COUNTRY PROFILE Cambodia Laos

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1 COUNTRY PROFILE Cambodia Laos This Country Profile is a reference tool, which provides analysis of historical political, infrastructural and economic trends. It is revised and updated annually. The EIU s quarterly Country Reports analyse current trends and provide a two-year forecast The Economist Intelligence Unit 15 Regent Street, London SW1Y 4LR United Kingdom

2 The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through subscription products ranging from newsletters to annual reference works; through specific research reports, whether for general release or for particular clients; through electronic publishing; and by organising conferences and roundtables. The firm is a member of The Economist Group. London New York Hong Kong The Economist Intelligence Unit The Economist Intelligence Unit The Economist Intelligence Unit 15 Regent Street The Economist Building 25/F, Dah Sing Financial Centre London 111 West 57th Street 108 Gloucester Road SW1Y 4LR New York Wanchai United Kingdom NY 10019, US Hong Kong Tel: (44.171) Tel: (1.212) Tel: (852) Fax: (44.171) Fax: (1.212) /2 Fax: (852) london@eiu.com newyork@eiu.com hongkong@eiu.com Website: Electronic delivery EIU Electronic New York: Lou Celi or Lisa Hennessey Tel: (1.212) Fax: (1.212) London: Jeremy Eagle Tel: (44.171) Fax: (44.171) This publication is available on the following electronic and other media: Online databases Microfilm FT Profile (UK) NewsEdge Corporation (US) World Microfilms Publications (UK) Tel: (44.171) Tel: (1.781) Tel: (44.171) DIALOG (US) University Microfilms Inc (US) Tel: (1.415) CD-ROM Tel: (1.800) LEXIS-NEXIS (US) The Dialog Corporation (US) Tel: (1.800) SilverPlatter (US) M.A.I.D/Profound (UK) Tel: (44.171) Copyright 1999 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author s and the publisher s ability. However, the EIU does not accept responsibility for any loss arising from reliance on it. ISSN Symbols for tables n/a means not available; means not applicable Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK

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4 Comparative economic indicators, 1998 Gross domestic product $ bn Gross domestic product per head $ Thailand Singapore 26,700 Indonesia Malaysia Singapore Thailand Malaysia Indonesia Vietnam Laos (a) Myanmar (Burma) (a) Vietnam Cambodia Cambodia Laos Myanmar (Burma) (b) (a) At free-market exchenge rate. Sources: EIU estimates; national sources. 0 1,000 2,000 3,000 4,000 5,000 (a) (b) At free-market exchange rate. Sources: EIU estimates; national sources. Gross domestic product % change, year on year Consumer prices % change, year on year Laos (a) Indonesia Vietnam Myanmar (Burma) Singapore Laos (a) Myanmar (Burma) Cambodia Cambodia nil Vietnam Malaysia Thailand Thailand Malaysia Indonesia Singapore (a) Sources: EIU estimates; national sources (a) 1997 Sources: EIU estimates; national sources. EIU Country Profile The Economist Intelligence Unit Limited 1999

5 1 May 21st 1999 Contents Cambodia 4 Basic data 5 Political background 5 Historical background 7 Constitution and institutions 8 Political forces 9 International relations and defence 11 Resources and infrastructure 11 Population 12 Education and health 12 Natural resources and the environment 13 Transport and communications 14 Energy provision 15 The economy 15 Economic structure 16 Economic policy 18 Economic performance 19 Economic sectors 19 Agriculture, fishing and forestry 21 Mining and semi-processing 21 Manufacturing 22 Construction 22 Financial services 23 Other services 23 The external sector 23 Trade in goods 24 Invisibles and the current account 25 Capital flows and foreign debt 26 Foreign reserves and the exchange rate 27 Appendices 27 Sources of information 28 Reference tables 28 Population estimates 28 Transport statistics 28 National energy statistics 29 Government finances 29 Money supply and credit 30 Gross domestic product 30 Gross domestic product by expenditure The Economist Intelligence Unit Limited 1999 EIU Country Profile

6 2 31 Gross domestic product by sector 32 Consumer prices 33 Agriculture, livestock, fishery & forestry production 33 Main industrial production 34 Tourism statistics 34 Exports 34 Imports 35 Main imports and exports 36 Main trading partners 37 Balance of payments, IMF estimates 37 Net official development assistance 38 External debt 38 Foreign reserves 38 Exchange rate Laos 39 Basic data 40 Political background 40 Historical background 42 Constitution and institutions 42 Political forces 44 International relations and defence 45 Resources and infrastructure 45 Population 46 Education and health 47 Natural resources and the environment 47 Transport and communications 49 Energy provision 50 The economy 50 Economic structure 51 Economic policy 54 Economic performance 56 Regional trends 56 Economic sectors 56 Agriculture and forestry 57 Mining and semi-processing 58 Manufacturing 58 Construction 59 Financial services 60 Other services 60 The external sector 60 Trade in goods EIU Country Profile The Economist Intelligence Unit Limited 1999

