THE ECONOMIC SITUATION IN CAMBODIA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700010038-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 13
• Document Creation Date: December 22, 2016
• Document Release Date: May 18, 2010
• Sequence Number: 38
• Publication Date: April 1, 1971
• Content Type: IM

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Secret
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
The Economic Situation In Cambodia
Secret
ER IM 71-87
April 1971
Copy No.
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WARNING
Th;' document contains information affecting the national
defense of the Unified States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
GROUT' I
C~tluded Irom aulomadt
Jowngroding and
d,.,l fiwlion
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
April 1971
INTELLIGENCE MEMORANDUM
The Economic Situation In Cambodia
Highlights
1. The Phnom Penh price index remained fairly
stable during February, following an 18% increase
in January. Its new stability was attributable
mainly to an increased flow of supplies from the
Northwest following the reopening of Route 5 and
the Battambang-Pursat rail line. No information
on prices is available for March. The value of
the riel on the Hong Kong market appreciated sub-
stantially from the record low reached in March,
most likely because the International Monetary
Fund (IMF) suggested a less substantial devalua-
tion than had been anticipated.
2. Preliminary findings of an IMF survey team
are very pessimistic with regard to Cambodia's
prospective financial position. The team estimates
that, because of lags in deliveries of imports
financed by US AID, Cambodia's 1971 fiscal deficit
may greatly exceed the 6 billion riels officially
projected and has suggested establishment of an
exchange support fund to preserve the value of the
riel. However, the IMF did not evaluate the
planned military expenditures, which constitute
the bulk of the budget and which appear to be sub-
stantially inflated. If appropriate adjustments
are made, the projected deficit would exceed offi-
cial projections only under the most pessimistic
assumptions about US AID deliveries.
Note: This memorandum was prepared by the Office
of Economic Research and coordinated within CIA.
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25X1
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3. Aside from increased enemy harassment in
the Northwest, including some temporary interdic-
tions of Route 5 and the Battambang-Pursat rail
line and a rocket attack on a Mekong River convoy,
there were no significant changes in the security
of lines of communication from mid-March through
the end of April. Petroleum deliveries to Phnom
Penh continued to meet basic consumption require-
ments, but reserves remained low, and stocks of
some products became critically low before being
replenished.
4. Charts on prices and currency outstanding;
imports, exports, and foreign exchange revenues;
and government borrowing from the Banque du
Cambodge follow the text.
Discussion
5. Retail prices in Phnom Penh remained stable
during February. The price index for working class
families increased less than 1% during the month,
after an 18% increase in January. Both Route 5
and the Battambang-Pursat rail line, which carry
the bulk of agricultural goods destined for the
capital, were back in operation by the middle of
February, after having been out of service for
five or six weeks. Traffic along Route 5 was sub-
jected to enemy harassment during the latter part
of March but continued to move in convoys under
mil.itary escort. No information on prices is
available for March, but the food supply situ,,tion
in the capital was relatively favorable. Average
daily deliveries of foodstuffs from Battambang to
Phnom Penh were probably greater during March than
in any month since harvesting began in November.
Increasing enemy harassment and temporary interdic-
tions to Route 5 and the Battambang-Pursat rail
line may have reduced deliveries in April, however.
Black Market Currency Prices
6. The value of the riel has appreciated sub-
stantially from the record low reached in March.
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The riel's value on the Hong Kong market dropped
to 150 per US $1 on 22 March but by April had
risen to 120. Its low point was reached on the
day before an IMF team arrived in Phnom Penh to
discuss devaluation and overall reform of Cambodia's
exchange system (see below). Its recovery can be
attributed, in part at least, to the IMF's sugges-
tion that the exchange rate be set initially at
only 75 riels per US $1, a less substantial change
than probably had been anticipated. Prior to the
IMF proposal, Cambodia had already settled on an
effective rate of 83 riels per US $1 for US AID
commodities. (The official rate is 55.5 riels per
us $1.)
IMF Recommendations
7. The preliminary findings of an IMF mission,
which recently returned from Phnom Penh, are very
pessimistic with regard to Cambodia's prospective
financial position. Because of an expected short-
fall in budget receipts from US AID imports, the
mission estimates that Cambodia's 1971 fiscal
deficit may be far in excess of the 6 billion
riels officially projected. The mission fears
that present restrictions on available aid make
it suitable for financing only part of the economy's
total import requirements and that, barring addi-
tional, freely usable foreign aid, Cambodia might
face hyperinflation.
8. The IMF mission recommended a flexible ex-
change rate and establishment of an exchange sup-
port fund, apparently similar to the Foreign Ex-
change Operations Fund in Laos, whereby foreign
exchange is freely sold to importers for local
currency. The fund would include Cambodia's
present foreign exchange reseri'es, a $6 million
subscription from the IMF, and cash contributions
from friendly countries.
9. Other suggested reforms of the exchange
system designed to limit inflationary pressures
included liberalization of import restrictions
and a requirement for 100% advance riel deposits
against imports.
10. With respect to fiscal matters, the IMF
mission enjoined the Cambodian government to hold
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the line on expenditures, particularly until after
revamping of the trade and exchange system. It
was also suggested that the government permit a
drop in the real wages of its employees by aiming
at less than full salary adjustment for price in-
creases. Other measures called for increased tax
rates and periodic revision of specific duties,
but only petroleum products were cited as particu-
larly appropriate items for higher excises.
11. The IMF mission's expectation of a short-
fall in budget receipts from US AID imports is
well-founded. Of the $78.5 million in US economic
aid obligated to Cambodia for US fiscal year 1971,
only a very small amount has actually been delivered.
