Cambodia - Economic Rehabilitation Credit

Report No. PIC2235 Project Name Cambodia-Economic Rehabilitation... Credit Region East Asia and Pacific Region Sector Adjustment Lending Project ID KHPA4035 Principal Responsible Agency Ministry of Economy and Finance Date PID Prepared May 1995 Projected Board Date June 20, 1995 I. BACKGROUND 1. After nearly 20 years of war, internal strife, social upheaval, and a command economy, Cambodia has embarked on a rehabilitation and reconstruction program in transition to a market economy. International support to the country resumed after the 1991 Paris Peace Accords. Immediately preceding and during the UN-sponsored elections of May 1993, Cambodia's situation was dire. Since then, the political situation has improved but remains fragile as a result of the delicate government coalition that has emerged from the elections, and the armed conflict in the northwestern part of the country between the Khmer Rouge dissidents and the Government's Armed Forces. Thus, although the Government has been able to make some progress in addressing the most pressing economic issues, the overall political and security situation remains fluid and uncertain. II. THE GOVERNMENT'S REFORM PROGRAM 2. The Government is carrying out a reform program aimed at generating rapid and sustainable growth that will help bring the population out of poverty. The reform program addresses macroeconomic policy, private sector development, and public sector reforms that should permit more effective delivery of key services. Macroeconomic measures will support a program aimed at achieving 6-7 percent p.a. growth, 10 percent inflation, an increase in public investment, and improved public sector resource mobilization. The Government program in Private Sector Development is aimed at speeding privatization while improving performance of those state enterprises which would remain in the public sector. At the same time, the private sector will also be supported by adoption of the implementation regulations to the 1994 investment law and the organization of the Cambodian Investment Board as a "One Stop" service agency for domestic and foreign investors. Since 1993 the Government has been preparing a wide-ranging administrative reform program with the objectives of reducing costs and improving social services. With a view toward cutting civilian staff by 20 percent and military staff by about one-third by end-1997, the Government will prepare departure programs to be carried out during 1996-97. III. THE PROPOSED OPERATION 3. The overall objective of the proposed operation will be to assist  Cambodia's recovery and its continued transition to a market economy. The ERC will finance general critical imports for the public and private sectors. The counterpart funds from the financing of imports will support the general budget and will make it possible for the Government to: (i) increase public expenditures on health, education, and other social programs; (ii) fully finance the Government's counterpart contribution to development projects; and (iii) finance priority small- scale investments. IV. SOCIAL ISSUES OF ADJUSTMENT 4. Restoring social services after years of civil war is a key component of an effective poverty alleviation strategy for Cambodia. The Economic Recovery Credit will indirectly support this effort by increasing the amount of resources available to the Government for social service provision. The ERC complements IDA's Social Fund Project, which aims to provide poor rural families with short-term employment opportunities in local construction activities (health and education facilities, water supply, small bridges, etc.) and to restore local services and economic activities dependent on such infrastructure. Contact Point: Public Information Center The World Bank 1818 H Street N.W. Washington D.C. 20433 Telephone No.: (202)458-5454 Fax No.: (202)522-1500 Note: This is information on an evolving project. Certain components may not necessarily be included in the final project. - 2 -