Statement by Balmiki Prasad Singh at the meeting of February 29, 2000

87718 International Bank for Reconstruction and Development International Development Association International Finance Corporation Multilateral Investment Guarantee Agency FOR OFFICIAL USE ONLY CONFIDENTIAL EDS2000-21 February 28, 2000 06:00:37 PM Statement by Balmiki Prasad Singh Date of Meeting: February 29, 2000 CAMBODIA - COUNTRY ASSISTANCE STRATEGY We welcome the discussion on the Country Assistance Strategy (CAS) and the related Structural Adjustment Credit proposal. 2. I compliment staff for preparing these very comprehensive documents, particularly the CAS, the third since Cambodia’s transition from tragic civil war that devastated it, to peace and to democracy and entry to ASEAN. The analyses of poverty, of gender issues, of strains on social and human capital have been extremely well brought out. It has been a long and difficult struggle and much ground had to be covered. There is a widespread realization that it is only in partnership that Cambodia can reduce poverty, develop its civil society and enjoy high rates of growth. 3. The countries that this chair represent has long historical and cultural links with Cambodia, dating back to antiquity. The Indian civilizational values took deep roots in the soil of Cambodia, which was able to synthesize the best of Hindu & Buddhist thought, it’s cultural mores and evolve it syncretically – Angkor Wat represents the apogee of Indo-Khmer collaboration and stands tall among fine achievements of human creativity. We are deeply concerned with developments in that country, and at a time when few were prepared to acknowledge the difficulties Cambodia was going through, Indian technical experts, at risk to their lives, worked with the people of that country. 4. A country comfortable with its cultural heritage normally finds it easier to adopt development policies that are acceptable to its people, thereby increasing chances of success. The CAS refers in passing to this and while we do not expect the document to really delve on it, incorporating it in the development agenda – either in terms of framing laws, policies, selecting agencies for implementation etc – could have been given a slightly larger role. 5. The recent tragic past, in which a whole generation of intellectuals and traditional leadership were wiped out, poses really unique problems. Very few countries have to confront their development challenges with this disadvantage. In this scenario the world community has really risen to the challenge, and foreign grants and credit today contribute very substantially to the GDP, in the neighborhood of 9%. In fact as the document brings out very tellingly, but for the donors, there would be hardly any public spending on the social sector, even after stepping up this year it will touch 13% of government spending as against 47% on defense and security. Even Rural Development, particularly construction of roads, is donor driven. This situation, of dependence on foreign aid, is likely to continue in the foreseeable future, in the region of 9% to 12% of the GDP and more important, over 50% of total government expenditure. The CAS document has analyzed this and we agree with the diagnosis. Uncoordinated multi-agency and multi-country activities are leading to problems. It is accepted that the country and it's administrative set-up lack capacity to coordinate this approach, to avoid not just duplication and lack of complimentaries, but even competition and working at cross-purposes. For example, let us take up administrative and legal reform. It has been rightly stated that Cambodia has a mixed (colonial) heritage, French and Anglo-Saxon, having both civil and common laws. As the document elucidates at paragraph 30 of page 92, “the lack of harmonization of the judicial codes allows for broad and conflicting interpretations … resulting in differing applications”. The situation is that France is helping it with drafting the “Criminal procedure code/penal code”, whilst Australia is helping with “Criminal justice assistance project: police, courts, prisons”. I know both countries mean well, but one wonders whether the basic differences in approach of the two traditions would serve Cambodia well? 6. Another point that I would like to make is that too many countries and agencies are running pilot /learning and innovation projects. Of course learning is important and we do not suggest a one-size-fit-all approach. But ten years should have given us some inkling of what will work and what won’t, what is required and what is not? Admittedly, the Cambodians are not in a position to say no to any proposal for assistance, but should we shirk our responsibility? It is here that we feel the document has shied away from the obvious. It suggests a sector-wide approach (SWAP) but is very tentative about it, recommending it for a few sectors – health, governance and rural infrastructure – but actually only in health where the WHO is active, can we see any coordinated approach during the duration of this CAS. After all the document at page 