Phnom Penh Sralanh Khmer in Cambodian 02 Jun 07 pp 1, 4
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The following statement was issued in Phnom Penh on June 5, 2007 by John Nelmes, International Monetary Fund (IMF) Resident Representative in Cambodia:
"An IMF mission, led by Jeremy Carter, Adviser in the IMF's Asia and Pacific Department visited Cambodia during May 22 - June 5, 2007 to conduct the Article IV consultation1. During the visit, the mission took stock of recent economic and financial developments, and held policy discussions with Prime Minister Hun Sen and Senior Ministers and officials of the Royal Government of Cambodia (RGC) on their macroeconomic and structural policies. The mission also met representatives from the National Assembly and the Senate, Cambodia's development partners, business community, research think-tanks, labor unions, and non-governmental organizations.
"Prudent macroeconomic policy implementation has provided stability, in turn boosting investors' and consumers' confidence, and has underpinned very strong macroeconomic performance: impressive rates of growth have been sustained, inflation remains low, external debt is sustainable, and headway is being made in a number of important structural reforms. The mission noted that the environment provides ideal conditions to re-energize reforms in areas where progress has been less rapid, and to address the key constraints to broader poverty reduction.
"Following estimated 2006 growth of 10¾ percent, real GDP is expected to increase by around 9 percent in 2007, driven by an expansion of agricultural production and continued robust activity in tourism, garment exports, and construction. Services, in particular finance and telecommunications, are increasingly contributing. These broad trends are projected to continue in the near term, and with continued high levels of foreign direct investment, should result in growth of around 7½ to 8 percent in 2008. Risks to the outlook include competitive pressures in the garment sector resulting from Vietnam's WTO accession, the lifting of safeguards on China's garment sector at end-2008, and possible adverse weather conditions that could affect agriculture.
"Inflation ticked up to around 4 percent recently, mainly reflecting rising fish prices and a pass-through of higher international oil prices. Assuming broadly stable international oil prices for the rest of the year, inflation should remain in the low single digits, though the mission and the authorities agreed on the need to be vigilant for signs of underlying demand pressures on inflation should they arise.
"The external current account deficit (excluding official transfers) narrowed to 7¼ percent of GDP in 2006. A slight further improvement in 2007 is projected as a result of strong growth in garment exports and tourism. The riel has remained broadly stable in bilateral and effective terms, and gross international reserves rose to $1.2 billion at end-April 2007.
"Revenue performance in 2006 was strong due to vibrant economic activity and improved administration supported by the Public Financial Management (PFM) reform program. Strong performance continued in 2007 and budgeted revenue targets are expected to be exceeded by large margins. Government expenditure has been slow, due in part to initial difficulties in implementing new spending procedures. The mission urged that these difficulties be resolved quickly, and agreed that delayed expenditure should be accelerated to ensure budget expenditure targets are fully met. On this basis, the overall government deficit is projected at 3¼ percent of GDP in 2007, financed by concessional foreign funds.
"Fiscal policy discussions centered on improving the level and quality of revenue and expenditure, to achieve the development and poverty-reduction goals set out in the National Strategic Development Plan (NSDP). Further sustained revenue increases could be achieved with continued improvements in administration and enforcement, though further consideration should be given to policy measures, including property taxation and a widening of the VAT base. The mission supported the government's policy of steadily raising public sector wages as revenue increases allow, and welcomed commitments to increase productive capital investments, including expediting the implementation of poverty reducing projects funded with the US$82 million received under the IMF's Multilateral Debt Relief Initiative (MDRI).
"The PFM reform program has achieved good progress, including the introduction of new government treasury accounts and budgetary classification to better monitor poverty reducing expenditures. The mission looked forward to implementation of plans to improve cash management and government banking arrangements.
"Oil production could significantly increase national income in the long term, and associated fiscal revenues would provide vital financing for development spending. Given the substantial uncertainty still surrounding the level of reserves and the timing of production, the mission cautioned against undertaking any large oil infrastructure projects, and noted that large commercial borrowing ahead of uncertain oil revenues would be imprudent. The mission encouraged the Government to make early progress on developing the institutional and legislative underpinnings for petroleum taxation and revenue management, including adopting the Extractive Industries Transparency Initiative (EITI).
