Silviase/jgov_v1.4_full_ann huggingface dataset:
to decide the prices to raise farmers' incentives for production" in the same policy.

After that, the following modifications were added:

(1) Substantial price liberalization was achieved. As the Ministry of Agriculture regularly announced the public price of rice, it is used only as an index. Prices of most goods and services (with the exception of fertilizer) were to be decided by the market.

(2) The land tax was eliminated completely in 1992. This tax had been continued since 1983, and various tax rates had been imposed based on classification of land used for rice.

(3) Import taxes on agricultural inputs were eliminated for 1990/92.

(4) As price liberalization was achieved in the market, there had also been a practice that farmers had to sell products to the government at below market price, but this practice was abolished in 1992.

## 2 -2 Reform in Commerce and Industry

## 2 -2-1 Reform of State Enterprises

## (1) Financial Autonomy

The government introduced a new system regarding the financial autonomy of state-owned enterprises (SOEs) in late 1989. SOEs were required to become independent financially and the state suspended payment of subsidies by this system. Instead, they could keep after-tax profit and return only half the amortization to the state. They would look for commercial financing from the banks. They also had to pay taxes as private enterprises.

However, the state has maintained the strict control regarding SOEs' investment and foreign exchange expenditures. SOEs have to get permission from authorities when they invest in or purchase equipment and spare parts, even if they use their own funds. They have also been required permission to borrow money from banks, even for small sums. Foreign money that SOEs earned has to be deposited, and they are required to use foreign money along the national plan even if they want to use foreign money for purchasing materials, parts and equipment.

Therefore, the financial autonomy of SOEs from the state has not yet been substantially achieved.

## (2) Pricing

The government has continued to regulate the pricing of SOEs. Even in the manufacturing sectors, administration approval is needed for the pricing of most products. Approval is also needed for the price of public utilities, freight and other important services. The procedure is so complicated that it takes more than six months to get permission. During the procedure, inflation made price-raising moot.

## (3) Other

The state attempts to assess the financial situation of SOEs because they want to transfer the excess funds to the budget. SOEs have to transfer the profit by selling at higher prices than the state approval prices.

## 2 -2-2 Privatization of SOEs

## (1) Privatization

The administration started the new policy of partial sales and leases of SOEs in 1989 in
the belief that privatization is an important alternative policy for rehabilitation.

As for the process of privatization, the ministries in charge prepare enterprises for sale, while they look for buyers. Large enterprises are decided by the National Committee, after receiving final permission by the Council of Ministries. At the provincial level, the authorities prepare, negotiate and decide the privatization, though they need advance approval by the National Committee for the privatizing plan.

## (2) Forms of Privatization

The leasing system has become one of privatization. In the main ministries, more than half of privatized enterprises have been leased. The fixed assets of enterprises are leased from 15 to 25 years. Initially the government thought that a leasing system was preferable in many cases since domestic investors who did not have enough money had a chance for purchase. But ultimately, many investors are foreigners. The government wants to restrict possession of the land that is most favored for investors as property. Besides, considering the economic and political situation of Cambodia, leasing is less risky for investors.

There were 69 state enterprises before the enforcement of the new policy. Currently, 35 factories have already been leased to private companies. $ ^{13} $

## 2 -2-3 Development of Private Sector

## (1) Banking Reform

The reform of the banking system happened toward the end of 1989. The Cambodian banking system is composed of the National Bank of Cambodia (NBC), its foreign trade subsidiary, its 19 provincial branches, and the Municipal of Phnom Penh. Up to May 1993, 22 joint venture banks and branches had already opened. The main investors are from Thailand, Malaysia, France and other countries. $ ^{14} $

## (2) Private Activities in Services and Manufacturing

The Ministry of Tourism was established in 1988 $ ^{15} $ , followed by the enactment of the Foreign Investment Law in July 1989. Many foreign investors have launched into Cambodia, buying or leasing privatized enterprises. Much capital, domestic and overseas, has been invested in the hotel sector. Investors have leased many hotels and guesthouses, and rapidly renovated them. Several four-star hotels were opened in 1990. $ ^{16} $

## (3) Others

The administration decided to use private power to exploit natural resources, disposing exploitation rights. In 1991, the authorities parted with six rights oil and gas production, and gave more than twenty rights to private investors in 1992.

