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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 remains 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:
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. THE RECTANGULAR STRATEGY 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 National Poverty Reduction Strategy 2003-2005 (NPRS), and various policies, strategies, plans and other important reform programs. 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. Its aim is to promote economic growth, generate employment for Cambodian workers, ensure equity and social justice, and enhance efficiency of the public sector through the implementation of the Governance Action Plan and in-depth reforms that are coordinated and consistent across all levels and sectors. The Royal Government of Cambodia in the Third Legislature of the National Assembly will thus be known as the "Government of Growth, Employment, Equity, and Efficiency". 7. The Rectangular Strategy has been published and widely disseminated to all national and international development partners and civil society. Briefly, the Rectangular Strategy is an integrated structure of interlocking rectangles, as follows: First, the core of the Rectangular Strategy is good governance focused on four reform areas: (i) anti-corruption, (ii) legal and judicial reform, (iii) public administration reform including decentralization and de-concentration, and (iv) reform of the armed forces, especially demobilization. Second, the environment for the implementation of Rectangular Strategy consists of four elements: (i) peace, political stability and social order; (ii) partnership in development with all stakeholders, including the private sector, donor community and civil society; (iii) favorable macroeconomic and financial environment; and (iv) the integration of Cambodia into the region and the world. Third, the four strategic “growth rectangles” are: (i) enhancement of agricultural sector; (ii) private sector growth and employment; (iii) continued rehabilitation and construction of physical infrastructure; and (iv) capacity building and human resource development. Fourth, each strategic “growth rectangle” has four sides:
8. Notwithstanding the significant progress that has been made over the last decade, the most formidable development challenge faced by the Royal Government now is the reduction of poverty and the improvement of the livelihoods and quality of life of a rapidly growing population. The Rectangular Strategy is the economic policy tool that the Royal Government will implement to reduce poverty during the period of its new mandate and to move forward in achieving Cambodia's Millennium Development Goals. 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 is a life and death issue for Cambodia. 9. The Royal Government appeals to all its development partners -- the donor community, the private sector, non-governmental organizations, civil society; as well as the civil servants in all ministries/institutions, members of the legislative, executive and juridical branches, members of the armed forces, the authorities at all levels and each and every citizen to provide all necessary support and to actively participate in partnership with the Royal Government in the implementation of the political platform and the economic policy agenda of the Royal Government of the Third Legislature of the National Assembly. MAJOR ACHIEVEMENTS SINCE THE LAST CG MEETING IN JUNE 2002 11. At the last CG meeting held in June 2002, a number of priority areas with specific benchmarks for joint monitoring were identified. The concerted efforts of the Royal Government have produced significant progress in most of these areas. It should be noted, however, that following the General Elections in July 2003, the delays in the formation of the new Government and the associated uncertainties may have temporarily slowed the momentum that had been successfully built during the second mandate of the Royal Government. With the formation of the new Government in July 2004, the Royal Government of the Third Legislature of the National Assembly remains committed to continue to vigorously implement its reforms agenda. Progress made in each of the priority areas since the 6th CG Meeting, in spite of the many challenges faced, is summarized below. 12. Time bound Legal and Judicial Reform Strategy Completed: Significant progress has been made in this area. The Royal Government established the Council for Legal and Judicial Reform (CLJR) in June 2002, co-chaired by the then Senior Minister in charge of the Council of Ministers and the President of the Supreme Court. In August 2002, a Permanent Coordinating Body (PCB) was formed to bring together key decision- makers from each relevant institution and in December 2002, a Project Management Unit (PMU) was created to assist both the PCB and the CLJR. Under the guidance of the CLJR, a Legal and Judicial Reform Strategy was developed and endorsed by the Royal Government in June 2003. This strategy consists of 7 objectives:
13. Also in June 2003, a draft Action Plan was prepared. This formed the basis of discussion at a National Workshop held in December 2003, under the leadership of the PCB that brought together stakeholders from concerned Government institutions, civil society and the donor community. Following the workshop a series of consultations were carried out that led to the development of a comprehensive list of short and medium term priorities. The short term plan of action (2004-2006) consists of 33 priorities across the 7 strategic objectives. The medium term of action identifies another 27 priorities to be attained by 2008. These plans recognize the progressive process of working towards the achievement of the 7 objectives in the Legal and Judicial Reform Strategy. 14. Supreme Council of Magistracy (SCM) Restructured: The amendments to the Law on the organization and functioning of the Supreme Council of the Magistracy have been drafted and approved by the Council of Ministers and are awaiting approval of the Parliament. The process of restructuring the SCM is now well underway with a Secretariat in place and the requirements for a fully functioning SCM are now being determined. In January 2003, the Royal Government has substantially increased remuneration of judges and prosecutors. The Royal School of Magistracy and the Lawyer Training Centre are now operational. A model court is being established at Kandal Province to develop best practices in processing cases; new court facilities which support the implementation of the practices will be completed by 2006. Work is also underway on the establishment of specialized tribunals to better deal with commercial, juvenile and administrative matters. Core institutions such as the SCM, the Council of Jurists, the Ministry of Justice, and functions supporting the reform program such as the PCB and PMU are all being reviewed and strengthened. Resources are being directed towards reform activities. With a few exceptions, most of these have been financed by the Royal Government. 15. Law on Statute of Magistrates Submitted to Parliament: The draft of the Law on the Statue of Magistrates, and the Organic Law on the organization and functioning of the Courts are being drafted. These are planned to be submitted to the Parliament in 2005 according to the priorities of the short-term action plan for legal and judicial reforms. 16. Other significant achievements in the area of legal and judicial reforms include the enactment of many important Laws related to protection of human rights, laws on investment, trade and commerce and laws in support for natural resources management. The Civil Code and Procedures and the Penal Code and Procedures have been drafted and are being reviewed by the Council of Jurists and will be submitted to the Council of Ministers and the Parliament by 2005. 17. Although Cambodia’s development partners emphasize the importance of reforms in this area, only a few have provided support to date. Judicial reforms have been identified by the Investment Climate Survey as critical for creating an enabling environment for private sector development. At a more basic level, improved access to justice and judicial services for the poor is essential to tackle feelings of social injustice and vulnerability, improve community confidence on the rule of law and quality of life and reduce poverty. 18. Legal and judicial reforms are complicated further by the social context in Cambodia. Three decades of destructive war, torment and internal struggle have left deep psychological scars and underlying tensions. A growing youth population and rapid social change encouraged by technology and greater integration into regional and global trends have challenged traditional values and virtues. The society is in transition. At the same time, the shortage of Cambodian legal experts has meant that much of Cambodia’s existing legal framework has been heavily influenced by international experts. This has created a range of inconsistencies which make enforcement difficult. Law enforcement remains a challenge for a range of reasons but especially low salaries. It is difficult to enforce laws transparently and without fear or favor when the salaries of law enforcement officers are lower than a minimum subsistence level. 