One of the biggest events ever to be held in Cambodia has opened near the world-famous temples of Angkor.

The Angkor-Gyeongju World Culture Expo, named after important Cambodian and South Korean heritage sites, will showcase both nations’ culture.

By the time it closes in the middle of January, it hopes to have attracted more than 500,000 visitors.

It is the most obvious dividend of a burgeoning relationship between Cambodia and South Korea.

Growing interest

Events held in the shadows of the five towers of Angkor Wat are usually small-scale affairs, so the Angkor-Gyeongju Expo is a real break with recent tradition.

The exhibition will feature two pavilions showing off the best of Cambodian and South Korean culture.

Not only will there be regular performances at Angkor Wat itself, but a large area on the road to the temples has also been set aside for the expo.

Daily shows will include cock-fighting and buffalo-racing on the Cambodian side, with totem-pole whittling among the Korean attractions.

For the opening ceremony, there will be an elephant parade, recreating the glory of the ancient Khmer Empire.

The official explanation for the international tie-up is that Angkor and Gyeongju are both important heritage sites, but beyond that is the curious rise of Korean interest in Cambodia.

South Koreans account for almost one-third of tourist arrivals at Angkor, and now businesses are starting to follow.

Korean Air has just started direct flights to Cambodia for the first time, and one of the country’s leading banks is recruiting staff for planned Cambodian branches.