7 3 62 Invisibles and the current account 62 Capital flows and foreign debt 62 Foreign reserves and the exchange rate 64 Appendices 64 Sources of information 65 Reference tables 65 Population 65 Labour force 66 Transport statistics 66 National energy statistics 66 Government finances 67 Money supply 67 Gross domestic product 68 Gross domestic product by sector 68 Prices 69 Rice production and yields 69 Principal non-rice crops 69 Livestock 70 Forestry output 70 Mining and quarrying output 71 Output of selected industrial goods 71 Tourism statistics 72 Main exports 72 Main imports 73 Main trading partners 74 Balance of payments, IMF data 75 Balance of payments, national estimates 75 Net official development assistance 76 External debt 76 Foreign reserves 76 Exchange rate The Economist Intelligence Unit Limited 1999 EIU Country Profile

8 4 Cambodia: Basic data Cambodia Basic data Land area Population 181,035 sq km 11.3m (mid-1998) Main towns Population in 000 Phnom Penh (capital) Battambang (mid-1993 official estimate) (mid-1993 official estimate) Climate Weather in Phnom Penh (39 feet above sea level) Language Measures Tropical; rainy season, May-October; dry season, November-April Hottest months, March-April, 27 C average daily temperature (daily maximum C); coldest month, January, 25 C average daily temperature; wettest month, October, 256 mm average rainfall; driest month, January, 8 mm average rainfall Khmer Metric system. Local measures include: 1 tao=15 kg 1 thang=40 litres (20-22 kg paddy) 1 hap=60 kg 1 king (or ray)=0.16 ha 1 chi=3.75 g 1 damloeng=37.5 g Currency Fiscal year Time Public holidays Riel introduced in March Average exchange rate in 1998 CR3,770:$1; exchange rate on May 21st 1999 CR3,790:$1 April 1st-March 31st 7 hours ahead of GMT January 9th (National Day), April 13th-15th (Cambodian New Year), April 17th (Victory over American Imperialism Day), May 1st (Labour Day), May 20th (Day of Hatred), September 22nd (Feast of the Ancestors), November 9th (Independence Day) EIU Country Profile The Economist Intelligence Unit Limited 1999

9 Cambodia: Historical background 5 Political background Cambodia is a constitutional monarchy with King Norodom Sihanouk as its head of state. A coalition government was put in place in 1998 of FUNCINPEC and the CPP. Hun Sen is the prime minister. Historical background In the early ninth century rival Khmer principalities in the Mekong Delta gave way to a highly centralised empire based at Angkor. After a period of political decline Angkor was sacked in 1431 by the Thai kingdom of Sukothai, and by the end of the 18th century the territory of the old Angkorian empire had been greatly reduced. The French seize control King Sihanouk secures independence The Khmer Rouge takes power In the mid-19th century, as his kingdom came under threat from its Thai and Vietnamese neighbours, the Khmer monarch, Ang Duong, asked the French government for protection. In 1887 Cambodia was fully incorporated into the French Indochinese Union. The French colonial government was ousted by the Japanese in 1945, and in Cambodia a Khmer government under the young king, Norodom Sihanouk, was installed. Concerned about anti-royalist sentiment, King Sihanouk arranged for the French to return to power in 1946, but later requested full independence. Faced with defeat in Vietnam, France acceded and an agreement was ratified in In the run-up to the election that followed, King Sihanouk abdicated the throne to lead his own party, the Sangkum Reastr Niyum (People s Socialist Community), retaining the title of Prince Sihanouk. His party won, and for the next 15 years Prince Sihanouk s international and royal prestige allowed him to dominate the country s political life and survive challenges from both the political right and the left. In the final years of the Vietnam war Prince Sihanouk was accused by his own generals of collaborating with Vietnam and destroying the national economy. In 1970 the prime minister, Lieutenant-General Lon Nol, led a successful coup d état. The monarchy was abolished, a Khmer republic was proclaimed and Lon Nol was elected president in The Lon Nol regime was opposed by a coalition led by Prince Sihanouk, which included the underground Communist Party of Kampuchea (CPK, or Khmer Rouge), led by Pol Pot. The country rapidly descended into civil war and the Lon Nol regime crumbled despite massive US economic and military assistance, which included a six-month saturation-bombing of rural Cambodia in On April 1st 1975 Lon Nol was flown to Hawaii. The capital fell to the Khmer Rouge on April 17th. Prince Sihanouk was quickly sidelined. Cambodia was renamed Democratic Kampuchea and proclaimed a worker-peasant revolutionary state in The National Assembly was merely a rubber-stamp legislature; ultimate power lay in the hands of Pol Pot s secretive Khmer Rouge. Advocating economic The Economist Intelligence Unit Limited 1999 EIU Country Profile

