Cambodia Economy

Macro-Economic Development Growth, Poverty, Reform Priorities The development challenge facing Cambodia is to sustain growth, reduce poverty, and accelerate the completion of the reform agenda. To accomplish these medium term goals will require effective economic management and considerable inflows of external assistance in order to support the implementation of public investment priorities and raise the pace and consistency of structural reform. Moreover, mechanisms to reduce poverty and protect vulnerable groups from accelerated transformation must be put in place. The development needs of Cambodia have shifted from survival mode to a medium term strategic framework for rapid adjustment and growth supported by sound macro and sectorial policies, and complementary public investment and technical assistance programs. Adjustment and growth, such are the objectives pursued by the MEF. It is important to strengthen the macroeconomic balances in order to allow for the healthy, sustainable growth of the economy. On this basis, sector-driven strategies tended to increase and diversify production, parallel with the budget strategy of reducing financial dependence and encouraging social progress. The path covered in five years (1994-98), albeit one that shows deficiencies to be corrected and delays to be resolved, seems satisfactory, overall. Progress has been noteworthy and the results indicators positive mainly due to a good concurrence of external factors affecting economic development, and also to the clear direction given by national policies. Results Indicators - Positive Development The outcomes of the results indicators appears to be positive, according to the information in Table below: 1. A real average annual growth rate of 5.2% for the period. Had it not been for the downturn in 1997 which will continue to make be felt to a lesser extent in 1998, the average annual growth rate could have reached 6.0%. In this regard, 1995 and 1996 have clearly very high scores, which were lining Cambodia up among the Asian dragons until the recent crisis occurred; 2. A per capita GDP on a constant growth curve, from US$241 in 1994 to US$303 in 1996, with a slight decline in 1997 ($290.9); 3. A CPI that broke free from the soaring increases of the previous years to stabilize from 1996 onwards at a about 9%; 4. A deficit in t he current balance excluding transfers, which is sustained at 14-15% of GDP, despite the. increase in imports due to investments; 5. Foreign exchange reserves that reached over two months of goods and services imports; 6. Foreign contributions that covered the gross deficit of the current balance on an annual average for 1994-97, in the amount of 134%, with the surplus helping to improve the gross foreign exchange reserves. External Factors and the Funding or Deficits Factors external to the evolution of the economy are related to official transfers such as donations, capital transfers in the form of loans from international organizations and, lastly, to foreign direct investments (FDI). The aggregate of such external contributions covered, on a annual average from 1994-97, the gross deficit of the current balance in the amount of 134% (the surplus contributed to the improvement of the gross foreign exchange reserves to cover 2.7 months of imports in 1997). However, although official transfers and capital transfers are being maintained from one year to the next, about 8- 1 1 % and from 2-3 % respectively of GDP, these did drop in 1997 by about 8 % with relation to the initial forecasts and by 20% compared to 1996. On the other hand ' FDI that had grown at a very sustained pace since 1093, dropped by 21% in 1997 with relation to the forecasts. There is reason to fear that, in view of the Asian financial cataclysm, such investments will not rapidly pick up the dynamic growth that they experienced up till now. National Policies and Economic Development - Budget and Monetary Policies. Expansion of the monetary supply was strong during the years 1994-97, with an annual average rate of 35.7%, and for an average 5.2% of GDP. However, no monetary financing of the Treasury was undertaken with -the National Bank of Cambodia until late 1997. In reality, the foreign currency deposit component explains this growth; liquidity in Riels has grown at an annual average rate of 13.7%. Still, this development is especially due to the exceptional year in 1997 (+33.4%). Nevertheless, the Riel-US Dollar parity has remained very stable during the period, i.e. at the end of the period 2,593 in 1994; 2,560 in 1995; and 2,720 in 1996. It was only during the second half of 1997 that, suffering the effects of the Asian monetary cataclysm, the Riel went up to 3,500 for US$I; since that time, it has basically maintained itself at this level. However, a good macroeconomic performance was obvious in the – liberalization of the rate of exchange, the stabilization of inflation to a tolerable level, and the revamping of the commercial framework (removal of restrictions on imports and obstacles to exports). Taxation-an up-to-date tax system, but still yielding inadequate results The Government undertook the renovation and reinforcement of a taxation and duty system that was still in infancy. The country was slowing getting away from a command economy. The option was made for a modern, performing tax system, but by means of a progressive approach that would allow for reasonable time for the new economic structures to adapt and for State employees to be trained. With the year 1998-after the Taxation Code of February 1997, pending enforcement of the VAT on large commercial enterprises in 1999, and with the Customs Code yet to come out-the Cambodian approach will be five years old. The current nomenclature of é taxes and duties is a good reflection of the tax structure as it is found in most countries in the world. An analysis of the relationship between tax revenue and the components of GDP that are the basis thereof gives rise to the following observations: What is called the tax ratio and which means the actual levy made on GDP, experienced a rapid increase between 1993 (4.32%) and 1994 (5.95%), when the initial tax measures kicked in. Since that time, the tax ratio continues to be around 6% -- with a peak of 6.46% reached in 1997 -- the lowest rate in the world, even compared to the Least Developed Countries (LDCs). In the Southeast Asian region, the tax ratio rate was already 9.53% in 1984 in the Philippines; 14.34% in Thailand; 1 26.93% in Indonesia; 21.53% in Malaysia. the Philippines is the only country where the rates appear relatively low-, although the rate quickly increased to 15.5 1 % in 1992. That is about the same rate as in Vietnam (I 5.4% in 1993 for a GDP per capita that is lower than that of Cambodia), while Laos was at 7.4% in 1991. * 43% to 46% of GDP is not subject to taxation due to the rightful exemption of agricultural production; * When only the potentially taxable GDP is considered, the average tax rate of national production barely reaches,8% (from 7.63-7.95% depending on the year); * Internal taxation, aside from customs duties, remains weak, if not negligible; income- profit taxes carried over to the potentially taxable GDP is less than 1% (0.36 - 0.77%, except for 1998 which is forecast for 1.23 ˜%). At the same time, the ratio between domestic indirect taxes and potentially taxable GDP is barely above 1% (0.59 - 1.36% depending on the year); * The average rate of tax on imports remains at a very reasonable level (IO - 13 % on total imports); * Private consumption that supports both the domestic indirect and import taxes is only a very small contributor to taxation, between 7 - 8% -- whereas in all the countries of the world this is the main source of tax receipts.

