Liberalisation and empowerment the path to Malaysian prosperity


March 25, 2010

Liberalisation and empowerment the path to Malaysian prosperity

Author: Editorial Board, ANU

https://www.eastasiaforum.org/2019/03/25/liberalisation-and-empowerment-the-path-to-malaysian-prosperity/

It’s nearly a year since the Malaysian people overwhelmingly cast aside the domineering, divisive and corruption-riddled government of Najib Razak for an alternative led by Mohamad Mahathir that promised renewed focus on the people’s interests. The new Pakatan Harapan government undertook to restore good governance, raise the bar for ministers and civil servants, recover embezzled funds and deliver them back to Malaysians as cost of living relief.

A view of a building site beneath the Petronas Towers in Kuala Lumpur, Malaysia, 18 February 2016 (Photo: Reuters/Olivia Harris).

Translating rhetoric into action has thus far proven an uphill battle for an inexperienced government accustomed to life in opposition. It’s struggling to turn the vision into concrete reforms, as it tries to navigate a hostile upper house and entrenched vested interests. Progress has been confined to a handful of easy wins and the multiplication of committees to continue decades-old debates about well-understood policy failings. Malaysians are becoming restless for the government to deliver on the promise of a ‘New Malaysia’ that secures livings standards regardless of ethnicity.

Efforts to deconcentrate centralised power structures and break up state monopolies are central to reinvigorating the economy. This will enable more effective governance and help tackle endemic corruption. Malaysia’s Federal Government commands over 88 per cent of total government revenue and expenditure (the share is closer to 50 per cent in federations like Australia and the United States), leaving almost 170 states and local authorities with limited resources to address local needs. Imperious policymaking from the administrative capital of Putrajaya coupled with non-elected local governments bedevil the effective delivery of local services including law enforcement, education and healthcare.

This week’s lead article by Wing Thye Woo argues that ‘[g]rowth requires state governments that are empowered to plan and implement their own development strategies’. This would require a significant shift from the highly political allocation of development finance that penalised opposition-led states under the former government.

Government-linked corporations (GLCs) dominate the Malaysian economy and that needs to change. GLCs command a majority share of market capitalisation and key sectors of the economy including natural resources, utilities, construction and finance. Policies that reinforce GLC dominance stifle innovative and dynamic small and medium enterprises and competitiveness.

As Woo says, ‘GLCs may perform well in theory, but they don’t in practice — officials inevitably use them for political patronage and personal corruption. GLCs are political creatures, not economic instruments … Downsizing the state-related sector through privatisation is necessary for economic efficiency, political accountability and income equality’.

The government has acknowledged the problem but has been tentative in its approach to this critical reform. Its first substantive policy announcements and budget provided a major setback, reinforcing the role of GLCs in ethnic Malay development strategies and increasing government dependence on GLC dividends. It’s unclear whether the government now has the clout and political fortitude to pursue a privatisation and competition agenda.

Decentralisation is more than just government ownership and power-sharing; it encompasses a shift in the mentality of government from one underpinned by heavy-handed direction to one of empowerment. This requires the creation of institutional and regulatory environments that empower people to shape the policies that affect them, private business and entrepreneurship to fuel the engine room of economic growth, and all levels of government to deliver an enabling environment in which private actors flourish.

Empowerment means replacing ethnic discrimination with inclusive approaches to policy making, lifting up all low-income households. It means constructing a tax and transfer system that reduces rather than perpetuates inequality and cost of living pressures, positively reshaping the social contract between taxpayers and government. And it requires liberating the education system from the mechanistic, dictatorial, one-size-fits-all approach that has prioritised a one-eyed conception of nation-building over the development of inquisitive and adaptable minds.

Effective governance starts with a recognition that meaningful reforms may not please everyone but if done well can benefit all. It requires the strength of conviction to stay the course in the face of interest group pressures, avoiding discouraging U-turns like abandoning intentions to sign the United Nations International Convention on the Elimination of All Forms of Racial Discrimination. It entails more than a solitary sugar tax to raise funds for development and social welfare when the tax revenue share of GDP is a third of the OECD average. And it requires delivering substantive reforms to education in the light (or in spite) of next month’s special task force report.

The government’s recent by-election defeat in Semenyih provides a wake-up call that its support among middle-class Malaysians depends on improving its performance not on disparaging its predecessor. That means harnessing the electorate’s heightened expectations towards charting a more prosperous course for the economy, governance and for the Malaysian people.

The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.

 

Decentralisation the best bet for Malaysia’s growth

Author: by Dr. Wing Thye Woo, Sunway University

Malaysia’s burgeoning middle class has high expectations for future economic development. But the nation won’t escape the ‘middle-income trap’ and won’t have socially-inclusive growth under current government policies. A range of reforms that deliver decentralised decision-making is needed to build the knowledge-led economy to propel Malaysia to the next level of development.

A view of the Kuala Lumpur city skyline in Malaysia, 7 February 2018 (Photo: Reuters/Lai Seng Sin).

Malaysia’s current policy framework has its roots in the 1970 New Economic Policy (NEP) and its socio-political counterpart ‘Ketuanan Melayu’ (Supremacy of Malays). NEP has succeeded in building a large Malay middle class that is informed, skilled and confident about its identity. But it’s also well aware that these two policies rooted in the past are not capable of transforming Malaysia into a developed nation.

To meet these aspirations, reform is urgently needed in three key economic areas. Each area requires a common reform component: the careful entrenchment of decentralised decision-making.

First, the state’s administrative structure inhibits innovative policymaking and prevents effective oversight. The federal government is much larger and more cumbersome than state governments and has disproportionate power.

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Contrasting budgets and spending power reveal the imbalance between federal and state governments. The federal government has legal authority to impose income and sales taxes. But state governments must rely on land-related transactions and fees on small-ticket items like hawker licenses for independent revenue. The provision of most public services is done through branches of federal ministries operating at the state level.

