Is Deportation of Cambodians from the U.S. Morally Right?

The Long Beach Press Telegram ran a three-part series of articles on the problems deportation poses for Cambodian people. You can read those article here http://www.presstelegram.com/news/ci_11341504 or on KI-Media.

For those of you who won’t trouble with reading those articles – the long and the short of the articles is about Cambodian permanent residents of the U. S. who ran afoul of the law and were subsequently deported as the Immigration and Naturalization Act of 1996 provides.

Needless to say this has been a subject of great passion among overseas Khmer. As the reporters say most of the responses received to the articles, however, were in favor of those deportations.

Others, and the reporters also seem to take that stance, hold that these people are all victims of the system and should not be lumped together with other nationalities as Cambodians came to the U. S. in the aftermath of the Vietnam War and the Pol Pot regime, which probably would not have come to power if the U. S. had not so blatantly violated international law by invading and bombing the territory of Cambodia, inflicting great harm and suffering on the Cambodian people.

According to those articles only 189 people have been affected so far, with another 1700 under deportation orders and another 1700 in the pipeline, while a total of close to 350,000 people were deported in 2008. So this is really a minuscule number of the total. But, of course, each number represents a person with loved ones and a greater family and their own very personal story behind it.

The law is clear and if enforced to the letter nothing can be said against those deportations. No matter whether or not the law is good, bad, too inclusive, politically motivated, or whatever, the law is the law, and it must be respected and complied with. That’s the premise of our living together as societies in every country. If a foreigner who has been living in Cambodia for years and commits a crime that foreigner will be sentenced to a prison term and thereafter be deported to his/her own country. A case in point was the deportation of that aging British rock singer from Vietnam, who was previously deported from Cambodia and then took up residence in Vietnam. We all seem to agree that those deportations are justified.

So, are the crimes Cambodians commit in the U. S. less reprehensible? I would think not. Are those people all from broken families with drunken fathers who regularly beat up their wives and children? Although I personally don’t know any of the families involved, it would appear from the article that none of those had a paternal criminal background. I would guess most of the families had their hands full making a living in the U. S. and raising their children as well as they could after they had arrived here from their refugee camps in Thailand. Many of them were, and to some extent still are, semi-literate, or worse illiterate. But the children all had their opportunities to attend a school, learn a trade, even go to college, and make a career for themselves. The U. S. census shows that the U. S.-Cambodian people have roughly the same percentage of college graduates as Caucasians, for instance. Of course, there are always weaker links in a society who choose a different path. And why should it be any different with overseas Cambodian? Some of the children just run with the wrong crowd, fall in with bad people who tell them selling dope is an easy way to make money. As everybody who ever raised children of their own knows, once they reach puberty some kids are just very hard to guide and will more likely listen to their buddies than to their parents. Add to that more or less uneducated parents and the path for their future may be marked.

Some of them are now grown people with families of their own, with children born in the U. S. and therefore U. S. citizens. One might take a different look at them if the crime was committed a long time ago, and they have re-integrated into society, become hard-working people, pay their taxes, and are good members of society. But the law is clear – if someone committed a crime, the permanent resident status will be revoked making them subject to deportation.

Is the law fair or just? Hardly, and although the U. S. still professes an open-door immigration policy, it has in reality become a very restrictive country in light of the large number of illegal immigrants mostly from South of the border. The prevailing mood among the population is to curb illegal immigration and favor deportation of criminals. The outgoing administration has been even stricter than the Clinton administration during which that law was passed.

Now what about the Vietnam War/Pol Pot era aspect? An official quoted in the article says the U. S. fulfilled its moral responsibility by accepting Cambodians to the U. S. under a blanket agreement with the UNHCR and giving them a new home country. This responsibility does not include tolerating immigrants breaking the law and excluding them from certain provisions of the immigration act. I tend to agree with that. It is also said that if families are torn apart by deportation this is an inhuman act. Again, the officials say those people made a choice to break the law and they must suffer the consequences. The families all have the options to join their husbands (I have never read about a female deportee) and live with them in Cambodia. As harsh as it may sound, it certainly is an option, although finding a job and making a living there will be hard, and next to impossible in the economic downturn, but nobody foresaw this, not when the law was passed, nor when the people committed their crimes.

It would, however, only be fair if the U. S. government put its money where its mouth is. They preach human rights and compassion with other people to the world, but when it comes to applying those tenets at home there are some very striking disparities. If somebody committed a minor crime, or misdemeanor 20 years ago, who has become a rehabilitated person, it surely is inhuman to tear this person from his/her environment and throw him into a vastly different society with which he/she has nothing but their ethnicity in common. And we all know native Khmer are not very beholden to overseas Khmer returning to their country. This even applies to people who come back under normal circumstances, though for different reasons, and certainly much less to criminals.

The article doesn’t give concrete numbers, but the majority of those 189 people deported were apparently either hardened career criminals and/or drug users, which pushed them into a life of crime. Although they deserve, by all moral standards, to be punished, and possibly be deported, but to send them to a country like Cambodia without any social services to speak of is certainly counterproductive. If it were not for that NGO mentioned in the articles these people would only live on the street committing more crimes. Many of those deportees represent one of the worst aspects of U. S. society – the ghetto gangs. This is the last thing Cambodia needs. As always, there will be young Khmer people who will emulate that kind of life style and find it ‘cool’. There is nothing cool in that swagger and the tattoos those gang bangers affect. One can only hope that the Cambodian government delays proceedings even more making the return of more deportees a mere trickle. Coming back to Cambodia won’t help the deportees or the country.

By choosing crime these people made themselves a burden to and put in distress everybody – their families, society, their host country, their native country. One must not forget that these people are considered criminals first and Cambodian second. Consequently, they will be treated accordingly. Though good and just answers are hard to find for this problem, it seems that when people make a choice they will have to bear the consequences of their actions, whether or not they know those consequences. This is how the system works. If someone tries to work outside the system, the system will bring them back into it by force. This is what’s happening here.

Another Look at the Rubber Industry

An article in Ka-Set Online on the situation in the rubber industry http://cambodia.ka-set.info/economics/news-rubber-latex-plantations-crisis-081218.html#JOSC_TOP is in need of a comment.

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Income cut by 60%
But Vannak, who owns a 30-hectare rubber tree plantation in Chamka Leu in the Kampong Cham province, also reckoned a state intervention would be useful since the price drops have led him to lose 60% of the company's income compared with August this year. “Today, I almost have no money to bring to my family. A 30-litre drum of latex only brings in 20,000 riels (US$5) when not so long ago this price went as high as 90,000 riels (US$22). What we earn at the moment is just enough to pay for workers' wages”, he complained, adding that the company had already had to wait 6 years for the plantation to actually produce rubber latex.
Unquote

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No bankruptcy for rubber producers?
An expert in Cambodian rubber industry, who wished to remain anonymous, rejected for his part alarmist stances. With a tonne of concentrated latex selling for about US$1,000, to him, the sector seems far from going bankrupt and companies are unlikely to close down... According to him, rubber investors are still earning money even though the income at stake is far from being what it used to be. The expert used his own experience in that matter as an argument: in 1998 and 1999, facing the collapse of rubber prices, when an oil barrel sold for an average of US$65, he still managed to make a profit of 2% to 3% . The return on investment was definitely much less important than the interest rate of a placement on an interest-bearing account, he said, but still allowed to a certain activity in the company without major difficulties. Nowadays, considering production costs and the fact that oil prices have dropped to nearly US$45 a barrel, investors in the sector can generate profit that would almost be equivalent to bank interest rates, the expert concluded.
Unquote

It is clear that this so-called expert must remain anonymous in the face of such blatant falsehoods. Concentrated rubber contains 60% pure rubber. Latex collected from trees in Cambodia typically contains about 30 to 32 %, in other words 10 liters of latex hold 3.2 kg of rubber. Current prices are in the 3000 riel/kg range or roughly 75 cents, in some areas as low as 2000 riels. And this is how and what plantation owners are paid. Operating cost, that is wages, transportation, etc. is about 70 cents. What about amortization? The plantation takes 6 years to produce the first latex. A 6-year investment in a rubber tree plantation will set you back about $8500 to $10,000 per ha including the cost of land, trees, maintenance, etc. Average annual production per ha is 1,500 to 1,800 kg. Using a depreciation schedule of 15 years you end with 36 cents in amortization cost. So where is your return, Mr. Expert? In order to break even you need a price of $1.06, or 4300 riel per kg of collected latex.

The processing plant is not much better off. They have huge investment costs and they typically sell crepe rubber at about 20% below world prices due to a lack of certification and own marketing. Average prices in December have been hovering around the $1,330/mt mark. Their cost as mentioned above is roughly $750/mt. Factor in operating cost and amortization and you are left with a loss. Additionally, virtually the entire production is sold to Vietnam. In hard times like these the Vietnamese simply stop buying Cambodian rubber and sell theirs first. And this is happening now. Rubber plants still process latex but can’t pay the plantations as they don't have any sales. The situation is very grave for small-holders.

Interest rates at prime banks are around 4%. I don’t see anybody making a 4% net profit in the industry right now.That expert better take a closer look at reality.

