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Could Cambodia be impacted by the current global financial crisis?
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Loading ...How might the current global financial meltdown affect Cambodia? This is a question that concerns me greatly because unlike the wealthy developed countries of the world, Cambodia will not be able to cough up tens of billions of dollars to bail out banks to prevent them from going under.
It is my impression, however, that at least in the short term Cambodia’s financial institutions likely will not be too adversely affected by the crisis because they are not tied to loans backed by toxic mortgage-related investments in the US and other developed countries.
However, as world economies slow, so will demand for Cambodian made garments. The tourism industry will slow as well. Less money will be available for development. So while the crisis will have only a limited, largely indirect impact on Cambodia’s banking system, in the long run we still will be feeling some of the sting.
As for Cambodian banks, they face a different challenge: our own homegrown real estate speculation. The speculative fervor in land and construction, fueled by partly foreign investments from South Korea and other countries, is predicated on the assumption that demands for flats, office buildings, luxury condos will remain robust when these projects are completed. If that turns out not to be the case, perhaps owing partly to a slowing global economy, development will cease and the real estate bubble will burst.
For instance, there are many flats (ptheas laveng)being built based on the speculation that their prices will continue to rise. But the reality is that Cambodia is still a poor country. Most ordinary people cannot afford to buy $100,000 flats. Eventually, reality will catch up as demand for these flats dry out, causing prices to plummet.
Just as in the US, some loans from banks that had been used to fund speculative real estate investments in Cambodia will become toxic, leading to our own financial problem. One redeeming aspect of the Cambodian real estate, however, is that much of developments and transactions are done through cold hard cash, as opposed to credit.
Further, Cambodian banks charge interest rates of up to 18% for loans. High interest rates are actually good for the financial system because they discourage borrowing for speculative purposes. So even if (when) the Cambodian real estate bubble bursts, it probably will not be as bad in the U.S., where virtually 100% of real estate is bought on credit.
But this is just my own speculation, based on the limited information I have. I’m no economist; nor am I privy to all the details of the financial system here.
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