shs keynote address 3rdcef 05feb09 en final

8/13/2019 SHS Keynote Address 3rdCEF 05Feb09 en Final

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Keynote Address

by

Samdech Akka Moha Sena Padei Techo Hun SenPrime Minister, Royal Government of Cambodia

At the

Third Cambodia Economic Forum

Increasing Cambodia Competitiveness for Growth and Poverty Reduction inthe 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 CambodiaEconomic 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 activeparticipation. On behalf of the Royal Government and myself, I wish to commend theSupreme National Economic Council for organizing this forum, in its capacity as a socio-economic policy think tank for the Head of Royal Government. I would like also toexpress our sincere gratitude to the UNDP, ADB, the World Bank and otherdevelopment partners and institutions for their continuous institutional and financialsupport to Cambodias 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 oilprices, the subsequence deflation, and the subsequent deterioration and intensificationof the global financial crisis leading to the global economic downturn, have prompted


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many countries to take measures to address and deal with the negative impacts of suchcrisis on their respective economies.

The Second Cambodia Economic Forum (2nd CEF) cited the importance ofagriculture and the development of the rural economy in poverty reduction; the need to

address the challenges of the high cost economy; and good governance related issues.The forum today focuses on Increasing Cambodias Competitiveness forGrowth and Poverty Reduction in the Face of Global Economic Crisis. Thistopic is relevant during the time of financial volatility, declining external demand, andrising of macro-economic and financial risks.

Indeed, the Royal Government of Cambodia (RGC) is taking systematic and sequencingmeasures to mitigate the negative impacts of the crisis on Cambodias financial andeconomic systems, aiming at protecting our hard earned achievements and sustaininggrowth at an appropriate level according to our existing capacity and potential. It isclear that, if the RGC fails to take timely and appropriate proactive measures to managethe crisis, the affects of global financial crisis and economic downturn will become a realcause for Cambodias financial system and economy to fall into a dangerous crisis.

Therefore, I am convinced that todays forum will contribute to identifying options forCambodia to weather the uncertainties of severe global economic downturn since theGreat Depression in 1930s and to be able to grab this opportunity to reinforce ourreform efforts in order to sharpen our national competitivenessthus creating moreattractions for investments that target an increasingly expanding and strengthenedeconomic base.

Excellencies,Ladies and Gentlemen,

Let me start by making a general assessment on some of the impacts of the globalfinancial and economic crisis on Cambodia. Although it is very important, I believe thatwe do not need to spend time discussing the causes and roots of this global financialand economic crisis here. There are many well-known economists and researchersworking on this topic. Generally, I believe that we do not fully understand themagnitude, severity and duration of the crisis yet because they depend, in part, on theactions taken by leaders around the world. Appropriate responses can ensure soonerrecovery, while inappropriate responses could prolong the downturn.

As for Cambodia, we also could not clearly estimate the negative impacts of the crisison the country. However, if we look over the past year or so we can see that the worldeconomy has gone through deep changes since the end of 2007, caused by theincrease in oil prices and the real estate crisis in the United States. At the beginning of2008, oil prices were rising, while food crisis causing a sudden surge in the prices of


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food, especially, rice. This crisis has also caused the prices of many other goods toincrease. This has created inflationary pressure on the worlds economy includingCambodias, prompting inflation rate to increase to more than 20% by mid June 2008.In fact, during that time, some politicians exaggerated that inflation rate in Cambodiawas as high as 40%-50% in order to gain political scores before the national elections.

Here, I would like to also mention that the rise in food prices, especially that of rice, hasbenefited many Cambodian farmers and provided them with positive signal encouragingthem to increase rice production during the harvest season in 2008. Nevertheless,inflation was brought under check and subsided in the second half of 2008, followingthe implementation by the RGC a policy package, including monetary, budgetary andfiscal policies.

