You are on page 1of 12

                                                              

               

Keynote Address by Samdech Akka Moha Sena Padei Techo Hun Sen Prime Minister, Royal Government of Cambodia At the Third Cambodia Economic Forum

“Increasing Cambodia Competitiveness for Growth and Poverty Reduction in the Face of Global Economic Crisis”
Hotel Le Royal, 05 February 2009

Excellencies, Ladies and Gentlemen,
Today, I have a great honor and pleasure to participate in the Third Cambodia Economic Forum (3rd CEF), organized by the Supreme National Economic Council (SNEC). I would like to welcome you all to this forum and highly appreciate your active participation. On behalf of the Royal Government and myself, I wish to commend the Supreme National Economic Council for organizing this forum, in its capacity as a socioeconomic policy think tank for the Head of Royal Government. I would like also to express our sincere gratitude to the UNDP, ADB, the World Bank and other development partners and institutions for their continuous institutional and financial support to Cambodia’s development and intellectual needs, and we look forward to greater collaboration in the future. Indeed, as we gather here this morning, the world is going through a turbulent time, and Cambodia is not isolated from the impacts of this crisis. The hike of food and oil prices, the subsequence deflation, and the subsequent deterioration and intensification of the global financial crisis leading to the global economic downturn, have prompted
1   

oil prices were rising. the need to address the challenges of the high cost economy. Excellencies. There are many well-known economists and researchers working on this topic. It is clear that. I am convinced that today’s forum will contribute to identifying options for Cambodia to weather the uncertainties of severe global economic downturn since the Great Depression in 1930s and to be able to grab this opportunity to reinforce our reform efforts in order to sharpen our national competitiveness thus creating more attractions for investments that target an increasingly expanding and strengthened economic base. the Royal Government of Cambodia (RGC) is taking systematic and sequencing measures to mitigate the negative impacts of the crisis on Cambodia’s financial and economic systems. if the RGC fails to take timely and appropriate proactive measures to manage the crisis. Appropriate responses can ensure sooner recovery. while inappropriate responses could prolong the downturn. and rising of macro-economic and financial risks. and good governance related issues. I believe that we do not fully understand the magnitude. I believe that we do not need to spend time discussing the causes and roots of this global financial and economic crisis here. we also could not clearly estimate the negative impacts of the crisis on the country. while food crisis causing a sudden surge in the prices of 2    . The forum today focuses on “Increasing Cambodia’s Competitiveness for Growth and Poverty Reduction in the Face of Global Economic Crisis”. Let me start by making a general assessment on some of the impacts of the global financial and economic crisis on Cambodia. Although it is very important. However. This topic is relevant during the time of financial volatility. Generally. As for Cambodia. if we look over the past year or so we can see that the world economy has gone through deep changes since the end of 2007. The Second Cambodia Economic Forum (2nd CEF) cited the importance of agriculture and the development of the rural economy in poverty reduction. Therefore. Ladies and Gentlemen. declining external demand.many countries to take measures to address and deal with the negative impacts of such crisis on their respective economies. on the actions taken by leaders around the world. At the beginning of 2008. Indeed. the affects of global financial crisis and economic downturn will become a real cause for Cambodia’s financial system and economy to fall into a dangerous crisis. severity and duration of the crisis yet because they depend. aiming at protecting our hard earned achievements and sustaining growth at an appropriate level according to our existing capacity and potential. caused by the increase in oil prices and the real estate crisis in the United States. in part.

