Wednesday, 31 August 2011

Review of Cambodia's Economy and Finance (Up to 2011)

 Source: Cambodian Development and Research Institute, 2010 (Figure 1)

Recently, Cambodia has pursuit a high-growth development by making considerable investment in the public and private sector. Over the period of 2004-2007, Cambodia has achieved a double-digit growth rate of more than 10% per year (Ministry of Economy and Finance, 2010). According to Figure 1, this is the high-growth period for Cambodia. This exceptional GDP growth has resulted in accumulation of domestic saving and financial investment. In 2009, domestic investment accounted for 40% of the total investment in Cambodia, especially in construction sector, small and medium businesses, food-processing factories, and service industry (CDRI, 2009). Beside the large amount of foreign direct investment in the garment sector, small and medium enterprises in Cambodia are thriving due to the growth in number of microfinance institutions which provide low-interest loans to the local SMEs. Before the end of 2008, Cambodia’s international reserve already reached 2.2 billion USD due to strong economic growth and increased confidence in the banking and financial sector (NBC, 2008). However, economic growth is narrowly based on garment sector and tourism industry. Every year, Cambodia experiences trade deficit, which result from too much import and a slim export. So, we can see that Cambodia heavily depend on foreign direct investment to develop its economy since domestic industry cannot gain self-financing through issuance of securities (stocks and bonds). 

Monday, 29 August 2011

Asian Regionalism and East Asian Community (EAC) Building

The 45th AMM/PMC/ARF Meeting, 6-13 July 2012 in Phnom Penh

18th ASEAN Regional Forum in Bali on 23 July 2011

Regional integration has strategic importance for ASEAN and East Asia region as a whole, but ASEAN role and leadership to accelerate regional integration in EAC has been under question and criticism. Jones and Smith (2006) are skeptical of ASEAN’s ability to expand “its institutional framework into the broader East Asian Region, to the view that ASEAN’s economic and political failure after the 1997 [this failed model] equally validated the projection of its managerial way into the wider region?” (p.146). From this skepticism, ASEAN centrality has been viewed as an issue that need to be reviewed to adapt to new environment in East Asia. However, ASEAN has been able to manage to form and expand its regional cooperation without changing its norms and values. After the 1997 Asian financial crisis, ASEAN’s principle has been under pressure with regional crisis and membership expansion (Kao, 2000, p.18-19). According to Capie and Evans (2003), ASEAN’s norms and values have been considered as “ASEAN Way” which includes preference for informality, the principle of inclusivity, consensus, and non-interference (p.46-49). In addition, it is ASEAN way that maintains cohesiveness and has made ASEAN successful in uniting all the 10 countries in Southeast Asia since the norm of non-interference promotes trust and reduce suspicion among member states (Collins, 2000, p. 128-129). For example, since the creation of ASEAN+3 Summit in 1997 and East Asian Summit in 2005, ASEAN has been considered as the driving force in evolving regional architecture, EAC, and ASEAN+3 framework as the main vehicle, and East Asia Summit (EAS) as the complementary element to ASEAN+3 for building EAC (ASEAN Secretariat, 2009).

Friday, 26 August 2011

Is Frequent Changes of Government of Japan a “Lack of Leadership”?

Fuji Mountain, Japan

         As expected, Prime Minister Naoto Kan has announced his resignation on 26 August 2011, which made him the fifth short-tenure leader of Japan in five year. His resignation comes after a turbulent 14 months in power during which he was criticised for showing no remarkable leadership for Japanese Government to deal with the aftermath of the March 11 earthquake, tsunami and Fukushina nuclear plant accident, which result in a failed no-confidence vote at the Diet in June 2011.

          However, this was not surprise news for Japanese people or other countries around the world since Japan has frequent changes of government since after the resignation of PM Koizumi as in 2006. Given this problem, there are two different views on Japan's leadership. The first view is “lack of leadership” due to frequent changes of Japanese Government. But the second view argues for the “flexible” and resilient structure of Japanese politics for attaining multiple development goals although most Japanese Governments were short-lived (roughly one year or less). The two contrasting views are elaborated as follows:

Thursday, 25 August 2011

Outlook for ASEAN and East Asian Community (EAC)

US's President Barrack Obama applauds at the East Asia Summit in Bali, 18 November 2011. The US and Russia's official participation in the EAS provides a landmark achievement for ASEAN in East Asian regionalism.