No deliveries have been made on that portion
financed under PL 480 ($8.5 million) and nog, "..s
expected before June. Best estimates avai:'
indicate that actual deliveries before the ei: of
December will range between a high of $60 mil--on
and a low of $30 million, which would imply budget
deficits well above official projections. The
IMF mission, however, did not make a detailed
budget study and, in particular, did not address
itself to the questions of military expenditures --
the dominant source of the deficit. Analysis of
the government's 1971 budget reveals that pro-
jected costs for military personnel are substan-
tially overstated* and, when deflated, yield a
budget deficit substantially less than 6 billion
riels, except under the most pessimistic assump-
tions concerning US AID deliveries.
Security of Lines of Communication
12. Increased enemy harassment of traffic on
Route 5, a temporary interdiction of the railroad
northwest of Pursat, and the destruction of a
bridge at the eastern end of Route 3 that severed
road access to Kampot were the major changes in
the status of lines of communication in the last
half of March and the month of April.
13. After flowing smoothly for more than a
month, traffic on Route 5 -- particularly the
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stretch between Phnom Penh and Kompong Chhnang --
was subjected to repeated enemy harassment from
mid-March through the end of April. Enemy actions
included attacks by fire, the destruction of a
small bridge, and occasional obstruction by
trenching or the felling of trees. All interdic-
tions were quickly eliminated, however, and
vehicle security was assured by the formation of
convoys moving under armed escort. No factual
data are available concerning the extent to which
deliveries of agricultural products to Phnom Penh
may have been reduced, but the short duration of
the interdictions suggests that their effects were
not serious.
14. Rail traffic between Battambang and Pursat
was disrupted by the sabotage of track in the
vicinity of Phnom Thippadey on 16 April, but the
line was back in operation by 24 April. Although
the section of the railroad between Pursat and
Phnom Penh has been interdicted by destroyed bridges
since last summer, the segment northwest of Pursat
handles large tonnages of rice and other produce
shipped from Battambang. At Pursat, the goods
are transferred to trucks for the remainder of the
journey to Phnom Penh.
15. on 3 April a major bridge located on
Route 3 near Kompong Smach was destroyed by enemy
action, thereby severing Kampot's connection with
Route 4 and Kompong Som. The enemy's interdiction
since last summer of the eastern end of Route 3,
southwest of Angtassom, and the renewed interdic-
tion of Route 4 since 26 March had already rendered
Kampot unreachable by highway from Phnom Penh.
The Kampot area is Cambodia's main source of salt
and cement.
16. The security of shipping on the Mekong,
which had not been harassed by enemy action since
16 March, was disrupted on 29 April when a north-
bound convoy of five freighters, a tanker, two
tugs, and three barges escorted by 36 gunboats
drew enemy rocket fire about 15 kilometers north
of the Vietnamese border. Three merchant ships
were lightly damaged, and portions of a cargo of
sugar and wheat flour were damaged by water while
a fire caused by the rockets was being extinguished.
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Petroleum
17. There has been no significant change in
the petroleum situation. Deliveries have been
quite regular but little more than adequate to
meet minimum consumption requirements. Conse-
quently, reserves in Phnom Penh have remained low,
and, in recent weeks, stocks of aviation gasoline
and some diesel oils became critically short be-
fore being replenished.
18. The Mekong continues to be the principal
supply route. On 23 April the tenth petroleum
convoy to reach Phnom Penh via the Mekong under
the protection of coordinated land, water, and
air security procedures instituted in mid-January
arrived without incident. The river convoys de-
livered about 35,000 tons of assorted petroleum
products in the period 17 January-23 April. By
comparison, little more than 1,000 tons have been
trucked to the city since the first of the year
via Route 1 from Saigon and Route 4* from Kompong
Som. Another 10,000 tons of petroleum products
were trucked into Battambang from Thailand in the
first four months of this year, but it is doubtful
that more than 10% of it reached Phnom Penh.
18. The Cambodians are anxious to build up
their petroleum reserves as a hedge against pos-
sible future disruptions to transport. As of
27 April, less than 15% of Phnom Penh's petroleum
storage capacity was being utilized, largely be-
cause the fleet of seven petroleum barges and a
tanker -- all chartered from foreign concerns --
handling the shipments from Saigon has been unable
to increase the rate of delivery. Few suitable
carriers are available, however, and charter costs
are high.
19. The Cambodians are still deliberating
whether to put their refinery at Kompong Som back
into operaticn or "mothball" it until it can be
secured against enemy attack. They now believe
it could be restored to limited operation within
about seven months from the initiation of recon-
struction at a cost of $1.2 million, compared
Closed by enemy interdiction for all but the
period 29 January to 25 March.
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with an expenditure of about $510,000 for deacti-
vation. Estimated potential foreign axchange
savings on the order of $100,000 a ntcnth on even
a limited scale of operations would seem to justify
restoration of the plant, but the investment deci-
sion is complicated by the threat of a repetition
of the enemy attacks that set fire to the plant
in early March. A substantial part of the gasoline
and die3el fuel remaining in refinery tanks after
the fire was transferred by tanker to South Vietnam
in mid-April for transshipment to Phnom Penh.
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CAMBODIA
Indices of Currency and of Prices, 1970-71
MARCH 1970-100
2001
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
1970 1971
61196 4.71 CIA.
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CAMBODIA
Imports, Exports, and
Gold and Hard Currency Holdings
MILLION US $
1987 1968 1969 ; 1970
E- Official projection erplicity based on prospect of foreign aid
F. Official revised projection
511204 5.71 CIA
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.80955 5.11 CIA
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CAMBODIA
Government Borrowing from the
Banque Nationale du Cambodge
1970-71
10.000 1
9,000
8,000
5,000
3,000
1,000,
Jan Feb Mar Apr May Jun JuF Aug Sep Oct . Nov Dec Jan Feb Mar
1970 1971