2-3 The Second-Five-Year Socioeconomic Restoration and Development Programme (1991-1995) $ ^{17} $

After implementation of the First-Five-Year Program, the state adopted the Second-Five-Year Socioeconomic Restoration and Development Programme in January 1991 to continue the rehabilitation of Cambodia's economy. This program covers the period 1991-1995.

## The main features are:

(1) To build a material and technical base in order to promote economic and social development
ment

(2) To establish all required regulations and laws necessary for increasing public management capacity, appropriate to the new stage of development

(3) To broaden external relations

Priorities are as follows:

(a) agriculture

(b) industry and handicraft, especially energy and processing industries

(c) transport

(d) tourism

The administration wrote clearly of the expedition of the private ownership of land and the privatization of enterprises in this Second-Five-Year Program. The main thrust of the rehabilitation is by the enhancement of the role of the private sectors in the economy. They emphasize economic reform by the introduction of market economy by publishing a report entitled, “Improve economic management by introducing market-oriented principles with a view to benefit the potential of all economic sectors.” Prime minister Hun Sen also emphasized “the importance of market economy” for the rehabilitation of Cambodia in this program.

## 3 Economic Structure

## 3 -1 Industrial Structure

Cambodia is an agrarian country. About 85 percent of the work force are employed in this sector. Though agricultural production accounted for more than 50 percent of real GDP, the share has been decreasing since 1991 (see Table 2-I-2). In particular, a decrease in rice production is the main cause because it has been negative growth since 1990 (see Table 2-I-3).

Instead of Agriculture, the share of industrial and service sectors have been increasing respectively since 1991.

In the industrial sector, manufacturing has not yet developed. It has decreased its share of GDP little by little till 1990 (see Table 2-I-2). Construction has been developing since 1991, it has given a boost to this sector (see Table 2-I-3).

The service sector has grown steadily, and its share of GDP has also increased gradually (see Tables 2-I-2, 3). Hotels and restaurants have grown very rapidly since 1989, but accounted for only 0.5 percent in 1992, because the starting level was very low (see Table 2-I-2).

## 3 -2 Trade Structure

From 1980 to 1987, foreign trade had been dominated by the state. Trade had been conducted through the Kampuchea Export and Import Corporation (KAMPEXIM). $ ^{18} $ However, the foreign trade was transferred to the control of the state from the monopoly of the state in 1988. Until the changed policy, the main partners had been the former Soviet Union and East European countries.

In 1989, exports to the Non-Convertible Area, the former Soviet Union and East European countries, accounted for 268.366 million thousand rubles, the highest ever. In 1990, however, it decreased by 25.1 percent, to 201.1 million rubles (see Table 2-I-4).
Trade balance for Non-Convertible Area has run a deficit since 1985. However, it became a surplus in 1990 for the Convertible Area.

## 4 Macroeconomy

The GDP growth rate in real terms (1989 constant prices) had decreased yearly from 1988 to 1990 (see Table 2-I-3). In 1991 and 1992, it experienced 7.6 and 7.0 percent growth respectively, but it is estimated 5.7 percent in 1993, because the growth rate of industrial and service sectors were low comparing with those of 1992.

The per capita GNP of Cambodia was 200 dollars in 1991, $ ^{19} $ less than one hundredth of that of Japan. Cambodia is one of the poorest countries in the world.

