Cambodia's Central Bank to massively print money

KHMER INTELLIGENCE NEWS

25 March 2009

Japan suspends financing of major bridge (1)

The $70-million Neak Loeung Bridge on the Mekong River will not be completed in 2010 as originally scheduled. No works has started yet for the construction of this major bridge on National Road # 1 from Phnom Penh to Ho Chi Minh City. Japan, which has accepted to finance the project, now refuses to make any disbursement as long as the Cambodian government is unable to reach an agreement with local residents who must be evicted. The agreement is related to financial compensation to be given to those villagers whose homes must be removed because located on the construction site. Corrupt government officials are used to evicting villagers without proper compensation, the former stealing allowances earmarked for the latter.

Former Khmer Rouge soldiers defending border with Thailand (2)

The ongoing Khmer Rouge Tribunal influences Cambodia's defense policy. The bulk of the Cambodian armed forces recently sent to defend the border with Thailand is made up of former Khmer Rouge soldiers. Because the current Phnom Penh government thinks that prosecuting former Khmer Rouge leaders could jeopardize national unity and political stability, it has second thoughts when dispatching former Khmer Rouge military units, now incorporated within the Royal Cambodian Armed Forces, to face Thai troops along the border. The government wants to ensure that former Khmer Rouge soldiers would not be able to defend their former leaders facing prosecution if there were any appeal to do so. Government strategists remember that the Khmer Rouge had vigorously fought against the Hun Sen regime from 1979 to 1998.

China unhappy with Hun Sen for discarding Beijing-financed building (2)

China is not happy with Cambodian Prime Minister Hun Sen following the latter's refusal to use a brand new building which has just been completed with Chinese technical and financial assistance. The impressive building was destined and designed to be the seat of the Council of Ministers. But a few days before its scheduled inauguration Hun Sen surprisingly said he did not like the building layout. But why didn't he let the Chinese know when they first showed him the blueprints? The fact is that some influential fortune tellers very lately asserted that the building had shapes and features that make it look like a mausoleum, which is a bad harbinger for Hun Sen's political fortune.

Worsening corruption at Customs Department (1)

Corruption is expected to worsen at the Customs Department in the next few months with the imminent end of the contract on Pre-Shipment Inspection (PSI) between the Finance Ministry and BIVAC. French-based BIVAC replaced Swiss-based SGS in 2006 as Cambodia's mandated PSI agency. PSI is inspection of goods being exported prior to the shipment by a mandated agency. PSI services cover:

- verifying the quality and quantity of imports;

- verifying the accuracy of tariff codes classification;

- assisting Customs with collecting the correct amount of duties & taxes;

- providing Customs with an independent opinion of the dutiable value for customs purposes;

- computing the correct duties and taxes payable; and

- providing Customs with an up-to-date price database.

Without proper PSI services, first introduced in Cambodia by then Finance Minister Sam Rainsy in the early 1990's, Cambodia will lose larger and larger amounts of customs revenue because of corruption.

Cambodia's Central Bank to massively print money (3)

Several factors will lead the National Bank of Cambodia (NBC) to massively print money (bank notes) in the next few months:

- The government is facing a steep fall in revenue because of the economic recession compounded by increasing corruption. See news above ¡ÈWorsening corruption at Customs Department¡É and ¡ÈSharp drop in customs revenue¡É (KI News, 11 March 2009).

- The national budget cannot be implemented for lack of resources. See ¡ÈState budget for 2009 in jeopardy¡É (KI News, 11 March 2009).

- State bankruptcy is looming. See ¡ÈForeign currency reserves evaporating¡É (KI News, 25 March 2009).

- The government refuses to recognize the seriousness of the situation and to conceive any economic stimulus package to counter the ongoing crisis.

- Without a formal request for financial assistance to counter the crisis and a credible economic stimulus package, international financial institutions such as the IMF cannot adequately help.

Knowing that its piecemeal and ineffective approach to the worsening crisis could lead to social unrest and political instability as predicted by the Economist Intelligence Unit, the government can only ask the very docile and secretive NBC to massively print money as a short-term solution to the country's woes.

_ _ _ _ _ _ _

ARCHIVES

25 March 2009

Foreign currency reserves evaporating (2)
The National Bank of Cambodia has seen its foreign currency reserves evaporate. NBC Governor Chea Chanto indicated at a recent Council of Ministers meeting that the country is seriously suffering from a rapidly deteriorating current account balance (sharp drop in exports and revenue from tourism) and capital outflows (reversal of foreign investment inflows). Taking also into account fiscal revenue shortfalls and subsequent budgetary problems, the government will be unable to meet its obligations in the next few months. See Sharp drop in customs revenue and State budget for 2009 in jeopardy (KI News, 11 March 2009).

11 March 2009

Sharp drop in customs revenue (2)
In the 2008 state budget, the Customs Department accounted for over 60 percent of all tax revenue, which is a relatively high figure in the region. For 2009, it should collect US$585 million, a figure that now looks impossible to achieve given the ongoing economic slowdown.
For the first two months of 2009, customs revenue reached only US$64 million compared to US$86 million for the same period last year, which represents a 25 percent drop [adjusted for the collection of a US$7 million duty pertaining to 2008].

State budget for 2009 in jeopardy (2)
The government will soon be obliged to revise downward the state budget for 2009 that was adopted last December because it is unable to collect the projected revenue. See above news ¡ Sharp drop in customs revenue while noting that the fall in revenue also holds for other sources of income. The projected 2009 budget amounts to US$1.75 billion compared to US$1.37 billion for the 2008 budget, representing a 28 percent increase. This 28 percent increase will likely evaporate and be replaced by a decrease instead. Cambodia is facing the world economic crisis with a collapsing budget, let alone a strong budget with an appropriate economic stimulus package.