CAMBODIA is heading toward a collision with international bankers over, among other
things, present and future demands to sack 135,000 or more soldiers, police and civil
The International Monetary Fund (IMF) is continuing to withhold a $20 million loan
installment for "budgetary support" which is already five months overdue.
The installment was originally frozen because timber revenues were not being paid
into the State budget.
Now, the IMF is testing whether Phnom Penh has the political will to reduce its number
of State servants.
Donors and sources within the Royal Government say that political will does not exist.
For both Prime Ministers, culling loyal party members from the army, police and civil
service would mean an erosion of influence and power, which a floundering Funcinpec
particularly cannot afford just 18 months out from an election. Cambodian sources
also say that Hun Sen views IMF and World Bank conditions as examples of "Western
"[Ministerial advisers] care about [what the IMF and World Bank want], but they
can't do anything about it," said one senior Cambodian official.
The IMF recently discovered that the number of Cambodian civil servants was even
higher than the 138,000 that the Government said it had - and this after nearly 7,000
"ghost" workers had been chased away in an internal audit. The figure has
now ballooned out to more than 163,000, following further Funcinpec and BLDP appointments
within various ministries. NGOs report that this has been noticeable both in Phnom
Penh and in the provinces.
One of the IMF/World Bank "rules" of good financial governance calls for
the number of civil servants to be pegged at between 0.5 per cent to 0.75 per cent
of the total population. That means the pressure is on the Government to shed 50,000
to 70,000 jobs.
Though Council of Ministers chief Sok An is working with the UNDP and the World Bank
on this, sources say that Ranariddh and Hun Sen have scrapped a promise to cut one
in ten public service jobs this year, and the same again in 1997.
"[The Prime Ministers] are not prepared to lose any of these jobs. There are
elections coming up and these jobs are party properties. This is one of the problems
with factional politics," said one analyst.
The IMF had already let Cambodia "off the hook" for the time being on reducing
its military - this too being Sok An's responsibility - "but instead said they
would talk about it later," one source said.
This demobilization will eventually see another 50,000 people or more laid off. Relevant
NGOs are pleased at the delay, saying they would have been expected to deal with
the social implications of so many redundant soldiers, and only then as an afterthought.
One NGO chief complained that neither the IMF nor the World Bank bother themselves
with the social problems of such mass layoffs, while the Royal Government cannot
afford to help those affected.
The IMF and World Bank have also insisted that police numbers be cut, from 70,000
to around 55,000. "This is also politically unacceptable," said one Cambodian
official, adding that the Prime Ministers are neither willing nor able to agree on
such a measure.
The official also noted that there were now about 10,000 military police, effectively
another private force under commander Kieng Savuth and aligned to the CPP. "This
was supposed to have been built up from surplus police and army personnel,"
he said. "In reality, it has been staffed with entirely new people."
Ministry of Finance State Secretary Sun Chanthol said the delay in the IMF payment
was a minor one, a matter of "filling in numbers to do with civil servants that
[the Government] did not have.
Chanthol said the Government and an IMF auditing team that recently visited had reached
agreement "on everything except for these few numbers".
He said when the statistics were ready they would be sent to Washington D.C. and
the IMF board there would likely approve the disputed payment. "It is nothing
like the IMF pulling out of Cambodia, as some newspapers have reported."
Chanthol said that to his knowledge the IMF was not now worried about logging. "As
long as we are to fulfill [promises of transparency and accountability of logging
revenues], there is no problem."
However, the Ministry of Finance is now striking the 1997 budget and the estimate
of logging revenues is again providing a big headache. "We know there are millions
of dollars worth of logging going on, but the projected income [for 1996] was only
about six billion riel ($2.4 million) - and we haven't even seen much of that,"
said one ministry official.
The IMF has also insisted that the CDC, Cambodia's investment agency, must pass internal
regulations to manage the Investment Law.
One source said: "There are many criteria that Cambodia has to look at with
investments - how technical the investment is, how many people a company will employ,
how much tax it should pay, how it will affect exports. Without internal rules and
regulations, the CDC can approve what they want and give tax emptions to whom they
"Even with an Investment Law, CDC could be open to charges of approving investment
deals on political, financial or family favors. On one hand, the IMF tells the Government
to lower State spending and increase domestic revenue, on the other hand there is
a government agency [the CDC] giving away tax exemptions on a whim," he said.
Chanthol said however that CDC's new internal regulations were now with the Council
of Ministers awaiting approval.
"This is mainly to make sure the granting of [tax and other] incentives is more
transparent," he said.
Investments would in future be "ranked" on a number of criteria, for instance
on how many local people would be hired, so that the highly-ranked investors would
be given priority for approval and for tax and other incentives, he said.
"There won't be anything like 'Oh he's a nice guy, we'll give him an eight-year
tax holiday'," Chanthol said. He said it had taken a long time for the CDC "to
really see the potential issues and problems... facing us now."
The IMF team left Phnom Penh last month "having reached a broad agreement on
a policy package," team leader Michael Kuhn said. "The key is having it
all implemented and we'll see over the next few months whether the Government follows
through with its intentions."
Cambodia only has about ten to twelve weeks worth of foreign currency left in the
Central Bank to pay for its imports. One international banker said that although
it was a long way before Cambodia could be said to be in crisis, the situation was
"dangerous", especially because of the message the IMF was sending to other
financiers and donors.
Presently, Japanese budgetary support money was shoring up Cambodia's foreign reserves.
That would not last, sources said, because Japan - like the World Bank - is going
to peg its aid toward individual development projects from next year.
Sources added that the IMF is a sister organization to the World Bank. "If the
IMF continues having these sorts of problems, the World Bank will have to look toward
its program as well. If the IMF were ever to pull out, the World Bank would have
to go as well."
Highly placed sources within the World Bank say that there has been an historical
tendency for the Bank and the IMF to place too many conditions on borrowing governments.
In a situation like Cambodia's, the IMF is in danger of "painting itself into
a corner", eventually having to realize that it cannot insist on 135,000 jobs
being cut as fast as it wants.
"[The Cambodians] can look you straight in the eye and say 'yes, we'll cut those
jobs'. It just won't be on the same timetable as what the IMF thinks," said
one Bank official.
It was unlikely that the IMF or the Bank would pull out of Cambodia, especially as
aid donors have said they will not walk away from the one of the poorest populations
in the world, he said.
"There is a lot of articulate argument coming from Asian countries now that
they will follow their own brand of development, which is different from that of
the West and that has been proved to work."