## 4 -1 Economic Growth

## 4 -1-1 Agriculture

Though the growth rate of agricultural production had remained steadily except in 1990, it experienced 1.9 percent, low growth rate, again in 1992 (see Table 2-I-6). In 1993, it is estimated at 3.2 percent, as it is not so high, and it appears recovery. The main cause is that rice production which accounted for more than 30 percent of agricultural production has continued negative growth for three years since 1990 (see Table 2-I-3). It was analyzed that the direct effect of weather affected the harvest because of ineffective management and shortage of fertilizer. The share of rice production in GDP decreased from 21.2 percent in 1989 to 16.6 percent in 1992 (see Table 2-I-2).

Rubber and timber are the main export goods. The growth rate of timber production has been satisfactory, while that of the rubber production has changed drastically every year. As for timber production, deforestation has increased gradually because it has export priority. Thus illegal exploitation has also increased. Afforestation has started since 1990 to preserve the forests, but the quantity has not been enough to balance out the destruction. $ ^{20} $

## 4 -1-2 Industry

Though the growth rate of industry was -2.1 percent in 1990, it grew 8.9, 15.6 percent in 1991, 1992. It is also estimated at 10.0 percent in 1993, so it is expected high growth for two years (see Table 2-I-6).

As manufacturing grew 6.8 percent in 1991 and 3.0 percent in 1992, its share of real GDP has decreased by 6.8 percent (7.0 percent in 1991). The growth rate of construction has been very high, so it has been pulling the industrial sector (see Tables 2-I-2,3). The growth rate of electric power has decreased since 1989. The electric power system of Cambodia is one of the least developed in the world. $ ^{21} $ As these systems have been destroyed by civil war, they are in urgent need of repair. It is estimated that 34.9 percent of the growth of the electricity and water sector in 1992 will take place within the electric power system.

## 4 -1-3 Services

This sector has developed very satisfactorily (see Table 2-I-6). The share of services in real GDP increased from 32.3 percent in 1989 to 34.8 percent in 1993 (see Table 2-I-2).

Hotels and restaurants have increased very rapidly since the start of the rehabilitation.
But as the base was very low, the share in real GDP is estimated at only 0.5 percent in 1992.

## 4 -2 Prices

Recently, money supply (M2) has grown at very high rates since 1988, appropriate to the expanding national budget (see Table 2-I-6) The expansion in money supply has also formed the sudden rise in consumer prices. The CPI grew at a rate of 145.8 percent in 1990, 171.5 percent in 1991, and was only 94.7 percent in 1992. The reduced rate of liquidity growth in 1991 might effect the decline in the CPI in 1992. However, the growth rate of money supply in 1992 was 214.1 percent. So the CPI in 1993 is estimated at 120.2 percent again.

## 4 -3 Public Finance

The SOEs, as contributors for fiscal revenue and commodity assistance from the former Soviet Union and the Eastern European countries, had been very important under socialism. $ ^{22} $ But national revenue has been decreasing since 1989 because privatization of the SOEs by liberalization of the economy. Additionally, assistance from the former Soviet Union and the Eastern European countries has dried up since 1990. $ ^{23} $

Total revenue (including aid from the above countries) had covered about 95 percent of expenditure until 1989, with only 5 percent being financed by money creation. However, the decrease in revenue has caused the sharp increase in money creation after that. In 1991, total revenue achieved less than 60 percent of total expenditure. $ ^{24} $

As it is difficult for the government to reduce expenditures, they have only one option: to borrow money from the Central Bank, thus causing inflation. The official exchange rate was devalued from 148 riel to the dollar in 1988 to 2800 riel (estimated) in 1993 (see Table 2-I-5). ADB's statistics, which was published recently, also revealed the same devaluation (see Table 2-I-6).

## 4 -4 Trade Balance

Though the trade deficit of Cambodia had been covered by credits by the former Soviet Union, these credits were stopped in January 1991. $ ^{25} $ In 1991 imports and exports grew at rates of 74.4 percent and 194.4 percent, respectively, so the deficit was 33 million dollars, the lowest level ever. However, though the growth rate of imports in 1993 is estimated at 12.0 percent, that of exports is expected -23.7 percent. As a result, balance of trade in 1993 is estimated at -185 million dollars, and a substantial increase of trade deficit is supposed. Trade deficit intends to increase on account of inactivity of the export trade (see Table 2-I-6).

