Satisfied with the pace of reform in key areas, the International Monetary Fund will likely approve the fourth installment of an $81.6 million loan to bolster the central bank’s monetary reserves, representatives said Tuesday.
“There are several issues that need to be resolved in the coming weeks to complete discussions for the current review,” said Thomas Rumbaugh, an IMF official who just completed a mission here to examine Cambodia’s reform progress.
“These include agreement on specific revenue enhancing measures for the 2002 budget, announcement of specific action improving customs administration and accelerating the restructuring of forestry concessions.”
If those issues are resolved, the IMF executive board will consider an additional loan package in late January, he said, bringing the total amount loaned to about half of the $81.6 million agreed upon in 1999.
An acceptable economic growth rate, and reform in forestry, finance and demobilization already under way, were positive achievements by the government, he said.
Cambodia’s economic growth is expected to hold at 5.25 percent, despite a global slowdown affecting the garment and tourism sectors, “generally because performance at the beginning of the year was so strong,” said Rumbaugh, deputy division chief of the IMF’s Asia and Pacific Division.
Cambodia has so far been unable to achieve the same growth it enjoyed before 1997, the year factional fighting and the Asian economic crisis sent investors away in droves. The IMF pulled out of the country along with them, terminating a $120 million loan package.
Before that, Cambodia had enjoyed an annual growth rate between 6 percent and 7 percent. Since then, however, the growth rate has not been more than 6 percent. In order to keep up with inflation, the population growth rate, the growing labor force and reduce poverty significantly, Cambodia needs economic growth between 6 percent and 7 percent, Rumbaugh said.
Rumbaugh’s delegation examined Cambodia’s compliance with IMF requirements for a loan package initiated in 1999, when the IMF returned to Cambodia after a two-year absence. Disbursement comes in $10 million to $11 million increments, provided Cambodia complies with a poverty reduction strategy outlined by the IMF.
The loan package is primarily meant to support the central bank reserve system.
Rumbaugh cited the draft of a new forestry law earlier this year as a positive step by the government.
Despite a report this year from forestry watchdog group Global Witness that documented ongoing problems with concessions and sawmills, illegal logging had been curbed in recent years, Rumbaugh said.
“In our view, it is not as severe as it was five years ago,” he said. “But the government needs to follow through.”
More efforts need to be made in key areas, said Patrick Lyng, chief technical adviser for the Forest Crime Monitoring Project.
Concessionaires and military activities still remain problem areas, he said.
He agreed that the forestry situation has improved.
“It was literally everywhere in Cambodia three to five years ago,” Lyng said. “It was in broad daylight. It was business as usual.”
Eva Galabru, director of Global Witness, cautioned against expecting too much from the passage of a forestry law.
“A law is a beginning. But there is always an issue of enforcement of that law,” she said.
The IMF team, which arrived Nov 5, also praised the government’s efforts to improve its financial sector. The government has approved a National Audit Authority that will try to improve transparency in tax collection.
Customs administration remains a key problem for the government. Corruption continues to frighten potential investors.
Reformation will remain a priority in talks with the IMF, Rumbaugh said.
The government is still drafting a new investment law. Current investors say new law cuts too many tax incentives, which they say make up for the disadvantages to building businesses in Cambodia.
An assessment team from the IMF and World Bank earlier this year said tax incentives will only bring such industries as garment manufacturers, which are relatively easy to establish—and easy to dismantle.
Rumbaugh said Monday the government was continuing discussions with the private sector in an effort to appease it. But the IMF-World Bank proposals should not be seen as an elimination of incentives, he said.
“Our advice was not designed to lessen incentives for investment,” he said. “We want to see incentives that are a transparent part of the new taxation law.”
The current system encourages favoritism and benefits that are not offered across the board, Rumbaugh said.
The IMF was also satisfied with the efforts Cambodia has made toward demobilizing its inflated armed forces. The government plans to demobilize 15,000 soldiers by the end of this year and another 15,000 by the end of 2002.
Budget expenditures for defense and security have decreased, which pleases the IMF, Rumbaugh said. But he added that money budgeted for social services often doesn’t reach the provinces or programs for which it was intended.