10 6 Cambodia: Historical background development based on self-sufficiency, the regime sought to isolate Cambodia from foreign influences. It abolished money and forced most of the urban population into large-scale rural co-operatives or industrial work camps. The strategy was a catastrophic failure, resulting in economic chaos and widespread starvation, and the regime carried out brutal purges of suspected counter-revolutionaries. It is estimated that between 1m and 2m people were killed under the Khmer Rouge. The Vietnamese invade The Khmer Rouge pursued a strategy of confrontation with Vietnam. Diplomatic relations were severed in 1977 and Vietnam invaded Cambodia in December Pol Pot s forces were quickly pushed to the far west of the country and Vietnam installed a communist government headed by the newly created Kampuchean People s Revolutionary Party (KPRP), led by Khmer Rouge defectors. The new government renamed the country the People s Republic of Kampuchea (PRK). This led to the emergence of two non-communist resistance movements, the Khmer People s National Liberation Front (KPNLF, later to become the Buddhist Liberal Democratic Party) and the National United Front for an Independent, Neutral, Peaceful and Co-operative Cambodia (known by its French acronym, FUNCINPEC), led by Prince Sihanouk. In 1982 the two joined forces to fight alongside the Khmer Rouge against the KPRP-led government. Throughout most of the 1980s neither side gained the upper hand. A peace accord is signed in 1991 An uneasy coalition is formed In 1987, in an effort to put pressure on the KPRP government, which it had supported, the Soviet Union scaled down its assistance. In early 1990 the five permanent members of the UN Security Council began to negotiate a settlement. The Soviet Union persuaded Vietnam and Cambodia to accept a limited UN role in supervising elections, designed to settle the matter democratically. This paved the way for the Paris peace agreement of October The KPRP was renamed the Cambodian People s Party (CPP) and the country was renamed the State of Cambodia. In February 1992 the UN Security Council approved a massive peacekeeping operation implemented by the UN Transitional Authority in Cambodia (UNTAC). The Khmer Rouge refused to disarm or to participate in the election, and the campaign was marred by the intimidation and murder of members of rival political parties. However, the election went ahead in May 1993 and 20 parties took part. FUNCINPEC, now led by Prince Sihanouk s son, Prince Norodom Ranariddh, won by a small margin, securing 45.5% of the vote. The CPP came second with 38.2%. FUNCINPEC was forced to form a coalition with its erstwhile battlefield enemy, the CPP, which threatened not to recognise the result otherwise. Prince Ranariddh of FUNCINPEC and Hun Sen of the CPP were appointed co-prime ministers, but were never able to put their differences behind them. Power-sharing became a source of instability, and events finally came to a head in July 1997 when Hun Sen s forces overpowered those of Prince Ranariddh in a coup d état. FUNCINPEC s foreign minister, Ung Huot, agreed to work with Hun Sen and replaced Prince Ranariddh as first prime minister. By retaining other FUNCINPEC officials in the government, Hun Sen EIU Country Profile The Economist Intelligence Unit Limited 1999

11 Cambodia: Constitution and institutions 7 was able to claim that the coalition government remained in place, although the reality was that power rested ever more tightly with the CPP. As a number of key international donors withdrew aid, Hun Sen pledged the election would be held as scheduled. For a while this seemed uncertain, as the election date was put back owing to inadequate preparations, and Hun Sen insisted that Prince Ranariddh face charges brought against him by the CPP after the coup. However, Japanese diplomats brokered a peace plan in which Prince Ranariddh was sentenced and pardoned in quick succession, and opposition politicians who had fled the country returned. Political stability is still uncertain The election was held in July 1998.The CPP won 41% of the vote but could form a government only through a coalition with FUNCINPEC, which won 32% of the vote, or the Sam Rainsy Party, which won 14%. Lengthy negotiations ensued but the opposition parties accused the CPP of election-related fraud. With a coalition still not in place, political tensions erupted in September when the opposition took to the streets. Finally King Sihanouk intervened and in November a coalition was agreed between the CPP and FUNCINPEC, with Hun Sen as prime minister and Prince Ranariddh as National Assembly chairman. The agreement was made possible by a decision to turn the National Assembly into a new lower house, and form a new upper house, or Senate, headed by the previous National Assembly chairman, the CPP president, Chea Sim. Major doubts remain regarding the prospects for political stability in Cambodia, although in 1999 international donors started to resume aid. Important recent events August 1996: Ieng Sary, former right-hand man of Pol Pot, defects from the Khmer Rouge with 2,000-3,000 troops. July 1997: Forces loyal to Hun Sen take over Phnom Penh. Prince Ranariddh and many others flee the country. Pro-Ranaridd forces are driven back to the north. The Association of South-East Asian Nations (ASEAN) responds by delaying Cambodia s admission to the grouping and some Western countries freeze aid to Cambodia. December 1997: The national election date is postponed from May to July 26th 1998 because of inadequate preparations. April 1998: Hardline Khmer Rouge leader Pol Pot dies. July 1998: The general election takes place. The CPP wins but without enough seats to form a government on its own. September 1998: Political tensions related to forming a coalition erupt in violence, resulting in a CPP crackdown on the opposition. November 1998: A coalition government is formed; a decision is made to establish a new upper house of parliament, or Senate. December 1998: The last of the Khmer Rouge leaders, Khieu Samphan and Nuon Chea, give up the armed struggle. March 1999: The last senior Khmer Rouge leader, Ta Mok, is captured. Government pledges to put him on trial. April 1999: ASEAN membership is formalised. Constitution and institutions King Sihanouk s role can still be decisive The 1993 constitution states that the country is a constitutional monarchy. King Norodom Sihanouk is responsible for appointing the prime minister and approves the cabinet chosen by the prime minister. King Sihanouk s influence The Economist Intelligence Unit Limited 1999 EIU Country Profile