Social Classes

Society is still very much divided into the three traditional estates: those who pray (the church), those who fight (the nobility), and those who work (everyone else). The first estate, the church, is the most powerful institution in France after the monarchy. It owns a third of the property and probably collects about 40% of the revenue. Resentment toward the church for its wealth and corruption should come as no surprise, especially as is legally exempt from taxes — although this does not mean that the clergy were not sometimes persuaded to make a “gift” to the crown during wartime or other fiscal crisis. (Eventually these “gifts” came to be quite customary.)Francis I established the right of the French crown to award bishoprics and other church benefices to its own candidates, which went a long away towards preventing the formation of a Gallican church along the lines of the Church of England. This also means the average church position was a political job, and the majority of bishops hardly ever visited their own cathedrals. The average village priest was usually a sub-contractor, earning very low wages to care for the flock of the official holder of the benefice (who collected its revenue). Every prominent family made a point of putting a son into a lucrative church position, where they often wielded a great deal of political influence on behalf of the head of house: examples include the Duc de Guise and his brother the Cardinal de Lorraine, Admiral Coligny and his brother the Cardinal de Chatillon, etc. A number of such positions were essentially “hereditary” to certain families. In spite of the religious wars, the Catholic church remains powerful and will continue to be so. In the South, the Huguenot churches established what resembled a kind of independent religious republic ruled by councils of elders. These functioned rather well when there was essentially no government, but they could not approach the power and wealth of the established church. There was a strong “congregationalist” streak among many of the Protestant churches (i.e. independent churches ruled by an assembly of the congregation). As pastors trained in Geneva began to serve these congregations, this independence eventually gave way to the “presbyterian” model promoted by Calvin (with churches ruled by pastors and elders in a hierarchy intended to enforce doctrinal purity). The second estate is the nobility, who are also exempt from taxes on the theory that they serve the state by offering the king their lives in military service. The old feudal role of the knightly class has been breaking down for some time, but it is taking them a long time to realize it. Royal service has long been their prerogative, but they have been replaced by bourgeois magistrates who are cheaper, harder working, and more loyal to the crown. An increasingly money-driven economy makes living off your own land a much more difficult prospect than it used to be. The nobility depend on war to make money — ransoms, loot, and royal appointments. A major French defeat (like Pavia under Francis I) can bankrupt families. And if there is no major war to undertake against foreigners, it is only a matter of time before the French nobility start making war on each other. While many military leaders in the religious wars were certainly motivated by conscience (usually in the person of their wives and mothers), for many it was just an opportunity to make a living and they changed sides as necessity dictated. It was not acceptable for a nobleman to do much of anything except serve in the military, in the royal service, or in the church. Engaging in commerce or mercantile activity, let alone manual labor, could result in derogation — the loss of all noble privileges for him and his descendants. Worst of all, he lost his exemption to the “taille” — the tax on the laboring class. Jehan would worry about this a whole lot more if he weren’t so broken and jaded, but he’s still somewhat more ashamed of how he makes his living than he is of murdering a man for his boots. Among other things, a nobleman of France had the right to wear a sword any and everywhere, including in the presence of the king. There is an engraving of a gentleman wearing his sword to play tennis. Note that dueling was not made illegal until 1609, when a protracted peace was starting to take its toll on the nobility. The idea of “clientage” is key to understanding the nobility of this age. This overlaps the traditional feudal concept of vassalage, which is less important now. A noble family cultivated a following of noble clients, giving them appointments, benefices, pensions, etc. in return for loyalty and service. (e.g. When you got someone a job in the tax department, you expected them to do you little favors in return.) Clients of the great would in turn have their own clientage, and so on. When the head of a great house made a move (had a religious conversion, declared for or against this or that policy or person or ruler), he took a whole pyramid of clients with him and could shift the balance of power in France. The right and ability to dispose of patronage is what kept the machinery of the great houses running. The crown used the same technique to manage the great houses themselves: paying them pensions to keep them quiet and giving them choice royal appointments. Paying pensions to the nobility eventually consumed about a third of the royal budget. The traditional nobility is the noblesse d’epee (nobility of the sword), but this century has seen the rise of a new nobility: the noblesse de la robe (nobility of the gown). This the magisterial class that administers royal justice and the civil government. In France, the Parlements (there is one in Paris and several provincial ones) are more like judicial courts than legislative bodies (as in England). Most of the men of the gown rose from the wealthy merchant ranks. They studied law and made enough money to buy a government office. During this century, the venality (selling) of public office became a plague. The crown needed money, and one way of raising