19. The Royal Government has placed a high priority on putting in place basic elements of the legal framework to underpin the development of a vibrant market economy and the promotion of trade and investment by developing the legal framework on property rights, the creation and winding-up of business entities, banking, tax and accounting, insurance, secured transactions, commercial enterprises, bankruptcy, contracts and commercial credit, and law on negotiable instruments and payment transactions, in order to ensure the effective functioning of the financial sector. 20. To increase access to legal and judicial information, not only for legal and judicial professionals but also for the citizenry, the Royal Government has created the Office of the Gazette as a General Department paving the way for it to operate under a self-supporting commercial model. The President of the Supreme Court (Chief Justice) has committed to publishing judicial decisions to improve transparency of the judicial process and building a body of Cambodian jurisprudence. The process of collecting existing decisions is now underway. 21. A draft of the Anti-Corruption Law was prepared and approved by the Council of Ministers on 20 June 2003 and submitted to the Parliament on 25 June 2003. This draft was returned by the Parliament for a further review. This review process was, however, slowed by the delays in the formation of the new Government. Building on the input provided by the development partners at the Pre-CG Meeting held in September 2004, the Royal Government will complete the review and a revised draft of the Anti-corruption Law will be submitted to the Parliament. The Royal Government agrees with the development partners that a holistic approach to combating corruption is needed. While the enactment of the Anti-corruption Law is an important step, developing capacity to rigorously enforce the Law is also equally important. To combat corruption, that takes a toll on economic performance and undermines the efforts to reduce poverty, many other measures in addition to the enactment of the Anti-corruption Law are needed. Some of these measures such as streamlining bureaucratic procedures, simplifying and modernizing the tax system, eliminating excessive regulations, and motivating public servants by giving them a decent level of salaries can help reduce the opportunities for corruption. At the same time, the Royal Government is mindful of the fact that changing peoples attitudes and behavior may take some time. 22. Cases of corruption investigated and prosecuted: Notwithstanding tremendous difficulties and impediments, the RGC has made significant progress in combating corruption by addressing its root causes. Cracking down on illegal logging, more effective management of Government revenues and expenditures, the removal of ghost workers from the public service and the army payrolls and the confiscation of land, which had been sold off or held illegally, were among the measures aimed at tackling corruption. A National Audit Authority (NAA) has been established and is now operational as a check and balance mechanism to control revenue collection and expenditure management. The internal audit functions in line ministries are being strengthened. The NAA is working with these internal audit units in ministries to ensure a greater transparency and accountability. 23. The scope of the implementation of the provisions of the Public Procurement Sub-decree was extended to cover all expenditure categories in all ministries, except the Royal Palace. 24. In keeping with the Royal Government's commitments no new forest concessions have been issued since 1 January 2002 and the operations of the existing holders of forest concessions licenses have been limited to small salvage operations and maintenance work in accordance with the existing laws. The concessionaires were asked to submit Strategic Forest Management Plans (SFMP) along with an Environment and Social Impact Assessments (ESIA) in September 2002. Thirteen concessionaires submitted their plans and ESIAs in November 2002 that were used for consultations with affected communities. 25. With respect to public disclosure and opportunity for independent experts to comment on SFMPs and ESIAs prior to finalization of Government review, with technical support from the World Bank, the Royal Government carried out reviews of the SFMPs and the ESIAs submitted by concessionaires. The SFMPs & ESIAs were shared with the concerned communities. Recognizing that because of the technical details and complexities of the Strategic Forest Management Plans (SFMPs) and Environmental and Social Impact Assessments (ESIAs) the concerned communities may not be able to provide comments immediately, these communities have been provided an unlimited timeframe to complete the consultation process. The SFMPs and ESIAs have been distributed to 245 communes in communities that are in or around forest concessions. The DFW/FA teams have consulted with and documented the concerns of the communities. The DFW/FA has asked concessionaires to incorporate suitable solutions to respond to the concerns of the communities in their management plans. By the end of July 2003, the Technical Review Team (TRT) of the DFW/FA, with World Bank's technical support, had completed its review and the findings have been provided to the twelve forest concessionaires. The revised SFMPs are being reviewed by an Independent Review Team of the Donor Working group on Natural Resource Management. To ensure transparency of the evaluation process and to minimize “mistrust and suspicion,” as well as misperceptions, that have characterized and in some instances unnecessarily polarized opinions, the DFW/FA has established a Public Affairs Unit to enhance communications among all parties. 26. The licenses of concessionaires who did not submit SFMPs have been cancelled. From 1999 to-date, the Royal Government of Cambodia (RGC) has cancelled forest concession licenses of 17 companies covering total forest land area of around 3.5 million hectares in 24 locations. The licenses of 5 forest concessionaires, Hero Taiwan, Wood Tee Peanich, GAT International, Mieng Ly Heng and Kingwood were cancelled during the reviewing process of the SFMPs. As of now, there are only 12 concessionaires who are in the process of planning their concessions and will be required to ensure the sustainability of the forests according to international standards. These 12 concessionaires have been allocated a total of less than 3.4 million hectares of forest land. The Royal Government has continued to maintain the moratorium on logging by all concessionaires until their Strategic Forest Management Plan and the ESIA have been officially approved by the Government. 27. The Royal Government of Cambodia has continued to pursue vigorously illegal logging operations. In the course of performing their duties 7 forest administration officers have been killed and 34 have been injured. Some 1,386 illicit sawmill plants, 653 timber processing handicraft, 39 medicinal vine powder manufacturing handicraft, 24 Tepiro oil manufacturing handicraft, 159 aloe steaming and forest sub-product processing ovens have been removed, destroyed and put out of business, and 332 offenders have been apprehended and prosecuted. 28. Illegal logging, wildlife smuggling, corruption and encroachment on forest land have been reduced from the crisis proportions prior to the Government’s reform program. The Government’s crackdown on illegal logging has consisted of measures across the full spectrum of forest law enforcement, prevention, detection and suppression. The RGC's entire approach to resource management, including concession management reform, community forestry and protected areas management is aimed in large part at preventing crime. In June 2004, the Royal Government issued Order No 01BB to prevent, suppress, and eliminate forest land clearing and encroachment and has established a National Committee and Sub-national Committees at the provincial level to implement this order. 29. As mentioned earlier, complying with the ESIA requirements in the forestry sector is an integral part of the review of the forest concessions that is now taking place. The Sub-decree on Community Forestry was enacted in December 2003 to put public forest assets under the stewardship of local communities in the framework of approved management plans and benefit sharing arrangements. The Sub-decree was the result of over six years of consultations with many stakeholders and advisers and compliments other measures, such as the Sub-decree on Social Land Concessions to make the country’s land resources more productive and better managed. The Royal Government has been working in partnership with various donor agencies and non-governmental organizations to pilot community forestry initiatives in different parts of the country. So far, nearly 110,000 hectares have been developed under community forestry arrangements. 30. The Sub-decree on Social Land Concessions was enacted by the Royal Government in March 2003. To implement the sub-decree at the national, provincial/municipal, and district/Khan levels, pilot projects were carried out in three communes and one Sangkat in the Battambang, Kampot, Kampong Speu provinces, and Phnom Penh. Based on the results of pilot projects and the poverty social impact assessment study on social land concessions project, the Council of Land Policy in collaboration with various development partners is currently involved in designing a program for Land Allocation for Social and Economic Development (LASED).31. The Royal Decree on the establishment of community fisheries and a Sub-decree on the management of community fisheries have been prepared and submitted to the Council of Ministers for approval. Although the legislative process is still underway some 360 community-fishery lots have already been established across the country with assistance from development partners. The Fisheries Law has been reviewed by the Council of Ministers and is scheduled to be submitted to the Parliament. 