VZCZCXRO3715
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHPF #1156/01 2540930
ZNR UUUUU ZZH
P 110930Z SEP 07
FM AMEMBASSY PHNOM PENH
TO RUEHC/SECSTATE WASHINGTON DC PRIORITY
INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RUEHC/DEPT OF LABOR WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY

UNCLAS SECTION 01 OF 03 PHNOM PENH 001156 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EAP/MLS, EB/TPP/ABT--GARY CLEMENTS, DRL/IL--MARK 
MITTELHAUSER 
STATE PLEASE PASS TO USTR FOR DAVID BISBEE AND CAROYL MILLER 
COMMERCE FOR ITA/OTEXA MARIA D'ANDREA 
 
E.O. 12958: N/A 
TAGS: ECON ELAB KTEX EAIR ELTN EAGR EFIN CB
SUBJECT: STEADY AS SHE GOES:  CAMBODIA'S CONTINUED ECONOMIC 
GROWTH HIGHLIGHTED AT GOVERNMENT-PRIVATE SECTOR FORUM 
 
 
¶1.  Summary.  Business leaders and government officials 
gathered to tout economic reforms already made and highlight 
areas needing further attention during the 12th 
Government-Private Sector Forum, held September 5. 
Cambodia's economic growth and stability remain impressive, 
as the country expects GDP growth to top 9% this year while 
inflation should remain near 5%.  Tourist arrivals are up 
20%, and the government plans to create a new national 
airline.  Bankers highlighted key prerequisites to the 
successful opening of a stock market, optimistically slated 
for 2009.  Garment industry representatives lamented their 
labor woes, including the proliferation of unions and 
frequent illegal strikes.  The Prime Minister ordered Defense 
Minister Tea Banh to put an end to the practice of military 
officials misappropriating military vehicles for transporting 
paying civilian customers.  Hun Sen reminded the audience 
that, in Cambodia, the military is firmly under government 
control--and not above the law.  End Summary. 
 
¶2.  The biannual Private Sector Forum is a plenary cabinet 
meeting open to the business community and broadcast live on 
all Cambodian television stations.  Private sector co-chairs 
of eight working groups gave presentations on progress made 
on issues affecting the business environment and seized the 
opportunity of the Prime Minister's undivided attention to 
ask him to intervene on a variety of issues, from the 
proliferation of trade unions to the construction of a 
national highway. 
 
Cambodia Maintains High Growth and Low Inflation 
--------------------------------------------- --- 
 
¶3.  Finance Minister Keat Chhon opened the forum by 
highlighting Cambodia's continued macroeconomic success. 
After growing at 13.5% in 2005 and 10.8% in 2006, Cambodia's 
GDP growth is expected to remain strong at 9.1% for 2007. 
Low inflation levels--averaging less than 5% per year--steady 
exchange rates, and consistently growing international 
reserves all contribute to Cambodia's rosy economic picture, 
Chhon noted. 
 
Tourism Up 20% as New Roads and Airline Aim to Push Tourism 
Even Higher 
--------------------------------------------- -------------- 
 
¶4.  Cambodia received nearly 1 million visitors in the first 
six months of 2007, a nearly 20% increase over the previous 
year, Ho Vandy, President of the Cambodia Association of 
Travel Agents, said in his speech on behalf of the Tourism 
Working Group.  Tourism from the EU is growing particularly 
quickly this year, he noted.  Vandy called for the PM to push 
the delayed construction of a highway from Poipet to Siem 
Reap, a road that would open a direct overland route from 
Thailand to Angkor Wat. 
 
¶5.  Hun Sen encouraged progress on the draft Law on Tourism, 
directing the Ministry of Tourism to submit a draft of the 
law to the Ministry of Commerce by the end of September.  He 
also criticized the National Assembly for being slow to pass 
legislation, and at two different points during the forum, 
called on the parliament to work longer hours and pass 
legislation more quickly.  Ho Vandy publicized a recent 
decision by the Ministry of Tourism to re-establish a 
national airline.  The PM was lukewarm on the proposal, 
noting that if the new airline would only lose money like 
Cambodia's previous flag carrier, Royal Air Cambodge, it 
would be better to build a new road instead. 
 