By mid 2008, the USs financial situation plunged into a severe crisis and then spread toEurope causing a financial cataclysm around the world. This global financial turmoil hascreated the worse impacts on the real economy which caused a severe downturn in theworlds economy.

In general, this global financial and economic crisis has created some risks forCambodias financial and economic systems, especially the decline in the sources offinancing and private investment capital outflows, the fall in demand in key Cambodianmarkets and declining tourist arrivals to Cambodia. As a result, the most vulnerablesectors to the crisis are garment, tourism, construction and real estate.

Nevertheless, I would like to emphasize that the fundamentals of our economy remainstrong and will help us to overcome the negative impacts of this global financial andeconomic crisis.

Let me highlight some of the reasons why I believe our economy is in a good shape:

I. Cambodia has come a long way on its development path and overcomenumerous difficult times. We succeeded in securing peace, political stability,security and social order, while promoting macro-economic stability andinternational integration. We have been successful in developing ourinfrastructures as well as improving governance structure.

II. The economic growth has been robust, averaging at 9.4 percent during thelast decade, 10.6% during the last five years, from 2003 to 2007, with the

record high of 13.3 percent in 2005, 10.8 percent in 2006 and 10.2 percent in2007. This helped to reduce poverty by 1% per annum from 47% in 1994 to30% in 2007. Despite the global economic downturn, the Cambodiaseconomy is estimated to grow by 7% in 2008 (it is still a good level comparedwith neighboring countries in the region). Despite the downturn, the RGC willtry to maintain a 6% growth in 2009. Inflation increased to more than 20%


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by the middle of 2008 and reduced to about 19% at year end. It is estimatedthat inflation will be curbed into a single digit in 2009. Cambodias bankingsystem remains strong in general, well capitalized and highly liquid. Bankloans and deposits continued to growth in 2008 reflecting public confidence inthe banking system. Our international reserves position has been favorable

and was doubled during the last two and a half years only, from USD1 billionin 2006 to USD2 billion in 2008.

III. Progress in agriculture has been historically impressive. We managed toincrease rice yields up to 2.65 tons per hectare in 2008, increased fromaround 2.5 tons per hectare in 2005. There is still more room for yieldsimprovement, compared to yields achieved in neighboring countries bymaking investment in physical infrastructure, especially irrigation system,increasing agriculture productivity, and promoting agricultural diversification.

IV. The garment sector is now in good standing to compete in the world market,with its improved labor standards. By further strengthening thiscompetitiveness together with the RGCs on-going measures to implementtrade facilitation and promote investment, we will be able to further enhancethe attractiveness and competitive advantages of Cambodia in terms ofpromoting and diversifying exports.

V. Tourism has a great potential for development and remains generally strong.Hence, the building of more physical infrastructures, improving legalframework and institutional capacity, developing human resources, tourismmarket diversification, as well as the promotion of attractive tourism

packages based on the need to maintain strong political stability, safety,peace and social order will open more opportunities for this sector.

Base on this strong foundation and other huge potentials we hope that thecommitment to reforms under the framework of Rectangular Strategy Phase IIcould create further favorable environment for development and growth in particular.The reforms will help economy to stay resilient in short term and pave the way formedium to long term acceleration.

Excellencies,

Ladies and Gentlemen,

We have followed closely and carefully the developments in the world economy which

have an impact on Cambodias economy. It is important to note that the economic

challenges in recent years will not derail Cambodias from a strong multi-party and


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democratic path that we have chosen. Faced with economic difficulties, the Royal

Government took a bold step with strong determination to successfully conduct the

general elections, which are recognized by national and international observers as free

and fair according to democratic principles. Indeed, the storms of the global financial

cataclysm will have negative impacts on Cambodia over the medium term. The RoyalGovernment is well aware of the challenges, and has implemented a broad range of

systemic and well-sequenced measures to prevent and mitigate the impacts of the deep

global crisis on Cambodias economic, financial and social situation.

