By Christine Lagarde
Managing Director, International Monetary Fund
Phnom Penh, December 3, 2013
Managing Director, International Monetary Fund
Phnom Penh, December 3, 2013
As prepared for delivery
Good afternoon—tiveah sous-dey! It is such a joy and
privilege to be here today. Let me thank and acknowledge His Excellency
Pech Bunthin, Minister for Civil Service, as well as His Excellency Dr.
Sum Map, the Director of this great school.
The Royal School of Administration is one of the premier academic
institutions in Cambodia. Its job is to train the public servants of the
future. It is a real center of excellence. You are here because you are
the best and brightest talent in Cambodia. You are also here because of
your unwavering dedication to public service, and to the noble virtue
of helping and lifting up your fellow citizens.
As someone who was a public servant in France, and who is an
international public servant today, I thank you and I salute you. You
carry on your shoulders the hopes and dreams of Cambodia—a country where
yesterday meets tomorrow, a country that blends enchanting beauty and
visionary innovation.
Just this weekend, I had the great privilege of seeing the incredible
temples at Angkor. There is nowhere in the world quite like this. The
Khmer civilization was one of the greatest civilizations that humanity
has ever known. You have a cultural heritage that is second to none.
Today, modern Cambodia represents Asia at its very best—looking
outwards with optimism and embracing the world; building on the past in
pursuit of an even better and more inclusive future; and always imbued
with an abiding spirit of harmony and cohesion.
Cambodia today stands at the frontier. It is opening up a new
economic chapter, a chapter filled with promise and possibility. As your
performance propels you toward greater prosperity, you are on the way
toward becoming a dynamic emerging market.
With this in mind, let me talk about two things today: (i) the
economic environment in which Cambodia will be emerging; and (ii) how
Cambodia can thrive in this environment and continue its upward
momentum.
1. A new economic environment
Let me begin by talking about the environment you are entering—the
global and regional economy being forged right under your feet.
The defining features of this new economy are the rise of Asia and the power of interconnections.
As many have noted, just as the 19th century belonged to Europe, and the 20th century was most associated with the United States, all signs point to the 21st century as the Asian century. This is your moment.
Look at how quickly the sands are shifting. Fifty years ago, the
emerging markets and developing economies accounted for about a quarter
of world GDP. Today, it is half, and rising rapidly—very likely to
two-thirds of global GDP within the next decade.
This shift—unprecedented in scale and speed—is being driven by Asia.
By some estimates, developing Asia alone will account for half of global
GDP by 2050.
We are also seeing the dramatic rise of a global middle class, and
with it, the rising aspirations of global citizens—for the opportunity
to embark upon their own life journeys without encumbrance, for the
chance to flourish in all of their endeavors.
By 2030, some studies claim that the global middle class will surpass
5 billion people, up from 2 billion today. Within a decade, the world
could pass a magnificent milestone, with—for the first time ever—more
middle class than poor people.
Once again, it is Asia in the vanguard, accounting for 85 percent of
this rise. Again, this is your moment—for the people of Cambodia will
certainly be vital members of that global middle class.
In so many ways, all roads are leading to Asia. Those roads are also
turning into superhighways. As they do so, they are drawing the world
much closer together.
The global economy is now more entwined than ever. Over the past
three decades, the volume of world trade has increased fivefold. Once
more, Asia is leading the way: over the past decade alone, trade within
Asia tripled, and regional trade within emerging Asia grew even faster.
It is the same with financial flows. Since the IMF was founded in
1944, financial integration has increased by a factor of ten or more. By
the time of the 2008 crisis, global capital flows were more than triple
the level of 1995.
Nowhere are the interconnections more evident than in the world of
communications. When I was young, people communicated by letter.
International phone calls were prohibitively expensive. I remember
living as a teenager in Washington, waiting five days for a letter to
come all the way from my home in France.
It is a different world today. 3 billion people are now connected to
each other on the internet. 3 million emails are sent each second. There
are almost as many mobile devices as people on the planet.
In this new world, the connections never stop. There is no off
switch. The world has become a hyperconnected hive of unified activity.
This world offers great promise—I would say greater promise than ever
before in human history. The possibilities are endless, the
opportunities limitless, the prospects vast.