Cambodia History

No one knows for certain how long people have lived in what is now Cambodia, as studies of its prehistory are undeveloped. A carbon-l4 dating from a cave in northwestern Cambodia suggests that people using stone tools lived in the cave as early as 4000 bc, and rice has been grown on Cambodian soil since well before the 1st century ad. The first Cambodians likely arrived long before either of these dates. They probably migrated from the north, although nothing is known about their language or their way of life. By the beginning of the 1st century ad, Chinese traders began to report the existence of inland and coastal kingdoms in Cambodia. These kingdoms already owed much to Indian culture, which provided alphabets, art forms, architectural styles, religions (Hinduism and Buddhism), and a stratified class system. Local beliefs that stressed the importance of ancestral spirits coexisted with the Indian religions and remain powerful today. Cambodia's modem-day culture has its roots in the 1st to 6th centuries in a state referred to as Funan, known as the oldest Indianized state in Southeast Asia. It is from this period that evolved Cambodia's language, part of the Mon-Khmer family, which contains elements of Sanskrit, its ancient religion of Hinduism and Buddhism. Historians have noted, for example, that Cambodians can be distinguished from their neighbors by their clothing - checkered scarves known as Kramas are worn instead of straw hats. Funan gave way to the Angkor Empire with the rise to power of King Jayavarman II in 802. The following 600 years saw powerful Khmer kings dominate much of present day Southeast Asia, from the borders of Myanmar east to the South China Sea and north to Laos. It was during this period that Khmer kings built the most extensive concentration of religious temples in the world - the Angkor temple complex. The most successful of Angkor's kings, Jayavarman II, Indravarman I, Suryavarman II and Jayavarman VII, also devised a masterpiece of ancient engineering: a sophisticated irrigation system that includes barays (gigantic man-made lakes) and canals that ensured as many as three rice crops a year. Part of this system is still in use today. The Khmer Kingdom (Funan) Early Chinese writers referred to a kingdom in Cambodia that they called Funan. Modern-day archaeological findings provide evidence of a commercial society centered on the Mekong Delta that flourished from the 1st century to the 6th century. Among these findings are excavations of a port city from the 1st century, located in the region of Oc-Eo in what is now southern Vietnam. Served by a network of canals, the city was an important trade link between India and China. Ongoing excavations in southern Cambodia have revealed the existence of another important city near the present-day village of Angkor Borei. A group of inland kingdoms, known collectively to the Chinese as Zhenla, flourished in the 6th and 7th centuries from southern Cambodia to southern Laos. The first stone inscriptions in the Khmer language and the first brick and stone Hindu temples in Cambodia date from the Zhenla period. Angkor Era Bayon Temple, Angkor Thom The giant faces carved on the Bayon temple at the Angkor Thum complex in northwestern Cambodia represent both the Buddha and King Jayavarman VII (ruled about 1130-1219). Although a Buddhist temple, Angkor Thum was modeled after the great Hindu temple complex of Angkor Wat. In the early 9th century a Khmer (ethnic Cambodian) prince returned to Cambodia from abroad. He probably arrived from nearby Java or Sumatra, where he may have been held hostage by island kings who had asserted control over portions of the Southeast Asian mainland. In a series of ceremonies at different sites, the prince declared himself ruler of a new independent kingdom, which unified several local principalities. His kingdom eventually came to be centered near present-day Siemreab in northwestern Cambodia. The prince, known to his successors as Jayavarman II, inaugurated a cult honoring the Hindu god Shiva as a devaraja (Sanskrit term meaning "god-king"). The cult, which legitimized the king's rule by linking him with Shiva, persisted at the Cambodian court for more than two hundred years. Between the early 9th century and the early 15th century, 26 monarchs ruled successively over the Khmer kingdom (known as Angkor, the modern name for its capital city).

