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BEYOND THE CRISIS: A RESILIENT GROWING CAMBODIA

BEYOND THE CRISIS: A RESILIENT GROWING CAMBODIA. Dr. Rathin Roy, Director International Policy Centre for Inclusive Growth – IPC-IG.

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BEYOND THE CRISIS: A RESILIENT GROWING CAMBODIA

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  1. BEYOND THE CRISIS: A RESILIENT GROWING CAMBODIA Dr. Rathin Roy, Director International Policy Centre for Inclusive Growth – IPC-IG

  2. “”Asset management executives worldwide were much more optimistic about economic growth than they were at the beginning of last year, and they expect smaller emerging Asian markets to lead the way, rather than such areas as Brazil, Russia, India and China, a new study found. Optimism abounds on prospects for emerging and resource-rich economies with the highest hopes focused on the non-BRIC frontier markets," concluded the survey commissioned by RBC Capital Markets. SMALLER ECONOMIES LEAD ASIA’S FUTURE

  3. “For the first time, Asia’s contribution to a global recovery is outstripping that of other regions. Rather than being dependent on a narrow export-driven recovery, domestic demand – particularly household consumption – is reinforcing Asian growth.”

  4. The United States is fretting about the possibility of a double-dip recession. Europe is looking for signs of the next sovereign debt default crisis. And Asia… Asia from the Indian subcontinent to Australia –will expand by 8.6%, their fastest pace in 20 years! Nations like Indonesia and South Korea are even in better shape than before the financial crisis hit. India’s economy, growing at more than an 8% rate, has barely paused for breath and China keeps moving at a 9-10% pace.

  5. Cambodia is part of the story • . GDP doubled in just five years, despite adverse exogenous shocks. • Industry began to contribute over a quarter of total output. • A steady increase in gross national saving • record levels of investment in 2007 amounting to $866 million or nearly 10 per cent of GDP • The political settlement was steadily enhancing its development orientation with the development of institutional frameworks to address social goals such as eliminating the menace of HIV/AIDS and violence against women.

  6. The Crisis Economic performance in 2009 was marked by output declines in three of the four sectors that had contributed the most to Cambodia’s structural transformation and had begun to generate domestic value added to serve as a springboard for future growth. The crisis marked a watershed moment for Cambodia. It threatened the reversal not just of growth and development, but of a process of structural transformation that displayed enormous potential for Cambodia to significantly accelerate its development efforts and become part of the Asian inclusive growth story.

  7. The Cambodian government responded energetically, actively using the monetary fiscal and sectoral policy instruments at its disposal. Results: • Improvement in Cambodia’s export performance in 2010. • GDP growth is positive and expected to be around 5 per cent. • Gross fixed investment has also improved, projected at 18 per cent of GDP—the bulk of this increase, at the margin, has happened in the private sector. • The fiscal position is comfortable, with a reduction in the fiscal deficit projected for 2010. • On the external front, the import cover remains satisfactory. The Response

  8. The government has successfully secured the country from the immediate risks posed by the crisis. Averted a deterioration in the macroeconomic position, reversed declining private sector confidence, Negated the threat of a medium term reversal in growth and investment. This being said, the crisis reveals some important long term challenges to Cambodia’s endeavor to secure its development transformation, based on the rectangular strategy Crisis and beyond

  9. Diversification Domestic market Socialisation of risk and social protection Looking East …and South Crisis and beyond

  10. The structural challenge for Cambodia is to reduce its dependence on a few high performing sectors. Garments, account for 70 per cent of total exports and 80 per cent of manufactured exports; yet, according to UNIDO this is one of the slowest growing sectors globally. Studies indicate that Cambodia is potentially competitive in several other activity areas including footwear, agro processing, and light engineering..  Successful diversification will require investments in Human capital and in infrastructure. There will also be continued need to pay attention to strengthening the regulatory framework and improving institutional arrangements DIVERSIFICATION

  11. SEZs will bring exports and, possibly growth, what of domestic demand? It is commonly held that Cambodia’s domestic market is too small for this to act as an engine of growth. In my view this pessimism is misplaced. SMEs form the core of Cambodia’s economy They are well placed, in scale and capacity to address local demand thus providing an incremental source of growth and a further cushion against open economy vulnerability. SMEs are labor intensive; SMEs are relatively easy to set up and expand. SMEs are best able to focus on smaller markets SMEs have generally lower start -up costs. DOMESTIC MARKET AND SMEs

