where they were to accept a 40 per cent pay cut as factory owners could not afford to pay the full $190 monthly minimum wage.

The workers settled for $114, of which 20 per cent was to be shouldered by the government and 40 per cent by the employer.

But a plea by the factory owners who were forced to fork out wages despite their operational shutdown resulted in the government’s decision to pay a flat wage of $70.

This was criticised by labour unions as lacking empathy, particularly in the current economic landscape.

Starting Friday, the government will start dispensing the larger portion ($40) of wages to the workers, as well as tourism-related employees, the Ministry of Economy and Finance told The Post.

However, the total number of recipients has not been confirmed as the ministry is in the process of collating the actual figures of suspended factories.

“It is the same with the tourism sector. We are not sure how many companies and hotels are affected. The government will pay $40 to those in this industry while employers can top up based on their capacity,” said a ministry official.

Tentatively, the payment will be made for two months because the Labour Law says that businesses cannot be suspended for more than two months.

A quick calculation shows that the government would have to cough up $3.2 million per month for some 80,000 workers in the two major industries, assuming the situation does not recover by June.

The obligation, although painful on its savings, and given that the economy is forecast to contract to its 10-year low of 2.3 per cent (according to the Asian Development Bank [ADB]) in 2020, is nevertheless necessary.

Deewee Management Consultants managing director David Van said Cambodia, like all countries, is affected economically. But the extent is too early to pin down as it could swing from bad to worse, or improve.

“We don’t know yet at this point. Experts have predicted the global economy might be affected for one to two years, subject to how things evolve and if a vaccine is produced for public use. This could take six to 12 months.

“[Meanwhile] Cambodia should be commended for its package to assist local small- and medium-sized enterprises [SMEs], although such assistance is only possible for formal companies.

“The majority of our local micro SMEs remains informal. We are not sure how the government’s assistance can reach them,” Van said.

To date, some 118 cases have been reported with 68 recoveries and one relapse. Accordingly, 5,768 tests have been conducted. The seemingly low number of reported cases is encouraging.

Whatever said, it is on that basis that the government postponed the declaration of an emergency.

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Cambodia’s iconic Angkor Wat is bathed in silence as tourist arrivals plunge in Siem Reap. Yousos Apdoulrashim

The twist in the plot

Every year, factory production and business activities grind to a halt as millions of Cambodians travel home to celebrate Khmer New Year with their families.

For many, it is one of the celebrations they look forward to in the year and employers are legally bound to observe the week-long public holiday.

Hence, its surprise postponement which is a clear deviation from past practises.

Granted, the cancellation is critical to lower people movement but keeping workers at-site is equally risky, so long as social distancing is not strictly enforced. This is coupled by the lack of data on Covid-19 screening and contact tracing.

Two days ago, some 60 per cent of industrial workers allegedly said they were determined to celebrate the Khmer New Year in their provinces, claiming that it is “tradition”.

Such alleged attempts have since been thwarted with a travel ban instituted between provinces and districts from today till April 16.

A twist in the plot now would be if a scenario in the form of a sharp spike in infections develops, economic conditions are likely to be further compromised. And, it would not be just that.

A doctor practising in a neighbouring country opines: “Poor countries like Cambodia with masses of uneducated have no clue about Covid-19 and probably don’t know they have it and are spreading it.

“No one will know the true statistics in these countries. It is the same for India and Brazil where there are slums.”

In such countries, there is a very vast economic divide between the wealthy and the poor, with the latter making up the larger majority and having almost no access to healthcare.

“Now that the global economy is crashing and people are out of jobs, there is a sense of impending anarchy. I feel the poorest of the poor would either die of this disease or starvation,” opined the doctor.

ADB expects the impact of Covid-19 on trade and services to depress revenue below the 23.5 per cent of gross domestic product target for 2020 – up from the 20 per cent target in 2019.

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Expenditure is budgeted to rise to 26.3 per cent of GDP this year compared to 22.4 per cent in 2019. It reflects the government plans for significant stimulus to offset the short-term impacts of Covid-19 and lost trade preferences.

Meanwhile, the World Bank theorises that there are two differences in the current situation.

The aim of the immediate policy response is not so much to restore demand because reduced supply and overall activity are a necessary consequence of efforts to contain the spread of the pandemic.

Instead, it serves to cushion households, especially poorer ones, against income shocks, and to tide firms over so that large-scale bankruptcies and employment losses are minimised.

Therefore, fiscal and monetary policies must be recast in a Covid-19 mould.

For instance, subsidies for sick pay and healthcare expenditure can encourage some types of consumption and production, cash transfers to credit-constrained households, as well as liquidity injection so that firms can stay in business and maintain global value chain links.

The second difference relates to the impact of policy responses. In the period of social isolation, the need to consume is lower and supply is not very flexible. Supply within the country is also limited by disruptions in input-supplying countries.

The factors from both the differences can reduce the strength of the policies with multiplying effects being much lower in the short term.

“The optimal economic policy response would [however] change over time and depend on the exact nature and evolution of the [pandemic’s] shock to labour supply, aggregate demand or finance,” the World Bank said.

Up to last Friday, about 100 factories have suspended operations. Cambodia has some 1,180 factories which employ nearly 1.2 million workers.

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Out of the total number, about 600 plants own the licence to export to the EU and the US but with western brands postponing orders or cancelling imports, more factories are likely to apply to have their operation stalled.

The government and unions are bracing for more redundancies in the coming weeks, which is why Coalition of Cambodian Apparel Workers Democratic Union president Ath Thorn said the $70 is not going to help workers in this period.

As it stands, most of them have debts “above their heads”, he said, urging banks to consider a moratorium on their loans.

“On a monthly basis, a household requires between $200 and $250 to operate due to rent, food, school fees, and transport. With that in mind, what can $70 buy? The Khmer New Year next week could be one of the bleakest in many years,” Thorn stressed.

Over at Siem Reap where Chinese tourist arrivals fell by 95 per cent as of January 27, temporarily laid-off workers are grappling with no income and savings, said Cambodia Association of Travel Agents president Chhay Sivlin.

“They also have no special skills that can help them secure another job,” she said.

Some key persons in the service industry have agreed to take home 25 to 40 per cent salary based on their company’s income.

“But many were let go. It is very hard to imagine how they are coping. Quite a number, face rental problems and other debts. I think they might borrow from their relatives or return to their hometowns where it is no better,” she said.

Without a doubt, the merriment this year will be subdued but with all things considered, the show must go on, but at what cost?

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