has benefited many Cambodian farmers and provided them with positive signal encouraging them to increase rice production during the harvest season in 2008.2 percent in 2007. Cambodia has come a long way on its development path and overcome numerous difficult times. some politicians exaggerated that inflation rate in Cambodia was as high as 40%-50% in order to gain political scores before the national elections. Nevertheless.3 percent in 2005. budgetary and fiscal policies. especially. 10. Here. Despite the global economic downturn. This has created inflationary pressure on the world’s economy including Cambodia’s. Nevertheless. In fact. Inflation increased to more than 20% 3    II. The economic growth has been robust. averaging at 9. following the implementation by the RGC a policy package. the US’s financial situation plunged into a severe crisis and then spread to Europe causing a financial cataclysm around the world. this global financial and economic crisis has created some risks for Cambodia’s financial and economic systems. rice. during that time. . the most vulnerable sectors to the crisis are garment. inflation was brought under check and subsided in the second half of 2008. I would like to also mention that the rise in food prices. This global financial turmoil has created the worse impacts on the real economy which caused a severe downturn in the world’s economy. the fall in demand in key Cambodian markets and declining tourist arrivals to Cambodia. This crisis has also caused the prices of many other goods to increase. In general. We succeeded in securing peace.6% during the last five years.8 percent in 2006 and 10. especially the decline in the sources of financing and private investment capital outflows. By mid 2008. tourism. the RGC will try to maintain a 6% growth in 2009. I would like to emphasize that the fundamentals of our economy remain strong and will help us to overcome the negative impacts of this global financial and economic crisis. We have been successful in developing our infrastructures as well as improving governance structure. political stability. especially that of rice. prompting inflation rate to increase to more than 20% by mid June 2008. with the record high of 13. security and social order. 10. while promoting macro-economic stability and international integration. This helped to reduce poverty by 1% per annum from 47% in 1994 to 30% in 2007. from 2003 to 2007. the Cambodia’s economy is estimated to grow by 7% in 2008 (it is still a good level compared with neighboring countries in the region). Let me highlight some of the reasons why I believe our economy is in a good shape: I. including monetary. construction and real estate.food. As a result.4 percent during the last decade. Despite the downturn.

well capitalized and highly liquid. peace and social order will open more opportunities for this sector. compared to yields achieved in neighboring countries by making investment in physical infrastructure. from USD1 billion in 2006 to USD2 billion in 2008. The reforms will help economy to stay resilient in short term and pave the way for medium to long term acceleration. Base on this strong foundation and other huge potentials we hope that the commitment to reforms under the framework of Rectangular Strategy Phase II could create further favorable environment for development and growth in particular. safety. Tourism has a great potential for development and remains generally strong. we will be able to further enhance the attractiveness and competitive advantages of Cambodia in terms of promoting and diversifying exports. It is important to note that the economic challenges in recent years will not derail Cambodia’s from a strong multi-party and 4    . There is still more room for yields improvement.by the middle of 2008 and reduced to about 19% at year end. Ladies and Gentlemen. increased from around 2. Hence. IV. Excellencies. It is estimated that inflation will be curbed into a single digit in 2009. By further strengthening this competitiveness together with the RGC’s on-going measures to implement trade facilitation and promote investment. and promoting agricultural diversification. The garment sector is now in good standing to compete in the world market. III. increasing agriculture productivity. the building of more physical infrastructures. Our international reserves position has been favorable and was doubled during the last two and a half years only. V.65 tons per hectare in 2008. Cambodia’s banking system remains strong in general. Bank loans and deposits continued to growth in 2008 reflecting public confidence in the banking system.5 tons per hectare in 2005. developing human resources. We managed to increase rice yields up to 2. as well as the promotion of attractive tourism packages based on the need to maintain strong political stability. with its improved labor standards. We have followed closely and carefully the developments in the world economy which have an impact on Cambodia’s economy. Progress in agriculture has been historically impressive. improving legal framework and institutional capacity. tourism market diversification. especially irrigation system.

Moreover. In addition. To this end. Commensurably with developments in the economy. as financial and banking regulator. while ensuring 1. I would like to inform the audience at this forum and the public in general of the policy package which the government has already introduced and is implementing. growth financial policies. and given the fact that inflation has subsided and the need to increase bank loans to promote economic activities. the Ministry of Economy and Finance has to continue closer cooperation with the National Bank of Cambodia to coordinate the implementation of RGC’s monetary policy.democratic path that we have chosen. shall be responsible for regularly monitoring and ensuring the health of banking system. stable and favorable macrothrough implementing propromoting systemic reform the country. Taking this opportunity. I will also dwell on further policy measures for government’s ministries and agencies for their efficient implementation. The Royal Government is well aware of the challenges. the Royal Government will make further adjustments to the reserve requirement in the future. the storms of the global financial cataclysm will have negative impacts on Cambodia over the medium term. Indeed. and take necessary measures to ensure the solvency and the strength of commercial banks in the country by collaborating with stakeholders and institutions involved. Macroeconomic Policy Measures The Royal Government continues to commit to maintain a economic environment conducive for economic growth.1 Monetary and Financial Policies: The Royal Government will continue implementing prudent and flexible policies to keep inflation under check and to ensure stability in financial sector especially the robust banking system. the Royal Government has also 5    . the Royal Government decided to reduce the reserves requirement from 16% to 12%. financial and social situation. In implementing this policy. the National Bank of Cambodia. Faced with economic difficulties. and has implemented a broad range of systemic and well-sequenced measures to prevent and mitigate the impacts of the deep global crisis on Cambodia’s economic. the Royal Government took a bold step with strong determination to successfully conduct the general elections. I. which are recognized by national and international observers as free and fair according to democratic principles. flexible monetary policy and programs to improve investment and business climate in confidence and attracting domestic and foreign investors.