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In order to take advantage from the the growing appetite of the Chinese mammoth and be less vulnerable to price fluctuations, the Cambodian rubber sector might have to jump onto another phase, like its neighbouring countries: transforming rubber latex into products involving a high profit margin. According to the Minister of Agriculture, Cambodia might soon benefit from the technological help and advice of two foreign companies, a Chinese one and a French one, Michelin. According to the Minister, they expressed their interest in Cambodia and are actually studying the possibility of establishing tyre production facilities in the country. These projects should come as a bonus for the Cambodian rubber sector.
Unquote

Indeed, Cambodian rubber-based industries might alleviate the situation but that is a long way from happening. And don’t forget, tires are for cars. And the car industry is in a even more dire predicament than the rubber industry. For the car industry to come back from that slump will take years. So don’t hold your breath.

Recent News

The appointment of Prince Ranariddh as the King’s chief adviser, on reflection, leads me to conclude that all the royals, the King excepted, are basically a non-productive group of citizens for Cambodia. They unsuccessfully tried their hand at politics and basically derived their prominence only from their royal status, which they came into rather involuntarily. This again shows that royalty and aristocracy are principally a thing of the past and have no basis for their existence in today’s world. In simple words, they are ‘free-loaders’. The appointment of those advisers – and one can only assume that those titles aren’t just honorary – will cost the Palace, which in turn is financed by the national budget, in other words, ‘Is it worth it?’

All these royals came back from abroad and basically failed in their efforts and endeavors in Cambodia, as has many an overseas Khmer who returned after 1993. Does this imply that overseas Khmer generally aren’t fit for life in their native country? Many a restaurant owner failed after the novelty effect had worn off. Attempts at import/export businesses failed because the Khmer magnates dominated practically all business sectors, and the way business is done here differs substantially from the Western way, in which those overseas Khmer conducted theirs, thinking the native Khmer didn’t really know how to do real business, only to find out the hard way that it was them who didn’t. Some tried civil service because of their party affiliation. One was appointed Secretary to the United Nations (at the time King Sihamoni was ambassador to the U. N. by the way). He came back once the position went to a CPP apparatchik. That former secretary was a doughnut baker in the U. S., a great qualification for a Secretary to the U.N., isn’t? And just as great a qualification for life back in Cambodia. He is now near destitute and carves out a meager living with odd jobs. And what about Sam Rainsy? After all, isn’t he a returnee who failed as well? They all thought their Western thinking destined them for higher stations in Khmer society, but for the most part failed miserably, with one notable exception – Kith Ming. This brash young man made millions, if not billions, with his bravado, intellect, and by doing his homework, not the least of which was to ingratiate himself with the ruling party.

On the economic front the news wasn’t all too bright. The government finally realized that the impact would not bypass Cambodia after all and revised their growth prognostication to 4.9% for 2009.

The real estate business has come to a full stop, at least on the surface. Officials and real-estate brokers estimate that the slump will last well into 2010 now and then return to normal. What do they mean by normal? The market was not normal in its overheated phase before June / July. So if they expect to return to prices of that time, I am afraid, they need to do a little homework in economics. Prices were and in some places still are at a ridiculous level. Prime properties are still more expensive in Phnom Penh than in parts of New York City, and I don’t mean Manhattan. I would think returning to normal would mean prices that are in relation to the value as measured by the possible return on investment gained from that property. If an investor ponies over $4000 to $8000 per square meter, how much rent can he expect to derive from a 4- or 5-story building, or even a 40-story building, for which the construction cost is proportionally higher? There just aren’t that many renters or buyers around in Cambodia yet that can afford luxury office space. It’s the same for condos. Who will pay between $100,000 and $500,000 for condos, and I don’t even want to mention the $1 million ones? Those are the prices paid in Miami Beach right now – and you have a much better infrastructure there. In short, people have their sights set too high for Phnom Penh. They need to get real and stop talking about normalization when they don’t know what normal is.

Officials also keep talking that agriculture can counter the downturn in the affected garment, tourism, and real estate/construction industry. How that should work still eludes me. Here is an interesting article http://www.phnompenhpost.com/index.php/2008121623219/Business/Trade-expo-opens-as-commerce-minister-predicts-strong-growth.html about that.

The Commerce Minister said the economic downturn has not severely impacted Cambodian trade? Where does he live?

He said, "The speed of economic growth will be lower, but if there are efforts to produce goods that meet market demand and to tailor agricultural output for the market, I believe that growth will not be much lower - at least nine percent." That statement reaches intellectual heights I can’t reach - that’s probably why I can’t understand it. Just a day before the government revised it’s projection, remember?

He said the agricultural sector could be a major source of growth through the establishment of a trade surplus. Well, according to the article above there is a surplus already. Most of the exports were garments, so for agriproducts to take up the slack will be a long way to go.

"The crisis has not severely impacted foreign trade. Trade with Vietnam and Thailand is still on the rise, and we expect that Cambodia's imports and exports will increase this year," Mao Thora said (secretary of state at the Commerce Ministry).

Hey guys, palm oil is down, cashew nuts are down, cassava is down, rubber is down, Vietnam slowed down buying considerably, Thailand trade was disrupted severely because of their crisis, and you are talking about business is great? As long as Cambodia has officials like these one can only hope that free market forces, meaning the private business sector, will adjust market properties according to reality.

Double Standards

Critics of the government invariably point to the rampant and endemic corruption in Cambodia as the biggest road block to further and faster development of the country.

Two recent events served to bolster the critics’ point. The announcement of almost $ 1 billion in foreign aid to Cambodia brought out indignation and outrage at the failure of the government to manage this aid wisely for the benefit of the people, citing the crawling progress for the passage of the anti-corruption legislation which has been going through the committees for over 10 years, is it? Government officials are said to line their own pockets with that aid money. On the other hand those critics also deplore the failure of the donor nations for exercising oversight over the spending of their money.

The other event was the deliberation of the 2009 national budget totaling $1.88 billion, with roughly $125 million set aside for the military, and a total of roughly $250 million for security, including military, police, and other law enforcement agencies. The opposition, and most notably the Khmer Diaspora, was vociferous in their condemnation of the initially projected increase of the military budget to $500 million. The government had given the explanation that the recent spat with Thailand necessitated this increase. After intervention from the donor nations, the World Bank, etc., the government backed off. Of course, the opposition again saw a large part of that budget disappearing in the pockets of government officials.

It is rather moot to go over all these allegations and accusations here. But what is striking in these discussions and accusations is the self-righteousness with which these critics and self-appointed guardians of civil liberties condemn a government, while at the same time clearly benefiting in various forms from that same situation; e. g. those NGOs receive good money for their studies through grants and donations, which in turn are partially spent on a very nice lifestyle in this country, the likes of which normal Cambodian people can only marvel at. If it were not for countries like Cambodia many of these NGOs would not even exist. This is not to say that anyone would support systems that exploit their own people that mismanage funds targeted for the development but end up in unnecessary pet projects of politicians. But let’s face it, many an NGO just thrives on the plight of other people. Instead of endlessly criticizing governments it would stand them in good stead to work constructively, like the NGOs you never hear from, with the government to root out the causes of corruption and mismanagement.

That self-righteousness also fails to take into account the many scandals in the countries that the NGOs and their members and employees hail from, such as the U. S., the UK, Germany, France, Japan, etc. Those scandals in many instances dwarf in dimension and moral decrepitude what is going on Cambodia. Again, no one endorses the greed, the corruption, the impunity with which those acts in Cambodia are perpetrated, but sometimes one needs to take a step back and look at things from a different perspective to attain a more objective view that can lead to better understanding and in the end a better means of assisting the country.

If you look at the latest scandal in U. S. politics where the governor of Illinois tried to sell the vacated Senate seat of Barack Obama, where a lot of back-room dealing is routinely considered a normal feature of politics, including the awarding of lucrative jobs for campaign contributions, or outright bribes, you cannot help but wonder if the so-called beacon of democracy is so permeated by corruption how people with a less educated and less experienced leadership can be expected to be exemplary in their exercise of power. The list of convicted public office holders and their crimes is as long as it is varied, ranging from corruption, misappropriation of funds, outright theft, to sexual escapades, to bid-rigging for public projects. The previous governor of Illinois is serving a jail term for bribery. The governor of New York had to step down because he liked to spend time with high-priced call girls ($5,000 and more). The governor of New Jersey led a double-life. Being married with two children he kept a male lover on the side. Informed people know that the outgoing Vice President’s previous employer Haliburton benefited immensely from multi-billion-dollar governments contracts, including the supply of U. S. troops in Iraq. The longest-serving senator (from Alaska) was indicted and convicted of bribery. And so on, and so on - the list is endless. To anyone who is interested a Google search will provide lots of cases of Western misconduct in office.

Disenfranchisement of voters? How about the hundreds of thousands of African-Americans who are still hindered from voting in many states in the U.S.? Let’s not even talk about the neighbor on the West of Cambodia.

