Cambodia's cowboy capitalism

By Shawn W Crispin

BANGKOK - Despite his rough and ready reputation, Cambodian Prime Minister Hun Sen has presided over an extraordinary transformation of the country's once war-torn, now booming local economy, marking Southeast Asia's latest successful transition from a centrally planned to market-driven economy.

But as Cambodia's capitalist reforms enter a crucial new phase - one where multilateral organization economists say that to sustain fast growth, economic benefits must be more equitablydistributed - it's altogether unclear whether Hun Sen and his Cambodian People's Party-led government are up to the egalitarian task.

Over the past three years, Cambodia's gross domestic product has expanded at double-digit growth rates, averaging a breakneck 11.4% per annum. Garment exports, the economy's top foreign-currency earner, accounting for nearly 14% of total GDP, grew by 20% last year, despite predictions that Cambodian producers would start to lose a substantial market share to China and Vietnam.

Foreign direct investment touched a record high US$475 million last year and, in a show of fiscal confidence last weekend, the government unveiled a new $26 million parliament building, which is about 10 times the size of the previous complex. Meanwhile, hopes are running high that recent discoveries of big new oil and gas deposits will translate into a multibillion-dollar boon and by as early as 2010 transform the country into a net fuel exporter - potentially one of Asia's largest.

Monetary authorities have successfully reined in inflation, which on average galloped well over 50% per annum throughout the 1990s, to less than 3% last year, and policymakers are now feeling emboldened enough to talk about "de-dollarizing" the economy in a nationalistic bid to shore up the local currency, the riel. International credit-rating agencies, including Standard & Poor's and Moody's, recently issued their first sovereign ratings for the country, in anticipation of new stock- and bond-market launches in 2009.

Hun Sen, a former communist guerrilla and currently Southeast Asia's longest-serving elected leader, deserves a fair measure of credit for the progress. In the state-sanctioned press, he's frequently seen presiding over the opening of new roads, bridges and schools, putting his personal populist mark on public-funded investments.

His deputies have recently taken to portraying him as one of the region's vanguard economic reformers, who began dumping communism for capitalism through limited land-ownership reforms in the mid-1980s. In advance of the 1991 Paris Peace Agreement, which ushered in United Nations-sponsored elections and a new power-sharing government, Hun Sen introduced full-scale land reforms, slashed price controls, privatized state enterprises and, to a degree, liberalized foreign investments.

More recently, Hun Sen has in the main stayed the course of a World Bank-designed market-reform strategy, which aims to boost the private sector and move the economy away from its age-old reliance on subsistence agriculture. That has included substantial policy reforms aimed at improving the investment climate and trade facilitation, including recent automation of traditionally corruption-prone customs-related services.

Rich man, poor man
Still, there are contrary indicators that Cambodia's emerging brand of wild and wooly capitalism is unevenly - and in instances perhaps illegally - benefiting the politically connected few at the great expense of the indigent masses.

A recent World Bank research report shows that robust economic growth over the past decade has helped to reduce the national poverty rate from 47% to 35% over the 10-year period spanning 1994-2004. Over that same period, however, average consumption per capita rose a mere 8% for the bottom fifth of the wage-earning population, while rising a whopping 45% for the top tier.

Where land ownership was seen as equitable after the 1989 land reforms, now levels of inequality in landholding and landlessness are among the highest in Asia, due to recent government policies in favor of large-scale land concessions - not to mention increasing state-backed land grabs from the poor. Lightly populated Cambodia, remarkably, now ranks worse than Malthusian dread-ridden India in this category.

The World Bank report also warned that, in general, high levels of inequality contribute to market failures and reduced investment, give rise to institutions that favor the rich over the poor and, over prolonged periods, often result in social and political instability. Those dire predictions are arguably already coming due, seen in the recent rash of land grabbling, where international rights groups such as Human Rights Watch estimate that tens of thousands of people have been forcibly evicted to make way for state projects and big plantation agriculture.

More damaging, however, were the allegations in a recent investigative report titled "Cambodia's Family Trees" issued by UK-based environmental watchdog Global Witness. The globally respected outfit alleged that senior army, police and government officials, many close to Hun Sen, including the head of his personal bodyguard unit, had profited hugely from illegal logging activities.

The report also claimed that a "kleptocratic elite" - including members of Hun Sen's direct family - were complicit in exploiting large swaths of officially protected forest lands. The report notably mentioned by name Hun Sen's wife as benefiting from the alleged illicit trade. For its part, the government banned the publication, issued a blanket denial, and threatened journalists who followed up the allegations.

One Radio Free Asia reporter was forced to flee the country after he received an anonymous death threat related to his reports, which corroborated some of Global Witness' findings. He was the second RFA reporter to flee the country this year because of concerns about possible government reprisals over critical news coverage. Further, Hun Sen refused in May to meet with the UN special representative on human rights for Cambodia, Yash Ghai, who had conducted investigations into allegations of state-backed land grabs.

Such statistical and investigative findings explain why - despite Hun Sen's recent consolidation of political power and his pivotal role in accelerating economic growth - foreign and local observers still have big doubts about his style of governance. For instance, last year international corruption monitoring group Transparency International rated Cambodia 151 out of 163 nations it ranked in its global government corruption index.

A more recent Indochina Research Limited public-opinion poll found that 88% of Cambodians feel that growing inequality in wealth is a pressing issue, while a World Bank survey released this week found that perceptions of Cambodia's government effectiveness, regulatory quality and control of corruption all declined from 2005 to 2006. Cambodia is no doubt growing, and growing fast, but increasingly the perception is that the benefits are only gushing up and not trickling down.