Chapter I:        

 Overview of Cambodian Economic

                    Performance in 2000

At the overview of Cambodian economic performance in 2000, the tourism and garment sector were growing smoothly but the construction activity continued to decline. Due to the flood in 2000, the flood caused the serious damage to Cambodia’s precarious economy; the total estimate for the flood damage was US$157,000,000.00. Of this, losses in agriculture US$87 millions (417,775 hectares of rice field have been destroyed), infrastructure US$47 millions (317,975 houses were flooded, 7,086 houses were severely damaged or collapsed, 988 schools were damaged). 2,287 oxen were lost. In short, the greatest losses were in agriculture which was destroyed approximately 20% of rice crop. The value of Cambodian Riel appreciated against Thai Baht, but it was devalued by 1% against the U.S Dollar, and 0.7% against Vietnamese Dong.

As for the exchange rates in the international markets, the currencies of the Philippines, Indonesia and Thailand remained weak in 2000 as result of the political uncertainties and weak performance in their financial sectors. Most of the time, the Indonesian Rupiah traded above 9,000 Rupiah to the U.S Dollars. The Thai Baht and the Philippines Peso also devaluated to around 43 Baht and 50 Peso to the Dollars.

The tourism sector continued to grow sharply in 2000. Total tourists arriving by air were 466,000 in 2000. The tourists arriving by boat show an increase of 13% if it was compared with the previous year. The open-sky policy of the government has attracted a large number of tourists to visit Angkor Wat temple complex located at Siemreap province, total 20% during the first nine months. Most of tourists come from the U.S, France, Japan, China and Taiwan.

Garment sector continued to grow in 2000, 173,000 workers are employed in the garment sector. The Ministry of Commerce cares much about these workers by ensuring the protection of their rights and living conditions. In recognition for the improvement of workers’ condition, the U. S government granted 9% bonus quota to Cambodia. The Cambodian government has generated million Dollars for the national coffers from the garment export to U.S and the European countries.

In 2000, the garment exports respectively for 78% (US$736,024,683.95) 20% (US$220,966,373.84). During the recent quota auction, the government expects to collect up US$5,700,000.00 in revenue to finance priority projects including construction, education and rural development.

The new investment for garment has created a large proportion of job opportunities for the people. If compared with 1999, it rose 21%. 20,000 new jobs are being created annually. In order to encourage the private sector to create more jobs, the government has to reduce the size of the civil service and army.

The Royal Cambodian Armed Force currently has 148,000 soldiers and gets 23.5 % of 2,335 trillion Riels (US$614 millions) budget, equal to planned spending on health, education and rural development combined. On May 01^st, 2000, 1,500 soldiers have already been demobilized. 15,000 soldiers should be reduced from the military within this year. A total of 55,000 soldiers and 24,000 policemen are expected to be cut from the payroll over the next five years. Plans are also being made to reduce the civil service, which employs more 164,000 people.

Because of the destructive flood in 2000, the agricultural sector has greatly damaged. According to the report of the National Committee for Disaster Management on November 16, 2000, total death was 374 persons (80% of whom were children). 2,287 oxen and buffaloes were lost, 417,775 hectares of rice field were flooded and destroyed (about 17% of the total rice – growing land). The total damage is over US$87,000,000.00. The national rice deficit in 2001 will be 58,705 tones of milled rice. The main reasons are due to two factors: (1)- rapid population increase; (2)- serious flood in 2000. Total relief assistance to the end of November has been 18,000 tones of milled rice (4% of the total loss). The World Food Program is planning to distribute another 10,000 tones of milled rice to Cambodian people.

The construction sector in Cambodia, especially Phnom Penh, in 2000 has declined 34%, relative to 1999. The main reason for this decline was due to the slow foreign direct investment.

On account of the higher taxes, the price of gasoline is about 50% higher than the price in the neighboring countries. If Thai and Vietnamese governments subsidize gasoline price, Thai may widen the energy price gap between Cambodia and these countries, and encourage more smuggling of gasoline in Cambodia. Therefore, the government suffers the great loss in revenue.

According to the National Institute of Statistics, the consumer price in Cambodia has declined by 1.4% in 2000, compared with 1999. Although the price of goods was affected by the serious flood, it still was relatively stable because of the government and humanitarian agencies providing foods for the flood victims. At the end of 2000, the price of goods was slightly risen.

According to the Ministry of Economy and Finance in 2000, total budget revenue declined 2%, relative to 1999. The main reason was due to the fall of custom duties (down 28%) and flood. In the first nine months in 2000, total budget revenue reached 1,046 billion Riels, representing a short fall of about 7%, relative to the budget target.

The government has significantly reduced the spending of defense and security (20% down). According to M.F.E indicator, spending for education and health in the first nine months of 2000 was 18%.

Monetary performance in 2000 was stable. Despite a slight decline in foreign assets, Net domestic credit increased 3% more or less over the previous quarter. This growth shows the confidence in the banks. In compliance with the new requirement of NBC (the minimum paid-in capital is now increased to 50 billion Riels (US$13,089,055.00) promulgated in November 1999. 11 of 32 banks in Cambodia have been declared to be closed.

According to the National Bank of Cambodia in 2000, the loans to the private sectors rose by 8% over the previous year. Approximately 10% of rural households have access to loans provided through the Rural Development Bank. According to MFE, at least US$100 millions is required to improve living conditions of the rural poor.

The foreign aid plays the important role in Cambodia during the time of the national disaster (the flood in 2000). Between 1992 and 2000, the foreign aid is focused heavily on the social and economic development respectively 50% and 41% of the assistance provided by donor countries and NGOs, another 9% of aid have been provided for the government administration. For the emergency rehabilitation of water-damaged infrastructure, economic recovery and poverty alleviation, the Asian Development Bank has pledged US$55 millions with low interest loan and the World Bank plans to provide another US$45 millions to Cambodian Government.