Lower Aid Request Illustrates Global Changes

Editor’s note: This is the first in a series of stories to be published in The Cambodia Daily ahead of the June 19 to June 21 international donor meeting. The stories will mostly examine the various issues of reform the government continues to face, and the progress that has been made in those areas.

Although an impressive sum, the $467 million in aid Cambodia is asking of donors for the up­coming year is still significantly less than last year’s pledges of $615 million.

The government knows the budgets of international donors are strained be­cause of a worldwide economic slowdown and because there are needs elsewhere in the world—particularly in Afghanistan and East Timor.

Minister of Finance Keat Chhon acknowledged this in May, saying the lower request was the minimum amount necessary for the government to continue its development plan. Cambodia will ask donors for $1.4 billion over three years at the Consultative Group meeting, which begins next week in Phnom Penh.

But Cambodia is no longer the battered country whose history of war and hardship got the sympathy of worldwide public opinion in the years after the signing of the 1991 Paris peace agree­ments.

And the government, which depends on foreign aid money for more than half of its annual budget, may find it must do more to convince donors to continue sending the same amount of financial support it has enjoyed since the Untac period.

“Developed countries have been raising their aid budgets more slowly than in the past,” said Aldo Dell’Ariccia, charge d’affaires for the European Commission. If this trend continues, he said, only requests “for the most urgent needs and for the poorest countries will prevail.”

Japan’s continuing economic slump is the most immediate and serious threat to the government’s aid request. Japan is Cambodia’s largest donor, giving $118 million at last year’s donor meeting in Tokyo. If that same amount is pledged this year, it would still be a lesser amount because the Japanese yen has fallen 15 percent in value compared to the US dollar.

Japanese Ambassador Gotaro Ogawa has warned that his government’s decision to reduce overseas development assistance by 10 percent could affect this year’s Japanese contribution to Cambodia, though it is still on the list of favored countries for grants and other Japanese aid.

Also complicating Cambodia’s aid request is an increasing demand for accountability from donor countries. As governments are expected to justify their use of public money within their own countries, “the same is now expected for their activities overseas,” said Canadian Ambassador Normand Mailhot.

“Donors have to show results from the not inconsiderable sums they have dedicated to developing countries,” he said.

The nature of foreign aid has evolved in the last 15 years, said Dominique McAdams, resident representative for the UNDP. This began with the fall of the Berlin Wall in 1989, which marked the end of the Cold War. Since then, “globalization has changed the focus of intervention,” she said

Donor countries are more interested in funding specific programs than in providing general support to governments, and development strategies are being required to include ways to evaluate outcomes, she said.

Many donors are sticking to the idea that it is still too soon to expect quick results from Cambodia. But some embassy and donor agency officials spoken to in recent weeks said they recognized some progress has been made in public administration, demobilization and land issues.

They all agree, however, that corruption must be curbed and the pace of the legal and judicial reform must accelerate. This has to be addressed, Mailhot said, “if Cambodia is to lift itself out of the poverty cycle.”

In its notice authorizing the sending of $10.4 million to Cambodia last March, the International Monetary Fund’s executive board stressed that the country should improve conditions for foreign investors, “especially through enhanced governance, a strong effort to fight corruption, and legal and judicial reform.”

The issue is bound to come up when the IMF board reviews Cambodia’s performance before authorizing the release of the fifth installment of its loan in July. The government is in the third year of a $75.39 million loan from the IMF.

At this point, there is nothing foreseeable that could prevent Cambodia from negotiating another three-year loan, said Robert Hagemann, IMF representative to Cambodia.

But in the past, the IMF has not hesitated to suspend loans to Cambodia. They did so in 1995, when they said progress on several areas of reform, including forestry, were moving too slow. The IMF resumed loans in 1999.

Donors have pressured and lobbied the government on various issues in past years. But, whatever the level of progress, donors have always provided the required funding, viewing it as aid to the people, rather than the government.

“We don’t leave a country when there are problems. On the contrary, this is when we come in to help,” McAdams said.

The various UN agencies contributed about $90.7 million to Cambodia last year, she said, making the UN the second biggest donor among agencies and countries.

France, the second biggest donor country in 2001, will not disappoint its former protectorate, diplomatic officials said. The French government, which gave about $36 million in 2001, will contribute approximately $37.5 million this year.

“This is quite high compared to aid we provide to other countries,” said Ambassador Andre-Jean Libourel.

But other donors are expected to drop their allocations slightly.

The European Commission, which gave $78.9 million between 1999 and 2001, has allocated $63.2 million for economic, financial and technical cooperation in Cambodia for 2002 through 2004.

And Australia, which distributed a total of about $24.4 million in 2001, expects to give approximately $22.6 million this year.

In March, Sweden pledged a minimum of about $34 million for three years. This year’s portion and other funding programs should amount to approximately $15 million.

German aid in 2001 was estimated at $13 million, going up to about $18.7 million when adding long-term grants and other funding sources. This year, total aid should be around $17 million.

Of the $615 million pledged by donors in 2001, about $472 million was distributed.

Most countries develop multi-year plans to allocate funding. Sweden uses five-year strategy programs, and the United Kingdom has three-year programs. But other countries often make policies as current events and trends in aid programs evolve.

It is this type of funding that may disappear as Cambodia loses the limelight and becomes less of an international priority, and countries like Afghanistan and East Timor show they have a greater need.

The US, for example, has increased its aid package to Afghanistan eight-fold, from $29.3 million in 2001 to an estimated $237 million this year. In Cambodia, the US gives about $24 million in direct and indirect aid. Most of that money is funneled through NGOs, where the US feels it can be more closely monitored.

The UK, another donor to Cambodia, has pledged $291 million to Afghanistan over the next five years. Both the US and the UK have increased their overall aid budgets this year.

For other donor countries, supporting Afghanistan may necessitate a shift in aid priorities. For example, Canada allocated $76.1 million to Afghanistan for humanitarian aid and rebuilding—nearly 10 times its 2001 aid package to that country.

This allocation came from additional aid funds approved by the government. But at this point, Canada’s support to Cambodia in 2002 amounts to only about half of the 2001 aid package of approximately $6.5 million.


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