"The banking sector continues to expand very rapidly, with deposits and lending rising on the order of 40 percent. Growth in the banking system is facilitating economic development, and reflects rising confidence. The fast pace of growth requires strong banking supervision to ensure that banks are weighing all of the lending risks properly.
"Finally, the mission welcomed the authorities' commitment to the ambitious WTO-related trade facilitation reform agenda. Accelerating progress is important, particularly on key elements of the legal framework and in reforming customs valuation."
1 Under the Article IV consultation, IMF staff conduct surveillance and analysis of economic developments and policies of member countries for discussion by the Executive Board. The last Article IV consultation with Cambodia was undertaken in 2006.
|Public Affairs||Media Relations|
Opening Remarks at the Launch of the Cambodia Equity Report 2007: Sharing Growth
|Speech at the Joint Royal Government of Cambodia and World Bank Conference|
Nisha Agrawal, Country Manager for Cambodia
The World Bank
Samdech Prime Minister
Good morning. Today we are most honored to have Samdech Prime Minister Hun Sen here amongst us to deliver a keynote address to this joint conference to launch the Cambodia Equity Report 2007 entitled “Sharing Growth”. On behalf of the World Bank, I would like to extend my warm welcome to the Prime Minister, and to all the other distinguished participants, to this launch of the Cambodia Equity Report, which has been organized jointly with the Royal Government of Cambodia.
Last year, in February 2006, at a similar gathering, also honored by the presence of the Prime Minister, we launched the Poverty Assessment for Cambodia. The Poverty Assessment had very good news for Cambodia. It found that during the past decade, Cambodia had made significant progress in reducing poverty. The proportion of the population living below the national poverty line had fallen from an estimated 47 percent in 1994 to 35 percent a decade later. Poverty had fallen in the countryside as well as in the towns, though progress had been more rapid in urban areas. This improvement in the lives of poor people was also reflected in many other indicators of welfare: for example, schooling and health care had also improved significantly.
The Poverty Report, however, had also highlighted the fact that while poverty had declined, inequality had risen dramatically during the same period. It noted that, during the last decade, while the per capita consumption of the richest 20 percent of the population grew by 45 percent, the consumption of the poorest 20 percent grew by only 8 percent—in other words, the income of the richest group grew by about six times the rate of the poorest. This had led to a rapid rise in inequality in Cambodia. This finding raised concern in the minds of policymakers, and Senior Minister Keat Chhon, on behalf of the Government, requested the World Bank to focus the 2007 Report on equity issues, with a view to understanding what lay behind the rise in inequality in the last decade, and how to prevent further rises in inequality that could be potentially destabilizing.
This is what we have attempted to do in this Equity Report. And again, we have very good news for Cambodia. Drawing on survey and other data, and on research done by Cambodian and international researchers, this report concludes that the rise in inequality occurred primarily in the early part of the decade (circa 1994-97) and primarily within rural areas; and that there was no significant change in inequality during the second half of the period, i.e., between 1997-2004, or within urban areas. The findings suggest, therefore, that the current pattern of growth is not structurally destabilizing. In other words, there is nothing inherent in the current pattern of growth that would suggest that Cambodia could not also follow the same path in the future that has been taken in earlier decades by the East Asia Miracle economies—of high and equitable growth and rapid poverty reduction—provided, of course, that it also makes the same sound policy choices that its neighbors made in earlier decades.
The Report argues that Cambodia’s changing distribution of income and consumption is consistent with the process of transition from a planned to an open market economy and the accompanying growth of incomes. This transformation has promoted better resource allocation, expanded the range of gainful activities, and widened the distribution of earnings. Aided by robust economic growth and improved capacity for implementing public policies, Cambodia has seen most other indicators of welfare—for example, health and education—become more equal over time. While a radical shift of development strategy is not needed, improvements in public policies and public spending could lock in the gains that have been made so far and ensure that these gains are replicated in the future.
