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Cambodia Must Make Serious And Painful Reforms

by Ronnie Yimust

A land rich in history, abundant natural beauty, and well known as a "land of warm-smiling people," the Kingdom of Cambodia has attracted pilgrimages from all over the world for centuries. The Travel Channel (with many popular programs), the CBS reality game show "Amazing Race," and travel magazines have effectively put Cambodia on the map as the "Emerging Hot Destination in the World."

The rapidly changing physical landscape reflects development and maturity across this gentle Buddhist Kingdom. It's a far cry from the infamous "Killing Fields" to one of the most rapid economic transformation nations in SE Asia. Cambodia's economic growth rate -- ranked sixth fastest in the world in the last few years -- has been nothing short of a miracle, particularly considering Cambodia's terrible past. Cambodia is now considered one of the "Economic Tigers," in the SE Asia region.

More than 2.4 million tourists have visited this tiny Kingdom as of mid-2010, a number that is expected to double (or even triple again) in the next 10 years or so. This has brought in a flood of hard currencies into the local and regional economy. The "Supply and Demand" economy has led to an explosion of quality service industries within the "Development Triangle" of Siem Reap, Phnom Penh, and Sihanoukville. The proof of this amazing growth is the mushrooming of hotels and restaurants, ranging from the most basic "Backpacker's Paradise" guesthouses to "Five Star" accommodations that rival the world's finest.

Foreign investments are still pouring in, despite the global economic crisis of 2008-2010, thanks in part to the Royal Government's liberal policy to attract key investors to the country, especially within the garment, agriculture, and tourism sectors. China and South Korea led the way in foreign capital investments in the Kingdom.

Today, the Cambodian (Khmer) people are much, much better off than ever before, particularly in the nation's urban areas, where economic growth traditionally has taken root. The people now have much better food security with better nutrition, and more open access to a much higher quality education. Health care services are catching up fast with regional standards that rival western nations in cost and quality care provided.

Cambodia is still growing with a young population (approximately 68 percent under the age of 25) that has known nothing but a better life than that of their parents or grandparents. Since the cessation of internal conflicts, life expectancy has risen sharply from a mere 52 years of age to 58, slightly longer for females. With better family planning and better prenatal care, the infant mortality rate has also fallen notably, especially in urban area.

The local economy is now much more stable, with more and more traditional micro-enterprises (small businesses) leading the way. The inflation rate, between 8 and 10 percent annually, is skillfully held in check by the Royal Government. The dollarization over local currency, the Riel, may soon end, and this can only help to stabilize the local economy even further.

Micro-lending and Micro-finance Institutions (MFI) are at an all-time high, especially in the rural areas, and this has led to an explosion of micro-economic growth. Personal debt is relatively low as people, as a cultural norm, often paid back their loans sooner rather than later. The payback rate on borrowed money is often rated at 98-100 percent, truly exceptional compared to the rest of Southeast Asia.

The nation's economy today is highly liberal. The investment climate is perhaps the best in the region, with less-than-tight rules and regulations, generous tax incentives, and low tariffs. And these incentives seem to work quite well, as more and more foreign investments are pouring into the Kingdom's rapidly growing and expanding economy.

Additionally, a total of $1.1 billion (US) of foreign aid has been pledged for Cambodia, representing approximately 10 percent of the nation's GDP, for fiscal year 2011 alone. This aid injection is on top of an average of $600 million in annual foreign aid already given to prop and boost Cambodia's treasury since 1994 (on top of what UNTAC provided in 1992-94).

For a small and developing country, all of these factors are great news. Still, there are many daunting problems to overcome and it will take a collective effort by all Cambodians (and supporters) to effectively solve these problems. This task will not happen overnight, and strategic reforms are a must for a long-lasting growth and stability-socially, politically, and economically speaking.

Despite the rapid growth in Gross Domestic Product (GDP), government debts are still growing. This is a serious concern, especially for future generations who will have to pay all the debts back. China has lead the way in the so-called, "soft loans" dished out to Cambodia, with no strings attached. China had already forgiven all the Kingdom's overdue debts (almost $5 billion US) incurred during the Khmer Rouge's Democratic Kampuchea regime; a regime China had sponsored and supported (more on China and Cambodia later).

However, Cambodia is currently ranked 166th out of 181 countries surveyed by the Transparency International for its corruption perception index. Corruption is rife, and it's an accepted norm at all levels, from the bottom to the top. Corruption can be found in just about every sector, large and small. The recent passage of an anti-corruption law, after 10 years of casual debates, and the recent establishment of an oversight committee may not be adequate to counter and turn around the entrenched and endemic problem.