State expenditure is determined by fiscal allocations from the federal government to state governments, and the amounts allocated depend on political considerations. Under the former Barisan Nasional (BN) government, opposition-controlled states received budgetary allocations that were proportionately much smaller than BN-controlled states. State governments are banned from borrowing to finance development projects, and that means they are unable to raise revenue to build the infrastructure needed to clear production bottlenecks in local industries.

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Growth requires state governments that are empowered to plan and implement their own development strategies. Effective decentralisation requires each state government to have its own civil service. States will also need much larger shares of tax revenue, based on factors like developmental stage and tax revenue contribution. They should also be allowed to borrow to finance local infrastructure projects — with the commitment that there will be no federal bailouts — and be invested with significant responsibilities that are currently held by federal ministries.

The second key task is reforming government-linked corporations (GLCs). GLCs are crowding out the private sector, reducing economic dynamism. They also enable corruption that increases income inequality.

GLCs may perform well in theory, but they don’t in practice — officials inevitably use them for political patronage and personal corruption. GLCs are political creatures, not economic instruments.

Competition between GLCs and private firms is intrinsically unfair and harmful for overall growth. No matter how inefficient GLCs are, they can always count on government bailouts. They undermine economic dynamism by buying up their more efficient private competitors. Worse still, they prevent the development of a dynamic Malay business community by pulling capable Malays entrepreneurs away from starting private businesses and into cosy, life-long GLC jobs.

Downsizing the state-related sector through privatisation is necessary for economic efficiency, political accountability and income equality. The only two considerations in choosing buyers should be the size of the bid and the promotion of industry competition. A well-prepared and transparent privatisation process is more important than a speedy one.

The third key economic reform task is diversifying and expanding the banking system. The financial sector’s monopoly structure damages economic performance and worsens income inequality by suppressing the operations of small and medium-sized enterprises (SMEs).

The 1997 Asian financial crisis convinced the Malaysian government that the banking system would be less prone to crisis if regulators could more easily monitor them. The result was the forced consolidation of smaller banks into 10 big banks in 2000.

This action made state investment companies the controlling shareholders in most commercial banks, effectively creating a state-owned banking monopoly. These banks are slow in adopting better payment practices and providing new financial products, shoddy in their treatment of small retail customers, and biased in lending towards GLCs. The small number of banks and the extent of state control in the largest banks are to blame.

One serious defect of the bank consolidation was that Malaysian SMEs began experiencing difficulties in getting capital from the large banks, replicating the international experience that SME financing comes mostly from small and medium-sized banks. In response, the Malaysian government established the state-owned SME Bank in 2005. But the SME Bank is not meeting the sector’s capital needs. It also has the highest non-performing loan ratio in the banking industry. The slow growth of the SME sector means new Malay bus­­­inesses are not emerging and the distribution of income is worsening.

Reforming the banking sector will mean allowing private small and medium-sized banks to exist again, reducing the government’s bank share holdings, and removing restrictions on foreign banks and their activities.

The NEP is essentially ‘Ketuanan Centralisation’ (Supremacy of Centralisation) in the economic sphere, manifesting as ‘Ketuanan Federal Government’ in governance, ‘Ketuanan GLC’ in production, and ‘Ketuanan Monopoly Bank’ in finance.

NEP cannot mobilise the entire brain-power of Malaysia for knowledge-creation because it prevents entrenchment of excellence in socio-economic institutions, and induces brain drain and capital flight. For Malaysia to escape the middle-income trap, ‘Ketuanan Centralisation’ must be purged from the public policy framework to make way for knowledge-led growth.

Wing Thye Woo is President of the Jeffrey Cheah Institute on Southeast Asia and Director of the Jeffrey Sachs Center on Sustainable Development at Sunway University and Professor of Economics at the University of California at Davis; he holds adjunct academic positions at Fudan University and Chinese Academy of Social Sciences.

 

 

Cambodia: Emerging from the Shackles of History in relations with Thailand, Vietnam and China


March 16,2019

Cambodia: Emerging from the Shackles of History in relations with Thailand, Vietnam and China

By Kimkong Heng and Veasna Var

http://www.ippreview.com

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Kimkong Heng is a doctoral candidate at the University of Queensland and a recipient of the Australia Awards Scholarship. Veasna Var is a doctoral candidate at the University of New South Wales, Canberra and a Senior Fellow at the Cambodian Institute for Cooperation and Peace.

Cambodia has a long history. It has both a proud past and a tragic history. The country had its period of greatness during the ancient Khmer Empire, an empire which built the fabled temple Angkor Wat, one of the seven wonders of the world. Following the Angkorian era which began at the beginning of the 9th century and collapsed 600 years later, Cambodia found itself in one of the most tragic periods in its history. For almost 500 years, the country came under the enduring pressure of foreign invasion and annexation. Both Thailand and Vietnam, its stronger neighbors, annexed large parts of Cambodian territory.

Cambodia, unable to survive by itself due to constant foreign encroachment from its two more powerful neighbors, reached out to France for protection. The French protectorate of Cambodia was then established in 1863, signalling the beginning of Cambodia’s colonial period which lasted for 90 years before the country gained its independence in 1953. Following independence, Cambodia, under late King Sihanouk’s reign, saw major development in almost all areas. Unfortunately, peace was short-lived and the process of nation building did not last very long, as Cambodia soon after found itself engaged in a series of civil wars which dragged on for more than three decades.

Starting in the 1960s, the country became a Cold War battleground and involved in the Vietnam War, was bombed by the US, and later suffered an unspeakable tragedy during the Khmer Rouge regime which lasted for almost four years and killed an estimated 1.7 million Cambodians.

The Khmer Rouge genocidal regime was so devastating that it had instilled in virtually every Cambodian a strong sense of hatred, fear, and scepticism. Although Cambodia was fortunate to have survived the auto-genocidal regime, this tragic past has profound implications for Cambodia and its people.

The memories of pain which cannot be blotted out easily and which will not fade away anytime soon have been carried over to present-day Cambodia and they still haunt the new generations of Cambodians. These bitter memories, either experienced first-hand or told from the survivors, have adversely affected the minds of Cambodian people from all walks of life. Common among them are negative thoughts and feelings towards foreigners or xenophobia.