The findings of the Report, and the lessons from the East Asia Miracle economies, point to the following sets of Government actions:
First, continuing with the economic reforms necessary for creating high and diversified growth, resulting in expanding opportunities for young Cambodian men and women. The recent IMF Article IV mission confirmed that Cambodia continues to maintain prudent macroeconomic policy and generate high economic growth. The last three years have seen double-digit growth underpinned by an expansion of agricultural production and continued robust activity in tourism, garment exports, and construction. Services, particularly in the financial and telecommunications sector, are also increasingly contributing to growth.
In Cambodia, as in any other country in the world, the creation of well-paying jobs is necessary to move people out of poverty. This is especially important in Cambodia, however, given its very young population—in 2004, almost 40 percent of the population was below the age of 15 years. An estimated 300,000 young men and women are now entering the labor force as a result of the baby boom in the 1980s. This is roughly the same size as total employment in the garment sector. In other words, just to keep pace with the new entrants to the labor force, an entire garment sector needs to be created every year in terms of employment. Measures to improve the investment climate—especially for small and medium enterprises--need to continue to be taken to ensure that the youth do not add to the underemployment in the countryside or lead to even higher rates of urban unemployment, but instead contribute to growth and development through productive employment. In 2004, only 20% of workers in Cambodia were in a paid job (the rest were self-employed), and only half of those were in the formal economy. And despite the rapid growth of the manufacturing sector, in 2004, it still employed only 8% of the labor force of Cambodia.
Second, focusing on the rural economy. Samdech Prime Minister, as you said at the recent Second Cambodia Economic Forum entitled “Development of the Rural Economy is Key to Poverty Reduction”, “improving Cambodia’s rural economy and livelihoods remains a daunting challenge for the Royal Government due to many complex structural constraints and weaknesses of market infrastructure.” We were very pleased that you suggested to the Supreme National Economic Council (SNEC) that the Forum should try to address the challenges facing rural Cambodia and we had a very lively debate and discussion on this topic at that Forum.
This Report focuses on one of the most critical issues raised in the Forum—land management. The Report notes with concern that without off-farm employment or self-employment alternatives, over half a million landless poor find it hard to improve their situation or participate in the economy. Levels of inequality in land ownership are high in Cambodia, and significantly higher than most other countries of Asia. We believe that the necessary policy framework for land management is now in place and needs to be implemented more vigorously: systematic land titling to improve tenure security could be accelerated; the Economic Land Concessions (ELC) Subdecree could be enforced to ensure that ELCs are actually being used for investments, growth and job creation rather than being held idle for speculation; and the Social Land Concessions (SLC) Subdecree could be implemented to improve access to land for poor landless households.
Third, building upon progress to date with further improvements in the quantity, quality and affordability of schooling and healthcare. The Report argues that access for all to basic education and basic healthcare is the best way to ensure shared growth by ensuring that families don’t get stuck in poverty traps for successive generations. In recent years, measures of education and health outcomes have shown a broadly positive trend towards greater equality over time. Gains in education in recent years are notable for their pro-poor, pro-girl bias. Primary enrolment has increased fastest amongst these traditionally under-represented groups, resulting in shrinking urban-rural, male-female, and rich-poor gaps in literacy rates amongst the younger cohorts who have more recently left the (improving) schooling system.
Nevertheless, significant differences remain between urban and rural populations and rich and poor households in access to services and outcomes. While access to primary schools and, to a lesser degree, health centers has become more equal over the last decade, poor households still live significantly further than the rich from secondary schools and hospitals. And despite progress over the past years, access to improved water supply and sanitation facilities is virtually non-existent in most of the countryside. Efforts will need to be made to ensure equitable access to these services.
The Report also argues that while some progress has been made, gender-based inequalities remain significant. Positive trends towards greater equality include increasing girls’ enrolment in primary education (and resulting rise in female literacy rates) and expanded employment opportunities for young women provided, in particular, by the garment sector. However, women lack significant voice in social or political affairs, with limited representation in Government or policy-making processes, from the local to the national. In this context, the recent sharp increase in the proportion of women commune councilors--from 8.7 percent in the 2002 elections to 15 percent in the 2007 elections—is especially welcome and noteworthy. We very much hope to see this success replicated at national levels in the forthcoming National Assembly elections to be held in 2008 and in senior positions in the new Government that is formed subsequently.