King Jayavarman VII The successors of Jayavarman II built the great temples for which Angkor is famous. Historians have dated more than a thousand temple sites and over a thousand stone inscriptions (most of them on temple walls) to this era. Notable among the Khmer builder-kings were Suyavarman II, who built the temple known as Angkor Wat in the mid-12th century, and Jayavarman VII, who built the Bayon temple at Angkor Thum and several other large Buddhist temples half a century later. Jayavarman VII, a fervent Buddhist, also built hospitals and rest houses along the roads that crisscrossed the kingdom. Most of the monarchs, however, seem to have been more concerned with displaying and increasing their power than with the welfare of their subjects. Ancient City of Angkor This map shows the layout of the ancient city of Angkor, capital of the Cambodian Khmer kingdom from the 9th century to the 15th century. The city's huge stone temples were both civic centers and religious symbols of the Hindu cosmos. Historians believe that Angkor's network of canals and barays (reservoirs) were used for irrigation. At its greatest extent, in the 12th century, the Khmer kingdom encompassed (in addition to present-day Cambodia) parts of present-day Vietnam, Laos, Thailand, Myanmar (formerly Burma), and the Malay Peninsula. Thailand and Laos still contain Khmer ruins and inscriptions. The kings at Angkor received tribute from smaller kingdoms to the north, east, and west, and conducted trade with China. The capital city was the center of an impressive network of reservoirs and canals, which historians theorize supplied water for irrigation. Many historians believe that the abundant harvests made possible by irrigation supported a large population whose labor could be drawn on to construct the kings' temples and to fight their wars. The massive temples, extensive roads and waterworks, and confident inscriptions give an illusion of stability that is undermined by the fact that many Khmer kings gained the throne by conquering their predecessors. Inscriptions indicate that the kingdom frequently suffered from rebellions and foreign invasions. Historians have not been able to fully explain the decline of the Khmer kingdom in the 13th and 14th centuries. However, it was probably associated with the rise of powerful Thai kingdoms that had once paid tribute to Angkor, and to population losses following a series of wars with these kingdoms. Another factor may have been the introduction of Theravada Buddhism, which taught that anyone could achieve enlightenment through meritorious conduct and meditation. These egalitarian ideas undermined the hierarchical structure of Cambodian society and the power of prominent Hindu families. After a Thai invasion in 1431, what remained of the Cambodian elite shifted southeastward to the vicinity of Phnom Penh. Cambodia Dark Age This map of Southeast Asia in the mid-16th century shows the major centers of power in the region prior to the arrival of Europeans. During this period, these kingdoms were constantly at war. Eventually the Kingdom of Ayutthaya (modern Thailand) expanded to the north and east, absorbing much of Lan Na and Lan Xang (modern Laos). Dai Viet (modern Vietnam) expanded to the south, taking over the remaining territory of the Kingdom of Champa and the southern tip of the Kingdom of Lovek (modern Cambodia). Toungoo evolved into modern Myanmar. The four centuries of Cambodian history following the abandonment of Angkor are poorly recorded, and therefore historians know little about them beyond the bare outlines. Cambodia retained its language and its cultural identity despite frequent invasions by the powerful Thai kingdom of Ayutthaya and incursions by Vietnamese forces. Indeed, for much of this period, Cambodia was a relatively prosperous trading kingdom with its capital at Lovek, near present-day Phnom Penh. European visitors wrote of the Buddhist piety of the inhabitants of the Kingdom of Lovek. During this period, Cambodians composed the country's most important work of literature, the Reamker (based on the Indian myth of the Ramayana). In the late 18th century, a civil war in Vietnam and disorder following a Burmese invasion of Ayutthaya spilled over into Cambodia and devastated the area. In the early 19th century, newly established dynasties in Vietnam and Thailand competed for control over the Cambodian court. The warfare that ensued, beginning in the l830s, came close to destroying Cambodia. French Rule Phnom Penh, as planned by the French, came to resemble a town in provincial France. By the second half of the 19th century, France had begun to expand its colonial penetration of Indochina (the peninsula between India and China). In 1863 France accepted the Cambodian king's invitation to impose a protectorate over his severely weakened kingdom, halting the country's dismemberment by Thailand and Vietnam. For the next 90 years, France ruled Cambodia. In theory, French administration was indirect, but in practice the word of French officials was final on all major subjects-including the selection of Cambodia's kings. The French left Cambodian institutions, including the monarchy, in place, and gradually developed a Cambodian civil service, organized along French lines. The French administration neglected education but built roads, port facilities, and other public works. Phnom Penh, as planned by the French, came to resemble a town in provincial France. The French invested relatively little in Cambodia's economy compared to that of Vietnam, which was also under French control. However, they developed rubber plantations in eastern Cambodia, and the kingdom exported sizable amounts of rice under their rule. The French also restored the Angkor temple complex and deciphered Angkorean inscriptions, which gave Cambodians a clear idea of their medieval heritage and kindled their pride in Cambodia's past. Because France left the monarchy, Buddhism, and the rhythms of rural life undisturbed, anti-French feeling was slow to develop. King Sihanouk, through skillful maneuvering, managed to gain Cambodia's independence peacefully in 1953. During World War II (1939-1945), Japanese forces entered French Indochina but left the compliant French administration in place.