And people talk about Cambodia like it is the worst place on earth? They are wont to bring up the poverty of this country as a reason why the misconduct here is so much more damnable. To all those who are so zealous in their condemnations, go to the U. S. and look at the poor people there and see what those misappropriated funds could have done to help get them health care and insurance, for instance. A full 15% of the entire U. S. population lives below the povery level. You know how many people that is? 45 million people are poor in this “greatest country on earth”. And what about the greed of those money-managers who managed to bring down the world economy? Yes, it sounds simple, but that’s what in essence it was. Nobody raises hell, quite the contrary the elected officials rush to help those who brought this crisis on in the first place. And look how well-versed the U. S. Treasury Department is in awarding and distributing the bail-out money. Experts say about half of this was spent without oversight and just thrown at the culprits who provoked the crisis. And here we have people complaining about the Cambodian government?

This all too common application of a double standard is as shameful as the act of shame itself. One would wish that all those pundits would occasionally see the world as it is and not just take one country as an example of how bad things are there. They ought to point to the good things that have been done and achieved as a sign of encouragement for more of the same.

Sam Rainsy's Platitudes

People who have been following this blog know by now that this is one of my pet subjects. Sam Rainsy has spoken again. He gave an interview to the Phnom Penh Post, which I am including here with my comments (in red).

As a former finance minister, what would you do to address the financial crisis if you were in the same position now?
Even before the financial crisis, I would have done things differently. Regarding agriculture, I would protect ownership for farmers of the land they live on, I am against these megaprojects that are creating farms with tens of thousands of hectares.

This is nonsense. It makes farmers landless and turns them into labourers.

I don't think this is the right approach. We need to protect the land owned by farmers and provide them with the inputs they need to improve productivity....

The current government has granted 99-year leases for companies in what they call the agri-business - I think this approach is totally wrong.

So what would those inputs be? Farmers keeping their land alone won’t solve the problem facing the agricultural sector. Besides, prices for agri-products have plummeted along with the all the other commodities.

Second, regarding non-agricultural sectors, we need to diversify.

There is the garment industry, which is the foundation of the economy. So we have to promote and encourage foreign direct investment in a more appropriate way by combatting corruption.
Investors are complaining about corruption and they are going to other countries.

So you think investors are now turning to Thailand, Vietnam, Malaysia, Indonesia? Even though the corruption index for Cambodia is higher than in any of those countries, one needs to take a second look at what the index comprises. A lot of the corruption in Cambodia is petty, e. g. tea money for speeding things up, which in its pervasiveness distorts the picture. And where do most of the investors come from? South Korea, China, Taiwan. Those investors have problems of their own right now. This is why they put things on hold. Corruption didn’t keep them from coming to Cambodia in the past, did it? (Not that I am in support of corruption.)

So we have to attract legitimate investors ... but also high-quality investors with technical expertise, and that will diversify industries.

Can you tell us for once what you are thinking of?

How seriously do you expect the crisis to affect Cambodia?
More, much more than the current government says. They maybe don't realise what is going on.

Are you saying that you don't believe the government's current growth forecasts?
I think we will see less investors with this crisis. We will be left with destitute farmers, and the country is less than self-sufficient.

And with a weak agricultural sector, you can't expect the country to grow.

First you say we need to innovate agriculture, but you don’t tell us how. So the agricultural sector is weak, but if it were stronger the crisis would still be there.

But let's look at the three sectors driving the Cambodian economy: textiles, construction and tourism.

These sectors are going to be hurt by the economic crisis, and more severely than the current government can understand and realise.

They say that we can hold out, but they don't realise the implications of the current crisis.

Look at textiles. Competition will increase and profits will drop as people cut their spending worldwide.

And competition from countries like Vietnam and China will increase. We are facing tough times and already factories are closing.

Believe it or not, these countries face the exact same problems as Cambodia, and not only in the garment sector.

Look at Tak Fat [garment company] in Hong Kong - they went bankrupt.

Do you read the newspapers at all? Didn’t you read that thousands of factories in China are closing or cutting down production?

In Cambodia there is half capacity, and some people having trouble in Hong Kong are coming to Cambodia to hide - the shareholders being cheated and assets are being transferred. So this is just the tip of the iceberg.

What does that have to do with the price of fish, meaning with Cambodia?

Second, in terms of construction, many projects have been stopped or put on hold. Many big investors from Korea have moved out - look at the drop in property prices - this is an indication that the crisis is serious and will take a long time to heal. When these projects started construction a few months ago, they expected that their commercial centres would be rented - but now these prospects have to be revised. They can't continue at the same pace and projections have been revised down.

What you don’t seem to realize is that this crisis was not foreseen by anybody, not the U. S. where it all started, not in the EU, nor did any economist ever predict a slump like this, not in their wildest nightmares.

We already know that tourism is being affected by the crisis - tourism is going down and the Thailand crisis is making it worse.

So, the three engines of the Cambodian economy are in trouble....

I think that, on the whole, there will be a serious economic slowdown. People will lose their jobs, incomes will drop, and because of monopolies, prices will remain high. In a recession, normally prices drop, but because of corruption and monopolies, prices will remain high....

Where do you live? Prices in Cambodia have come down, be it gasoline at KHR 3700, or steel, or bricks, food prices, etc. It’s just not true.

Countries need to be prepared, but Cambodia's foundations are weak, we will suffer more than the government says.

Does the government deserve credit for the strong growth seen over the past few years?
The figures for economic growth are misleading.

The first thing to keep in mind is that the growth we have seen is not sustainable, it is rather artificial.

That applies to most economies. Cambodia had, and still has, a lot of catching-up to do. So it is only normal that initial phases will produce extraordinary growth. If it had not been for this world, repeat world, financial crisis, the growth rate would have continued along the 7% originally predicted, which was scaled down to 3%. European countries would be happy if they had that.

Second, it was not equitable - the quality of growth is poor. The figures being put forward are misleading because the majority of people remain poor, and the growth has benefitted a small group of people.

Correct, but as any economist will point out, underdeveloped countries never develop from the bottom up. They develop from the top down. It is an economic law.

Of course, there is a trickle-down effect, but is has been slow. If you go to the countryside, the vast majority remain poor ... these are the ingredients for instability...

Correct again, except for instability. This country will not take measures to upset the small progress it has made.

What is happening is not sustainable - cutting the forests, overfishing and exploiting resources.

I could probably double the growth rate if I over-exploit the resources in a small period of time. But you jeopardise the prospects for the country.

What political implications would a deeper economic crisis have for Cambodia?
They would be very serious. As I told you, this growth is not sustainable and this will have social implications.

Public discontent will increase and people that have lost their land, lost their homes, lost their livelihoods - they become desperate....

You can crack down on it, but don't forget that the Khmer Rouge started in similar circumstances.

Now people are educated and they understand the cause of their misery.

So you are implying social unrest like in Thailand? One can only hope you are not encouraging this, though one is reminded of your call to people power, which you actually wanted to organize with failed demonstrations after the elections, or your May parades.

What should the government be doing to prevent the crisis from seriously impacting the local economy?
First, the current budget is out of date - it needs to be updated. We need to meet with experts and other interested persons to set a strategy for the crisis - we should not keep this budget that was developed before the crisis unfolded - it is outdated. You have countries that are even better off than us that are implementing plans to support the economy, to protect jobs and increase spending in a responsible manner.

A budget is a budget, that is to say it is a plan. Wait a few months and see what happens.

If the situation is as bad as you say, why hasn't that translated into stronger support for the opposition?
The situation has gotten worse since the election, but people are starting to feel the pinch. In terms of the election, there was massive electoral fraud. In countries like the US, the elections reflect the will of the people, and as a result, when a party wins the election, there is an outpouring of joy, but here, there was no celebration in Cambodia. The people remained sad and depressed ... the majority of the population has been deprived of their voting rights.

Dear Sam Rainsy, don’t use the 2008 elections in the U. S. as an example. Use the 2000 and 2004 elections. Half the population was shocked to see GWB win. In Europe nobody outside the winning party really celebrates, let alone an outpouring of joy. And to be honest, I don’t see a whole lot of sad and depressed people. They can still laugh and have a good time. They can make do with less as they have for a long time. Don’t paint such a dreary picture. Politicians should instill confidence and faith in the furture in the population.

Summing up, one can only come to the same conclusions that I have voiced in the past. Sam Rainsy is the wrong person for the job. The opposition’s role is not to oppose for the sake of opposition, it is to present a clear alternative to the party in power. This is what the SRP has so far failed to do. They have not formulated a detailed program of how to expand agriculture, how to attract more foreign investment that actually creates new jobs, how to reform the educational system, etc. Apart from generalities and platitudes nothing concrete has been forthcoming. Sam Rainsy has preached the same sermon for the last 10 years. His rhetoric exhausts itself with blasting the government and its endemic corruption. And when it came to making a firm stand because of the alleged election fraud he buckled down at the last minute to take his seat in the Assembly. This is not the leadership his supporters want and can look up to.

Recent News

The good news today, of course, was that the Thai crisis is at a preliminary end – preliminary as the PAD vowed to return if Thaksin ‘nominees’ come back to form the government. At the same time the former PPP members said they will regroup under a different name. 57 executives were banned from politics for 5 years. Let’s wait what the King has to say on Friday or whether he will stay silent on these matters as before. An important factor in the Thai court’s decision was that no new elections need to be held, only by-elections for the seats vacated by the court’s decision. The successor party will most likely still hold a majority with its junior coalition partners. Will that signify the return of the PAD? If yes, then there can be no doubt that these people – and despite their name they are anti-democratic to begin with – are out to ruin their own country.

