Economy of Cambodia in the 1990s

According to Lonely Planet; “Since the Paris Accords of 1991, Cambodia's economic growth has depended on millions of dollars of foreign aid. Foreign interest in Cambodia has decreased, however, and the country has received diminishing economic assistance.

The government that was after the Khmer Rouge initially supported semi-socialist policies. In 1989, after a period of collectivization followed by redistribution of land, private property was then reopened. In 1991, the government stopped describing itself as communist and began enacting market-oriented reforms.

 In the late 1980s and early 1990s, the economy was boosted by the United Nations and foreign aid. There were lots of doubts that the economy would collapse after the United Nations left in 1992.However,  that didn't happen. Instead the economy grew by 5 percent, inflation was reduced and the currency stabilized. The government didn't spend beyond its means and some foreign inventors showed up.

Cambodia was hurt less by the Asian financial crisis in 2008 and 2009 than other Asian counties because it was so poor in the beginning. During 1999 to 2002, growth averaged about 7%.  Much of the growth was attributed to relative stability which had attracted foreign investors.


Cambodia is growing economically annually.

Cambodia during Financial Crisis in 2008 and 2009

The Cambodian government has taken a number of policy measures, such as loosening monetary policy and piloting subsidies in the agriculture sector. The global financial crisis has had a serious impact on the Cambodian economy, which has been heavily dependent on the world economy. The main drivers of high growth in the past decade, garments, tourism and construction, are all facing serious consequences.

The most severe impact are in the garment industry, which exported US$2.9 billion in 2008, accounting for 65% of total exports and in the past six months, 51,000 workers have been laid off, a quite big proportion of the 350,000 workers in this leading industry. The International Monetary Fund (IMF) has recently discovered a 5% fall in the sector, concluding the less world demand.
This goes to show how disastrous having a narrow economic base can be.

While the GDP of Cambodia from 2003 to 2007 grew at above 9% a year, during the global crisis in 2008, growth slowed to 6.7 percent and then almost stopped in 2009, when the economy expanded just 0.1 percent. The quick decrease demonstrated more slowly than the need to widen the economic foundation. Now economic diversification is at the heart of the government's sustainable growth plan.


GDP of Cambodia reduced greatly in 2008 and 2009 due to financial crisis.

Economy of Cambodia in the late 1980s

Rice milling was very important to the Cambodian economy.

The economy of Cambodia in the late 1980s was dominated by subsistence agriculture as the industrial sector was still in its starting ages. Later in 1987 there were signs that reforms legalizing private enterprise were revitalizing the country's economy. Small industrial enterprises opened again, transportation and telecommunication systems were partially restored. As private market activities continued, the population of Phnom Penh grew from 50,000 in 1978to 700,000. Economic revitalization also occurred at Kampong Saom also formerly known as Sihanoukville, Cambodia's only seaport and its second largest city, which then continued its industrial and shipping activities.

The prospects for Cambodia's economic revitalization were poor in the late 1980s. The country's infrastructure was both weak and not stable. Factories and workshops, lacking electricity and supplies, operated only intermittently and at low capacity. The economy relied heavily, almost completely after 1980, on foreign aid from communist countries, particularly the Soviet Union and the Socialist Republic of Vietnam (Vietnam); Western nations, Japan, and China had terminated economic assistance to Cambodia in 1980 to protest the presence of Vietnamese troops in that country.

In the late 1980s, key economic indicators were missing or were difficult to restore, specifically for the Pol Pot period (1975-78).

Economy after the Khmer Rouge

The severity of the Khmer Rouge

After the fall of Pol Pot and the establishment of the People's Republic of Kampuchea (PRK) in January 1979, the Khmer or also known as Kampuchean People's Revolutionary Party (KPRP) that was led by General Secretary Heng Samrin, set Cambodia's economic development policies. The Party congresses adopted these policies at meetings in January 1979, May 1981, and October 1985. In June 1981, there was a new constitution that was approved by the National Assembly. and this defined Cambodia's new socialist direction and the role of the state in economic affairs. After six more years of struggling with an economy of survival, KPRP leaders presented their First Plan, which represented a systematic and explainable party effort, focusing on planning and improving the economy of Cambodia.

During a July 1980 conference, the government called for  a simultaneous development of command economy and private economy. The conference also decided that the state should buy agricultural products from the peasants and should sell the manufactured goods at free-market prices. The KPRP further clarified its economic policy at its Fourth Party Congress from May 26 to May 29, 1981. It declared that the nation's economic system had three main parts, the state economy, the collective economy, and the family economy, and that each of these parts had its own role.