32. Budgetary disbursements to four priority action ministries increased to 3.6 percent of GDP: Following the 6th CG Meeting the work on updating the historical data series on GDP going back to 1993 was completed by the National Institute of Statistics (NIS), with IMF assistance, in late 2002. A number of revisions were made to the GDP series based on new and revised data from government line ministries and other agencies, as well as revised compilation methods. The end result was an overall increase in GDP levels going back to 1993. For the 1998-2002 period, the estimates of GDP in current prices were revised upwards, for example by 10.1 percent for 1998, and 15.8 percent for 2000. Because of these GDP revisions, the benchmark set at the time of the CG Meeting in June 2002 would be somewhat lower when the significant upward revision of the total GDP estimates is taken into consideration. Based on the revised estimates of GDP, the actual disbursements to PAP ministries totaled 3.3 percent of GDP in 2002. In the Budget Law for 2003, the allocations for PAP ministries were around 3.6 percent of GDP. However, because of significant revenue shortfalls attributable to both domestic factors (the violent demonstrations in Phnom Penh in early 2003 and uncertainties in both the pre and post-general election periods) and international factors (outbreak of SARS in the region and the Iraq war), the actual disbursements have fallen short in many areas including PAP ministries. The actual disbursements to PAP ministries amounted to around 3.3 percent of GDP in 2003. However, the amount of actual disbursements have slightly increased from 512.1 billion CRs in 2002 to 529.4 billion CRs in 2003. 33. Disbursements to health ministry at the national and provincial levels are at least 35 percent of budget under Chapter 11 and 40 percent under Chapter 13 at both the national and provincial levels; and disbursements to the education ministry are at least 40 percent of budget under Chapter 11 and 50 percent under Chapter 13 at both the national and provincial levels: The implementation of these two benchmarks would have required allocating 75 percent of the Chapter 11 budget and 90 percent of the Chapter 13 budget to the two ministries, that is the Ministry of Education and the Ministry of Health. Accommodating such a drastic reallocation of the chapter 11 and 13 budgets to these levels has not been possible. However, the budget allocations of chapter 11 and 13 for the Ministry of Health were increased from 152.4 billion CRs in 2002 and to 166.5 billion CRs in 2003. In the case of the Ministry of Education, the budget allocations for chapters 11 and 13 were increased to 130.1 billion CRs in 2002, and to 136.1 billion CRs in 2003. 34. Disbursements for both health and education ministries approach 100 percent for both chapters 11 and 13: For the Ministry of Health, actual disbursements as a percent of budget allocations for chapters 11 and 13 were 88.1 and 99.9 percent in 2002 and 84.6 percent and 93.5 percent in 2003. In the case of the Ministry of Education, actual disbursements as a percentage of budget allocations for chapters 11 and 13 were 87.1 percent and 107.2 percent in 2002 and 95.1 percent and 85.1 percent in 2003. 35. HIV/AIDS legislation enacted: The Law on Prevention and Control of HIV/AIDS was approved by the Parliament in June 2002. For the Royal Government the prevention of HIV/AIDS and improvement in the quality of life of those infected and/or affected by HIV/ AIDS through provision of care and welfare services is a national priority. The Law on the Prevention and Control of HIV/AIDS provides the framework for implementing the preventive, curative, and mitigating measures. 36. The National Aids Authority (NAA) that was created in January 1999 is responsible for coordinating and facilitating the implementation of comprehensive preventive, care and support, and mitigating measures. In 2001, the NAA launched the "National Strategic Plan for Comprehensive and Multi-sectoral response to HIV/AIDS: 2001-2005". Subsequently, five Ministries -- Health; National Defense; Education; Social Affairs, Labor and Youth Rehabilitation; and Rural Development -- have developed Strategic Plans to respond to HIV/AIDS challenges. In addition, the Battambang and Siem Reap Provinces have also developed Comprehensive and Multi-sectoral Plans to respond to HIV/AIDS challenges. The NAA is comprised of 26 Ministries and 24 Provinces and Municipalities. In March 2003, the NAA established a Coordinating Committee that has been meeting regularly each month to coordinate with UN agencies, donors and major NGOs. To plan and implement campaigns during World AIDS Day, Water Festival and Candle light Memorial the National Aids Authority has established mechanisms to coordinate the work of the governmental and non-governmental organizations. 37. The combined efforts of Royal Government's institutions and development partners have begun to show positive results. It is estimated that the number of persons living with HIV/AIDS has declined from 175,000 in 1998 to 157,500 in 2003. The prevalence of HIV infection among 15 to 49 years old has declined from 3.3 percent in 1998 to 2.6 percent in 2003. Almost 100,000 people have undergone testing and received counselling services. The voluntary and confidential testing services are now provided in 13 provinces and municipalities through 49 VCCT Centers of which 18 are managed by NGOs. Some 2000 AIDS patients now have access to free Anti Retroviral Therapy (ARV). The implementation of country wide 100 percent Condom Use Program has succeeded in reducing HIV prevalence among Sex Workers from 54 percent in 1998 to 37 percent in 2003. The Peer Education Programs are being successfully implemented among the civil, defense, and police personnel. Some 50,000 monks have integrated HIV/AIDS issues into moral preaching. HIV/AIDS education programs are also being implemented by the private sector for their employees. 38. Free radio and television time for HIV/AIDS programs provided: Significant progress has been made in securing free radio and television time for HIV/AIDS programs. Some TV stations have been providing free time for broadcasting HIV/AIDS prevention messages. Also private sector sponsors have begun to provide airtime on their programs, for example, Cambrew incorporates HIV/AIDS messages into their weekly Karaoke program on TV. There has also been significant increase in donor support for developing broadcast material, for example, DFID's support to the BBC World Service Trust to produce radio and TV spots and dramas; UNDP, UNESCO and UNICEF have also produced short programs. There has also been an increase in donor support to broadcasting the messages – DFID has been supporting broadcasts on TV5, and UNICEF has also been supporting the broadcast of the same material on other channels to reach a wider audience. 39. Civil service reform and medium term expenditure framework: In this area the benchmark established at the 6th CG Meeting was as follows: "based on studies, assisted by World Bank, medium-term civil service reform plan prepared to improve civil service salaries to a level broadly competitive with private sector labor market, including departure and safety net provisions for redundant workers and financing options consistent with Medium-term Expenditure Framework". 40. The National Program for Administrative Reform (NPAR) was approved by the Royal Government in early 1999. In October 2001, the Royal Government approved the strategy to rationalize the civil service. As part of this strategy, the Council for Administrative Reforms (CAR) was mandated to investigate options for accelerating pay and employment reforms. It undertook to carry out the following six studies to collect factual information and prepare analysis based on which decisions could be made to accelerate pay and employment reforms and to strengthen the management of the Civil Service. These are as follows:
41. In April 2002, the World Bank agreed to finance five of these studies. The Terms of Reference for these studies were agreed to in March 2003 and funding from the World Bank was secured in May 2003. The study on improving public services delivery was completed in September 2003. The Labor Market Survey of Pay and Benefits was completed in September 2004. With technical assistance from Brunei, work is now underway to document and strengthen Human Resources Management processes and practices. The HRMIS is being strengthened with support from the E.U. to become a potent tool to forecast staffing patterns, manage public service work force/establishment, and foster the development of human resources. 42. The Operations Review will be launched shortly to document and complement work underway in priority ministries (education, health, agriculture, justice). This study will take stock of progress and develop a replicable methodology and framework to carry out such reviews. It will also carry out targeted pilots to implement the methodology and a training effort to develop the government’s capacity to review operations. 43. With respect to a wage policy for the civil service, the actions of the Royal Government will be based on two basic principles. First, any changes must respect the principle of relativity among the various categories of government employees (political, civil servants, military and security). Secondly, they must be financially sustainable over time within the fiscal framework. Accordingly, increases in remuneration will remain dependent on available funds and thus on government revenues. The RGC is committed to increasing remuneration by 10 to 15 percent annually. The available resources will be targeted to priority needs through instruments like the PMG program and a system of allowances that complement base pay. The CAR Secretariat routinely carries out simulations to assess options. The work on remuneration policy study will be piggy-backed on the operational review that will be launched in early 2005 based on revised TORs. 44. The study on employment policy will also be launched in early 2005 to strengthen the existing information base on employment needs and to design mechanisms to effect necessary adjustments in the configuration of the Civil Service. Decisions relating to the last study on managing the civil service workforce will await the conclusion of related work already underway. 45. During the first phase of implementation of the NPAR program efforts were focused on the following five major activities: to document and control the composition and distribution of the Civil Service workforce; to develop essential instruments to manage and motivate personnel; to assess needs of ministries relating to corporate services (back office); to complete preparatory work to move the Administration closer to citizens; and to strengthen the capacity to plan and manage the reform. Under the NPAR program the following has been achieved:
46. Revenue Collection, Government revenues increased to 12.75 percent of GDP: As mentioned earlier, following the 6th CG Meeting the historical data series on GDP going back to 1993 was revised by the National Institute of Statistic (NIS), with IMF assistance, in late 2002. Because of significant upward revisions of the GDP estimates, the revenue growth target of 12.75 percent that was established based on the old GDP data would be significantly lower when calculated using the revised GDP data. It should be noted, that the review of progress presented in this report is based on the revised GDP data. 47. During its second mandate, the RGC has made significant progress in macroeconomic management, by maintaining macroeconomic stability, strengthening the banking and financial institutions and implementing fiscal reform measures. Cambodia has made impressive strides in re-integrating herself into the international community. Over the last five years the average annual real GDP growth was 6.8 percent. Monetary developments reflected improved fiscal position. A prudent monetary and fiscal policy pursued by the RGC resulted in low inflation and broadly stable exchange rate. Inflation was kept on average at 1.6 percent per annum during this period. Gross international reserves have remained at a comfortable level. 48. In spite of the many challenges faced by the Royal Government over the last five years -- that have included the restructuring of the tariffs along with lowering of the maximum tariff rate, and the challenges of controlling smuggling and tax evasion -- the Royal Government has been making steady progress in increasing its revenues collection. A vigorous implementation of the fiscal reforms, with the support of development partners, and implementation of revenue enhancement measures has begun to produce fruitful results. Revenues as percent of revised GDP estimates increased from 8.1 percent in 1998 to 11.1 percent in 2002. In the year 2003, the revenue collection suffered not only from the effects of the outbreak of SARS in the region, the violent demonstrations in Phnom Penh in early 2003, and the Iraq war, along with continuing inefficiencies in tax collection but also by the election-related uncertainties in the first half of 2003 and the delays in the formation of the new Government following the 27 July 2003 elections. 49. The environment of uncertainty that prevailed in 2003 had also adversely effected the collection of revenues from payments for leases of state assets; collection of outstanding tax arrears and performance under the pre-shipment inspection program 50. Strengthened tax auditing and administration: The National Audit Authority (NAA) that was established in early 2000 is now functional and its capacity is being strengthened. The NAA is completing its audit report for the years 2000, 2001 and 2002 that will be presented to the Parliament. The internal audit functions in line ministries are also being strengthened. The NAA is working with these internal audit units in ministries to ensure a greater transparency and accountability. 51. Increased transparency of terms of Government contracts: To enhance transparency and to minimize abuses, the scope of the Public Procurement Sub-decree has been extended to cover all expenditures in all ministries, except the Royal Palace. 52. Enhancing public financial management is crucial for the strengthening of good governance, and therefore the RGC has formulated a clear vision of public financial management (PFM), and the steps necessary toward the achievement of the vision. The PFM reform program is built upon four sequenced and prioritized platforms: (i) a more credible budget; (ii) effective financial accountability; (iii) the RGC policy agenda becomes fully affordable and prioritized; and (iv) RGC managers become fully accountable for program performance. As part of the PFM reform, the RGC will pilot a merit-based initiative and embark on the organizational change of the Ministry of Economy and Finance to support the reform efforts. The RGC strongly welcomes the "Sector Wide Approach - SWAP" that has been discussed and agreed to with development partners to implement the reform program. This will provide an opportunity for Cambodia to play as an equal partner and especially enables the Ministry of Economy and Finance to bring together good strategies and experience from development programs and various strands of its ongoing improvement and reform efforts and to reformulate them into an integrated and consolidated PFM reform program for higher accuracy, effectiveness, and efficiency. PRIORITIES FOR IMPLEMENTING THE RECTANGULAR STRATEGY 53. The development vision of the Royal Government of Cambodia is to have a socially cohesive, educationally advanced and culturally vibrant Cambodia without poverty, illiteracy and disease. Realizing this vision will require continued adherence to the values of social justice, human welfare and empowerment of the people and the formulation and implementation of policies to reduce poverty by promoting sustainable economic growth and better governance. 54. The “Rectangular Strategy” of the Royal Government of the Third Legislature of the National Assembly is designed to achieve this Vision. Soon after the formation of the new Government in July 2004, Samdech Prime Minister Hun Sen instructed all Government ministries and agencies to develop plans for implementing the Rectangular Strategy. At the Pre-CG Meeting held on 10 September 2004 at the Council for the Development of Cambodia, he appealed to the development partners to work with the concerned ministries and agencies to establish, through a collaborative process, priorities and prepare actions plans to implement the policies outlined in the Rectangular Strategy. The newly formed seventeen sectoral/thematic Joint Government-Donor Technical Working Groups under the CG mechanism were tasked to complete this work before the 7th CG Meeting to be held in early December 2004. The priorities for the implementation of the Rectangular Strategy outlined in section four of this report represent the preliminary work of the ministries and agencies. At the time of the preparation of this report these were being reviewed by the Joint Government-donor Technical Working Groups. At the end of this process, that hopefully will be completed by end of November 2004, the Techncial Working Groups will have jointly agreed priorities, action plans, and resource commitments to implement the action plans. The priorities for the implementation of the Rectangular Strategy outlined in section four thus represent a work-in-progress. 55. For the Royal Government, good governance is the most important pre-requisite condition to achieve sustainable economic development with equity and social justice. Achieving good governance will require the active participation and commitment of all segments of the society, enhanced information sharing, accountability, transparency, equality, inclusiveness, and the rule of law. During its third mandate, the Royal Government of Cambodia will focus its efforts to ensure an effective implementation of its Governance Action Plan which covers four cross-cutting areas: (i) combating corruption, (ii) judicial and legal reforms, (ii) civil service reform covering decentralization and de-concentration, and (iv) reform of the armed forces, especially demobilization. 56. To combat corruption the Royal Government will continue to pursue a holistic, participative, gradual and sustainable approach to address the root causes of corruption. Although progress has been made in some areas, in others the RGC efforts faced many challenges. In fighting corruption, the Royal Government will vigorously implement the Anti-corruption Law, after it has been enacted by the Parliament, and create an independent body to fight corruption. The Royal Government will also promote effectiveness, transparency and accountability in the management of public finances, especially through the strengthening of audit processes and public procurement. The Royal Government shall also promote the implementation of the multi- and cross-sectoral governance reforms, especially those guided by the Governance Action Plan, which has been developed with broad participation from various government ministries and institutions, civil society and development partners. 