I heard that all mail sent with the regular Cambodian postal services have been suspended as it was all routed through Bangkok. There is a huge backlog, I would guess.

The impact on the tourist sector will hopefully lessen after Dec. 15, when Bangkok’s international airport reopens. According to the Ministry of Tourism 30% of all arrivals come via Bangkok.

On another note, the oftentimes somewhat irrational and erratic Prince Thomico gave an interview to the Phnom Penh Post, in which he stated that he thinks the money spent on the KRT is wasted. The invites the deeper question whether or not the surviving leaders of that regime should be brought to justice at all? Thomico says that except for Duch they will all most likely die in prison. He indicates the tribunal is just a way of the West cleansing their conscience as they surely looked the other way in 1977 when they knew full well what was going on in Cambodia, just as they are doing nothing to alleviate the situation in Darfur now. Well, he certainly has a point there, doesn’t he?
The KRT is reminiscent of the Nuremburg trials after WWII. By that reasoning the KRT is justified and the money spent comes from mostly Western donors anyway. The problem is its handling of those trials. After two years in the making one would think they would at least have started on all of them, regardless of illness. For most of its participants, it’s again a nice way of securing a cushy job, isn’t it? So there is no interest in speeding things up, is there? At least that is an impression one might gain from the snail’s pace, at which things are happening, and from the allegations of corruption and overspending.
One interesting snippet was that dear old Thomico, whom I once met personally for a business discussion, was an ultra-leftist in Paris. What he also left out was a better explanation why Sihanouk allied himself with the Khmer Rouge in 1982, also knowing full well what had occurred from 1975 – 1979. The end justifies the means?

CNN Heroes of 2008

I had the opportunity to watch CNN’s Heroes of the year 2008. This being an American TV station it is hardly surprising that the viewers chose 7 Americans. One would have wished that their selection would reflect a little more of the international perspective of human suffering, not that those 7 Americans weren’t deserving of the praise. Three of them, in fact, do help people abroad. CNN, after all, is watched by more people outside the U. S. than inside.

The show as such was pretty much a normal Hollywood award show production with all its smoothness, the celebrities in low-cut dresses and high-heels, basically the format of an Oscar or Emmy awards presentation. Even the female heroes were decked out in Hollywood designer dresses with many a revealing neckline, one even in danger of revealing everything. The stars who presented the heroes are pretty much household names and they did a good job, as could be expected. We saw many in the audience wiping away tears from their eyes. The finale was a rousing rendition by John Legend with his song ‘If you are out there’.

Among the ten, however, was also a Cambodian woman, now living in Canada, by the name of Phymean Noun. Her story can be viewed on CNN’website at http://www.cnn.com/2008/WORLD/asiapcf/05/29/heroes.noun/



It goes without saying that her efforts are indeed heroic, not the least that she spent $30,000 of her own money to get her project started.

What bothered me in the presentation of her good work was that Cambodia was mentioned as a place in hell. Yes, I know when Lucy Lui said this she was referring to the dump sites, not to the country as a whole, but it nevertheless came across as just that. Maybe I am a little oversensitive here, but it left a sour aftertaste in my mouth. Of course, we know about these scavengers, and we know something must be done about that, and indeed are happy that someone feels called upon to actually act. But it still would have been better if at least a fleeting remark had been made about what Cambodia is today. I could imagine an opening line for the video like this:

‘Cambodia is one of the poorest countries on earth. Although it has made some progress in alleviating the plight of the poor, it still is not enough. Some people and their children can only carve out a meager living by scavenging the dump sites…..’

Recent News

After what seemed like an extended self-imposed period of silence Sam Rainsy is back. He recently spoke with the Voice of America Khmer edition returning from a private audience with the former King in Beijing. He deplored that the economy was bad – what else is new? – and blamed it on the world financial crisis – no, really? – and, of course, what would you expect, on bad governance. He was probably thinking of the $500 million the government could save by fighting corruption effectively. He also said people were protesting for solutions to their living and the coming months could lead to ‘turmoil’. What on earth was he thinking? Is he trying to incite a riot? Sam Rainsy, please stay quiet, it’s better. You can’t offer solutions; you can’t be constructive, so just shut up. Sorry, only fools still think you have a role to play in Cambodia.

The ban on marrying foreigners was lifted recently. As much as one can understand that the government wants to protect their poor, uneducated women, it nevertheless was a curtailment of civil rights to begin with. If two consenting adults decide to get married, it is not the government’s role to interfere. Just close down those marriage brokers. The law against human trafficking covers this trade adequately, doesn’t it?

But foreigners still need to apply at the Ministry of Foreign Affairs for permission to get married. Is the government the guardian of all Cambodian women now? Foreigners must also be present in Cambodia. What about if they get married abroad? The U. S. for instance provides for a fiancée visa so the bride can go to the U. S. to get married to her U. S. groom. Or a woman is able to obtain a tourist visa to another country, stays for 3 months and gets married there? Are they legally married under Cambodian law?

I mean, I know that this regulation existed even before that decree, but one would expect that they come up with something more imaginative than marriage permits issued by the government.

Good news – the first American-owned bank opened in Phnom Penh. Wow, they have a capital base of a whopping $13 million. Yes, that’s what Cambodia needed, another bank, and so well-financed too. What does ‘American-owned’ actually mean? That they manage your money better than everybody else? Sure, we see that with all those American banks that are basically bankrupt and are now crying for government help. If these people are as smart as the ones in the U. S., stay away from that bank. A serious investor with $13 million would look for other places to put his money. If you are looking for a short-term quick return, Cambodia is the wrong place to begin with.

And finally, although this concerns Cambodia only indirectly, perhaps directly if you look at the Preah Vihear problem, when will responsible people in Thailand see that those demonstrations are ruining their country? The commander of the armed forces has called upon the prime minister to hold new elections and the PAD to disperse. The PAD's reply was that even with new elections the problems wouldn’t go away. What? Yes, it is a well-known fact that the PPP bought votes in the last election, but it was not a close call with a difference of almost 5 million votes in their favor. What the PAD seemingly wants is a return to a full-fledged monarchy. It is rumored they even have some royal backing (according to news reports in the New York Times, no less). It will be some time before Thailand can get back on its feet thanks to the PAD. Never mind, the impact of the world financial crisis, never mind the disastrous state of the Thai economy now. What are they thinking? Not of the common people, that's for sure.

The Situation and Prospects of the Rubber Industry in Cambodia

Rubber trees during wintering season


Rubber plantation

The world financial crisis has without doubt dramatically impacted the important rubber producing segment of Cambodian agriculture. Cambodia had hoped to increase its output drastically in order to broaden its economic base from just three current mainstays – garments, tourism, and real estate/construction. As so often, a continuing increase in world rubber prices led decision and policy makers to believe that this segment held promising prospects for the future and propagated and encouraged in many speeches the cultivation of rubber trees.

Many a private real estate speculator, having made some money by selling a piece of land, turned to this industry and started a rubber plantation. One needs to take into account, though, that a plantation will not begin to produce latex until 5 to 6 years after planting the first seedlings. Neversteless, private investors are increasingly seeing natural rubber as a good business. They may now have developed some doubts, though, about their recent decisions to go into this industry.


Seedlings


Soy bean field to be replaced by rubber trees


Rubber tree seedlings

The mostly state-run rubber industry in Cambodia, plantations and processing plants, were or are in the process of being privatized. But estimates still put the state-run producing segment at 70%, whereas the worldwide average of privately-run operations is about 80%, most of them small-holder with sizes of less than 10 ha.

The current total acreage of trees older than 6 years is about 80,000 ha. The number was 70,000 ha in 2007 but in the meantime many new plantations have trees mature enough for tapping.The overall available acreage suitable for the cultivation of rubber trees due to appropriate soil properties is estimated to be up to 350,000 ha. Most of that area is located in Kompong Cham, Kompong Thom, and Rattanakiri provinces. But I have even seen plantations being started in Koh Kong province, formerly not considered ideal for rubber plantations.

Since it appears that all, but one, world-renowned economists, world-leaders, and other politicians did not foresee the economic collapse brought on by the irresponsible marketing of basically worthless securities and other financial instruments (derivatives), the leaders and politicians in Cambodia can hardly be blamed for their enthusiasm in promoting the cultivation of more diverse economic sectors such as rubber – rice, cassava, jatropha would be the other ones that come to mind. It stands to reason that a formerly significant rubber producing country would go back to its erstwhile core industry, especially in view of increasing worldwide demand caused by the emergence of China and India as great economic driving forces in the world. After all, these two countries contributed greatly to the exorbitant levels of oil prices until May this year.

Oftentimes, however, the most basic facts of commodity pricing are overlooked by even industry insiders. Commodities are cross-indexed, that is to say, several commodities rise and fall in tandem, like oil and rubber, or rise and fall in opposite direction to each other, like the US-$ and precious metals. Currencies play an essential role, as one might guess. Worldwide commodity trading is done in US-dollars, in other words, any fluctuation of the dollar will be reflected in local commodity trading centers.