The state economy covered huge agricultural production, all industrial production, the communications and transportation networks, finance, and domestic and foreign trade. The collective economy, which is the largest of the three elements, was assigned an important role in agricultural rehabilitation and development. The family-run economy included the home economies of the peasants, most retail businesses, individual artisans, handicrafts, repair shops, and small trade.

Continued- Economic Policy under Khmer Rouge Rule

Where the Khmer Rouge is residing

From the Khmer Rouge perspective, the country was free of foreign economic domination for the first time in its 2,000-year history. By mobilizing the people into work brigades organized in a military fashion, the Khmer Rouge hoped to unleash the masses' productive forces. There was an "Angkorian" component to economic policy. That ancient kingdom had grown rich and powerful because it controlled extensive irrigation systems that produced surpluses of rice.

 Agriculture in modern Cambodia depended, for the most part, on seasonal rains. By building a nationwide system of irrigation canals, dams, and reservoirs, the leadership believed it would be possible to produce rice on a year-round basis.

Although the Khmer Rouge implemented an "agriculture first" policy in order to achieve self-sufficiency, they were not, as some observers have argued, "back-to-nature" primitivists. Although the aftermath of the 1970-75 war resulted in cities being destroyed and idling most industry, small contingents of workers were allowed to return to the urban areas to reopen some plants. Like their Chinese counterparts, the Cambodian communists had great faith in the inventive power and the technical aptitude of the masses, and they constantly published reports of peasants' adapting old mechanical parts to new usage. Much as the Chinese had attempted unsuccessfully to build a new steel industry based on backyard furnaces during the Great Leap Forward, the Khmer Rouge wanted to move industry to the countryside.

Economic Policy during Khmer Rouge Rule

 

 Brutality of the Khmer Rouge

Democratic Kampuchea, which was the name of the Khmer Rouge controlled state that ruled Cambodia during 1975 to 1979, had an economic policy that was similar to, and possibly inspired by, China's radical Great Leap Forward that carried out immediate collectivization of the Chinese countryside in 1958.

However, far more than had the Chinese communists, the Khmer Rouge always pursued the ideal of economic self-sufficiency. Extreme measures were taken from this ideal. Currency was abolished, and domestic trade or commerce could only be conducted through barter. Rice, that was measured in tins, became the most important medium of exchange, although some other people also bartered gold, jewelry, and other personal belongings. Foreign trade was almost completely stopped, though there was a limited revival in late 1976 and early 1977. China was the most important trading partner, but commerce amounting to a few million dollars was also conducted with France, with Britain, and with the United States through a Hong Kong intermediary.

Sihanouk's Peacetime Economy

During the reign of Sihanouk, his political neutrality, that shaped the foundation of his foreign policy, had quite an effect on Cambodia's economic development. During that time, the economy of Cambodia was a mixed economic system. Sihanouk demanded that the economic side of neutrality meant either to add up to the rejection of global guide or the acceptance of foreign economic assistance from other countries.

However in 1963, the economy of Cambodia started to become inactive because Sihanouk decided to link his economic neutrality policy to the country's territorial integrity and border security. Soon after that, he rejected assistance from the US because the capital city Washington supported the Republic of Vietnam (South Vietnam), and also they rejected assistance from Thailand, as Cambodia had several and continuous disputes. Related to this, another move that was made by Sihanouk was that he nationalized trading companies, banks, insurance, and major industries, consequently causing economic deterioration between 1963 and 1969. The 1967 Samlot (Batdambang) revolt and the February 1970 government decision to exchange the old 500 riel banknotes were crucial events that contribute to the end of the Sihanouk era.

In between 1952 and 1969, Cambodia's gross national product grew about 5 percent a year, with growth higher during the 1950s than during the 1960s. In addition, the service sector played an important role in Sihanouk's mixed economic system in contrast to its position under the regimes of Pol Pot and of Heng Samrin, who considered the service sector not significant and unproductive. In 1968 the service sector accounted for more than 15 percent of gross domestic product (GDP), agriculture accounted for 36 percent, and manufacturing for 12 percent.

Cambodia's Economic History

Cambodia

 

“Opening up to new ideas and influences create opportunities and affect changes in political and economic policies.”

 

“How does the change in economic and political policies affect the economy of Cambodia as a whole?”

 

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BY: TRISTAN HEINARD AULY

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Binus School Simprug