Cambodia must decide its own path of progress
Din Merican, an economist with 30 years experience in the banking and private
sectors, explores precedents and pitfalls on the Cambodian road to development.
NATIONAL economic development is a complex and human, hence a long term, process.
The results of that process are not predictable, and the outcomes neither certain,
precise nor as controllable as we would like them to be. As a process of change,
it involves, leaving aside the considerations about efficient use of factors of production
(land, labour, capital, management and entrepreneurship), many actors from national
leaders, local politicians and leaders to administrators and technocrats at various
levels of Government to the private sector to people whose lives are directly affected
by changes induced by development.
Donor countries, multilateral and regional agencies, and NGOs and other “external”
groups can play a decisive support role by providing finance, expertise and experience.
In short, development involves a partnership of all concerned with national leaders
and those at the grassroots level making difficult choices with the consent and on
behalf of people. This is then a democratic process.
UNDP and the Cambodian Adjustment Programme (CAP)
The fact that Cambodia today has a national vision, as embodied in the National
Programme (NPRD) is a major step forward. The greater challenge will be for leaders
of this Second Kingdom to promote this vision to ordinary Cambodians in the outer
reaches of Mondulkiri, Ratanakiri and elsewhere and demonstrate to them in small
and practical ways what that means to their lives and income, for better health,
good roads, irrigation and clean water and education for the children. I am encouraged
to see some progress in these areas during my recent weekend visits to Kompong Cham
and Kandal. The various projects there are making development relevant and meaningful,
and encourage active participation of Cambodians at ground level up.
In a letter to the Editor to the Phnom Penh Post (March 22-April 4, 1996), UNDP Resident
Representative André Klap explained his organisation’s approach to development.
Under the label Cambodian Adjustment Programme (CAP), this approach to macroeconomic
policy and management is “to be supportive of achieving the overall goal of
sustainable human development, that is equitable, and sustainable development”.
UNDP’s cooperative efforts with the Royal Government and other parties is “…
geared towards meeting the real-life needs of people in Cambodia”. Their emphasis
is on rural development and poverty alleviation through the development of small
and medium scale enterprises and agriculture.
UNDP is obviously listening and responding to the national priorities of the Kingdom.
Its approach reflects an understanding of development as a complex and human process
of economic change and of the need to operate within a cultural context. This appears
to be a major departure from the IMF/IBRD structural adjustment paradigm. To some
extent, the UNDP position reflects the ongoing debate, including philosophical or
ideological differences, among national governments, international and regional development
More importantly, the UNDP position makes the point that while we may all agree on
the importance and benefits of development and the consequences of various economic
growth stategies, we often disagree ideologically and professionally on how to bring
about development (approaches, strategies and tactics).
It is quite risky to be dogmatic and inflexible, or to champion a paticular approach
because it is in vogue, or supports and promotes Anglo-American economic liberalism.
Development is too important a process. Since it affects the lives of people in a
country or a region, it cannot be subject to experimentation and racidal shifts in
economic thinking which often surreptitiously find their way into appoaches of agents
of development. In so far as IMF stabilisation programmes are concerned, Robert Wade
in his book, Governing the Market quoted the conclusion of an IMF study by M. Khan
and M. Knight (1985) which states that “Little empical evidence exists on the
long-run effects of Fund programs, and none at all on the effects of various combinations
of stabilization policies on economic development… Even the informal evidence that
is available is ambivalent on the relationship between financial stability and economic
External Development Dimension
Development is also about formulating strategies in the areas of industrialisation,
trade and investment policy and building national capacities to compete in an open
global trading environment. For Cambodia, which needs to integrate into and also
to benefit from its membership of ASEAN and AFTA (Asean Free Trade Area), these matters
take on an urgency of thier own. There are no sraight forward answers to these matters.
Even explanations of how East Asian economies like Japan, South Korea, Taiwan, Hong
Kong, Singapore, Malaysia, Thailand and Indonesia (HPAEs) have been able to sustain
high rates of eocnomic growth since the mid-1960s are mirred in controversy, and
subject to different interpretations.
In September 1993, the World Bank published The East Asian Miracle: Economic Growth
and Public Policy. In this report, the Bank stated that the High Performing Asian
economies of Japan, South Korea, Taiwan, Hong Kong, and Singapore (the First Tier
NICs) recorded the highest economic growth rates in the world between 1965 and 1990
on account of superior physical (mainly infrastructure) and human capital, the implementation
of similar market friendly economic policies and by getting the basics right (that
is, successful macroeconomic policies a la structural adjustment), especially getting
prices right (that is, no price distortions to impede efficient allocation of scarce
resources in the economy).
The report acknowledges that Japan, South Korea and Taiwan pursued indistrial policy
and other froms of statist intervention, including the promotion of selected strategic
industries and directed credit and long term bank loans on concessional tems. These
countries, according to the Bank, faced special historical, poitical and cultural
factors which permitted competent, meritocratic, powerful and insulated technocrats
working in close collaboration with equally powerful and politically influential
captains of industry to successfully pursue industrial policy.
Their success story is not likely to be repeated by late industrializers like Burma,
Cambodia, or Vietnam because changes in domestic and international conditions make
it difficult for industrial policies to be right. The Bank stated that the economic
successes of Malaysia, Thailand and Indonesia (the second tier NICs) show that rapid
economic growth and industrialisation can be achieved without industrial policy.
These countries have adopted strategies of courting foreign direct investment (FDI)
and creating incentives for exporters without adopting policies of Japanese-style
financial repession and industrial targetting. They have thus shown that by relying
on market forces and minimal statist interventions in trade, finance, technology
and human resources development, rapid economic growth can be achieved. In fact,
industrial policy, according to the Bank, is at best ambiguous.
