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Cablegate: Limited Impact of U.S. Financial Crisis In

VZCZCXRO1465
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHPF #0799 2691214
ZNR UUUUU ZZH
P 251214Z SEP 08
FM AMEMBASSY PHNOM PENH
TO RUEHC/SECSTATE WASHDC PRIORITY 9940
INFO RUCNASE/ASEAN MEMBER COLLECTIVE

UNCLAS PHNOM PENH 000799

SENSITIVE
SIPDIS

DEPT FOR EAP/MLS, EEB, EAP FOR DAS MARCIEL
DEPT PASS USAID FOR ASIA BUREAU
DEPT PASS USTR FOR DAVID BISBEE

E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRD CB
SUBJECT: LIMITED IMPACT OF U.S. FINANCIAL CRISIS IN
CAMBODIA, BUT GDP GROWTH THREATENED

1. (SBU) Summary: The U.S. financial crisis has had little
impact on Cambodia's emerging financial sector. However,
the U.S. and global financial woes will likely slow growth in
Cambodia's major garment and tourism sectors, with
potentially severe consequences for Cambodia's recent robust
economic growth rates. End Summary.

Financial Sector Unshaken, But Possibly Stirred
--------------------------------------------- --

2. (SBU) Cambodia's emerging banking sector is relatively
insulated from the turmoil in the U.S. financial system.
While still relatively unexposed, Cambodia's banking sector
could share in the global hangover from the troubles in the
U.S. financial sector. An influx of foreign capital has
helped to spur rapid growth within the banking sector over
the past few years. Economic experts warn that if investors'
overseas assets are affected by the financial crisis, foreign
direct investment and other capital flows into the economy
could dry up. Much of the growth in credit lending is linked
to the booming real estate market. Should FDI slow, experts
are concerned that construction projects may falter, which
could in turn have negative impact on banks' loan portfolios.

U.S. Slowdown Hurts Key Sectors
-------------------------------

3. (SBU) Most significantly, the downturn in the U.S.
economy is likely to result in reduced demand for garment
exports and slow growth in the tourism sector. Cambodia's
double digit economic growth is heavily dependent on
expansion in the garment and tourism industries. The U.S. is
Cambodia's single largest trading partner, accounting for 60
percent of total exports in 2007. The slowdown in the U.S.
economy has contributed to projections that GDP growth will
slow to 7 percent in 2008, down from 10.2 percent in 2007.
U.S. demand for garment exports, accounting for 70 percent of
exports in this key sector last year, fell slightly in the
first six months of the year. The reduction in demand for
exports comes at a time of increased worry over Cambodia's
ability to compete with China and Vietnam's garment
industries. A continued downturn in the U.S. would have
significant consequences for U.S. orders of Cambodian
garments.

4. (SBU) Concerns over the U.S. financial crisis are likely
to stem the tide of tourists visiting Cambodia. The tourism
sector grew 10.2 percent in 2007, with foreign tourist
topping two million, generating revenues of $1.4 billion.
Among Cambodia's two million tourists in 2007, 15.5 percent
came from the U.S., the U.K., and France. As households in
the U.S. and Europe worry about financial uncertainties, the
tourism industry fears that many will opt to forego
long-distance travel. Although visitor numbers had grown 10
percent, year-on-year through August, 2008, the rate of
increase was weak, with package tours coming via Thailand
falling dramatically. A continued downturn would hamstring
the expansion of this vital sector.

5. (SBU) Comment: While secondary effects of the turmoil in
U.S. financial markets may not be felt for some time, any
prolonged recession in the U.S. economy would have severe
consequences for Cambodia's economic development. As such,
Cambodian officials are keenly attentive to USG measures to
strengthen the U.S. economy.
CAMPBELL

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