Hun Sen Likely Will Expand Majority, Power in Cambodia Election

By Daniel Ten Kate

July 25 (Bloomberg) -- Cambodian Prime Minister Hun Sen, a former Communist who has ruled for two decades, probably will expand his parliamentary majority and grip on power July 27 after boosting prosperity by welcoming foreign investment.

The second-smallest economy among 10 Southeast Asian countries has averaged 10.6 percent growth during the past five years. Money has poured into Cambodia, as an overheating economy in Vietnam and political turmoil in Thailand triggered stock declines in those countries.

The economic expansion has increased the popularity of Hun Sen's Cambodian People's Party, allowing it to weather a surge in fuel and food prices. Pheavy Vy, 27, said her mobile phone shop in the capital Phnom Penh is doing a brisk business and plans to vote for him.

``Hun Sen can solve the country's problems,'' she said. ``I'm sure he will find a solution to the rising prices.''

Inflation is putting a drag on growth and may eventually prompt a backlash against the prime minister's foreigner-friendly policies. The government allows outsiders to buy 99-year leases for pieces of agricultural land and encourages energy companies to bid for rights to tap oil and gas reserves discovered offshore in the Gulf of Thailand.

The International Monetary Fund forecast in June that economic growth in the country of 14 million would fall to about 7 percent this year, from 10.25 percent in 2007, and the government expects inflation to almost triple to 15 percent.

Growing Support

For now, Hun Sen, 56, is enjoying growing support as foreign investment creates jobs in the energy, agriculture, tourism and garment industries and he rewards his rural voters with new schools and paved roads.

``Average people, for economic and selfish reasons, not intimidation, will vote for the CPP,'' said Robert Broadfoot, Hong Kong-based managing director of Political and Economic Risk Consultancy Ltd.

Cambodia has started to rehabilitate its image as a corrupt beggar state with depleted human resources after the Khmer Rouge in the late 1970s killed most of the educated class.

Foreign investment is on pace to double from $2.7 billion this year, according to the Cambodian Investment Board, a government agency. As the country prepares to open a stock market next year, foreign investment funds such as Leopard Capital are looking to spend about $450 million on banks, office buildings, luxury hotels and other projects.

``The word got out that this election is already a preordained conclusion, so new business is still coming in,'' said Bretton Sciaroni, a Phnom Penh-based lawyer who has advised foreign investors in Cambodia for about 15 years.

Political Evolution

In late 1978, Vietnam invaded Cambodia to stop Khmer Rouge incursions and set up a client state with Hun Sen serving as foreign minister. He became prime minister in 1985 and helped negotiate a United Nations-brokered peace deal six years later that ended factional fighting and led to the country's first democratic election in 1993, Cambodia's first in 20 years.

In the 2003 election, Hun Sen's party won 73 of 123 parliamentary seats, or 59 percent, short of the two-thirds majority then required to form a government. In 2006, lawmakers changed the constitution to allow a party to form a government with a simple majority. Hun Sen said he expects to win 81 seats in this election.

Opposition leader Sam Rainsy's eponymously named party won 24 seats in the 2003 election. He said the government is manipulating voter lists and threatening civil war if it loses, leaving many rural Cambodians afraid to vote for him.

`Time Bomb'

Sam Rainsy said resentment against foreign investors is building because the 99-year leases encourage land grabbing and speculation. Unemployment among youth is a ``time bomb,'' he added. He said Hun Sen's plan to open a local stock exchange next year would be ``ridiculous'' because the country lacks a strong judicial system.

Multinationals in Cambodia include Chevron Corp., the second- biggest U.S. oil company, BHP Billiton Ltd., the world's largest mining company, and Australia and New Zealand Banking Group Ltd., Australia's third-biggest bank.

``We are three times bigger than what we thought we would be'' when entering Cambodia in 2004, said Stephen Higgins, chief executive officer of ANZ Royal, a joint venture with the Royal Group, a Cambodian conglomerate.

The International Monetary Fund estimates that banks now hold 20 percent of the country's money supply, up from about 10 percent five years ago, despite what Higgins called a ``noticeable'' drop in deposits at ANZ Royal in the month prior to the election. The same thing happened during the past two elections amid fears that violence might break out.

Improved Yields

The government says its policies to allow foreign-run large- scale agriculture investments will lead to improved yields. Cambodia shipped 450,000 tons of rice last year, much less than the 8.5 million tons sold by neighboring Thailand, the world's largest rice exporter.

``We cannot develop on our own,'' said government spokesman Khieu Kanharith. ``The CPP is popular because people are starting to see the economy grow. They appreciate the normalcy of life.'' He added that Cambodia also is ``reaping the benefits'' of joining the World Trade Organization in 2004.

New foreign investment will help widen Cambodia's growth, which is concentrated largely in garments and tourism. Oil and gas revenue from concessions in the Gulf of Thailand still in the exploration phase may reduce the need for foreign aid. Cambodia received $763 million last year.

Transparency International, a global non-governmental organization, ranked Cambodia 162 out of 179 countries in its 2007 Corruption Perceptions Index.

Competition remains stifled as executives work with government officials to protect their turf, says Kang Chandararot of the Cambodia Institute of Development Studies in Phnom Penh.

``The government hasn't taken any strong role in the economy so the private sector has enjoyed full freedom,'' he said. ``This is largely because government officials are heavily involved in business.''