57. The Royal Government will respect and promote the independence and neutrality of the judiciary as stated in the Constitution. This will include reforms which will ensure the independence of the Supreme Council of the Magistracy. The Royal Government will continue to promote legal and judicial reforms and strengthen public confidence in the court system. Significant progress has been made over the last year. A comprehensive strategy and action plan to speed up the legal and judicial reforms is now in place. The short-term and medium-term priorities for implementing the action plan have been identified through a consultative and collaborative process in which all concerned stakeholders have participated. The Royal Government hopes that this spirit of cooperation between the Council for Legal and Judicial Reforms, the development partners, and civil society will now move to a new level -- a coordinated team approach -- to succeed in moving forward the legal and judicial reforms agenda. 58. The Royal Government’s National Program for Administrative Reform (NPAR) outlines the strategies and policies that will be used to transform the administrative system and civil service into an effective organization to successfully implement the Government’s political platform and the economic actions agenda. The Council for Administrative Reform (CAR) has prepared an Action Plan based on recent studies in consultation with ministries and development partners. The Plan was presented to development partners at a national workshop in August 2004. For programming purposes, actions to be taken under the umbrella of the NPAR have been grouped in the following seven priority areas: (i) improving service delivery; (ii) enhancing remuneration; (iii) redeploying the Civil Service; (iv) strengthening Human Resources management and control; (v) implementing the PMG program; (vi) developing human and institutional capacity; and (vii) promoting information and communication technologies. 59. For all governments world-wide finding the appropriate levels of decentralization and de-concentration in terms of roles and responsibilities of the various levels of government is an on-going process. For the Royal Government of Cambodia the issues are compounded further by events in recent history. The Royal Government recognizes that the implementation of decentralization to the commune level is crucial not only to strengthen democracy at the grassroots level, but also to improve the quality of public services, and foster participatory development at the community level. To strengthen local governance, a key priority of the Royal Government is to build local management capacity, provide reasonable levels of financial resources to the communes and promote a culture of participation. Another priority is to ensure that decentralization and de-concentration efforts are implemented in conjunction with each other and capacities are developed at the municipal, commune, district, and provincial levels to achieve harmonized and mutually-supportive operations at the grassroots/community level. 60. To move the decentralization and de-concentration process forward the Royal Government's priorities are to: (i) prepare the Organic Law to define the roles and responsibilities of the provincial and district administrative structures to speed up the process of delegation of responsibility from line ministries operations at the centre to their sub-national operations and to the provinces; (ii) develop a Strategic Framework on Decentralization and De-concentration; (iii) ensure predictable and timely release of funds including an examination of the option of allowing communes to raise their own resources; and (iv) strengthen government-donor and donor-donor coordination to achieve more optimal outcomes in terms of strategies and actions to implement the Royal Government’s decentralization and de-concentration agenda and to improve aid effectiveness in this very important area. 61. The Royal Government will continue to implement the policy and programs identified in the White Book of National Defense of the Royal Cambodian Armed Forces, including the distribution of social concession lands to the demobilized landless soldiers who request land for their residences and/or for family farming in conformity with the Sub-decree on Social Concessions. The Royal Government will continue to reform, build and strengthen the national police into a professional force, equipped with modern technology, and capable of discharging its responsibilities with due respect for the law and human rights, thereby enabling the police to serve the people, maintain security, social order and harmony and protect the people’s safety and property. 62. Peace, political stability and social order constitute the most important conditions for strengthening macroeconomic stability and promoting sustainable development and poverty reduction. Therefore, the Royal Government will continue to further strengthen peace, political stability and social order, reflecting the nation’s decisive move towards development and prosperity, leaving behind the legacy of wars, genocide and internal strife that have destroyed Cambodia over the past three decades. Peace, political stability and social order are crucial for building the state and implementing state reforms. Therefore, the top priority of the Government is to strengthen by all means the fabric of peace. Moreover, the strengthening of peace, political stability and social order will promote a «credible image» of Cambodia, build the confidence of investors and tourists in the country and generate favorable conditions for the people’s dignified livelihoods that significantly contribute to economic development. 63. The maintenance of strict budget discipline is crucial to ensure a favorable macroeconomic and financial environment to consolidate the foundation for sustainable and equitable economic growth. The priorities of the Royal Government during its third mandate are to: (i) improve the collection of taxes and non-tax revenues, including the strict implementation of the Law on Taxation and other related laws such as the Law on Investment; (ii) reduce corruption and tax evasion; (iii) dismantle the culture of tax exemptions; (iv) broaden the tax base; (v) strengthen tax and customs administration; (vi) strictly manage state assets including tangible and intangible properties as well as state enterprises and joint-ventures; (vii) reform the public financial management system, in particular rationalization of expenditures based on the principles of transparency, accountability and economic efficiency; and (viii) improve audit and public procurement system, according priority to social and economic expenditures and public investments especially on physical infrastructure. 64. To implement the above priorities, on behalf of the Royal Government of the Third Legislature of the National Assembly, Samdech Prime Minister Hun Sen has directed all members of the Royal Government to fully respect at all times the following ten disciplines in the public financial management: (i) continue to root out the “culture of tax waiver and tax exemptions” in Cambodia; (ii) take serious actions to ensure collection of all kinds of revenues as planned or go beyond the target; (iii) transfer in a timely manner all revenues to the National Treasury -- it is forbidden to retain and use collected revenues to offset extra-budgetary expenditures, including the mechanism of off-setting revenues and expenditures, securing advance commercial loan from companies and using revenues to pay back expenditures; (iv) to be courageous and determined in fighting against all kinds of smuggling, and pursuing the recovery of arrears from government's debtors, especially the recovery of arrears from taxpayers; (v) target expenditures to priority goals of development and take serious steps to cut expenditures on unnecessary or not yet necessary items, and make budget savings and reduce wastage; (vi) strengthen and further enhance the implementation of laws and regulations related to public procurement; (vii) strengthen audit in budget management (on both revenue and expenditure side) including the inspection by the Ministry of Economy and Finance, strengthen internal audit operations within ministries and institutions, and independent external audit; (viii) it is forbidden to sign any contracts with private companies that have tax obligations, and any other contracts that have implications for state revenues and expenditures without the participation and prior approval from the Ministry of Economy and Finance; (ix) it is forbidden to contract commercial credit; and (x) take serious steps to strengthen the management of all forms of state assets by fully enforcing the laws and regulations related to state asset management. 