12 8 Cambodia: Political forces has declined on account of poor health, but he has still been able to step in at decisive moments, most notably in brokering the coalition government formed in November Despite rumours in the past that King Sihanouk would abdicate to play a more active political role, it is now more likely that, if he abdicates, it will be to retire. In December 1998 amendments to the constitution were being considered that would clarify the king s right to abdicate. At present the constitution states only that when the king dies, his successor is to be chosen by the Throne Council within seven days. The role of the National Assembly A new upper house has been established Despite the authoritarian nature of the Hun Sen government, the National Assembly is more than a rubber-stamp institution. The constitution invests exclusive legislative power in the National Assembly, which is forbidden to delegate power to any other organisation or individual. Parliament cannot be dissolved before its five-year term has expired, unless the government has been dismissed twice within 12 months. Its five-year term can be extended by one year at a time if it is deemed that there is a threat to national security, on the recommendation of the king and with the approval of two-thirds of the National Assembly. Legislation can be passed only by an absolute majority of all members of parliament. Prince Norodom Ranariddh (the king s son) is the National Assembly chairman. In November 1998, under the terms of the coalition agreement, the parties agreed to establish an upper house of parliament, or Senate, with the old National Assembly becoming the lower house. The Senate was set up after the National Assembly passed a 40-article amendment to the constitution in March It has 61 members, compared with the National Assembly s 122, two of which are appointed by King Sihanouk, with the remainder chosen by the three political parties in proportion to the seats they have in the National Assembly. The former National Assembly chairman, Chea Sim, has been appointed Senate president, making him acting head of state when the king is absent. The role of the Senate is described as being to scrutinise laws passed by the National Assembly and act as a co-ordinator between the government and the lower house. It is not yet clear whether the Senate or the National Assembly will have the final say on legislative matters, although comments to date suggest that it will be the Senate. CPP domination The CPP has long dominated the powerful defence and interior ministries, the judiciary, the police and the military. Hun Sen recently pledged to make the military and the police more neutral, and to this end he resigned as armed forces commander-in-chief in January However, his replacement, General Ke Kimyan, is also a senior member of the CPP. Political forces The CPP is politically dominant Of the 39 political parties competing in the July 1998 election, only three, the CPP, FUNCINPEC and the Sam Rainsy Party, won seats. The CPP is politically dominant, both in terms of National Assembly representation (where it has 64 seats) and in terms of its grass-roots party network. Although it is in coalition EIU Country Profile The Economist Intelligence Unit Limited 1999

13 Cambodia: International relations and defence 9 with FUNCINPEC, there is a history of bad relations between the two parties. The CPP is headed by its chairman, Chea Sim, while the prime minister, Hun Sen, is deputy chairman. Speculation that Hun Sen s position in the party was insecure subsided in the period leading up to the election. His main rivals are Chea Sim and the co-interior minister, Sar Kheng. FUNCINPEC is divided The Sam Rainsy Party suffers harassment The Khmer Rouge has disintegrated Since the 1993 election FUNCINPEC has been riven by factionalism. Hun Sen s ousting of the FUNCINPEC president, Prince Ranariddh, in July 1997 imposed great strain on the party. Some FUNCINPEC members took ministerial positions in the post-coup administration, while others fled abroad or took up military positions in the north-west. Divisions remain despite FUNCINPEC s recent coalition with the CPP. FUNCINPEC s strongest card is its association with the monarchy. It won 43 seats in the National Assembly in the 1998 election. The Sam Rainsy Party is the only opposition party represented in the National Assembly, where it has 15 seats. It was founded in November 1995 by a former finance and economy minister, Sam Rainsy, who is an ex-funcinpec member. It is very critical of the government, especially the CPP. Because of its outspokenness the party has suffered severe intimidation, including a grenade attack on a peaceful protest in March 1997, in which 16 people were killed and over 100 injured. A breakaway group has been formed. The Khmer Rouge has steadily lost its influence, largely owing to the government s policy of enticing Khmer Rouge members to defect. Pol Pot s right-hand man, Ieng Sary, defected in August 1996, and went on to form the Democratic National United Movement (DNUM), although the party did not contest the 1998 election and its future political role is unclear. In June 1997 top Khmer Rouge leaders turned on Pol Pot after he had ordered the killing of another leader, Son Sen, for negotiating with the government. In July 1997 the Khmer Rouge tried Pol Pot and sentenced him to life imprisonment. He died shortly afterwards. In December 1998 two other leaders, Khieu Samphan and Nuon Chea, defected, and Hun Sen s subsequent warm welcome of them to Phnom Penh in December 1998 generated some public nervousness. The last remaining top Khmer Rouge leader not to have surrendered, Ta Mok, was captured by the government in March Then, in April 1999 the former chief executioner, Kang Kek Ieu or Duch, was discovered as a born-again Christian living in Battambang province. In May 1999 they were both awaiting trial in Phnom Penh. It is as yet unclear whether any other Khmer Rouge leaders will be tried with them. International relations and defence Calls are made for a Khmer Rouge war-crimes trial In 1999 international pressure to bring Khmer Rouge leaders before an international war-crimes tribunal intensified following the capture of a former Khmer Rouge leader, Ta Mok (see Political forces). Within Cambodia the subject is contentious. Prince Ranariddh is in favour of trying the Khmer Rouge leaders but the position of Hun Sen is ambiguous. Many suspect he is against a trial as it would uncover a past that many would rather stayed hidden and because several government ministers and other officials are former Khmer The Economist Intelligence Unit Limited 1999 EIU Country Profile

