CONCLUSION Economic Outlook for the Twenty-first Century ‘The research for this economic history of Cambodia was completed, for the most part, by mid-2004. This was a convenient cut-off point as it marked one hundred years since the death of King Norodom I, the event which had signalled French determination to implement and enforce the terms and conditions of the two conventions already signed with the monarch rendering Cambodia a protectorate of the French colonial empire. More significantly, by 2004, Cambodia seemed to have effectively “turned the corner” from its status as a post-conflict society to one where some observers were beginning to speak in terms of its genuine transformation, both political and economic, into a stable, modern democratic state firmly aligned with other globalised neoliberal market-oriented economies. In fact, the Cambodian economy boomed after what was widely regarded as the final step in Prime Minister Hun Sen's consolidation of power over the ruling Cambodian People’s Party and thus the state apparatus when, at the end of 2003, he aggressively and definitively asserted his authority over the conservative left faction within the party.! ‘The boom years from the beginning of 2004 to the final quarter of 2008 appeared to justify the efficacy of neoclassical/neoliberal economic theory and strategies as applied via the intervention of international financial institutions (IFIs) to developing countries like Cambodia whose economies had been seriously affected by decades of internal strife. Be- tween 2005 and 2007 inclusive, Cambodia's real GDP growth averaged around 11 per cent; in 2005, it achieved 13.3 per cent, a growth rate second only to that of China? Despite warnings by non-government commentators that the growth was narrowly based on the textiles and clothing industry, tourism, and the construction sector, all of which 288Conclusion 289 were particularly vulnerable to exogenous shocks, and that the profits of development had been unevenly distributed so that rural poverty had hardly eased over the preceding decade, all the key economic indicators pointed to further robust growth. With the wisdom of hindsight, regular citizens and economic policy makers and planners alike may discern the early tremors and warning signs of the sudden bust of global financial markets that oc- curred in the final quarter of 2008. While in developed western countries there had been some concern over the ever-escalating level of personal debt, spurred on by easy access to cheap loans, and the concurrent boom in real estate property prices, in Cambodia, too, the rush to speculate in land, fluctuations in the price of gold which reached an absolute high of one thousand dollars an ounce in May, along with rising food prices and unusually high inflation that peaked at 26 per cent around mid-year had further exacerbated the widening gulf between the few very rich and the many poor.? By the end of the first quarter of 2009, the ramifications of the credit crisis for the so-called “real” economy were being felt around the world. Leading economic specialists were unwilling to predict how deep or how long the recession would persist, or how well, or even if, the institutions so familiar to the neoliberal marketplace would weather the storm. While the Cambodian economy experienced several shocks after rehabilitation commenced in 1993, it had yet to experience a recession serious enough to assess the ideological foundations on which that reha- bilitation was built. Throughout the 1990s, Cambodia had been a political and economic laboratory for testing ideas about political transition and economic development: from a command to /issez-faire capitalist eco- nomy, from large to small bureaucracy, from domestic to export-oriented production, and so on. Cambodia's compliance with the demands of the IFIs to adjust the structures of its national administration in accordance with small but “good” governance stipulations so that market forces could operate with maximum freedom had to be supported and guaranteed by generous grants and soft loans from those same IFls. Thanks to these buffers, the Cambodian economy was largely sheltered from the Asian financial crisis of 1997-98; the sharp downturn in the economy that year had more to do with repercussions from the July 1997 coup than with the regional financial collapse. The high degree of dollarisation also protected the national currency from the worst effects of that crisis as it played out in other regional countries, while preferential treatment awarded to its garment exports was an incentive for foreign investors to maintain their enterprises in Cambodia. In 2008, however, the situation290 Conclusion was markedly different. The 2008 financial crisis originated in the U.S.A., the chief market for the garments and footwear manufactured in the foreign-owned factories located in and around Phnom Penh that are worked by Cambodian labour. Consequently, as the economic situation in America worsened, so did the economic outlook for Cambodia and its dollar dependent riel, causing many observers to question the soundness of the structural changes that the economy had undergone over the previous 15 years. The Global Financial Stability Report that was released by the International Monetary Fund (IMF) in April 2009 stated baldly that “the withdrawal of foreign investors and banks together with the collapse in export markets create funding pressures in emerging market economies that require urgent attention.”* The report warned that as recessions tend to be deeper and longer lasting when associated with a financial crisis not only would net private capital flows to emerging markets be negative in 2009 but also that “inflows are not likely to return to their pre-crisis levels in the future.” The general advice from the IMF was for govern- ments to initiate fiscal stimulus packages and to improve financial regu- lation and supervision. Just one month prior to the release of that major report, an IMF mission visited Phnom Penh to review what it termed “recent economic and financial developments.”> It noted that construction activity and foreign investment were slowing rapidly, that garment exports were under serious pressure, and that the tourist arrival growth rate had reversed. Ominously, while agriculture had performed better than anticipated the previous year, the mission predicted that the fall in global agricultural prices would have an impact on farmer incomes in 2009. The only positive note in the mission’s statement was that inflation would probably fall back to single digits, in line with lower oil and food prices and weakening consumer demand. The mission estimated that real GDP would fall by 0.5 per cent, although it admitted that the drop might, in fact, be worse and that the outlook for the years 2010 and 2011 was “uncertain.” Its recommendation to the Cambodian government was to allow the deficit to rise to 4.75 per cent of GDP with spending focused on “pro-poor social outlays and safety nets and high-quality infrastructure projects that would strengthen competitiveness.” It further urged the government to continue strengthening its tax administration efforts in order not to erode its already low revenue base. Although estimates vary according to sources, real GDP growth for Cambodia is projected to be 6.5 per cent in 2008 and 4.75 per cent in 2009, which is certainly disappointing compared with average growth