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World Bank Warns Corruption Could Destroy Cambodian Economy

The World Bank called on Cambodia this week to drastically curb corruption, or face isolation from the world's free trade markets.  The country may have begun to put its house in order.

World Bank President James Wolfensohn says the three greatest obstacles to Cambodia's growth are "corruption, corruption, corruption."

According to a World Bank survey, as much as one-quarter to one-third of a foreign investor's profits in Cambodia are being siphoned off by corruption that takes place at all levels of economic activity.

In a roundtable discussion in Phnom Penh on Thursday, Mr. Wolfensohn said the country would have itself to blame, if it failed to become a credible competitor in world trade.

Prime Minister Hun Sen announced an ambitious plan on Friday to cut investment costs, including automating business registrations, and reducing import and export times.

However, no deadline has been set for these efforts, and the government still has not passed an anti-corruption law, as required when the country joined the World Trade Organization last year.

Pascal Lamy, former trade commissioner of the European Union, says the government knows it needs to reform, but is too slow to take action.

"I think the path of passing the necessary legislation, and making sure it is enforced, with the necessary policing, or ability to litigate in court, for instance, is a bit too slow,” said Mr. Lamy.  “Not that the commitment has changed, not that the direction has changed, but we need to speed up the process."

When Cambodia joined the WTO last year, it was considered a pioneer, an example of how the world's least developed nations could gain access to normally unattainable markets.

But international trade experts in Phnom Penh this week warned the country could squander the opportunity, if it does not diversify its exports, overhaul its multi-layered bureaucracy and reduce the corruption that adds costs throughout the system.

Garments account for 80 percent of Cambodia's exports. No country in the world is as dependent on a single economic sub-sector.  The country has no alternative export industries to help it diversify. 

The garment industry has been successful in part due to a reputation for socially responsible manufacturing.   The government is banking on high labor standards, which are required by governments and activists in developed nations, to maintain the industry's viability.

But the international Multi-Fiber Agreement, which provided some protection for the country's garment industry, expired at the end of last year.  Now, Cambodia has to compete with industrial powerhouses like China.  Experts say this leaves the country extremely vulnerable.

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