14 10 Cambodia: International relations and defence Rouge cadres. Nevertheless, in November 1998 a team of UN experts visited Cambodia to explore possible legal approaches to holding trials. A poll of 1,503 Cambodians in January 1999 found that 81% supported trials while 5.9% opposed them. The UN and the US reiterated their preference for an international Khmer Rouge tribunal while China publicly supported Cambodia in its plans for domestic trials. The main concerns are that Cambodia s justice system is not capable of implementing an effective trial, and that the prime minister, Hun Sen, may try to use Ta Mok as a scapegoat to avoid further trials. However Hun Sen has said that he will welcome international assistance and expertise to ensure that the trial is of international standard. Cambodia is admitted to ASEAN Relations with Western nations are difficult Strong relations with China Relations with Thailand and Vietnam have improved Cambodia was given observer status in the Association of South-East Asian Nations (ASEAN) in 1995, but full membership was delayed in 1997, as some ASEAN members argued that Cambodia needed to prove its political stability. However, at the ASEAN summit in Hanoi in December 1998 it was agreed that Cambodia should be admitted, and this was formalised in April Cambodia, along with Myanmar, is likely to stir controversy within ASEAN as growing differences are exposed over whether members should be constructively engaged in each other s internal affairs. Relations with the US, the EU and multilateral institutions such as the IMF and the World Bank have been difficult since the UN-supervised election in They reached a low point in July 1997 when Hun Sen used military force to oust Prince Ranariddh. The government s failure to implement reform pledges and its human-rights record have not helped. Nevertheless the international donor community began to resume aid in Cambodia has developed close relations with China under Hun Sen, as well as increasing its leverage both within ASEAN and outside it, notably with the West. China is also a growing source of trade and investment and an important source of aid. Hun Sen is a frequent visitor to China and is willing to jeopardise relations with Taiwan in the interests of good relations with China. As a member of the UN Security Council, China may also prove a useful ally in blocking a Khmer Rouge war-crimes tribunal. Relations with Thailand improved once it was accepted that its leaders had severed ties with the Khmer Rouge. Attention has shifted to settling territorial disputes and developing commercial relations. There was tension at one time as a result of fighting between FUNCINPEC and CPP troops along the shared border, which spilled over into Thai territory. Thailand tends to stay out of Cambodia s internal affairs with respect to the Khmer Rouge. Relations with Vietnam, which were soured by the Vietnamese occupation, have also proved vulnerable to border disputes and problems with ethnic Vietnamese living in Cambodia. However, relations have become easier since Hun Sen, who is pro-vietnamese, has been in power. Streamlining the army will prove difficult On paper the Royal Cambodian Armed Forces (RCAF) number some 139,000, but a much smaller number are believed to be carrying out military duties. Figures are inflated by senior officers drawing the pay of so-called ghost sol- EIU Country Profile The Economist Intelligence Unit Limited 1999

15 Cambodia: Population 11 diers. Recently Khmer Rouge defectors have swelled army ranks. In December 1998 the government announced plans to demobilise 30,000-40,000 soldiers by However, finding alternative employment for demobilised soldiers poses great difficulties, and the government has asked the World Bank and the International Labour Organisation for $40m to assist with the provision of vocational training courses, housing and land. The cost of streamlining rules out defence cuts in the short term, despite government pledges to the contrary. Resources and infrastructure Population The population is small, poor and young Based on a UN Population Fund (UNFPA)/Cambodian government survey in December 1996, the EIU estimates the population was around 11.3m in (A nationwide census was conducted in March 1998 but the results are not out yet.) The population is poor, with annual per head income estimated at just $243 in Almost 45% of the population are under 15 years of age, according to Asian Development Bank (ADB) estimates for The youth of the population suggests that future population growth rates will be high. (Reference table 1 provides population data for ) Around 85% of the population live in rural areas, according to 1993 UNFPA figures. The largest city by far is Phnom Penh, which has a population of around 1m. Total population density is low, averaging 61 people per sq km. According to ADB data in 1997, the agriculture, forestry and fishing sector accounted for 75% of the workforce. Age structure of population, 1996 (% of total unless otherwise indicated) 0-14 years years years 2.6 Total population (m) 10.7 Source: Asian Development Bank, Key Indicators of Developing Asian and Pacific Countries, The Chinese are a major economic force Some 90% of the population are of Khmer ethnic origin. Although there are several other groups, notably in the highlands, the only groups of significant size are the Vietnamese (around 500,000), the Chinese (around 300,000), and Cham and Malay Muslims (around 130,000). Racism directed against the Vietnamese is widespread. Having suffered persecution at the hands of the Khmer Rouge, the ethnic Chinese have re-established themselves during the 1990s as a major economic force. Population indicators, 1995 Crude birth rate (per 1,000) 40 Crude death rate (per 1,000) 13 Life expectancy (years) 52 Population growth rate (%) 3 Sources: World Bank, World Development Indicators, 1997; World Bank, Cambodia: Progress in Recovery and Reform, The Economist Intelligence Unit Limited 1999 EIU Country Profile