abolished the 15% cap on loans for real estate. Fiscal policy Due to global economic crisis.000 billion Riel or 3. Nevertheless. Thus. The Royal Government is well aware about those needs. was prepared to support and stimulate growth. I would like to take this opportunity to set out a number of additional measures as follows: 6    . improved productivity and developing safety net systems. Thus. in order to compensate the drop in private investments. reducing manufacturing costs and implementing social safety nets. 1. Indeed. as stated in the law for financial management 2009. the Royal Government gave priority to increasing public investment in physical infrastructure including transportation. in which the Royal Government has made room for an overall deficit (excluding grants) of more than 2. as well as to effectively mobilize additional resources from the development partners. we have a number of concerns about possible decline in government revenues because of slowing economic and import-export activities as well as the emerging needs for new spending priorities especially for physical infrastructure. it is expected that Cambodia’s growth in short to medium term will decline indicating a slowdown in private investments. This is clearly against the view of some politicians who are always demanding a big sum (US$500 million) of money to bail out the economy in a big scale without considering facts and reality. increasing agriculture output. the Royal Government is vigilant in monitoring the implementation of the budget – on both expenditure and revenue side. In its 2009 expenditure policy. As noted above. all these have been carefully considered and weighted.7% of the GDP. while on the other hand is the need to sustain macro-economic stability. compared to the 2008 Budget deficit of only 700 billion Riel or 1. as now the commercial banks are well aware of the risks and know how to manage the real estate risk. and is now introducing a series of policy measures for this purpose. the budget envelope for 2009. In fact. especially the management of inflation. irrigation. in this context. the Royal Government has to introduce a stimulus package to the extent it can afford to support and stimulate growth in the ways that would not adversely affect economic stability.2% of the GDP. which on the one hand represents the need to stimulate growth.2 .

3. I would like to take this opportunity to also appeal to the various oil companies to continue assisting the Royal Government in reducing retail oil prices in general. In fact.3. 4. which was the highest outcome in our effort to attract official development assistance from development partners in the last 10 years. either fiscal or non-fiscal. this cooperation financing is one of the important instruments to reduce the impacts on Cambodia from financial meltdown and global economic downturn.as the petrol price today has substantially declined. the Royal Government mobilized approximately USD 1 Billion in ODA. 1. 2.Policy to mobilize and increase disbursement of ODA During the second Cambodia Development Cooperation Forum (CDCF) this year in 2009. reflecting the current market prices. in accordance with the principle of “One Commander-in-Chief. The important issue is to strengthen the implementation of public procurement procedures by negotiating the prices of the petroleum products supplied to the Ministries/agencies. and cooperating and showing understanding by charging only appropriate profit from the bidding for the supply of petroleum products for the Ministries/agencies of the Royal Government. effectively in order to meet the objectives set in the 2009 Financial Act. The Ministry of Economy and Finance must review the current national budget by rationalizing current spending (compulsory versus non-compulsory expenditures) and reallocating them into funds used for direct support of growth or for specific government’s allocations for social safety net as well as spending needed to mitigate unexpected impacts resulting from the global financial and economic crisis. The Ministry of Economy and Finance must consistently monitor the national budget (on both revenue and expenditure sides) and propose necessary accommodative measures to the Head of the Royal Government for consideration and decision-making.1. The Ministry of Economy and Finance and all relevant Ministries/agencies must continue to mobilize all kinds of revenues. So we have to make our utmost to mobilize and use official development assistance effectively. One General Staff”. which needs to be implemented immediately. 7    . compared to the prices of the petroleum products in the approved budget. Specific measure for rationalizing spending. is to make savings from budget allocations for petroleum expenditures for all Ministries/agencies . in the present context. All Ministries/agencies of the Royal Government are required to cooperate and make great efforts to implement this order.

