Billions in Aid Not the Answer, Study Says

For years, about half of Cam­bodia’s annual budget has come from donor nations, a staggering influx that since 1993 has totaled $3.2 billion.

Just last May, a jubilant Prime Minister Hun Sen returned from a donors’ meeting in Paris with this year’s pledge of $548 million.

While no one disputes that the funds have helped Cambodia re­store order, the Cambodia Devel­opment Resource Institute this month released a two-year study showing that the billions of dollars in aid money is not a solution to Cambodia’s problems.

While aid programs do some things well, such as transferring valuable job skills to Cambodians, they’re not doing such a great job in preparing the coun­try to go it alone, the study said.

And Cambodia presents special challenges.

Many countries are poor, and some have suffered—sometimes terribly—from war. But in economic terms, few have been pounded as flat as Cambodia, which saw its banking and monetary systems destroyed, private property abolished, and disruptions to its major economic en­gine, agriculture.

Cambodia fell so far behind its neighbors that even its best-case-scenario numbers are low. In 1997, according to the ADB, per capita annual income in Singa­pore was $22,500; in Thai­land, $2,000; and in Cambodia, $280.

An earlier CDRI-Asian Devel­op­ment Bank study projects that if the government does everything right and achieves all the reforms donors are seeking, Cam­­bodia’s per capita figure would rise to $670 by 2010; to $1,000 by 2015; and $1,500 by 2020.

Those numbers are based on constant 1993 dollars, and do not include inflation.

The actual numbers would be significantly higher.

“People don’t realize how low the base is here,’’ says Urooj Malik, ADB’s resident representative. “Cambodia has lost a lot of time.’’

In two years, Cambodia must also start repaying the first of a series of loans totaling $410 million from ADB and nearly $300 million from the World Bank. While the loans are long-term and low-interest,  the yearly payments will start at more than $2 million—and go up from there.

The good news for Cambodia is the major donors say they will be around for a while longer.

Japan, the biggest donor, ‘’does not have a fixed amount set aside for the coming years, but we do have a strategy,’’ says  Horiuchi Toshihiko, first secretary at the Japanese Embassy.

‘’In general, we have short, medium, and long-term strategies” that stretch as much as eight years into the future, he said. Past that, he wasn’t willing to go.

‘’Things change very quickly, and I don’t think it is very useful to forecast for one decade or two decades,’’ he said.

France, the second-biggest donor, has a similar outlook, said a French diplomat. ‘’We have no timetable, but we intend to be in Cambodia for a long time,’’ he said.

The World Bank and ADB say they will be here as long as needed—and as long as Cambodia keeps making progress toward reform.

Bonaventure Essama, the World Bank’s country representative, noted there are some countries in Africa where the World Bank has been working with since the 1960s.

‘’The goals we are talking about—good governance, transparency, the rule of law—these things don’t happen overnight, or in a year, or in five years,’’ Malik said.

Cambodia is not likely to become an industrial giant like Korea, but its natural resources of timber, fisheries and minerals—if responsibly developed—could combine with a strong agricultural sector to produce prosperity, Malik said.

And Cambodia is steadily increasing its revenue collection, Malik said. Between January and June of this year, the government collected $184 million—up 5.4 percent from the same period a year earlier.

The ADB estimates Cambodia currently needs from $500 million to $600 million per year to achieve the 7-8 percent economic growth necessary to reduce poverty.

Although the country gets annual pledges of about $500 million, some of that money is invariably delayed, so that the real amount is more like $350 to $400 million, he said.

The rest will have to come from private investors, and they’re not likely to invest here until they’re convinced it’s safe to do so. ‘’This will be the real challenge for Cambodia, achieving transparency and the rule of law,’’ Malik said.

There are other problems inherent in the aid system. The new CDRI study found that aid money, while providing desperately needed services, is luring the best-educated and most capable Cambodians out of government to work for the agencies and NGOs through which most of the money is funneled.

And since most of the aid money is targeted to social, health and education programs, the government is free to spend most of its limited budget on defense and security measures.

That works as long as the agencies remain in place and the money continues to flow. But few programs have realistic plans for becoming self-supporting.

Another difficulty is that the government pays so little that the higher salaries offered by foreign organizations are virtually irresistible to talented Cambodians. Such skewed economics can create a spiral that leads to failure:

* A government agency assigns an employee to work with a donor agency or NGO, with the understanding he or she will learn  job skills necessary to the country’s future.

* But since the employee is paid from $15-$20 per month, he or she must get a second job to earn a living wage.

* That means the employee is often working at the second job when important decisions need to be made.

* So the beleaguered government manager relies on the donor agency or NGO personnel to get the job done.

* Or, the NGO or donor agency hires away the employee, leaving the government without anyone qualified to take over the program in the future.

About three out of four donor agencies try to solve the problem by supplementing the salaries of government employees assigned to work with them, the study notes.

“But this too causes problems with employees whose salaries are not supplemented or are supplemented at a lower rate,’’ it says.

The study found a number of other problems with the aid system, including too many programs addressing a single problem (such as HIV/AIDS) while others get little or no attention.

Since donors provide the money, they decide how it is spent, which can lead to overlapping or patchy coverage of an area, the study noted.

It is also difficult to assess whether a project is cost-effective, the study notes, because “some donors conceal information about cost, particularly the salaries and benefits paid to international staff.’’

The CDRI researchers concluded that a “code of practice” for aid projects is needed, and recommended the following:

* Set up a donor-funded Salary Fund to pay government workers a living wage, using the money donors are now paying to supplement individual salaries.

* Transparency is a two-way street. Donor agencies should make public their own financial information, including expat salaries and what they are paying to supplement Cambodian salaries.

* Every donor project should have a “counterpart,” or Cambodian entity that is capable of doing or is being trained to do the same work.

The study notes that Cambodia has completed the first phase of aid programs, when foreign skills substitute for missing local skills. Now it is supposed to be training Cambodians to take over and run their own programs, with an eye toward the next phase, when more attention will be paid to eliminating overlap and duplication.

The ADB’s Malik said the coming decade is very critical for Cambodia, and could mean the difference between establishing a country with band-aid reforms or tangible, long-term development.

“You could see the makings of a country which could at least be self-sufficient in meeting basic human needs,” he says, “[as well as] the emergence of a fair-sized middle class.’’



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