16 12 Cambodia: Education and health Education and health Poor education is a constraint on development Cambodia suffers from low levels of education. By the end of the Pol Pot era formal education had ceased, and many educated Cambodians had been killed or had fled abroad. The World Bank estimated the primary school enrolment rate at only 47% in The rate has worsened since parents are increasingly expected to contribute to the cost of their children s education. The World Bank estimates that only 65% of the population is literate (78% of men and 50% of women), but other assessments have put literacy rates as low as 35%. Educational opportunities at tertiary level are inadequate, resulting in shortages of skilled labour. The lack of skilled workers is a problem both for investors and for government efforts to improve public administration. Budgetary constraints limit the scope for developing education. and the public healthcare system is inadequate Mortality figures reflect the poor state of public-health provision in Cambodia. Infant mortality is estimated at 97 per 1,000 live births, and maternal mortality at 5 per 1,000 births, although the true figures may be much higher. Death from preventable diseases is common, especially in rural areas. Only 20% of the urban population and 12% of the rural population have access to safe drinking water. HIV-AIDS is also a growing problem, especially among sex workers in Phnom Penh. Life expectancy at birth is only 52 years (according to a World Bank estimate for 1995). About 50% of the population have no access to the public healthcare system, which is extremely run-down. There has been a massive decline in the number of doctors and nurses per head since the mid-1960s. The private sector has sought to fill the gap, but people offering medical treatment are often ill qualified to do so. Natural resources and the environment Cambodia is the smallest of the three former Indochinese countries. It is bordered by Laos to the north, Vietnam to the east and Thailand to the west. Apart from the Cardamom Mountains in the south, which divide Cambodia s interior from its short southern coastline, the greater part of the country consists of a shallow basin centred on Tonle Sap (the Great Lake). The Mekong River crosses Cambodia from north to south. During the rainy season a large amount of the Mekong s floodwaters are diverted into the Tonle Sap, doubling its size. Forests are Cambodia s most valuable resource. Estimates of forest cover vary between 35% and 62% of total land area. Fish stocks are abundant, although overfishing is causing a decline in stocks. Cambodia is thought to have modest but commercially viable deposits of phosphate, granite, limestone, sand, gravel, clay and bauxite, and there are also gold, gem and oil and gas reserves. The precise extent of these has not been assessed, although some oil exploration has been undertaken. EIU Country Profile The Economist Intelligence Unit Limited 1999

17 Cambodia: Transport and communications 13 The cultivated area has shrunk According to the Ministry of Agriculture the amount of land used for rice cultivation decreased from 2.5m ha in 1967 to 1.8m ha in 1992/93, a reduction of 28%. One reason for this decline is the widespread presence of landmines, which are estimated to have been distributed over 30% of the country s agricultural land. The decline also reflects a reversion to subsistence farming in some areas. Transport and communications Major infrastructure deficiencies persist Roads Inland waterways Ports Air transport Cambodia s transport and communications infrastructure is in a serious state of disrepair. In 1994 a World Bank report to the International Committee on the Reconstruction of Cambodia (ICORC) placed special emphasis on renovating the road network, but implementation has been hampered by the poor security situation, shortages of qualified staff and inadequate financial resources. Fighting in July 1997 caused additional damage, although some facilities have been repaired. It also caused a halt in international lending, causing delays to infrastructure projects, but this should resume in Private-sector capital has traditionally been scarce, and the Asian economic crisis has reduced the likelihood of private investment in the short term. (See Reference table 2 for historical data on transport.) Cambodia has about 3,200 km of national roads, 3,100 km of provincial roads and 28,000 km of rural roads. Less than 2% are paved. Many bridges and ferries are also in a poor state of repair. Motorcycle traffic is increasing in urban areas, but road traffic remains light. Inland waterways provide an important means of transport, particularly during the rainy season when many roads are impassable. The major routes are the Mekong and Tonle Sap rivers. Siltation of the Mekong has rendered some stretches impassable for large boats; existing dredging equipment needs to be upgraded. Cambodia s two main ports are at Phnom Penh on the Mekong River and at Sihanoukville, the only deepwater seaport (although Phnom Penh can receive small ocean-going vessels). Both suffer from siltation and have antiquated cargo-handling equipment. Sihanoukville port is being upgraded. Cambodia s main airports are at Phnom Penh (Pochentong airport), Sihanoukville and Siem Reap. Damage to Pochentong airport during the July 1997 coup has now been repaired. There are regular flights between Phnom Penh and regional destinations, although in 1997 a link with Taipei was put on hold following objections from China. A number of domestic airports were refurbished by the UN Transitional Authority in Cambodia (UNTAC). The national airline is Royal Air Cambodge (RAC), which is 60% owned by the government, and 40% owned by a sister company of Malaysia Airlines. In 1997 Hun Sen announced the cancellation of RAC s monopoly position but a new domestic carrier has yet to be established. The Economist Intelligence Unit Limited 1999 EIU Country Profile

