Cambodia's Economic Crisis & the Ways to Tackle It (English Assignment)

Class : Year-2, Semester 2 Department : Economic Science Subject : English Group : E2A41

English Assignment:

Taught by lecturer: Chhour Laymeng Compiled by:

-Sak Khmao -Kong Sotheara

Royal University of Law and Economics English Assignment

Year-2 Student, Semester 2 Kong Sotheara & Sak Khmao

Preface

At the time of the very beginning of the financial crisis in the US, some economists claimed that

Cambodia would not be much affected by the world financial crisis because Cambodian economy has not

had specific relations with the relations with the regional and international economy. On the contrary, in

Cambodia now, homes have been lost; jobs shed; businesses shut and our health care is too costly because

of the financial crisis in the US and no effective measures. That’s why we the year-2 students studying

Economic Science in Royal University of Law and Economics have made a small group to research and

address the crisis and solution to it in order to make a book entitled “Cambodia’s Economic Crisis and the

Ways to Tackle It” so as to know what is going on and to learn about how the world is changing.

We hope that this book will be an important document for the students next generation. We

believe that this book may contain some mistakes because we do not have enough experience to consider

perfectly. We are happy to be criticized by all readers in order to have better book next time.

Phnom Penh, 28/05/2009

Sak Khmao and Kong Sotheara


Year-2 Student, Semester 2 Kong Sotheara & Sak Khmao

Content

I/ Introduction ............................................................................................................................................... 1

II/ Cambodia’s Economic Crisis ................................................................................................................... 1

1-Agriculture Sector ................................................................................................................................ 1

2-Textile and Construction Sector .......................................................................................................... 1

3-Tourism Sector .................................................................................................................................... 2

III/ How to Tackle Cambodia’s Economic Crisis ......................................................................................... 2

1-Solution to Agriculture Sector Problem .............................................................................................. 2

2-Keeping Garment Sector in Good Health ............................................................................................ 3

3-Creating New Jobs ............................................................................................................................... 3

IV/ Conclution .............................................................................................................................................. 3

References ..................................................................................................................................................... 4


Year-2 Student, Semester 2 1

I/ Introduction

After a decade of double-digit growth, driven by the four keys of Cambodia’s economics such as

the agriculture, garment, construction, and tourism sectors, the Cambodian economy is predicted to

contract significantly in 2009. In fact, the financial crisis in the US, the unfavorable external environment,

is leading to less demand for Cambodian exports, fewer tourists, less foreign investment, and joblessness.

Inflows of foreign direct investment are projected to slow from a record high of 10% of GDP (Gross

Domestic Product) in 2007 to 5.2% in 2009, as foreign investors become more cautious about investing in

developing countries as Cambodia which has unsustainable economic situation. So, the four key drivers

of Cambodia’s economic growth are suffering severe storm causing very many problems. Below are the

descriptions of Cambodia’s economic crisis and the ways to tackle it.

II/ Cambodia’s Economic Crisis

1-Agriculture Sector

About Cambodian farmers’ problems, the distressing economic situation resulting from the world

financial crisis has caused market prices of agricultural products (such as paddy, corn, bean, cassava) to

plummet by 30 to 80 percent over the last few months. More seriously, in northwestern provinces such as

Battambang and Banteay Meanchey, where the farmers used to sell most of their crops to Thailand, the

situation is particularly distressing because prices have touched record lows at a time when Thailand has

closed its borders to Cambodian products such as cassava because Thailand is using the protectionism.

Furthermore, the hundreds of thousands of farmers have extensively borrowed money from banks and

other creditors to buy oil and fertilizer and now are facing other expenditures to produce their crops. In

addition, some farmers who are unable to reimburse their debts in the present circumstances and risk to

see their lands or properties being seized since these lands have been given as collaterals to banks and

other creditors.

2-Textile Sector and Construction Sector

In the textile sector, competition is increasing and profits drop as people cut their spending

worldwide. And competition from countries like Vietnam and China is increasing. We are facing tough

times and already factories are closing. Moreover, shrinking demand from the US and Europe markets

has already forced 60,000 job losses in the garment sector. Anyway, about construction sector, it is

slowing down too, due to the consequences of the crisis on Korea who had until now been acting as a

locomotive for the Cambodian construction sector. Reduced foreign direct investment has seen a further

25,000 jobs lost in construction. Early indications show that many unemployed workers are returning to

their villages, where livelihood opportunities outside subsistence agriculture are severely limited. To



survive, more and more Cambodian women and children may find themselves in the informal economy

for lower wages, poorer conditions, and greater risk of sexual exploitation and trafficking.