  12. Main challenge in fostering SME development is the lack of access to reliable and reasonably priced credit. The problem is not exclusively a financial one; the increasing gross savings ratio provides a base on which to channel affordable and reliable lines of credit to SMEs The main constraint here is weak law enforcement and poor capacity to monitor and report on SME financial activities. These shortcomings are well within the capacity of government and the private sector to rectify Microfinance is not enough….The Government and the private sector need to build a strong development oriented banking network that can supply reliable and adequate credit to Cambodian SMEs This is an area where the Asia Pacific region can offer considerable expertise. DOMESTIC MARKET AND SMEs

  13. A major lesson from the recent economic crisis was the need to secure resilience against exogenous shocks. For the ordinary Cambodian, also means reliable and predictable access to merit goods, and the need to secure livelihoods against unpredictable vicissitudes. The history of the Cambodian people can be viewed as a quest to obtain this most basic human security. This is a matter of long term concern in the Global South…. In new thinking, inequality as much an issue of national security as guarding against external aggression. SOCIAL PROTECTION

  14. As the risks to livelihoods are societal, the response must be to socialize the risk. Several countries in the global south have been successful in designing policy initiatives that have made a rapid difference to people’s lives and secured their inclusion in the growth and development process. For this reason that the speedy effective rollout of the National Social Protection strategy is of vital importance. SOCIAL PROTECTION

  15. social protection is not just about social safety nets, compensating the losers from jobless, exclusive growth processes. Growth without inclusion is not sustainable; it therefore does not get automatic priority irrespective of the distributional consequences. • Social protection is not an intermediate step in a journey towards a welfare State. They are affordable Both BolsaFamilia (Brazil) and NREGS (India) cost no more than 1 per cent of GDP and less than a third of defence spending • Global research shows that the fear that these schemes will be mistargeted and captured by corrupt vested interests is unfounded. They are no worse and sometimes better implemented than other government schemes, for example in the infrastructure sector Social protection: misconceptions

  16. The bogey of fiscally unsustainable welfarism, (hangover of the Washington consensus), needs to be set to rest. In fact, Social protection has have been demonstrated to contribute to macroeconomic resilience Given this, and the fact that Cambodia has in place the elements that would, collectively constitute a social protection framework it seems to me that there is no reason to delay its implementation and enter a long phase of pilots SOCIAL PROTECTION

  17. Emerging Asian economies such as China and India, and the rapidly growing ASEAN economies offer attractive markets and sources of technology and expertise to Cambodia . Thus far, the regional dynamic has not succeeded in providing any significant growth impetus to Cambodia. international production networks based on the twin processes of fragmentation and agglomeration have taken roots across a diverse range of goods extending from cars to footwear, particularly in Asia. Cambodia’s participation in regional supply chains would, require a range of business facilitation services, logistic services and access to modern information technologies. LOOKING EAST…AND SOUTH

  18. The first decade of the twenty first century has been marked by a widening of the scope for South South Co-operation and Policy Dialogue. The actual possibilities for breaking the shackles of donor-receiver dependency are today much broader than in the recent past. Fast developers in contemporary times are not those that followed the so called “Washington Consensus” but those that were able to take ownership of their development challenges and find solutions. LOOKING EAST…AND SOUTH

  19. Cambodia can forge new partnerships to build its resilience. The success, including in Cambodia, of the India Brazil South Africa fundis a signal to development partners that co-operation is as much about innovative ideas as about “”money changing hands””. Cambodian partnerships with a range of emerging economies will reduced dependence on one size fits all conditionalities and an obsession with the annual measurement of results by non resident experts. LOOKING EAST…AND SOUTH

  20. Solutions to today’s development challenges are more likely to be found among those that have developed recently than those that went through their development phase over a century ago. Many new technologies have also emerged that allow today’s developing countries to leapfrog from the 19th to the 21st century, instead of being forced to use hand me down notions of “”best practice. ”” There are immense possibilities for Cambodia to take advantage of these opportunities in areas like transport infrastructure, electricity generation and distribution, social policy, and participatory rural development This is also not a one way transfer. There is a lot that Cambodia has to offer in its development experience that would be welcomed by other economies in the South, LOOKING EAST…AND SOUTH

  21. The medium term challenge: to diversify the Cambodian economy, protect the vulnerable, and continue to build institutions that promote resilience. • The opportunities lie in the strengths of the Cambodian economy: its vast agricultural potential, the demographic dividend of the future, its success in securing macroeconomic fundamentals and enhancing savings and investment in a relatively short period, …….and its ability to take advantage of the enhanced possibilities afforded by regional and South South co-operation. SUMMARY

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