A
lot of the countries around the world suffered from the impact of the global
financial crisis which started to take place at the end of 2007 and in the
early of 2008. Similarly, Cambodia is also among those countries which got
severe impact from that crisis. For example, monthly exports from garment
sector in Cambodia fell 50%, from US$250 million in 2008 on average to $100
million in January 2009 (Jalilian, Chan, Reyes, Saing , Phann & Pon, 2009).
Additionally, the real GDP of this country also decline noticeably. In order to
response to this phenomenon, Cambodian government has implemented three main effective
policies to tackle the effect from the global financial crisis.
The first policy that the Cambodian
government did to counterattack with the global financial crisis is implementing
the fiscal policy. The Cambodian government has increased its spending on
infrastructure, agricultural, and social safety nets in order to increase the demand
(Jalilian, Chan, Reyes, Saing , Phann & Pon, 2009). In this way, the
increasing of government spending will leads to an increase in the amount of
money in circulation which causes an increase in aggregate demand.
Additionally, people have few assets left during the financial crisis and thus
are income-constrained during such periods; government spending is a way to get
income into their hands-income that they are likely to spend immediately (Miller,
2011). As the Cambodian government increased its spending, it will push the
aggregate demand backs to its level and fulfilling the recessionary gap (Figure
1).. As a result, the fiscal policy has helped a lot to the Cambodia’s economy
during the crisis times.
As we have known, garment sector is
one of the main distributors to the Cambodia’s economy. Cambodia’s garment
industry represents 90 percent of the country’s exports and employs more than
300,000 workers by some estimates (Palatino, 2012). During the crisis time, the
Cambodian government decided to suspend the 1 percent advance profit tax, and
reduced 10 percent in export management fees and other fees. By doing that, the
Cambodian government could foresee that that there will be more investments in Cambodia
and evade the existing investments from bankruptcy or leave the country. In
this respect, a lot of the company around the world was meeting trouble or
bankrupt during the crisis time since the demand for most of the products
declined markedly. Thus, the decreasing in taxation could induce firms to
supply the products and services at the regular level as before. As represented
in the figure 2, the decrease in garment’s taxation will help out to push the
short-run aggregate supply curve backs to its equilibrium level.
Another policy that the Cambodian
government established during the global crisis is strengthening the monetary
policy and banking. There were some banks in other countries bankrupt because
of the global financial crisis and as a result, those banks could not repay all
of the liabilities that they owed to the depositors. There was a tendency that
in the near future, some of the Cambodia’s bank would meet that problem too and
a lot of depositors in Cambodia’s bank were likely to withdraw their money back
in which the bank did not have all of those amounts of money. Hence, the
Cambodian government has increased the reserve requirements from 8 percent to
16 percent for deposits and borrowings in order to insure the depositors and
stay away from the huge amount of unexpected withdrawals from the depositors
that the bank could not afford to repay immediately (Chea, 2009). In addition,
the National Bank of Cambodia also limited bank exposure to high risk sectors,
especially real estate, by introducing a 15% cap on real estate lending. In this
aspect, the price of the real estate had bubbled before the crisis happened and
a lot of people borrowed money from the bank to buy houses and lands. As the
crisis happened, the price of the real estate had blown out and most of the
bank’s loans for real estate could not repay. Hence, the bank confiscated a lot of houses
and lands and sold them at the low price which could not recover the loans that
they gave away. As a consequence, many of Cambodia’s bank had lost a lot of
their capital during the crisis, but thanks to the monetary policy and banking
that helped them to reduced the serious impact.
In
conclusion, the global financial crisis had considerable impacts to many
countries around the world and as well as Cambodia. I think that the Cambodian government
had done very well to deal with the crisis by implementing some effective
policies: fiscal policy, supporting garment sector policy, and strengthening
the monetary policy and banking that could reduce the impact from the crisis
and curb the GDP of this country from declining. In my opinion, many countries
around the world also implemented the same kinds of policy like Cambodia too.
References
-Chea , C. NATIONAL
BANK OF CAMBODIA, (2009). On the occasion of opening the
seminar
on cambodian's microfinance amid global financial crisis.
Retrieved from
NATIONAL
BANK OF CAMBODIA website:
http://cma-network.org/forum/speeches/HE.Chea chanto-Speech-English.pdf
-Jalilian, H., Chan,
S., Reyes, G., Saing , C. H., Phann, D., & Pon, D. (2009, May). Global
financial
crisis discussion series. Retrieved from:
http://www.odi.org.uk/resources/docs/4323.pdf
-Miller, R. L. (2011). Economics
today. (16 ed., p. 287). Boston: PEARSON.
-Palatino, M. (2012,
Feb 21). Cambodia’s fainting workers. Retrieved from:
http://thediplomat.com/asean-beat/2012/02/21/cambodias-fainting-workers/
