VZCZCXRO1465
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHPF #0799 2691214
ZNR UUUUU ZZH
P 251214Z SEP 08
FM AMEMBASSY PHNOM PENH
TO RUEHC/SECSTATE WASHDC PRIORITY 9940
INFO RUCNASE/ASEAN MEMBER COLLECTIVE

UNCLAS PHNOM PENH 000799 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EAP/MLS, EEB, EAP FOR DAS MARCIEL 
DEPT PASS USAID FOR ASIA BUREAU 
DEPT PASS USTR FOR DAVID BISBEE 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD CB
SUBJECT: LIMITED IMPACT OF U.S. FINANCIAL CRISIS IN 
CAMBODIA, BUT GDP GROWTH THREATENED 
 
¶1.  (SBU) Summary:  The U.S. financial crisis has had little 
impact on Cambodia's emerging financial sector.   However, 
the U.S. and global financial woes will likely slow growth in 
Cambodia's major garment and tourism sectors, with 
potentially severe consequences for Cambodia's recent robust 
economic growth rates. End Summary. 
 
Financial Sector Unshaken, But Possibly Stirred 
--------------------------------------------- -- 
 
¶2.  (SBU) Cambodia's emerging banking sector is relatively 
insulated from the turmoil in the U.S. financial system. 
While still relatively unexposed, Cambodia's banking sector 
could share in the global hangover from the troubles in the 
U.S. financial sector.  An influx of foreign capital has 
helped to spur rapid growth within the banking sector over 
the past few years.  Economic experts warn that if investors' 
overseas assets are affected by the financial crisis, foreign 
direct investment and other capital flows into the economy 
could dry up.  Much of the growth in credit lending is linked 
to the booming real estate market.  Should FDI slow, experts 
are concerned that construction projects may falter, which 
could in turn have negative impact on banks' loan portfolios. 
 
U.S. Slowdown Hurts Key Sectors 
------------------------------- 
 
¶3.  (SBU) Most significantly, the downturn in the U.S. 
economy is likely to result in reduced demand for garment 
exports and slow growth in the tourism sector.  Cambodia's 
double digit economic growth is heavily dependent on 
expansion in the garment and tourism industries.  The U.S. is 
Cambodia's single largest trading partner, accounting for 60 
percent of total exports in 2007.  The slowdown in the U.S. 
economy has contributed to projections that GDP growth will 
slow to 7 percent in 2008, down from 10.2 percent in 2007. 
U.S. demand for garment exports, accounting for 70 percent of 
exports in this key sector last year, fell slightly in the 
first six months of the year.  The reduction in demand for 
exports comes at a time of increased worry over Cambodia's 
ability to compete with China and Vietnam's garment 
industries.  A continued downturn in the U.S. would have 
significant consequences for U.S. orders of Cambodian 
garments. 
 
¶4.  (SBU) Concerns over the U.S. financial crisis are likely 
to stem the tide of tourists visiting Cambodia.  The tourism 
sector grew 10.2 percent in 2007, with foreign tourist 
topping two million, generating revenues of $1.4 billion. 
Among Cambodia's two million tourists in 2007, 15.5 percent 
came from the U.S., the U.K., and France.  As households in 
the U.S. and Europe worry about financial uncertainties, the 
tourism industry fears that many will opt to forego 
long-distance travel.  Although visitor numbers had grown 10 
percent, year-on-year through August, 2008, the rate of 
increase was weak, with package tours coming via Thailand 
falling dramatically.  A continued downturn would hamstring 
the expansion of this vital sector. 
 
¶5.  (SBU) Comment:  While secondary effects of the turmoil in 
U.S. financial markets may not be felt for some time, any 
prolonged recession in the U.S. economy would have severe 
consequences for Cambodia's economic development.  As such, 
Cambodian officials are keenly attentive to USG measures to 
strengthen the U.S. economy. 
CAMPBELL