cambodia and the washington consensus

8/12/2019 Cambodia and the Washington Consensus

1/25

CAMBODIA

AND

THE

WASHINGTON

CONSENSUS

Sophal

Ear*

Cambodia's

conomic

rogressrom

993 to the nd

of

1995,

though

limited

and

short-lived,

was

encouraging.

By

employing

n

analytical

ramework

dapted rom

John

Williamson's

iscussion

f

the

Washington

onsensus/'

examine en

spects f

Cambodia's

domesticconomic eformolicies uring he1993-95period. also

consider

the

country's

politico-economic osition

at that

time

relative

to the

ASEAN membernations.

It is

argued

that

the

Consensus

reforms,

ombinedwith Cambodia's

then-prospective

membership

n

ASEAN,

had the

potential

o boost not

only

the

country's

wn

economic

evelopment

ut also

that

f

the

proposed

ASEAN

FreeTrade

Area,

to be established

n the

year

003.

Finally,

I

suggest

thatCambodia

can still realize

the

reform oals

it had

during

he

eriod

nder onsideration.

Introduction:

ambodia

nd the

Washington

onsensus

In

1992,

following

ecades of

warfare nd

revolution,

he

Cambodian

government

egan normalizing

relationswith

the

developed

world

nd

acceptingarge

mounts faid

in

theform

f

grants

nd

loans

from ilateral

nd multilateralources ike

the

United

States

Agency

or nternational

evelopment

USAID),

the

World

Bank's

International

Development Agency,

and the

InternationalMonetaryFund (IMF). It did so with the idea of

becoming

ully

eintegrated

nto he

global

conomy

nd of

thereby

realizing

greatly

ncreasedrates of economic

growth.

nvariably,

however,

he

proffered

id

was conditioned

y

limits

n how the

Sophal

Ear was a

Masters andidate t the WoodrowWilson

School of

Public

nd

International

ffairs,

rinceton

niversity,

henhe wrote

his

article.

He

leftCambodia

n

1976and

subsequently

btained

Bachelor's

degree

n economics

nd

political

cience rom he

University

f

California

at

Berkeley.

He

spent

the Summer f 1996 as a research

ellow at the

Cambodiannstituteor ooperationnd Peace n Phnom hen,Cambodia.He nowworks s a consultantor heWorldBank.

Crossroads:

n

Interdisciplinary

ournal

f

outheast sian

Studies

11(2)73-97

Copyright

997

y

theCenter

or outheast sian

tudies,

Northern

llinois

niversity.


2/25

Sophal

Ear

assistance unds ould be spent s well as bydirectives s to what

kinds of

economic

reform

he

Cambodian

government

must

undertake

to

qualify

for continued

support. Normally,

such

conditionalitymplies

he

mplementation

f

a

set of

U.S.-sanctioned,

internationally

dministered

tructural eforms ike

those first

introduced

n Latin

America

n

the

early

1980s

and

now known

collectively

s the

Washington

onsensus,

ollowing

conomist

John

Williamson's

se

of hat erm

n

his seminal 990

rticle,

What

Washington

Means

by

Policy

Reform. 1 fter atin

America,

he

Consensus

was

next

pplied

n

Eastern

urope

nd

the ovietUnion

as, one by one, thepost-communistra EasternBloc countries

privatized

heir

tate-owned

nterprises

SOEs).

Since

then,

herise

of

the

Newly

Industrializing

Countries and the attendant

adjustments

n their

conomies

as in effect

made

the

Washington

Consensus

he

mantra

f conomic eformersorldwide.

The Consensus

was as relevant

o Cambodia n the

arly

990s

as

elsewhere,

or

he hift

rom socialist tate-controlled

conomy

toward

a

capitalistic

market-controlledne had serious

political

ramifications

s old

party

adres

ought, uiterationally,

o

preserve

theirnfluence ithin leadership bliged oadaptto theheterodox

practices

f the

ncreasingly

owerful

ouveaux iche.

ertainly,

o

one

believed

the

country's

conomic

transformation ould be

smooth.

Still,

it

was

expected

that

with

successful

structural

adjustment

easures,

ambodia

would

realize nd sustain he ame

balanced

conomic

rowth

hat

ad

already

een achieved

y many

ASEAN

members.

henation's

ommitment

o reformanbe seen

n

the

government's

irm enial

that the Consensus

policies

were

imposed

on

it

by

the

various

ending

gencies

and

governments

concerned.

Cambodian

PrimeMinister

Norodom

Ranariddh,

or

instance,nsistedthat there wereno conditions o the aid, no

1

John

Williamson,

What

Washington

eans

y

Policy

eform,

n Latin

American

djustment:

ow

MuchHas

Happened?,

ohn

Williamson,d.,

7-20

(Washington,

C:

Institute

or

nternational

conomics,

990).

Williamson

was

actually

nly

ne of

a chorus

f

economists,

uch

as AnneO.

Krueger

and

Hernando

e

Soto,

o

engage

n

framing

ew

policy

olutions

or ld

policy

dilemmas.

ee,

for

nstance,

obert

H. Bates nd

AnneO.

Krueger(eds.),Politicalconomicnteractionsn Economicolicy eformOxford: asil

Blackwell,

993),

and

Hernando

de

Soto,

The Other

ath: The nvisible

Revolution

n

the

hirdWorld

New

York:

Harper

Row,

989).

74 Crossroads

1:2


3/25

Cambodia nd the

Washington

onsensus

pressure.Donors asked for clarification nd we showed our

determination

to

nact he

eforms]/'2

Recent

events

in Cambodia have

eclipsed

the

economic

stabilization

fforts

fthe

arly

990s.

Nevertheless,

hose

ffortsre

important

n that

hey ignal

a radical and

progressive

eparture

from

he

tultifyingolicies

n

effect

rior

o that

ime,

n

addition o

which

hey

et

precedent

or

ossible

uture eform.

ndeed,

hould

Cambodia

finally ain

dmission

o

ASEAN,

nd

should he

urrent

domestic

urmoil

ubsidewithout

rreparableamage

o the

nation's

economy,

new

phase

of

capitalistic

eform ill

undoubtably

rise,

in which asethe essons earned arlierwillprove nvaluable.nthe

following

ections

f this

paper

will thereforeeview

Cambodia's

structural

djustment

ffortsrom 993

o

the

nd of

1995

n

terms f

the

policy

areas

outlined

by

the

Washington

Consensus,

with

comparisons

o

otherASEAN

member

ountries,

here

ossible.3

n

conclusion,

discuss

Cambodia'seconomic

erformance

s a

result

of

the

Consensus

eforms

nd touch n someconcerns

egarding

he

economic

ffects

f

rade iberalizationnd

policy redibility.

Cambodia's

mplementation

f

Washington

onsensus

tructural

djustments

By

definition,

tructural

djustmentolicies

re

administrative

instruments

meant

to create conditions onducive to sustained

economic

rowth.

he

focus n instrumentsere s

significant,

or t

implies

hecrucial

ssumption

hat he

prescribed

mechanisms ill

indeed

be

employed

n a manner onducive conomic

evelopment.

