After a two-year absence, the International Monetary Fund has decided to resume its funding to Cambodia, and granted the government’s request for an $81.6 million loan for 1999-2002.
The decision was made Friday in Washington by the lending institution’s board of directors, Reuters reported.
Although some government officials said Sunday they were not aware of the IMF’s decision, they said the resumption of assistance was expected.
“We’ve done a lot in terms of reform programs,” said Vongsey Vissoth, deputy director of external finance at the Ministry of Finance. “It’s a question of image. This is the green light that shows Cambodia is now on the right track.”
Indeed, the IMF’s return is vital because it sends a positive message to the international community and gives credibility to the government’s reform effort, which many commentators have criticized as lackluster.
He acknowledged that many more improvements need to be made, but said the government has made a good start.
In approving the new loan, the IMF noted political stability has returned to Cambodia since the factional fighting in 1997, and the government has shown it is committed to effectively tackling governance issues, Reuters reported.
The IMF pulled out of Cambodia in 1996 because of the government’s inability to fight illegal logging and generate funds for the national budget. The influential lender had a $120 million loan program for Cambodia, but canceled its $20 million installment in late 1996, effectively withdrawing assistance.
Aid from the IMF focuses on maintaining the value of the riel.
In March 1997, the IMF and the government set up an economic policy plan, indicating necessary reforms for resumption of assistance. After the new government formed in 1998, Cambodia asked the IMF for a three-year, $80 million loan.
Khieu Kanharith, a government spokesman, said Cambodia has worked to curb illegal logging and overhaul financial management, among other efforts to meet criteria established for resumption of assistance. “We don’t have a lot of substantial results, but financial institutions like the IMF notice the good will and determination of the government,” he said.
Eight weeks ago, a visiting IMF delegation acknowledged Cambodia’s progress on reforming its armed forces and civil service, but said the government still needed to take strong action in fiscal management and forestry revenue before aid resumes.
Two weeks ago, officials announced the establishment of an independent forest crime monitoring and reporting program that will include inspecting commercial logging operations, checking key border crossing routes and reviewing government reports to validate purported achievements.
The Ministry of Finance also said the budget for the next fiscal year will include decentralizing financial management, and providing more accountability.
The new IMF loan will be disbursed in seven installments of about $11.7 million each over the next three years, with the first payment available immediately, according to Reuters.
Subsequent payments will be made available after Cambodia meets specific economic performance criteria.
Under Cambodia’s 1999-2002 economic program, the government will aim to raise economic growth to 6 percent, lower inflation to 4 percent and contain the external current account deficit to 13 percent of GDP, the IMF said. The fund predicts real GDP will rise 4 percent this year.
“IMF directors encouraged the government to ensure the effectiveness of the Forest Crime Monitoring Unit, to overhaul forest concession management and to cooperate fully with the World Bank, other multilateral and bilateral donors, and civil society,” IMF first deputy managing director Stanley Fischer said in a statement, Reuters reported.
A World Bank delegation is in town for a 10-day visit to discuss its assistance strategy for 2000-2003. Ngozi Okonjo-Iweala, country director, said Thursday the bank is considering providing $40 million in assistance, but more could be given if the government shows significant progress on reforms.
Government officials also will report their progress on reforms on Wednesday, when donors will gather for a quarterly meeting.
Donors said the IMF loan is important, but aid from their countries may not follow suit.
“I think the donors will wait until the meeting on Wednesday to see what the prime minister says about the government’s progress on reforms,” Canadian Ambassador Normand Mailhot said Sunday.
“Donors want to see continued commitment to reforms and establishing openness and transparency to make it easier for investors.”