it was to sell government jobs to the nouveau-riche. Most of these jobs came with grants of nobility and excellent opportunities for graft. It was considered a better deal to invest in a venal office (which you could pass onto your heirs) than to risk your money in some kind of commercial venture like the East India Company. Financial positions in the government had traditionally been venal, but it was Francis I that made judicial positions venal. There is a vast amount of resentment between the men of the sword and the lawyers who are buying up their estates as the warrior class goes bankrupt. The third estate, those who worked, covered everyone from the rich merchant who loaned money to the king to the poor share-cropping peasant who owned little more than his shirt. These are the people who paid the bulk of the taxes. Traditionally, it had been in the best interests of the seigneurs to keep taxes low, as it impacted what they themselves were able to collect from their own peasants. During this century, however, as the pattern of landholding changed from tenant peasants who held lifetime rights to sharecroppers with short-term contracts, the seigneurial solicitude for peasant welfare decreased. 1594 saw a significant peasant uprising (the Croquants), as the depredations of war, bad harvests, inflation, and seigneurial exactions all came to a head. Note that during the war years the peasants often paid their “taxes” several times over, but the royal treasury rarely saw any of it. Unlike in England, the Netherlands, or the Italian city-states, the pursuit of wealth was not respected. Wealthy bourgeois remained members of the third estate, and the wealthier they were, the more the crown suspiciously eyed their money. During fiscal crisis, it wasn’t unusual for the leading citizens of Paris to be “encouraged” to make “loans” to the crown. During this time of upheaval, as noble houses became extinct or fell into debt to the merchant class, the bourgeois bought up noble estates. The French have always had an almost mystical reverence for the land. The new owners of a noble estate could become ennobled themselves if they and their descendants lived on the estate for 40 years and provided the required military service. Many of these new arrivals brought the bourgeois habits of careful business management to these estates, making them more profitable than they had been under their previous owners. Of course, they also favored the more lucrative sharecropping arrangements for working the land, which made the rural peasantry even poorer and more disenfranchised than they had been. The peasants have suffered terribly in the later half of this century. The early part of this century was quite prosperous and saw a big increase in the population. However, this lead to land being subdivided into economically unviable plots. Although inheritance laws varied by region, farmers divided their land fairly equally among their sons in many parts of France. The religious wars bred a generation of anarchic lawlessness, pillage, extortion, and inflation that collapsed the rural economy. And on top of it all, the weather has been bad. Many peasants have lost their rights of tenancy to debt and have become marginal sharecroppers, while a few of the more prosperous peasants have been buying up and consolidating their lands. That old fallback, running away to the big city, has been less of an viable option as cities try to struggle with their own poor and unemployed and take steps to discourage new arrivals. The burden became too much to bear in the 1590s, which saw widespread peasant revolts. The largest was the rising of the “Croquants” in the Southwest in 1594. Henri IV was sympathetic to their suffering, saying that if he were a peasant, he’d be a Croquant himself, but the revolt was eventually suppressed in the usual way and the leaders executed. Except in the Southwest, most of the peasants remained Catholic throughout the wars. For one thing, there were about 100 religious feast days a year, and they provided the only real relief from work most peasants got. This is in contrast to the urban merchants, who viewed holy days as a loss of opportunity to buy and sell and make money. Protestantism was much more popular among the mercantile class. (One of the terms of the eventual Edict of Nantes was that Protestants had to observe the Catholic feast days.) In the cities, the artisans have also been affected by economic change. Their guilds, traditionally the most powerful corporations in most towns, have been losing ground to the emerging urban oligarchy of the wealthy neo-capitalists. Urban poverty is also a big social problem. However, new trades like printing have opened up new opportunities. Merchants and tradesmen in the new industries are more likely to be literate, and for a while, were more likely to be Protestant as well. The major cities have been strongholds for the Catholic League, Paris being the foremost. Because the League advocated deposing a legitimate monarch, they ended up attracting political extremists that proclaimed that all power came from the people. The first barricades went up in the streets of Paris in 1588 (the beginning of a venerable French tradition). During the anarchy between the end of Henri III’s reign and Henri IV’s triumphal entry in 1594, Paris was ruled by “The Sixteen”, a revolutionary committee of citizens that enforced the rule of the people through a program of terror. (The events of 1789 were never very far from the French soul.) The chaos of civil war has meant that for the first time in centuries, commoners may find themselves in careers as soldiers. Since the 14th century, the nobility had considered it unwise to arm the common people. Most of the infantry used in France were foreign mercenaries, hired from the Swiss cantons or German princes. But the demand has been high enough to create a market for the native-grown variety. One noble commander lamented this trend, saying that a butcher’s son might have an illustrious military career and be honored by the great as if he were the son of a duke