Foreigners' Property Rights Broadened 
------------------------------------- 
 
¶6.  Speaking on behalf the working group on law, tax, and 
good governance, Amcit lawyer Brett Sciaroni praised the PM's 
recent signing of a sub-decree on mortgages, long-term 
leases, and concessions.  Sciaroni, who also has Cambodian 
citizenship, noted that the Law on Investment was amended in 
2005 to allow foreigners--who are constitutionally forbidden 
from owning land--to own buildings and other fixed assets. 
However, implementing regulations had not been issued until 
recently, and thus the amendment had not been 
operationalized.  In addition to welcoming the new 
sub-decree, Sciaroni urged the government to take the issue 
one step further by allowing foreigners to own apartments in 
buildings, something that is permitted in many other Asian 
countries, he noted.  The PM referred the issue to the 
 
PHNOM PENH 00001156  002 OF 003 
 
 
Constitutional Council. 
 
Access to Finance a Key Stumbling Block 
--------------------------------------- 
 
¶7.  Both agriculture tycoon Mong Reththy and construction and 
automotive magnate Te Taing Por highlighted lack of access to 
finance as a key impediment to development in their sectors. 
Speaking on behalf of the agriculture working group, Rethy 
said that commercial banks are reluctant to lend for 
agricultural or agro-industrial investments because of 
confusion regarding agricultural licensing procedures, the 
relatively high risk of non-perfomance, and poor National 
Bank provisions for non-payment.  Taing Por, who represented 
the manufacturing and small and medium enterprises (SME) 
working group, urged the government to establish a credit 
guarantee fund especially for SMEs. 
 
¶8.  Both men also called for greater progress on land 
registration.  Taing Por noted that land is so widely used as 
collateral in Cambodia that speeding the land registration 
system is critical to making credit accessible to more 
entrepreneurs.  Reththy referred to recent cases where 
government officials had approved land transactions when the 
seller did not have clear rights to the land, and called on 
the government to continue efforts to provide transparency in 
land transactions.  In response, the PM noted that lack of 
transparency in land dealings can have expensive 
consequences, recalling that he recently ordered a private 
company to demolish newly constructed buildings and restore a 
partially drained lake.  He indicated a desire to tackle the 
frequent land disputes in Cambodia, saying, "The Cambodian 
government is starting its offensive on land issues because a 
good offense is the best defense." 
 
Bankers Urge Syndicated Lending, More Regulation 
--------------------------------------------- --- 
 
¶9.  New investment in Cambodia is driving several new 
financial sector initiatives, Charles Vann, Deputy General 
Manager of Cambodia's largest bank, reported.  The banking 
industry and the National Bank support the introduction of 
syndicated loans, large loans in which a group of banks work 
together to provide funds, thereby sharing the risk of 
exposure.  Vann highlighted the many foundational 
institutions and practices that should be in place before the 
country's stock market is launched:  an interbank market, a 
strong and well-trusted regulatory environment, human 
capacity in the banking industry and among financial 
regulators, and passage of laws on accounting and auditing. 
(Note:  The government's plans to open a stock market in 2009 
strike many in the financial sector as premature and somewhat 
risky.  End Note.)  The Prime Minister noted the remarkable 
transformation of Cambodia's financial sector, saying, "The 
country which abolished cash (during the Khmer Rouge) will 
soon have a modern banking and stock market system." 
 
