New amendments to the Law on Political Parties are “a setback to efforts to strengthen governance,” bringing the possibility of political instability that could imperil Cambodia’s economy, U.S. ratings agency Moody’s said in an unusually critical report.
Council of Ministers spokesman Phay Siphan dismissed the findings released on Monday as biased, citing a gross domestic product growth rate that has hovered at about 7 percent for almost two decades.
“That number could tell everything,” he said on Tuesday.
The agency, which assesses economies around the globe, did not revise Cambodia’s B2 rating or stable outlook, a speculative, high-risk credit rating which it affirmed in March. But it said that the proposed amendments to the political party law, which Prime Minister Hun Sen suggested earlier this month, signaled the CPP was more interested in staying in power than in enacting institutional reforms that would drive long-term economic growth.
Mr. Hun Sen has made clear the law targeted opposition figure Sam Rainsy, and would require the CNRP to strip his image from its signs across the country.
“The amended Law on Political Parties follows other attempts to centralize power and suggests that the government has a credit-negative focus on consolidating its electoral position ahead of July 2018 elections, putting reforms to address institutional weaknesses, particularly corruption, on the back burner,” the report says.
The proposed amendments, which the Senate approved on Tuesday, followed “ebbing support” for the ruling party seen in the commune elections, in which the CPP’s share of communes diminished by nearly a third, Moody’s said.
Aside from ongoing efforts to reduce corruption in the education system and to crack down on illegal logging, Moody’s said it saw little evidence that the government was serious about changing systemic issues that regularly put the country in the cellar of international indices on corruption and ease of doing business. Instead, the government was more likely to focus on what Moody’s deemed short-term political economic solutions—such as increased garment worker salaries or commune funding.
The amendments—and generally tense political atmosphere—raised the specter of escalating political violence and human rights violations, which could imperil the roughly 20 percent of the government’s budget that came from Western donors, according to the report.
“Long-lasting domestic violence or sustained escalation in domestic political tensions would potentially hinder [foreign direct investment] inflows that support economic growth and the balance of payments, and, more generally, reduce the attractiveness of doing business in Cambodia,” Matthew Circosta, who co-authored the Moody’s study, wrote in an email.
The report marked a shift in tone from an earlier statement in March, which highlighted institutional vulnerabilities, but praised the Finance Ministry’s efforts to increase tax collection.
Commerce Ministry spokesman Seung Sophari did not respond to requests for comment on Tuesday, while representatives of the Finance Ministry could not be reached.
Mr. Siphan said Moody’s misunderstood the amendments, which he defended as a strictly political issue that rightfully prevented those convicted of crimes from rising from the country’s prisons to higher office.
“It has nothing to do with a private company. It has nothing to do with investment,” he said, pointing to optimistic economic indicators. “Look at GDP. Look at investment…Look at customs, at the revenue.”
But Miguel Chanco, lead analyst in the Asean region for the Economist Intelligence Unit, said his agency shared many of the concerns cited in the report.
“The CPP’s priorities since mid-2015 have centred on measures to secure its hold on power beyond the current election cycle, as opposed to the reform push it promised in the wake of the 2013 general election,” he wrote in an email, citing laws critics said targeted civil society and political parties.
Still, “Cambodia’s debt market is nowhere near being developed so reports like these will continue to fly under most radars,” he said.
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