This too is part of the Asian story. Asia has always thrived by
embracing, not withdrawing from, the wider world. Its openness has been
essential to its success—becoming the world’s most dynamic region,
lifting hundreds of millions of people from poverty.
While integration makes us all better off, however, it does not come
without risk. Deeper financial integration can make crises more likely
and more harmful. We saw this play out during the global financial
crisis.
For an interconnected world, even the smallest economic drumbeat can
be amplified, echoing and reverberating across the world, often in an
instant, often in unpredictable tones and pitches.
Another risk is that, in a high-speed global economy, too many people
get left behind. In too many places, we see signs of rising
inequality—which in turn can threaten sustained growth, economic
stability, and social cohesion.
This is a live issue in Asia. Over the past quarter century,
inequality has risen faster in Asia than in any other region. This is in
stark contrast to the first wave of the Asian economic miracle—the
three decades before 1990—when growth was broadly shared across the
population.
The correct response to these risks is not to build barriers and hide
behind walls. It is to walk out into the world—but with the right
preparation and the right protection.
There is an old Khmer proverb that says the following: “Thousands of
candles can be lit from a single candle, and the life of the candle will
not be shortened”. In other words, our goal must to be link the world
through illumination, and make sure these candles are not blown out.
2. How Cambodia can continue to thrive in this new environment
Let be now turn to my second point—how Cambodia fits into this picture.
So far, this country has navigated the world of interconnections
extremely well. Its rise has been nothing short of remarkable—with
growth averaging around 8 percent over the past decade, it has managed
to double its per–capita income. The forward march continues, with
growth expected around 7 percent this year and next.
In a true Asian spirit, Cambodia’s performance is driven by its
openness to the world. Exports have nearly quadrupled over the past
decade. While this has been dominated by garments, there are clear signs
of diversification on the horizon. Foreign direct investment is
shifting beyond garments, with FDI from Japan alone rising more than
ten-fold since 2010. Tourism is also growing and diversifying, as more
people are finding more places to love in your beautiful country.
This performance has been supported by sound macroeconomic policies
and management. Policymakers have managed the public purse very well,
and are striving to build a well-supervised and sound financial system.
Cambodia is also fairly well insulated from any financial turbulence
in the wider global economy, given its fairly limited direct linkages
into international capital markets, and the fact that most capital that
flows into Cambodia is in the form of FDI. Still, headwinds from global
capital markets—such as from the end of easy money in the United
States—can affect the regional economies and spill over to Cambodia.
The key now is for Cambodia to continue its forward march and upward
momentum, making the most of its position in the heart of Asia, the hub
of the interconnected world.
Going forward, I think there are three priorities for public
policy—laying the foundation for future success, ensuring that all
participate in the prosperity of Cambodia, and ensuring that Cambodia
participates in the prosperity of the region.
Let me talk about each in turn.
Laying the foundation for future success
Laying the foundation for future success must begin with education.
As you all know so well, education is the stepping stone to a better
world. Through education, we take a candle and we enlighten the entire
country, the entire region, the entire world.
This is especially important in Cambodia, which is such a youthful country—with a third of the population under the age of 14.
Cambodia is at the cusp of a great change—moving from agriculture to
industry, from farm to city. It is the young people who must manage this
change, and they must be given the opportunity to acquire the skills
and knowledge they need. They need education and they need jobs.
These needs are great. Youth unemployment remains high, and a quarter
of a million people enter the labor market every single year.
While there has been good progress, Cambodia is still being held back
by low levels of education and by inadequate skills. Spending on
education is still only 2½ percent of GDP.
Each and every young person in Cambodia deserves the chance to
achieve their true potential—and in turn, the potential of the economy.
The next Steve Jobs, or Marie Curie, might be somewhere in Cambodia.
Investing in the future does not end with education, however.
Cambodia needs investment in infrastructure—especially in power
facilities, roads, and bridges. It needs greater economic
diversification, including through rural development. It needs stronger
institutions and governance. It needs a better business climate, based
on impartiality and predictability.
Ensuring that all participate in the prosperity of Cambodia
Let me now turn to the second priority—ensuring that all citizens
participate in the prosperity of Cambodia. To follow in the footsteps of
Asian success, growth needs to become more inclusive—lifting everybody
together and providing opportunities for all.