PM Orders Military to Stop Using Vehicles for Private 
Transport 
--------------------------------------------- --------------- 
 
¶10.  In response to an appeal from transportation working 
group chair So Nguon, the PM sternly ordered Defense Minister 
Tea Banh to put an end to the practice of military officers 
using official vehicles for private transport.  Nguon had 
complained that private bus lines couldn't compete with the 
misappropriated military vehicles.  The PM seemed frustrated 
as he noted that the government had recently spent more than 
USD 4 million to buy new trucks and other equipment for the 
military.  Several times he firmly stated that while in other 
countries the military may control the government, in 
Cambodia, the military was under his control. 
 
Too Many Unions, Too Many Illegal Strikes 
----------------------------------------- 
 
¶11.  Members of the trade facilitation and industrial 
relations working groups were unanimous in their views that 
the proliferation of trade unions and lack of legal penalties 
for illegal strikes are harming the garment industry.  Van 
Sou Ieng, chairman of the Garment Manufacturers Association 
of Cambodia, noted that the Cambodian garment sector grew by 
17% in the first seven months of 2007 and now employs more 
than 350,000 workers.  Cambodia is the 9th largest exporter 
of apparel to the U.S.  Yet labor problems threaten the 
 
PHNOM PENH 00001156  003 OF 003 
 
 
sector's competitiveness.  There are more than 1,100 
registered unions for just 300 factories.  The competition of 
unions within factories fuels labor unrest and forces factory 
managers to spend an inordinate amount of time negotiating 
with multiple unions.  Sou Ieng also decried the lack of 
legal reprisal for workers who strike illegally, and called 
for the government to protect workers who want to work from 
harassment by striking colleagues.  (Note:  Cambodian labor 
law provides for a fine of 61 to 90 times the daily base wage 
for union leaders who engage in "activities extraneous to 
their exclusive objective," presumably covering illegal 
actions such as harassment, intimidation, and illegal 
strikes.  End Note.) 
 
¶12.  Industrial relations working group co-chair Nang Sothy 
noted that the working group had agreed to recommend 
clarifying legal requirements for short term contracts via an 
amendment to the law rather than a sub-decree.  (Comment: 
The garment industry would like to be able to hire workers on 
one short-term contract after another for an indefinite 
period of time.  The Arbitration Council has ruled that a 
legal provision limiting short term contracts to two years 
applies to serial short term contracts as well as to a single 
contract.  Labor observers feared that issuing a sub-decree 
to overturn this ruling would not only open the door to more 
labor abuses generated by the job insecurity of endless short 
term contracts, but would also set a dangerous precedent of a 
mere sub-decree overturning an Arbitration Council ruling. 
End comment.) 
 
¶13.  The Prime Minister, who is often sympathetic to the 
labor woes of the garment industry, seemed to take special 
care not to offend workers in his response.  "Respect for 
worker's rights is part of human rights," he said.  He 
thanked the workers and unions who supported a recent 
amendment to the Labor Law which established a night shift 
wage of 130% of normal daily wages.  He appealed to workers 
and employers to resolve problems without resorting to 
strikes.  However, he seemed a bit confused by the proposal 
to implement legal procedures for certifying one factory as 
"most representative"--part of the effort to reduce 
competition among multiple unions at one factory--incorrectly 
stating that this would be unconstitutional. 
 
Comment 
------- 
 
¶14.  This Private Sector Forum was perhaps more notable for 
what it lacked than what it contained.  Absent from this 
year's meeting were Hun Sen's histrionics and grand gestures. 
 In past years the PM has seized on the opportunity of having 
a captive audience and a live TV broadcast to go on the 
attack about unrelated issues, such as UN Human Rights 
representative Yash Ghai, the World Bank's corruption 
allegations, or criticism of the border treaty with Vietnam. 
The Private Sector Forum has also historically been a moment 
for the PM to grant big favors, such as extending the garment 
sector's tax holiday by two years.  Last week's event saw 
none of these theatrical moments, and instead was refreshing 
as the PM, possibly with an eye toward upcoming national 
elections, took reasonable stances on all manner of private 
sector issues. 
MUSSOMELI