2

In

John

ollain,

Cambodian

remier

lays

Down Human

Rights

buses/'

Reuters ewsService,March16,1995.

3

ASEAN,

whosecurrent embersre the

Philippines,

ndonesia,

Malaysia,

Singapore,

hailand, ietnam,

nd

Brunei,

as

originally

reated s a non-

U.S.

led

security

mbrella

n

1967 to offset ommunist

ains

n

Vietnam,

Laos,

and Cambodia

during

he

1970s.

The

granting

f

membership

o the

socialist

epublic

fVietnam

n

1995marked he

beginning

f

new era

for

ASEAN.

n that ame

year,

ambodia nd Laos

gained

bserver

tatus;

nd

Laos

was

granted

ull

membership

n

1997,

s was

Burma.

Cambodia's

membership

s still

ending.

ee Reuters ews

ervice,

Cambodia nd

Laos

to

Join

ASEAN

by

1997/'

Dec. 25

(1995).

Mr.

Jeffrey

arten,

he

departing

U.S.

Undersecretary

orCommerce estified o the

global importance

f

ASEAN

by predicting

n

September

995 that

by

the turn f

the

century

ASEAN

would be theUnited tates' econd

argest rading artner

ext o

Mexico.See Kieran Cooke and PeterMontagnon,A LiberalPinch of

Eastern

pice:

South-EastAsian

Countries re

Opening

Up

for

Trade,

Financial

imes,

ct.

18,

1995,

8.

Crossroads

1:2

75


4/25

Sophal

Ear

As Williamsonexplains, It is generally ssumed, at least in

technocratic

ashington,

hat he standard conomic

bjectives

f

growth,

ow

inflation,

viablebalanceof

payment,

nd an

equitable

income

distribution

hould determine he

disposition

of

such

instruments. 4

nother

mportant

haracteristicf the

Consensus s

its

dvocacy

f

private-sector

arket

mechanisms,

ince

hroughout

much

of

the

developing

world,

onggovernment

ntervention

n,

or

even

direct

wnership

f,

hecommercial

conomy

as resulted

n

tremendous

arket

nefficiencies,

nd therefore

luggish rowth.

As

defined

y

Williamson,

he

Washington

onsensuscalls

specificallyor tructuraldjustmentsf theeconomyn the ten

following

reas:

1. Fiscal

Policy

2. Public

Expenditure

riorities

3.

Tax

Policy

4. The

Privatization

f tate-owned

nterprises

5.

Interest

ate

Policy

6.

The

Deregulation

f

ndustry

7.Foreign irectnvestment

8.

Property

ights

9.

Exchange

ate

Policy

10.

Trade

Liberalization

and

Credibility)5

The

nclusion

f

redibility

s

a

policy

rea

under rade iberalization

(number

0

above)

s

my

own.

Thisaddition

eemsto me

necessary

because

the

relative

focus

of the

Consensus

on

policies

and

instruments

ather

han

bjectives

r outcomes

makes t difficultor

reforming

conomies

o

gain

foothold

n

the

global

marketplace.

t

is no meanfeat, or nstance,or developing ountryoestablish

and

maintain

redibility

hen

trefuses

n ts

policy-making

rocess

to

prioritize

uch

sacred-cow

economic

indicators

s rates of

inflation,

nemployment,

nd

growth.

n

theory,

herefore,

he

Consensus

prescriptions

re

tremendously hallenging

o

any

government

eeking

to

adopt

them.

Yet the

economic

uccesses

scored

n the

early

1980s

n Latin

America

nd later

n the Czech

Republic

nd

theAsian

NICs,

to

mention

ust

those

ew,

how

these

4Williamson,WhatWashingtoneans yPolicy eform/', talicsdded.

List

adapted

from

Williamson,

Democracy

nd the

Washington

Consensus/

orld

evelopment

1

8):

332-133

1993).

76

Crossroads

1:2


5/25

Cambodia nd the

Washington

onsensus

sameadjustmentmeasures o be both feasible nd flexible.twas

therefore

ith

very

xpectation

f

succeeding

hat he

Cambodian

government

mbarked

pon

ts

own

process

f reformn

the

early

1990s.

How itfared

n this ndeavor s

discussed elow

with

pecific

reference

o the enConsensus

olicy

reas isted bove. n

each

case,

the

general

onsensus

rescription

s

given,

fter hich

Cambodia's

application

f he

prescription

s

assessed.

1. Fiscal

Policy

Consensusprescription:6udget eficits,roperlyistributed

among

provincial

overnments,

tate

enterprises,

nd

the

central

bank,

hould

be small

nough

o be

financed ithout

ecourse o an

inflation

ax. This

typicallymplies primary

urplus

that

which

exists

efore

dding

debt ervice

o

expenditure)

f

several

percent

ofGDP

and

an

operational

eficit

the

deficit

isregarding

hat

art

of

the

nterest ill

that

imply ompensates

or

nflation)

f

no

more

than

wo

percent

fGDP.

Situationn Cambodia:ContinuedRestraint ithQualified

Overruns.

Under

UNTAC

(the

United

Nations

Temporary

Administration

f

Cambodia),

Cambodia'sfiscal

udget

aw

itsfair

share

f

deficits

see

Table

2).

At 1.4

%

of

Gross

Domestic

roduct

n

1994,

however,

hedeficit as small

nough

o be

the

nvy

f other

developing

ountries,

nd one IMF

report

t the time

tated

that

fiscal

olicy

played

central ole n

maintaining

inancial

tability

[in

Cambodia]

during

1994 and

early

1995 and

that

[d]espite

significant

verruns

n

security

nd

defense

spending,

strong

revenue

erformance

nd

tight

ontrols ver

nondefense

pending

kept hecurrent iscal eficit o1-1/2percent fGDP in1994. 7 f

course,

his tatistic asks naccuraciesn

budget

measurements,

ut

the

Ministry

fFinance nd

Economy

egan

to

address

his

roblem

too

by encouraging

ll

ministrieso

report

he mounts

f

ncoming

and

outgoing

evenues o as to make

ssessments f

fiscal

rograms

easier

nd more ccurate.

6

The onsensus

rescriptions

ere

nd

n

he

ollowing

ine

olicy

reas

re

adoptedrom illiamson,WhatWashingtoneans yPolicy eform.

International

onetary

und,

IMF

Approves

econd

Annual

oan for

Cambodia

nder

ASAF,

ress

elease,

ept.

5, 995,

5.47.

Crossroads 1:2

77


6/25

Sophal

ar

2. Public

Expenditure

riorities

Consensus

prescription:

Public

expenditure

should

be

redirected

way

from

administration,

efense,

ndiscriminate

subsidies,

nd

other

olitically

ensitive

reas that

ypically

eceive

more

funds

han

economic

eturns

ustify,

nd into uch fields s

primary

ealth

are,

education,

nd

infrastructurehathave

high

economic

eturns

nd the

potential

o

mprove

ncome istribution.