65. The Royal Government will continue to push for the integration of Cambodia into the region and the world, specifically focusing on bridging the development gaps among the member-countries of the Association of South East Asian Nations. To maximize the gains from international integration, Cambodia will strengthen its institutional capacity to implement cooperative strategies with neighboring countries such as the concept of “Four Countries-One Economy”, the creation of the triangles for economic growth and the establishment of cross-border Economic Processing Zones. The Royal Government will continue to liberalize trade and ensure free flow of goods and services both within the country and between Cambodia and other key partners in the region and the world. The Royal Government will strictly implement its obligations under the World Trade Organization, recognizing that Cambodia's membership in the WTO requires great efforts in the formulation, adoption and the implementation of laws, regulations, and procedures. 66. Accelerated development of the agriculture sector that supports the livelihood of more than three-quarters of the work force is a very high priority of the Royal Government. Sustainable economic growth, poverty reduction, and Cambodia’s Millennium Development Goals can not be achieved without a significant improvement in the productivity and diversification of the agriculture sector. To modernize the agriculture sector, the Royal Government will: first, increase the percentage of public investment allocations to agriculture and for rural development, particularly at the provincial and local levels for irrigation facilities, rural roads and other rural infrastructure, where construction services shall as much as possible be contracted by and accountable to Commune Councils; second, encourage increased private sector investment in farm and village-level enterprises in key sub-sectors including small-scale commercial, market-oriented aquaculture, crop and livestock production, and agro-enterprises such as processing, post-harvest facilities and mechanization; third, accelerate and stabilize broad-based growth of agricultural output through sustainable development of high-value products; and fourth, increase local-level expenditures and investments in: (i) extension services focused at increasing the productivity of farmers; (ii) farmer-owned and operated irrigation; (iii) rural enterprises; (iv) enhanced skills and capacity in lending to agricultural and agro-based enterprises; (v) decentralized public investments and de-concentrated budgeting and services for the agricultural sector; and (vi) revolving funds for farmers’ groups managed according to micro-finance principles. 67. To support rural development the Ministry of Rural Development will continue to: (i) act as a catalyst and coordinator working with other ministries, international organizations, NGO's and private partners by coordinating the implementation of their projects in rural areas and assisting international aid programs; and (ii) directly implement projects or programs necessary to develop market based economies in rural communities. It will continue to promote human resources development, establishment of the rural development structures, especially formation of village development committees, and information and communication management. It will also continue to implement programs such as road rehabilitation and construction, clean water supply, health care promotion, small irrigation expansion, household food security promotion, rural credit promotion, and village development. 68. Land and water are the two fundamental natural resources that serve as the basis for socio-economic development and poverty reduction, especially in the rural areas. The Royal Government will continue to accord a high priority to strengthening land tenure rights of the people who need small lots for settlement and family production within the social land concessions framework, as a mechanism to assist poor households and vulnerable groups. To ensure that the Ministry of Land Management, Urban Planning and Construction has the capacity to effectively and efficiently deliver its services the Ministry will be restructured, if necessary, and concrete steps will be taken to develop its human resources. To prevent and combat corruption, the Ministry will prepare and implement a transparency and accountability strategy in all areas of its responsibility. The Ministry will expand the coverage of the Land Titling Program to reduce land conflicts and to enable the registered land owners to have access to credit as well as take measures to increase revenue collection from land tax, unused land tax, cadastral and other land use related fees. 69. Cambodia continues to be one of the most heavily land mined and UXO (unexploded ordnance) affected countries in the world. The land mines and the UXO left behind from the Vietnam War and the internal strife in subsequent period continue to cause hundreds of fatalities of innocent citizens each year. The Royal Government's target is to clear all severe and high impact suspected mined areas of land mines and UXO's by 2012, and to be free of all land mines and UXO's by 2020. 70. Fisheries sector is crucial to the lives of million of Cambodians in terms of food, income and livelihoods. The priorities of the Royal Government are: (i) to enable community-based development of the fisheries sector by empowering local communities so that farmers can participate directly, actively and equitably in fishery plans, programs and management; (ii) transform fishing lots whose concession contracts have expired into fish sanctuaries, thereby helping increase natural fish stocks, and conserve endangered species; and (iii) expand community-based fishing lots and promote aquaculture to respond to the increasing needs for fish as well as to reduce the pressure on fisheries resources. 71. The goal of the Royal Government's forest sector strategy is to ensure sustainable forestry management based on the following three pillars: (i) sustainable forest management policy, to ensure the rational and strict monitoring of forest exploitation according to the international best practices in forest management that require adequate forest reserves for domestic consumption, protection against drought and floods as well as wetlands that serve as fish sanctuaries; (ii) protected area system to protect biodiversity and endangered species; and (iii) community forestry as a sound, transparent and locally managed program. To achieve the goal of sustainable forest management, the Royal Government’s priorities are to: (i) strengthen forestry management and conservation; (ii) enhance forestry sector’s contribution to socio-economic development; (iii) enhance forestry sector’s contribution to poverty reduction; and (iv) strengthen capacity and good governance in the forestry sector 72. The rehabilitation and construction of the infrastructure, that is a pre-requisite for achieving sustained economic growth and poverty reduction goals, remains a very high priority of the Royal Government. The transportation networks are the arteries that connect all corners of the Kingdom of Cambodia and thereby transform the country into an integrated economy. The transport networks are instrumental in integrating domestic markets and facilitating Cambodia's integration into the regional and world economies. A high priority of the Royal Government is the rehabilitation and construction of transport networks, including bridges, roads, railroads, seaports, and airports that link all parts of the country, and Cambodia to its neighboring countries and the rest of the world. A significant challenge in the rehabilitation of the road network is the large number of river crossings not only in rural areas but also on the main National Roads. Many existing bridges have load capacities below 20 tons and collapses are not uncommon. Therefore, during the third mandate of the Royal Government a high priority will be given to ensure routine and periodic maintenance of the road network. During its third mandate the Royal Government plans to rehabilitate and repair more than 2,000 km of the main and other national roads, and 1,000 km of Provincial roads. 73. The priorities for port and inland waterways transport include rehabilitating dredgers to carry out regular dredging of all major waterways; upgrading the Phnom Penh inland river port, as well as improvements to smaller domestic river and lake ports; and the upgrading of existing ferries. The Royal Government would like to see a greater participation of private sector self-financing entities to own, manage and maintain the international ports of Phnom Penh, Sihanoukville and Koh Kong and to assist provinces in establishing locally-generated funding mechanisms to develop and maintain inland port facilities. The railway network is a vital element of the transport infrastructure that at the present time is in a severely damaged state and remains a grossly under utilized asset. The Royal Government's first priority is to restore the missing link of some 48km to the Thailand border. The Southern railway line between Phnom Penh and Sihanoukville port requires rehabilitation to reduce operating costs to make it competitive with road transport. The viability of rehabilitating the northern line also needs to be explored. 74. The availability of civil aviation services is a pre-requisite for the development of the tourism sector that has a significant multiplier effect on the economy. The Phnom Penh International Airport (Pochentong) will be further improved under the ongoing BOT agreement. There is a need to upgrade: (i) the Sihanoukville and the Siem Reap international airports to international standards to cater to the growing traffic to the area, and (ii) the north-east domestic airports at Stung Treng, Rattanakiri, and Mundulkiri. To meet international safety standards the communication-Navigation-Surveillance /Air Traffic Management System (ATM) is also required. 