Taking this opportunity, 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. I will also dwell on further policy measures for governments ministries

and agencies for their efficient implementation.

I. Macroeconomic Policy Measures

The Royal Government continues to commit to maintain a stable and favorable macro-

economic environment conducive for economic growth, through implementing pro-

growth financial policies, flexible monetary policy and promoting systemic reform

programs to improve investment and business climate in the country, while ensuring

confidence and attracting domestic and foreign investors.

1.1Monetary and Financial Policies:

The Royal Government will continue implementing prudent and flexible policies to keepinflation under check and to ensure stability in financial sector especially the robust

banking system. To this end, the Ministry of Economy and Finance has to continue

closer cooperation with the National Bank of Cambodia to coordinate the

implementation of RGCs monetary policy. In addition, the National Bank of Cambodia,

as financial and banking regulator, shall be responsible for regularly monitoring and

ensuring the health of banking system, and take necessary measures to ensure the

solvency and the strength of commercial banks in the country by collaborating with

stakeholders and institutions involved.

In implementing this policy, and given the fact that inflation has subsided and the need

to increase bank loans to promote economic activities, the Royal Government decided

to reduce the reserves requirement from 16% to 12%. Commensurably with

developments in the economy, the Royal Government will make further adjustments to

the reserve requirement in the future. Moreover, the Royal Government has also


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abolished the 15% cap on loans for real estate, as now the commercial banks are well

aware of the risks and know how to manage the real estate risk.

1.2. Fiscal policy

Due to global economic crisis, it is expected that Cambodias growth in short to medium

term will decline indicating a slowdown in private investments. Thus, in order to

compensate the drop in private investments, 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, especially the management of

inflation, as well as to effectively mobilize additional resources from the development

partners.

The Royal Government is well aware about those needs, and is now introducing a series

of policy measures for this purpose. In fact, the budget envelope for 2009, as stated inthe law for financial management 2009, was prepared to support and stimulate growth,

in which the Royal Government has made room for an overall deficit (excluding grants)

of more than 2,000 billion Riel or 3.2% of the GDP, compared to the 2008 Budget

deficit of only 700 billion Riel or 1.7% of the GDP. As noted above, all these have been

carefully considered and weighted, which on the one hand represents the need to

stimulate growth, while on the other hand is the need to sustain macro-economic

stability. 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.

In its 2009 expenditure policy, the Royal Government gave priority to increasing public

investment in physical infrastructure including transportation, irrigation, increasing

agriculture output, reducing manufacturing costs and implementing social safety nets.

Nevertheless, the Royal Government is vigilant in monitoring the implementation of the

budget on both expenditure and revenue side. Indeed, 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, improved productivity and developing safety netsystems. Thus, in this context, I would like to take this opportunity to set out a number

of additional measures as follows:


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1. The Ministry of Economy and Finance and all relevant Ministries/agencies mustcontinue to mobilize all kinds of revenues, either fiscal or non-fiscal, effectivelyin order to meet the objectives set in the 2009 Financial Act.

2. The Ministry of Economy and Finance must review the current national budgetby rationalizing current spending (compulsory versus non-compulsoryexpenditures) and reallocating them into funds used for direct support ofgrowth or for specific governments allocations for social safety net as well asspending needed to mitigate unexpected impacts resulting from the globalfinancial and economic crisis.

3. Specific measure for rationalizing spending, which needs to be implementedimmediately, is to make savings from budget allocations for petroleumexpenditures for all Ministries/agencies - as the petrol price today hassubstantially declined, compared to the prices of the petroleum products in theapproved budget. The important issue is to strengthen the implementation ofpublic procurement procedures by negotiating the prices of the petroleumproducts supplied to the Ministries/agencies, reflecting the current marketprices. All Ministries/agencies of the Royal Government are required tocooperate and make great efforts to implement this order. I would like to takethis opportunity to also appeal to the various oil companies to continueassisting the Royal Government in reducing retail oil prices in general, andcooperating and showing understanding by charging only appropriate profitfrom the bidding for the supply of petroleum products for theMinistries/agencies of the Royal Government.