Cambodia has made great progress here, with the incidence of poverty
falling from over 50 percent in 2004 to 20 percent in 2011. Yet too many
people are still living in extreme poverty, earning less than $1.25 a
day.
We know that poverty and inequality are bad for sustained growth—the
kind of growth that Cambodia needs to become a vibrant emerging market.
It makes it harder for people to get finance, makes countries more
vulnerable to economic shocks, and reduces the trust that is the
lifeblood of economic progress.
Again, there is a great Khmer proverb that speaks to this: “The rich
depends on and thus should respect the poor; as the skirts surrounding
the body; the brain needs the brawn; as the big ship depends on small
boats.”
How can we support those small boats and make growth more inclusive?
More spending on the social sector, especially on health and education,
is a key first step.
Beyond that, a higher labor share of income would help create that
vibrant middle class we are all waiting for—by expanding rural
employment programs, shrinking the informal sector, and making sure that
all workers have sufficient wages to live with dignity and security.
Greater access to financial services is also a crucial stepping stone to
success.
When I talk about including all in rising prosperity, I am talking
about women too—half of the population! As was demonstrated in a recent
IMF study, letting women participate in labor markets to the same degree
as men can raise per capita income substantially—including by 23
percent in South Asia, and by 15 percent in East Asia and the Pacific.
I am pleased to note that Cambodia is ahead of the curve here—80
percent of its women participate in the labor force, against a global
average of only 50 percent. Even so, women earn only three quarters as
much as men for similar work, and three quarters of women are stuck in
low-wage informal jobs. They face glass ceilings and income ceilings.
I know that Cambodia is home to some of the most dynamic and
dedicated women in the world. They represent the best of Cambodia and
the future of Cambodia. By doing more to lift their dignity and let them
flourish, Cambodia will be assured of success in the years ahead.
Ensuring that Cambodia participates in the prosperity of the region
Let me now turn to my third priority—ensuring that Cambodia
participates in the prosperity of the region, a region that is rising
rapidly in economic prominence. This calls for a sustained commitment to
openness and economic cooperation—the values that have always served
Asia so well.
As always, there is a great Khmer proverb for this: “a bunch of
chopsticks is hard to be broken”. In other words, binding ourselves
together makes us stronger—and better able to thrive in an
interconnected world.
You know this here in Cambodia, especially through the ASEAN
countries’ commitment to deeper cooperation. The ASEAN Economic
Community, expected to come on line in 2015, is a major step forward,
offering boundless opportunities for the Cambodian people. Most
immediately, it offers Cambodia larger markets and larger FDI, which can
lead to more jobs.
It can also lead to greater financial integration. In turn, this can
boost domestic demand, partly by making it easier for small businesses
right here in Cambodia to get credit. It can make economies safer, by
allowing more insurance against adverse developments. It can reduce
inequality, by letting more poor people have access to financial
services.
Of course, integration comes with costs too, as countries like
Cambodia could be overwhelmed with surges in capital inflows in a way
that threatens financial stability. Indeed, we are already seeing some
warnings signs here, with rapid credit expansion. This needs to be
managed carefully through monetary and financial policies.
While we talk about economic cooperation, I must mention the IMF. For the IMF is the forum for economic cooperation in the world today. Cooperation is why we were founded; it is in our lifeblood.
I am proud of the great partnership between the IMF and Cambodia over
the years. We stood together as you built the foundations and
institutions of your economy.
I promise you this: we will continue to stand together with you—to
serve you—as you step across the frontier to lasting success. We are
your friends.
Conclusion
Let me conclude. You are the future policymakers of Cambodia. The path I have talked about is your path.
I have already quoted a number of Khmer proverbs, so if you will
indulge me, I will now quote a Frenchman! It was Pierre Teilhard de
Chardin who said the following: “Our duty, as men and women, is to
proceed as if limits to our ability did not exist. We are collaborators
in creation”.
This is the thought I want to leave you with. You are called upon to
create a dynamic economy of tomorrow, to push Cambodia toward the
frontier and beyond. You are called upon to guide Cambodia as it reaches
its true destiny—its “veasna”, as you say in Khmer.
I have full confidence and optimism in you and your abilities.
Thank you—aw-kohn!
