INTERNATIONAL donors considering a three year $1.45 billion dollar, aid wish list

from the Royal Cambodian Government (RCG), put government officials on the hot seat,

at a donors meeting May 19, observers said.

"Rhetoric and reality are a long way off and they just didn't have the answers,"

said one frustrated donor representative, departing the closed-door meeting.

The meeting, a pre-Consultative Group preparation session for full donor discussions

in Paris, on July 1-2, covered old time donor favorites, taxation and revenue collection,

logging, demobilization, civil service reform and elections.

While the topics were a repeat of earlier donor-government meetings, donors said

the meeting was a "tougher exchange than in previous years" and that it

signaled they wanted to see action not promises at the Paris meeting.

Chair of the meeting, Finance Minister, Keat Chhon, asked donors not to judge the

government too harshly for a Mar 30 grenade attack and later political instability,

asking them to give Cambodia "time and space to grow in the democratic process".

"Judge us not harshly by such isolated and regrettable incidents," Chhon

told donors, adding that Cambodia's decision to allow the FBI, to investigate the

"deplorable violent incident" was an extraordinary step.

The Minister praised his government's macro economic efforts, saying in the first

quarter of 1997, government spending had been pruned to 45 percent less than budgeted

but he admitted revenue collection had slipped 14 percent behind projected levels.

Most donors, notably the Australian and United States ambassadors Tony Kevin and

Kenneth Quinn, and lending banks targeted the need for the government to implement

it's new taxation laws, to broaden it's tax base and cut back on the granting of

tax exemptions.

"This year donors are asking why should foreign tax payers dip into their pockets

to assist Cambodia, when very wealthy people and companies are not paying taxes here,"

said one major UN donor representative.

"Last year donors were still sympathetic and prepared to listen to what the

government hoped to achieve...they were prepared to wait and judge the government's

actions," he added.

"Now they see there has not been much action, the tone in Paris will be even

sharper and will focus on revenue collection, logging, human rights and drugs,"

he said.

Donors, informed by Chhon that an estimated $286 million was lost to the state through

tax exemptions in 1996, called on the RCG to take more responsibility for collecting

its own funds from its own resources.

"We are on your side but there is resistance against tax laws, so we have to

be careful how we implement them or we will have riots in the streets," the

State Secretary for Finance Sun Chantol reportedly told donors in response.

Chantol said an estimated $700 million worth of largely unmonitored imported goods

are exempted annually under present investment laws and that the RCG would loose

credibility with investors, if they now started to change the rules.

The World Bank, IMF and the US ambassador, reportedly led the charge on forestry

management. "There were a lot of questions and not many answers," observed

one donor.

The World Bank's representative reportedly told RCG officials that they found a government

decision to grant tax exemptions to eight timber export companies, "an incredible

decision".

The bank also called on the RCG to lift it's royalty rate on logs from $15 a cubic

meter to $75, which they said would allow the RCG to build it's own schools and roads,

rather than relying on logging companies.

"This was an opportunity to signal our concerns over the collection of revenue

from forests...what we want to know about is the transparency of the process,"

said Japanese Ambassador Shohei Naito.

US Ambassador Quinn and other donors were reportedly dogged but disappointed in their

determination to wrest answers from Agriculture Minister Tao Seng Huor on a 78 percent

shortfall in expected logging revenue for 1997.

"Was the [late 1996] export of 120,000 cubic meters of timber to Thailand legal

or illegal," Quinn reportedly asked twice.

Chhon was reportedly forced to bail out a floundering Huor, saying "we cannot

give you an answer on that" but admitting the government had possibly lost close

to $4.8 million in revenue on the export deals.

"Forestry is like drug dealing...on both sides of the border people have connections,"

Chhon quipped at one point, later indicating he believed the military and PMs lacked

the political will to stop illegal logging.

The government's report on progress towards elections was one positive aspect of

the meeting, UNDP representative Paul Mathews said.

But he said donors were waiting until key laws and an elections arbitrating body

were in place before reaching too deep into their pockets to fund a $43 million election

budget, presented by the RCG.

Interior Ministry State Secretary, Im Chhun Lim, told donors commune elections would

be held in April/May and national ones in November 1998.

He said national election and party laws would be passed to the Council of Ministers

for debate by June/July and presented to the National Assembly "at its next

sitting".

"If the National Assembly cannot meet to pass electoral laws on time, the co-Ministers

of Interior will propose that the two prime ministers [go ahead] and set an October

1997 date to begin voter registration," Chhun Lim said.

"Donors are interested to support voter registration as an initial step but

for the bigger money it is understood the donors will require assurances that elections

will be free and fair," Mathews said.

"Then there will be a tougher exchange on concrete electoral preparations,"

said the UNDP representative.

Donor countries are reportedly not all unified on how hard to push the RCG for assurances

on free media access and anti-violence measures in the lead up to the elections,

many emphasizing Cambodia's responsibility for managing the polls.

Donors told RCG officials though, the government would be expected to shoulder a

substantial part of the election bill, a matter on which government representatives

reportedly gave no clear response.

Despite the tough talk, donors held back from threatening aid conditionality, a move

pushed for by opposition leader Sam Rainsy.

"IMF and World Bank are the big players and their concerns are likley to remain

social and economic, not political," one donor representative said.