Xenophobia in Cambodia is a serious issue which should not be ignored or taken lightly. It is a critical issue that has to be addressed carefully and quickly. If not addressed properly and timely, xenophobic sentiments may lead to large-scale violence, discrimination, and hatred. One example was a violent riot against Thai embassy and Thai businesses in Phnom Penh in 2003. This incident was obviously motivated by anti-Thai sentiments among Cambodians. At that time, there were rumors that a famous Thai actress had claimed that Angkor Wat belongs to Thailand. Without knowing whether the rumors were true or not, many xenophobic and nationalistic Cambodians began a savage attack on anything related to Thai.

Thailand and Cambodia share a common culture and history. People of both countries have made numerous claims regarding past events, lands, temples, arts, dances, and more. Each side has asserted and will continue to claim as their own relevant pieces of land, elements of arts and culture, and other claimable abstract and non-abstract things, despite historical facts.

There is no doubt a deep-rooted anti-Thai sentiment among Cambodians and perhaps vice versa. Whenever something which is controversial or uncertain happens, as long as it involves Thailand and Thai people, a sense of anti-Thai sentiments, an element of Cambodia’s broader xenophobic issue, would take centre stage. A notable example is a series of fierce border clashes between Cambodian and Thai troops over the Preah Vihear Temple between 2008 and 2011. The skirmishes were sparked by a land dispute which was in turn caused by conflicting narratives of historical facts and animosity towards each other.

All decisions, measures, and approaches to solutions of issues, be it political, economic, social, or cultural, tend to be clouded by anti-Thai sentiments which seem to exist in every Cambodians of all ages and genders. They seem to lie in hibernation inside Cambodian people and just need a small trigger to come back to life and begin, in many cases, to create problems and issues that could further exacerbate an already troubled situation. The consequences of which are generally unpleasant and harmful, easily leading to more racial discrimination, hatred, and anti-Thai nationalism. This issue of xenophobic sentiments, if not taken into account properly by both Cambodian and Thai governments and relevant stakeholders, will remain and will continue to harm Cambodia-Thailand relations and prevent harmonious co-existence between Cambodian and Thai people.

The anti-Thai sentiment is just one thing; anti-Vietnamese nationalism is another, an issue which appears to be even more serious in Cambodia. It is widely believed and known among Cambodians that Vietnamese people’s intention to encroach on Cambodian land never changes. Many Cambodian people hold a perception that Vietnam is a threat to Cambodia’s territorial sovereignty. This constant pessimistic thought about the Vietnamese, the so-called anti-Vietnamese sentiment, exists in almost every Cambodians to varying degrees. Much like the anti-Thai sentiment, this hatred towards Vietnamese people lies in a dormant state until it is “awakened” by any issue or incident involving Vietnamese.

Youn”, a Khmer word commonly used to refer to Vietnam and Vietnamese people, is arguably a pejorative term associated with anger and hatred. Khmer people often use this word instead of its equivalents, Vietnam and Vietnamese, to refer to their eastern neighbors when they are angry or want to express negative emotions about Vietnam and its people. As noted two decades ago, “forms of Cambodian racism towards Vietnam and the Vietnamese minority in Cambodia did not develop in a historical vacuum but rather developed particularly in response to the expansionist tendencies of the pre-colonial imperial state”. Apparently, almost if not all Cambodians know or have heard stories of Vietnam’s encroachment on Cambodian territory. They are all aware of the fact that many Cambodian provinces were lost to Vietnam. In particular, it is well-known among Cambodians that Vietnam encroached Prey Nokor (formerly a Cambodian territory) and institutionalized it as a city, now known as Ho Chi Minh City.

emories and knowledge of Vietnam’s encroachment on Cambodia’s sovereign territory are passed down from one generation of Cambodians to the next and are seen to be ingrained in the minds of many Khmers. Even now Cambodian people still think that Vietnam wants to “swallow” Khmer land and that Vietnam’s wish to take over Khmer territory still remains. This line of thinking is not helpful. Not only does it fuel anger, hatred and distrust among Cambodians, but it also stirs up widespread anti-Vietnamese feelings in Cambodia.

Recognizing the deep-rooted anti-Vietnamese sentiments among Cambodians, Sam Rainsy, the exiled leader of the now-dissolved opposition Cambodia National Rescue Party (CNRP), has always taken advantage of this issue and used it as part of his party’s main propaganda. As one of the authors of this analysis has argued in a recent article, anti-Vietnamese sentiments have always been a political tool Sam Rainsy and his party’s senior officials use to undermine their opponents, Prime Minister Hun Sen and his ruling Cambodian People’s Party (CPP) elites. The use of the anti-Vietnamese sentiment, another form of Cambodia’s xenophobia, is harmful, although the opposition party draws support from it. What this anti-Vietnamese rhetoric does is create tensions, division, and confrontations among Cambodians. Sam Rainsy and his party elites should begin focusing their attention on tackling other important social issues, not dwelling on using anti-Vietnamese sentiments for political gain at the expense of Cambodia-Vietnam relations and amicable existence between people of the two neighboring countries.

Moving beyond the anti-Thailand and anti-Vietnam sentiments, Cambodia still has to face other forms of xenophobia. There were memories of anti-French sentiments, particularly among older Cambodians, driven by the impact of French colonization of Cambodia. However, now there seems to be no evidence of any anti-French sentiment in Cambodia today, as all attention is given to more modern issues facing the country. Looming large are key issues such as income generation, self and family survival, education, politics, and other critical social issues.

The Cambodian government should improve law enforcement and work hard to reduce the large and growing number of unpleasant incidents such as violence, accidents, and abuses that tend to involve the Chinese diaspora living in Cambodia. The anti-Chinese sentiment has emerged from these issues.