3-Tourism Sector

A slowdown in tourist arrivals was noticeable in the first six months of 2008. In fact, the global

financial crisis has affected Cambodia’s tourism industry, especially in Siem Reap, site of the world

famous tourism attraction- Angkor Wat Temple, with tourist arrivals falling. As a matter of fact, tourist

arrivals to Siem Reap fell by more than 16 percent in the first quarter of 2009 compared to last year.

Consequently, some luxury hotels temporarily shut down so that there are low occupancy rates meaning

that staff members are taking unpaid leave or have been temporarily laid off in many hotels.

The Cambodian tourism has been directly affected by weaker global economy on the one hand

and the border disputes with Thailand on the other hand. So, in Cambodia, the people such as taxi drivers,

tourist guides, tourist bus drivers, etc who earn money and have jobs related to tourism sector are losing

their incomes or losing their jobs.

III/ How to Tackle Cambodia’s Economic Crisis

1-Solution to Agriculture Sector Problem

To tackle Cambodia’s economic crisis in agriculture sector, Cambodian government had better

quickly implement measures and mechanisms aimed at supporting and stabilizing agricultural prices, so

as to protect and guarantee farmers’ revenue and living conditions nationwide. How to do this kind of

strategy is to plan to spend approximately US$1 billion this year to buy farm products such as tapioca,

rice, maize and palm oil under the agricultural intervention scheme. Under this purchase of farm products,

government should pledge to buy them with pledging price to increase by 20% per month until one point

of time or the next few months. Then the government might be able to export all agricultural products

bought under the intervention scheme in a bid to prop up domestic prices.

By the way, about heavy indebtedness of hundreds of thousands of farmers who are unable to pay

their debts in the present situations and whose lands or properties will be confiscated due to giving their

lands as collaterals to banks and other creditors, the government must take appropriate and urgent

measures to prevent banks and other creditors from seizing farmers’ lands or properties while our farmers

are suffering from the present crisis. There must be a debt moratorium. In the meantime, interest rates and

payments must be reduced pending negotiations for a comprehensive resolution of the debt problem.

On the other hand Cambodian policymakers ought to enact work-for-food schemes that guarantee

employment, encourage poor people to grow private gardens rather than rely solely on income, and



establish common property rights over water. All these strategies will drive Cambodia’s agriculture

development and guarantee Cambodian farmers’ living conditions.

2-Keeping the Garment Sector in Good Health

As described in such a context above, Cambodia bound to lose its market shares in the United

States since demand will clearly be reduce. The Kingdom will then be force to seek new markets.

Cambodia must boost its competitiveness and must be one of the country’s priorities by

facilitating trade, offering fiscal stimulus and dealing with labor-related conflicts. Moreover, the

government has to promote and encourage foreign direct investment in a more appropriate way by

combating corruption because investors are complaining about corruption and they are going to other

countries. So, Cambodia has to attract legitimate investors, but also high-quality investors with technical

expertise, and that will diversify industries.

For factories or enterprise having financial problems, Cambodia must dare implementing slightly

more ambitious, expenditure policies to pay the debts of those factories in order to prevent them from

going bankrupt so as to gaurantee employment of Cambodian workers.

3-Creating New Jobs

To outlast Cambodia’s economic crisis, as what French Prime Minister Nicolas Sarkozy and other

responsible and caring governments in other countries have done, Khmer government should quickly call

for quick and bold action to create new jobs by making construction sites to develop public infrastructure,

restore ecological system, construct or mend buildings for retirees, etc. Doing so, the government will

create so many jobs for people losing jobs.

IV/ Conclusion

If the government is willing or able to implement the three above-described measures to tackle

Cambodia’s economic crisis, Cambodians hopefully will not get much negative impact from the

international crisis. Starting today, Cambodian government must pick Cambodia up, dust Cambodia off,

and begin again the works of remaking Cambodia.



References 1- http://balita.ph/2009/05/22/cambodias-tourism-drops-due-to-global-financial-crisis.mht, “Cambodia's

tourism drops due to global financial crisis”. [May 22, 2009]

2- http://cambodia.ka-set.info/index2.php?option=com_content&do_pdf=1&id=104, “Economic crisis in

Cambodia, from the World Bank's point of view: with bad luck comes some good?”. [December 11,

2009]

3- http://irinnews.org, “CAMBODIA: Food security threat as economic crisis takes hold”. [May 07,2009]

Documents

Cambodia's Economic Crisis & the Ways to Tackle It (English Assignment)