Fourth, and finally, underpinning service delivery reforms with stronger and more responsive state institutions will be critical. The experience of East Asia suggests that to establish their legitimacy and win the support of society at large, East Asian leaders established the principle of shared growth, promising that as the economy expanded, all groups would benefit. Explicit mechanisms were used to demonstrate the intent that all would have a share of future wealth. Korea and Taiwan, China, carried out comprehensive land reform programs; Indonesia used rice and fertilizer price policies to raise rural incomes; Malaysia introduced explicit wealth-sharing programs to improve the lot of ethnic Malays relative to the better off ethic Chinese, and so on. Whatever the form, these programs demonstrated that the Government intended for all to share the benefits of growth.
International experience from other regions also suggests that state institutions that reflect the interests of the poor and promote equality of opportunity foster more stable politics and more sustainable long term growth than those which concentrate power and wealth. Building such institutions is often hard in post-conflict states. Cambodia is undertaking important reforms in public financial management that need to be sustained and surveys also indicate that citizens find local governments to be increasingly responsible and responsive. At the same time, however, surveys identify informal fees as a critical burden on firms, and reveal corruption and lack of trust in state institutions as major problems—for example, in a survey carried out for this Report, only 18% of the respondents felt that judges were honest and only 29 percent felt that the police were honest. Reforms in these areas—as well as in building a meritocratic civil service—need to be initiated urgently.
In conclusion, I would like to say that the Poverty Assessment was an important report, which changed widely held perceptions that poverty had not declined in the last decade in Cambodia. This Equity Report is also an important report that we hope will similarly change some widely held perceptions about trends in inequality. Both Reports highlight the importance of basing analysis and policy prescriptions on sound data—both quantitative and qualitative. They highlight, in particular, the important work of the National Institute of Statistics, and the need for producing high quality and regular household surveys in the future that can be used to track progress in poverty and equity issues in the future.
Finally, I would like to say that we are pleased to launch this report today and we would like to thank all those in Government--in particular the SNEC team who gave generously of their time as always--research institutes, NGOs and other donor agencies who have provided excellent inputs and feedback during the drafting process. Once again, I would like to thank you for your participation in this workshop, and I look forward to a stimulating discussion today.
The latest report by illegal logging watchdog Global Witness has received the highest accolade an investigative NGO's work can receive from the Cambodian Government: It has been banned. The reason? It exposes the country's largest illegal logging syndicate and its links to senior government officials, including the prime minister. Plus, it details the way the army has been used as a log courier service for the secret trade with Vietnam and China. Now, as Cambodia's annual pledge-a-thon approaches, international donors are scrambling to react to accusations they haven't done enough to protect Cambodia's forests. Global Witness, the U.K.-based logging and blood diamond watchdog, cheekily titled its 95-page report "Cambodia's Family Trees" and printed a cover with framed pictures of Prime Minister Hun Sen -- and the logging kingpins related to him by marriage or political ties -- hanging from a barren tree.
The study took Global Witness three years of surveillance and interviews to complete and is perhaps the most extensive exposé of institutionalized corruption and natural resources pillaging to date. Among the main targets are Hun Sen's first cousin, Hun Chouch, Minister of Agriculture, Forestry and Fisheries Chan Sarun, and Forestry Administration boss Ty Sokhun. So it was little surprise the report ruffled some feathers. "If they [Global Witness] come to Cambodia, I will hit them until their heads are broken," was how the prime ,inister's brother and provincial governor, Hun Neng, responded to accusations that he and his wife were involved in the illicit trade.
Cambodia's Ministry of Information released a statement describing the report as "a personal accusation . . . to cause political conflicts in the country" and ordered the confiscation of any copies already in the Southeast Asian nation. But the fallout adheres to a long-running pattern of government behavior that is accurately predicted within the report.
"Hun Sen responds to even muted criticism by declaring that attempts to remove him will cause the country to fall back into conflict and instability," Global Witness wrote about the leader of a country still traumatized by the killing frenzy of the Khmer Rouge in the 1970s and the bitter civil war that followed. It's not the first time Global Witness has raised the ire of Cambodia's government. Global Witness was appointed by the government as the official monitor of illegal logging, but was fired from the job after its reports uncovered the involvement of military and political figures.
