April 18, 2011

Phnom Penh's Economic Progress

[Wall Street Journal]

A decade ago, Cambodia was practically a ward of the international community, relying on international donors and nongovernmental organizations to get by. But its economy has since grown at an annual average rate of 10%, creating a $10 billion economy today, to which exports contribute more than $4 billion a year. Phnom Penh deserves credit for its low, flat tax and minimal regulations that have allowed the private sector to flourish.

The stain on this record of economic freedom is Phnom Penh's backtracking on political freedom. Prime Minister Hun Sen, in and out of power for 26 years, has never taken kindly to criticism and dissent. He is now proposing a law that would give him tight control over NGOs. A draft of this law was released last month.

Growth is at risk from political backsteps.
This law is one more in a series of measures to curb civil society. In 2006, Mr. Hun Sen did away with a rule that required a two-thirds legislative majority to form a government and pass laws, making it easier to consolidate his power. In 2009, the parliament banned protests comprising more than 200 persons and stiffened the country's defamation laws. Mr. Hun Sen has sued his political opponents on defamation charges and intimidated them by other means. In December, he put into effect a criminal code that charges someone for incitement if he merely shared articles from the Internet. He's also contemplating a law that would curb trade unions.

NGOs are a prime target, because the 300-odd groups and more than 1,000 smaller associations currently operating in the country stand up for those disenfranchised by Phnom Penh's autocracy—offering the best check against the government in a country with a weak judiciary. If the draft law is enacted, even the smallest groups in the countryside will be forced to undergo an onerous registration process. Phnom Penh can reject registration without explanation or appeal.

Western donors have been reluctant to exercise leverage in some part because of a broad concern that if the West doesn't offer money, China will—without strings attached. Beijing, happy to undercut the West, wrote a $1.2 billion check for aid and soft loans in late 2009.

But the West has ample clout—more through trade than aid. Phnom Penh wants to be part of the international economic order, with which the West can help. China offers trade and investment too, but Cambodia's textile exporters sell enough to Western markets that the U.S. is now its largest trading partner. Phnom Penh cares enough for its U.S. market that in 1999 it agreed to follow international labor standards for its sweatshops, to avoid boycott from American trade unions.

As late as 2009, U.S. politicians celebrated applying this pressure on Cambodia because, as Sen. Carl Levin (D., Mich.) said, it "significantly [improved] the rights of and conditions for workers, which, in turn, can help expand other freedoms." This time, instead of pressuring employers like Nike who are expanding job opportunities for Cambodians, the U.S. and European Union would help the country more if they pressured Mr. Hun Sen on his political record. Playing the trade and investment card is one way to do it.

Greater political accountability of Mr. Hun Sen will guarantee not only civil liberties for Cambodians, but also a better business environment. The lack of political checks is breeding fears of cronyism, especially regarding land. The worse corruption gets—Cambodia ranked 154 on Transparency International's 2010 corruption perception index of 178 nations—the more businesses, especially foreign ones, will be wary of investing. Growth could slow down, interrupting the country's momentum, and also depriving the newfound freedoms Cambodians have begun to enjoy.

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