Gov’t Squeeze Continues as Aid, Trade Dwindle

Turn off the lights when you leave the building, minimize air-conditioning use, cut back on paper clips and stationery—that was the message Finance Mini­ster Keat Chhon delivered during a presentation on the government’s finances two weeks ago at the Council of Ministers.

More than a dozen ministers listened attentively to Keat Chhon as he explained why they each have less money in 1998 than in 1997 to carry out day-to-day functions, say officials who attended.

That meeting was not the first time the finance minister has urged government leaders to be more prudent with treasury funds. In December, during talks about the 1998 budget, Keat Chhon also emphasized the im­portance for ministries to cut all non-essential costs.

Since last July—when factional fighting tore through Phnom Penh at about the same time it became clear Southeast Asia was entering an economic crisis—the finance minister has been squeezed as money flowing into government coffers has dried up.

Aid from international do­nors—which the government has relied on for more than 40 percent of expenditures in recent years—and revenues from customs collections have fallen since July, according to financial documents and government officials.

One foreign economist working in Phnom Penh described the government as living a hand-to-mouth existence. National elections scheduled for July are an­o­ther financial burden, he noted.

Civil servants at several ministries are waiting for pay packets from December, government officials said. Dy Narong Rith, undersecretary of state at the Health Min­istry, said this week that doctors haven’t been paid for two months.

“This isn’t just about attracting more foreign aid because we should be working towards be­coming self-sufficient and take our destiny into our own hands,” he said. “We need to get rid of corruption and make sure money is getting into the public coffers. ”

Chhay Than, secretary of state at the Ministry of Finance, denied the system was under strain. There was a delay in paying some government employees, he acknowledged, but cutbacks were being made to free up in­come to pay salaries.

“Naturally it’s hard to generate income to cover expenditure,” Chhay Than said. “But we have not cut any state programs de­spite the difficulty we’ve been having in generating income.”

The International Monetary Fund could take issue with the government’s pleas that it’s having a hard time raising revenue.

In late 1996 the IMF canceled a $20 million installment of a three-year, $120 million loan, citing the government’s failure to gather revenue from widespread logging operations, its inability to collect taxes, and its failure to reduce the size of its payroll. Shortly after July, the IMF withdrew its representative from Phnom Penh and suspended all assistance.

Logging should be a vital source of income for the national budget, no matter how few of the generated funds are making their way to the Finance Ministry, government critics have alleged.

“Forestry is bugging all of us,” the foreign economist said. “But I don’t think it’s realistic to expect a government going into an election to start taking drastic measures. It doesn’t happen anywhere else in the world, and we shouldn’t expect it to happen in Cambodia.”

An IMF presence in a country is a crucial indicator of its economic health, and the IMF pullout could have a knock-out effect on other aid donors, according to a December report published by the Cambodia Develop­ment Re­source Institute.

“Many international cooperation agreements specifically refer to an IMF program as a condition for providing assistance,” it claims, citing the fighting last July and the regional economic crisis as having a key impact on the economy. The report warns that a lack of foreign grants and loans may make it difficult for the government to cover costs in 1998.

One senior government adviser said financial aid was so crucial to balancing the books that Sec­ond Prime Minister Hun Sen is being forced to bend to the international community’s de­mands concerning the elections.

The adviser was concerned that if salary delays continued, social unrest could result.

“You can imagine the consequences, the resulting social situation,” he said. “It could be very explosive. When people realize the government is out of money, the riel will be threatened, and the economy will hurt more.”

The dismal outlook is not shared by all. Many civil servants moonlight to supplement their $20- to $30-a-month income, the foreign economist pointed out, adding that a delay in payment was probably no great loss to their monthly income. Cam­bodia even may have profited from the regional financial crisis, he said.

“Because of the economic downturn in the region items of daily consumption are unlikely to go up in price,” he said. “Thai goods in particular are very cheap at the moment so people’s pockets will not be unduly affected.”

The government does have some money in its reserves, another top economic adviser to the Council of Ministers said.

In November, Cambodia granted five companies licenses to drill oil in the Gulf of Thailand. The final deal is still conditional on an agreement with Thailand, but Cambodia received $9.6 million immediately as a signing bonus.

“This was important,” the council’s adviser said. (Additional reporting by Chris Decherd)

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