THE ECONOMIC SITUATION IN CAMBODIA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700010069-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 18
• Document Creation Date: December 22, 2016
• Document Release Date: May 18, 2010
• Sequence Number: 69
• Publication Date: June 1, 1971
• Content Type: IM

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Secret
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
The Economic Situation In Cambodia
Secret
ER IM 71-117
June 1971
Copy No. 137
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WARNING
This document contains, information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US C9de, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
Eetladrd (ram aalonlodC
d-sg,.dinp and
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
June 197'i
INTELLIGENCE MEMORANDUM
The Economic Situation In Cambodia
Highlights
1. Price data compiled by US Embassy sources
reflect substantial increases for April, casting
some doubt on the validity of the official index,
which indicates that food prices in the capital
declined an average of 1% for the month as a
whole.
2. The government has been unable to stem
the rising tide of public concern over prices.
Government officials, as well as the general public,
place most of the blame for price increases on
speculation by the Chinese merchants. Overt
attacks on the Chinese have resulted in a number
of shop closingsr which has aggravated the shortage
of goods and pushed prices even higher.
3. The black market value of the riel de-
preciated drastically in a wave of speculation
during May. The price of the dollar in Phnom
Penh stood at about 230 riels at the end of the
month, compared with 140 riels on 10 May.
4. No action has yet been taken by the
National Assembly on the 1971 budget submission,
but allocations voted so far this year, if pro-
jected for a full calendar year, would result in
military expenditures 40% below the amount pro-
posed in the budget. Present appropriations are
probably insufficient to cover FANK salaries,
particularly in view of a recently reported up-
swing in unauthorized recruitment.
Note: This memorandum was prepared by the Office
of Economic Research.
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5. Current negotiations with General Minh,
Commander of Military Region 3, may permit trans-
port of raw rubber from Cambodian border planta-
tions to South Vietnam for processing and export.
6. The first convoy of civilian trucks since
25 March traversed Route 4, from Kompong Som to
Phnom Penh, in early May without incident, and by
the end of the month occasional groups of civilian
trucks were making the trip without military escort.
Shipments of produce to the capital via Route 5,
however, were probably severely curtailed as a
result of a bridge interdiction and increased
enemy harassment.
7. Severe fuel shortages in the capital during
May resulted in a number of plant shutdowns and
rationing of the city's electricity. The shortages
were more the result of bureaucratic errors that
resulted in the delivery of fuel assortments ill-
suited to the needs of the moment rather than of any
diminution in the quantities delivered. Fuel was
also in short supply in Battambang after shipments
from Thailand were temporarily disrupted by the
changeover to US AID import financing procedures.
8. Charts on prices and currency outstanding;
imports, exports, and foreign exchange reserves;
and government borrowing from the Banque du Cambodge
follow the text.
Discussion
Prices
9. Official prices indexes, prepared by the
Cambodian Institute of Statistics, show that re-
tail prices declined an average of 2% during
April, while prices of food items alone declined
an average of 1%. Cumulative figures for the
first four months of 1971 show a 1% decline in
the general price index, while the food price
index indicates a 4% decline. The data contrast
markedly with those for the period March to
December 1970, which show increases in the general
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index and in the food price index of 49% J and
82%, respectively.
10. A compilation of prices of selected food-
stuffs from US Embassy sources, however, casts
some doubt on the validity of the index (see the
table). It shows that prices of certain items
increased substantially during the first three
weeks of April following a three-month period of
relative stability. The cost of pork, lard, and
fresh fish, which declined during the first quarter
of the year, for example, had greatly increased
by the third week in April, along with prices for
beef, chicken, duck eggs, bananas, and fish sauce.
Only prices for duck, dry fish, and vegetables
show a decline for the three-week period.
11. Nevertheless, the food supply situation
in the capital was very favorable during March
and April. Deliveries of rice to Phnom Penh from
Battambang, the major source of rice for the
capital, were five times greater in both March
and April than in any month since harvesting began
last September. In fact, farm prices in Battambang
reportedly rose for the first time in months as a
result of the improved transportation situation.
At the end of April, stocks of rice in the hands
of Phnom Penh retail and wholesale merchants were
the highest in several months.
12. No statistical information on prices in
the capital is available for May, but price in-
creases may have been substantial. Because of
the unfavorable transport situation, quantities
of meat and foodstuffs arriving in the capital
were certainly far less than in either of the two
previous months. Stock reports show that rice in
the hands of Phnom Penh merchants declined sub-
stantially during the month. May also saw the
beginning of sugar rationing in the capital as
well as hoarding of hard-to-find items such as
flashlight batteries.