Needless to say, that the current world financial crisis wouldn’t bypass the rubber industry. Slowing, stagnant, or falling consumer demand will lead to across-the-board decreases in demand for essential commodities for each respective industry. The auto industry is seeing almost unknown diminishing sales. The U. S. is the largest single market in the world, whether it is automobiles, garments, housing, or entertainment. So far, at least from what I can see, the U. S. market has been hit hardest, as might be expected from its being the cause of the crisis. It seems like the U.S. consumer has stopped buying. Only Wal-Mart and other discounters report increasing sales. The credit squeeze is a significant part of the problem. If the U. S. stops or reduces consumption the effects will be felt in China, India, and, yes, Cambodia.

Declining auto sales combined with more frugal driving will result in falling oil prices as supply exceeds demand. Speculators contribute their share when they only see doom on the horizon. One would have expected oil prices to fall 50% from its high of almost $150, but is now hovering in the $50 range, and some analysts see it at $40 within a month. The effect on the rubber industry is rather easy to see. Fewer autos built and sold - fewer tires will be needed. Synthetic rubber, the great competitor in several industrial applications and based on oil, suddenly becomes cheaper to produce. High oil prices led to the replacement of synthetic rubber by natural rubber. We are now seeing the opposite movement.

The rubber industry in Cambodia is now feeling the harsh realities of world economics. Cambodia had virtually no own marketing of its natural rubber products. Previously all its rubber was sold to Vietnam, which resold it to international markets. In the past few years, however, Chinese, Korean, Singaporean, and Taiwanese buyers stepped in. But all these countries are now suffering from their own economic woes.

The result for Cambodia is that latex prices fell from a high of KHR 11,000 to KHR 4,000 per kg. Crepe rubber of the CSK5L was down from $2,500 a ton to $1,600. That’s the bad news. The good news is buyers are still buying. But no one knows how long that will continue. Most of the harvest is brought in from September to January. After that there is a usually one-month long wintering season without any production. Some processing plants have already stopped buying intermittently to soften the impact and curtail supply. But they are heavily invested in machinery and have to make payroll. They can’t just leave their plant sit idle for long; likewise plantation owners, and mind you, most of the private plantations are small-holders. They may have recouped their initial investment in land, trees, fertilizer, etc., in previous years but a stoppage of tapping leaves them without income.

Depending on how lean their operation is many plantation owners are on the brink of profitability or losing money at the current prices already. The production of 1 kg of latex costs about $.60 to $.70, amortization of trees, equipment, etc. runs to about $.35. This does not include the cost of land assuming that the value will either appreciate over the lifetime of the plantation or stay the same. One can safely assume, however, that it will appreciate. I have never seen land anywhere that wouldn’t appreciate over a period of 35 years. The bottom line is that owners aren’t making money on those low prices.

The picture is not much different at the processing plants. One big problem for Cambodian plants is that they have to discount their prices heavily in order to stay competitive. They still have to play catch up with their international reputation. Even though the quality of most privately produced crepe rubber is equivalent to Thai, Malaysian, Vietnamese, or Indonesian rubber the long years of neglect in the last 25 years or so have left their mark. This combined with low market prices puts all processing plant owners in a very precarious position.


Older plant


Older plant


Older plant

CSK5L

It is, of course, not known how much reserves owners of both plantations and plants have built up over the last years but this will be crucial for their survival in the next few months. The question for both is whether or not they can endure a longer period of no income, or even losses. The wintering period lasts about 1 month, some take two months. During that period plantation owners still have to make payroll. Plant owners do not face this problem as they will have stockpiled crepe rubber for sale during these months. But with slowing demand the biggest stockpiles won’t help.

Investment in a processing plant starts at about $500,000 to $700,000 depending on capacity - $1.0 million is no rarity. I don’t know any plant owner that didn’t use their own money – so no loans, at least for the most part. That’s the bright side. They probably have enough reserves to ride it out for a few months. But the typical small-holder probably doesn’t. They will be hanging by their fingernails come January, February 2009. Whether they can survive will in large part depend on how quickly all those bail-out and kick-start programs by the U. S. and European governments will take effect.

The rubber exchanges in Asia moved in step with the stock-markets, more or less anyway, usually with a delay of a day or two. But neither stock nor commodity exchanges are a true reflection of reality. Hype in speculation may lead to a vast overpricing of a stock and result in an unrealistic market capitalization of those corporations, or on the opposite side, a ridiculous undervaluation of a manufacturer or bank. Stock exchanges rarely go any more by what the assets, liabilities, and profitability of a company is, which used to be the basis of the valuation of a company. Likewise the current price of rubber does not reflect the true picture as it relates to supply and demand, which by any economic standard should be the determining factor in finding a price of a commodity. No doubt, there is a current oversupply. But would that oversupply lead to a 50% and more price drop? I don’t think so. Equally without doubt, the current price levels include a certain psychological deduction. How much? Hard to say – this is an intangible, and who can really assess intangibles.

So now what are the prospects of natural rubber in the short and medium term then? On the upside, automobiles will still be built. They will be built in increasing numbers, make no mistake about that. They just won’t be so big and will be more fuel-efficient. Even if they didn’t burn gasoline any more, they would still need tires. Fortunately, there is no replacement for tires. And natural rubber will remain to be the main ingredient as studies and tests have shown that fully synthetic rubber tires are not nearly as rugged, resilient, and wear-resistant as natural rubber tires. Other automobile related parts, motorcycles, and bicycles are another important segment of rubber-based industries. Then there is the huge medical industry throughout the world. Just think latex gloves and medical equipment and you are looking at a steadily rising demand. Fully two-thirds of the world population has little or no medical care. Health care will be one future growth industry in decades to come. Additionally, oil prices – again, oil being the basis for synthetic rubber – will stabilize at a sustainable level. Analysts say this will be around the $50 to $60 per barrel mark. Rubber saw an upswing even when oil prices were at $30. So consequently, there is no reason to believe that a natural product, which replenishes itself, as opposed to oil, is bound for extinction in a multitude of applications.

Well, this is the grand picture, but what about the next few months up to one year?

All the economic pundits say that this recession will last more than 12 months, but that doesn’t mean it won’t recover sooner. In order to avoid massive layoffs auto manufacturers, and these are the most visible and significant players and, therefore, will have a great psychological impact, need to get on a sound footing again and start selling their cars. Consumers need to start spending again. This can only happen when the banking crisis is under control and all those bail-out plans are in place and working. Once this has been accomplished, and these programs simply must be implemented, and the first results become visible, this will most likely also signify the end of the current low rubber prices. I don’t think they can go much further down than at present.

The wintering season will help bring down stockpiles. Additionally, the first months in the harvesting cycle aren’t as productive as the second half. Thailand and Vietnam have signaled reduced production on account of the current market situation. There are reports that many a small-holder will stop operating their plantation next season. This will all lead to a leveling-off of the natural rubber supply in international markets, eventually leading to a stabilization of prices. Don’t expect an increase to over KHR 6,000/ kg the entire next year, though. Only 2010 will possibly see a slight increase to prices higher than that. But don’t hold your breath. What used to be a sure bet 10 or 20 years ago is no longer true now. Now nobody can see more than three to 6 months ahead, everything else is just like reading tea leaves. All those highly paid analysts are wrong 98% of the time. So the best thing an owner can do is build reserves, never a bad thing, and ride it out. Better times are sure to come. If they can go without profits for a year, they’re probably ok. If they can’t, perhaps they should start looking for other sources of income. But if you can, don’t sell your land – the market is down as we all know, so you would lose twice. Another cash crop might be the way to go, but that would be a subject for another time.
All in all, I believe the next 9 months will be tough, but as always there is a silver lining on the horizon, even for us rubber people.

I am the owner and co-owner of rubber plantations in Cambodia.

Yours truly KJE

Now What?

Normally, I don’t touch gossip subjects. But this one sort of stands out; that’s why I thought I might give this one an airing on my blog as well. We are talking about the baffling case of a young woman who calls herself DJ Ano. Her real name doesn’t really matter here.

This young woman works as a music show host on one of the Khmer TV stations, from what I understand. I don’t watch these shows and am generally completely uninterested in celebrities, so I don’t know about her. First time she appeared on my radar screen was when one blog reported her as missing – naturally, as a blogger I read a few other blogs about Cambodia. They had obviously picked it up either from a Khmer language paper or from another blog. But it did eventually appear in at least one paper that I know of – the Isle of Peace (Koh Santhepeap). My wife reads this so I am somewhat abreast of what’s reported there.

First they all wondered where she might have gone because it was initially dealt with as a ‘simple’ disappearance. But slowly it developed into a major story of a love triangle. These are all too common in Cambodia, just like in any other country of the world. It is, of course, not so remarkable that only those involving people in power and young female celebrities get wide press and blog coverage. And what’s not all too common in other countries outside SE Asia is that it all too often happens that the jealous wife of the husband takes matters to terminate this affair in her own hands by throwing acid into the female lover’s face, which leaves her horribly disfigured, or even by having her killed. There are at least three cases where this happened but no one was ever apprehended or let alone stood trial for any of these horrible crimes. Needless to say, that the rumor mills are still in full spin over all these cases.