18 14 Cambodia: Energy provision Railways Telecommunications The railway system comprises two single-line, metre-gauge tracks: a 385-km line running from Phnom Penh to Poipet on the Thai border, which is in urgent need of repair, and a 263-km route from Phnom Penh to Sihanoukville, on which ADB-funded repair work was completed in In 1994 the railway system carried about 500,000 passengers and 100,000 tonnes of freight. Responsibility for the railways rests with the state company, Royal Cambodian Railways. Telephone density is extremely low at 0.5 telephones per 100 people, compared with 0.7 in Laos and 1.4 in Vietnam. The $50m telecommunications network installed for UNTAC by an Australian company, OTC/Telstra, links all 21 provinces, although many small towns are without telephone connections. Telecommunications links also exist via the Intelsat system. Mobile-phone systems are widely used in urban areas to bypass deficiencies in the fixed-line telecom network. Energy provision Generating capacity is low and investment is needed to meet growing demand but the private sector is cautious Publicly generated capacity in Cambodia stands at around 35 mw, of which 25 mw comes from diesel-powered generators and the remainder from hydroelectric sources. Many companies and hotels have installed their own generating units, and this is estimated to have increased nationwide capacity by over 100 mw. Capacity is low by regional standards; Myanmar has a capacity of 1,000 mw and Vietnam 6,000 mw. The majority of the population has no access to electricity Phnom Penh uses over 85% of the total consumed. With electricity demand in the capital running at around 75 mw and the distribution system old and badly in need of repair, power cuts are frequent. All diesel used to generate electricity has to be imported. (Reference table 3 provides national energy statistics.) In 1994 the ADB estimated that demand for power would reach 125 mw by Upgrading energy provision in Phnom Penh has been identified as a priority and will include an overhaul of the city s distribution system. The government wishes to attract private-sector investment in power generation. However, regional financial difficulties and the lack of a fully developed regulatory framework for private-sector participation hamper efforts to attract investment, and most funding to date has come from bilateral and multilateral sources. A handful of agreements with private companies has been signed, including with Itochu of Japan and a subsidiary of Malaysia s Apex Communications Group. A consortium including Intercore, a US company, has signed a deal to construct a 35-mw power station in Phnom Penh under a build-operatetransfer (BOT) agreement, although the project has suffered a number of delays. In November 1997 the government approved a $75m power station project backed by the US-based Daysun Group. EIU Country Profile The Economist Intelligence Unit Limited 1999

19 Cambodia: Economic structure 15 Energy balance, 1998 (m tonnes oil equivalent) Elec- Oil Gas Coal tricity Other Total Primary production a Imports Exports Primary supply a Net transformation Final consumption b a Expressed as input equivalents on an assumed generating efficiency of 33%. b Output basis. Source: Energy Data Associates. The economy Economic structure Main economic indicators, 1998 Real GDP growth (%) 0.0 Consumer price inflation (%; av) 15.0 Current-account balance ($ m) 23 Foreign debt ($ m) 2,146 Exchange rate (CR:$; year-end) 3,770 Sources: Official estimates; World Bank, Global Development Finance; IMF, International Financial Statistics; Cambodia: Statistical Annex, April Agriculture dominates GDP Agriculture dominates the economy, contributing 43% of constant-price GDP in Rice and livestock each accounted for almost one-third of total agricultural output and over 13% of total GDP, and fishing and forestry together made up just over 5% of total GDP in but industry and services have led growth In 1998 industry (comprising mining and quarrying, manufacturing, electricity, water and construction) accounted for around 20% of GDP, up from 15% in 1991, while services accounted for 37%. The manufacturing sector s contribution to GDP is rising steadily, and was 9% in All areas of industrial growth slowed in 1997 and 1998; the sharpest fall was in construction, which contracted by 10% in 1997 after expanding by 22% in Cambodia faces a financing shortfall According to Asian Development Bank (ADB) figures, gross fixed domestic investment has grown strongly since 1990, reaching 20.6% of current-price GDP in 1995 compared with 9.4% in The private sector accounts for nearly 70% of domestic investment. The national savings rate stood at 5.7% of GNP in Cambodia relies on foreign capital inflows to cover the savingsinvestment gap. These largely dried up during , leaving the country facing difficulties in funding its budget deficit and external accounts. The Economist Intelligence Unit Limited 1999 EIU Country Profile

20 16 Cambodia: Economic policy Economic policy From plan to market When the Vietnamese-backed government took power in 1979, it inherited a devastated economy from the Khmer Rouge. The new government wanted to establish a more effective, centrally planned economy, and tried to collectivise agriculture. It was unsuccessful. The first steps towards market-oriented reforms began at the Fifth Congress of the Kampuchean People s Revolutionary Party (KPRP) in 1985, when formal recognition was extended to the private sector. In 1986 the government abandoned the collectivisation of agriculture and started to encourage private household production. The process was broadened in 1989 when farmers were permitted to sell produce on the open market, although minimum state procurement prices were maintained. Official procurement of food commodities was finally eliminated in State-owned enterprises were theoretically made financially autonomous in 1989, although the government still relies on revenue from them. Some were sold to private investors or recapitalised by means of joint ventures. However, the government has generally preferred to try to improve state-sector efficiency by leasing assets to the private sector. Trade and investment liberalisation Reform of the external sector began in 1988 when Sihanoukville port was opened to international shipping. Private trading companies were permitted in 1989 and quantitative restrictions on import and export licences were abolished for most products. As part of this more outward-looking policy, efforts were made to attract foreign direct investment (FDI). A foreign investment law was Key economic policy developments 1986: Collectivisation of agriculture is abandoned. 1989: A foreign investment law is passed. 1993: The Organic Budget Law is passed, placing responsibility for all revenue collection and expenditure in the hands of the central Treasury. 1994: The IMF approves a three-year enhanced structural adjustment facility (ESAF). A new foreign investment law is approved. 1995: Privatisation regulations are approved and a privatisation commission is established. 1996: A central bank law is enacted, strengthening the autonomy of the National Bank of Cambodia. 1997: The IMF withholds ESAF financing when Cambodia fails to improve budgetary management. 1999: The government introduces value-added tax and promises defence cuts and greater control over logging revenue. EIU Country Profile The Economist Intelligence Unit Limited 1999