Cambodia Foriegn Minister Hor Namhong shook hand with his Thailand counterpart at the Special ASEAN Foreign Minister Meeting on Cambodia-Thailand border issue in Jakarta on 22 February 2011. The meeting has provided a constructive engagement for the ASEAN Chair, Indonesia, to help solve border disputes between the two members.   

ASEAN is not only the political hub of East Asian regionalism, but it is also the hub of economic integration in the region.  ASEAN centrality has maintained its status quo in EAC since the Plus Three countries (China, Japan, and South Korea) are denying anyone in the group to take supremacy or regional dominance. However, as the institution building in EAC develop, especially ASEAN+3 and East Asia Summit (EAS) frameworks, it is inevitable that ASEAN centrality would be affected negatively. This will depend on ASEAN itself, new institutional discourse, and the pace of the development process of East Asian Community building.

Monday, 22 August 2011

Challenges for ASEAN

Prime Minister Hun Sen of Cambodia at the Opening Ceremony of the 20th ASEAN Summit in Phnom Pehn on 3 April 2012

Flags of ASEAN Member States

         Development and progress in ASEAN have not been taken for granted since there have been several failed attempts for regionalism before the birth of ASEAN such as Southeast Asia Treaty Organization (SEATO), dissolved in 1977, and Association of Southeast Asia (ASA), founded in 1961 and dissolved soon later. Although with many criticism and obstacles since its establishment, ASEAN is still an example of successful regionalism for developing countries in the world today since it could manage to keeping the cooperation loose and informal for more than four decades based on the “ASEAN Way” of consensus and non-interference but at the same time achieving notable progress in maintaining peace and security in Southeast Asia and succeeding in grouping all countries in the region (Except Timor Leste). Furthermore, recent request by Timor Leste to join ASEAN's membership marks a good expectation that ASEAN is likely have a new member soon.  For example, main political achievement such as Treaty of Amity and Cooperation in Southeast Asia (TAC), the Zone of Peace, Freedom and Neutrality (ZOPFAN), the Treaty of the Southeast Asia Nuclear Weapon Free Zone (SEANWFZ), and, currently the ASEAN Charter, the ASEAN Regional Forum, ADMM Plus, the ASEAN Plus Three Summit, and the expanded East Asia Summit (US and Russia's participation in EAS), ASEAN chair's participation in the G20 Summit, and finally the evolving regional architecture which ASEAN stand as the hub, are all important contributions of ASEAN to regional peace, stability prosperity, and economic integration in the wider region. From these accomplishments, ASEAN has been seen as the attractive model of new regionalism which started first in Southeast Asia and continues to extend to wider region in East Asia and in the Asia Pacific. However, ASEAN centrality in the regional community building is under pressure of adapting to new dynamics of regionalism, the evolving regional architecure (ASEAN+3 Summit, East Asian Community, Exapanded EAS, ARF, and ADMM Plus). 

Toward Consolidation of Democracy in Cambodia

In general, most Cambodian and foreign scholars have a common view that the problem of democracy in Cambodia is derived from two main factors: politics of violence and hegemony, and a kind of democracy which has been implanted by external force (UNTAC) to settle internal conflicts. In addition, Cambodia lacks political culture in favor of democracy due to the fact that this culture was totally destroyed during Khmer Rouge regime. In structural analysis, there is the dominance of the executive branch over the legislative and the judicial branches which makes liberal democracy has limited space to develop, resulting in no check and balance and rule of law. In consequence, consolidation of democracy in Cambodia seems to be curbed at its beginning point and further weakened by a passive civil society with limited freedom of speech.

Friday, 19 August 2011

What is ASEAN Centrality?