## 4 -5 Statistics

We wrote the above section of the “Macroeconomy” according to the Asian Development Outlook 1994. There is another set of statistics, published by the government of Cambodia (see Table 2-I-5). We can find many discrepancies between these two statistics. For example, though the growth rate of real GDP was 7.6 percent in 1991 on the statistics of ADB, it was 13.5 percent on those of Cambodia. There are notable differences about the growth rate of agricultural production and trade balance.
It is difficult for us to judge which is correct. For example, we cannot estimate the trade value on the borders with Thailand and Vietnam.

It is very important for Cambodia to make accurate statistics as quickly as possible. They have to recognize the economic situation accurately to reform.

## 5 Fiscal Reform

As mentioned above, the most important problems that Cambodia faces are hyper-inflation and fiscal deficits. But a government that creates money to make up for fiscal deficits causes hyper-inflation, so we can say that the fiscal deficits are the main problem.

Recently, the state began fiscal reform.

Since late 1992, the administration and United Nations Transitional Authority in Cambodia (UNTAC) have tried some measures aimed at stabilizing the economy.

## 5 -1 Tax Reform

The government of Cambodia and UNTAC have tried to arrange a system of import tariffs to broaden the budget revenue. They also introduced a 10 percent tax for hotel charges in October 1992. As for the import tariff, they created a system that imposed a 50 percent tax on luxury goods and a 7 percent tax on fundamental goods. They also introduced a sales tax of 2 percent tax on domestic goods and 4 percent on imported goods.

After the withdrawal of UNTAC, which began in September 1993, the government of Cambodia decided to tax the income of individuals earning more than 300 dollars per month from March 1994 and will introduce a 25 percent tax on corporate profit in the near future.

## 5 -2 Expenditure Reform

As for annual expenditures, the government of Cambodia and UNTAC organized a system in which UNTAC supervised the outlay of the government, and the auditors of accounts were posted at the main ministries and agencies. $ ^{26} $ (After the withdrawal of UNTAC, we cannot understand that how the system has been operated because of the lack of information.)

The administration also tried to restrain expenditures, as the average monthly salaries of about 290,000 public servants and soldiers have not exceeded 40,000 riel (about 15 dollars). $ ^{27} $

## 6 Impact of UNTAC

UNTAC's operation, with a total budget of 3 billion dollars, had been planned for 18 to 24 months. The full-scale activities took place from March 1992 to September 1993.

Some estimated that the operation of UNTAC caused the hyper-inflation and the distortion of the economy in Cambodia. Some papers said that dollars distributed by UNTAC produced brief prosperity in Cambodia, while food prices rose three or four times by cornering UNTAC personnel and other foreigners. $ ^{28} $

In response to these charges, UNTAC issued a report entitled, “Impact of UNTAC on Cambodia’s Economy,” $ ^{29} $ published in December 1992. They refute as follows.
## 6 -1 Impact on Prices

UNTAC paid salary for staff and locally recruited employees in dollars. UNTAC's staff, who came from outside Cambodia, used money for rental of houses and hotel fees. They also bought foods, which were almost all imported, in dollars. Used dollars were deposited in foreign accounts, sent overseas and used for purposes such as buying gold. Payment to locally recruited employees was not more than 1 percent of UNTAC's total local expenditure, and they used almost all their dollars to buy gold and jewellery. UNTAC purchased some goods and equipment, which were also almost imported. In the end, the dollars they earmarked to Cambodia added up to a small sum.

As for the rise of hotel fees and rental costs, the responsibility might rest with UNTAC. But this has little to do with local residents. UNTAC also concluded that the hyper-inflation was caused by money creation by the Cambodian government to cover expenditures. So the outlay of UNTAC did not affect the economy of Cambodia according to the report.