The next report about this disappearance a few days later then contained some gory details of a purported crime. It was said that two goons abducted the young woman in broad daylight, threw her in a car and took her to a place where they shaved her head with a razor and then proceeded to inflict razor cuts all over her upper body, 83 in all, it was reported. The blogs were full of it. It also came to light that her pubic hair was shaved off and wounds inflicted on the genital area. Now who could be blamed for such a crime? Clearly, only a jealous wife of a high-ranking official could be responsible for such a heinous act.

When the press checked with the police, the response was there is no report of such an incident, consequently, there is no reason to investigate. This was quickly seen as part of a cover-up by the public. It was clear to them that the husband just threw a blanket over the affair in order to preserve his wife’s and his reputation and standing, not to mention to cover up a crime. Coincidentally, the police commissioner for Cambodia, Hok Lundy, who didn’t really enjoy the best of reputations among rights activists, died in a helicopter crash a few days later.

Now that set the rumor mill spinning so quickly it virtually span out of control. The wildest theories were explored, e. g. he was the husband, and now supporters or fans shot down his helicopter. Others said there were even pictures and videos in circulation showing the act. That material would also identify the wife. Everybody can imagine how those freakish minds went into overdrive.

On one board a poster even quoted 20 or so witnesses to the crime, who unfortunately were too afraid to come forward. But they knew who was behind all this.

One poster said, ‘Well, the bitch knew what she was getting into with a married power broker.’ – A bit crass this, don’t you think?

The young woman was reportedly transported to the Calamette Hospital in Phnom Penh, but because of the severity of the wounds she was quickly flown by helicopter to Ho Chi Minh City for intensive care. Status reports from an unidentified hospital there followed, giving the situation as grave but not hopeless. Some had her in a life-threatening condition. The unnamed hospital later published a bulletin that she was on the way to recovery and would be released in a few days. No one ever saw that bulletin, let alone could say with any degree of certainty which hospital they were talking about.

On another blog someone posted a comment saying that the young woman is fine and will return to the public eye shortly. She, the poster, claimed to be a close relative of hers.

Another newspaper article again quoted the police as saying there is no grounds for an investigation because no one filed a missing persons report, there is not one shred of evidence indicating that such a crime had been committed, although the police stated they had also heard of those rumors but dismissed them as just that. Not even her employers at the TV station saw the need to file a report. Perhaps she was just on vacation and the producer just didn’t want to bother with all these rumors or saw a good publicity stunt in the making, all without lifting one finger or a phone?

The police can’t act on rumors alone, unless it is in the public interest. A missing person that has not been reported missing is not dealt with by any police force in the world, or is it?

One zealous blogger wrote an open letter to the police demanding they investigate. Incidentally, he also implicated the late police commissioner in the crime. This blogger is a particularly vexatious individual who obviously considers himself a hard-core journalist the way he publishes his contributions on several blogs. He keeps admonishing the Cambodian government about what it must do. I am sure they read his blog with great interest.

Now, then one day after two weeks or so, lo and behold, the young woman appeared on her TV show alive and unscathed. But some people just wouldn’t let it go. They indicated, hey, this is a doppelganger (dead ringer). The young woman then put out a press release saying she doesn’t know what prompted anyone from circulating those rumors. Nothing ever happened and she will sue anyone who continues spreading these falsehoods about an affair, etc.

Now what happened? I mean, who the hell really cares? But this is a glowing example of how our new information dissemination via blogs, you-tube, etc. can run amok. One can’t really blame those bloggers on the one hand as they oftentimes do uncover facts otherwise kept hidden. But even the New York Times fell victim to some blogged falsehoods. On the other hand this case exemplifies very clearly how pernicious an effect an even initially small rumor can have when it mushrooms into a major story with possibly uncontrollable consequences, and often to the detriment of the purported victim – and nothing beats a story or rumor with such prurient salaciousness. Sure, in this case the young woman got a lot of publicity, whether good or bad is arguable, but the often noticed tendency to blow things out of proportion is a deplorable and rather unwelcome side product of our web-dominated information highway.

Read This

There were two articles in the Phnom Penh Post today bolstering my previous assertions about the real estate market in Cambodia.

And another one on who is suffering the most from the downturn in construction.


In case you don't read the Post you should because they are still the best when it comes to English-language papers in Cambodia.

Bust or No Bust in the Real Estate Market?

This seems to be a very popular subject indeed. Replies to my article below as well as comments on other boards keep kicking this question around. Most people say it’s a bust. Here is why I consider it a deflation, although the term itself is of secondary importance. What counts is the impact various factors have on both the players in the real estate market and the overall economy. Let me give you an example of one of those projects, in which I am involved as an adviser.

A friend of mine bought one hectare in Phnom Penh Thmey in April of 2007. It was the typical low-lying land along a higher-lying badly paved road, which was previously used as agricultural land, most likely a rice paddy. The difference in level was about 1 m. The reason he bought it was clearly for speculation, as the boom had been going on for a while now and he had profited well from a few previous deals. He paid $30/m2, which was still considered a good buy as most of the neighboring lots already went for around $50/m2.

First thing he needed to do was fill it up with dirt. He then built a low stone wall around it as a boundary. The land was then divided into 92 lots; the majority of them measured 4m x 15m, some twice that size, with some land set aside for villas. You also needed to allocate common land for streets, sidewalks, etc.

At that time, filling up one hectare cost about $5,000, so the total cost to him was around $310,000, including the low wall. The whole thing was a family affair; each of his adult children had chipped in to come up with this sizable amount. But one month later the price had already risen to $60/m2 and he had a lot of inquiries. Some people even came by with large wads of cash to buy on the spot. The market was this hot at the time. It really seemed like they were on the road to making a bundle. I had been watching the market and seen this incredible rise in prices, which to my critical mind was rather unhealthy. Much of the land was completely undeveloped - no power, no water, no access roads. But the local commune and Sangkat chiefs promised to bring in roads and power.

I advised my friend to sell immediately, forge the iron while it was still hot, so to speak. He was thinking about it and indeed sold off about 27 lots at $70/m2, but not because he thought this was a good price. He needed some money for different things, one of which was a big limousine. He said people didn’t believe the driver of a beat-up ’94 Camry was really the owner of the land. So the limousine was an investment in the business as well as a welcome status symbol. He no longer had a problem with the traffic police and fenced off streets were still open to him.

In October the price of land there had risen to $95/m2. I kept urging him to sell so he would have money to flip more land and in the end make more money than as if he waited for prices to rise.
But now he thought building the so-called Cambodian flats, basically row houses, would be the way to go. He could increase his overall profit by another quarter million. So he made plans for this but couldn’t carry them out for lack of capital. I did not want to get involved financially as I was by nature not a speculator but a trader or manufacturer by conviction.

Prices kept rising until they had finally reached $155/m2 in March 2008. In order to realize his plan he needed to build at least a model house so people could see the quality and then he could get down payments, which would be the base for his construction – a typical mode of financing and operation in the housing market (which he finally did, but not until August, a bit too late).

But slowly those price increases came to a stop on news of the real estate market collapse in the U. S. Although this did not directly affect the Cambodian economy, it made a few people with ties to overseas Khmer a little jittery so the white-hot state of the market became a red-hot state and finally only a glowing state in May. All admonitions to cash out were brushed aside in the hope of more rising prices after the election. He firmly believed it would go on and on and on.

A first disturbing sign was that prices dropped a little, e. g. $5/m2, then another $10/m2 in May and June. He still had buyers but didn’t budge. Then in July the market came to a complete halt, and prices started dropping even more, in our case, to $130, then to $120, and $110. It would still have been a nice profit of some $300,000. But in July everyone was waiting for the election to be over to see what was going to happen then, so no buyers. And that situation hasn’t changed since then until now – no or hardly any buyers. Finally the price for this property hovers around $100/m2, but determining a price is somewhat difficult if there is no action in a market. He is now holding on to his land waiting until the market picks up again. He is confident he can even sell it now at a discount and still make a profit, which probably is true. After a hype prices usually settle at a realistic level. His advantage is that some laterite roads were built so the site is not completely without access. Power is available nearby too. So some real value has been added.

This example is to illustrate my contention that it is not really a bust. I would like to point out that the signs for a slow-down started as early as March. This could be seen all over the place, not only at the site in question here. When things slow down gradually it is generally not a bust but a deflation. A bust is a free-fall.

But never mind the word. So far there is no word of anyone getting hurt in a way that they have lost real money, meaning cash. The big companies, e. g. the Koreans with multi-million-dollar projects, or the Canadia Bank have shown no signs of stopping their projects in progress. Of course, there is a credit squeeze; so many new projects have been put on hold.

But the majority of private speculators are just like my friend. The used their savings, possibly pooled them, or found partners to make those deals. Now they have been caught with their dreams of a nice profit unraveling, but it is not a nightmare yet, as they have no loans to pay back, and if they have some other means of making a living they can wait it out. And many of them, again like my friend, had gone through a number of previous deals that left them with enough money to live on for some time. One mustn’t forget that the cost of living, despite its 20%-plus inflation, is still only about one fifth of that in the U. S.

Like my friend said, ‘80% of the land in and around Phnom Penh is owned by rich people anyway. They have no problem holding on to it for some time.’