King Norodom Sihanouk On the verge of defeat in 1945, the Japanese removed their French collaborators and installed a nominally independent Cambodian government under the recently crowned young king, Norodom Sihanouk. France reimposed its protectorate in early 1946 but allowed the Cambodians to draft a constitution and to form political parties. Soon afterward, fighting erupted throughout Indochina as nationalist groups, some with Communist ideologies, struggled to win independence from France. Most of the fighting took place in Vietnam, in a conflict known as the First Indochina War (1946-1954). In Cambodia, Communist guerrilla forces allied with Vietnamese Communists gained control of much of the country. However, King Sihanouk, through skillful maneuvering, managed to gain Cambodia's independence peacefully in 1953, a few months earlier than Vietnam. The Geneva Accords of 1954, which marked the end of the First Indochina War, acknowledged Sihanouk's government as the sole legitimate authority in Cambodia. Modern State Sihanouk's campaign for independence sharpened his political skills and increased his ambitions. In 1955 he abdicated the throne in favor of his father to pursue a full-time political career, free of the constitutional constraints of the monarchy. In a move aimed at dismantling Cambodia's fledgling political parties, Sihanouk inaugurated a national political movement known as the Sangkum Reastr Niyum (People's Socialist Community), whose members were not permitted to belong to any other political group. The Sangkum won all the seats in the national elections of 1955, benefiting from Sihanouk's popularity and from police brutality at many polling stations. Sihanouk served as prime minister of Cambodia until 1960, when his father died and he was named head of state. Sihanouk remained widely popular among the people but was brutal to his opponents. In the late 1950s the Cold War (period of tension between the United States and its allies and the Union of Soviet Socialist Republics, or USSR, and its allies) intensified in Asia. In this climate, foreign powers, including the United States, the USSR, and China, courted Sihanouk. Cambodia's importance to these countries stemmed from events in neighboring Vietnam, where tension had begun to mount between a Communist regime in the north and a pro-Western regime in the south. The USSR supported the Vietnamese Communists, while the United States opposed them, and China wanted to contain Vietnam for security reasons. Each of the foreign powers hoped that Cambodian support would bolster its position in the region. Sihanouk pursued a policy of neutrality that drew substantial economic aid from the competing countries. In 1965, however, Sihanouk broke off diplomatic relations with the United States. At the same time, he allowed North Vietnamese Communists, then fighting the Vietnam War against the United States and the South Vietnamese in southern Vietnam, to set up bases on Cambodian soil. As warfare intensified in Vietnam, domestic opposition to Sihanouk from both radical and conservative elements increased. The Cambodian Communist organization, known as the Workers Party of Kampuchea (later renamed the Communist Party of Kampuchea, or CPK), had gone underground after failing to win any concessions at the Geneva Accords, but now they took up arms once again. As the economy became unstable, Cambodia became difficult to govern single-handedly. In need of economic and military aid, Sihanouk renewed diplomatic relations with the United States. Shortly thereafter, in 1969, U.S. president Richard Nixon authorized a bombing campaign against Cambodia in an effort to destroy Vietnamese Communist sanctuaries there. Khmer Republic In March 1970 Cambodia's legislature, the National Assembly, deposed Sihanouk while he was abroad. The conservative forces behind the coup were pro-Western and anti-Vietnamese. General Lon Nol, the country's prime minister, assumed power and sent his poorly equipped army to fight the North Vietnamese Communist forces encamped in border areas. Lon Nol hoped that U.S. aid would allow him to defeat his enemies, but American support was always geared to events in Vietnam. In April U.S. and South Vietnamese troops invaded Cambodia, searching for North Vietnamese, who moved deeper into Cambodia. Over the next year, North Vietnamese troops destroyed the offensive capacity of Lon Nol's army. In October 1970 Lon Nol inaugurated the Khmer Republic. Sihanouk, who had sought asylum in China, was condemned to death despite his absence. By that time, Chinese and North Vietnamese leaders had persuaded the prince to establish a government in exile, allied with North Vietnam and dominated by the CPK, whom Sihanouk referred to as the Khmer Rouge (French for "Red Khmers"). In 1975, despite massive infusions of U.S. aid, the Khmer Republic collapsed, and Khmer Rouge forces occupied Phnom Penh. The United States continued bombing Cambodia until the Congress of the United States halted the campaign in 1973. By that time, Lon Nol's forces were fighting not only the Vietnamese but also the Khmer Rouge. The general lost control over most of the Cambodian countryside, which had been devastated by U.S. bombing. The fighting severely damaged the nation's infrastructure and caused high numbers of casualties. Hundreds of thousands of refugees flooded into the cities. In 1975, despite massive infusions of U.S. aid, the Khmer Republic collapsed, and Khmer Rouge forces occupied Phnom Penh. Three weeks later, North Vietnamese forces achieved victory in South Vietnam. Democratic Kampuchea Pol Pot Pol Pot is a pseudonym for the Cambodian guerrilla commander Saloth