It is particularly and surprisingly fortunate that seemingly the whole country has moved beyond discrimination and historical hatred against France whose colonization of Cambodia led to the loss of Kampuchea Krom (former territory of Cambodia) to Vietnam in 1949. Although there have been petitions demanding the decolonization of Kampuchea Krom territory, there seems to be no sign of animosity expressed towards France and the French people. Little is known why Cambodians seem to disregard the fact that the French colonialist “cut” Kampuchea Krom and gave it to Vietnam, despite numerous protests from Khmer Krom activists in Cambodia and abroad. However, that Kampuchea Krom was ceded to Vietnam by the French has obviously further intensified anti-Vietnamese sentiment among Cambodians.

Moving forward, two issues remain which could potentially become new forms of xenophobia in Cambodia, if not addressed properly and in a timely manner. The first is the incumbent government’s recent reiteration of the US bombing of Cambodia in the late 1960s and early 1970s that contributed to the rise of Pol Pot and the Khmer Rouge which took control of Cambodia in 1975 and immediately proceeded to decimate the country and its people, wishing to create a pure, self-reliant, and sovereign Khmer nation. Hun Sen and his team’s criticism of the United States, although offering short-term benefits to their party, is also harmful. It may over time develop a sense of hatred and ill will towards the US and American people, potentially creating another form of xenophobia in Cambodian society, that is, anti-American sentiment among Cambodians, particularly those who support the current ruling party.

In reality, history is history; it can neither be denied nor changed. However, it is much better to learn from past lessons to plan for the present and future rather than let the past control the present and dictate the future. The ruling elites of the CPP, in this regard, should move beyond their recent narratives of the “US bombing” and, like the CNRP, should direct their attention to resolving pressing social issues facing Cambodia. Repeating and promulgating the damage that the US inflicted on Cambodia in the 1970s will not benefit Cambodia and its people in the long run. It only exacerbates the current poor relations between the US and Cambodia, which is certainly not a viable foreign policy option for the latter.

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The second issue which has arisen recently in Cambodia is the emergence of anti-Chinese sentiment which appears to be on the rise. The perceived increase of anti-Chinese feelings among many Cambodians are seen as a negative side effect of the growing Chinese presence in Cambodia, especially in the country’s coastal province, Sihanoukville. Over the last few years, Chinese investors have in large numbers flocked into Sihanoukville to invest in building casinos, apartments, theme parks, and resorts.

The Chinese’s increasing presence has implications for the Cambodian province and Cambodia at large. Not only can one see the mushrooming of high-rise buildings, casinos, restaurants, and other businesses run by the Chinese immigrants, but one can also experience or at least feel an increase in crime, violence, drug trafficking, and pollution, in the once-sleepy coastal province. There are frequent reports in the news about violence, abuses, scams, cybercrime, and violations of expected social norms and rules of law, many of which involve the Chinese living and working in Cambodia and in Sihanoukville in particular. Until October 2018, for example, 1,649 Chinese nationals were deported from Cambodia for scams and cybercrime offenses. These many incidents, together with similar stories happening in other countries, have arguably contributed to the emerging rise of anti-Chinese sentiments among the general public in Cambodia.

This new issue of anti-Chinese nationalism may not be seen as a serious issue now, but if left to develop freely and not addressed properly and timely, it is likely to lead to a big problem, consequences of which is less predictable and should raise concerns for the Cambodian government and Cambodian people. It is the duty and responsibility of the current ruling government of Cambodia to find ways to address the issue while it is still in the early stages. Although the Cambodian government, especially the ruling elites, has significantly benefited from Cambodia’s close relationship with China, it is wise to diplomatically bring this issue to the discussion table and work towards collaborating with the Chinese government to tackle this rising anti-Chinese sentiment among the Cambodian populace. It is always a good idea to make big problems small and small problems even smaller. To do so, the Cambodian government, with support from its Chinese counterpart, has to do something to deal with this emerging issue.

Xenophobia in Cambodia, whether it is a long-standing issue like anti-Thai and anti-Vietnamese sentiments or a new one like anti-Chinese sentiment, is a critical issue that needs to be addressed properly and taken more seriously than it currently is. As has been argued, Cambodian youth have crucial roles to play in improving Cambodia-Vietnam relations. Youth are the backbone of the country and the future of Cambodia. They are “Cambodian ambassadors in the making who are responsible for raising the profile of Cambodia in the region and the international stage”. They can contribute to navigating the Cambodian ship as long as they are given chanced and their efforts are recognized and valued. Thus, engaging youth in all realms of political, economic, social, and cultural life, for example, is important and is what the Cambodian government should strive for.

Cultivating and nurturing mutual respect, understanding, and tolerance between people of all nations involved is also crucial. In the case of Thailand and Vietnam, prevalent racial hatred, contempt, and discrimination resulting from awful past history and recent events can probably be minimized through the cultivation of genuine and mutual respect between Khmer and Thai people and between Khmer and Vietnamese. With respect to improving Cambodia-Thailand relations, one of these authors has also argued in an article in the IPP Review for the important role of mutual respect and the role of Cambodian youth in shaping Cambodia’s relations with Thailand. As it is argued, Cambodian people, youth in particular, “should not dwell on their dark history; instead, they should use lessons from history to help them make informed and impartial judgments when dealing with issues concerning Thailand and its people”.

However, these cannot be done without support from the Cambodian government as well as governments of Thailand and Vietnam. All parties have vital roles to play in fostering and improving their respective relations. Efforts, commitment, and cooperation at all levels, individual, institutional, and national, are essential. These are important steps towards fostering good relations between these countries which have regarded each other as one’s own traditional enemy.

With respect to the US, the Cambodian government should stop using the rhetoric of US bombing of Cambodia. While it is true, it only worsens Cambodia’s relations with the world’s largest economy. Although Cambodia has great relations with China, its largest economic and military benefactor, it would be unwise to alienate the US and fully embrace China. The most viable approach or way forward for Cambodia is to make as many friends as possible. It is undeniably true that having two best friends, the US and China, is absolutely better than having just one friend. All Cambodian eggs should be placed on two or more baskets, not just one basket. It is safer and more secure that way.