Westerners make a big mistake when they say it will get worse still. Again they forget there is virtually no mortgage market here. A recent article in the Phnom Penh Post stated that ANZ’s mortgage volume is about $5 million max, and they only loan 50% of the home value. That’s a negligible amount by any standard. So people losing their land or home won’t happen, apart from singular occurrences. Banks in Cambodia losing money on mortgage derivatives is not going to happen either. That concept is completely unknown in these parts. People losing their jobs and defaulting on their mortgages is an impossibility in Cambodia. People losing their jobs because of the real estate melt-down are the construction workers, service personnel, etc. Sorry, those people didn’t have the money to get into the game. Among others, these were all factors in the Western bust – not here.

So by and large, it’s a standstill, which will slowly re-gain some drive, perhaps not at the levels and hype as before, but surely there will be movement once the recession in the developed world is beginning to show signs of recovery.

As for myself, I didn’t speculate. I bought agricultural land, the cultivation of which still returns a slight profit, not as good as before because of the decline of commodity prices, but, like my Cambodian friends, my Khmer wife and I can wait for the market to recover. In fact, prices in my sector have been rising slightly already.

I also bought land to build a nice house on. Maybe it was a little too expensive, but then the location more than makes up for it – on a river bank about 500 m from the sea facing west. What more do I need?

Katyusha Rockets

I came across a picture of those rockets being fired in the New York Times. This is just to show how fearsome these weapons are.

Is This What Happened?

The Thai-Khmer clash over the disputed border area at Preah Vihear is some time back and enough has been written about it, a lot of speculation has been going on; but us normal folks are none the wiser. So here is one more piece.

The shoot-out occurred on Oct. 15 just while I was driving along road no. 7 with my Khmer partner to visit one of our holdings in Rattanakiri province. It should be noted that my partner has friends in high places and an extended family, most notably quite a few nephews whom he brought up as all of his 8 his brothers and sisters, except 2, were killed during the Pol Pot era. Two are colonels, one an assistant to the highest ranking general in Cambodia. As we were driving along we got bits and pieces of news of what was happening and what happened over the phone. His son who studies media communications added his two cents every time there was a piece on the news wires, to which he has access by virtue of the faculty. Additionally, a friend of my wife’s is a general, commanding a brigade of elite body guards, who had been called to the ‘frontline’ in Preah Vihear. He is a battle-hardened soldier, wounded several times, and an experienced jungle fighter in the civil war with the Khmer Rouge. Let me tell you, that phone was ringing constantly. My friend is the patriarch of the family so everybody feels duty-bound to report the latest news to him.

This is just to tell what my sources were and that I don’t just grab things out of the blue like so many of the other bloggers who mostly just repeat what they read in the news and then put their own spin on it.

Clearly, what I am about to write is basically hearsay, and unconfirmed, basically just another piece of speculation, and this time with the spin I put on it, but everyone can make their own judgment. To me it rings rather true and credible.

From what I heard, Cambodian forces began massing along the Thai border two days before the clash, right after Hun Sen had delivered his ultimatum to the Thai Foreign Minister. It was widely reported that Hun Sen requested that Thai forces withdraw to positions before mid-July, when those incursions started becoming ever more audacious, clearly fueled by the domestic turmoil in Thailand. The Thai FM reportedly replied they would have to ask their parliament for authorization to withdraw, upon which Hun Sen said that doesn’t really make sense since they didn’t ask the parliament whether they could enter Cambodian territory to begin with. At the end of that meeting Hun Sen then issued his ultimatum. Whether this was done impulsively or with plans already in place to teach the Thais a lesson will remain a mystery. But right after this, troops were put on alert and necessary brigades ordered to reinforce the troops on the border. At the same time artillery was brought from Eastern bases to Preah Vihear overnight to be in position when the ultimatum ran out.

The next day, Wednesday, Oct. 15, Thai troops withdrew from the disputed area and had vacated it by 12 o’clock noon. The Cambodians were really surprised to see this but their surprise became even bigger when at 2 o’clock they saw Thai tanks moving toward Cambodian territory again.

Cambodian forces, of course, are no match to Thai troops when it comes to armaments. Cambodia’s most widely used piece of light artillery is the B40 RPG. They have another somewhat antiquated but still highly effective piece – the Katyusha truck-mounted rocket launcher.

(Archive photograph)


No one knows for sure who fired the first shot but a little after two a clock this conflict had developed from a tense situation into an open military conflict with bullets flying both ways. At one point a Thai helicopter gunship fired its rockets and reportedly hit an armored personnel carrier killing all eight occupants. Unconfirmed reports say that incensed the Cambodian commanders so much they launched counter-strikes with their Katyusha hitting tanks and killing scores of Thai soldiers.

At this point the Thai commanders obviously realized that Cambodia was indeed serious when it said Thailand would face the possibility of war. They ordered a hold-fire, which resulted in a sort of cease-fire until today. The Cambodian side claimed they surrendered, which, of course, the Thai side denied vehemently. Tensions still run high, with some soldiers obviously believing that another outbreak of hostilities is unavoidable.

Officially, fatalities reported were 3 dead on the Cambodian side, and 1 dead on the Thai side. Unofficially, it is said there were actually 8 or 11 dead on the Cambodian side due to that helicopter strike, and as result of that Katyusha fire at least a number in the teens dead and countless wounded on the Thai side.

Pride and the need for a resumption of negotiations made both countries play down the real effects of that clash, at least so it seems.

Western observers questioned the necessity of an armed conflict to resolve this for both sides thorny issue and are still wondering why Hun Sen took this action, which many consider to be outright brinkmanship given the apparent Thai military superiority.

But maybe this is what went through Hun Sen’s mind. A conference with the Thai PM was scheduled for that Monday preceding the clash. The Thai PM canceled the meeting on short notice citing problems at home and sent his FM instead. This man, who had said in an interview that he doesn’t know a whole lot about foreign policy, was ill-suited to the task at hand. Say what you may about Hun Sen, but he knows when he is dealt a good hand, plus he may have seen the Thai actions as an affront.

He saw the Thai PM weakened in his position what with the Thai opposition occupying the Thai government for months now. He has no power over his military to remove the demonstrators from the front lawn of the Thai White House fearing bloodshed and civil war. The military is obviously listening to someone else, definitely not to the Thai PM who at the same time is the Defense Minister and as such the commander of the military forces. This is a truly unique situation. Seeing a wounded Thai PM, a Thai government in disarray, and the Thai military standing on the sidelines, Hun Sen perhaps concluded now is a good time to show them that they can’t go on bullying the Cambodians and gave the order to fire or return fire, whichever may have been the case. He clearly assumed that Thailand would not risk an all-out war with its neighbor over a few square kilometers in a desolate part of the country. Additionally, Thai forces have no real battle experience, whereas the Cambodian forces can be compared to the Viet Cong in the 60ies and 70ies. They may wear tattered uniforms and walk in slippers, but by all accounts they are tough. Hun Sen reportedly said that the Thais may the elephant here, but the Cambodian ants can cause tremendous pain to the elephant.

A war would considerably weaken Thailand internationally, put enormous, additional strains on their economy, and they are already hurting economically, losing billions of tourist dollars because of that whacky opposition movement, which proclaims outlandish concepts, such as the abolition of democracy. Thailand also faces a long-festering Muslim insurgency in the South. It can’t manage to confine that, and it would be hard-put to face those tough, wily Khmer soldiers on their Eastern border.

So Hun Sen played a high-stakes game and won. He again showed that when it comes to power play he is not one to be discounted or scoffed at. Let’s hope the Thais will finally see that the territory is Cambodian by all international legal standards and good neighborly relations are much more valuable than a few sparsely populated square kilometers.

For all those who are interested in the historical context of the Thai/Khmer dispute the University of Sydney has a very illustrative animated historical map here http://ecaimaps.berkeley.edu/animations/2003_03_khmer_animation.swf

And finally, I am wondering what Sam Rainsy would have done had he been PM of Cambodia.

The Real Estate Bubble – Revisited

For those of you who have been wondering whether it has burst yet following the world-wide financial crisis there is some good news and some bad news.

The good news is that it hasn’t burst – it has been deflating as I had predicted previously; so nothing new to report here.

The bad news, especially for those who still bought into the market in May and June, is that nothing is moving. Prices in Phnom Penh are down by up to 25% depending on the area – more in Phnom Penh Thmey and less in Toul Kork – no surprise there either.

West of Kompong Speu prices are starting to go down as much as 50% according to my information.

Korean mega-projects like Camko City and other big ones are still going ahead seemingly unfazed. Their financing was secured long before the crisis hit South Korea as well. But I know for a fact from one of the newer Korean banks in town that projects that were planned at the beginning of the year and to be begun about right now are on hold for the time being as they are still trying to sort out what will become of their financing. Boon Yong is one of the newer ones. They have a 10$-million project in the pipeline but are all scratching their heads now.

Traditionally construction is started at the end of September and beginning of October to take full advantage of the dry season. Just drive around Phnom Penh and you will see a lot of idle construction sites.

