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Cambodians Brace for First Taste of Recession

  • Luke Hunt

The global financial crisis is taking its toll on small countries like Cambodia, where citizens are bracing for the nation's first recession in living memory.

Cambodia's economy was shattered by four decades of conflict and communist dictatorship. But since peace was restored more than 10 years ago the country has enjoyed steady economic growth above five percent annually.

That stopped as this year began. Trade with Thailand - by far Cambodia's most important neighbor - has fallen 25 percent in the first two months of 2009. Garment exports are also down 25 percent and property prices slumped 40 percent from January to the end of March.

This is the first time in Cambodia's post-war era that property foreclosures, vehicle repossessions, bankruptcies and job losses have been seen, causing some concern for bankers and businessmen.

"We were of course seeing huge, huge, increases in land values probably over the last 12 months as a result of speculative land and investment in the country," said Paul Freer, vice president of Maruhan Japan Bank in Phnom Penh. "That has virtually come to a standstill."

The World Bank forecasts 30,000 lost jobs in Cambodia's garment industry. A decline in tourism receipts from the Western countries compounds economic problems for the government. The opposition calls for a 500 million dollar spending package, an enormous sum by this country's standards.

Many people here expect Cambodia to fall into recession in the next few months.

Derek Mayes from the Australian Business Association of Cambodia says investment was getting reckless as the economy peaked in the second half of last year. He says that pushed conservative and long-term investors out of the market.

Now, he says, the downturn could take the heat of out of the market and bring investment back to realistic levels.

"The wrong type of development was going ahead and I think this has actually brought it back to the point where the opportunities are still there but I think the realism from serious business people is saying yep we can still do a deal," said Mayes.

Freer at Maruhan Japan Bank echoes that sentiment.

"It's probably one of the first recession's that most people here I think in the business community can remember," he said. "People had perhaps thought that the property market was going to continue to go northwards."

Ultimately, he says, the downturn could prove to be good for the country, by encouraging more careful and sustainable growth.