On the issue of anti-Chinese sentiment, Cambodia should take it into account most seriously. Now it seems to be not an issue yet but it will be a problem, a big one, if no due attention is paid to it. Recently, Prime Minister Hun Sen has urged and assured that many Chinese immigrants who are working in Cambodia, particularly in Sihanoukville, will leave the country once the Chinese projects for which they work are complete. This assurance is helpful but not sufficient. The Cambodian government should improve law enforcement and work hard to reduce the large and growing number of unpleasant incidents such as violence, accidents, and abuses that tend to involve the Chinese diaspora living in Cambodia. The anti-Chinese sentiment has emerged from these issues. Addressing them would also address the recently growing anti-Chinese feelings among the Cambodian general public.

Finally, xenophobia in Cambodia is a major social problem that requires absolute attention from all stakeholders in the country. It is neither the job of the government nor the duty of Cambodian citizens alone. It is a critical issue that requires cooperation, commitment, understanding, and willingness from all parties, regardless of their political views, positions, or beliefs. Cambodian xenophobia and paranoia, no doubt, have a malign influence on Cambodia’s efforts to promote the Kingdom’s integration into the region and the world. It will definitely damage the image of Cambodia on the global stage in the long term.

It is time for Cambodians, the ruling elites and the ordinary people, to work together in unity and in harmony to solve key issues facing their country. As a saying goes, “God helps those who help themselves”. Thus, Cambodians must work collaboratively and willingly to help themselves and their country.

 

 

Cambodia’s Foreign Policy: Sovereignty, Self-reliance and Diversification


March 14, 2019

Cambodia’s Foreign Policy: Sovereignty, Self-reliance and Diversification

By Chheang Vannarith

https://www.khmertimeskh.com/50586127/cambodias-foreign-policy-sovereignty-self-reliance-and-diversification/

The annual conference at the Ministry of Foreign Affairs and International Cooperation last week highlighted three key words in the formulation of Cambodia’s foreign policy in the new era: sovereignty, self-reliance, and diversification.Image result for Cambodia

Sovereignty has been regarded as the core principle and interest of foreign policy, especially amidst mounting diplomatic and economic pressures from the European Union.

Sovereignty has been regarded as the core principle and interest of foreign policy, especially amidst mounting diplomatic and economic pressures from the European Union. Prime Minister Hun Sen has continually stressed that Cambodia will never compromise or surrender sovereignty for foreign assistance. Foreign Minister Prak Sokhonn has also emphasised that sovereignty is a matter of survival for Cambodia.

The concept of sovereignty is increasingly critical to the formulation of Cambodia’s foreign policy strategy and approach. Sovereignty is generally understood in the Cambodian context as the absolute, legitimate right exercised by an independent state over its territory and people, without external coercion or interference. Notably, resistance against foreign intervention is unprecedentedly high since the establishment of the Second Kingdom of Cambodia in 1993.

Protecting sovereignty is becoming more challenging for small states like Cambodia. Major powers are not keen to see small states stay neutral as they are willing to force small states to take sides if necessary. In the 1960s, Cambodia was forced to take sides, against its own will and interest.

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Now Cambodia has ASEAN to help protect its sovereignty. However, the future ability of ASEAN to provide continued protection of sovereignty to its members is uncertain due to increasing pressure from major powers. ASEAN centrality is at greater risk in the context of heightening geopolitical rivalry between major powers.

Self-reliance and diversification are the two key strategies to protect the Kingdom’s sovereignty. Reducing dependence on foreign aid could help build economic independence and national resilience. And leadership does matter in promoting self-reliance.

Dependency syndrome on external support has trapped Cambodia for many centuries due to internal weaknesses and a lack of national reconciliation and unity. Beginning after the collapse of the Khmer Empire in the 15th century, Khmer rulers of the past sought support from foreign countries to protect or gain power. Since the Paris Peace Agreement in 1991, Cambodia has heavily relied on foreign donors for socio-economic development. In the 1990s, some even called Cambodia an “NGO-driven economy”.

Now it is necessary for Cambodia to recalibrate its political doctrine based on the concept of self-reliance, which is very much influenced by the Buddhist philosophy of life. Cambodia should not expect other countries to protect its interests and sovereignty; it needs to rely on itself. Realistically, no country or person is more invested in the interests of Cambodia than Cambodians themselves. Cambodia will be unable to maintain its sovereignty unless it is economically independent and resilient.

Diversification is another key term being used by Cambodian policy makers and analysts alike. There are three layers of diversification at the international, national, and local levels. Internationally, Cambodia needs to build more economic and strategic partnerships, expand export markets, and make new friends. The leadership of the Ministry of Commerce has the responsibility to diversify export markets through bilateral and multilateral trade deals. Remarkably, Cambodia does not have any bilateral free trade agreement with any country yet.

Diversification is another key term being used by Cambodian policy makers and analysts alike. There are three layers of diversification at the international, national, and local levels. Internationally, Cambodia needs to value add,build more economic and strategic partnerships, expand export markets, and make new friends. The leadership of the Ministry of Commerce has the responsibility to diversify export markets through bilateral and multilateral trade deals. Remarkably, Cambodia does not have any bilateral free trade agreement with any country.

Domestic economic success defines Cambodia’s role and image abroad. The success of Cambodia’s foreign policy largely depends on institutional reforms at home. There is a need to build a new generation of career diplomats who are capable of promoting Cambodia’s political, economic and cultural relations with other countries. Currently, the government gives priority to economic and cultural diplomacy.

At the national level, Cambodia has implemented institutional reforms to diversify its sources of growth and increase its productivity. Moving from labour-intensive industries to skill-driven industries or a knowledge-based economy is a must. Cambodia is running out of time to catch up with other regional economies, especially in the context of the fast-evolving Fourth Industrial Revolution.

Early this year, a working group on digital economy was formed to conduct studies and propose policy guidelines and action plans to direct Cambodia’s future economy. Cambodia could leapfrog its economic structure if it has the right leadership and policy. It is high time for Cambodia to undergo “institutional surgery” to cut off bad, infectious parts of the governance body.