The recent discovery of large oil and gas deposit off Cambodia's coast, in the Gulf of Thailand, could very well complicate things even more. Overlapping claims with neighboring countries, such as Thailand and Vietnam, could only lead to envy, resentment, and may even fuel additional conflicts. The "Nigerian Curse," where oil-rich Nigeria has seen its share of serious social, political, and economic challenges, may afflict Cambodia as well, in light of Cambodia's similarly weak infrastructure.

Sometimes, there is too much of a good thing, particularly when a small and developing nation is not yet ready or mature enough to manage its newfound wealth, which an oil boom would surely bring. Competing Chinese and American oil firms, such as China's National Oil and America's Chevron, will surely not have Cambodia's best interest as a top priority? and when two giants fight, tiny Cambodia may again be trampled.

In recent decades, deforestation and land grabbing by private and public entities have been rampant, blatant, and is climbing at a worrisome rate. The lack of land titles and weak land laws has lead to serious upheaval as speculation drove land prices sky-high.
With foreign investors looking to drop serious cash on what they perceived as "great investment values or opportunities" in real estate, prices have escalated beyond reality. Practically overnight, real estate was bought and sold at will. There seems to be nothing that can't be negotiated, bought and/or sold, including countless state-owned properties. Multi-millionaires and luxury items have sprouted like mushrooms all over the country, seemingly overnight. Even poor farmers, those who were once could hardly afford one meal a day, became "filthy rich" by selling off land they managed to hold on to since 1979. Many government officials with meager state salaries also became openly wealthy (See a 2008 case study by Global Witness entitled "Country for Sale" for much more disturbing details and statistics).

Land concessions for various "development" schemes by the government often made some of the most vulnerable worse off than ever before -- all across Cambodia. Many marginalized people have been summarily evicted from their land (do remember that land, including all resources found below ground, still belongs to the Government, technically and legally speaking), often in the middle of the night, when bulldozers moved in to push them out. Protest after protest went unheard or unresolved, leading to dire desperation by the affected and marginalized people, including minority tribes. Internally speaking, this is one of the greatest challenges for Cambodia now, and in the foreseeable future.

Externally speaking, border encroachment by both Thailand and Vietnam (and even tiny Laos) has led to serious clashes. Take Preah Vihear Temple, along the Thai-Cambodian border; thousands of heavily armed troops faced off just meters apart. Since 2008, serious firefights have broken out, killing and wounding many. Cross-border trade, the livelihood of nearby local villagers, effectively ended as tension rose and the war of words escalated.

Cambodia must also cope with competing Chinese, Japanese, and American interests in the region. China, with one of the world's fastest growing economies, has steadily increased its "Sphere of Economic and Security Influence" throughout Southeast Asia, paying particular special attention to Cambodia, regarded it as an area of core strategic value. Billions of dollars worth of Chinese investments, in form of direct financial aid, free cash, and "soft loans," as well as military aid, have poured into Cambodia. This is, yet again, an attempt by China to gain even more influence in the region, with a special focus on Cambodia.

To counter China's growing influence, both the US and Japan have poured billions of dollars more -- in various forms -- into Cambodia. This has led to the "Three Ring Circus" effect: Cambodia is a tiny ant beneath the three competing interests that may not necessary correspond with Cambodia's interest. The last such conflict led Cambodia into untold national tragedies and sufferings, first under the Lon Nol's Khmer Republic, and later under Pol Pot's Democratic Kampuchea. This past lesson has never learned by Cambodia, and is bound to repeat again, unfortunately.

Yet Cambodia alone must make serious and painful reforms, of its own accord and in its own way, in order to achieve growth that is socially equitable, environmentally sustainable, and politically stable. Cambodia's infrastructure will require transformation.

Where should such reform begin? Here are a few pressing ones as a start:

1. Political reform:
Cambodia can start with the biggest reform of them all, its hardcore politics. One party rule is not healthy. A free and fair election is absolutely essential for a true liberal democracy to take hold. Competing political parties must have equitable access to state and private media without threat or intimidation, with a "level playing field." Fair competition could very well drive better quality products.

2. Judicial reform:
A competent and independent judiciary is critically important for Cambodia's development. Both the local and international communities routinely see Cambodia's courts as "for sale to the highest bidder," The courts rarely show their own "backbones." Better-trained and professional judges and lawyers are a good first step to a high-quality, equitable, and independent judiciary.

3. Executive branch reform:
Executive power must rest with the people, by the people, and for the people. The Executors (the Prime Minister and his cabinet) must be obligated to work for the people -- not a political party or clanship. The Executive branch must be "checked and balanced" by the Judicial (Courts) and Legislative (Parliament) branches. In short, answer only to the people!