1. A previous report, based on a publication of
the Joint Chamber of Commerce, Agriculture and
Industry, that the general price index showed only
a 27% increase from March to December 1970 was in
error.
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Prices of Selected Commodities in Phnom Penh
Riels
Unit
March
2nd Week.
December
4th Week
January
4th Week
February
4th Week
March
4th Week
April
3rd Week
White rice, No. 1
Kilogram
7
8
8
8
7
7
White rice, No. 2
Kilogram
6
7
7
7
6
6
Beef, filet
Kilogram
50
65
70
70
70
73
Beef, leg
Kilogram
31
45
50
50
50
53
Pork
Kilogram
53
105
107
101
96
106
Lard
Kilogram
41
90
100
87
77
80
Chicken
One
46
100
120
137
128
130
Duck
One
53
140
180
175
170
160
Chicken egg
One
2
5
5
5
5
5
Duck egg
One
3
5
5
5
5
7
Fish, fresh
Kilogram
22
43
35
32
35
39
Fish, dry
Kilogram
45
75
75
75
85'
75
Vegetables
Kilogram
7
16
12
12
12
11
Green bananas
Kilogram
11
14
15
14
15
17
Ordinary bananas
Kilogram
3
7
7
7
7
8
Fish sauce
Bottle
20
22
22
22
22
23
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Public Reaction to inflation
13. Public sensitivity to price increases was
abundantly evident during May. A 30 May demon-
stration in the town of Oudong, Kandal Province,
followed the pattern of earlier demonstrations in
the towns of Battambang, Kampong Chhnang, Kampot,.
Siem Reap, and Svay Rieng. In each case, the par-
ticipants were mostly students, but usually in-
cluded a few soldiers dressed in civilian clothes.
The demonstrations were targeted against merchants,
especially the Chinese, who had not heeded earlier
warnings to lower prices. Organizers, playing
upon traditional Khmer antipathy toward the Chinese
merchants, attributed the high prices to the mer-
chants' greed. The demonstrations usually resulted
in the destruction of shop stalls, looting, and
sometimes burning. In no instance did the civilian
authorities move to prevent or halt the demonstra-
tions.
14. Phnom Penh officials have done little to
ease public tension over rising prices. Their
modest countermeasures included the publication
of decrees fixing prices of some staples and re-
quiring regular stock reports from merchants and
warehouse operators. Steps have also been taken
to supervise sales of fuel supplies, and a com-
mission has been established to rationalize uti-
lization of transport and to organize convoys.
15. It is all too evident that most government
officials do not understand the causes of infla-
tion and consider the economic situation to be
amenable to easy solution. Like the general
public, they tend to attribute price increases to
such things as the "American" war tax, to VC/NVA
efforts to disrupt the economy by flooding the
market with riels, and especially to speculation
by the Chinese merchant, who has long been regarded
as acquisitive, unscrupulous, and the primary cause
of Cambodia's economic ills. Attacks on the Chinese
have only aggravated the shortage of commodities
and pushed prices even higher. After the riots
in Battambang, for example, few shops opened for
business because shopkeepers could not operate at
prices established by the students. In fact, many
merchants were seeking to have their operating per-
mits canceled for fear the government would force
them to reopen.
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Black Market Currency Prices
16. The black market value of the riel depre-
ciated drastically during May. The price.of the
dollar in Phnom Penh moved from about 140 riels
on 10 May to approximately 270 xiels on 20 May,
and by the end of the month was still as high as
230 riels.
17. The wave of speculation probably was trig-
gered by a combination of events. These include
rumors of imminent devaluation of the riel, the
Finance Minister's consideration of new controls
on bank withdrawals, the arrival by air of "sev-
eral tons" of newly printed riel notes, and police
crackdowns on black market moneylenders.
18. At the root of Cambodia's precarious finan-
cial position, however, is the continuing monetary
expansion that has been necessary to maintain the
army. Currency in circulation increased 88% during
1970 and an additional 26% during the first five
months of 1911. Since the Cambodians have moved
very slowly in utilizing US AID funds, deliveries
of aid goods, which had been expected to reduce .
substantially the size of Cambodia's budget deficit
this year, will be far less than. originally pro-
jected. With export earnings at only a fraction
of prewar levels and reserves committed largely to
debt servicing and to imports of essential items
ineligible for US financing, Cambodia has insuf-
ficient foreign exchange reserves of its own to
make up the shortfall in US AID deliveries.
1971 Budget
19. No action has yet been taken by the National
Assembly on the 1971 budget submission, although
the year is nearly half over. The extended delay
has been attributed primarily to the leadership gap
precipitated by the illness and resignation of Lon
Nol. However, government operations have so far
been funded with appropriations voted on a monthly
basis. The amounts voted so far this year, if pro-
jected for a full calendar year, would result in
total budget expenditures of about 14.0 billion
riels, 7.1 billion riels for the civilian budget
and 6.9 billion riels for the military.
