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Keat Chhon: growth and reforms

Keat Chhon: growth and reforms

In what observers say has been some impressive performances, Finance Minister Keat

Chhon has been cajoling his colleagues in government to be more disciplined in their

work. He spoke recently to Huw Watkin.

Post: What do you think is the most pressing single issue facing Cambodia as it

moves into the 21st Century?

The alleviation of poverty... I'll give you some figures off the top of my head.

Twenty per cent of Cambodians own 52 percent of the nation's wealth - at the lower

level twenty percent own less than ten percent of the nation's wealth.

In the city an average family needs $110 a month for their basic needs. On average

they earn $150 in the city. In the country side a family needs $75 a month, while

the average family earns less than $60. But according to our statistics, every household

spends $90. So where does the money come from? Most comes from the sale of land and,

if they invest, that is no problem. But they go for leisure activities, so most do

not save. They will become new poor.

If they don't sell their land they get money from illegal logging, for firewood and

timber. So they contribute to the destruction of the country's national resources

- poverty leads to the destruction of the environment.

Post: And so what is the strategy for alleviating poverty?

Economic growth driven by investors. We are giving a big role to the private sector

because the private sector is the engine of growth. But the state remains the manager

and strategist for economic growth.

Post: Speaking of the state and its role as economic manager, regulator, recently

you called for more fiscal discipline...

We are now undertaking a big reform in public finance. To go back to our strategy,

we will do it just like other countries. Transparency and the rule of law is the

secret. There should be no such thing as [arbitrary] tax exemptions. You have to

follow a procedure for public procurement. Revenue must be spent as it is planned

to be spent and not on other things.

Revenue can not be spent except within the law. We must increase revenues - at the

moment we are losing $100 million a year because of smuggling in timber, rubber and

fish. This is my message.

Post: A message which falls on deaf ears?

Sometimes the message falls on deaf ears. But I always cite article 103 [of the

Constitution which states: Members of the Royal Government shall not use the orders,

written or verbal, of anyone as grounds to exonerate themselves from their responsibility.]

I am the Minister for Finance and so if we do not collect revenues it is my fault.

I cannot blame the Prime Ministers or the army, I must be responsible.

We already have seen some changes in behavior and this year I will introduce legislation

to establish a National Auditing Office so that even the Minister of Economy and

Finance will be audited. We will also create some sort of court of fiscal discipline.

And we will introduce into our tax act measures to fight corruption and strengthen

our ability to gather revenue from forestry, rubber and fisheries...

The tax law [passed by the National Assembly on Jan 8] has 30 articles [aimed at

beating corruption and increasing tax revenues]. Tax evaders can be jailed for up

to 5 years, people who prevent the collection of taxes can be punished by one year

in jail. If tax collectors are corrupt, they can be jailed for three years.

Post: What is it exactly that makes it so difficult to collect revenue?

In broad terms there is not yet a tax culture here. For example, compulsory third-party

insurance for car drivers. Some would see this as a new tax for the government, but....we

suggest that it is in the interests of the car owner. But people just see it as a

tax. So I face difficulty in trying to show the importance of collecting revenue.

Second, in Cambodia there has been a department for tax collection, but the system

is not too firm. Our tax legislation will reinforce the role of our administration

- tax collectors will be more efficient and more responsible. If they are corrupt

they will be punished and if they are efficient they will be given bonuses.

Third, it is our point of view on tax - though this is yet to be accepted by the

department - we will be placing new taxes on luxury motor vehicles, international

telecommunications and international air travel.

Post: But we already know the state could be better off without additional

taxes. We know that there is collectable revenue - and lots of it - which is not

going to the treasury.

Well, we are trying to solve it. We discussed this just the other day with donors.

We have to put other measures in place. When the IMF held back its $20 million, I

think this is good, good for Cambodia. We have to realize we have to make exports,

we have to work hard, the money does not come from the sky. If we can make more money

for Cambodia then there will be more money from outside.

Post: Given that, you must have been disappointed with the decision of SGS

forestry not to become involved with the monitoring of logging.

I aired my frustration before the donors, but we have to find another solution.

