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Logo of Phnom Penh Post newspaper Phnom Penh Post - World Bank defends role in demob process

World Bank defends role in demob process

I am writing to respond to the opinion article, "Cambodia, the World Bank and

Demobilization" which ran in the March 11 edition of the Phnom Penh Post.

Specifically, I would like to clarify a few facts regarding the World Bank's

program in Cambodia and the Demobilization project.

First of all, anyone

who works in Cambodia knows it is a difficult, challenging environment as it

moves away from a post-conflict situation and towards a more normal development

paradigm. Governance problems - such as corruption, the use of official position

for patronage, impunity for abuses of office - constitute the primary obstacle

to private investment and sustainable poverty reduction in Cambodia and have

prevented the strong economic growth of recent years from having much impact on

poverty.

Recognizing this, the World Bank has cut its funding to the

country - from US$70 million to US$45 million a year - in response to the lack

of progress on key governance reforms and we have made governance and

anti-corruption central to our new plan to assist Cambodia in the coming years

(our new Country Assistance Strategy). We have also increased our partnership

with other development partners to help the Government make good on its promises

at the recent consultative group meeting to improve governance and fight

corruption and to meet the agreed set of joint monitoring indicators to improve

the rule of law, transparency and disclosure. We are working on assisting the

government improve the management of funds and services, including budget

improvements, better transparency in the use of public funds, better delivery of

services, and enabling citizens to hold their government accountable for results

- and on helping Cambodia eliminate obstacles to growth and improve the

investment climate, including reducing or eliminating costly regulations,

payments, and bribes.

In such an environment, ensuring that aid gets

delivered effectively and benefits the people intended to receive it, is a major

challenge. The World Bank relies upon, among other things, supervision missions

by Bank staff, ongoing fiduciary and accounting reviews, audits, and in some

cases, complaints from members of the public. It was responding to such a

complaint that led to the initiation of an in-depth investigation, in January

2003, of fraud within the Demobilization Project (approved July 2002). The

project, as Ms. Richardson notes, was aimed at reducing defense spending through

the demobilization of soldiers, and transferring those savings to social

services - this was a priority for the Bank, the Government, and civil society -

as well as a number of donor partners, who co-financed the project. During the

first phase of the project, 15,000 soldiers, most of whom were old, sick or

disabled, were returned to civilian life and received packages of goods, almost

all of which were funded from sources other than the World Bank. No money was

released from the Bank's credit until after July 2002, when financial management

systems had been established to manage the funds. The procurement process and

award of contracts for the packages to be financed out of the credit was

undertaken after this and contracts awarded during October 2002

The

project did run into difficulties - Ms. Richardson would know this; as a World

Bank consultant, she was instrumental in helping to set in place the monitoring

and participatory systems that were to be used to improve the use of funds.

Within months of the IDA credit becoming effective, several

irregularities were identified including an inflated military payroll, payments

made by soldiers to get onto the list for demobilization, and in November 2002,

problems in the procurement of a contract for $6.9 million for the supply of

motorbikes. The issue of the military payroll was acknowledged by both the Bank

and the Government, but given the Government's position that it was outside the

Bank's mandate, no further discussions to resolve the issue were possible. In

addressing the issue of payments for inclusion on demobilization list, the Bank

and the Government agreed on a framework for intensive monitoring and

evaluation, for the second phase of the program, with the inclusion of civil

society in the process; the design of a grievance mechanism was also agreed.

This was never implemented due to the postponement of the project.

The

procurement of the contract for the supply of motorbikes was referred to the

Bank's investigations unit, INT, who began an investigation in January 2003. In

June of the same year the Bank declared misprocurement on the contract for the

supply of motorcycles, having found that they had been provided with false and

misleading information in order to influence their decision to provide no

objection to the award of contract. Declaration of mis-procurement is an

administrative procedure, and therefore further investigations were initiated to

investigate the responsibility of the suppliers and government's consultants.

This process took time. While it may appear to observers such as Ms.

Richardson that the Bank was painfully slow to move, or that its perceived

slowness is caused by "complicity" among staff, in fact, the Bank must ensure

that the integrity of the process is protected. All attention is given to

ensuring a fair and balanced investigation in which integrity is assured. All

parties are provided with protection from false accusations, given time to

prepare their arguments, and access to an appeals process. While it is time

consuming, once due process has been carried out, and the sanctions have been

accepted by all parties, the Bank can be confident of the findings. In November

2004, the World Bank's Sanctions Committee issued debarment notices to firms and

individuals allegedly involved in fraudulent practices under the project,

following the Bank's investigation.

Regarding the inability of resolving

this issue during the period of the interim government - as we explained to

journalists, civil society and other members of the inquiring public, during

this period, the interim government was legally entitled to deal with normal

operations of the government such as the on-going projects portfolio but was not

legally able to make decisions on new investments nor exceptional matters - such

as the Demobilization case. As soon the new government with legal authority was

in place the Demobilization issues were taken up once again and efforts made on

both sides to bring them to resolution. The Government has since repaid the

US$2.8 million, and the project closed on December 31, 2004; the auditors

selected in 2002 are currently undertaking the audits and we are confident that

all remaining issues will be resolved within the next weeks as agreed.

Mr Ian C. Porter is World Bank Cambodia Country Director

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