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Logo of Phnom Penh Post newspaper Phnom Penh Post - Econ reform creeps ahead

Econ reform creeps ahead

Tracking down details on the government's efforts to reform the economy is like looking

for a needle in a haystack. Ministers decline to comment, bureaucrats say "Please

go see someone else", phone calls to responsible officials are not returned

and, generally, no one in the executive branch wants to discuss the subject - especially

on the record.

Given the reticence to talk, what's surprising is that some progress is in the works.

While the pace of change and policy implementation is much slower than that anticipated

in the Royal Government's Memorandum of Economic and Financial Policies (MEFP) for

1997 (see full text, Pg 14-16) the wheels on several key fronts seem to be turning.

And turn they must, otherwise the International Monetary Fund (IMF) will balk at

making additional disbursements in its three-year loan program for Cambodia under

the enhanced structural adjustment facility (ESAF).

The IMF initially agreed to a three-year, $120 million soft loan package for the

Kingdom with the funds designed to support balance of payments defecits. The first

three installments totalling roughly $60 million were released in stages up to September

1995. However, during 1996, with increasing problems stemming from the government's

inability to collect revenue from logging, the fourth disbursement of $20 million

was withheld.

Two more loan installments of $20 million each remain available, but their disbursement

is contingent on the govenment's ability to implement its committments outlined in

the MEFP.

Of critical importance are the items referred to as "Prior Actions", steps

the government must take before the IMF will even consider releasing the next loan

payment.

Two of the five Prior Actions involve the logging industry with the government committed

to seizing illegal logs, transferring forestry proceeds to the national budget and

contracting an international firm to assist with monitoring and control of all logging

activities.

While the Minister Tao Seng Hour was unavailable for comment, government officials

say that progress is being made on meeting these obligations. Backed by a force of

around 1900 soldiers, the Department of Forestry has been clamping down on illegal

logging activities nationwide, they say.

Reports from Stung Treng and Kratie have been received on successes to date which

indicate that 3 barges, 11 chainsaws, 37 trucks, and 5 tractors have been seized,

as well as 212 cubic meters of cut logs and 1886 cubic meters of uncut timber. Moreover

28 illegal sawmills have been destroyed and 75 others closed.

On the revenue front, officials say that 131 million riels and $9,775 has been collected

in fines which will be remitted to the Ministry of Finance. They add that reports

from other provinces with concrete proof documenting the Department's determination

to put a stop to illegal logging will be forthcoming in the near future.

As far as securing the services of an international company to assist with monitoring

the logging industry, officials say that seven firms have submitted applications

for the contract and the process for selecting one is underway with a final choice

to be made soon.

The government has also identified specific checkpoints where forest products may

be legally exported, naming Phnom Penh and Sihanoukville, in a Royal Government Decision

announced April 29.

But critics argue that the decision on checkpoints includes a loophole big enough

to drive a truck through it, perhaps even one with logs on top.

Item 3 of the Article on Border Crossing Points says "Other crossing points

are allowable when there is a decision of the Royal Government of Cambodia."

"This is a huge loophole," said one forestry official, although he argued

that the Forestry Department would tighten it by insisting that all requests for

additional checkpoints by the Council of Ministers be required to pass through the

department first, thus insuring full accountability for any logging revenues.

Another key Prior Action is the approval of the implementing regulations for the

Law on Investment. Sources say that since the MEFP was finalized on March 6 the debate

on the 30 pages of sub-decrees has "been put on the fast track" at the

Council of Ministers due to the related IMF conditionality on loan disbursements.

"It is on track," said one senior official, "but the end-May deadline

is overly optimistic." He added that five meetings have taken place so far on

the Investment Law sub-decrees, both Funcinpec and CPP officials have been attending,

and, at the working level, politics has not been effecting the discussion process.

More broadly, the Investment Law sub-decrees are needed to provide some level of

confidence to foreign investors that the "rules of the game" are the same

for everyone.

"There is a complete state of uncertainty," said one foreign investment

expert. "Tax exemptions are given but they have no basis in law and they seem

to be made on an ad hoc basis." He referred to a meeting of garment factory

owners where fifteen executives were sitting in a room and no one could agree on

what the exact tax structure was.

The issue of tax exemptions is likely to be critical to any IMF in-house debate on

future loans, especially since the MEFP says "No ad hoc exemptions to be granted

at any time during the program period."

The government's recent decision to grant export exemptions to two logging companies

left Finance Minister Keat Chhon "furious" according to one source, especially

since the entire thrust of the MEFP is to maintain revenues to meet budgetary requirements.

"Its only a matter of political will," said one investment analyst, referring

to whether or not the government could meet the MEFP criteria. In the next few months

that will is likely to be severly tested with $40 million in some of the softest

money the world has to offer hanging in the balance.

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