We have to analyze why they made this decision.

Post: So why did they take this decision?

It is better not to air this in your paper yet. But we have to find another solution.

I apologize but I can not tell you now. I hope there will be action to collect the

revenue [from logs already exported to Thailand].

Post: What about Thailand, is the Royal Government getting good cooperation

from its neighbor?

We are speaking about Cambodian affairs. The question of the management of forestry

resources is a question for the government of Cambodia. Thailand might help, but

we are responsible for the management of Cambodia's forest, myself and my colleagues.

Our army should be responsible for enforcing the directives of government and the

law. We [should be] the first to be blamed if things are not right.

Post: You mention the army. There is much evidence to suggest they are doing

exactly the opposite of enforcing the directives of government, particularly on the

issue of logging?

The Royal Armed Forces of Cambodia should not allow people to dress in its uniform

and do bad things in forestry. The men who wear this uniform should serve the government.

If the army lets bad men wear the uniform and lets them use government guns to do

wrong things, it is dishonoring itself.

Post: You recently met with the donor's consultative group. What was their

attitude to Cambodia's recent efforts at fiscal reform?

The overall impression that I got is that they were satisfied with the socio-economic

development in Cambodia...but they want concrete acts. They are waiting for our electoral

law and our political party law. In terms of collecting revenue they want us to make

more effort, not just on paper. Not only lip service, sir. Please act! Donors told

me, please act.

If there is no sign of action in administrative reform, only paper - I will do this,

I will do that - the donors will not be happy.

Post: But it's not that easy, is it? Is it not true that here in Cambodia there

are many people who put the interests of the party before the interests of the state?

As far as the Ministry of Finance is concerned, we are not running this Ministry

as a party organization. This ministry is not the headquarters of any party. This

[politics] is not really a problem because people from different parties can agree

among themselves to share revenue [through corruption]. The problem is one of mentality

- the people of this country spend above their means, they spend more than they earn.

You see this all around.

The other thing is that we have to work hard - my overall assessment is that Cambodians

are not working very hard, so our productivity is low. So how can we compete with

Asean countries when we are in the Asean Free Trade Area (AFTA)? Our productivity

is about half [of what it should be] so this is a problem of mentality, discipline

and hard work.

This does not mean we should not have the liberty of expression, lack of democracy

- discipline means we have to plan together in the framework of the law. But in any

case we have to work hard.

Here there is a mentality that money will come from the sky... we should educate

that there is no free lunch, no free money. Everything has its own price. This is

the market economy.

Post: So you still think there is a command economy culture...?

In terms of reforms we are well advanced, in terms of remaking a command economy...

our mentality lags behind these reforms but we cannot change overnight. We have a

large population which comes from the border and who have been living on handouts

for more than a decade - I think this has to be taken into account.

Post: You talk about the free market, but do you agree the free market needs

some regulation?

Sure, sure... Cambodia has to build a state where the rule of law reigns and we

are introducing more laws to the National Assembly to which people will have to abide.

Post: But you need a professional public sector so those laws can be implemented.

How is reform of the public sector progressing?

I'm not very happy with the little progress we have made. I initiated, in 1995,

a head count which saw some success in eliminating ghost public servants. But that

progress is like ice in the sun - no more momentum.

The problem is very simple for the first step, we have to rely on a systematic study

of the problem. But the first thing to do is to eliminate from the army and civil

servants... at the moment we have 153, 000 public servants.

The target we set in 1994 was to reduce 143,000 public servants by ten percent. New

hiring of teachers has happened, integration of former warring factions has happened.

Post: As Minister though, why can you not just say stop, enough, implement

these reforms?

Well, as minister this is my responsibility. I want to freeze all government recruiting

except for teachers and health workers. The first step is to eliminate the ghosts.

Post: ...What about the National Assembly: are you happy with its progress

toward being an independent institution?

We have made a lot of progress, there has been some hot debate but I would like

to see more policy debate for the sake of the nation.

It is better to debate than shoot each other. I am pleased with the way things have

progressed but there is still room for improvements. Some members of the National

Assembly work very hard - last year members of the National Assembly were against

income tax, now they agree.


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