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Kingdom of Cambodia Nation Religion King 7 Statement by Deputy Prime Minister Keat Chhon, MP Minister of Economy and Finance The 19th International Conference on the Future of Asia “Asia’s Search for Steps toward Stronger Ties and Integration” Friday, May 24, 2013, 11:10 am-11: 55 am The Imperial Hotel Tokyo 1. I am very happy to be here today at the 19th Conference on the Future of Asia. I am honored to present, with Dr. Hang Chuon Naron, Permanent Vice Chairman of the Supreme National Economic Council (SNEC), the views of the Royal Government of Cambodia in such distinguished company. This year marks the 60th Anniversary of Diplomatic tie between the Kingdom of Cambodia and Japan. I would like to convey congratulations and warm feeling of friendship of Cambodian people and the Royal Government of Cambodia to the people and the Government of Japan. Current State of Cambodia's Economy 2. During the last two decades since the general elections in 1993, Cambodia, under the leadership of Samdech Prime Minister Hun Sen, has undergone major transformation from a war-torn, least developed country (LDC) to emerge as a middle-income country in the next few years. As you may know, in mid-1990s Samdech Prime Minister Hun Sen launched a “win-win” policy designed to end thirty years of war and integrate all warring factions into the Cambodian society. As the result of this “win-win” policy, the military and political organization of the Khmer Rouge was dismantled. The restoration of peace and political stability at the end of 1998, the integration of Cambodia into ASEAN and the WTO global trading system created unprecedented opportunity for economic reform and social progress. During this period, economic growth averaged 8% per annum. According to the World Bank, Cambodia ranks 10th among 174 countries for best growth during the last decade. Rapid growth has been supported by a steady rise in investment related to exportoriented textile industry and to investment in infrastructure. Foreign direct investment and support by development partners, including Japan, has played a crucial role in Cambodia’s 1 development. In addition, development of the financial sector has been crucial in sustaining this high growth. Financial intermediation increased from 12% to 50% of GDP during the last decade. 3. Cambodia’s economic takeoff has been achieved without building macroeconomic imbalances, as reflected in declining inflation, more competitive exchange rates, and lower public and external debt accumulation. Cambodia’s debt to GDP ratio remains low, at 32% in nominal term in 2013. It is also associated with a faster pace of implementing productivity-enhancing structural reforms and strengthening institutions. 4. More importantly robust economic growth has resulted in rapid reduction in poverty, by the rate of 4.5% per annum on average during the last 8 years, among the best poverty reduction in the world. This impressive poverty reduction was possible due to pro-poor growth that lowered inequality, due to better performance of the agricultural sector. The government’s investment in development priorities – such as rural infrastructure and human resource development – has contributed to the dramatic decline in poverty. 5. After a decade of heavy investment in social and economic infrastructures, Cambodia has experienced rapid improvement in social indicators. Out of the 8 Millenium Development Goal (MDG) targets, Cambodia already achieved 5 before the 2015 deadline, in the area of promoting gender equality and empowering women, reducing child mortality, improving maternal health, combating HIV/AIDS, malaria and other diseases and developing a global partnership for development. We are making progress to achieving universal nine year basic education and poverty reduction as scheduled. In this regard, Cambodia’s growth has been inclusive and an MDG Progress Index ranked Cambodia as the fifth best performer. 6. Looking forward, there remain many challenges facing Cambodian economy, including the concentration of growth in only a few sectors, such as agriculture, garment, tourism and construction. Nevertheless, there have been promising signs of diversification in the manufacturing sector. It is noteworthy that investment from Japan has ushered Cambodia into the era of electronics. Japanese investments increased rapidly from US$20 million in 2010 to US$500 million in 2012. 7. The main challenges of our financial sector include the lack of an adequate and wellcoordinated system of financial supervision, the rapid growth of bank credit to the private sector with limited availability and use of instruments of control, the absence of an interbank market, high level of dollarization limiting effective monetary policy and the central bank’s limited capacity to act as a lender-of-last-resort. 8. The overall macroeconomic outlook remains positive for Cambodia. Real GDP growth is projected to reach about 7% over the medium term. The nominal exchange rate remains stable and inflation is under control. Fiscal consolidation continues and Cambodia is committed to increasing steadily domestic revenue to finance the needs to invest in infrastructure. The overall debt sustainability outlook remains favorable. Plans for Cambodia to Become the Next Emerging Economy in Asia 9. International trade and foreign direct investment are crucial for Cambodia’s industrial upgrade. To maintain strong growth performance and prepare for the establishment of the 2 ASEAN Economic Community by 2015 and developments in the Greater Mekong Subregion (GMS), the Royal Government of Cambodia has prepared an industrial policy in order to build the foundation to compete with other emerging economies in the region, and the rebalancing in global macro-economic situation. The challenge for Cambodia is to catch up with the economic level of the neighboring countries, namely ASEAN nations, and to increase its presence in the global economy. Samdech Prime Minister Hun Sen has announced Cambodia’s vision of achieving the status of high middle income country by 2030 and moving towards developed country by 2050. 