There is little doubt that the manufacturing sector in Malaysia, Thailand and Indonesia
has expanded rapidly. Much of that growth is resource-based and export-induced, aided
by relatively cheap labour. Furthermore, these countries have benefitted from the
restructuring and transfer of Japanese industries following the oil shocks of 1973
and 1979 and the yen appreciations of the mid-1980s and the 1990s. Increasingly,
Japan has been working with the second tier NICs and others in Southeast Asia to
promote an orderly and sequential transfer of industries with changing comparative
advantages. This means using Japanese factories in Southeast Asia as platforms for
export to Japan and other industrialized countries. There is no doubt that Japanese
FDIs and the Japanese economic model have contributed the rapid economic growth of
the second tier NICs and Southeast Asia in the last 30 years. According to Jomo,
“Both the Japanese Government and the private sector see southeast Asia has
increasingly important … for Japanese industry… The Government has recently encouraged
others to draw lessons from and emulate its domestic experience with industrial policy.”
(Jomo, K.S. et. al, University of Malaya, Kuala Lumpur, 1996).
Industrial policy is important and should be an integral part of planning for
national economic development. Creating an environment favorable for exports, providing
financial and support services for small and medium size companies wishing to export,
improving trade related aspects of the civil service (e.g. MATRADE in Malaysia and
Trade Development Board in Singapore), promoting export driven FDI (e.g. MIDA in
Malaysia, EDB in Singapore) and building infrastructure that encourage and facilitate
exports are pre-conditions for the successful export-led growth of the economies
of Singapore and the second tier NIEs in Southeast Asia.
The Singapore experience, in addition, emphasizes the point that strong, future-oriented,
dedicated and honest political leadership combined with a responsive, disciplined
and efficient technocracy has delivered sustained economic growth over three decades.
Quality of governance which is, in part, a consequence backed by competitive reward
systems and uncompromising performance standards is a major factor for economic growth.
Malaysia has also similiar experiences, although the political, social, cultural
and economic circumstances of both countries have deviated from a common history,
and are today different. Both countries have, however, been able to make market economics
serve the national interest. In my view, exclusive total reliance on the prescriptions
of neo-classical economics could not have produced such economic growth on a sustained
basis. Both countries are not resting on their laurels; their search for ways and
means to managing success continues.
In making the above comments, I have not dismissed the importance of the domestic
private sector, trans-national corporations, foreign entrepreneurs and foreign talent
in development. The private sector can be the engine of growth, but this cannot just
be an article of faith. The private sector must be encouraged and sometimes directed
to invest. It would not be that growth engine if Government did not deliver “public
goods and services” (rule of law and security, physical infrastructure conducive
industrial relations climate, etc) or was directionless (with no clearly articulated
and committed national vision).
Private sector companies have a different orientation (profit motivated) and subject
to pressures from sharehlders and other investors and are, therefore, quite incapable
of taking a long term national perspective. For these reasons, it is not prudent
to rely completely on the private sector. In countries like Singapore and Malaysia
commercially managed state owned enterprises (SOEs) have been used to spearhead development
in strategic areas where the private sector on its own is unwilling to invest. In
a number of instances, these SOEs have performed better in terms of return on investment
than multinational companies.
The temptation is to emulate, as the Bank in its study suggests, the second tier
NIC model. The Kingdom should proceed with caution as these countries have had a
head start. By all means, learn from the diversity of the experiences and policies
of these countries.
For sustainable economic growth, a premium should be placed on the rule of law and
good governance. It means strong democratic government, an independent judiciary,
and efficient, accountable and development oriented professional civil service. Some
consideration should be given to the creation of a viable domestic private sector.
Here credit must be given to the Ministry of Commerce for the formation of the Cambodian
Chamber of Commerce. The Chamber working with the Ministry can be an instrument for
future public/private sector consultations on matters of economic and financial policy.
Reform of the financial and banking system, which is being undertaken in collaboration
with the IMF, should be accelerated. It is important that these banks and financial
institutions are real intermediaries between savers and borrowers and also will be
responsive to the development needs of the Kingdom, not just to financing trade,
land speculation, gambling and conspicious consumption.
Political stability is vital. External stability will be provided by the Kingdom’s
membership in ASEAN, but internal stability and security will be entirely in the
hands of Cambodian leaders. The time has come for Cambodia to “get organized”
and more focused on development. Cambodians must be ready to seize opportunities
in ASEAN and East Asia which are poised for continued high economic growth. For at
least the first decade of re-newed Cambodian development, active involvement of Government
and SOEs in its market driven economy is unavoidable and even desirable, with apologies
to the proponents of “the private sector as the engine of growth”.
Because Cambodia has a nascent domestic private sector and over-reliance on foreign
investors, especially multinational companies is not likely to be a preferred political
option, the role of the Cambodian Government is more than that of a “strategist,
manager and facilitator”. It is, therefore, a matter of top priority that existing
reforms of Government machinery and SOEs be vigorously pursued so that institutional
capacity can be created for the Government to play its crucial role in development,
and be a strategic partner with domestic and foreign investors in the industrialisation
of the Second Kingdom.
Finally, in order to sustain economic growth, the maladies of Europe must be prevented
from ever taking root in Cambodia. Senior Minister Lee Kuan Yew of Singapore attributed
the decline of economies of Europe to the “high-spending, low-savings, high-welfare,
low-investments syndrome” .
The writer wishes to acknowledge his intellectual debt of gratitude to Dr.
Jomo K. Sundaram, Dr K. Kannan, Dr Waldon Bello, Dr Kao Kim Hourn, Dr Aun Poen Moniroth,
Dr Pat Darith and Mr. Predeep Kutty. He, however, remains solely responsible for
the views expressed and the position taken in this article.