Official: U.S. not to interfere in Cambodian-Thai border dispute

PHNOM PENH, March 18 (Xinhua) — The U.S. has affirmed that it will not interfere in the Cambodia-Thailand border dispute, said official news agency the Agence Kampuchea Presse (AKP) on Wednesday.

“The U.S. has never intervened in the border issues between the two neighboring countries,” Stephen Blake, director of the Mainland Southeast Asia Bureau Office of the U.S. State Department, was quoted as saying.

The U.S. is instead encouraging both sides to solve their conflict peacefully, he said during a lecture named “Southeast Asia Politics and U.S. Policy in the Region,” which was held here on Tuesday.

The Cambodian-Thai border conflict started on July 15, 2008, when Thai troops encroached on the Cambodian territory in the area near the disputed centuries-old Preah Vihear temple.

Rounds of high-level talks have been held since then, and both sides decided to withhold armed conflicts and stick to peaceful solutions.

Editor: Deng Shasha

Japan loans Cambodia funds to improve water supply

Japan has provided Cambodia with a $US 35.5 million loan to improve the supply of water, and a smaller grant for mine clearing equipment.

The loan is for a water infrastructure project in Phnom Penh.

A signing ceremony for the Japanese aid was held in the capital, and attended by Japanese ambassador Katsuhiro Shinohara and Cambodia’s Foreign Minister Hor Namhong.

The value of the demining equipment grant has been put at more than $US 5 million.

Cambodia’s Garment Exports Fall as Demand Drops in U.S., Europe

By Daniel Ten Kate and Carole Zimmer

March 18 (Bloomberg) — Cambodia’s garment exports are declining as a global recession crimps demand in the U.S. and Europe, cutting into an industry that supports a 10th of the Southeast Asian country’s population.

In January, garment exports plunged 25 percent from a year earlier to $185 million, said Mean Sophea, who heads the Commerce Ministry’s Trade Preferences System Department. Over the past decade, they grew at an average pace of 28 percent per year, according to the World Bank.

“I’ve never seen garment exports drop this much,” Mean Sophea said by phone from Phnom Penh, the capital. “The government is trying to reduce expenses for exporters, but we have seen a lack of demand from the U.S. and Europe.”

The U.S. and Europe take more than 90 percent of clothes made in Cambodia. Southeast Asia’s second-smallest economy may shrink 0.5 percent in 2009, the International Monetary Fund said March 6, revising down its 4.8 percent growth projection made a month earlier.

The proportion of garment shipments to total exports is higher in Cambodia than any country except Bangladesh and Haiti, according to World Trade Organization data. Some 70 percent of the country’s clothes were shipped to the U.S., where it was the eighth-largest supplier in 2007, the World Bank has said.

Lost Jobs

About 30,000 Cambodian garment workers, or a 10th of the total, lost their jobs in the past year as factories closed, the World Bank said in a March 8 report. The industry accounted for 17 percent of Cambodia’s gross domestic product in 2007.

The garment industry took off 10 years ago after Cambodia signed a trade deal with the U.S. that linked market access with improved labor standards in its factories. Exports went from almost nothing in 1994 to $2.7 billion two years ago.

The money earned every month by those who sew and stitch jeans and T-shirts for retailers such as Gap Inc. and Stockholm- based Hennes & Mauritz AB supports as many as 1.5 million Cambodians, said Douglas Broderick, resident representative of the United Nations Development Fund in Phnom Penh.

“There’s a whole community around the garment sector, little vendors, landlords, food stalls,” he said. “All those people will get hit.”

Sary Muong, a Cambodian garment worker earning less than $2 per day, has struggled to provide her family basic goods like food and clothing.

The 34-year-old single mother makes a monthly salary of $55 that supports her parents and 8-year-old daughter.

“Just look at the factories,” Sary Muong said from a one- room shack with no running water or toilet in Phnom Penh where she lives with her sister. “They’re closing. The living standards get worse and worse.”

Labor Standards

Cambodia’s garment industry has built a reputation for good labor standards over the past decade that the Commerce Ministry says contributed to its growth. In 2001, the government, garment factories, labor unions and the International Labor Organization, a UN agency, agreed to set up a monitoring agency called Better Factories Cambodia.