10. Cambodia’s future depends on both Asian and global economy. We have witnessed that the share of Asia in the global GDP began to re-emerge. By 2050, Asia is expected to become half of the world GDP. Two trends will emerge: domestic rebalancing, shifting from external to domestic sources of growth, and regional rebalancing, i.e. shifting demand towards south-south cooperation. Cambodia sits in the middle of this growth dynamism. Cambodia has the potential to achieve the high middle-income status by 2030. But it depends on progress with domestic policy reforms and meeting challenges of external sector. 11. In this regard, our strategic objective is to build the foundation of the Cambodia’s selfsustainable manufacturing sector to be part of East Asian production networks, by strengthening industrial potentials through FDI and the development of Special Economic Zones, modernizing agriculture to promote agri-business industry, bringing up domestic manufacturing sector to achieve the global competitiveness, and diversifying our industrial sector to contribute to sustainable economic development. 12. Cambodia is committed to further strengthening macroeconomic policies, improving the business climate and logistics, facilitating trade and cross-border transportation, mobilizing fiscal revenue to increase investment in infrastructure and human capital. Our key priority now is skill training. We will further reform our vocational training system and higher technical education in order to provide skilled labor to investors. 13. We are also working with the international financial institutions to strengthen regulation of the financial sector in order to promote financial stability and intermediation by focusing on effective implementation of risk-adjusted capital adequacy principle and introduction of an interbank market to provide instrument for monetary policy operation. 14. Our objective is to diversify the manufacturing sector from a simple labor-intensive sectordominated, based on garment and footwear, to technology- and labor-intensive sectorcentered, focusing on machinery assembly and processing sectors, and further to knowledge-intensive sector-centered. Japan’s Role in Cambodia’s Economic Transformation 15. During the last two decades, Cambodia has overcome many obstacles and challenges. Japan played an important role in the restoration of peace in Cambodia during the implementation of the 1991 Paris Peace Accord. After the 1993 general elections, Japan has again played a key role in Cambodia’s economic and social development. Now Japan has accompanied the 3 Royal Government of Cambodia’s efforts to promote economic takeoff by encouraging Japanese companies to invest in Cambodia. 16. Japan’s has been the number one ODA provider to Cambodia. Japanese ODA accounts for 20% of the total ODA inflow received by Cambodia, making Japan the biggest donor in the country. During 1992-2012, the Government of Japan has provided a total US$1.5 billion for the development of Cambodia. With this generous support, Cambodia has overcome the difficulties and transformed itself into a country full of peace with improved social order, stability, cooperation and development. They have taken deep roots in the Cambodia’s socio-economic foundation and contributed to rapid expansion of the national economy. I would take this opportunity to comment on key strategic areas that Japan has played a crucial role in Cambodia. 17. First, hard and soft infrastructure development. Japan’s ODA has extensively focused on both hard and soft infrastructures that are important for economic and social development. The construction in Cambodia of three major bridges donated by the Japanese Government: Chrouy Changvar, Kizuna and Neak Leoung bridges marks physical integration of Cambodia into one country in terms of inland transportation. This has also contributed to the construction of the Asian Highway. Moreover, Japan has helped us building port, roads, schools, water supply facilities, power plants, irrigation and flood protection system, hospitals, demining and many others areas. On the soft side, the projects are seen to have good results in term of quality and sustainable management. 18. Second, the influx of Japanese investors into Cambodia that has created thousands of job opportunity for Cambodian youth. Japan’s ODA has prepared the foundation for Japan’s private sector to come and invest in Cambodia. This time, they will not just bring technology and job opportunity, but also know-how, skills development, management techniques and harmonious employer-employee relations, and culture. This is the soft infrastructure, which is another side of the same coin of hard infrastructure in context of Cambodia, whose capacity remains weak. 19. Finally, the extensive supports to human resources development. Hundreds of scholars both within the government and outside have been graduated from Japan under auspices of Japanese government. The large pool of those capable scholars will significantly contribute to development process of this country. My personal experiences show that they have been trained at high qualification and many of them are active and becoming part of decision making in many ministries. Undoubtedly, this is a significant contribution to human resources development in Cambodia. 