## 6 -2 Impact on Others

In Cambodia, there was a shortage of trained labour with multilingual and artisanal skills. UNDP estimated that these people did not exceed 300 at the end of 1979. It's difficult to conclude that the number of professionals has increased substantially until the development of UNTAC, considering the domestic situation after that. Therefore these people's wages were very high, compared to other employees. So many people have become to learn foreign languages and operate computers, one good effect UNTAC has had.

Though Cambodia remains a high investment risk because of continuing civil war, many people have invested in hotels. It is said that they can invest because of the Peace Keeping Operation of UNTAC. UNTAC has contributed toward regained trust in Cambodia.

UNTAC expressed its innocence that it had not boosted Cambodia's prices. However, it can be surmised that the wages of hotel employees where UNTAC had used rose with the jump in hotel fees. According to the data, the recent growth of service sector is remarkable. (see Table 2-I-3) It is undeniable that UNTAC was related to the prosperity of the service sector.

It may safely be said that the operation of UNTAC has not only influenced the economy of Cambodia directly but also affected prices indirectly.

## 7 Evaluation

The transition to a market economy in Cambodia began in 1989. This was began to rehabilitate the economy. Though the civil war between the state and Pol Pot's regime has continued even today, the government has begun to try fiscal reform, revival of agriculture, (a key industry in Cambodia) improvement in the social structure to attract foreign investment, etc., as the focus of economic rehabilitation.

We would like briefly to reiterate the main themes.

## 7 -1 Agrarian Reform

The Heng Samrin Administration, established in 1979, aimed at reconstruction of the state by nationalizing property nationwide. Farm land was nationalized as a matter of
course, and collective farm management began. However, collective farm management began to dismantle with the enactment of the First-Five-Year Plan. About 90 percent of farmers, by 1989, became independent farmers who had land. The administration recognized land ownership and inheritance for citizens officially in the constitutional reform of February 1989.

As for the price of agricultural products, price liberalization was permitted regarding farm surpluses, after supplying to the government at below market prices. As this regulation was abolished in 1992, price liberalization was achieved completely. Reform in the agricultural sector has been favorably promoted.

However, agrarian growth has not been good. In rice production, shortage of fertilizer, delay of mechanization, damage by civil war etc. are the main causes. In forestry, indiscriminate deforestation has happened because of export priority, so natural destruction is an increasing big problem.

The realignment of institutions has begun. This is time when the administration has to think of how to raise agrarian output. They have to promote irrigation, and a steady supply of fertilizers. They also need to create a strategy which is compatible with the preservation of nature.

## 7 -2 Price Reform

Though all prices were controlled under the Heng Samrin Administration, the free market (the black market) existed. $ ^{30} $ The government published its “policy of party and government for farmers” in April 1989, in which they said “the administration had to decide the prices to raise the farmers’ incentives for production.” Therefore price liberalization was not yet achieved at this time. After that, though price liberalization of agricultural products was achieved completely by 1992, price liberalization in manufactured goods was not yet forthcoming. Whenever manufacturers want to raise the prices of their goods, they still have to get approval from the administration.

As price liberalization is insufficient, the government has to achieve complete price liberalization as fast as possible by eliminating state regulations.

## 7 -3 SOEs' Reform

The privatization of SOEs has been promoted since 1989, the year the Foreign Investment Law was enacted. About a half of the 69 SOEs have been privatized. Most investors prefer leasing to purchasing because of instability of the political situation of Cambodia, so almost privatized enterprises have been leased. Most of the investors are foreigners.

The private sector has not been developed yet on account of flaws in infrastructure such as lack of electricity, communication and transport equipment, etc.

The reform of this sector has started, but effect of reform has not yet appeared.

To promote further reform, the government has to achieve political stability to reduce the risk that prevents most investors. The administration needs to arrange the circumstances to attract large-scale investment. The state also needs to improve both hard and soft-infrastructure to develop industries.