Wednesday, July 23, 2008

Cambodia's Premier in Strong Position Ahead of Vote

Hun Sen Has Steered Economic Miniboom,
But Graft Abounds
By PATRICK BARTA
July 22, 2008; Page A13

PHNOM PENH, Cambodia -- Prime Minister Hun Sen, whose party is expected to win re-election here Sunday, is credited by many Cambodians with guiding their country to become one of Asia's newest investment hot spots.

After enduring one of the worst genocides in history, a new Cambodia now features skyscrapers, foreign investors and stability. This week's national election will serve to show just how far the country has come.

But keeping the economic recovery on track in Cambodia -- a nation best-known for its genocidal 1970s Khmer Rouge regime -- is getting more difficult in the face of a global slowdown, regional competition and entrenched corruption.

Mr. Hun Sen opened Cambodia's doors to foreign investors and has overseen notable improvements in living standards. Economic growth has surged 10% or more annually in recent years, driven by an influx of investment funds, property speculators and a few big multinationals, including Chevron Corp. and BHP Billiton.

Phnom Penh, the capital, recently got a new fleet of metered taxis, and it soon will have its first skyscrapers, including a 42-story luxury condominium tower rising up next to an office for a national antileprosy campaign. In brochures, the project's South Korean developers compare the building -- which boasts a grass-covered "sky park" on its 10th floor -- to Manhattan's Time Warner Center.

But attracting a lot more investment will depend on Cambodia overcoming its reputation as one of the world's most corrupt countries. It ranks among the worst on Transparency International's annual list of graft-ridden nations, with 72% of its residents reporting they paid at least one bribe in the past year -- roughly on par with Cameroon and Albania. Opposition leaders and others say a more pervasive rule of law is needed to sustain the boom by making Cambodia attractive to blue-chip foreign investors who currently prefer countries such as Thailand or Vietnam.

[Go to photos.]
Patrick Barta/ The Wall Street Journal
An estimated 1.7 million people -- or roughly a fifth of the population -- died or were killed during the Khmer Rouge years.

Many economists believe Cambodia's miniboom is already fading. Growth has been fueled by just a few sectors -- notably tourism, construction and garment manufacturing. Inflation is soaring, pushed by higher fuel and food prices, and the new garment factories around Phnom Penh are facing new competition as China expands its textile output and global demand slows.

The International Monetary Fund predicts growth of Cambodia's economy will slow to about 7% this year, in part because of slowing garment exports.

Mr. Hun Sen has "delivered political stability, and that has translated into economic growth," says Arjun Goswami, country director for the Asian Development Bank in Phnom Penh. But, he adds, "the story is going to get more difficult for Cambodia."

Economic issues have played an important part in the election campaign. "The kind of growth we are having now is not sustainable or equitable," contends Sam Rainsy, a French-educated former finance minister who leads a prominent opposition party. Much of Cambodia's economic activity, he notes, involves illegal businesses or black-market operations: illicit logging, land speculation, gambling and prostitution. Such businesses thrive, he says, because of a political system permeated with graft.

[Hun Sen]

Ruling-party leaders have dismissed some allegations of graft as exaggerated, and promised to pass legislation to rein in corruption in the future.

Though small, Cambodia could become a major investment site. It has significant deposits of bauxite, gold and other minerals, and energy companies have recently found sizable oil deposits off its coast. The country also has large areas of arable land that could be developed for rice and other crops to help meet Asia's growing demand.

Much of that potential was squandered as Cambodia suffered through wars and atrocities in recent decades. Cambodia became independent from French colonial rule in the 1950s, but was bombed heavily by U.S. forces during the Vietnam War. It later fell to the Khmer Rouge, a home-grown Maoist rebel group whose leaders, including the notorious Pol Pot, outlawed money and private property in a disastrous bid to create a nation of agricultural collectives. Some 1.7 million people -- about a fifth of the population at the time -- died of illness or starvation or were killed.

Invading Vietnamese forces eventually ousted the Khmer Rouge and installed Khmer Rouge defectors, including Hun Sen, in a new government. He became prime minister in 1985. A battle-hardened soldier-turned-politician -- he lost an eye in combat -- Mr. Hun Sen survived Cambodia's transition to nominally democratic rule in 1993 and has since fended off all challengers to his rule, including a violent coup in 1997 against a rival with whom he shared power.

Despite his government's reputation for corruption and its strong authoritarian streak, Cambodians re-elected Mr. Hun Sen's party in 1998 and 2003, and he has remained popular among many Cambodians who believe the country is better off than it was a decade ago.

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A party victory in Sunday's national parliamentary elections would give him another five years in power. Now in his late 50s, he has said he plans to stay in power until he is 90 years old. In a speech earlier this year, he said, "I wish to state it very clearly this way: No one can defeat Hun Sen. Only Hun Sen alone can defeat Hun Sen."

To sustain popular support, the government has rebuilt schools and repaired roads, in part with money provided by foreign donors. It has also made it easier for foreigners to visit and invest in the country, stoking a surge in tourist arrivals and hotel and office construction.

Mr. Hun Sen's party "has done a lot to improve the country," says Sokna Tea, a 20-year-old finance student who was hanging out one recent afternoon near a new $1 billion property development expected to include a 52-story tower and convention center. Many Cambodians simply believe Mr. Hun Sen's victory is inevitable or fear that a vote against his government could lead to political unrest.

Despite some reports of campaign-related violence, independent election observers say they expect the vote to be fair, and campaigning for the dozen or so parties contesting the vote has been vigorous. Mr. Hun Sen's political organization, the Cambodian People's Party, is backed by many of the country's wealthiest tycoons and has deep pockets, allowing it to vastly outspend the smaller opposition groups.

Some economic analysts say controlling Cambodia will become harder for Mr. Hun Sen, especially if rising food and energy prices undermine the recent gains in poverty reduction. More than half of Cambodia's population of 14 million is under 21 years old, and many youths are better educated than their parents, meaning they will likely demand more from their government in the future.

"I want something more than stability," says Theary Seng, a social activist in her 30s who has lived in the U.S. and now is the executive director of a Phnom Penh watchdog group known as the Center for Social Development. After all, she says, "North Korea has stability."

Write to Patrick Barta at patrick.barta@wsj.com

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