20. I am grateful that at the policy level, Japan International Cooperation Agency (JICA) has helped us to prepare the inputs into many Cambodian government policy documents. As you may know, Japanese investments have transformed South-East Asia since the 1980s from a backward region into a zone of prosperity. I am happy now to see that since 2010, a new wave of Japanese investors are coming, among others are Minebea, Yasaki, Mikasa and AEON. The coming Japanese FDI will also bring changes to Cambodia’s labor standards, in term of wage, working conditions, training and abiding to labor law. 4 21. It is therefore important to improve and upgrade investment climate in infrastructure as an essential base to promote FDI, especially investment from Japan. Our special attention will be paid to the key infrastructure both for logistics and production such as electricity, water supply, port facilities, and roads and railways. At the same time, actions will be taken to strengthen soft infrastructure, which facilitates maximum use of the physical infrastructures. This is especially important for the logistics where transaction at the border or ports may significantly affect the time and cost required for the logistics. We will also undertake proactive policy support to ensure the effective operation of Special Economic Zones. 22. It could be said that we have witnessed the nexus between Japanese ODA and FDI. In Cambodia we could see the mushrooming of Japanese factories and companies around Phnom Penh, in addition to infrastructures, schools and hospitals that have been provided by Japan. I can conclude that the works of JICA and the Japanese Government have profound impacts on social and economic development in Cambodia, particular during the most recent years. On behalf of the Royal Government of Cambodia and the Cambodian people, I would like to express our heart-felt thanks to the Government and People of Japan and JICA for providing their continuous support for the causes of peace, stability, development and prosperity of Cambodia and the region. Japan-ASEAN Strategic Relations and the Regional Trade and Financial Architecture 23. This year marks the 40th anniversary of relations between Japan and ASEAN. For ASEAN countries, growing ties with Japan and other countries in the region are important. In the past Japan played a critical role in industrializing South East Asia with the transfer of Japanese technology to local corporations. At present, Japan has introduced Cambodia into the regional supply chain network. In this regard, Cambodia is pleased to note that the relationships between ASEAN and Japan have developed at all levels, and Japan has become ASEAN’s strategic partner. Hence, we should continue to actively strengthen our cooperation and coordination in order to further the existing cooperation mechanisms, such as ASEAN+1, ASEAN+3, East Asia Summit, and other regional and sub-regional cooperation initiatives such as the Cambodia-Laos-Myanmar-Vietnam (CLMV) summit, the Cambodia-Laos-Vietnam (CLV) summit and the Ayeyawady-Chao Phraya-Mekong Economic Cooperation Strategy (ACMECS) summit, in which Japan has been actively involved. Moreover, I think we should start considering of East Asia community building from now on. 24. Concerning the building of regional economic architecture, strengthening the Chiang Mai Initiative Multilateralization (CMIM), as both crisis resolution and crisis prevention facility, has been crucial in maintaining economic stability in the region given remaining uncertainties surrounding the global economy. In this regard, the institutionalization of AMRO as an international organization will further strengthen macroeconomic and financial surveillance of the region, particularly in its mandate to support the CMIM. Furthermore, ASEAN+3 countries have also reaffirmed their commitment to further strengthening the CMIM as part of the regional financial safety net by enhancing the use of local currencies for settlement in trade or capital transactions, and reducing the volatility of capital flows in and out of the region and by establishing an effective cooperative relationship with the 5 International Monetary Fund (IMF) in the areas of surveillance, liquidity support arrangement and capacity development. 25. At the same time, I am pleased to note that the negotiation for a Regional Comprehensive Economic Partnership (RCEP) were formally launched by Leaders from ASEAN Member States and the ASEAN Free Trade Area Partners (Australia, China, India, Japan, Korea and New Zealand), in Phnom Penh, Cambodia, during East Asia Summit in November 2012. I believe that this is a significant progress for ASEAN and the other six partners in the effort to play a leading role in the emerging regional architecture. RCEP goes beyond FTA to incorporate trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, and dispute settlement. The key point in this issue is to ensure that RCEP will be better than the existing FTAs by recognizing the individual and diverse circumstances of all participating countries. 26. Infrastructure is vital to regional integration. Therefore, the full establishment of the ASEAN Infrastructure Fund is an integral component of ASEAN’s efforts to strengthen regional physical connectivity, and narrow the infrastructure development gap in ASEAN. We are pleased that Japan, China and Korea have actively supported the AIF in order to increase investment in infrastructure in the ASEAN region. The Challenges to the Asian Century 27. More importantly, Asia’s rise will face with some challenges. As we all know, peace and stability constitute prerequisites for Asia’s continued prosperity in the future. Therefore, we should strengthen regional mechanism to maintain peace, stability and mutual understanding by adhering to the principles of international law, as enshrined in the Charter of the United Nations. 28. In conclusion, during the last two decades, Cambodia has been transformed from a wartorn Least-Developed Country (LDC) into a low Middle-Income Country (MIC). Sitting in the middle of Asia’s growth dynamics, we aspire to move up to the level of high middle income country by 2030 by further integrating into regional and global economy, investing in infrastructure, attracting FDI and reforming economic and political institutions. Therefore, all of us need a peaceful, prosperous and dynamic Asia. Japan, as a regional economic powerhouse, should continue to play a leading role in Asian to promote economic growth in the flying geese paradigm as proposed by a Japanese scholar, Akamatsu, in the 1960s. 29. Thank you for your kind attention. Myself and Dr. Hang Chuon Naron are happy to answer you questions. 6