I would like to request all related development partners to facilitate the implementation. I would like to appeal to all development partners to consider providing it more in the form of net resources transfer to Cambodia in order to target investment projects and increase the economy’s productivity which would have direct and immediate impacts on economic growth and poverty reduction. For all relevant development partners. II. especially to facilitate the speed of implementing the procurement procedures and other impact settlements. which could be allocated for implementation in the priority areas as set by the Royal Government. 2.efficiently and on target. On the other hand. which aim at improving investment and business climate. 3. This is to assure confidence and attract both domestic and foreign investment. The Ministry of Economy and Finance must lead and coordinate with all relevant Ministries/agencies in order to speed up the implementation of necessary reform measures. For this ODA. All Ministries/Institutions of the Royal Government. Measures Related to Structural and Sectoral Reforms In the current context. the Royal Government clearly sees the opportunity and needs to push forward the systematic and interrelated reforms. I would like to put forward the proposal to all relevant development partners and also recommend the Ministries/agencies of the Royal Government to speed up the implementation: 1. have to speed up the project implementation to be more effective with the spirit of highest responsibility in an attempt to attract faster and more provision of the financial resources into the economic system while improving Cambodia’s absorbing capacity in general. In this regard. which are to be in charge of implementing the cooperation projects with the partners. especially facilitate trade and promote low-hanging-fruit investments. I would instruct the Committee on Private Sector Development and its existing working group mechanism of Government-Private Sector 8    . which are the conditionalities for providing budget support in order to mobilize and disburse the resource quickly and efficiently. In this regard. I would like you to focus your attention to assisting the preparation of development projects planned for Cambodia in 2009 and get them signed quickly. for the projects which have already been signed. Along with this. the Ministry of Economy and Finance must take the lead in coordinating the negotiation with related partners in order to increase the efficiency in implementing cooperation projects as well as making use of other cooperation financing resources.

Forum and all development partners to intensify their cooperation in studying and finding immediate measures to enhance effectiveness in trade facilitation and to promote businesses. recently I introduced a numerous measures and provided recommendations to ministries/relevant institutions: 2. With this in mind. especially small and medium enterprises. the Royal Government offered a budget amounting to US$18 million to the Rural Development Bank to continue the activities. The Royal Government has worked to streamline procedures in rice exports and to gradually strengthen rice export management mechanism while improving domestic capacity in rice purchasing. in 2008. drying and processing. on a number of targets including (1) Provide short-term credit for collecting paddy/rice from farmers at appropriate price to maintain price stability and ensure food security. to private rice millers to collect paddy/rice to ensure domestic supply. especially through the reduction in procedures and legal requirements that would increase transaction cost and hinder investments. Agriculture Sector Agriculture is important for sustaining growth and reducing poverty. the Royal Government is drafting legal procedures for investment projects in agriculture especially investment projects in agriculture produces processing such as investment projects in rice stockpiling and processing. distribution and export. The Royal Government is trying to strengthen the partnership between small-holder farmers with large-farm owners. the Royal Government will convert the budget to establish a “Agriculture Support and Development Fund” which will be managed by the RDB to support private sector.1. stockpiling and processing Cambodian rice. processing. pesticide and agricultural equipments etc. with the emphasis on establishing farmer associations and partnership with companies involved in rice purchasing. These projects are to be considered as priority projects with high incentive within the existing investment law framework. In relation to supporting policies of the key economic sector. distribution and export. In response to the current need as well as to ensure continuity. as well as agriculture enterprises. At the same time. and (2) Provide medium-term credit to rice millers to increase capacity in stockpiling. fertilizers. the Royal Government provided a special credit line amounting to US$12 million. Along with these measures I wish to urge our 9    . the Royal Government will continue to enforce zero tariff policy on importing agriculture materials such as seeds. In 2009. through the Bank for Rural Development. At the same time. Therefore. the Royal Government has given serious thoughts to the factors of production costs and output as well as capacity in purchasing. processing. between social land concessionaires and economic land concessionaires. trades and businesses.