US's Secretary of State Hillary Clinton at a Press Conference after the PMC+1 Session with US in Phnom Penh on 11 July 2012

          Map of ASEAN Member States  

The issue of ASEAN centrality has been the major concern for ASEAN itself, its dialogue partner countries, and the academia since regional integration began to take place such as ASEAN+3 Process in 1997 and the first East Asia Summit in 2005.  So far, Regional integration in East Asia and the Asia-Pacific are seen through several regional mechanisms such as ASEAN+3 Summit, East Asia Summit, ASEAN Regional Forum, and Asia Pacific Economic Cooperation (APEC).  Currently, at the 4th East Asia Summit in 25 October 2009 in Thailand, Australia also proposed the idea of Asia Pacific Community by stating that ASEAN is the core of this newly-proposed regional architecture (Ministry of Foreign Affairs of Japan, 2009).  So, in general, whatever proposal on regional integration in East Asia or in Asia Pacific, ASEAN is put on the central hub.  Furthermore, besides political cooperation, Corbett and Umezaki (2009), in their executive summary, conclude that ASEAN Economic Community (AEC) is also at the hub of economic integration in East Asia.  Therefore, ASEAN is the hub of both political and economic cooperation in the region.  However, there are many challenges and some reasons for this.  According to Hernandez (2008), ASEAN is needed to be the driving force of the regional community building efforts due to rivalry between China and Japan in the region.  In other words, ASEAN is just “the driving force by default” while other key regional players are competing with each other for influence and future leadership in the region.

Thursday, 18 August 2011

Economic Development and Democracy

Source: Ministry of Economy and Finance, Cambodia (2011)

Economic development is the major issue for all countries which are always in their political agendas and is also a promise of the government to their people in order to promote socio-economic well-being and whole prosperity of the nation. Democratic and non-democratic countries have a common task, economic development, to keep them survive and prosper both within the national and international context. With economic prosperity, a nation and its people are better-off and receive spontaneous political and social changes in response to new social and economic settings produced by economic development such as the effect of globalization and information technology, and international trade.

Wednesday, 17 August 2011

Current Development of Banking and Financial Sector in Cambodia

Above: the National Bank of Cambodia. Below: tourists can find the ATM machines everywhere in Phnom Penh

The development of the banking and financial sector in Cambodia is generally viewed as a success with the recent progress of modern banking and micro-financial institutions. Recently, with the recent establishment of Cambodia Stock Exchange (CSX)  in July 2011 in which a series of laws and regulations (Law on the Issuance and Trading of Non-Government Securities, Law on Government Securities, Law on Financial Leases) have been adopted in preparation of the opening the new bourse with a common aim of banking and financial development, Cambodia is trying to enter the phase of modernization of its financial sector. The National Bank of Cambodia (NBC) is the central bank which has dual roles of banking regulation and supervision. The first and foremost priority of the NBC is to ensure macroeconomic stability and financial stability (NBC, 2008). It goal is to maintain price stability in Cambodia.

Current Characteristics of Cambodia's Economic Development

With more than half of its population are under the age of 25, Cambodia has a great potential in economic growth for now and the future.

The construction of Naga Complex (behind the National Assembly) is ongoing. In 2010, The construction industry contribted 620 million USD to the economy, approximately 5.5% of the Kingdom's GDP. With a narrow industrial base, Cambodia is still heavily depending on its garment, constructin, tourism, and agriculture industries for economic growth. However, industrial sector has a steadfarst growth of around 8.5% this year.  

With a population of approximately 14 millions and GDP per capita of 830 USD (NIS, 2011), Cambodia is a low income country and is still strongly based on agricultural sector and garment sector as the main thrust of its economic development. However, in development economics, Cambodia has followed each of the four approaches of  economic development, namely stages of growth (Rostow model), structural patterns of development (Lewis model), international dependence, and neoclassical counterrevolution (free market approach).  Recent economic development in Cambodia is quite promising with an expanding industrial base and a rapid progress in the banking and financial sector.