75. The national policy on water resources and irrigation is part of a broad program of the Royal Government to protect, manage and assure sustainable exploitation of both fresh-water and marine resources while enhancing bio-diversity and sustainability. During the third mandate the priorities of the Royal Government are: (i) to develop and expand irrigated lands; (ii) to ensure effective water resources management by improving the efficiency of the existing irrigation system; (iii) to further develop and enhance the effectiveness of water use in farmer water user communities; and (iv) to reduce the vulnerability of the population to natural disasters and its total dependence on natural conditions. 76. The Royal Government's long-term development vision for the energy sector is to put in place a domestic power generation and distribution system that will meet the needs of all urban and rural communities and a growing economy at low-costs. Achieving this vision will require major capital expenditures and a significant strengthening of the capacity of the national institutions responsible for planning, operations, and maintenance of such a system. The Royal Government would like to see strong private sector participation and investment in the development of domestic power generation and distribution system to realize this vision. Recognizing the constraints on the availability of capital resources needed to realize this vision, the Royal Government's short- to medium-term priorities are to: (i) continue to rehabilitate and construct domestic power generation plants based on resources that become available; (ii) purchase electric power from neighboring countries, through bi-lateral agreements, to meet the current needs of the country; and (iii) continue to expand the national power distribution/transmission system to supply power to all parts of the country from domestic power generating plants as well as power purchased from neighboring countries. 77. The long-term development vision of the Royal Government is to develop a cost-efficient and a world class post and telecommunications system that has a nation-wide coverage. The realization of this vision will require significant investment for building the backbone infrastructure of the telecommunications systems, especially high-speed fiber optic cables for the development of rural telecommunication systems. During the third mandate of the Royal Government, the telecommunications network in Phnom Penh, Sihanoukville, and Siem Reap will be expanded and extended to smaller cities and towns. Microwave/fiber optic cable communications will be installed to connect: (i) Kompong Cham - Phnom Penh - Takeo - Kampot - Sihanoukville; (ii) Kompong Cham - Kompong Thom - Siem Reap - Sisophon; (iii) Kompong Cham - Kratie - Stung Treng; and (iv) Mondulkiri - Pailin - Preah Vihear - Oddar Meanchey. The postal network and the capacity of concerned institutions will be strengthened to improve the quality of the postal services. Radio and TV broadcast networks will be strengthened to improve efficiency. National guidelines will be developed and adopted on investment plans and cooperation for telecommunications facilities, services and information technology, including standards and regulations on the use and practice of information technology and use of the internet. 78. The Royal Government considers the private sector to be the engine of economic growth. The Royal Government will continue to play a strategic role in creating an environment conducive to enhanced private sector development and in managing the development process. To create an enabling environment for private sector development, a high priority of the Royal Government during its third mandate is to implement measures that will: (i) strengthen both public and corporate governance; (ii) facilitate trade and improve the climate for investment; and (iii) promote human resource development to effectively respond to market needs. The Royal Government will continue to facilitate and provide support to private investments in the following six priority sectors:
79. The Royal Government recognizes that improving the business climate and creating an enabling environment for private sector development are key pre-requisites for fostering growth, creating jobs, reducing poverty and achieving sustainable economic development. To remove the critical bottlenecks impeding the development of the private sector as well as to provide inputs in the processes of administrative and regulatory reforms, a Government-Private Sector Forum was established in December 1999. It has been meeting once every six months and is supported by seven Business-Government Sectoral Working Groups, which meet monthly to identify and recommend actions to resolve sector-specific problems. To further strengthen the key institutional mechanisms to support the implementation of the Rectangular Strategy, at the last Government-Private Sector Forum held on 20 August 2004 Samdech Hun Sen, the Prime Minister announced the formation of a Steering Committee for Private Sector Development that is chaired by Sr. Minister and Minister of Economy and Finance, with Sr. Minister and Minister of Commerce as Deputy Chairman, and the Governor of the National Bank of Cambodia and the Ministers of MIME, MAFF, MPWT and MOT as Members, and the Secretary General of CDC, as its Secretary. The Steering Committee is supported by the following three Sub-committees: (i) Sub-committee on Investment Climate and Private Participation in Infrastructure (PPI) -- chaired by Sr. Minister, Minister of Economy and Finance; (ii) Sub-committee on Trade Facilitation -- chaired by Sr. Minister, Minister of Commerce; and (iii) Sub-committee on SMEs -- chaired by Minister of Industry, Mines and Energy. The Steering Committee and its three Sub-committees will work closely with the development partners who want to assist Cambodia to develop the private sector, based on a SWAP arrangement for private sector development. 80. The tourism sector has attracted a significant amount of private sector investment. The Royal Government will continue to support the rehabilitation and construction of infrastructure needed for the expansion of tourism by the private sector. 81. The Royal Government has committed itself to promoting the development of small and medium size enterprises during its third mandate. The priorities are to: (i) encourage the development of SMEs, especially through the provision of medium and long term finance; (ii) suppress smuggling; (iii) reduce registration procedures and start-up processes for companies; (iv) facilitate export-import activities by simplifying procedures such as licensing and other letters of permission; (v) provide support for newly-established industries for an appropriate period; (vi) promote linkages between SMEs and large enterprises; (vii) establish a national center on productivity to assist SMEs in enhancing their productivity and reducing production costs; (viii) establish a national standards institution to help ensure the quality of domestic products to meet regional and international standards; (ix) establish national laboratories for physics, chemistry, micro-biology, mechanics and tests for quality and standards of products; (x) strengthen mechanisms for the protection of industrial intellectual property rights, to prevent illegal copying, re-creation and illegal use of new techniques and technologies; (xi) promote vocational/skills training, both domestic and overseas; (xii) expand and accelerate the "one village, one product" program; and (xii) strengthen the legal framework by creating laws governing the operations of: factories, industrial zones, patents and inventions, measurements and industrial safety. 82. The Royal Government will continue to promote the rural credit sector to ensure that loans at a reasonable interest rate are available to the poor, especially those in remote areas and along the borders, and to small and medium enterprises (SME). 83. To create jobs and better working conditions for workers the Royal Government during its third mandate will: (i) implement measures which encourage domestic investment and attract foreign direct investment in priority sectors, especially agriculture, agro-industry, labor-intensive industries and tourism; (ii) establish skills training networks for the poor, linked to employment assistance especially for young people and new graduates in response to labor market needs; and (iii) develop a labor statistical system. 84. With the support of its national and international partners, the Royal Government will increase its social sector interventions, thereby improving employment opportunities, reducing vulnerability of the poor, enhancing emergency assistance to victims of natural disasters and calamities, and expanding rehabilitation programs for the disabled, including welfare improvement programs for the elderly, orphans, female victims, the homeless, and veterans and their families. The Royal Government will continue to provide support to the disabled people and veterans and their families, especially those who have sacrificed their lives for the country. The Government will encourage owners of enterprises and factories to provide fair wages and gradually introduce pension schemes for workers in accordance with market conditions. 