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Interim Coalition Faces Cash Crunch

Interim Coalition Faces Cash Crunch

The joint interim administration that will guide Cambodia over the next three months is facing a severe cash crisis because of its inability to replenish state coffers drained by the Cambodian People's Party election campaign and corrupt officials.

Chheang Vun, the Cambodian People's Party's deputy-minister of finance, said one of the reasons was the failure of tax and custom authorities to enforce regulations on tariffs in the run-up to the election.

"More than confused, the system of tax collection is weak and inconvenient for people to do business" Chheang Vun said.

"The control and management of the tax system is zero," he added.

The deputy minister said the administration has been operating at a loss of U.S.
$10 million per month, threatening both the interim administration and a new government which will be established by the national assembly in three months.

According to Vun, last year's state expenditures totalled 243,8983 million riel while revenues amounted to only 119,327 million, leaving a deficit of 124,556 million riel.

Vun said demand for imported goods has fallen recently affecting the administration's ability to collect tax revenues. He said businessmen were also increasingly evading
tax.

An UNTAC report on the economy released in June noted that the fall in revenues can be attributed to a relaxation in the overall control of import procedures in the run up to the election. In the pre-election period, the controlling authorities in customs appear to have been reluctant to enforce regulations on tariffs.

There was less pressure to check up on declared values and to gather taxes.

A representative of one international company complained about lawlessness and the
high duties being charged by the government tax agents.

"No regulations treat us the same way. Some companies can even negotiate to
pay lower taxes," he said.

The agent, who declined to be identified, agreed that import-export activities have
declined. He went on to comment that investors would not risk putting more money under the present circumstances, unless a favorable business climate can be ensured by political stability and investment and tax laws.

"Last week they [politicians] agreed, but they may also disagree next week," he said.

"We have no reason to rush. We take it a little bit easy, a cautious approach, step by step, because we have to learn more while there are no fixed procedures for us to follow," he said.

Chheang Vun did not dismiss the possibility that money gathered by tax officers is being illegally traded against foreign currencies or gold at the markets before it is transferred to the state treasury for paying wages for government employees. Vun was unable to confirm when asked if he was familiar with such a practice, but said
"the gap in the law may allow individuals who are already dishonest to carry out the practice."

"In order to work in the custom and tax departments one just needs to spend some money.

But, he/she will collect it back after assuming a certain job. And that's the way the government suffers," he said.

Since the dramatic currency crisis in mid-March, prices on consumer goods and food items in the local market remain high even though the riel increased by more than 50 percent in value in the wake of the formation of the interim administration.

Merchants interviewed by the Post struggled to explain the rapid fluctuation of the exchange rate, but said it seemed to be responding to unclear developments within the political circle.

Chheang Vun was strongly critical of the tax collection system and suggested that only a significant reform of laws and responsible personalities would change the situation and help to encourage businessmen to expand their capital.

"We've been running after the development of the situation without having a chance to take things under control," he said.

His criticism was directed also against some businessmen who he claimed have been manipulating the economy for personal gain.

"There is a certain group of 'two or three persons' which operates the Cambodian
economy. It is a bad economy. They are cheating the government," Chheang Vun said without naming the alleged offenders.

"And it is the people who suffer while they [the businessmen] are making profit over the government all the time," he said, adding that "a new government must deal with that.".

He predicted that the cash crunch could be solved within two years, depending on efforts to reform the tax system and the inflow of foreign funds.

Diplomats from the five members of the UN Security Council-United States, Britain,
France, Russia and China-along with other donor countries held a meeting in Phnom Penh recently to discuss aid package.

It was reported that they reached an agreement to raise U.S. $30 million to pay salaries to civil servants, police and soldiers in a period leading up to the drafting of a new constitution and formation of a permanent government before the departure of
UNTAC.

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