21 (paragraph 59) accepts that “ Cambodia is a post-conflict country with enormous needs”, and that “coordination needs to be improved considerably”. This is not all, for it also accepts that “there is a strong demand from the government and several stakeholders for IDA to play a coordinating and a catalytic role in the short term, as the government’s aid management and developing planning capacity evolves.” I would also draw attention to the lucid analysis on “Aid Coordination & Management Issues” on page16 at paragraph 45. Can we not try and build on it, particularly as it would not only not lead to additional expenditure, but in fact will make existing financial provisions go further. Coordination can be done directly and indirectly, and both should be explored. I need not elaborate on the former, but by indirect I mean that we should focus capacity building at Phnom Penn on aid management and on development planning. This way the government can own the agenda much faster, and the results for all donors will be far more cost-effective. 7. The next issue where we feel the CAS has not focussed adequately is in the provision of Rural Infrastructure. Over the past thirty years, adequacy of roads has deteriorated due to lack of maintenance. Can we speak of providing basic education, primary health, safe drinking water & sanitation or even components of rural development without being able to access villages, where 90% of the people live? The document accepts that road construction “is the area where short- term interventions will have the most immediate impact on rural poverty” (paragraph 58 on page 21), by wage employment and much more by the creation of social assets. But when it comes to prioritizing this in terms of allocations, this sector is really neglected. None of the parameters of quality of life can be improved unless this is first tackled. 8. A look at de-mobilization would reveal that setting soldiers and security men loose, without properly settling them economically, is a dangerous phenomenon. We have a situation where in the absence of a dependable city government even in Phnom Penn, power “ vacuum has opened the doors for criminal gangs to battle for control…”. The report is full of instances of the lack of effective law enforcement machinery which lead to forcible eviction from land, and of bandit groups inhibiting investment in the provinces. In this scenario, it makes it incumbent to use the services of these demobilized soldiers productively. 9. The programs on agriculture and allied sectors, while very relevant, could be re-focussed. Around 90% of the population live in rural areas, with very skewed land holding patterns and 90% of the land is devoted to cultivation of rice. Still it is shortage of food that is the single largest cause of land alienation and migration. Lack of credit institutions has been vividly brought out. Experience shows that while cheap credit is desired, it is timely credit that is essential along with timely availability of improved seeds, fertilizer etc. The Credit Community for Rural Development seems too tentative to really make a dent. It is our considered view that this activity is inherently profitable if its coverage is adequate and it can serve the basic needs of the farmer – it is nobody’s case that the moneylender incurs a loss! 10. We would commend the Balkan Enterprise Fund approach to the IFC. This would enable the funding of SME’s so that private sector development really takes off, while keeping a check on costs. We have referred to Angkor Wat earlier. The CAS document also brings out how earnings from Tourism were increasing and had become quite substantial till the political crisis of 1997. IFC had been involved in a large hotel venture, which could not see the light of day, due to problems of financing in the aftermath of the East Asian crisis. The current and future proposals would need attention. Alternately, households in the area of Lake Tonle Sap could be turned into small entrepreneurs by initiating them into tourism and related activities. Imparting of skills, provision of micro-credit and linkages would have to be built into such a scheme. This would give a fillip to the growth of tourism around Angkor Wat and create a large number of stakeholders in the sector. 11. It augurs well for the WBG that the IFC has partnered IDA in preparing this CAS. Private sector development is in its infancy, if one takes out the 55 odd garments factories around Phnom Penn. Client Feedback also reveals that they perceive our role in private sector development as less than adequate. Both sides are right because you cannot have substantial investments in the absence of enabling environment, which with the efforts of all stakeholders, will surely emerge. But to make the substantial point, partnership, like charity begins at home. 12. We support the proposed Structural Adjustment Credit proposals as an instrument of implementation of CAS. We urge that in light of the suggestions made, programmatic lending may be suitably adjusted to make them more focussed, relevant and cost-effective.