Statement at Donor Meeting

2004 Consultative Group Meeting, Cambodia -- Statement by Il Houng Lee, Deputy Division Chief, Asia-Pacific Department

December 6, 2004

First, I would like to acknowledge the MEF and the NBC for their efforts in ensuring macroeconomic stability through their respective policies that have contributed to robust growth in recent years, a contribution not to be undermined, and also other ministries and agencies for playing their parts in rebuilding Cambodia.

Now looking ahead, the economic prospects are at best unknown. I say unknown because of the informal sector about which little is known. Within the context of the formal sector, growth prospects are weak, which is an issue well beyond that of the garment quota-due to underlying structural weaknesses and competitiveness. Therefore, I very much welcome continued donor support in terms of financial and technical assistance to help Cambodia build its capacity and improve competitiveness.

However, at this juncture, I would like to reiterate the importance of transparency and accountability for continued foreign support.

Money is fungible. Hence, in a country where corruption is widespread, foreign aid flows could nurture corruption as they substitute public resources in providing public goods and services, making it easier and less conspicuous for public assets and revenue to be misdirected to non-public use. Hence, corruption, and more generally governance, does matter in Cambodia where foreign aid flows account for 12 to 13 percent of GDP.

Despite continued efforts by the government, scarce public resources are being lost; initially through illegal logging, then poor management of land (state and private) and losses arising from "various aspects" associated with rapidly growing sectors.

I would like to urge the government, therefore, to press ahead with their proposed LJR, building fiduciary integrity, and also to solicit help from the general public (in view of its limited capacity), in making sure that public resources are used for the public. This can be achieved, for example, through greater transparency-making the terms (or the audit reports) of government contract available to general public (or at least to the parliament) and ensure competition in the bidding process.

Government should also enhance accountability by strengthening the capacity of the court system. Here, I welcome the government's intention to make court decisions, including its reasoning, public.

I hope that the CG benchmarks agreed today will be used more effectively for monitoring progress in these important areas as well as other reforms.

In concluding my remark, I look forward to continued donor support in the future, in an improved environment where taxpayers in the donors' respective countries could be assured that their taxes are used for helping Cambodia and the government overcome the difficulties of rebuilding the economy, and therby help reduce poverty.