It files semi-annual reports on working conditions in factories that go to buyers like Nike Inc., Wal-Mart Stores Inc. and Adidas AG. Still, the higher labor standards haven’t stopped retailers from demanding ever lower prices, said Roger Tan, a factory manager and secretary-general of the Garment Manufacturers’ Association of Cambodia.

“Every factory is cutting costs now whether they like it or not,” he said. “The whole world is in deep trouble. Nothing should surprise anyone now.”

The government, reliant on overseas aid to finance a quarter of the national budget, has said it will extend tax breaks for clothing manufacturers to help reduce costs. Even so, Cambodia remains “increasingly affected” by the global slowdown, the IMF said, adding that its 2009 growth forecast may be revised again.

The world economy will shrink this year in a slump that is the worst “in most of our lifetimes,” Dominique Strauss-Kahn, the IMF’s managing director, said March 10. The World Bank, which also expects a contraction, said two days earlier that global trade would decline by the most in 80 years.

Statement of an IMF Mission at the Conclusion of the Staff Visit to Cambodia

Press Release No. 09/67
March 6, 2009

The following statement was issued today in Phnom Penh after the conclusion of an International Monetary Fund (IMF) staff mission to Cambodia:

“An IMF mission from Washington, D.C. visited Cambodia February 25 to March 4, 2009 to review recent economic and financial developments. The mission met with ministers and senior officials of the Royal Government of Cambodia and representatives from the business community and development partners.

“The global economic contraction and financial crisis are increasingly affecting Cambodia’s economy. Negative incoming data from all regions of the world, coupled with a further erosion in investor and consumer confidence and continued turmoil in global financial markets, point to an extremely challenging growth environment in 2009 and 2010. As a result, prospects for Cambodia’s economy for this and next year are expected to be considerably less favorable than envisaged at the time of the IMF’s 2008 Article IV Consultation discussions late last year.

“Garment exports are under pressure due to sharply lower retail demand in the United States and European Union. Tourist arrival growth has turned negative as the economic downturn in key tourist-source countries cuts into discretionary spending. Moreover, last year’s high inflation combined with the recent appreciation of the U.S. dollar and riel has reduced Cambodia’s competitiveness. Construction activity and foreign investment are also slowing rapidly as external investors cut back and financing conditions tighten. Agriculture performed better than anticipated last year, however the fall in global agricultural prices may limit further gains this year.

“Based on these considerations, real GDP is now projected to fall by about ½ percent in 2009. Given the rapidly evolving global situation, a larger-than-usual degree of uncertainty exists around this projection, and risks remain tilted to the downside. The outlook for 2010 is also highly uncertain, hinging critically on global and regional growth prospects. On a positive note, inflation has declined in line with lower oil and food prices and easing domestic demand pressures. These factors should continue to push inflation down well into single digits this year.

“Policy discussions centered on the appropriate response to the projected decline in economic activity. The mission and the authorities agreed that a larger fiscal stimulus, beyond that envisaged in the 2009 budget, now appears warranted. In this context, the overall government budget deficit could be allowed to rise to around 4¾ percent of GDP without jeopardizing recent gains in fiscal performance or increasing external vulnerability. The mission recommended most of the additional stimulus should come from higher spending, as this would provide more effective support to growth. The focus should be on pro-poor social outlays and safety nets and high-quality infrastructure projects that would strengthen competitiveness. The mission strongly urged the government to avoid backsliding in tax administration efforts at risk of further eroding an already-low revenue base.

“The mission and authorities also agreed that some scope remained for further monetary easing in 2009 as inflation pressures ease, but overall liquidity conditions are expected to remain tight this year given slowing external inflows. The National Bank of Cambodia (NBC) has taken substantive actions in response to strains on the banking system from tighter liquidity conditions and the downturn in growth. In particular, the mission welcomed the creation of an overdraft facility to manage very short-term liquidity risk, adoption of a new regulation that strengthens the classification system for non-performing loans, and improvements to the reserve requirement system.

“The mission welcomed the NBC’s strong commitment to continue strengthening bank supervision while improving the regulatory regime, and agreed that firm enforcement of prudential regulations would help to safeguard Cambodia’s banking system.”