Tuesday, 16 August 2011

Proposed New Strategy for Japan’s Official Development Assistance (ODA) to Cambodia: Human Resource Development

Photos of field trip by Young Leader Programme (YLP) students and their Japanese professor in Japan 

While economic infrastructure development is still vital for economic progress in Cambodia, its process of development study and construction projects can take several years to be completed. For example, the development study of the Second Mekong Bridge in the Eastern part of Cambodia took five years (2004-2009). Until now, the construction project of this bridge has not started yet. Therefore, human resource development should be promoted as the top development agenda of the Government and it should deserve more attention and support from Japan’s ODA policies. In this new century, Japan should allocate more grant aids for human resource development projects. If Cambodia has enough human resource, its self-help effort for socio-economic development will be easily achieve in the same way as other countries in ASEAN such as Singapore and Vietnam. Furthermore, human resource development can contribute to higher productivity and higher per capita Gross National Income (GNI). The accumulation of human capital and capital stock of a country would enable it expand and diversify its industrial base into a technological and capital-based industry, contributing to rapid economic growth and poverty reduction.

Field Trip to Kumamoto Province of Japan and its local Issues, 26-28 January 2010

Utasebune boat in Yasushiro sea, Japan

The sea at the background is the place of Minamata incidents which had seriously been polluted by mercury dumping from a nearby factory.  Even now, compensation to the Minamata victims is still continued.

Kumamoto prefecture is an agricultural base in Southern Japan in which farming and fishing, and big hypro-power dams are its main economy. In addition, manufacturing industry also has its stronghold in this prefecture with large electronic factories such as Sony which make the Kyushu Island the “Silicon Island” producing semiconductors for electronic products. Tourism is also the main source of revenues for this prefecture with the attraction of Utasebune boat in the Yasushiro sea. In development perspective, Kumamoto is a prefecture with great potential of development in terms of agriculture, fishery, manufacturing industry, tourism, and electricity produced by hydro-power from rivers, especially the Kawabe river and Kuma river. However, as a result of economic development, it has also suffered from serious pollutions such as the Minamata pollution case and other controversial issues such as the Kawabe Dam project. That is why the Governor of Kumamoto prefecture, Mr. Ikuo Kabashima, said that Kumamoto may not be the most developed region in Japan, but it has the potential to make giant strides in the years ahead. 

Monday, 15 August 2011

Peace-building in Cambodia: Democracy, Economic Development, and ODA

Cambodia's King Father Norodom Sihanouk

Peace-building has achieved significant progress in Cambodia through democracy, economic development, and international assistances. Recent development is quite optimistic toward a stable peace and it is Cambodia’s self-help effort to do this through long-term economic development and human resource development.

How Can ASEAN Centrality in East Asian Community be Maintained?

ASEAN Leaders posed for picture in ASEAN way style at the Opening Ceremony of the 20th ASEAN Summit in Phnom Penh on 3 April 2012 


Although ASEAN is the hub of regionalism in East Asia, ASEAN centrality is under pressure of regionalization process. it could be weakened under the transformation process of institutional building of the evolving regional architecture, East Asian Community (EAC). 

Opportunities and Challenges for Cambodia Stock Exchange (CSX)

Canadia Tower in Phnom Penh

In general, the establishment of a stock market is good for both short-term and long-term economic growth for an economy. Following this context, Cambodia is in the modernization process of its financial sector with the establishment of the Cambodia Stock Exchange (CSX) in July 2011. However, Cambodia faces systematic challenge in opening the new stock market.

Behind this challenge, there are fears of systematic risk and speculative bubble, which the Cambodian Government should take into account in views that most advanced economies, particularly Japan, have experienced these problems. Given the two issues, the Government should maintain the optimism of long-term economic growth through sound macroeconomic policy and political stability. In line with this, the National Bank of Cambodia, as the Central Bank, should promote strict financial supervision and regulation and heavy capital control, especially at the initial stage after the establishment of the new bourse.

Last but the most importance, creditability of the Central Bank, trust, and public confidence in the banking and financial sector should be enhanced and maintained by the Government and the Central Bank since it serves as the backbone of the macroeconomy and financial stability.

Other articles on Cambodia: 

    (5 March 2014)

    (17 October 2011)

    (03 October 2011)

    (12 September 2011)

6. Review of Cambodia's Economy and Finance (up to 2011)
    (31 August 2011)

     (22 August 2011)

    (17 August 2011)

    (17 August 2011)

    (16 August 2011)

      (15 August 2011)

      (15 August 2011)