At the local level, Cambodia needs to do much more to diversify its sources of funding and development partners. Fiscal decentralisation is critical to rural development and poverty reduction. Leadership and institutional capacity building for local governments is also required. Merit-based appointment of local bureaucrats must be encouraged, at the provincial, district, and commune levels.

Chheang Vannarith is President of Asian Vision Institute (AVI), based in Phnom Penh

 

 

Viewing Cambodia’s political development from the inside out–A REJOINDER


March 4, 2019

Viewing Cambodia’s political development from the inside out–A REJOINDER

 by Sim Vireak

facebook/Robert Kleiner Photography

This is in response to the article written by Kimkong Heng and Veasna Var entitled “Reversing Cambodia’s democratic drift” which appeared in East Asia Forum. The article raised three major points namely the alleged sham election, the decrease of legitimacy and the growing state autocracy.

I wish to reflect upon the nuances of the development of democracy in Cambodia through historical comparison and debate on the nature of autocracy.

Cambodia’s democracy should be viewed as still in the elementary school level if compared to other advanced and established democracies as discussed by Soun Nimeth , which appeared in Myanmar Times. He argued that viewing it from the nation-building perspective, Cambodia is among the top scorers. Its political development comprises three elements in tandem namely peace, strong economic growth and a certain level of democratisation, which is currently a rare case in the region.

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Calling the 2018 election a “sham election” is rather a misplaced argument. Out of the 8.3 million registered voters, 83 percent went to vote, which is relatively high if compared to other countries with a non-compulsory electoral system. For instance, the Philippines had 60.6 percent in 2013, India 58.19 percent in 2009, the US 41.59 percent in 2010 and 55.7 percent in 2016, and Japan 53.68 percent in 2017.

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Nearly 1.5 million people voted in favour of another party than the Cambodian Peoples’ Party (CPP). If we consider the exceptionally high number of invalid votes of over 500,000, we can consider that more than two million voters (out of some 7 million) expressed a preference different from that of the CPP. The number of invalid votes is also a good indication of freewill and secrecy of ballot.

Compared with previous elections, there are two major historical developments that should deserve attention.

Firstly, it is the first election that was held with zero incidence of violence. There was less tension as contending political parties did not instigate class division, racial hatred, xenophobia and ultra-nationalism.

Secondly, there was absence of post-electoral confusion. Previously, after every general election, Cambodia’s government would be stalled by prolonged electoral deadlock, if not violence. Allegations on vote irregularities such as voters’ list, name duplication, voter registration and management, etc. were common. Such confusion had been neutralised thanks to the digitalisation of voters’ list, which was technically supported by Japan and the EU.

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Arguing that the government’s legitimacy is under threat and is drifting towards autocracy does not reflect reality on the ground.

The authors got mixed up between the concept of “approval rating” and “legitimacy.” It is normal that the approval rating of President Trump, President Macron and Chancellor Merkel are decreasing but that does not mean that their legitimacy is under threat. Besides, legitimacy is not for outsiders to decide but for the Cambodian people.

Touching on arguments of autocracy, the high level of freedom of expression and freedom of association should be cited.

Media criticism is becoming a part of life for every Cambodian. Far from being autocratic, the government has been very sensitive towards public opinion.

The case in point is the violent incident involving land issues in Preah Sihanouk province. Four military police officers were disciplined after the probe and Preah Sihanouk provincial governor was publicly criticised by the Minister of Interior for the violent clashes with people. Recently, two deputy provincial governors were officially removed following the Supreme Consultative Council’s meeting last week.

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Another incident involved the sacking of Ratanakkiri Provincial Military Police Chief Kim Raksmey after criticism on his handing out of $500,000 to his children at a birthday party.

Online media freedom is reaching the level of frenzy. Social media users in Cambodia are free to say practically almost anything you want against the government’s underperformance. Any foreigner who can read Khmer on Facebook would immediately understand that the language used in social media is clearly not an expression that can be used by people under suppression.

The two foreign affiliated radios, Radio Free Asia (RFA) and Voice of America (VOA) in Khmer, can be heard uninterrupted daily throughout the country along with their online webcast. The RFA and VOA are free to broadcast their daily tirades against the government, in the likes of animosity between President Trump and CNN. Their popular radio programme can be accessed anytime over the Net and also on Facebook. It is estimated that of the country’s 29.2 million mobile phone connections, 52 per cent have 3G or 4G broadband coverage.

Cambodia continues to be an “NGO paradise” with more than 5,000 operating freely and their voices are impactful. If they are under pressure, they should have voiced support for the EU as it launched procedural action to withdraw Cambodia’s trade preferences under the Everything But Arms scheme – an action the EU claims as necessary to save the opposition and civil society groups. The reality is that none of the civil society organisations operating in Cambodia have voiced their support for the EU’s latest action. So is the EU barking up the wrong tree?

Labeling Cambodia as autocracy stems from the misperception of Cambodia’s political development and the gross over-expectation of a performance beyond that of an elementary-level democracy. On top of that, geopolitical interests are also at play. These factors, indeed, exert pressure on the political, economic and strategic choices of Cambodia. However, it should be fair to say that such discussion should be separated from the context of the state’s legitimacy.

Sim Vireak is strategic advisor to Asian Vision Institute (AVI) based in Phnom Penh.

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Time for bolder steps from ASEAN


March 4, 2019

Time for bolder steps from ASEAN

By : Ponciano Intal Jr, ERIA

ttps://www.eastasiaforum.org.Image result for ASEAN

ASEAN is now facing circumstances that are fundamentally different from anything it has dealt with before. They require a much more proactive approach on international and regional integration strategies. ASEAN is unlikely to maintain its centrality unless its leaders are prepared to take bold steps, beyond ‘business as usual’.

 

ASEAN has come a long way from its beginnings in 1967. It transformed an area of turmoil, antagonism and violence into a zone of cooperative peace and prosperity, and disparate economic backwaters into an increasingly integrated global growth powerhouse. A region that was a Cold War pawn is now central to the economic and political-security architecture of the Asia Pacific, and Southeast Asian peoples, once largely cut off from one another, are becoming a strong socio-cultural community.