Growth, Employment, Savings, and Investment

1. Aggregate Growth

1. A supply shock—severe seasonal flooding—struck Cambodia in mid-2000, weakening the economic recovery that began in 1999, following the turbulent years of 1997 and 1998. As a result, expansion of real gross domestic product (GDP) is expected to slow in 2000 from the 5.0 percent growth rate achieved in 1999 (Table 1). In addition to slowing economic growth, the flooding adversely affected the lives of one quarter of the population and caused over $100 million in damage to crops, livestock, and infrastructure. In contrast, and despite weakness in foreign direct investment (FDI), strong aggregate demand boosted the service and industry sectors, ensuring a real GDP growth rate higher than the 2.5 percent population growth rate, and thus some improvement from 1999’s real GDP per capita of $236 (Appendix, Table A1).

B. Fiscal Developments

29. The Government’s fiscal strategy is to avoid inflationary bank financing of the fiscal deficit, while taking steps to enhance revenues and attract foreign financing for public investment. In the recovery year of 1999, the Government followed a conservative fiscal policy, reducing the fiscal deficit to 4.1 percent of GDP (1.5 percent, including grants) from 5.9 percent (2.7 percent, including grants) in 1998, and beginning to repay credit extended by the National Bank of Cambodia (NBC) in 1998. Although the 2000 budget incorporated an increase in the deficit to 6.1 percent of GDP (1.7 percent, including grants), a further reduction in net credit from NBC was planned because foreign financing was expected to increase from 4.5 percent of GDP in 1999 to 6.7 percent in 2000¹¹. 30. Improved fiscal performance in 1999 was based on progress in revenue mobilization. In 1999, revenues increased by 40.0 percent from 8.9 percent of GDP in 1998 to 11.5 percent in 1999 (Table 8). The boost in revenue came predominantly from the new value-added tax (VAT)—KR181 billion—and exceptional revenues from the sale of US textile import quotas— KR87 billion. The 2000 budget envisioned a 12.0 percent increase in total revenues to KR1,475 billion but recent Government projections indicate an increase of about 7.6 percent to about KR1,416. Because of low inflation, this should still be greater than nominal GDP growth, so that revenues will likely increase as a percent of GDP.31. Tax revenues were 11.0 percent above the budget target in 1999 because of unexpectedly strong VAT collections on imports. This trend continued in 2000. Tax revenues were about 72.0 percent of total revenues in 1999. The share of direct taxes was 6.3 percent of total revenues, while that of indirect and trade taxes were each about 33.0 percent (Appendix, Table A4). Compared with Viet Nam and Thailand, Cambodia relies relatively less on direct taxes (which are over 20.0 percent of revenues in Viet Nam and over 30.0 percent in Thailand), and more on trade taxes (which are about 25.0 percent in Viet Nam and about 12.0 percent in Thailand).32. In addition to increasing revenue mobilization, the Government is taking steps to improve revenue composition. Introduction of the VAT reduced dependence on trade taxes, which fell from about 40.0 percent of revenues in 1998 to about 33.0 percent in 1999. This progress will help Cambodia, as the newest member of ASEAN, to meet its commitment (in principle) to eliminate all import duties by 2015. However, trade taxes increased from 3.6 percent of GDP (KR376 billion) in 1998 to 3.8 percent in 1999 (KR433 billion), and about 87.0 percent of VAT revenues were imposed on imported goods. Thus, the dependence on taxes collected at the border is apparent and improvements in revenue composition would facilitate revenue mobilization while minimizing market distortions.33. Nontax revenue collections increased by over 50.0 percent from 1998 to 1999, mainly because of the sale of US textile import quota rights. Nontax revenues are expected to fall well short of the targeted 18.3 percent increase in 2000. The main two areas in which expectations exceeded performance were forestry exploitation and post and telecommunications. For the former, market conditions appear to partially explain the shortfall, whereas for the latter, collection of arrears is inadequate. Post and telecommunications is the largest component of nontax revenues at about 36.0 percent of the 2000 budget target for nontax revenues.34. In light of the expected revenue shortfall of KR54 billion (about $14 million) in 2000, total spending limits were not increased despite KR19 billion in emergency spending on flood relief. Total expenditures grew from 14.9 percent of GDP in 1998 to 15.6 percent in 1999, with expansion to 17.9 percent budgeted for 2000. Expenditures on defense and security, which fell from 4.3 percent of GDP in 1998 to 4.2 percent in 1999, were budgeted to fall to 3.6 percent in 2000. At the same time, spending on the priority areas of health, education, and rural development, increased from 1.4 percent of GDP in 1998 to 2.0 percent in 1999, and was budgeted to reach 2.5 percent in 2000. This represents significant progress in budget execution. For several years, budget allocations reducing defense and security spending and increasing social spending have been unrealized, as actual spending would exceed allocations for defense and security while falling short for social sectors.35. Yet significant weaknesses remain in budget planning and execution. Although social sectors received their full budgets in 1999, most spending occurred in the last quarter. Through nine months, only 43.0 percent of the nonwage current expenditure budget was implemented. About 80.0 percent of 1999 budgeted current spending in the Ministry of Public Health, for example, occurred in the final quarter. Indeed, about 58.0 percent of 1999 spending by the Ministry occurred in November 1999 when the Government made a large purchase of drugs and medical supplies. The same pattern of low implementation of priority sector budgets occurred through the first nine months of 2000, but the Government explained that in many cases, open bidding processes initiated at the beginning of the year would be completed in the fourth quarter. Thus, the Government expects all priority sector budgets to be implemented fully in 2000.36. A related issue is low budget allocations for recurrent expenditures in economic and social sectors. Revenues are relatively low and defense and security spending relatively high— although falling (35.0 percent of the 2000 current expenditure budget, down from 42.6 percent in 1999). In addition, the Government is committed to providing counterpart funds for aid-financed public investment projects. Thus, limited funds remain to devote to low civil service wages or operating costs (16.6 percent and 28.6 percent of 2000 current expenditure budget, respectively). A particularly difficult issue is inadequate funding for road maintenance, despite large planned investments by aid agencies, particularly the Asian Development Bank, for road rehabilitation.

C. Monetary Developments and Prices

37. Phnom Penh experienced offsetting inflationary and deflationary pressures, as measured by the consumer price index (CPI), through the first nine months of 2000 after average inflation decelerated in 1999 to 4.0 percent from 14.8 percent in 1998 (Table 9, Appendix Table A5)¹². Three sets of factors influenced this outcome including relative price movements, exchange rate behavior, and monetary developments.

1. Relative Price Movements

38. The decrease in food prices, rise in housing costs, and rise in world oil prices were significant relative price movements that affected the price level in Phnom Penh in 2000. World rice prices, which strongly influence rice prices in Phnom Penh, are currently low because of large world surpluses. Thus, despite flooding, local rice prices were 7.5 percent lower in September 2000 than in September 1999. Indeed, prices fell for most major categories in the food subgroup, which carries a 46.3 percent weight in the CPI, including cereals, meat and poultry, and fish

D. External Trade and Balance of Payments

47. Gross official reserves rose to $422 million in 1999 despite a widening of the current account deficit, including official transfers, to 4.2 percent of GDP (Table 11). The reduction of short-term outflows increased the capital account surplus, more than offsetting the current account deficit. Thus, as in previous years, there was a balance of payments surplus. Yet rapid growth in imports reduced gross official reserves from 3.6 months of total imports of goods and services in 1998 to 3.3 in 1999. Net international reserves were $349 million in 1999 or 2.7 months of total imports of goods and services.16 Gross official reserves are projected to rise again in 2000, perhaps as much as $80 million to about 4.0 months of total imports of goods and services.