Situation

n Cambodia:

The Cambodianfiscal

budgets

for

1994 nd1995 Table1),therevenues orwhich ameprimarilyrom

foreign

id

and

tariffs,

how

that

armore

overnment

undswent o

defense

han

o

any

other

ector f the

public

economy.

his

gross

imbalance,

if

indeed

genuine,

is understandable

given

the

government's

ope

that

liminating

he

Khmer

Rouge

once and for

all

would

makethe

ountry

more

ttractive

o

foreign

nvestors. o

doubt

the

government

as

sensitive

o such

reports

s that

by

Reuters

aying

hat

Foreign

nvestors

ave

generally

hied

away

from

nvesting

n Cambodia's

rural sector

for

fear of

problems

related o theguerrillawar. 8We knowthatCambodia'sASEAN

neighbors

never

spent

half their

total

budgets

on

defense,

as

Cambodia

apparently

did

for the

period

1994-96;

but these

neighbors,

hough

ometimes

nvolved

n

wars,

were freeof the

intense

and

ongoing

nternal

trife

hat

threatened

ambodia's

national

ecurity

t this

ime.

Nevertheless,

Cambodia's

large expenditures

n

defense

necessarily

meant

inordinately

mall

appropriations

o several

areas

primary

ealth

are,

ducation,

ublic

works,

tc.

strongly

supported

by

the

Consensus.

In an

effort o

downplay

the

importancefthecivilwar,PrimeMinister anariddhmaintained

that

Cambodia's

biggest

roblem

was not

the

Khmer

Rouge

but the

difficulties

f

development

nd

reconstruction.9

he

government

therefore

educed

ts subsidies

o both

the

civil

service,

which

had

theretofore

bsorbed

whopping

0%

of

the state

udget,

nd the

officer

orps,

which

had at

one

time

had

thousands

f

phantom

military ersonnel

n

its

payroll.

he

budgets

or

ducation,

which

8

Maja

Wallengren,

Rubber-Rich

ambodian

Province

eeks

nvestors,

Reuters ewsService, ug. 10,1995.

*

Hardev

Kaur,

Cambodia:

Malaysia

Offers

o

Help

Cambodia,

Business

Times

Malaysia),

pr.

5,

1994.

78

Crossroads

1:2


7/25

Cambodia nd

the

Washington

onsensus

Table 1: Current

xpenditure

y

Sector*

(in

billion f

riels)

1994

1995

1996

1997

Budget

Actual

Budget

Actual

Budget

Actual

Budget

Defense nd

Security

83.2

391.5

299.0

421.2

392.3

400.7

383.5

Education 63.8 61.0 73.4 72.4 83.8 80.5 87.9

Health 42.4

30.0

36.2

26.1

60.4

44.0

60.7

Agriculture

rural 14.9 12.4

17.2

15.3

20.8

18.7

24.4

development

TotalCurrent

Expenditure

585.6

662.3

652.7

731.7

751.0

793.9

870.0

(in

% of

otal

urrent

xpenditure)

1994

1995

1996

1997

Budget

Actual

Budget

Actual

Budget

Actual

Budget

Defense nd

Security

8.4

59.1

45.8

57.6

52.2

50.5

44.1

Education 10.9

9.2

11.3 9.9

11.2

10.1

10.1

Health 7.2

4.5

5.5

3.6

8.0

5.5

7.0

Agriculture

rural

2.5 1.9

2.6 2.1

2.8 2.4

2.8

development

Unaccounted 31.0

25.3

34.8

26.8

25.8

31.5

36.0

residual

*

Payment-order

asis.

Source:World

Bank,

Cambodia:

rogress

n

Recovery

nd

Reform

Washington,

D.C.: World

Bank,

East Asia

and

Pacific

Region,

Country

Department

1,1997),

0. Note:

he

unaccounted

esidual

udget

for

hese

years

was

not

explained.

This

does not

necessarily ose

a

problem

ince

the total

fiscal

budget

denominator

sed for

ach

year

s the

ame for

ach

category.

he

unaccounted

esidual

udget

might

e

considered

statistical

iscrepancy

in

measurement.

However,

this

presents

another

problem:

how

can

something

s

planned

nd

methodical

s a

budget

have

such

high

evelsof

unaccountedesiduall

unds?

grewonlymarginallyrom Y 1994to FY 1995, nd healthcare,

which hrunk

y

24%

in

terms

f

relative

hare of

overall

public

expenditures,

ere

reassessed or

ossible

ncreases.

hese

measures

Crossroads

1:2

79


8/25

Sophal

Ear

wereall consistent ithWashington onsensusprescriptions.s

Williamson

otes,

One of

the

egacies

fthe

Reagan

dministration

nd its

supply-side

llies has been to

create

preference

n

Washington

for

reducing expenditures

atherthan

increasing

ax revenues.

. .

Military

xpenditures

re

sometimes

rivately

eplored,

ut

in

general hey

re

regarded

as the

ultimate

prerogative

f

sovereign

governments

nd

accordingly

ff imits o nternational

technocrats. . . Subsides, especially ndiscriminate

subsidies

including

ubsidies o cover he ossesof tate

enterprises)

re

regarded

as

prime

candidates for

reduction

r

preferably

limination.

. .

Education nd

health,

n

contrast,

re

regarded

s

essentially

roper

objects

f

government

xpenditure.10

Spending

on

agriculture

nd rural

development tayed

bout the

same

from

994

o 1995

increasing arginally

n 1996

o 2.4% ofthe

budget) while thaton public works a subject on which the

Washington

onsensus

s

equivocal

was

nearly

alved from 994

to

1995.11

3

. Tax

Policy

Consensus

Prescription:

he tax

base should be broadened

and

marginal

ax

rates ut so

as to

sharpen

nvestment

ncentives

and

improve

horizontal

equity

without

lowering

realized

progressivity.

mproved

administration

as been

an

important

aspectofbroadeninghetaxbase in LatinAmerica. axing nterest

assets

held

abroad

flightapital )

hould

be another

riority

n

the

coming

ecade.

Situation

n

Cambodia:

Taxation,

which

goes

hand-in-hand

with

spending,

equired

ittle mmediate

eform

n

Cambodia,

at

least

with

respect

o

income,

ales,

property,

lat r

poll

taxes.The

tax

base

in

Cambodia

s small:

GDP

per

capita

was

only

220

n

1994

10Williamson,WhatWashingtoneans yPolicy eform/'1.

11

See

Raoul

ennar,

Cambodge:

Qui

Profite

a Reconstruction?emain:

Le

monde,

:13-15.

