T HE Asian Development Bank board, finishing a week long trip to check up on its
planned $275 million in loans to Cambodia, says the tattered economy is only
being propped up by massive infusions of foreign aid.
The board members
expressed concern about Cambodia's pace of privatization, its ability to attract
direct foreign investment and its inability to absorb all of the aid being
offered.
"I think it's got a tough slog ahead," said Julian Payne, the
executive director of the ADB for Canada and parts of northern Europe, and the
deputy head of the group visit.
Payne said two key questions are whether
Cambodia will be able to attract foreign investment and whether the government
can raise enough revenues to cover even its small level of
expenditures.
"What's really clear is that even with all this donor
activity there's not going to be enough aid funds to cover all the needs," said
Payne.
"Somehow you've got to generate some economic
activity."
Linda Tsao Yang, the U.S. Ambassador to the ADB, said that the
government officials who met with the board all emphasized the need for direct
foreign investment "to move this country off dead center and start progressing
with jobs."
"But foreign investment will only come in a meaningful way
when they [the potential investors] know what the rules of the game are, that
the rules are clear and predictable. Without this kind of basic legal framework
[then] direct foreign investment, if it comes at all, will end up being very
limited," Yang said.
Despite the concern, the board members interviewed
said that they could see signs of economic progress, and no one raised any
reason why the ADB wouldn't continue with its plans to double its loans to
Cambodia in the next two years.
ADB is Cambodia's biggest lender, with
$120 million in loans outstanding and another $150 million or so in loans in the
pipeline for 1996 and 1997.
The loans are offered on ADB's most lenient
terms - over 40 years at one percent interest, with no payments required for the
first ten years.
The funds cover infrastructure rebuilding and basic
needs, such as education, irrigation and electricity. The bank has laid out
plans in the next two years for rural infrastructure improvement loans for
roads, markets, water supply, airport improvements, as well as urban water
supply and sanitation.
In a rushed schedule that saw them traveling to
Siem Reap, Sihanoukville and Kompong Cham, the seven members of the board, who
represent all the major foreign donor countries to Cambodia, visited a railway
project, the port of Sihanoukville, road and irrigation projects, the airport at
Siem Reap, Tuol Sleng prison, and an agricultural school in Kompong Cham. They
met with the Ministers of Finance, Planning, Education, Public Works, Rural
Development, Commerce, the two prime ministers, and some NGO
officials.
Finance Minister Keat Chhon told the board the economy is
expected to grow seven percent this year, inflation is expected to be in single
digits, and the government is doing its best to increase its revenues, both
through tax collection and encouragement of foreign investment.
He asked
the board to set up a local representative office in Phnom Penh, and to consider
lowering from twenty to 10 percent the down payment requirement so that Cambodia
can get its ADB loans.
Yang said the down payment requirement is a
critical component of the loans because it showed Cambodia's own commitment to
the projects.
She said the establishment of a full-time office in Phnom
Penh was an understandable request, but the ADB was very tightfisted about such
administrative spending.
Yang said one thing she would bring up at the
ADB board's next meeting was how to improve donor coordination.
She said
although $2 billion in aid had been pledged to Cambodia, only a third of that
has been disbursed, partly because of the government's inability to absorb so
many projects at once and partly because of the large number of donors and NGOs
involved.
"Cambodia is a small country with limited resources, and when
you have to deal with one donor after another it creates quite a strain on a
small ministry," she said.
The board found some examples of overlap in
aid projects, particularly in the power sector, where the Irish, French and
Japanese as well as the World Bank, ADB and others were involved.
"It's
inevitable you're going to have some overlap," said Payne. He said he expected
the overlap to "correct itself," but he also said there needed to be better
coordination among donors and NGOs.
Continuing security and crime
problems were hurting Cambodia's image, said Payne.
"The problems of
violence are much less than in the past. But cars get robbed, hijackings, theft,
that sort of thing. None of this encourages investment.
"I think we're
pretty impressed with the government's basic economic policies, its fiscal
policies, its monetary policies and its controls," said Payne.
"This
country is in a really difficult position, even among developing countries. Our
impression is it's really trying to exert some discipline on its expenditure
side, and on its fiscal and monetary policy side. The real challenge is whether
it's going to be able to mobilize the revenues necessary to cover even its
tightened down expenditure."
The pace of privatization was another area
of concern, said Yang.
She criticized the plan to restructure Electricité
du Cambodge, the state-run electric company, by setting up a way to eventually
seek private investors for electricity generation, while leaving the
distribution network in the hands of the government.
"It's not
ideological. It's a matter of reality. Once it is a state owned enterprise, it
will be very difficult to privatize because you will have created a strong
vested interest," she said. "I would find it difficult to tell the taxpayers
back in the United States that we are funneling funds at no interest to a
country where part of the money is going to establish a state-dominated economy,
creating state owned enterprises," she said.
She said that Cambodia had
the opportunity now to create the beginnings of a capital market with its
restructuring of the electric company. "Although investors aren't likely to be
forthcoming right away, once the utility builds a track record of profitability,
there's no reason why its shares couldn't be sold to investors, in particular to
Cambodians who have savings to invest."
Peter McCawley, executive
director of the ADB for Cambodia, said that the purpose of the trip was for the
group to form impressions to take back to their donor countries.
He said
the ADB, whose headquarters are in Manila, keeps a close eye on its projects in
Cambodia, and had at any given time up to ten consultants working
here.
Although the ADB does not get involved in human rights issues, it
had a notion of what it called "good governance," said McCawley. Although the
bank's loans don't necessarily hinge on such issues, it does make its opinion
known about serious human rights issues.
"Any sign of retrogression is
of concern," said Yang. "When you look around the world, when there's more
participation by the people in the governing process, economic development does
get around faster. That means more stability and more prosperity.
