In 1987, Italy made the controversial decision to include the profits from criminal activities in its national accounts. This caused a dramatic 18 percent increase in the country’s economy overnight, allowing Italy to surpass Britain and become the fourth-largest economy in the West. This event came to be known as il sorpasso (the overtaking). The question now is, should Cambodia and Laos consider following suit?
A recent report by the United States Institute of Peace (USIP) estimated that Cambodia’s underground scam industry is worth approximately $12.5 billion annually, half of the country’s formal GDP. While Laos’ specific figure was not provided in the report, an estimation can be made based on similar calculations. If these figures were included in the national accounts, Cambodia’s GDP would increase from $32 billion to $44.5 billion overnight. Similarly, Laos’ GDP would surge from $14.1 billion to around $25 billion, allowing it to overtake Brunei as the smallest economy in ASEAN.
There is a moral dilemma associated with including illegal activities in GDP figures as it may seem to endorse criminal behavior. However, international guidelines for economic accounts suggest that illegal market activities should be considered in the measured economy. Many illegal practices are already included in Laos and Cambodia’s GDP, such as land rights abuses associated with certain industries. Additionally, much of the money generated by illegal operations does find its way back into the local economy through various channels.
While including the scam industry in GDP figures may be seen as a paper exercise that changes perceptions rather than realities, it could impact how countries handle their debt ratios. For instance, Laos’ debt distress may be more related to tax collection issues than the size of its economy. Including the scam industry in GDP figures could alter debt-to-GDP ratios, but it may not necessarily improve the country’s ability to repay debts. The same applies to Cambodia, where including the scam industry in GDP calculations could significantly boost economic growth on paper.
Ultimately, the decision to include criminal activities in national accounts raises significant questions about the true value of the formal economy and the potential implications for debt management. While it may offer a temporary boost in economic indicators, the long-term consequences and ethical considerations cannot be ignored.