80

Crossroads

1:2


9/25

Cambodia nd

the

Washington

onsensus

and $250 in 1995.12 et improvedtax and customscollections

resulting

rom he ntroductionf

better

ookkeeping rocedures

and

computerized ccounting

ystems

llowed the

government

o

cut

costs

and

keep

track f

delinquent

ommercial

ax

accounts.13

Another

top

priority

was that

of

compiling

an

inventory

f

government

properties

so as to

make

possible

the

accurate

accounting

f

rent ncome

rom

roperties

eased to

foreign

irms.14

In

February

995,

he

government

lso

looked

nto

value-added ax

of

2

to 3%

to offset

planned

reduction

n

customs

uties,

which

t

the

time accounted for

30%

of

state

revenues.15

s

collection

proceduresmprove,ncreased evenueswill

help

ease

prevailing

budget

eficits

0.8%

n

1996).

4.

Privatization

f

State-owned

nterprises

Consensus

Prescription:

tate

enterprises

hould

be

privatized.

Situation

n

Cambodia:

Soft

Privatization

nd

Long-term

Leasing of Assets. In an interview n Juneof 1995,Cambodian

Minister f

ndustry,

nergy,

nd

MinesPou

Sothirak

aid:

We

[the

Royal

Cambodian

Government]

irmly

elieve he

private

ector an

much

betterkickstart

he

economic

development

ecause

foreign

investors

ave the

capital.

t's

quite

obvious

that he

tate

does

not

have

enough money. 16

othirak's

tatement s

consistent

with

Williamson's

haracterizationf

the

Consensus as

calling

for

the

privatization

f

state-owned

nterprises

n

the

belief

hat

private

industry

s

managed

more

fficiently

han

tate

nterprises,

ecause

of themoredirect

ncentives aced

by

a

manager

who

either

as a

12

United tates

Government,

ambodia

ountry

ommercial

uide

FY1996

(Washington,

.C.:

Government

rinting

ffice,

996).

All

$

are in

U.S.

dollars nlessnoted

therwise.

13

Formerly,

he

procedure

f

collecting

axes

nvolved

egotiations

etween

the

axpayer

nd

tax

collector,

ince

records f

transactions

ere

purposely

poorly ept.

Harish

Mehta,

Cambodia:

Jungle

conomy

merging

rom

he

Woods,

Business imes

Singapore),

arch

2,

1995.

15Bangkokost,Cambodia:KhmersyeStockMarket, eb.24,1995.

As interviewed

y Maja

Wallengren,

Interview

Cambodia

Plans

Industry

eforms,

euters

ews

ervice,

une

1,

1995.

Crossroads

1:2

81


10/25

directpersonalstake in theprofits f the enterprise r else is

accountable

o those

who

do. 17

The

plan

Cambodia

devised for

privatization,

ased on the

idea

of

soft

privatization,

was

unlike those

in

the

Eastern

European

countries,

here schemes

uch as vouchershave

been

employed.

Soft

rivatization

ostpones

he

elling

f

tate-owned

enterprises

or n

extended

eriod

f

time,

ay

25 to 30

years.

Using

this

cheme,

heCambodian

overnment

nitially

made

47

factories

available

to

foreign

nvestors,

with

11

more

following hortly

thereafter.18

scheme

f

onger

erm

easesof

up

to

70

years

or and

was provided for in November 1994. In some industries

privatization

roceeded

articularly

uickly,

s

in

the tate-owned

rubber

lantations

n Ratanakiri

rovince.

5.

nterest

ate

Policy

Consensus

Prescription:

he ultimate

bjective

s

to institute

market-determined

nterest

ates.

Experience

as

shown,however,

that

when

nvestor

onfidence

s

low,

market-determined

ates an

become o high s tothreatenhefinancialolvency fcommercial

enterprises

and,

ultimately,

the

government.

Under those

circumstances,

sensible

nterim

measure

s

to abolish

preferential

interest

ates

for

privileged

orrowers

n favor

of a

moderately

positive

eal

nterest

ate.

Situation

in Cambodia:

Due to

widespread

financial

indiscretions

n the

Central

ankof

Cambodia

s

well as to therise

of

a

dollar-based

omestic

conomy

nd

the bsence

f

tock,

ond,

and

treasury

ill

markets,

heCambodian

eil

was

closely egged

to

theU.S. dollar.Thiswas goodin at leastone sense:evenwhenthe

volume

of

circulating

iels

hanged

ramatically,

ommodity

rices

in

dollars

remained

he

same.

However,

the

situation

endered

Cambodian

monetary olicy

otally

neffective

s an

instrument

or

controlling

nflation,

nemployment,

nd

interest

ates.

With

help

from

he

MF,

the

government

oped

to

reissue

reasury

ills

by

the

end

of

1995.

According

o

the

MF,

these

bills

would

be used to

establish

market-determined

nterest

ate

for he

riel[,]

which s

17

Williamson,

What

Washington

eans

by

Policy

Reform/'

6.

18

As

interviewed

y

Wallengren,

Interview.

82

Crossroads

1:2


11/25

Cambodia nd

the

Washington

onsensus

lackingbecause of thehighdollarizationn theeconomy nd the

very

imited

se of henational

urrency

n

the

anking ystem. 19

As

with he

regulation

f

ndustry

see

item

),

which

eemed

to

have

gone

awrythroughout

ostof

Latin

America,

he

ack of

interest

ate

egulations

n

Cambodia

rightened

oreign

nvestors.

6.

Deregulation

f ndustry

Consensus

Prescription:

Governments

should

abolish

regulations

that either

restrict

competition

or

impede

the

establishmentf new firms. ll regulationshouldbe justified y

such criteria

s

safety,

nvironmental

rotection,

nd

the

prudent

supervision

f

financial

nstitutions.

Situation

n

Cambodia:

Deregulation

imsto

reduce he

maze

of

regulatory

ailures hat tifle

nd

impair

he

private

ector. n

the

American

nd Mexican

contexts,

o name

but

two,

this

s

sound

strategy.

rucking

n

both ountries

as

heavily

egulated

or

many

years,

nd consumersncurred

millions f

dollars f

added

expense

due to the ack ofcompetitionnd themonopolizationfroutes. n

the

U.S.,

railroads oowere

regulated

ntil

heCarter

dministration

deregulated

oth

ndustries,

hereupon

onsumer

avings

ncreased

dramatically.

American

onsumershave

also

saved

millions of

dollars

from irline

deregulation.20

n

Cambodia,

however,

the

problem

s neither

verregulation

f

private

ndustry

or

regulatory

failure

ut thechaos of no

regulation

t all.

For

example,

lthough

the

ountry

ad 29

registered

anks s of

June

995,

he

icenses

eld

by

these

bankswere

highly

uspect,

aving

been

issued

during

n

unregulated

renzy

f

registration

n

thefinal

ays

of

the

Vietnam-

backedHun Sengovernmentn1993.21 any banks were nfact

merely

ronts or

unscrupulous

money-launderingperations

nd

consisted

f ittlemore than n

office,

desk,

and a

fax

machine.

Even more

disturbing

as the

well-known

act

hat

many

banks

laundered

money

nd

gave

loans

only

to

members f

their

wn

board

ofdirectors.

