THE International Monetary Fund's priorities for Cambodia during the rest of the
year include an expansion of the 10 per cent value-added tax to 2,000
businesses, as well as seeing some progress in the programs to restructure the
civil service and demobilize the military, says the IMF's resident
representative, Mario De Zamaroczy.
Another long awaited project targeted
for completion by the year's end is the creation of a Cambodia "poverty
reduction strategy", he said.
De Zamaroczy, speaking to the Post
following a September review by the IMF mission of Cambodia's three-year, $81
million loan program, said macro-economic and monetary policy indicators such as
inflation and the exchange rate are stable and not of any immediate concern in
De Zamaroczy said inflation was projected this year to be very
low, at about 1.5 percent annually, and the exchange rate has been stable at
3800 to 3900 riel per US dollar for 18 months.
He said current flooding
in the provinces and high oil prices could lead to higher inflation by the end
of the year, but the effect has not yet been calculated. Food prices, which have
been declining recently, could rise depending on the impact of flooding on the
rice harvest. But he said even so, inflation will not be high.
policy is conservative and fiscal policy is conservative. But it's not yet clear
what the effects of the two external events will be," said De
Inflation was reported at zero during the fourth quarter of
1999 and has been at zero in the past few months, but it is acknowledged that
the current index is slightly out of touch with reality because it is
over-weighted on food and under-weighted on petroleum products. A new index is
Following the September 15 review, the IMF released a
six-month disbursement of $10 million to Cambodia. The IMF mission will return
De Zamaroczy said one of the major components of the IMF
program for Cambodia now is fiscal reform and Government spending
Specifically, the IMF's target is for Government revenues to be
raised from 9 percent of gross domestic product in 1998 to 13 percent of gross
domestic product over three years.
There has been progress. Revenues grew
to 11.5 percent in 1999 with the introduction of the value-added tax, the 10
percent tax initially imposed on 1,000 of Cambodia's biggest
In 1999 Cambodia's GDP was $3 billion. According to the
Government, economic growth was 5 percent that year.
The VAT is now being
expanded to 2,000 businesses. Hotels, major restaurants and other big businesses
such as airlines are supposed to pay it.
Regarding the banking system, De
Zamaroczy said three small banks have closed in the wake of a new banking law
requiring them to submit new applications for bank licenses.
The rest of
the banks are being reviewed by the National Bank of Cambodia to determine
whether they meet new capital requirements and other criteria for relicensing.
The National Bank is supposed to make decisions by the end of November on
whether banks should be closed or possibly merged.
De Zamaroczy said
another of the top IMF priorities - demobilization of the military - threatens
to be delayed by administrative problems in receiving donor funding to pay for a
pilot program in June and July that sought to reintegrate 1,500 soldiers into
"This is a major concern to us and to the donor community
because it was agreed with the Government based on the pilot that the full
demobilization exercise would start in November," he said.
The plan calls
for demobilization of 10,000 soldiers a year for three years to reduce the
Government's armed forces to less than 100,000.
"Because of delays in
disbursement of the pilot, authorities are hesitant," he said. "We are getting
very close to November."
Also on the spending side, the IMF wants to see
the Government reduce spending on civil service. A three-step program is under
way. The first step is a census by fingerprinting and photographing all of
Cambodia's 154,000 civil servants. After that the Government is supposed to
analyze the staff requirements of the various ministries, and finally, make
recommendations for cutting the workforce and adjusting
Forestry management remains a big issue, but the IMF official
said widespread illegal logging has been halted. He said the IMF is looking
towards a new forestry law that would protect Cambodia's timber resources and
spell out a program for timber sales.
Finally, he said, the Government is
continuing to draft a poverty reduction strategy paper. He said the strategy is
to be submitted soon to the Council of Ministers and then to Washington to the
World Bank and IMF for review by the end of the year.