Decades of civil war and terrible violence have set back Cambodia significantly when compared to many other Asian countries. The majority of Cambodia’s 12.8 million citizens are rural poor where literacy rates are low and infrastructure is basic or non-existent. The nation is struggling to rebuild after decades of civil war including the nightmare four-year rule during the late 1970’s of the Khymer Rouge where upwards of 1.7 million died with the genocidal ‘killing fields’ where the majority of Cambodia’s intellectuals were murdered. In fact, 1999 was Cambodia’s first peaceful year in the previous 30 years thus setting the stage for positive GDP growth. Unfortunately in year 2001, flooding created extensive damage to agriculture output.
POLITICS: Prime Minister Hun Sen is in power since 1998. During year 1999, murder of actress/film star created political chaos as Prime Minister’s family was alleged to be involved. Political instability risk is high although it has stabilized since national elections arrived in 1998. The former communist Khmer Rouge forces are no longer in power or a viable threat to regain power. Cambodia gained independence in 1953 from France.
ECONOMY: one of Asia’s poorest countries. Over the last few years, Cambodia has embarked on a massive reform and restructuring program hence moving the economy towards a full Western market economy. Reforms include tax, trade and various industry reforms such as logging/forestry & banking for example. At present, Cambodia’s tourism industry is its fastest growing segment for jobs and foreign exchange earnings. Year 2000 tourism valued at $200 million USD which accounts for 100,000 Cambodian jobs. The government is downsizing the military and shifting resources towards social programs, overall Cambodian wages remain quite low. IMF stabilization program over the last few years is targetted at increasing domestic GDP growth while attempting to reduce poverty levels. Major industries include agriculture, light industry (garment production), tourism, natural resources (timber & rubber exports) and foreign aid recipient. Cambodia needs to develop and improve in its infrastructure & human resources.
Economic Statistics
GDP as measured by purchasing power parity is at $18.7 billion USD (2001) or GDP/Capita at $1,500 USD. Market expenditure GDP is equivalent to $3.3 billion USD equivalent to $300 USD per capita approximately. GDP growth rates for 2001 at 5.3 percent while year GDP 2000 at 5.5 percent. Budget deficit 2000 and 2001 at 6 percent of GDP. Late 1990’s inflation averaged 3.5 percent, year 2000 inflation at zero percent. Cambodia’s large current account deficits are large with year 2000 at 10 percent of GDP, 2001 at 9 percent but currently declining as the economy makes economic progress each year. Agriculture is at 43 percent of GDP and represents 72 percent of employment.
POSITIVE: low inflation and stable exchange rate. Cambodia is negotiating outstanding debts with the United States, the Russian Federation and the Paris Club. CONCERN: human rights concerns, net energy importer - oil, land mines are still prevalent thus hampering agriculture development, 30 percent live below poverty line as the majority of the population live in the country, AIDS is high at 2.8 percent of the population although the infection rate is slowing.
BANKING SYSTEM: weak as liquidation of Cambodia’s insolvent banks are required. Year-end 2002 net official international reserves at $670 million USD or just over 3 months import coverage - quite satisfactory coverage. National Bank of Cambodia is the central bank. Foreign currency deposits are held with local Cambodian banks as industry bank reform was implemented in 1999.
REGIONAL: China, Thailand, Laos, Vietnam
China is a potential large future market for Cambodian resources. Today, Thailand is a large provider of cheap imports although a recent diplomatic crisis is creating tension between the two nations over remarks regarding an 800 year-old Ancient temple ‘Angkor Wat’ located in Cambodia, it’s greatest national treasure. Thailand is a much larger country and economy although it has had overall improving relations with Cambodia. Both Laos and Vietnam neighbor Cambodia while Vietnam is a major export destination for Cambodian products.
KNOWLEDGE: Cambodia’s economy can best be described as primitive and backwards as the country is rapidly trying to catch up with many of its regional counterparts including Thailand. For example, telecommunications infrastructure is years behind as total telephones & mobile phones in use is very small at approximately 200,000. Current Internet users are less than 10,000 within Cambodia. The long-term future however is very bright as Cambodia can take advantage of its cultural heritage and become a highly desireable tourist centre for Asia’s large growing and wealthier population.
CURRENCY: ISO symbol ‘KHR’, new rial, riels (plural). At time of review on February 4, 2003, the Cambodian new rial had an exchange value of 3,815 KHR to 1 USD. Exchange regime follows that of a managed float as the spread between official and market rate is 1 percent of which will be unified in due course. Although the global economy was weak in 2001, the KHR was stable versus the US-dollar (‘USD’) and in real effective terms from year 2000-02.
CURRENCY HISTORY: the Asian crisis impacted greatly the new rial with a large devaluation in nearby Thailand in 1997-98. Historical valuations for the Cambodian new rial include January 2002 at 3,895 KHR to 1 USD, year 2001 average at 3,919 KHR to 1 USD, year 2000 at 3,840, 1999 at 3,807, 1998 at 3,744, 1997 at 2,946 and 1996 at 2,713.
CURRENCY FORECAST: favorable with caution. Although tourism visits may decline in 2003 and garment exports may also fall slightly, the outlook for the new rial is for continued stability. Cambodia’s net international reserves are increasing while its current account deficit is declining. World Trade Organization ‘WTO’membership is Cambodia’s next goal with continuing liberalizing of the economy, more market reforms and a platform to once again increase foreign investment after it fell from 1999-2001. UPDATED: February 4, 2003
