Sihanouk's political neutrality, which formed the cornerstone of his foreign policy, had a significant effect on Cambodia's economic development. Sihanouk insisted that the economic dimension of neutrality meant either total rejection of international aid (as practiced by Burma under Ne Win) or acceptance of foreign economic assistance from all countries without strings attached. Indeed, during the first decade that he was in power in newly independent Cambodia (1953-63), the prince carefully practiced his "purer form of neutrality between East and West" in seeking foreign economic assistance for development.

In 1963 however, Cambodia's economy started to stagnate when Sihanouk decided to link his economic neutrality policy to the country's territorial integrity and border security. He rejected further assistance from the United States, because Washington supported the Republic of Vietnam (South Vietnam), and from Thailand, with which Cambodia had continuous frontier disputes. In a related move, Sihanouk nationalized trading companies, banks, insurance, and major industries, thereby causing economic deterioration between 1963 and 1969. The 1967 Samlot (Batdambang) revolt and the February 1970 government decision to demonetize (or exchange) the old 500 riel banknotes were crucial events contributing to the end of the Sihanouk era.

During his tenure after independence, Sihanouk used the country's ill-defined constitution to monitor all government activities of any consequence and to bend the government's decision-making process to his advantage. During the course of nation building, political aims often prevailed over strictly economic objectives. For example, prior to 1967, the government assigned higher priority to social improvements, such as health and education, than it did to national economic growth. The government later gave higher priority to the productive sectors of agriculture and industry in economic plans for the 1968-72 periods; however, because of war, the government did not implement these plans.

Nonetheless, between 1952 and 1969, Cambodia's gross national product (GNP) grew an average of 5 percent a year in real terms, with growth higher during the 1950s than during the 1960s. In addition, the service sector played an important role in Sihanouk's mixed economic system in contrast to its position under the regimes of Pol Pot and of Heng Samrin, who considered the service sector insignificant and "unproductive." In 1968 the service sector accounted for more than 15 percent of gross domestic product (GDP), agriculture accounted for 36 percent, and manufacturing for 12 percent.

Agriculture developed under a degree of paternalism from Sihanouk, who donated farm equipment to various villages and, in return, received respect and affection from the peasants. In general, however, Cambodian agriculture subsisted without much help from the government. In 1969 approximately 80 percent of rice farmers owned the land they cultivated, and the landholding for each family averaged slightly more than two hectares. The farmers used simple and rudimentary implements that were well suited to their needs and to the light weight of their draft animals. Overall, the peasants were remarkably self-sufficient.

Farmers began to cultivate more land, causing rice production to increase from an average of 1.4 million tons in 1955 to 2.4 million tons in 1960. Production remained at that level throughout the 1960s. Rice yield per hectare, however, remained low--less than 1.2 tons per hectare--during the 1952-69 period little was done to increase yield through the use of irrigation, chemical fertilizers, or improved seeds and implements. Average yields in Batdambang and Kampong Cham provinces, however, were 50 percent higher than the national average because of better soil fertility and, in the case of Batdambang, larger average landholdings and greater use of machines in cultivation.

Industrial and infrastructural development benefited from foreign economic assistance. In general, the government avoided ambitious plans and focused on small enterprises to meet local needs and to reduce foreign imports. In June 1956, the Chinese provided Phnom Penh with US$22.4 million in equipment as part of an ongoing program of industrial economic assistance. In addition, they helped build a textile mill and a glass plant in the 1960s. During this period, other nations contributed through aid programs of their own. Czechoslovakia granted loans for the construction of tractor assembly plants, tire-production facilities, and a sugar refinery. Other aid donors were the Soviet Union, Yugoslavia, France, the Federal Republic of Germany (West Germany), Japan, and Australia. United States economic assistance to Cambodia amounted to more than US$350 million for the 1955 to 1962 period, and it was invested mostly in the areas of public health, education, and agricultural development. To avoid the appearance of undue dependence upon foreign aid, Cambodia insisted upon "project sharing," that is, participation of its own in specific enterprises, such as the French-sponsored oil refinery and truck assembly plant at Sihanoukville. This stipulation imposed by Phnom Penh also had the effect of holding down the scale of many aid projects and the amounts of loans extended to the Cambodian government.

The government also used foreign assistance to expand the country's transportation and communication networks. France helped to develop Sihanoukville, Cambodia's second largest port, which opened in 1960, and the United States constructed a highway linking the port to Phnom Penh. In addition, the Cambodians, with French and West German assistance, built a railway from Sihanoukville to the capital.

Despite Sihanouk's claims of economic progress, Cambodia's industrial output in 1968 amounted to only 12 percent of GNP, or only one-third of agricultural production. Rice and rubber were the country's two principal commodity exports and foreign-exchange earners during the Sihanouk era.

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Source: U.S. Library of Congress