Sar, who organized the Communist guerrilla force known as the Khmer Rouge. The Khmer Rouge ousted General Lon Nol in 1975, establishing a brutal Communist regime that ruled until 1979. Immediately after occupying Cambodia's towns, the Khmer Rouge ordered all city dwellers into the countryside to take up agricultural tasks. The move reflected both the Khmer Rouge's contempt for urban dwellers, whom they saw as enemies, and their utopian vision of Cambodia as a nation of busy, productive peasants. The leader of the regime, who remained concealed from the public, was Saloth Sar, who used the pseudonym Pol Pot. The government, which called itself Democratic Kampuchea (DK), claimed to be seeking total independence from foreign powers but accepted economic and military aid from its major allies, China and North Korea. Khmer Rouge Carnage The Khmer Rouge, led by Pol Pot, killed close to 1.7 million people in the mid- to late 1970s. In this photo, human bones and skulls fill a museum in Cambodia that had been used as a prison and torture center during Pol Pot's reign, Sygma. Without identifying themselves as Communists, the Khmer Rouge quickly introduced a series of far-reaching and often painful socialist programs. The people given the most power in the new government were the largely illiterate rural Cambodians who had fought alongside the Khmer Rouge in the civil war. DK leaders severely restricted freedom of speech, movement, and association, and forbade all religious practices. The regime controlled all communications along with access to food and information. Former city dwellers, now called "new people," were particularly badly treated. The Khmer Rouge killed intellectuals, merchants, bureaucrats, members of religious groups, and any people suspected of disagreeing with the party. Millions of other Cambodians were forcibly relocated, deprived of food, tortured, or sent into forced labor. While in power, the Khmer Rouge murdered, worked to death, or killed by starvation close to 1.7 million Cambodians. The Khmer Rouge also attacked neighboring countries in an attempt to reclaim territories lost by Cambodia many centuries before. After fighting broke out with Vietnam (then united under the Communists) in 1977, DK's ideology became openly racist. Ethnic minorities in Cambodia, including ethnic Chinese and Vietnamese, were hunted down and expelled or massacred. Purges of party members accused of treason became widespread. People in eastern Cambodia, suspected of cooperating with Vietnam, suffered severely, and hundreds of thousands of them were killed. While in power, the Khmer Rouge murdered, worked to death, or killed by starvation close to 1.7 million Cambodians-more than one-fifth of the country's population. The war with Vietnam went badly for Cambodia, and in the second half of 1978 the DK tried to open the country up to the wider world, inviting journalists to visit and extending diplomatic recognition to several non-socialist countries. In December 1978 the Vietnamese launched a blitzkrieg assault on Cambodia, using more than l00,000 troops. A group of Cambodian Communist rebels, the Khmer National United Front for National Salvation (KNUFNS), accompanied them. On January 7, 1979, the invading forces occupied Phnom Penh, which the Khmer Rouge leaders had abandoned the day before. Pol Pot, his colleagues, and hundreds of thousands of followers sought refuge over the next few months along the Thai-Cambodian border. There they were protected by the Thai regime, which was hostile to Vietnam. Vietnam Domination Vietnam established a satellite regime called the People's Republic of Kampuchea (PRK) in January 1979. The new government included many former members of the Khmer Rouge who had defected to Vietnam, as well as some Cambodians who had sought refuge in Vietnam before the Khmer Rouge victory in 1975. After coming to power, the regime restored much of Cambodia's pre-1975 way of life, including the practice of Buddhism and a nationwide education system. For the time being, however, agriculture remained collectivized. Like all previous regimes, the new government treated its opponents harshly; like the Khmer Rouge, it severely limited people's freedom of expression. The pro-Vietnamese Kampuchean Peoples' Revolutionary Party (KPRP) monopolized political power and swept the 1981 elections for the National Assembly. Meanwhile, remnants of the Khmer Rouge and other Cambodians who had fled to Thailand formed an anti-Vietnamese government in exile, which continued to be known as DK. China, Thailand, and the United States had disapproved of the overthrow of DK, viewing it as Vietnamese aggression, and encouraged the formation of the government in exile. With the support of these countries, DK retained Cambodia's seat in the United Nations (UN). Only a few foreign governments, including the USSR and India, recognized the PRK as Cambodia's legitimate government. Foreign aid to Cambodia was largely limited to the Soviet-led bloc of Communist nations. Throughout the 1980s, Vietnam maintained more than 100,000 troops in Cambodia. Conflict between PRK and DK forces, combined with Cambodia's relative isolation, produced continuing economic instability. Thousands of people were killed in battle or maimed by landmines. In 1985 Cambodia's foreign minister, Hun Sen, became prime minister of the PRK. Weary of socialism and the harsh conditions inside Cambodia, more than 500,000 Cambodians sought asylum in Thailand in the 1980s. More than 300,000 of these people eventually resettled in other countries, especially France and the United States. This outflow deprived Cambodia of thousands of trained personnel and removed many