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20. While projected civilian expenditures are
consistent with the 1971 budget submission of 7.2
billion riels, projectedL military expenditures
are not only far below the budget submission fig-
ure of 11.5 billion riels but also far below our
own projection -- 9.0 billion riels -- calculated
by deflating official estimates for overstatement
of average military personnel costs. f
21. With appropriations at such a low level,
the government probably has had to resort more
than ever to the practice of delaying military
payments. Several instances of troops not being
paid -- some for as long as six months -- have
been reported. It is difficult to determine, how-
ever, in a given instance whether the funds
actually were not available or whether they were
pocketed
22. In any case, delaying payments is only
postponing the inevitable, and it is doubtful
whether FANK can be supported much longer at
present appropriation levels, particularly in view
of a reported upswing in recruitment. The military
budget projection is based on a FANK strength of
220,000 men, the maximum consistent with the US-
Cambodian agreement. According to Phnom Penh,
however, the FANK quartermaster directorate cur-
rently carries 245,000 on the payroll.
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Improved Prospects for Rubber Exports
24. Following recent South Vietnamese-Cambodian
bilateral talks, Khmer economic negotiator Touch
Kim told US Embassy officials that the. South Viet-
namese are ready to work out a formal agreement
that would clear the way for transport of raw
rubber from Cambodian border plantations to South
Vietnam for processing and export. The agreement
would cover processing fees and taxes, notably
the amount of the so-called "patente" to be charged
per kilogram of rubber processed.
25. Prospects for the export of some Cambodian
rubber from plantations bordering South Vietnam
were dimmed, at least temporarily, by the death
of Do Cao Tri, former Commanding General of South
Vietnam's Military Region 3
With official
problems near resolution, the only remaining un-
known is whether or not Tri's successor, General.
Minh, will accept Tri's bargain. Representatives
of the Mimot plantation have already had an initial
negotiating session with Minh and are said to have
settled the question of fees, but Minh apparently
has not yet decided to assume responsibility for
the safety of rubber shipments.
26. A favorable decision might provide a re-
juvenating spark to an industry that has been
totally devitalized for over a year and would un-
doubtedly give an important psychological lift to
the Khmer. Moreover, even a relatively small
volume of rubber output would significantly im-
prove Cambodia's prospective foreign exchange
earnings for 1971, currently estimated at a meager
$14 million. By comparison, Cambodian exports of
rubber alone were valued at about $25 million in
1969. Tapping, of course, would be limited to
the relatively few plantations in friendly hands,
specifically those near Mimot and Krek.
Transport Security
27. Route 4 was reopened to military traffic
on 1 May, and a week later the first convoy of
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civilian trucks since 25 March made the trip from
Kompong Som to Phnom Penh without harrassment.
The highway began to sustain regular traffic after
temporary repairs were effected on a heavily
damaged portion of the road in the Pich Nil Pass.
It is not known whether permanent repairs, neces-
sary to keep the section usable through the rainy
season, have been made. A substantial portion of
several hundred new vehicles stored a T.Compong
Som -- many of them Red Cross trucks and ambulances
donated by Japan -- have already been transferred
to Phnom Penh, along with supplies from the port's
bulging warehouses. There were no reports of
vehicles being f ired upon, and by the end of the
month occasional groups of civilian trucks were
making the trip without military escort.
28. Khmer. Communist elements remain active
along the southern portion of the highway, how-
ever. During the last week of May, truck drivers
reported that Khmer Communists in the vicinity of
Prek Nop -- about 10 kilometers south of the inter-
section of Routes 4 and 3 -- had resumed taxation
of trucks, a practice that was first reported in
early March. Current tax rates reportedly range
from only 300 to 600 riels per truck (equivalent
to about $5 to $10 at the official rate), however,
compared with alleged charges of up to 5,000 riels
per truck (about $90) in March.
29. Shipments of produce from Battambang to
Phnom Penh via Route 5 were disrupted by the
enemy's destruction on 2 May of a bridge 25 kilo-
meters northwest of Kompong Chhnang near Baribour.
Makeshift repairs put-the bridge back into opera-
tion on 12 May, but two days later it collapsed
under a heavily loaded truck and did not become
operational again until 26 May. Because the bridge
is located south of the rail head at Pursat, 1 it
carries all of the traffic between Phnom Penh and
Battambang. A poorly constructed bypass permitted
some traffic to continue through this point while
the bridge was out of operation, but shipments of
produce from the northwest were probably severely
3. The Pursat-Phnom Penh section of the railroad
has been inoperable since June 1970.
