Statement by Girmai Abraham at the meeting of February 29, 2000

87714 International Bank for Reconstruction and Development International Development Association International Finance Corporation Multilateral Investment Guarantee Agency FOR OFFICIAL USE ONLY CONFIDENTIAL EDS2000-18 February 28, 2000 04:19:58 PM Statement by Girmai Abraham Date of Meeting: February 29, 2000 Cambodia: Country Assistance Strategy Three years ago, when the second CAS for Cambodia was discussed by the Board, the enormity of the country's development challenges was quite daunting, and Cambodia's capacity to tackle them was seriously constrained as it embarked on the near-impossible task of rebuilding every facet of human development after a protracted and devastating war. Today, Cambodia's development challenges are no less numerous and no less demanding. Nonetheless, the prospects for a turn-around in Cambodia have greatly improved: political stability since the last elections, perseverance with reforms and the strong donor presence have altogether contributed to a promising economic achievement, which should help lay the foundation for lasting peace and sustainable development. It is in this regard that we endorse the Bank Group's Country Assistance Strategy for Cambodia which we believe, responds very well to the needs and priorities of a country emerging out of a conflict situation. We would like to take this opportunity to commend the Cambodia authorities for putting together, under extremely difficult and trying circumstances, an agenda that should address many pressing concerns related to continued reintegration, reconstruction, governance and development. Their commitment to work with both the international community as well as other partners within the country to ensure that the peace process continues without interruption also deserves commendation. The CAS for Cambodia presents an extremely important objective – building the groundwork for sustainable development and poverty reduction – which is consistent with the government's priority of building physical infrastructure, rebuilding human capital, facilitating private sector development and promoting good governance for lasting and sustainable development. We are pleased to note that this CAS has been developed following extensive consultations with all stakeholders, including the government, other donors and civil society. As the situation on the ground stabilizes further, we hope these consultations will be more extensive and will, therefore, broaden the ownership of the economic agenda. Given Cambodia's history during the past two to three decades, which has been one of both tragedy and hope, we agree with the document that the CAS program faces a number of risks. We, therefore, endorse the three lending scenarios and their associated triggers. Having made these general remarks, I will now comment briefly on a few specific issues. One critical element in the development drive for Cambodia is the issue of capacity and institutional building at all levels of society in both the public and private sectors. The lack of capacity is currently felt in public administration, particularly in the areas of planning and budgeting. While donors, including NGOs, have been extremely generous with the provision of technical assistance to Cambodia, it is quite crucial that efforts made in this area now to address short-term issues also take into account the bigger issue of medium- to long-term development. Rather than addressing this problem in a piece meal manner, there may be a case for looking at the problem in a holistic way. This is particularly important in the current drive to adopt a sector-wide approach in the planning and implementation of Cambodia's development program, which we strongly endorse. It goes without saying that the effective participation of Cambodia in this challenging task and the subsequent ownership of their program cannot be fully realized without the capacity to understand and implement reforms. Poverty remains a major concern, particularly for rural Cambodia where the incidence of poverty is four times higher than in Phnom Penh, and general rural households account for almost 90 percent of the total poor. Therefore, in order for Cambodia to begin to realize its development goals and to boldly tackle the central issue of poverty reduction, it is critical that programs be developed to reach the rural population. In this regard, we are encouraged by the fact that IDA is currently implementing two operations on agricultural productivity improvement and village community development. We also welcome IDA's participation in the evaluation of UNDP programs in an attempt to establish models of community-based rural development planning. We would like to see greater attention of this review on the issue of land distribution, gender related matters and food security. We note the authorities’ continued interest to give the private sector a greater role in the development process, and hence their efforts to facilitate this through the creation of an enabling environment by undertaking legal and administrative reforms. We also welcome efforts aimed at supporting community-based small-scale infrastructure development with the use of the Second Social Fund project, which is not only focused on using local human resource in alleviating poverty, but would also establish the critical infrastructure for private sector activity. The document identifies light industry as the principal growth areas, and notably the garment sub- sector, which currently benefits from the GSP and MFN status and accounts for 75 percent of exports in 1999. With the current pressure on trade globalization, countries such as Cambodia that currently enjoy concessional status in trade agreements are likely to feel the impact of the new trading arrangements. We wonder what role the Bank can play to assist such countries in the complex bilateral and multilateral negotiations in the context of the WTO forum. Another major challenge for the Bank Group, particularly the IFC, is how we can help organize an already vibrant sector in Cambodia, which currently employs more than 1.6 million people nationwide.  One major issue which continues to haunt Cambodia in its post-conflict effort, especially in rural development, is the existence of unexploded ordinances, including land mines in some parts of the countryside. Unfortunately, little mention has been made about this major problem as a reality of post-war situation in the document. Since the Bank now has a clear direction on the question of de-mining, and since this issue has a great bearing on the development of agriculture in the rural areas, we would be interested in finding out from Management how the international community, including the Bank, can expedite resolving this matter which is both of health and economic significance for Cambodia. Finally, a footnote on the issue of risks. We note that paragraph 75 of the CAS document outlines the major exogenous risks that are likely to affect targets in the country's performance. While we agree that natural disasters and a renewed regional financial crisis could have severe effects on the expected outcomes of the program, we also believe that the extent to which donor agencies sometimes drive program implementation could have dire consequences on the expected outcomes. However, this component of the exogenous risks is often not treated in the analysis of risks in the CAS document. The potential of this happening is probably greater in Cambodia than in the other countries because of the large number of donors currently active in the country. In this regard, we would urge for continued caution in dealing with the issue of demobilization and disarmament. The pressure to maximize the so-called peace dividend should not over-ride the desire to obtain lasting peace in the country. In closing, we wish to commend Bank Staff for diligently working with the Cambodian authorities to develop this CAS document. We also wish the Cambodian authorities every success in their reform program.