19

International

onetary

und,

IMF

Approves

econd

nnual

oan.

DennisW.Carlton

nd

Jeffrey

.

Perloff,

odern

ndustrial

rganization,

2nd d. NewYork: arperollins ollegeublishers,994),01-904.

Mark

Dodd,

Cambodian

anking

ndustry

aces

Reform/'

euter

Textline,

une

,

1995.

Crossroads 1:2

83


12/25

Likeotherocialistndformerlyocialistconomies,or long

time

Cambodia

had

no commercial

anking

nfrastructurend

thus

no

need

for

banking

egulations.

With he

country's

eentry

nto

global

economic

ffairs,

owever,

he need for

regulations

rose

quickly.

Gregory

Root,

president

f Thomson

BankWatch, nc.,

reminded

he

developing

world that he creditworthinessf

any

national

economy

n

the

eyes

of

private

nvestors nd

lending

institutions

epends

n the xtent

o which

overnmentlays

role

in the

banking

system

hrough egulation

nd

controls. 22 he

National

Bank

ofCambodia

NBC)

therefore

egan nvestigating

he

nearly30 banks thatopened duringtheperiodof unregulated

licensing

n 1993

and

taking

action

against

those that

proved

illegitimate.

espite

these

measures,

owever,

nd at a timewhen

the

ASEAN

countries

ere

enjoying

rulympressive

redit

atings

(Salomon

Brothers'

ice President

eter lautcalled

Malaysia

one

of

the

developing

orld's

most table

emocracies

. .

and

one

ofthe

most

apidly

eveloping

conomies 23),

ank

icensing

n

Cambodia

remained

problemmatic

nd

crippling.24

hat little

regulatory

success

he

government

ad was not

n

banking

ut

n

gambling.

1994deal withtheAristn ompanyMalaysia)to build the$1.3

billion

loating aga

Casino,

or

xample,

ed

to a crackdown n 300

illegal

asinos

nd

gaming

ouses

n Phnom

enh.25

7.

Foreign

irect

nvestment

Consensus

Prescription:

arriers

mpeding

he stablishment

of

foreign

irms hould

be

abolished;

foreign

nd

domestic irms

should

be allowed

o

compete

n

equal

terms.

22

As

quoted

n Toni

Reinhold,

USA: Southeast

Asia Growth

rospects

Robust-

US

Analysts,

euter

extline,

eb.

24.

23

Reinhold

USA:

Southeast

sia Growth

rospects.

24

The

deputy

overnor

f

theNBC

put

the

matter

uccinctly

n

saying

hat

whether

r

not

bank

was

awarded

license

was

not

matter f

quantity

[of

lready

icensed

anks].

fAmerican

xpress

amehere

omorrow

e'd

be

quite

happy

to

give

t a

banking

icense.

But this s

a vicious

circle

American

xpress

s

not

going

o

comehere

f here

re 30 banks.

Qtd.

n

Dodd,

Cambodian

ankingndustry

acesReform.

25

Reuter

extline,

Cambodia:

Cambodian

Government

rders

GamblingCrackdown,

May

12,1995. t shouldbe notedthatwiththe end of the

crackdown,

unregulated

gambling

reappeared

in

many backalley

operations.

84

Crossroads

1:2


13/25

Cambodia nd the

Washington

onsensus

SituationnCambodia:CDC a One-stop-shop.oreign irect

Investment

FDI),

a

major omponent

fthe

Washington

onsensus,

was

a

qualified

success

for

Cambodia,

where

investors

from

Singapore,

hailand,

Malaysia,

nd other

ASEAN

member

ountries

bought up

large

shares

n

the

country's

irline,

elephone,

nd

gambling

ndustries.

1994

nvestmentaw taxed

orporations

t a

rate

of

9%,

much

ower han

Malaysia's

30% rate.Other

nvestment

incentives

ncluded

ax

holidays

f

up

to

eightyears,

he

carrying

forward

f losses

for five

years,

full

importduty

exemptions,

allowances

or he

repatriation

f

profits

t no

charge, rovisions

or

theuse ofpublic andsfor p to 70years,ndthe bsence ltogether

of

export

axes,

withholding

axes n

dividends,

nd

nationalization

policies.26

ambodia's

investment

egulations

n

fact

followed

he

Consensus

quite

closely

n

the

sense that

foreign

nd

domestic

investors

were treated

qually

in all

respects

xcept

that

foreign

investors

ould

notown

and.

To increase

FDI

further,

he

government

created the

Cambodian

nvestment

oard

CIB),

a

one-stop gency

for

foreign

investors.

Falling

under the

auspices

of

the Council

for

the

DevelopmentfCambodia CDC) and chaired yFinance ecretary

ofState

Chanthol

un,

theCIB took

harge

f

very

arge

nvestment

projects,

uch

as Ariston's

roposed

five-star

asinooff he

coast of

Cambodia

at Sihanoukville.27

ecretary

un

reportedly

aid

that

investments

ere still

oming

n

strong

nd that

US$375

million f

FDI was

approved

during

he

first ive

months f 1995

28

While

actual

investment

was

invariably

ess than

that

pledged,

these

numbers

re still

mpressive.29

he

CDC

did,

alas,

create

perverse

incentives

or ome

unscrupulous

ndividuals

onnected

with

the

agency,

ut there

werealso

positive

eviews f the

convenient

ne-

stop-shop ature ftheCIB.The Cambodiaountryommercialuide

for 996 tated

hat

[w]hile

nvestors

ccasionally

eport

hat

hey

experience

elays

n

application

pprovals

nd

must

visit

dditional

ministries,

hey

lso

say

that

Cambodia

requires

omparatively

ess

26

Bangkok

ost,

Cambodia:

Khmers

ye

Stock

Market/'

27

The casino

had

yet

o see

groundbreaking

s of

Summer

996,

when

the

author

isited he ite.

28

Reuters ews

Service,

Cambodia

Economy

aid

Heading

n

the

Right

Direction,

ug.

21,

1995.

Indonesia,

long-time

ember fASEAN, ook n$2.4billion n

approved

FDI in

1994,

ompared

o

Cambodia's official

2

billion

the

figure

or

Cambodia ncludes nitial

nvestmentsn

theAristn

aga

Casino

project).

Crossroads 1:2

85


14/25

Sophal

Ear

red tape thanother ountries n theregion. 30ambodiahoped

eventually

o

open

a stock

xchange

o direct

avings

oward

more

productive

nds.

Speaking

at

the

time,

Secretary

un

said the

Exchange

would

be

yet

nother eviceto

help

Cambodia

establish

financial

redibility,

ince

companies

would then

be

able

to invest

directly

in the

private

sector without

going

through

the

government.31

Nor

were

nvestors carce.