In 2004, copies of the group's report "Taking a Cut" were confiscated at the airport and several international staff were refused entry. Global Witness says the issues of illegal logging and political power are intertwined, with logging bankrolling Hun Sen's private armies, which in turn assure political supremacy for the one-eyed former Khmer Rouge leader, nicknamed the "Strongman."
Cambodia's ruling powers have long used timber to fund their wars and, in more recent times, their political dominance. In the late 1990s, there was pressure from international donors to crack down on the plunder; the transport of logs was banned and illegal cutting slowed. But lucrative profits and lax laws meant that the chainsaws never really stopped. Over the years there have many creative schemes invented to bypass logging regulations.
The funniest involved logging permits given ostensibly for the purpose of building a platform so the country's parachute regiment could practice jumping off. The most shameless would have to be the tricking of monks into signing documents requesting valuable koki logs for building dragon boats to represent their temples in the annual boat racing festival.
The latest Global Witness report focuses on the use of economic land concessions -- usually plantations -- as a cover for illegal logging. In 2001, Hun Sen inaugurated the Tumring Rubber Plantation and the country's biggest logging cartel went to work.
The Seng Keang Import Export company was owned by Hun Sen's Rolex-wearing cousin Hun Chouch, his ex-wife Seng Keangg and Khun Thong, brother-in-law of the minister of forestry, the official ultimately responsible for protecting Cambodia's trees. Their "plantation" area was located inside the Prey Long forest -- the largest lowland evergreen forest still standing in Southeast Asia.
It is home to elephants, tigers and the Asiatic black bear, as well as burial grounds and resin trees tapped by locals for a modest income. But Prey Long's natural blessings are also its curse: The rich flora includes large amounts of commercial-grade and luxury timber. "It is unlikely they could have selected a more suitable location for their activities and Tumring duly became the center of the largest illegal logging operation in Cambodia," said Global Witness. The strategy was simple: harvest the most valuable trees within reach, move the timber inside the plantation's borders and claim it was felled in clearing. This neatly avoided various laws and a ban on the transport of freshly cut logs. The operation was big.
In 2005, community forestry activists counted 131 chainsaws and 12 mobile sawmills in the district. Timber was processed at an illegal sawmill at the appropriately named village of Khaos, or trucked out at night to another factory in the capital of Phnom Penh, most of it eventually heading for China. Between 2003 and 2005, China says it bought $16.2 million worth of plywood from Cambodia, with Seng Keang being the principle manufacturer of ply. Strangely, Cambodia's registered exports, and thus taxes, for that period were zero.
In November 2005, I accompanied Global Witness to Tumring and saw work gangs with chainsaws kilometers outside the plantation boundaries. They told us their boss, a notorious local thug known by his radio call sign "Mr. 95", paid $100 a month to the Forestry Administration in Khaos for each chainsaw in use; just the tip of the corruption iceberg. After dark we followed convoys of trucks heading to Phnom Penh. We reached some that had stopped by the side of the road and we got out to inspect. The owner of the truck told Global Witness the trucks contained "mango trees." I peeked inside and saw neatly cut logs a foot in diameter.
As we talked with the nervous driver, a pickup truck full of armed soldiers escorting the convoy tried to photograph us as they sped past, a dangerous prospect considering the death threats and beatings given out to Global Witness staff in the past. As Global Witness explains in their report, the complicity of corrupt police makes this racket possible, but for the military it's much more -- the profits from transporting illegally cut logs fund a small army, which in turn props up Cambodia's authoritarian rulers.
How to Fund a Private Army
Since an attempted coup against Hun Sen in 1994, Southeast Asia's longest serving premier has maintained an elite Bodyguard Unit of 4,000 well-equipped troops loyal solely to him. In addition, Hun Sen has a backup force of 2,000 soldiers, known as Brigade 70.
