COUNCIL FOR THE DEVELOPMENT OF CAMBODIA (CDC)

1. INTRODUCTION

1. Over the last decade, the Royal Government has devoted significant time and made concerted efforts to raise the nation from the ashes of genocide under the Khmer Rouge, internal strife, and ravages of the protracted war in the region. For the first time in its recent history, the country has enjoyed an environment of peace, political stability, law and order, democracy, respect for human rights and economic stability since 1999. A comprehensive reforms agenda is being implemented by the Royal Government that has encountered many challenges. The process of making a transition from a centrally planned economy to a market based system that began in the mid-1980s is continuing along with the rehabilitation and development efforts to put the nation back on a holistic path that will achieve the national goals of poverty reduction and sustainable development.

2. In its second term, 1998-2003, the Royal Government of Cambodia vigorously implemented its Triangular Strategy to create an environment that would move Cambodia forward, with strong hope and confidence, on the path of reforms and sustained development. The successful implementation of this strategy has enabled a profound transformation of Cambodia from a region of uncertainty, war, internal strife, instability and backwardness into an epicenter of sustained peace, security and social order, respect for democracy, human rights and dignity, cooperation and shared development. Over a very short period, relative to the long histories of many developed countries, the Royal Government has demonstrated that Cambodia is fully capable of engagement on an equal footing with all partners, in regional and international affairs. The positive gains so far achieved have bolstered confidence in Cambodia’s bright future, shoring up the foundations for dynamic enterprise, increased trade, investment flow, and tourism that will generate employment and income for Cambodians.

3. Over the past five years, significant progress has been made in implementing pro-poor development policies, achieving macroeconomic stability, implementing public finance management reforms, strengthening democracy, rule of law and good governance, mobilizing technical and financial resources to support planned development, and improving the delivery of public services to meet the needs and expectations of the population. All of these efforts have been focused on reducing poverty and achieving the development goals of Cambodia. As in any human undertaking, the Royal Government’s efforts and achievements have not been exempt from insufficiency of actions and weaknesses. Indeed, the current national production structure is still far too small and concentrated in a few areas and must be expanded and diversified to ensure sustained economic growth. Although many well conceived and well designed mechanisms have been put in place by the Royal Government to improve the management of the budgetary system they have not become fully functional because of many cross-influences and constraints which have jeopardized the objectives set for increasing revenue collection and improved public expenditure allocations. Coordination among various ministerial and administrative partners remains weak. To strengthen the rule of law, legislation in various areas have been drafted that are awaiting the Parliament to enact. Reorganizing and restructuring the judicial apparatus is a high priority of the Royal Government. International support, although generous and valuable from many of the partners, remains to some extent linked to unrealistic conditions, be they technical, political or otherwise. In short, while the Royal Government has had many significant achievements, there are many challenges that the new government still faces.

4. For the Royal Government, the most formidable development challenge is the reduction of poverty and improving the livelihoods and quality of life of the rapidly growing Cambodian population. The Royal Government considers poverty to be a waste of valuable economic resources which is not only morally unacceptable but can also result in social polarization and instability. To achieve the poverty reduction goals, in March 2003, the Royal Government launched its National Poverty Reduction Strategy that has the following key objectives:

Strengthening peace, stability and social order by implementing concrete measures aimed at enhancing the rule of law, promoting respect for human rights and democracy, and to create a political and security environment conducive to sustainable development in the long run.
Ensuring the achievement of a sustainable high rate of economic growth, averaging 6%-7% per annum in the long run.
Ensuring equitable distribution of the gains from economic growth among the rich and the poor, between urban and rural areas, and between men and women.
Promoting sustainable environmental management and use of natural resources.

5. Following the General Elections on 27 July 2003, that were declared to be free, fair and transparent by national and international observers, the new National Assembly and the Government took office based on choices made by the people. The successful conduct of the general elections and the formation of the new coalition government have demonstrated the will and commitment of the public authorities to comply with democratic principles and to ensure that people have the freedom to choose their representatives in the political sphere of the nation. The Royal Government of Cambodia of the Third Legislature of the National Assembly took office humbled by the people’s will and stands committed to serve the best interests of the Nation. It will diligently respond to the aspirations and needs of Cambodian citizens, who have cast their vote of confidence in the Royal Government through the democratic, free and fair general elections. Soon after the formation of the new Government, it made public its “Rectangular Strategy” that outlines its economic policy agenda to support the policy platform of the Royal Government. The Rectangular Strategy was presented by Prime Minister Samdech Hun Sen at the first Cabinet meeting on July 16, 2004.

6. The Rectangular Strategy outlines the economic actions agenda of the Royal Government, building on the achievements attained in the second legislature of the National Assembly through the implementation of the Triangular Strategy. The Rectangular Strategy selects key elements from Cambodia's Millennium Development Goals, Cambodia's Socio-Economic Development Plan 2001-2005 (SEDP2), the Cambodia National Poverty Reduction Strategy 2003-2005 (NPRS), and various policies, strategies, plans and other important reform programs. The comprehensive economic actions agenda is aimed at improving and building capacity of public institutions, strengthening good governance, and modernizing national economic infrastructure, with the objective of promoting economic growth, generating employment for all citizens, ensuring social equity, and enhancing efficiency of the public sector, and protecting the nation’s natural resources and cultural heritage. The Rectangular Strategy will serve as an important tool to support the implementation of "the political platform of the Royal Government in the Third Legislature of the National Assembly" that has been unanimously agreed to between the two coalition partners in the Royal Government.

7. The Royal Government recognizes that Cambodia still has a long way to go, and has to overcome numerous obstacles to achieve sustainable progress and prosperity for the country and its people. The promotion of harmonized efforts by the Cambodian people to reduce poverty continues to be the most important objective of the Royal Government. The Royal Government recognizes that the problems of poverty cannot be solved overnight, or in one month, or one year. However, with well-designed programs and sincere, harmonized and combined efforts and actions of all stakeholders, the Royal Government is certain that positive changes in enhancing the living standards of people within the next four years can be achieved. Through a vigorous and diligent implementation of the Rectangular Strategy, the Royal Government's efforts will be focused on deepening reform programs which are a life and death issue for Cambodia. Thus, the Royal Government of Cambodia in the Third Legislature of the National Assembly shall be the «Government of Growth, Employment, Equity, and Efficiency».

8. This report is the result of a long process of inter-ministerial consultations and coordination from April to November 2004. In addition to the analyses presented in this document, separate discussion papers on various issues were prepared. These papers outline the RGC’s priorities and the resources that it will commit both in the short and medium term to achieve the objectives of its Rectangular Strategy for the development of Cambodia. These obligations will be met and the reform pre-requisites vigorously and diligently implemented to put Cambodia in a position to meet successfully the challenges it faces.

9. This report begins by highlighting what has been achieved since the last CG meeting in Phnom Penh in June 2002. It provides an update on Government’s policy performance, macroeconomic performance, monetary and fiscal performance, and sectoral developments. The next section presents information on the Rectangular Strategy of the Royal Government of Cambodia. Section four, presents the highlights of the actions on various reform programs that will be taken to achieve the objectives of the Strategy. Section five presents the Government’s financial requirements and ODA resource mobilization targets to complement domestic resources for the implementation of the Government’s Public Investment Program for 2005-2007, and finally the conclusions.

10. The Royal Government would like to reiterate that without the support of its development partners, Cambodia would not have been able to reach the current level of progress and achievements, nor would it be fully able to overcome the immense challenges that will undoubtedly accompany the implementation of the needed reform actions in the coming years.