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Rainsy to Hike Taxes, Review Concessions

Rainsy to Hike Taxes, Review Concessions

Interim Finance Minister Sam Rainsy said he is planning to introduce a wide range

of taxes and fiscal reforms in a bid to keep the cash-strapped government afloat.

The new minister said he would also order a review of some contracts and concessions

awarded to foreign investors by the four former warring factions .

"I have to use any means possible to find revenue for the state," said

Rainsy who took control of the Finance Ministry on July 1.

"We need to identify the biggest income-generating activities and impose taxes

on those sectors," he said, listing cigarettes, alcohol, petrol and high-income

earners as the most likely first targets.

The interim government, which will rule Cambodia until a constitutional body assumes

power in mid-September, needs about 20 billion riel per month to keep it running,

mostly to pay the wages of the large civil service and restive armed forces.

Rainsy said current treasury reserves amounted to 10 billion riel, but 8 billion

of this was in the form of small denomination bills which are no longer in circulation.

The minister vowed to take action to curb smuggling and the huge black economy as

part of measures to enhance customs duty collection which accounts for more than

half of state revenues.

"But finally this will not be enough. We are really counting on international

assistance to help us through the transitional period and for the first three or

four months after the formation of a national government," he said in an interview

with the Post.

At meetings in Phnom Penh in late June, foreign diplomats acknowledged they would

need to raise about $30 million to prop up the new government but have yet to work

out a formula on how to raise the funds.

Rainsy, a French-educated banker said he planned to overhaul the government to give

the Ministry of Finance a much more central role in the implementation of economic

policy.

"The existing structures are currently confusing and irrational. Even though

there has been privatization at the economic level (since 1989)...the state machinery

does not match the free market economy," he said.

The minister said he would centralize revenue collection and make the Ministry of

Finance responsible for the disbursement of funds. During the previous socialist

administration, each ministry controlled its own budget and reported to a Ministry

of Planning. Another legacy of the war years was the division of the country into

military zones. Rainsy charged the "victors" of the 1979 war that toppled

the Khmer Rouge awarded themselves "defacto autonomous zones" and lucrative

state bodies such as the Directive of Rubber, which they ruled like personal fiefdoms

to the expense of the economic well-being of the country.

He said new budgets would be enacted as law by parliament and he pledged to introduce

a competitive bidding system and greater transparency in the awarding of government

contracts.

The Ministry of Finance will review existing contracts with foreign businessmen and

investors and the government "may need to completely revise if not cancel some

deals which were not in the national interest of Cambodia," he said.

Rainsy cited logging operations which "threatened the future of Cambodia in

environmental terms" as among those most urgently in need of examination.

He said a "political program" drawn up by the newly-elected Constituent

Assembly requires the interim government to "defend public goods and the interest

of the state".

"Unequal contracts where one party gets the lion's share at the expense of the

national interest of Cambodia must be re-adjusted," he said.

He said the foreign investment law would be amended to make it "mutually beneficial."

"Private companies can operate fairly and profitably but investment must give

the advantage to Cambodia in terms of job creation and development. "I hope

there will be serious investors. It is time for them to come. There will be fairness

for them all," he said.

"I would call this a real market oriented economy. A market economy is a jungle

economy. The difference is the rule of law and a real market economy can only form

and prosper within the frame work of a law for the long term good of Cambodia ,"

he said. Rainsy a FUNCINPEC party member stressed there was "no spirit of revenge"

in the review of contracts.

The minister said he had invited a World Bank delegation to come to Phnom Penh to

resume negotiations on a request for $63 million loan. He said he was also expecting

a team of International Monetary Fund experts to visit Cambodia soon although he

noted the country would need foreign assistance to pay off $400,000 in arrears to

the fund before it would have access to the IMF's resources.

Rainsy conceded that he would not be able to achieve all his goals within the two

months that remain for the interim government but said he would forward his policies

on to the new government. Many observers , however, expect Rainsy to maintain his

position as finance minister in the new administration.

In the longer term, Rainsy said he believed the future of Cambodia remained in agriculture.

He said help for the rice sector and rehabilitation of the country's once flourishing

rubber industry would be a priority. He said Cambodia was also well positioned to

take advantage of what he envisioned would be a growing trade between Thailand and

Vietnam.

"I see a flow of raw materials and semi- processed goods to Thailand and a lot

of manufactured goods going back into Vietnam and I think Cambodia can take advantage

of this trade going through its territory."

Rainsy said economic progress could be the key to ending the more than two decades

of war and social strife.

"If we can ensure there is social justice and make sure all citizens are given

the same chance to succeed in life I think that is the basic aim and the best way

to prevent the return of the Khmer Rouge.

"The Khmer Rouge should not be fought militarily. Even the Vietnamese could

not win with 200,000 men so I think the best way to fight the Khmer Rouge is to ensure

rural justice, fight corruption, solve the immigration problems and ensure territorial

integrity and the Khmer Rouge will have no ground to make propaganda and this is

the best way to marginalize the Khmer Rouge and strengthen Cambodia," he said.

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