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curtailed. Rail traffic between Battambarlg and
Pursat also was disrupted when explosives derailed
a train about 40 kilometers south of Battambany on
4 June.
30. Furthermore, the increased harassment of
Route 5 that became apparent during the latter half
of April remained unusually heavy throughout May
and probably caused a sharp increase in truck
rates, as well as increased transit times, as
vehicle movements had to be organized into convoys
under military escorts. In 11 separate instances
of harassment of Route 5 traffic in May, at least
14 vehicles were destroyed or driven off, and others
were fired upon. Most of they attacks occurred
within 40 kilometers of Kampong Chhnang and were
attributed to well-armed bands of Khmer Communists.
The enemy was also active west of Route 5. On
5 May, five trucks carrying marble on Route 10
were burned 15 kilometers east of Pailin. Three
days later?a National Sugar Company camp in the
same area was raided and a number of vehicles were
stolen.
31. Kampot remained cut off from overland
access to the rest of the country as a result of
the destruction in April and May of numerous
bric:ges on Route 3 east of its intersection with
Route s!. Roads to the east and north of Kampot
continued to be blocked by the presence of enemy
troops. Consequently, the city has been receiving
petroleum and other essential supplies by sea.
Air, freight and passenger traffic has increased
markedly. Because of the interdictions, the cement
plant at Chakrei Ting, 15 kilometers north of
Kampot, has cut production lack to about 150 tons
a day, but there is no information as to whether
its output is being moved by sea to Phnom Penh.
32. Three Mekong River convoys arrived in
Phnom Penh under military escort during May. One
convoy drew fire frc.'n enemy mortars, rockets, and
machineguns from a point six kilometers south of
the Roy. ?;e 1 ferry crossing. One tug and a freighter
sustained slight damage.
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Petroleum Situation
33. Phnom Penh's petrolewr, reserves dwindled
in May to critically low lev;3s. Kerosine reserves
were exhausted during the first week, and before
the end of the month, reserves of industrial and
auto diesel oils also reached zero, while motorists
formed long lines at filling stations for the few
remaining gallons of gasoline. Shortages of heavy
fuels forced a number of industrial plants in the!
Phnom Penh area to curtail production, and the
city's two powerplants had to ration power to avoid
complete shutdowns. Some residential and commer-
cial areas were without electricity for as long as
10 hours a day.
34. The shortages appeared to be due more to
a failure to deliver the right assortment of fuels
rather than to any significant decline in the
volume of deliveries. Petroleum shipments to
Phnom Penh via the Mekong in May approximated
volumes delivered in earlier months, as shown in
the following tabulation:
Period
Metric Tons
Total of
53, 400
17-31 January
5,500
February
10,000
March
11,300
April
10,000
May
10,600
1-10 June
6,000
a. During the period, additional
amounts of petroleum were trucked into
Phnom Penh from Kompong Som, Battam-
bang, and Saigon. A complete account-
ing of the shipments is not available,
but their cumulative total is believed
to be less (possibly much less) than
5,000 tons.
The crisis was alleviated by the arrival of an un-
usually large shipment on 10 June. If present
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petroleum delivery schedules are implemented, the
volume of fuels delivered to Phnom Penh in armed
convoys in June may exceed 12,000 tons.
35. Petroleum deliveries to Batta?bang (via
truck from Bangkok) declined sharply from mid-
April through most of May, causing severe fuel
shortages. Stringent rationing was :3.mposed, and
the price of gasoline on the black market rose to
several -times the official price. Truck transport
rates were increased accordingly. The initial de-
cline in deliveries was attributed to a strike by
Thai drivers in protest over the heavy fine imposed
on a Shell Company driver arrested for smuggling.
The major cause of the disruption, however, was
the development of new payment procedures for reim-
bursement of expenditures for petroleum imports
from Thailand from US AID funds. Following the
establishment of the new payment procedures in the
second week of May, petroleum shipments from Shell
Thailand -- the principal supplier -- picked up
sharply and by the end of the month appeared to be
back to normal.
36. There has been no further word as to whether
the Cambodians plan to put the Kompong Som refinery
back into operation or leave it idle. 25X1
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CAMBODIA
Indices of Currency. and of Prices,1970.71
PRICES FOR WORKING-CLASS
Apr :,-.May Jun',: 1uI Aug Sep Oct ? Nov Dec Jan Feb Mar Apr May
, ? ` ::.1971
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CAMBODIA
Imports, Expurts, and
Gold and Hard Currency Holdings
Million US Dollars
120
IMPORTS
GGL AND
HIRD CURRENCY
I I r
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