Reuters

uoted Singapore's

Trade

Development

oard s

saying

hat t would

stepup

its

promotional

activities

in Cambodia

in

1995

and

send several business

development missions there to follow up on business

opportunities

hat

had arisen

ince the

beginning

f

the

country's

readjustment

rocess.32

he

same

report peculated

hat he recent

liberalization

f

nvestment

egulations

nd

[the]

etting p

of the

Council

Development

f Cambodia

has

sped up

the

process

of

approving

nvestment

pplications

n the

country,

which for

Singapore

were

valued

at

$260

million.33

he BusinessTimes f

Singapore

oined

n this

ptimism,

xplaining

hat

IfMcCannEricksonaysCambodia s thegreatest lace

in the

world

to invest

in,

businessmen

will

understandably

ake

hat tatement

ith

pinch

f salt

because

McCann

is Cambodia's

official

dvertising

agency.

.

.

But when stiff-collared

ultinationals

nd

hard-nosed

usinessmen

ay

the ime

as come o

nvest

in

Cambodia,

other

investors

who

stayed

on the

sidelines

ave

a

tendency

o

perk

p

and

takenotice.

y

investing

n

Cambodia,

major

Asian

firms

ikeDBS

land,

Petronas,

nd

multinationals

ike

Coke,

Pepsi

and Shell

have senta signalthat here s money o be made in

Cambodia.

Morgan

tanley

trategist

arton

iggs

has

also

begun

saying

nice

things

about

Cambodia,

a

country

e feels

s

open

for usiness

rimarily

ecause

t

is

among

handful

f Asian

economies

o

emerge

s a

30

United

tates

Government,

ambodia

ountry

ommercial

uide.

31

Chanthol

un

as

quoted

n Business

ietNam,

Cambodia's

Biggest

asino

Yet,

ept.

995.

32Reuter extline,Singapore imsto BoostTradewithCambodia n 95/'

Jan.

9,

1995.

33

Reuter

extline,

Singapore

ims o Boost

rade.

86

Crossroads

1:2


15/25

Cambodia nd the

Washington

onsensus

promising new area for investments. Analysts are

correct

when

they say

that a chunk

of the

world's

investment

resources worth

some US

$40

billion

this

year

is

likely

to

go

into

economies such as

China,

India,

Vietnam,

ndonesia and Cambodia

-

collectively

known

as the

new frontier or

nvestments.34

8.

PropertyRights

Consensus

Prescription:

The

legal system

should

provide

secure

property

ights

without xcessive cost

and should

make

those

rights

available to

all

sectors of the

economy,

including

that

currently perating

n an under

the table or

black

market

asis.

Situation

in

Cambodia: The

security

of

private

property

s

guaranteed

in

the Cambodian

Constitution s

follows:

Article60

Khmer citizens shall have the

right

o sell their

own

products.

The

obligation

to sell

products

to the

State,

or

the

temporary

se of

State

or propertiesshall be prohibitedunless authorized by law under

special

circumstances. 35 ince law

enforcement s

weak,

however,

the

legal system

has never become

fully

instated,

and the

only

security

or

privateproperty

was

(and

remains)

that

provided

by

the

barrel

of a

gun

or

by

what

influential

persons

one

knows.

No

limitations

were

placed

on

foreign

and

domestic

businesses

in

Cambodia,

except

for the

proviso

that

only

Cambodian

citizens or

domestic

businesses could

own

land. Laws

were

drafted

regarding

intellectual

property,

nd

the

government

ratified

bilateral

trade

agreement

with the

United

States to

establish

standards

for

intellectual roperty ights.36

9.

Exchange

Rates

Consensus

Prescription:

Countries need

a

unified

exchange

rate

(at

least for

trade

transactions),

et

at a level

to

induce

rapid

growth

in

non-traditional

exports

and

managed

so

as to

insure

continued

competitiveness.

34

Mehta, Cambodia: ungleconomymerging/'35

Williamson,

What

Washington

eans

by

Policy

Reform/'

5.

United tates

Government,

ambodia

ountry

ommercial

uide.

Crossroads 1:2

87


16/25

Sophal

Ear

Situation

n Cambodia:

Floating

nd

Appreciating.

onetary

policy

in

Cambodia

remained oo

weak for the

government

o

effectively

manage

the

exchange

rate,

which in

1996

stood at

approximately

300

riel to

US$1.

During

1992 and

1993,

the

rate

dropped

to as low

as 5000 riel to

US$1,

but then

stabilized

at

between

2500

and 2600

riel to

US$1

in 1994.

According

o

the

Cambodia

ountry

ommercial

uide,

heNationalBankof

Cambodia

regulated

oreign

xchange y

way

of n auction

ystem,

hich

kept

the

pread

between

he fficialnd freemarket ates elow

2

percent

in 1993 nd ess than percentfter uly994 7Advisedbythe MF,

the

CBC

issued

treasury

ills o stabilize nterestates nd

circulated

higher

enomination

otes o as to de-dollarize

he

conomy

nd

gain

better

ontrol

of the

money supply.

The

impact

of

these

measures

were

relativelylight,

owever,

n

face of the

country's

political

rises.

Thus,

whereasrestrictive

onetary olicies

n

the

aftermath

f the

1980s

global

oil crisis

helped

Thailand

tabilize ts

economy

nd

devalue

hebaht

by

8.7%

n 1981 nd

by

another

4.8%

in

1984,

he ituation

n

Cambodia's

never eached he

point

where

monetaryevaluation aspossible.38

10.

Trade

iberalization

nd theMaintenance

fCredibility

Consensus

Prescription:

uantitative

rade estrictionshould

be

replaced

y

tariffs,

nd

tariffshouldbe

progressively

educed o

a

uniformly

ow

rate

f

pproximately

en

percenttwenty ercent

t

the

most).

There

s some

disagreement

bout how

rapidly

ariffs

should

be reduced

with

recommendations

f between3 and 10

years)

and

about

whether he

process

should be slowed

when

macroeconomiconditionsre adverse as during imes frecession

or

payment

eficits).

Concern

ver

credibility,

r

the ack

thereof,

evelops

only

indirectly

rom

Williamson's

onsensus,

ut

f

one considers

rade

liberalization

n realistic

erms,

s

Joshua

izenman

oes,

credibility

37

United

States

Government,

ambodia

ountry

ommercial

uide.

38

Data

for

hailand

re

from

anya

Sirivedhim,

Comment

to

Fiscal

nd

Monetary

Policy

in the GrowthProcess) in StrategiesorStructural

Adjustment:

he

Experience

f

Southeast

Asia,

Ungku

A.

Aziz,

ed.

(Washington,

.C.:

nternational

onetary

und,

990),

0.

88

Crossroads

1:2


17/25

Cambodia nd

the

Washington

onsensus

becomes n importantspectofanystructuraldjustmentolicy.39

With

espect

o nterest

ates,

Williamson

alks fthe

hronic

ackof

confidence

that

plagues

developing

countries and

leads

to

intolerably igh

and

unproductive)

atesof

nterest.

his

further

lessens

credibility

nd

discourages

nvestment,

s

happened

when

Mexican

dollar-indexed

esobonos

bonds)

peaked

at a

near

25%

interest

ate nd the

Central ank

was

forced o

devalue

the

peso.

