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Cambodia Braces for Global Finance Woes

Economic turbulence in the US and Asian markets this week will indirectly affect Cambodia's industries, even as inflation and other factors have weakened the economy so far this year, economic and finance experts said Wednesday.

The bankruptcy announcement by US financial firm Lehman Brothers and the sale of brokerage firm Merrill Lynch to Bank of America this week upset US and Asian markets and led to worries of a global economic crisis.

"The longer term concern is that the world economy will be impacted and that will have follow-on effects for Cambodia, but how big those effects will be remains to be seen," said Stephen Higgins, chief executive officer of ANZ Royal Bank.

Cambodian and international economists said Wednesday falling markets could harm Cambodia's leading sectors: garments and tourism.

The US is the top importer of Cambodian garments, and the sector, which is Cambodia's economic engine, already has seen weakened growth in 2008, analysts said. Tourism, the second-highest earner for Cambodia, could be hurt as potential visitors stay at home to weather the economic storm.

Cambodia could also be affected by a drop in foreign investment from its Asian neighbors.

"One thing that we would need to keep a close watch on is sort of providing finance to Cambodia in terms of foreign direct investment," said Eric Sidgwick, an economic officer at the Asian Development Bank in Phnom Penh. "You know, China, Korea, Thailand and other countries. How will they be affected by the turmoil in the US? They may in turn have less resources to bring to Cambodia."

Meanwhile, the Asian Development Bank said in an outlook report released Tuesday that Cambodia's economic growth would drop to an estimated 6.5 percent, down from 9.6 percent in 2007.

The decline in economic growth was a product of a garment sector suffering from the decline of US consumption, as well as inflation and the drop in value of the US dollar, the ADB said.