Global Witness says that under the leadership of business-turned-soldier Brigadier General Hak Mao, Brigade 70 has developed a lucrative business transporting logs and other contraband across the country. Hak Mao personally owns 16 trucks and has two depots in the capital -- one for commercial grade timber, one for luxury wood, according to Global Witness.
"According to one timber dealer in Phnom Penh, Hak Mao is able to deliver logs of all types according to order," says the report.
The U.K. watchdog estimates that fees from transporting logs and other smuggled goods such as liquor, cigarettes and even ice cream -- amounts to somewhere between $2 million and $2.75 million a year. A cut of this money -- at least $30,000 a month, says Global Witness -- is used to fund Brigade 70 and the Bodyguard Unit. "The Brigade 70 case highlights the direct linkage between Hun Sen's build up of loyalist military units and large-scale organized crime," says the Global Witness report, which was released from the safety of Bangkok on June 1.
Where's the Outrage?
The reaction from the international community has been muted. The U.S. and British embassies have said they share some of the concerns Global Witness has raised, but have not been drawn into the detail of the report. Some of Global Witness' strongest criticisms are directed towards the international donors who last year spent $601 million underwriting half the Cambodian budget, yet apply little real pressure for change.
"The donors have failed. They are basically spineless," Simon Taylor, director of Global Witness, told the Associated Press. "The message that Hun Sen gets from the donors is that they don't really give a damn." Hun Sen, however, does give a damn.
Despite receiving "no-strings-attached" aid money from the Chinese equal to all other donor contributions combined, Cambodia continues to seek the legitimacy that can only come from the support of developed nations.
And despite well-documented corruption and an increasingly one-party state, the international community -- much to the frustration of many NGOs on the ground -- continues to give the Cambodian Government that support. Cambodia's army -- the same force that transports illegal logs -- is receiving military assistance from Australia, China, Vietnam, and the United States.
The U.S. suspended military assistance after the 1997 coup, in which Hun Sen violently unseated his co-Prime Minister Prince Ranariddh. But after Cambodia recently signed the "Article 19" agreement, which promises not to send any U.S. citizens to the International Criminal Court, and began helping out with the "War on Terror" by some dubious arrests of Muslims, the United States is once again providing aid for Cambodia's soldiers.
Ironically, the U.S. embassy says a third of the $1 million military assistance that was earmarked for 2006 went towards trucks, spare parts and training. What makes Global Witness' report on forestry all the more compelling is Cambodia's burgeoning oil industry. Several companies -- including Chevron -- are currently exploring oil fields of considerable size just off the southern coastline.
But many see the sad fate of the forestry industry as a likely precedent for what will happen to the oil bonanza: The ruling elite and their cronies will get richer, the environment will be devastated and the people of Cambodia will receive next to nothing. It's the so called "oil curse" that has afflicted Angola, Chad and Nigeria, among others. To sound a warning to Cambodia's "kleptocracy," Global Witness has recommended international donors link non-humanitarian aid money to reforms and "test cases" to make an example of the powerful.
"There can be little doubt that a handful of competently investigated and prosecuted cases against senior officials, their relatives and associates would have a far greater impact on abuse of power and corruption than new legislation, as important as it is," said the report. The donor community will have to think fast.
The annual meeting at which bilateral donors and the World Bank will pledge next year's aid and discuss the development of the nation is scheduled for June 19-20. No doubt, the issues of illegal logging, corruption and misuse of the military will be somewhere on the agenda. The question is where do they go from there?
Liam Cochrane is a freelance journalist based in Katmandu, Nepal. He was formerly the managing editor of the Phnom Penh Post newspaper in Cambodia.
From: Ron Abney
Date: May 30, 2007 8:40 AM
Subject: RE: Cambodia - an April Fool's democracy
This is by far the most accurate account of Cambodia's fake democracy and how it came to be that I have ever read. Thank God someone finally got it right.
As someone who was there in !993 and who continues to work for a democratic Cambodia I feel the article describes in stunning honesty Hun Sen's almost complete takeover of the country. What makes it worse is the international community's endorsement of his actions. He now has it boths ways: a totally rigged election system and an almost complete immplementation of a true communist state.
What a tragedy. What a shame. It is heartbreaking.
Labels: Ron Abney