The government’s progress on following through on promised reforms will be scrutinized in the next two weeks by the international community, with a delegation from the World Bank in town to discuss their assistance strategy for the next three years and donor countries meeting to evaluate how aid money is being spent.
Although the World Bank and donors agree that the government has made an effort on reforms, they say more needs to be done to put Cambodia on a track of sustainable development and growth.
And the overall picture of Cambodia remains bleak, with widespread poverty, food shortages, poor infrastructure, according to a draft outline for discussion on Cambodia Country Assistance Strategy by the World Bank.
“Underlying virtually all of these problems are those of weak governance and corruption in the public sector…the judiciary barely functions,” said the outline obtained Thursday.
Peace and relative political stability have returned after factional fighting in 1997, but “the underlying realities are harsh and cloud this optimism,” the outline said.
“Growth of private business, essential for Cambodia’s medium-term growth prospects, is still constrained by poor infrastructure, limited access to credit and a weak regulatory framework,” the outline said. “Allegations of corruption and impunity are widespread.”
Because of these problems, the IMF pulled out of Cambodia in 1996 after the government was unable to fight illegal logging and generate funds for the national budget. The US also cut off non-humanitarian aid after the fighting in 1997.
The IMF is currently reviewing whether to resume aid. Cambodia has asked the institution for a three-year $80 million loan, which IMF officials have said is contingent on major government reform.
Minister of Foreign Affairs Hor Namhong played down Cambodia’s problems and said some of the negativity has been exaggerated by the press.
“[Media] always paint Cambodia in a very bad way, but the reality is different,” he said Friday.
He noted that investment in the country has increased, and that the World Bank and some other financial institutions have resumed funding for projects following the fighting in 1997.
“Nothing is perfect,” Hor Namhong said. “We still have problems. [But] after more than three decades of war, from the leadership of the Khmer Rouge, how can you in a few years expect everything to be perfect.”
The World Bank outline noted that fiscal performance in 1997 and 1998 was weak because of shortfalls in revenue collection that were attributable to tax exemptions. Inadequate forestry royalties, due to widespread illegal logging, added to the shortfall.
But the government has begun to strengthen fiscal management, the outline said. The value-added tax that became effective in the beginning of this year helped bring in more money to national coffers and private enterprise is emerging.
The World Bank delegation will meet with donor countries, small businesses and members of the private sector in the next 10 days to discuss its strategy for 2000-2003. The final strategy outline will be decided in the spring when the board of directors of the World Bank will vote on whether to approve the proposal, said Bonaventure Mbida-Essama, acting chief of the World Bank office in Cambodia.
The strategy assistance will include key reform areas, such as restructuring the public administration, building fiscal responsibility, formulating a regulatory framework for private enterprise, and managing Cambodia’s forests strategically.
The World Bank outline said there needs to be better collaboration between the government and donor countries and aid groups, and a shift in the relationship between the groups.
“The prerequisite is for the government to take the lead in the process of aid management and coordination,” the outline said.
If progress on structural and governance reforms is in line with targets agreed with the International Development Association and the IMF, lending would total $160 million over four years, or an average of $40 million per year.
If structural and governance reforms consistently exceed targets, the World Bank recommends an increase in lending to $75 million per year.
But if the political situation deteriorates and macroeconomic stability cannot be maintained, the World Bank recommends that lending be decreased to about $15 million annually, or the equivalent of one investment operation per year focusing on the social and rural sectors.
To achieve reform objectives, the World Bank proposed pilot sectorwide approaches in three priority areas—health, rural infrastructure and governance.
The suggested measures include establishing a coordinating committee to develop a five-year action plan for the health sector, improving rural roads to increase access for the poor, and conducting a governance study which would survey public officials, private citizens and businesses.
The last meeting of the World Bank delegation will be the quarterly gathering of the donor groups on Oct 27. At the last donor meeting in February, representatives from 16 countries and six international finance organizations pledged $470 million in aid over three years.
At that meeting, the government painted a rosy picture for donors, saying domestic tax revenues were up, and military payrolls were down.
Some officials from Western donor nations remained skeptical, however, that the government would show that real progress on reforms has been made.
“They claim progress but it doesn’t seem to be happening,” one diplomat said.
Another was more optimistic.
“Progress is slower than expected, but I will save my judgment until the meeting,” said the other. “I’m not writing them off.”
UNDP Resident Representative Dominique McAdams said people can’t expect results overnight because of Cambodia’s tragic history and lack of properly trained workers who can help with development.
“Of course, there is always room for better governance,” she said.