diversifying markets and coordinating between employers and workers. For the government with its limited capacity to provide social safety nets to unemployed workers. using this opportunity to enhance productivity or skill transfer to be ready for new job or create new job by themselves in other fields in both urban and rural area as well as opportunity to work abroad in the future. in the current situation both fiscal and budget capacity of the government has been tightened to the maximum. Due to the limitation of the government budget. I wish to remind the Committee once again to urgently continue this task. improved understanding among/between employees and employers for common interest. we still see the possibility and need to improve procedures and to reduce barriers and difficulties in doing business which can help reducing production and transportation costs. development partners are welcomed to join this initiative. At the same 10    . In this spirit. I once again would like to appeal to all employees and employers to display tolerance and understanding for the sake of their own and common national interests. I would like to ask the Ministry of Economy and Finance to work with the Ministry of Labor and Vocational Training to look for appropriate budget and establish fund to provide scholarships for special skill training including the provision of short-term training to our young and lay-off workers. especially the contribution by workers to keep their jobs. It is no doubt that during this difficult time. Garment Sector The Royal Government is well aware about the challenges that the garment sector is facing. It is necessary to link with Job Database System and Centre for Job Seeking of the Ministry Labor and Vocational Training.development partners to provide additional funds to improve agriculture which is the highest priority sector of the Royal Government. We also need to seek sources of financing for business activities. In this spirit. I have recently instructed the Steering Committee on Private Sector Development to convene meetings with stakeholders to explore concrete measures to help addressing difficulties faced by the garment sector. On one hand.2. The Royal Government expects that the closing of several factories with low economic efficiency and low competitiveness is inevitable. In this spirit. is increasingly important than any other time. In any case. The RG has been issuing various measures both fiscal and facilitation measures to support the garment sector. it is to be our important priority. Indeed this issue is widespread in the current difficult time. the purpose of the scholarship program is to ensure a minimum social safety net in the very short term for young and lay-off workers. 2. and on the other hand. Indeed.

we have seen a slight pickup of tourist arrival to Cambodia. by ensuring peace. I would like instruct the Economic and Financial Policy Committee.time. under such circumstances. we hope to create a favorable environment for the sector’s growth. In promoting tourism sector in the face of financial and global crisis. medium and long terms. I would like to request all people employed in the tourism sector for their understanding and help strengthening the quality of services. we can remove the bottlenecks and obstacles in garment sector during this hard time. Nevertheless. developing human resources. to ensure institutional coordination. improving legal framework and institutional capacity. However. In fact. As an input to this gathering. In order to ensure effective implementation of measures that I introduced earlier. I instruct the Private Sector Development Working Group to meet with the private sector and other development partners to monitor the progress and propose measures to address the facing challenges. 2. building more infrastructures. Because of global financial and economic crisis. Tourism has served as an important pillar of Cambodia’s economic growth. especially the private sector to draw lessons from experiences in neighboring countries who have managed attractive tour packages with special discount and other incentives. led by the Deputy Prime Minister Keat Chhon. Tourism Sector In fact. Recently. I would like to appeal to the private sector to make their utmost efforts in weathering the slowdown in tourism. the Government does not have enough financial capacity to support the private sector. which is a foundation for development of tourism sector at large and mitigate the short-term impacts of the global financial and economic on tourism sector in particular. especially to the Angkor Wat Complex. political stability. we observe that Cambodia has suffered the slowdown at the end of 2008. explaining. Taking this opportunity. 11    . the Royal Government will pay greater attention to strengthening tourism sector over the short. I would like to request all concerning stakeholders. I would like to instruct the Ministry of Labor and Vocational Training to play more proactive and effective role in coordinating. and the private sector itself has to enhance its effectiveness and quality of services. security. monitor the progress and report back to the Royal Government. preventing and timely addressing the disputes. social order and tourist safety. and diversifying tourist market.3. By so doing.

Excellencies. I wish the forum a fruitful and active debate that will contribute to the formulation of development policies and strategies for Cambodia in the future. I strongly believe that the measures are important for both sustaining growth and reducing poverty over the short and medium terms. I look forward to your contribution in terms of ideas to increase Cambodia’s competitiveness and to reduce poverty effectively. Ladies and Gentlemen. Before concluding. May I now declare the opening of the Third Cambodia Economic Forum! Thank you!  12    . Finally. I would like to ask the forum to continue the discussion actively and constructively on the following three major policy questions: (1) how does Cambodia sustain its growth? (2) What are our competitiveness and how we can improve it? And (3) how can we balance long-term strategy with short-term policy adjustment in response to external shocks such as this crisis? Adding to this. I would like the forum to come up with ideas on the role and responsibility of the private sector in the face of global economic crisis to strengthen capacity to survive and to improve national competitiveness. amid the challenges of global financial and economic crisis. I already spent a lot of time elaborating the policies package to address the challenges caused by global financial and economic crisis. as well as setting additional measures. for example. through our joint efforts in strengthening the corporate governance as well as the quality of services. as well as for diversifying economic base and sharpening Cambodia’s comparative advantage in the long term.