Another sector that is suffering, which has been widely reported in the newspapers, is the rubber industry. There has been a sort of a surge into agricultural land suitable for rubber plantations that even went into Koh Kong province, which normally is not known for rubber, up to the election. As we all know by now rubber prices fell up to 35% and latex prices up to 50%. I can tell you, though, that this trend is unabated as those plantations won’t be ready to produce until the trees are mature enough after 6 years. So this is still considered a good investment by most Khmer buyers who want to invest in something tangible. Predictions are that rubber prices will recover after the wintering season when the surplus stock has been depleted and the market has adjusted to a lower output.

Other agricultural land, though not completely unaffected, is also still actively sold at more or less normal prices.

Let’s wait and see what will happen to the mega-projects in tourism. Word is that people start saving on big ticket items, and international travel is one of them. My expectation is that Sihanoukville will look the same for some time to come. People who bought land in Sihanoukville can only hope for a rebound of the market in 2009 and 2010, if they have the breath to hold out that long.

Well, I bought land outside Sihanoukville for my own house. So I guess I will take advantage of lower construction cost now – iron and cement is cheaper, order books aren’t as full; so this looks like a good time to start.

How Will The Financial Crisis Affect Cambodia?

The expat community in Cambodia has been heatedly debating this topic over beers and elsewhere for the past few months. After all, it might affect them as well. Apart from NGO and diplomatic personnel many expats come here for the lower cost of living. Inflationary pressure and the strengthening dollar, ironically a consequence because of falling oil prices due to expectations of lower demand, will wipe out part of their purchasing power if they are from Euro-countries. But they usually find a consensus that the boom years for Cambodia are over. A sure first sign of that will be when the real estate bubble pops.

Now, if we take a closer look at that crisis and the underlying factors we may find that the dangers and risks are not nearly as big as they appear at first glance.

The informed reader knows by now what caused that crisis in the U. S. Worthless or nearly worthless mortgages were packaged into negotiable securities, which mortgage banks sold to other financial institutions, which in turn used them as collateral to raise money to infuse into the (mostly real estate) market or to resell them themselves. When it became apparent that a great number of those mortgages would no longer be serviced by defaulting home-owners and the real estate market crashed (mainly in the U. S. and Britain) those securities had to be revalued to a fraction of their nominal value. As a consequence the collateral they were put up as wasn’t worth what it was supposed to secure. When loans that were backed by those securities were called in those big banks didn’t have the cash to pay them back, resulting in the bankruptcy of Lehman Bros, for one, and bailouts or sale of others. Banks throughout the world participated in this speculation and consequently had to write down billions of dollars on their balance sheets. Stock markets reacted accordingly and sent share prices into a nose-dive first, followed by an ongoing roller-coaster depending on what the latest news is.

Another factor not mentioned as often is the amount of speculation in the financial and futures markets. Oil is a prime example of what speculators can do to prices. Even though oil demand has gone up sharply over the past 4 years that demand would not have produced a spike that eventually saw prices at $150 a barrel, five times higher than in 2004 and double the increase in oil consumption caused by such countries as China and India. For the average observer it is very hard to follow the reasoning of speculators when they claim that a brief border skirmish between Kurds and Turkish forces on the Iraqi border might have an impact on oil production in Iraq thus sending the price up by $10/barrel.

Short selling, a very nefarious practice of the stock market, is another speculative factor that contributed to the current crises. For those of you who still haven’t understood this scheme, as I have for the longest time, it works like this. You borrow stocks at the today’s price and sell it at today’s price. You are betting on the declining value of that stock. When you think the stock will bottom out you buy it back and return it to the owner who is usually represented by a broker. You can determine the time or the value when you want to buy that stock back at the time of the original sale. Fortunately for the stock owner, you have to deposit the money of the sale with the broker. When you return the stock you get your money back, less a commission for the broker. The difference between the sale price and the buy-back price is your profit. These transactions have been suspended in both the U. S. and the EU until the end of the year. They should be outlawed along with a lot of other highly speculative instruments altogether, if you ask me.

And we are not even talking about things like swaps, junk bonds, and all other kinds of deals in intangibles going on Wall Street, not to mention the futures market.

The bad thing about all this is that financial institutions will be severely hampered in the ability to loan money to businesses that need it to finance their day-to-day operations, inventory, etc. The banks, as mentioned above, aren’t able to raise that money themselves. That is the real danger affecting the U. S. and other economies around the world that are closely linked to it.

Businesses will cut jobs, consumers will cut spending, demand will decrease, prices will drop – it is a vicious cycle. There is no escaping it. One good example is automakers in the U. S. Those pricey, gas-guzzling SUVs - sales are down by 75% at Ford, and more than 50% at GM.

Now, what does all that have to do with Cambodia? On the surface, nothing, but because of its dependence on garment exports and tourism, foreign money inflows, whether as FDI or loans, will slow down.

Garment exports to the U. S. have declined already. Tourism is still up over last year but it will most likely be only a matter of time when those numbers start leveling off. This could put a serious dent in Cambodia’s economy.

But what about the real estate bubble or the construction sector that has largely fueled those incredible growth rates over the last few years? Land was sold left and right with everybody betting on further increases and hoping to make a profit when re-selling it, in other words, pure speculation. There was no real purpose behind most of those deals, like building a house, factory, condos, etc. on it. Builders from South Korea who obviously see Cambodia as a playground for their ventures came in by the droves starting new projects, whether it was Cambodian flats or mega-projects like Camko City, the 42-story tower, etc. Both speculators and builders contributed to the growth. Quite a few people all of a sudden had a lot of money buying all those luxury items, and workers in the construction industry had money to spend on motorcycles, small cars, clothing, etc. What both overlooked, it seems, is that they should have done some market research first. Cambodia is a small country with only 14 million people and a very thin capital base. 35% are below poverty level, the vast majority is employed in the family business generating only the bare minimum income, and the garment and tourism sectors pay only minimum wage, like $75 a month. This, of course, means there is a natural limit for the demand in new houses and condos. No doubt, those luxury apartments will find their buyers. But compared to the huge oversupply of Cambodian flats this number is minuscule. Once the Koreans find out they are building for a non-existent buyer they will abruptly stop, putting a lot of those construction workers on the street. If the projects are financed by banks, as they must, simply based on the magnitude of the investment, we will all of a sudden see a lot of quiet and desolate construction sites. There are no numbers available on the number of Korean banks that speculated in those toxic securities, but it would be a safe assumption that most of them did. They will most certainly also feel the crunch, maybe not as much as U. S. banks, and maybe they can cover it with a broader equity base, but they will surely be a little more cautious with their lending.

The land speculators have already begun to realize that the party may be over. They adopted their traditional wait-and-see attitude before and after the election but there are no signs on hand that the market is awakening from its pre- and post-election nap. For all intents and purposes, it is dead right now. This has already led to a price drop of between 5% and 10% in Phnom Penh, and up to 40% in rural areas. Now the people who loaned money for their speculation are in for a rude awakening when the banks start calling in their loans. The ones that used their own savings will have to sell their nice Landcruisers or Lexuses as nothing is coming in to support them as there is no job market for them to speak of.

The Cambodian banks who worked along traditional, conservative lines usually loaned money only for real housing or other projects, not for land speculation. They may find themselves with a lot of real estate assets on their balance sheet when they have to repossess all those empty flats. But, of course, they will be short of cash unless they can generate more money inflows, which is traditionally done by issuing bonds. But initially at least, there will be a tightening credit market. But the upside for Cambodian banks is that none of them speculated in foreign stocks or participated in those imaginative U. S. securities. They made money the original banking way - deposits paid up to 6% and loans cost around 18%. In all likelihood, they will weather the storms that might come their way.

So what does that all boil down to? It would be sort of presumptuous to know an accurate answer to that question. But here is what I think.

The garment sector will not suffer too much as the garments produced are for the most part low-end items that will have a market even in bad times. Wal-Mart is the best example. They posted an increase in sales in the first quarter of 2008 despite the bad economic news and with many people losing their homes and jobs.

Tourism will stagnate in 2009, perhaps starting in the last quarter of 2008 already. Many Europeans are already staying home or opting for less expensive destinations in the Mediterranean (due to shorter flights). On the other hand, Cambodia is still an attractive destination as both accommodations and meal prices are despite a 23% rate of inflation still very reasonable compared to Thailand or Indonesia, for instance.

The real estate bubble will deflate but not burst. The reason for that is that only an estimated 20% is leveraged, mostly by larger companies. In the U.S. that rate is nearly 100%. People who bought and now own unusable land will not be able to sell it, no matter how low they will go with their prices. So they will just have to keep it. Will speculators resort to fire-sales? If they desperately need money, yes. If they have something to fall back on, most definitely no. One shouldn’t forget the Cambodian mentality either. They can be pretty stubborn. They will just wait it out, or go back to farming temporarily, or turn to agriculture altogether. Rubber and cassava plantations are viable alternatives to earn an income. I would be very surprised to see a real estate melt-down like in Vietnam. And most importantly, Cambodia is a cash-based economy. People usually don't spend money they don't have, like in the U. S. where credit card spending is rampant and virtually everything is purchased on credit.

In that sense, I personally believe that the adjustment of the growth rate to around 6%-7% is probably still a little too optimistic, but the economy most certainly won’t crash – at least I hope not.