4. Legislative reform:
Law makers are elected to the Parliament by the people and must openly debate an introduced law before its passing. The Parliament cannot and must not be seen as simply the "rubber stamp" for the Executive branch or a political party (the ruling party). They must work for the betterment of the Khmer people -- NOT a political party!

5. Military or security reform:
In a perfect world, a small, developing nation such as Cambodia doesn't really need a military or powerful security apparatus, which often are the biggest human rights abusers and violators. Military and security matters are also cost-prohibitive, representing about 59% of the national budget -- a very large sum compared to other key expenditures, such as rural development, health care, and education. Costa Rica, for instance, seems to survive quiet well without the military force it abolished in 1946, saving tons of national treasure in the process. Since Cambodia is not in a perfect world, granted, then all-volunteer "professional" Armed Forces are needed. In addition, by killing all the "Ghost Soldiers" within the rank and file, the extra savings can be used for training, and for procuring new and much-needed equipment.

6. Civil service and administrative reform:
Average salaries for civil servants are quite meager and ridiculously low. A teacher, for instance, is paid only about $40 US per month. This represents an average salary for many other civil servants, as well. Often, their meager salaries are either docked for a myriad of expenses, or they are paid irregularly. This has led to serious decline in ethical conduct, and has increased or encouraged low-level corruption. On the other hand, lawmakers, who can vote to give themselves (and others) a pay raise, make on average about $2,000 US per month, a reasonable and generous sum for Cambodia. However, key ministers generally receive only about $500 per month, and yet some seem to live quite lavishly and well beyond their official salary. An equitable and living wage for all civil servants is the only way to help cut back corruption and help make any anti-corruption legislation more effective -- not to mention improving the overall ethical conduct.

7. Treasury reform:
The country's tax collection effort is? mediocre (to put it mildly) at best. Only about 11 percent of the 2010 GDP actually found its way into the national treasury's coffer. The rest simply and magically disappeared, despite various Value-Added Taxes (VAT), designed to increase the nation's revenue. Cambodia's infrastructure and its ability to collect revenue remain inadequate. There is no political will to make sure that revenue actually flows into the nation's coffer? and increased revenue is a prerequisite for raising all civil servants' base salary, and increasing moral, ethical, and professional conduct amongst the civil servants. Increasing the salaries of civil servants (from average $40 to $250 per a month, a good living wage) is very much possible -- should the much-needed reform can be achieved.

8. Financial sector reform:
The newly proposed stock market and banking system must be better regulated to build stronger business bases and gain public trust within these emerging and growing sectors. The number of banks has increased rapidly due to the less-than-strict rules and regulations now in place. The lax approach in these sectors could lead to a future financial meltdown that could very well cripple an emerging market economy in Cambodia.

9. Corruption reform:
This "social norm" is a cancer really that must be cured. Unofficial "facilitation" fees, usually done quietly under the table, must be eliminated from any and all transactions with the government. Those found dirty must be publicly shamed, and payment made to fit the crime under the new anti-corruption law. If not, the great gap between the rich and the poor shall continue with serious and dire consequences.

10. Land reform:
Any liberal and open economy in the world -- not just in Cambodia -- cannot function properly and effectively without the utmost respect for property rights. The widespread land grabs across Cambodia by the rich and powerful, as a key indicator, could lead to another "Land Revolution," as Prime Minister Hun Sen correctly recognized. Still, it would take much more than PM Hun Sen and a weak land title law alone to resolve this pressing social, economic, and political problem. It will require strong political will and a collective effort by all, through better education and enforcement of the established law, to effectively reform this sector.

11. Foreign aid and natural resource revenues reform:
Cambodia must wean itself from the current "Beggar State" syndrome. Foreign aid must be viewed only as a short-term fix, a band-aid, and not as a long-term solution to Cambodia's budgetary problems. More importantly, all foreign aid as well as internal revenues must be invested wisely and shared equitably in all areas -- not just in the urban areas where only 20% of the population is located. A diversified investment and broad-based development strategy is also critically needed to counter global economic crises.

12. Donors reform:
Foreign donors must better coordinate their efforts and help Cambodia with even more capacity building. They must establish a much stronger mechanism in order to ensure that their aid is used as stipulated. All foreign aid, including that from China, must follow the same basic rules of governance.

Unless current conditions are addressed by these reforms, there is a danger that what Cambodia has miraculously achieved over the past decade will be easily destroyed by world's economic crises, or by civil unrest brought on by repeated oppression, frustration, and outrage at the political and bureaucratic nightmares facing the Kingdom of Cambodia today.


Ronnie Yimsut is an author and an activist. He is a native son of Siem Reap, Cambodia, and the lone survivor of a Khmer Rouge massacre in December 1977. He has been an active observer of Cambodia since 1992 and he has lived, worked, and traveled extensively throughout Cambodia in the past 3 decades.

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