THE long stalled $15 million tranche of Cambodia's structural adjustment credit (SAC)

is set to be released after the government, the private sector, the International

Monetary Fund (IMF) and the World Bank reached agreement on an investment law January

15.

Passage of a new investment law was a condition for the release of the SAC, but the

law was mired in controversy for a year. The conflict erupted after the international

lending institutions proposed sweeping changes which would have ended a number of

incentives for private sector investment in Cambodia.

The private sector and sections of the government were worried that the meager foreign

investment in Cambodia would worsen further if tax and other incentives were removed.

Foreign investment slid 40 percent in 2000 and 36 percent in the first half of 2001.

On January 15 a meeting of the Working Group on Law Tax and Good Governance finally

put the issue to rest, one day ahead of the semi-annual Consultative Group meeting.

Bretton Sciaroni, who along with Finance Minister Keat Chhon is co-chair of the working

group, said all parties had agreed to compromise in order to settle the issue.

"We ended up with a consensus position for the sake of moving this issue on,"

he said. "We offered our support to the government's [compromise] position."

Sciaroni said that the private sector had conceded on the issue of a uniform corporate

tax rate that the IMF and the World Bank had promoted. Under the current law companies

pay a general rate of 20 percent while "investment companies" pay only

9 percent. Following this week's agreement the new investment law will set the rate

at 20 percent for all companies.

For its part the private sector won its attempt to retain import duty exemptions,

something both the IMF and World Bank had opposed.

The government is currently drafting a new version of the law. The working group

set a deadline of February 28 for the investment law to be presented to the Council

of Ministers, which Sciaroni said would give the parties sufficient time to "work

out the language in the draft".

Completion will be a fillip for Prime Minister Hun Sen, who will chair the bi-annual

private sector forum also scheduled for February 28.