Certainly,

f

a

government

ishes

to

minimize

uch

problems

s

excessive

nflationr lack of

consumer nd

investor

onfidence,

ts

credibility

ust e sound.

Situation

in

Cambodia:

Trade

liberalization

s a

natural

component

f the

Washington

onsensus and

was

practiced

by

many

of Cambodia's

ASEAN

neighbors

ia

export-led

rowth.

ut

the

experience

f ASEAN

suggests

hat

Cambodia's

best

strategy

may

have been to

practice

mport

ubstitution

o

fill

domestic

demandand

then,

nce

domestic

emand

was

filled,

move

toward

the

doption

f

xport-oriented

trategies

or

evelopment.

Cambodiahas a

mixed

ecord

or

ffortso

bolster

redibility.

Some failures re due simply o communicationversights. or

example,

heCambodian

overnment

as

expected

o

ift

tsban

on

rice

exports y

the end of

1995,40

et

prospective

xporters

were

given

no

signals,

ther han

National

Voiceof

Cambodia

broadcast

stating

hat removal

of the ban

would be in

line

with a

signed

understanding

etween he

Cambodia and

the

MF,

that

his

rade

policy

would

ever

become

permanent.

In

other

ways,

the

government

eserves

more

praise.

No

doubt

partly

o

increase

economic

redibility,

t et

bout

onstructing

highway

esigned

o

bisect he

ountry

astto

west,

hereby

inking

hnom

enh

with

he

capitals fVietnam, aos,andThailand.41lso,a $10million rant

39

Joshua

Aizenman,

Trade

Reforms,

redibility,

nd

Development,

Journal

fDevelopment

conomics,

9

1992):

63-187.

orbert

unke

xplains

that

credibility

apses

when

private

xpectations

bout

future

policies

deviate rom

he

government's

xplicit

r

mplicit

nnouncement.

orbert

Funke,

Timing

nd

Sequencing

f

Reforms:

ompeting

iews

nd

the

Role

of

Credibility/KYKLOS

6

1993):

43.

National

Voiceof

Cambodia,

Cambodia:

Government

o

Allow

Export

f

Rice

Beginning

st

December,

euters

extline,

ay

3,

1995.

Such a

project

s consistent ithAizenman's

uggestion

hatnvestments

by

the

Mexican

government

n

highways,

telecommunications,

nd

infrastructure

n

Tijuana

nd

along

he

Mexican

order

with

California

may

Crossroads

1:2

89


18/25

Sophal

Ear

fromGermanywas slated for he ayingof a telephoneand line

from heCambodian

apital

o

Thailand.42iven

he

ombination

f

Cambodia's

move toward

reater ublic

nvestmentnd

Thailand's

high

national ncome nd

commitmento tariff

eductions

to

less

than5%

by

the

year

2003,

hedeadlinefor

heASEAN

Free

Trade

Area

[AFTA]),

his mminant

onnection etween

he

wo

countries

made

Cambodia

more

ttractivehan ver

o outside

nvestors.

With

espect

o theUnited

tates nd

Cambodia,

he

Cambodia

Country

ommercial

uide

onfirmed hat

trade

between

the

two

countries

was low

during

1994,

totaling

nly

$1.8

million

of

exports oand$7.4million f mportsrom heU.S.43MostFavored

Nation

rade tatus

or ambodia

remained

ending,44

ut

the

Guide

did

anticipate

ncreased

mport ctivity

n

the

following

ectors:

)

architecture,onstruction,

nd

engineering

ervices;

)

agricultural

machinery

nd

equipment;

)

used cars and

automotive

arts

nd

services;

nd

4)

drugs

nd

pharmaceuticals.

efore

980,

Cambodia

was

an unwelcome

rading artner

n

theWestdue to

ts tatus s a

subject

ation

f he

Republic

fVietnam. he economic

uccesses f

ASEAN

countries

ike

Thailand,

ingapore,

nd

Malaysia,

however,

whopracticedxport-ledrowth evelopmenttrategies,rovided

convincing

recedents

or

ossibilities

n

Cambodia should

similar

policies

be

implemented

here.

ingapore,

which ike

Cambodia s

very

small

relativeto

its

neighbors

nd

must look to external

markets

o achieve

ven minimum conomies

f

scale,

provided

n

especially

itting

odel f

development.45

Conclusion:

General

Assessment of

Washington

Consensus

Reforms

n

Cambodia

Critics ave arguedthat hestructuraldjustment olicies

called

for

y

the

Washington

onsensus

re too

harsh

n

developing

generate

ositive

xternalities.

izenman,

Trade

eforms,

redibility,

nd

Development/'

9.

42

Renters

ews

ervice,

German

id

for

ambodia-Thailand

hone

ine,

Dec.

8,

1995.

43

United States

Government,

ambodia

ountry

ommercial

uide.

44

The

U.S.

granted

ambodia

MFN status

n ate1996.

45

For a detailed

discussion

of

Singapore'sdevelopmenthistory,

ee

BernardoM.

Villegas,

Economics

djustment,inancing,

ndGrowth, n

Strategies

or

tructural

djustment:

he

Experiencef

outheast

sia,

Ungku

A.

Aziz,

ed.

Washington:

nternational

onetary

und,

990),

7.

90

Crossroads

1:2


19/25

Cambodia

nd

the

Washington

onsensus

countries nd thatWashingtontselffrequently iolates them.

Williamson,

or

nstance,

writes that

My

term

s a

misnomer

because

the

Washington

onsensus' s

being

mplemented

n

every

capital

of the

hemisphere

bar

Washington. 46

evertheless,

Cambodia's

effortso revitalizets

economy

rogressed

emarkably

well

during

he 1993-95

eriod.

n

1993,

he

MF

approved

a

$41

million

nhanced tructural

djustment

acility

oan in

support

f

the

Government's

995-96macroeconomicnd

structural

djustment

program. 47

year

ater,

n

May,

1994,

he

MF

affirmedhat

[t]he

anchor

for

financial

tabilityduring

the

period

of

the ESAF-

supported

program

will continueto be

tight

financial

policies

designed

o avoid

monetary

inancing

fthe

budget.

As a

result,

he

growth

n

liquidity

will be

curtailed

nd

inflation

eld

in

check,

which

will

help

support

ncreased

tability

f the

exchange

ate. 48

The

national

udget

held

a

deficit f

only

bout

6% ofGDP in

1995,

and

inflationell rom

high

of

112%

n

1992 o under

10%

n

1995-

96.

Although

herevitalization

rocess

was still n

ts

early

tages

n

1996,

he

MF that

yearfavorablynalyzed

he

country's

uccess

n

instituting

range

f structural

eforms,

ncluding

he

privatization

of state-ownedenterprisesSOEs), the creationof a body of

regulatory

tatutes,

nd the

downsizing

f the

military

nd

civil

service

ectors.

able

2,

which rawson

data

reported y

the

World

Bank,

hows

an

unmistakablerend oward

undamental

conomic

stability

n

a number f areas that

ccording

o

Consensus

wisdom

arecrucial

o a nation's conomic

well-being.

