International Monetary Fund Team Presents on Economic Outlook

On September 10, 2010, the International Monetary Fund (IMF) presented research findings to UC students and administrators on global and regional economic outlook and implications for Cambodia. Dr. Angus Munro (Vice President for Academic Affairs) welcomed the distinguished IMF team, which consisted of members from their Asia Pacific Department and comprised Dr. Olaf Unteroberdoerster (Senior Economist), Dr. Jack Joo Ree (Senior Economist), and Ms. Nombulelo Duma (Economist).

Dr. Unteroberdoerster’s presentation, “Towards a Sustained Recovery,” first covered global and Asia outlook and risks. After a tumultuous global economic crisis, the recovery around the worldwide has been stronger than expected in 2010 and, in particular, GDP growth has been rather robust in emerging countries and Asia. Nevertheless, Dr. Unteroberdoerster and his team believe that the momentum is weakening and uncertainty remains high, especially in advanced countries. He pointed to the high unemployment rate in the U.S. and the lack of fiscal sustainability in Europe as affecting consumer confidence, spending, and the housing market.

Asia is expected to lead the global recovery at a moderate pace, with the key risk to Asia coming from its exposure to external demands. According to Dr. Unteroberdoerster, the exports to GDP ratio exceeds 50 to 60 percent for most Asian countries, meaning that they depend on exports, which is about twice the dependence of countries that are advanced. Positive economic spillovers from China are increasingly important for other Asian countries, although countries with less exposure to China recovered quicker than “Cambodia’s competitiveness will depend on the labor market, skills of its workforce to increase productivity, strength of its institutions (including health and education), and other factors such as electricity, quality of instruction, and corruption.”
Dr. Unteroberdoerster, IMF Senior Economist those with more.

Shifting focus to Cambodia, Dr. Unteroberdoerster identified the garment, tourism, construction, and agriculture industry as four main drivers for Cambodia’s economic recovery, with garment exports and tourism leading the growth even though they were hit hard by the recession. Over 60 percent of Cambodia’s garment exports are sent to the US, while tourists from Vietnam contributed significantly to sector growth. Even so, sluggish imports suggest continued weakness in other sectors, particularly in construction. The IMF team also projects that economic growth for Cambodia in 2010 will be modest, reaching 4.5 to 5 percent. In the medium term, it may return to 6 to 7 percent, with inflation to remain low at 4 percent.

As the region rebounds from the economic crisis, there are new growth opportunities for countries, but this requires attention to the business environment and infrastructures. Cambodia can reap the benefits of Asian countries attempting to “rebalance” their economies, that is, shifting away from exports as a growth driver to relying more on domestic demand. Asia, and especially China, is becoming increasingly important in the global market, and the IMF expects China’s GDP shares to be almost at par with those of the U.S. and Europe, which will have significant implications for regional economies.
“China’s strength can create significant demand for Cambodia’s output (rice and other food items),” stated Dr. Unteroberdoerster. “And policies in China can increase Chinese wages, meaning that relative competitiveness will improve for other countries like Cambodia, so wages in Cambodia are likely to rise too.”
Cambodia has strong investment links to China, and Dr. Unteroberdoerster believes that China may shift more jobs to Cambodia in the garment industry because of competitive labor costs in China. Nevertheless, Cambodia needs to maintain its competitiveness because other countries will compete for outsourcing opportunities from China.
“Cambodia’s competitiveness will depend on the labor market, skills of its workforce to increase productivity, strength of its institutions (including health and education), and other factors such as electricity, quality of instruction, and corruption,” he commented. As a side note, Dr. Unteroberdoerster expressed his support of the passing of an anti-corruption law by the Cambodian government and stressed that corruption is “poison” to businesses and weakens their ability to grow.
Another key method for increasing Cambodia’s competitiveness in the global market is to diversify its economy. Dr. Unteroberdoerster and his team made several recommendations. First, Cambodia should refocus on exporting garments. Secondly, it needs to diversify its export base, namely agriculture and agro-processing, especially in light of the growing demand for agricultural output from regional heavyweights China and India. Third, Cambodia should diversify its tourism industry because it has tremendous opportunities for growth. Lastly, the country should use domestic savings to fund domestic investments.
His concluding remarks emphasized a need for Cambodia to actively pursue mechanisms that promote economic and business growth, as well as to counter corruption.
The IMF was established after World War II and its primary purpose is to promote stable growth in the global economy and to promote trade and exchange between countries. It was created to cooperate on global growth and world peace, and roughly 3000 staff members around the world work for IMF as independent advisors.

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