4. The Ministry of Economy and Finance must consistently monitor the nationalbudget (on both revenue and expenditure sides) and propose necessaryaccommodative measures to the Head of the Royal Government forconsideration and decision-making, in accordance with the principle of OneCommander-in-Chief, One General Staff.

1.3- Policy to mobilize and increase disbursement of ODA

During the second Cambodia Development Cooperation Forum (CDCF) this year in

2009, the Royal Government mobilized approximately USD 1 Billion in ODA, which was

the highest outcome in our effort to attract official development assistance from

development partners in the last 10 years. In fact, in the present context, this

cooperation financing is one of the important instruments to reduce the impacts on

Cambodia from financial meltdown and global economic downturn. So we have to

make our utmost to mobilize and use official development assistance effectively,


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efficiently and on target. In this regard, 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. For all relevant development partners, I would like you to focus your attention toassisting the preparation of development projects planned for Cambodia in 2009and get them signed quickly. For this ODA, I would like to appeal to alldevelopment partners to consider providing it more in the form of netresources transfer to Cambodia in order to target investment projects andincrease the economys productivity which would have direct and immediateimpacts on economic growth and poverty reduction. On the other hand, for theprojects which have already been signed, I would like to request all relateddevelopment partners to facilitate the implementation, especially to facilitate thespeed of implementing the procurement procedures and other impactsettlements.

2. All Ministries/Institutions of the Royal Government, which are to be in charge ofimplementing the cooperation projects with the partners, have to speed up theproject implementation to be more effective with the spirit of highestresponsibility in an attempt to attract faster and more provision of the financialresources into the economic system while improving Cambodias absorbingcapacity in general.

3. The Ministry of Economy and Finance must lead and coordinate with all relevantMinistries/agencies in order to speed up the implementation of necessary reformmeasures, which are the conditionalities for providing budget support in order to

mobilize and disburse the resource quickly and efficiently. Along with this, theMinistry of Economy and Finance must take the lead in coordinating thenegotiation with related partners in order to increase the efficiency inimplementing cooperation projects as well as making use of other cooperationfinancing resources, which could be allocated for implementation in the priorityareas as set by the Royal Government.

II. 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, which aim at improving

investment and business climate. This is to assure confidence and attract both domestic

and foreign investment, especially facilitate trade and promote low-hanging-fruit

investments. In this regard, I would instruct the Committee on Private Sector

Development and its existing working group mechanism of Government-Private Sector


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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, especially through the reduction in procedures and legal

requirements that would increase transaction cost and hinder investments, trades and

businesses.

In relation to supporting policies of the key economic sector, recently I introduced a

numerous measures and provided recommendations to ministries/relevant institutions:

2.1. Agriculture Sector

Agriculture is important for sustaining growth and reducing poverty. Therefore, the

Royal Government has given serious thoughts to the factors of production costs and

output as well as capacity in purchasing, stockpiling and processing Cambodian rice.

With this in mind, in 2008, the Royal Government provided a special credit line

amounting to US$12 million, through the Bank for Rural Development, to private rice

millers to collect paddy/rice to ensure domestic supply. In 2009, the Royal Government

offered a budget amounting to US$18 million to the Rural Development Bank to

continue the activities. In response to the current need as well as to ensure continuity,

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,

especially small and medium enterprises, 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, and (2) Provide medium-term credit to rice

millers to increase capacity in stockpiling, drying and processing. At the same time, theRoyal Government will continue to enforce zero tariff policy on importing agriculture

materials such as seeds, fertilizers, pesticide and agricultural equipments etc. 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, processing, distribution and export. At the same time, 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. These projects are to be considered as priority projects

with high incentive within the existing investment law framework. The RoyalGovernment is trying to strengthen the partnership between small-holder farmers with

large-farm owners, as well as agriculture enterprises, between social land

concessionaires and economic land concessionaires, with the emphasis on establishing

farmer associations and partnership with companies involved in rice purchasing,

processing, distribution and export. Along with these measures I wish to urge our


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development partners to provide additional funds to improve agriculture which is the

highest priority sector of the Royal Government.