members of the small elite, whose ranks had already been thinned through execution and fatal illnesses under the Khmer Rouge. Recent Development In September 1989, as the Cold War ended and Soviet financing of the Vietnamese forces in Cambodia fell sharply, Vietnam withdrew its troops from Cambodia. The withdrawal left the Cambodian regime, under young prime minister Hun Sen, in a precarious position, deprived of all substantial foreign aid and threatened militarily by the forces of the Khmer Rouge and their allies on the Thai-Cambodian border. Soon afterward the PRK officially abandoned socialism, renamed itself the State of Cambodia (SOC), and introduced a range of reforms aimed at attracting foreign investment and increasing the popularity of the ruling KPRP, renamed the Cambodian People's Party (CPP). Some members of the government became millionaires overnight, while the national economy was still stumbling to its feet. A program of privatization, which ended collectivized agriculture, and a headlong rush toward free-market economics from 1989 to 1992 widened the inequities in Cambodian society. Some members of the government became millionaires overnight, while the national economy was still stumbling to its feet. As markets opened in Thailand and Vietnam, exploitation of Cambodia's gem and timber resources by foreign businesses became widespread. Meanwhile, fighting between government and Khmer Rouge forces intensified, as the Khmer Rouge occupied large areas in the relatively inhospitable northern part of the country. In October 1991 Cambodia's warring factions, the UN, and a number of interested foreign nations signed an agreement in Paris intended to end the conflict in Cambodia. The agreement provided for a temporary power-sharing arrangement between a United Nations Transitional Authority in Cambodia (UNTAC) and a Supreme National Council (SNC) made up of delegates from the various Cambodian factions. Prince Norodom Sihanouk, the former king and prime minister of Cambodia, served as president of the SNC. The Paris accords and the UN protectorate pushed Cambodia out of its isolation and introduced competitive politics, dormant since the early 1950s. UNTAC sponsored elections for a national assembly in May 1993, and for the first time in Cambodian history a majority of voters rejected an armed, incumbent regime. A royalist party, known by its French acronym FUNCINPEC, won the most seats in the election, followed by the CPP, led by Hun Sen. Reluctant to give up power, Hun Sen threatened to upset the election results. Under a compromise arrangement, a three-party coalition formed a government headed by two prime ministers; FUNCINPEC's Prince Norodom Ranariddh, one of Sihanouk's sons, became first prime minister, while Hun Sen became second prime minister. In September 1993 the government ratified a new constitution restoring the monarchy and establishing the Kingdom of Cambodia. Sihanouk became king for the second time. After the 1993 elections, no foreign countries continued to recognize the DK as Cambodia's legal government. The DK lost its UN seat as well as most of its sources of international aid. The unrealistic power-sharing relationship between Ranariddh and Hun Sen worked surprisingly well for the next three years, but relations between the parties were never smooth. The CPP's control over the army and the police gave the party effective control of the country, and it dominated the coalition government. In July 1997 Hun Sen staged a violent coup against FUNCINPEC and replaced Prince Ranariddh, who was overseas at the time, with Ung Huot, a more pliable FUNCINPEC figure. Hun Sen's action shocked foreign nations and delayed Cambodia's entry into the Association of Southeast Asian Nations (ASEAN). By the end of 1997, Cambodia was the only nation in the region that was not a member. Despite the coup, elections scheduled for July 1998 proceeded as planned. Hundreds of foreign observers who monitored the elections affirmed that voting was relatively free and fair; however, the CPP harassed opposition candidates and party workers before and after the elections, when dozens were imprisoned and several were killed. The election gave the CPP a plurality of votes, but results, especially in towns, where voting could not be dictated by local authorities, indicated that the party did not enjoy widespread popular support. Prince Ranariddh and another opposition candidate, Sam Rainsy, took refuge abroad and contested the outcome of the election. In November the CPP and FUNCINPEC reached an agreement whereby Hun Sen became sole prime minister and Ranariddh became president of the National Assembly. The parties formed a coalition government, dividing control over the various cabinet ministries. In early 1999 the constitution was amended to create a Senate, called for in the 1998 agreement. These signs that Cambodia's political situation was stabilizing encouraged ASEAN to admit Cambodia to its membership a short time later. Pol Pot died in 1998, and by early 1999 most of the remaining Khmer Rouge troops and leaders had surrendered. Rebel troops were integrated into the Cambodian army. In 1999 two Khmer Rouge leaders were arrested and charged with genocide for their part in the atrocities. Since the Paris Accords of 1991, Cambodia's economic growth has depended on millions of dollars of foreign aid. Foreign interest in Cambodia has decreased, however, and the country has received diminishing economic assistance. This development, along with the continued lack of openness in Cambodian politics, has made Cambodia's prospects for democratization dim, as well as its chances for sustained economic growth.