A major reason for this remarkable transformation is that ASEAN leaders collectively stepped forward when faced with tremendous challenges. ASEAN crisis-points in the past are frequently forgotten when assessment is being made of its capacity to deal with new challenges. For example, leaders replaced Preferential Tariff Arrangements with the ASEAN Free Trade Area (AFTA) in 1992 when faced with potential ’fortresses’ in the European Union and the North American Free Trade Agreement. AFTA is still driving regional integration and the ASEAN Community, despite the 1997 financial crisis and the shift in investment flows out of ASEAN and into surging China.

But the new challenges require an even bolder response.

The realignment of great power relations in the Asia Pacific is causing great geopolitical uncertainty. The digital and fourth industrial revolution is expected to accelerate, generating significant regional unease about its impact on lower end employment. On the other hand, there is transformative potential for greater productivity in firms and industries, better growth opportunities for small and medium enterprises, and enhanced resiliency and sustainability across the ASEAN economies.

The surge in protectionism and anti-globalisation in much of the developed world underlines the priority of pursuing inclusive growth, economic openness and regional integration in ASEAN and the wider region through the proposed Regional Comprehensive Economic Partnership (RCEP). The rules-based multilateral trade regime and economic order is vital to ASEAN’s prosperity, but is under threat. The vulnerability of many ASEAN countries to climate change also demands sustainable and resilient development.

The next two decades will see history’s largest increase of middle and upper-middle classes in the India–ASEAN–China corridor, dubbed the ’golden arc of opportunity’. ASEAN needs to be well positioned to take advantage of this opportunity. With far less technological capability and skilled manpower than China or India, ASEAN has to improve markedly its technological prowess, human capital, institutions and infrastructure.

So what can ASEAN leaders do to overcome the immense challenges the region faces?

Nimble and proactive diplomacy that asserts ASEAN centrality and harnesses the collective leadership of middle powers can do much for peace, security and prosperity in the wider region. Bringing together middle powers to raise their concerns will help constrain China–US competition and confrontation. ASEAN can also provide a strong and unified voice to ensure an inclusive regional architecture emerges.

Asian collective leadership is now essential to maintaining and strengthening multilateral rules and trading systems that ASEAN and the wider region rely on for economic prosperity and political security. Successfully concluding RCEP is just the start. But it will be important to ASEAN’s global credibility and voice in brokering a way forward with reform of the multilateral trade regime.

The biggest threat to ASEAN’s open and inclusive development is that to the rules-based multilateral trading system and international economic order. This system is a core interest of ASEAN and other countries in this region. The trade war has highlighted deficiencies in the World Trade Organization and international trading system that need to be addressed. ASEAN and Indonesia through their prominent participation in the G20 process have a common and urgent interest with like-minded partners in framing Asia’s proactive response to this challenge.

A more vigorous and active regional and international diplomacy will only be successfully built on stronger ASEAN foundations. Leaders will need to implement the ASEAN Economic Community Blueprint and other measures that realise an integrated, connected and seamless ASEAN single market and production base. This would help ASEAN compete with China and India’s more liberal trade and investment environments and allow deeper integration across the region.It will also help ASEAN stand firm in its international diplomacy.

Deeper ASEAN integration means making fully operational national single windows, the ASEAN Single Window, national trade repositories, the ASEAN Trade Repository, the ASEAN Customs Transit System, and ASEAN self-certification schemes.

It also means ensuring transparent and streamlined non-tariff measures and a more concerted effort to strengthen regional and national standards and conformance quality infrastructure and systems. Leaders should also develop a strong and liberalised services sector and an open investment regime with freer flow of data and payments, institutionalise ASEAN’s Good Regulatory Practice, and implement a quality Regulatory Management System in each ASEAN country. There also needs to be greater commitment to skills mobility and development within the region, including greater focus on lifelong learning and skills training.

It is also essential to prepare for, adapt to and harness the digital and fourth industrial revolution. This requires creating stronger institutions and policies, with many already embedded in the ASEAN Community Blueprint. Embracing the digital revolution and adapting to new technologies under Industry 4.0 would drive ASEAN forward in upgrading its economies, enhance resilience and sustainability, empower its people, strengthen people engagement and connectivity, improving governance, and strengthen ASEAN’s innovation ecosystem.

Put together, these measures will revitalise ASEAN into a vibrant and influential grouping that is set for success in the decades to come.

Ponciano Intal Jr is a Senior Economist at the Economic Research Institute for ASEAN and East Asia.

 

 

 

 

To Lose or Not to Lose: Cambodia’s Dilemma over its EBA Status


February 27, 2019

To Lose or Not to Lose: Cambodia’s Dilemma over its EBA Status

By Kimkong Heng

 

http://www.ippreview.com

https://dinmerican.wordpress.com/2019/02/27/to-lose-or-not-to-lose-cambodias-dilemma-over-its-eba-status/

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William Shakespeare’s famous quote, “to be or not to be, that is the question”, can now be applied to what is happening in Cambodia, but with a twist. As the country is now negotiating with the European Union (EU) regarding the latter’s wish to strip off its Everything But Arms (EBA) trade preferences from the former, we can see the relevance of Shakespeare’s well known line and we can say “to lose or not to lose, that is a Cambodian dilemma”.

After the EU threatened to remove its preferential trade deal in response to Phnom Penh’s perceived lack of commitment to improve its democracy and human rights situation, the country now faces a dilemma. On one side, Cambodia has to satisfy the demands of the EU, which may eventually result in the reinstatement of the opposition Cambodia National Rescue Party (CNRP), dissolved by the Cambodian Supreme Court in 2017. This is a dilemma on the part of the incumbent Cambodian government because, as the results of the 2013 national election and 2017 local elections showed, the CNRP could be a threat to the domination of the ruling Cambodian People’s Party (CPP) of Prime Minister Hun Sen. Dissolving the opposition before the election is clearly a win-win strategy that the CPP employed to secure victory. Reinstating it is certainly not part of the government’s agenda.