21 Cambodia: Economic policy 17 passed in August 1994, which included tax incentives for investment in infrastructure, energy and labour-intensive projects. The new government, which took office in November 1998, is expected to continue with economic reforms. Public finances remain weak The government introduces VAT Money-supply growth has slowed The government s fiscal position has been a source of weakness during the 1990s. Revenue generation has proved difficult and military and security expenditure has absorbed a large part of current expenditure. The coup of 1997 disrupted trade, which undermined the 1997 budget (ending December 31st 1997). This resulted in lower customs receipts and the temporary suspension of aid, which finances over 80% of capital expenditure. Nevertheless according to IMF data the fiscal deficit in 1997 and 1998 is estimated to have been smaller than planned, at 4.3% and 3.9% of GDP respectively, because of a squeeze of current expenditure. (Historical data on government finances are provided in Reference table 4.) The government wants to reduce its reliance on customs duties, which currently account for nearly half of total revenue, as this will shrink when Cambodia meets its obligations to the Association of South-East Asian Nations (ASEAN; see below). To strengthen its revenue base the government introduced value-added tax (VAT) in January 1999 at 10% across the board. This is also an important step towards creating a more transparent tax system, as called for by international donors. According to the finance ministry, VAT is expected to raise CR250bn ($6.6bn) in revenue in the 1999/2000 fiscal year. After expanding by nearly 40% year on year during , M2 growth has slowed. It rose by 16.6% year on year in 1997 and slowed further to 15.7% in The slowdown may reflect the tendency of savers to keep their money outside the formal financial system at times of political uncertainty. The National Bank of Cambodia (the central bank) is limited in its ability to influence monetary developments, partly because of the high level of dollarisation and the small formal banking system. In 1998 foreign-currency deposits accounted for 55% of total M2 and 97% of quasi money (time, savings and foreigncurrency deposits). Domestic interest rates have been completely liberalised, and reserve requirements are being introduced. (See Reference table 5 for historical data on money supply and credit.) Policy towards foreign investment The Law on Investment, passed in August 1994, encourages investment in a range of sectors including export-oriented projects, tourism, agro-industry, infrastructure, energy and mining. Restrictions on foreign investment apply in law, accountancy, and certain areas of transport, construction and foreign trade. The investment law offers a number of guarantees to foreign investors, including allowing them to remit foreign currencies abroad. Incentives are also available, such as corporate income tax of 9% and tax holidays of up to eight years. The Economist Intelligence Unit Limited 1999 EIU Country Profile

22 18 Cambodia: Economic performance ASEAN membership will require further trade liberalisation Cambodia s ASEAN membership (see Political background) will entail further trade liberalisation as it meets its commitments to the ASEAN Free-Trade Area (AFTA). It will have about ten years to reduce tariffs on designated products to between 0% and 5%. In 1996 Cambodia secured most favoured nation (MFN) status from both the US and the EU. This was followed in May 1997 by the award of Generalised System of Preferences (GSP) privileges from the US. Cambodia became an observer member of the World Trade Organisation (WTO) in 1995, and hopes to become a full member. Economic performance Growth is flat in 1998 According to the IMF the economy recorded zero growth in 1998, compared with 1% in The main causes of the slowdown since 1996 were a loss of aid and investment following fighting in July 1997 and the onset of the Asian financial crisis, which further curtailed investment and slowed demand for exports. Industrial output contracted by 3% in 1997 compared with 18% growth in 1996, but picked up slightly in Services and tourism also suffered. Agriculture is still the key to growth in Cambodia, but because of inadequate irrigation and a lack of pesticides it is highly vulnerable. During agriculture growth ranged from unchanged to 6.5%; in 1998 the rice harvest was hit by drought, slowing agricultural growth dramatically to just 0.4%. (See Reference tables 6 to 8 for historical GDP data.) Gross domestic product (% real change) Average GDP Agriculture Industry Services Regional comparisons Laos Thailand Vietnam Source: IMF, Cambodia: Statistical Annex, April Inflation has eased During the inflation rate remained in single digits but inflationary pressure began to build in 1997 and According to the IMF it rose by an average of 14.7% year on year in 1998 compared with 3.2% in Prices climbed sharply in the wake of the July 1997 coup as disruption to retail trade and panic-buying led to shortages of food and other goods. In 1998 a drop in the riel fuelled inflation, resulting in higher import prices in local-currency terms. Poor weather also pushed up prices of agricultural goods. There is a danger that the government will revert to printing money to finance the budget deficit, which would further fuel inflation. Inflationary pressure is likely to remain strong in (See Reference table 9 for inflation trends.) EIU Country Profile The Economist Intelligence Unit Limited 1999