Hun Sen Likely Will Expand Majority, Power in Cambodia Election

By Daniel Ten Kate July 25 (Bloomberg) -- Cambodian Prime Minister Hun Sen, a former Communist who has ruled for two decades, probably will expand his parliamentary majority and grip on power July 27 after boosting prosperity by welcoming foreign investment.The second-smallest economy among 10 Southeast Asian countries has averaged 10.6 percent growth during the past five years. Money has poured into Cambodia, as an overheating economy in Vietnam and political turmoil in Thailand triggered stock declines in those countries.The economic expansion has increased the popularity of Hun Sen's Cambodian People's Party, allowing it to weather a surge in fuel and food prices. Pheavy Vy, 27, said her mobile phone shop in the capital Phnom Penh is doing a brisk business and plans to vote for him.``Hun Sen can solve the country's problems,'' she said. ``I'm sure he will find a solution to the rising prices.''Inflation is putting a drag on growth and may eventually prompt a backlash against the prime minister's foreigner-friendly policies. The government allows outsiders to buy 99-year leases for pieces of agricultural land and encourages energy companies to bid for rights to tap oil and gas reserves discovered offshore in the Gulf of Thailand.The International Monetary Fund forecast in June that economic growth in the country of 14 million would fall to about 7 percent this year, from 10.25 percent in 2007, and the government expects inflation to almost triple to 15 percent.Growing SupportFor now, Hun Sen, 56, is enjoying growing support as foreign investment creates jobs in the energy, agriculture, tourism and garment industries and he rewards his rural voters with new schools and paved roads.``Average people, for economic and selfish reasons, not intimidation, will vote for the CPP,'' said Robert Broadfoot, Hong Kong-based managing director of Political and Economic Risk Consultancy Ltd.Cambodia has started to rehabilitate its image as a corrupt beggar state with depleted human resources after the Khmer Rouge in the late 1970s killed most of the educated class.Foreign investment is on pace to double from $2.7 billion this year, according to the Cambodian Investment Board, a government agency. As the country prepares to open a stock market next year, foreign investment funds such as Leopard Capital are looking to spend about $450 million on banks, office buildings, luxury hotels and other projects.``The word got out that this election is already a preordained conclusion, so new business is still coming in,'' said Bretton Sciaroni, a Phnom Penh-based lawyer who has advised foreign investors in Cambodia for about 15 years.Political EvolutionIn late 1978, Vietnam invaded Cambodia to stop Khmer Rouge incursions and set up a client state with Hun Sen serving as foreign minister. He became prime minister in 1985 and helped negotiate a United Nations-brokered peace deal six years later that ended factional fighting and led to the country's first democratic election in 1993, Cambodia's first in 20 years.In the 2003 election, Hun Sen's party won 73 of 123 parliamentary seats, or 59 percent, short of the two-thirds majority then required to form a government. In 2006, lawmakers changed the constitution to allow a party to form a government with a simple majority. Hun Sen said he expects to win 81 seats in this election.Opposition leader Sam Rainsy's eponymously named party won 24 seats in the 2003 election. He said the government is manipulating voter lists and threatening civil war if it loses, leaving many rural Cambodians afraid to vote for him.`Time Bomb'Sam Rainsy said resentment against foreign investors is building because the 99-year leases encourage land grabbing and speculation. Unemployment among youth is a ``time bomb,'' he added. He said Hun Sen's plan to open a local stock exchange next year would be ``ridiculous'' because the country lacks a strong judicial system.Multinationals in Cambodia include Chevron Corp., the second- biggest U.S. oil company, BHP Billiton Ltd., the world's largest mining company, and Australia and New Zealand Banking Group Ltd., Australia's third-biggest bank.``We are three times bigger than what we thought we would be'' when entering Cambodia in 2004, said Stephen Higgins, chief executive officer of ANZ Royal, a joint venture with the Royal Group, a Cambodian conglomerate.The International Monetary Fund estimates that banks now hold 20 percent of the country's money supply, up from about 10 percent five years ago, despite what Higgins called a ``noticeable'' drop in deposits at ANZ Royal in the month prior to the election. The same thing happened during the past two elections amid fears that violence might break out.Improved YieldsThe government says its policies to allow foreign-run large- scale agriculture investments will lead to improved yields. Cambodia shipped 450,000 tons of rice last year, much less than the 8.5 million tons sold by neighboring Thailand, the world's largest rice exporter.``We cannot develop on our own,'' said government spokesman Khieu Kanharith. ``The CPP is popular because people are starting to see the economy grow. They appreciate the normalcy of life.'' He added that Cambodia also is ``reaping the benefits'' of joining the World Trade Organization in 2004.New foreign investment will help widen Cambodia's growth, which is concentrated largely in garments and tourism. Oil and gas revenue from concessions in the Gulf of Thailand still in the exploration phase may reduce the need for foreign aid. Cambodia received $763 million last year.Transparency International, a global non-governmental organization, ranked Cambodia 162 out of 179 countries in its 2007 Corruption Perceptions Index.Competition remains stifled as executives work with government officials to protect their turf, says Kang Chandararot of the Cambodia Institute of Development Studies in Phnom Penh.``The government hasn't taken any strong role in the economy so the private sector has enjoyed full freedom,'' he said. ``This is largely because government officials are heavily involved in business.''To contact the reporters on this story: Daniel Ten Kate in Singapore at dtenkate@bloomberg.net

Cambodia, Thailand trade more barbs over temple