2.2. Garment Sector

The Royal Government is well aware about the challenges that the garment sector isfacing. The RG has been issuing various measures both fiscal and facilitation measures

to support the garment sector. Indeed, in the current situation both fiscal and budget

capacity of the government has been tightened to the maximum. In any case, 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. We also need to seek sources of financing for business activities, diversifying

markets and coordinating between employers and workers. 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 bythe garment sector. I wish to remind the Committee once again to urgently continue

this task.

The Royal Government expects that the closing of several factories with low economic

efficiency and low competitiveness is inevitable. Indeed this issue is widespread in the

current difficult time. For the government with its limited capacity to provide social

safety nets to unemployed workers, it is to be our important priority. In this spirit, 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-termtraining to our young and lay-off workers. On one hand, 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, and on the other hand, 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. It is

necessary to link with Job Database System and Centre for Job Seeking of the Ministry

Labor and Vocational Training. Due to the limitation of the government budget,

development partners are welcomed to join this initiative.

It is no doubt that during this difficult time, improved understanding among/between

employees and employers for common interest, especially the contribution by workers

to keep their jobs, is increasingly important than any other time. 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. At the same


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time, I would like to instruct the Ministry of Labor and Vocational Training to play more

proactive and effective role in coordinating, explaining, preventing and timely

addressing the disputes. By so doing, we can remove the bottlenecks and obstacles in

garment sector during this hard time.

2.3. Tourism Sector

In fact, Tourism has served as an important pillar of Cambodias economic growth.

Because of global financial and economic crisis, we observe that Cambodia has suffered

the slowdown at the end of 2008. Recently, we have seen a slight pickup of tourist

arrival to Cambodia, especially to the Angkor Wat Complex. Nevertheless, the Royal

Government will pay greater attention to strengthening tourism sector over the short,

medium and long terms, by ensuring peace, security, political stability, social order and

tourist safety; building more infrastructures; improving legal framework and institutional

capacity; developing human resources; and diversifying tourist market. In promotingtourism sector in the face of financial and global crisis, 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. As an input to this gathering, I would like to request all concerning

stakeholders, especially the private sector to draw lessons from experiences in

neighboring countries who have managed attractive tour packages with special discount

and other incentives.

I would like to appeal to the private sector to make their utmost efforts in weathering

the slowdown in tourism. In fact, under such circumstances, the Government does nothave enough financial capacity to support the private sector. However, we hope to

create a favorable environment for the sectors growth, and the private sector itself has

to enhance its effectiveness and quality of services. Taking this opportunity, I would like

to request all people employed in the tourism sector for their understanding and help

strengthening the quality of services, 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.

In order to ensure effective implementation of measures that I introduced earlier, I

would like instruct the Economic and Financial Policy Committee, led by the Deputy

Prime Minister Keat Chhon, to ensure institutional coordination, monitor the progress

and report back to the Royal Government.


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Excellencies,Ladies and Gentlemen,

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. Istrongly believe that the measures are important for both sustaining growth and

reducing poverty over the short and medium terms, as well as for diversifying economic

base and sharpening Cambodias comparative advantage in the long term.

Before concluding, 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, for example, through our joint efforts in strengthening the corporate

governance as well as the quality of services.

I look forward to your contribution in terms of ideas to increase Cambodias

competitiveness and to reduce poverty effectively, amid the challenges of global

financial and economic crisis.

Finally, 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.

May I now declare the opening of the Third Cambodia Economic Forum!

Thank you!

shs keynote address 3rdcef 05feb09 en final

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