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In 1999, the first full year of peace in 30 years, the government made progress on economic reforms. The US and Cambodia signed a Bilateral Textile Agreement, which gave Cambodia a guaranteed quota of US textile imports and established a bonus for improved working conditions, enforcing Cambodian labor laws and international labor standards in the industry. From 2001 to 2004, the economy grew at an average rate of 6.4%, driven largely by an expansion in tourism and the garment industry.  With the January 2005 expiration of a WTO Agreement on Textiles and Clothing, Cambodia-based textile producers were forced to compete directly with lower-priced textiles-producing countries such as China and India. Although initial 2005 GDP growth estimates were less than 3%, better-than-expected garment sector performance led the IMF to forecast 6% growth in 2005. Faced with the possibility that its vibrant garment industry, with more than 200,000 jobs, could be in serious danger, the Cambodian government has committed itself to a policy of continued support for high labor standards in an attempt to maintain favor with buyers.

The tourism industry continues to grow rapidly, with foreign visitors surpassing 1 million for the year by September 2005. In 2005, exploitable oil and natural gas deposits were found beneath Cambodia's territorial waters, representing a new revenue stream for the government once commercial extraction begins in the coming years. The long-term development of the economy remains a daunting challenge. The Cambodian government continues to work with bilateral and multilateral donors, including the World Bank and IMF, to address the country's urgent needs.

In December 2004, official donors pledged $504 million in aid for 2005 on the condition that the Cambodian government implement steps to reduce corruption. The major economic challenge must be for Cambodia over the next decade will be fashioning an economic environment in which the private sector can create enough jobs to handle Cambodia's demographic imbalance. More than 50% of the population is 20 years or younger. The population lacks education and productive skills, particularly in the poverty-ridden countryside, which suffers from an almost total lack of basic infrastructure. 75% of the population remains fully engaged in subsistence farming.


 
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