On the other side of the dilemma, Cambodia is facing a potential loss of its EBA status after the EU began a procedure to withdraw its trade preferences from the Kingdom in October 2018. Under the EBA scheme, Cambodia being one of the world’s least developed countries is granted with duty-free access to the European market. In 2017 Cambodia’s exports to the EU were valued at 5 billion euros (US$5.8 billion), making Europe the largest export market of Cambodia. The garment and footwear industries, which account for 40 percent of Cambodia’s GDP and employ about 800,000 Cambodian workers, rely to a great extent on tariff-free exports to Europe. Losing the EBA preferences would adversely impact the whole industry which is vital to Cambodia’s economy and has been considered as a sector too big to fail.

Thus, Cambodia is apparently in a dilemma over how to tackle the EBA issue. To continue benefiting from the EU trade preferences, the CPP-led government has to consider bringing back the dissolved opposition, a move Hun Sen and his ruling elites have tried to avoid. However, if Hun Sen’s government refuses to give in to the EU’s human rights demands, it will risk losing the EBA status, the consequences of which may be severe for Cambodia’s economic growth. As it stands, it is no longer a win-win scenario for the Cambodian government. It is a dilemma between sustaining robust economic growth and maintaining political dominance, both of which are critical to the incumbent government’s legitimacy.

Cambodia’s responses to the EU’s potential economic sanctions have been contradictory, perhaps reflecting this dilemma. As David Hutt aptly noted, the Cambodian government’s response to the EBA issue “has oscillated between victimhood and vainglory, between saying Cambodia’s economy won’t be too badly affected by the EBA’s withdrawal and saying that if the EU goes ahead with its threat, it will destroy of livelihoods of millions of Cambodians, mostly the poor”.

The inconsistency in the government’s response may explain the dilemma confronting Hun Sen and the CPP elites. Clearly the Cambodian government understands the potential negative effects that the loss of the EBA scheme may have on the lucrative garment sector that has contributed to Cambodia’s economic growth and directly benefited almost a million garment workers, not to mention the cumulative impact on their extended family. The promulgation by the government that losing the EBA preferences won’t affect Cambodia is far from convincing. How can losing tariff-free export ability not affect the economy that benefits from tariff-free exports? It is not so difficult to comprehend.

After the EU announcement regarding the EBA withdrawal, there have been strong reactions by the Cambodian government and a series of analyses in the media about the EU’s double standards in its treatment of Cambodia. The Cambodian government has called the EU’s EBA threat an extreme injustice and a prejudicial decision. Hun Sen has warned of the death of the opposition and has been reported saying that the EU’s withdrawal of its trade preferences may become the West’s third mistake in dealing with Cambodia.

While Cambodia is facing a dilemma and may easily look to China for support, the EU should probably understand the potential repercussions of its decision.

However, lingering uncertainty regarding the eventual outcome of the EBA withdrawal, coupled with the EU’s recent announcement to implement protectionist tariffs on Cambodia’s rice exports, has worried investors and business leaders in Cambodia. In late January 2019, 40 signatory leaders of industry associations who represent the Cambodian economic community released a joint statement to the EU Trade Commissioner to express their deep concerns with respect to the potential imposition of tariffs and withdrawal of the EBA scheme. The statement appealed to the European Commission and the European member states to continue to support Cambodia by “refraining from taking any action that will harm the interests and livelihoods of the country’s [Cambodia] people”. The EU has not officially responded to the appeal but seems to proceed with its formal procedure to withdraw the EBA benefits from Cambodia; nevertheless, according to the EU, the channels of dialogue to resolve the difference are still kept open.

Although it remains to be seen how this EBA issue will unfold, Cambodia’s recent response to the EU’s calls does not seem to be effective and satisfy the EU’s demands. The Cambodian government has viewed the EU’s dealing with Cambodia as an injustice and a threat to Cambodia’s sovereignty and independence. Complying with the EU requirements, in the Cambodian ruling elites’ view, is like allowing foreign countries or entities to interfere with Cambodian politics or domestic affairs. Cambodia cannot trade its sovereignty, independence, and peace for economic assistance.

Such a line of thinking is applaudable and is well-received by Cambodians, but as has been spelled out in a recent article, “EBA is not a trade pact open to negotiations – it is a trade preference gifted to financially impoverished countries and designed to encourage democratic and social reforms more attuned with European standards”. Therefore, it seems appropriate when the EU demands improvements to the human rights situation in Cambodia. If Cambodia wishes to remain part of this preferential scheme, it has to meet the conditions laid out by the EU with regard to the trade preferences. Cambodia does not have “inherent right to be part of the EBA scheme”.

Despite the dilemma, Cambodia seems to have a choice which, analyzed based on recent political developments, requires it to choose between losing the EBA status or improving the human and political rights situation in the country, perceived to be deteriorating. If no concrete measures are taken to salvage the current situation, losing the EBA benefits would be a high possibility. Cambodia apparently cannot continue to enjoy the duty-free access to the EU market while ignoring the EU’s demands for better human rights and democracy. The aim of EBA preferences is to contribute to the economic development of the world’s poorest countries; however, the preferential scheme does come with conditions that have to be fulfilled by beneficiary countries.

Based on the current development, the EU’s intention to withdraw its special trade preferences granted to Cambodia does have implications for the relationship between the two sides. In the Cambodian government’s words, the EU decision to suspend the EBA preferences would “nullify the enormous positive impact of the European policy from which Cambodia has benefited so far”. The EU measures would also very likely propel Cambodia into a closer embrace of China, its largest aid donor and foreign investor.

Thus, while Cambodia is facing a dilemma and may easily look to China for support, the EU should probably understand the potential repercussions of its decision. Both sides need to bring the issue to the discussion table and continue to keep the path of dialogue open. The way forward, as the EU has suggested, is through dialogue and negotiation. The EU, however, should try harder to understand Cambodia’s difficulty and situation, while Cambodia has to keep an open mind and try to understand the underlying intention of the EU actions with trust and willingness. Going to the discussion table with suspicion, distrust, and accusation is not a viable option, but it only helps to exacerbate the precarious situation.