Source from: ki-media.blogspot By Ek Madra PHNOM PENH, July 24 (Reuters) - Cambodia accused Thailand on Thursday of sending more troops to their joint border as a smouldering dispute over a 900-year-old temple showed no signs of easing. "Thailand has continued to increase its military build-up," government spokesman Khieu Kanharith told a news conference in Phnom Penh, labelling Bangkok the aggressor in a spat that has sparked fears of a military clash. "The situation is not easing," Kanharith said, adding that Cambodia had 800 soldiers along the border compared with around 3,000 Thai troops. The Thai Foreign Ministry said Bangkok had only 400 men facing as many as 1,700 Cambodian soldiers. Both sides have moved artillery into the area, occupied by remnants of Pol Pot's Khmer Rouge guerrilla army in the 1980s and 1990s. At the heart of the dispute is a 1.8 square mile (4.6 square km) stretch of scrubland around the Preah Vihear temple on a jungle-clad escarpment that forms a natural boundary between the southeast Asian countries. The temple itself is claimed by both countries but was awarded to Cambodia in 1962 by the International Court of Justice in The Hague, a ruling that has rankled in Thailand ever since. France and Vietnam said on Wednesday the United Nations Security Council would hold a special meeting in response to a Cambodian request for it to take up the issue, although it was not clear if it would lead to formal Council involvement. Thailand said it wanted the issue to be resolved on a bilateral basis, and it played down Phnom Penh's claims of rising tensions ahead of a general election on Sunday in Cambodia, where nationalism is a frequently played political card. "It is a peaceful military stand-off. It is like a picnic. They chat together and lunch together," Foreign Ministry spokesman Tharit Charungvat told Reuters in Bangkok. Thailand says it has the support of China, Russia, the United States, Vietnam and Indonesia against the need for Security Council intervention. Even if it did step into the imbroglio, it is not clear what the U.N. could do other than issue a statement telling Bangkok and Phnom Penh to sort out the kerfuffle. While there have been no major incidents at the temple so far, Thai border villages that are home to some 4,000 people are braced for conflict. Analysts say domestic Thai politics are mainly to blame for the eruption of the dispute, which stems from Cambodia's successful bid to have the ruins listed as a World Heritage site, a source of pride and joy in Cambodia and uproar in Thailand. Bangkok's initial support for the heritage listing was seized on by anti-government groups who whipped up a nationalist fervour in their attempt to unseat the government of Prime Minister Samak Sundaravej. His foreign minister resigned over the issue. (Additional reporting by Nopporn Wong-Anan) (Writing by Ed Cropley; Editing by Alan Raybould and Alex Richardson)

Thailand says Cambodia wants even more of its territory as land dispute enters 2nd week

PHNOM PENH, Cambodia - Thailand accused Cambodia of eyeing even more of its land and leaflets appeared in the Cambodian capital calling for a boycott of Thai goods, as a military standoff over disputed border territory entered a second week Wednesday. On Tuesday, Cambodia asked the U.N. Security Council to intervene in the current dispute over land near the ancient temple of Preah Vihear, warning that the two sides were at "an imminent state of war." Cambodian Foreign Minister Hor Namhong said he had no choice but to appeal to the United Nations after discussions with Thailand on Monday failed to produce a breakthrough in the crisis. He made a similar request to the Association of Southeast Asian Nations, but the region's key bloc urged the two countries to continue bilateral negotiations. In a countermove Wednesday, Thailand's ambassador to the United Nations, Don Pramudwinai, said Cambodia was bringing the quarrel before the Security Council because "the Cambodian target is not only Preah Vihear but the entire common border." Don told Bangkok's Business Radio that Cambodia was trying to force Thailand to accept a French colonial map as the document that demarcates the border, stretches of which are disputed. He said the U.N. Security Council would decide Thursday on whether to hold an emergency session over the dispute. The French map generally favors Cambodia, and Thailand rejects it saying it was drawn up by a colonial power to its own advantage. Thailand relies on a different map drawn up later with American technical assistance, but accepts a ruling by the International Court of Justice that awarded the disputed temple to Cambodia in 1962. The dispute over 1.8 square miles (4.6 square kilometers) of land near Preah Vihear escalated this month when UNESCO approved Cambodia's application to have the complex named a World Heritage Site. Thailand sent troops to the border July 15 after anti-government demonstrators attacked Thai Prime Minister Samak Sundaravej's government for supporting Cambodia's application to UNESCO. They claim the temple's new status will undermine Thailand's claim to land around the temple. Cambodia responded with its own deployment. Both sides have pledged not to use force, although some 4,000 troops are now amassed in the area. The standoff entered its second week as Cambodia prepared to hold national elections on July 27. Thai Prime Minister Samak Sundaravej said Wednesday Cambodia's stance on the issue may "weaken" after the polls. "After the elections, it may be easier to talk," he said. When asked about Thailand's response to Cambodia's recent diplomatic offensive, Samak said: "Let them show their position. There is no damage." Thai academics have suggested that a solution may only emerge after the polls as politicians on both sides played to nationalist popular sentiment. Cambodian's Information Minister Khieu Kanharith dismissed such suggestions, saying the current problem was caused by Thailand and that the timing was irrelevant. The dispute "is the result of internal problem in Thailand where one group has tried to topple another," Khieu Kanharith said, referring to anti-government protesters who appeared to be playing to nationalist sentiment to gain support for their larger goal of unseating Samak and his government. The dispute has also shaken Thailand's domestic political scene. The National Counter Corruption Commission has begun to investigate Samak and his entire Cabinet over accusations that the government violated Thailand's Constitution by not consulting Parliament before supporting Cambodia's application. The investigation could lead to the impeachment of all members of the government, although the process would be a long one, commission spokesman Klanarong Jantik said Wednesday. Cambodian police were meanwhile investigating leaflets distributed in Phnom Penh that call for a boycott of Thai products and services. "While the government is trying to solve the dispute with Thailand, we do not want to see any discrimination against Thai products, and people should not be aroused by such incitement," police chief Brig. Gen. Touch Naroth said. The atmosphere remained calm among Cambodian and Thai troops at the hilltop Preah Vihear temple Wednesday, despite the intense diplomatic rhetoric by the respective governments. Troops from both sides "continued interacting cordially," said Cambodian Brig. Gen. Chea Keo without elaborating.