Of

course,

oth he

MF

and the

WorldBank

rely

pon

official

government

tatistics,

he

accuracy

of which

must

be

seriously

questioned.49

till,

that

fact that all

economic

indicators

were

pointing

n the ame direction

increased eal

GDP

growth

ate

nd

decreased nflationince 1994 was encouraging.n addition, he

IMF and the

World Bank

reported

that

from 1994

to

1995

government

pending

decreased as a

percentage

f

GDP

while

46

Williamson,

Democracy

nd the

Washington

onsensus/

329.

International

onetary

und,

IMF

Approves

econdAnnual

oan.

48

PRNewswire,

USA:

IMF

Approves

SAF

Credit

or

Cambodia,

May

6,

1995.

Other ourcesmake omewhat

ifferent

rojections

rom

hose

given

n

Table2. The Cambodiaountryommercialuide utsCambodia'srealGDP

growth

n1994 t 5.2%.The ame

guide

placed

he nflationate t 14.8% or

1994 and 13.8% for 1995.

United

States

Government,

ambodia

ountry

Commercial uide.

Crossroads

1:2

91


20/25

Sophal

Ear

foreign exchange revenues increased from$115 million to $146

million.

Exchange

volatility

was

especially

pronounced

during

UNTAC,

but

throughout

996 the riel

remained

below

the

1994

high

mark of

2,585

riel to the

dollar a

small but

definite

ign

of

economic

stability.

Although

otherASEAN

countries ared

more or

less

as well

as

Cambodia

with

respect

to

GDP

growth

rates

during

these

years

(Table

3),

Cambodia's structural

djustment

rose

from

distinctly

different ontext.

As

already

stated,

the

problem

with

the

economy

was

neither

an excess of

regulation

nor

government

failure but

ratherthe absence of effective

egulation

due to decades of war,

revolution,

nd

foreign ccupation.

Cambodia's

civil

service as

well

as

much of

the

military

was

throughout

his

period

controlled

y

the

country's

formerMarxistrulersunder the

guise

of

the

re-christened

Cambodian

People's

Party

(CPP),

and

this

hold-over

from

the

socialist

past

embodied little that was

useful to

Cambodia's

democratically

elected

government

as it tried

to effect

national

recovery.

ome

government

actions

incerely

ttempted

fiscal

and

monetary

restraint,

ut

they

did so

largely

n

vain.

The

continuing

low-level war along the Thai border againstMaoist KhmerRouge

guerrillas

who

controlledCambodia from1975 to

1978 and

turned

the

economy

into an

agrarian

collective)

was a

significant

actor

n

this

failure.

Still,

the

analysis

shows that the

Consensus

policies

were

clearly ustified

n all

areas

except deregulation,

nterest

ates,

and

exchange

rates,

where too little

development

had

yet

taken

place

to

warrant

nvesting

valuable

human, financial,

nd material

resources

in reform

fforts.

s Cambodia

anticipated

admission into

ASEAN,

it

planned

to

unilaterally

educe its tariffs o less than

5% within a

few years of AFTA's establishment, ecure in the belief that the

economic

integrationresulting

from the reductions would

render

sizable

financial

gains

well into the next

century

and this

despite

the

fact

that customs

duties

comprised

a

major

and

increasing

portion

of the

Royal

Cambodian

Government's revenues

(30%

in

1995).50

There remained

difficulties,

f course.

For one

thing,

lthough

ASEAN

planned

to remove

non-tariff rade

barriers,

including

customs

regulations,

specifications,

and

subsidies,

beginning

January

1,

1996,

by

the end

of that

year

most such

barriers

50

Bangkok

ost,

Cambodia: hmers

ye

StockMarket.

92

Crossroads

1:2


21/25

Cambodia

nd the

Washington

onsensus

Table 2:

Key

Macroeconomic

ndicators

1991

1992

1993

1994

1995

1996

Real GDP

Growth 7.6

7.0

4.1

4.0

7.6

6.5

(%

change)

Consumer

rice ndex

150.4

112.5

41.0

17.9

3.5

9.0

(final

uarter

asis,

(%

change)

Gross fficialeserves - 30 71 100 182 234

(months

f

mport

f

goods

nd

services,

(in

millions f

US$)

Current

udget

eficit

-3.0

-3.3

-1.5

-1.4

-0.6

-0.8

(cash

basis,

xcl.

grant)

(%ofGDP)

Source:World

Bank,

Cambodia:

rogress

n

Recovery

nd

Reform

Washington,

D.C.: World

Bank,

astAsia and

Pacific

egion,

ountry

epartment

,

997),

4.

Table 3: GDP Growth

ates,

Cambodia nd

her

ASEAN

neighbors

1989 1990

1991

1992

1993

1994

1995

1996

(Percentage

hange)

Cambodia 3.5

1.2

7.6 7.0

4.1

4.0

7.6

6.5

Indonesia

9.1

9.0

8.9

7.2

7.3 7.5

8.2

7.8

Malaysia

9.2 9.6 8.6 7.8 8.3 9.2 9.5 8.2

Philippines

6.2

3.0

-0.6

0.3 2.1

4.4

4.8

5.5

Thailand

12.2

11.6

8.1

8.2

8.5

8.9

8.7

6.4

Vietnam 7.8

4.9

6.0

8.6 8.1

8.8

9.5

9.5

Singapore

9.6 9.0

7.3 6.2

10.4 10.1

8.8

7.0

Source: nternational

Monetary

Fund,

World

conomic

utlook:

Survey

y

the

Staff f

he nternational

Monetary

und

October

997,

World

Economic

and

FinancialurveysWashington,.C.: Internationalonetary und, 997),

148,155.

Crossroads

1:2

93


22/25

Sophal

Ear

remained.51nfact,onsideringhatASEANhaspromotedree rade

continuously

ince

1967,

t

had achieved

ery

ittle

n

that

rea.

One

anonymous

nternationalrade

conomist as

quoted

s

saying

hat

ASEAN

has been aroundfor

long

time,

nd

they

eally

haven't

done

anything. 52

utthis

ritique

eems

rather oo

harsh,

or

he

organization

id

serve,

nd continues o

serve,

useful

unctionn

economic

development,

nd

Cambodia's

inclusion in

ASEAN

promised

o

greately

trengthen

oththe

nation's

conomy

nd

its

credibility

s a

regional

rading artner.

ow

that

membership

as

been

indefinitelyostponed, erhaps

the

hoped

for

benefitswill

follow fthegovernmentraspstheopportunityow tomake a

concerted

econd

ffortt

nstituting ashington

onsensus eform

before

he

1998 lections.

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oshua

1992

Trade

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redibility,

nd

Development.

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ost

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cambodia and the washington consensus

Documents