85. The availability of workers in good health and with skills that are needed in the labor market is a pre-requisite for achieving sustained economic growth. The priorities of the Royal Government during its third mandate are to strengthen the quality of education, enhancing availability of health services, eliminating gender inequalities, and implementing a population policy to strengthen the human capital base of the nation. The Royal Government will continue to pursue the achievement of EFA goals in basic education; increase budget expenditures, and mobilize increased international assistance to provide incentives for teachers; assure quality instruction; increase provision of educational materials, equipments, libraries and laboratories; build dormitories for students, especially female students; continue to reform curricula and training programs; provide scholarships to poor students; promote literacy and informal education programs; finance construction of schools in the rural areas and support school operating costs; and will continue to strengthen its partnerships with the private sector and the national and international community to enhance and improve the quality of education services, both in vocational and technical training and in higher education, consistent with international standards and the development needs of the nation. 86. The Royal Government is strongly committed to the adoption and effective enforcement of health laws and regulations to ensure the delivery of high quality health services and medicines including traditional medicines with appropriate information and control in conjunction with the use of modern medicines. The Royal Government's priorities are to increase allocation of public resources for the health sector and continue to encourage the participation of the international community, and the private sector to further increase investments in the health sector to improve the health status of the people. Priority will be given to the construction of referral hospitals and health centres, which can provide health services in an efficient, equitable and sustainable manner to citizens across the country, especially the poor and vulnerable groups. The Royal Government will continue to focus on the implementation of prevention programs and combat communicable diseases and promote maternal and child health care to reduce the maternal and infant mortality, improve emergency services, and provide health and sanitation education and information, especially in the rural areas. The poor shall be entitled to free health care in referral hospitals and health centres. Equity funds designed to help the poor in accessing quality health care services will be further strengthened and expanded. The Royal Government will adopt and enforce health laws and regulations to ensure high quality health services, medicines and food safety. It will continue to encourage the use of traditional medicines with appropriate information and controls in conjunction with the use of modern medicines. 87. HIV/AIDS: To respond effectively to the HIV/AIDS epidemic, the priorities of the Royal Government are to implement measures that will: (I) prevent the spread of HIV/AIDS infection; (ii) improve care and support services to those infected by HIV/AIDS; and (iii) mitigate the impacts of HIV/AIDS epidemic. 88. The Royal Government will continue to vigorously implement its Strategic Plan -- Neary Ratanak or “women are precious gems" – that is aimed at providing Cambodian women with value and hope in life, while promoting gender mainstreaming. The main objective of the program is to build the capacities of women and change social attitudes that discriminate against women. The Royal Government places a high priority on the enhancement of the role and the social status of Cambodian women by focusing attention on the implementation of the Gender Strategy, building capacity of women in all sectors, changing social attitudes that discriminate against women, and ensuring the rights of women to actively and equally participate in nation building. Neary Rattanak presents a vision of Cambodian people, both women and men, who are united and moving forward to build a prosperous and peaceful nation, upholding law and order in a just and transparent system with good governance to achieve social, economic and political stability. Its goal is to improve the living conditions of women and to alleviate poverty by building their capacity to empower them to participate in economic activities and to have equal access to the Royal Government's priority programs in the areas of education, health, economic development, legal protection and leadership. 89. The current high rate of population growth is placing a heavy burden not only on public services but is also contributing to increasing poverty. The implications of high population growth for socio-economic development are well known and documented. The Royal Government’s will implement its population policy that is aimed at reducing poverty and achieving Cambodia’s Millennium Development Goals. PARTNERSHIPS IN DEVELOPMENT 90. As stated in the Rectangular Strategy strengthening partnerships with all development partners -- the donor community, the private sector and civil society -- is a top priority of the Royal Government. The basic principles that will guide the building and strengthening of partnerships with the donor community are embodied in the Resolutions of the General Assembly of the United Nations, the work of the Development Assistance Committee of the Organization for Economic Cooperation and Development (OECD), as well as the initiatives of the World Bank and the United Nations Development Program. Government-Private Sector Forum will be further strengthened to enhance its effectiveness as a mechanism of partnership between the public and private sectors. Cooperation between the State and the civil society based on rule of law to enhance Democracy, freedom, social order and primacy of law will be further strengthened. The Royal Government would like to see the civil society become an effective partner of the Government in nation building. To this end, the Royal Government will encourage the activities of the non-governmental organizations and other duly-registered associations working to serve and benefit the people and the nation. The Royal Government welcomes the participation of the NGOs in the process of socio-economic rehabilitation and development and the promotion of Democracy and respect for human rights. The Royal Government will speed up the drafting, adoption and implementation of the Law on Non-Governmental Organizations, after broad consultation with all relevant institutions and organizations. 91. During the third mandate of the Royal Government an important challenge for both the Government and the development partners is to identify and implement approaches that will improve aid effectiveness in reducing poverty and achieving Cambodia's Millennium Development Goals. The Royal Government would like its development partners to align their assistance programs with Cambodia’s development priorities and to harmonize their practices based on the principle and guidelines that have been agreed to in various international fora, in particular the OECD/DAC arena. The Royal Government is convinced that using nationally owned strategies to plan and manage ODA and a greater harmonization of donor practices will not only enhance national ownership of the development activities but will also improve aid coordination and aid effectiveness. The Royal Government also encourages the development partners to consider planning their country assistance programs within the context of program/sector based approaches that will not only minimize the multitude of stand alone projects that place a heavy burden on the limited capacity in government institutions but will also bring a sharper focus to ODA supported activities. 92. The Working Group mechanism to monitor progress on specific policy issues has been in operation since 1999. The Royal Government and the development partners have agreed to restructure the working groups. An agreement on the basic principles to restructure the working groups that will enhance aid effectiveness and bring a greater coherence to ODA supported activities has been reached. These basic principles were endorsed by Samdech Hun Sen, the Prime Minister at the Pre-CG Meeting held on 10 September 2004 in Phnom Penh. The restructured working groups will now consist of 17 Joint Technical Working Groups at the sectoral/thematic level. At the Pre-CG Meeting held on 10 September 2004, Samdech Hun Sen, the Prime Minister also identified the following urgent tasks that each joint technical working group should complete before the forthcoming Consultative Group Meeting scheduled for early December 2004.
First,
both parties coordinate to finalize the list of members and TORs of the
joint technical working group, as soon as possible.
93. To ensure coordination among the 17 joint technical working groups, the Royal Government and development partners have also agreed to create a “Government-Donor Coordination Committee (GDCC)” to provide policy guidance, to set priorities, and to propose measures to solve problems raised by joint technical working groups. The Government-Donor Coordination Committee will be assisted by a Secretariat. This Secretariat will be located at the Cambodian Rehabilitation and Development Board (CRDB) at CDC. 94. On the issues concerning harmonization and alignment of donor activities to improve aid effectiveness a number of significant developments have taken place over the last year in the international arena as well as in Cambodia. In the international arena, the OECD/DAC Task Force on Harmonization published its Good Donor Practices Papers that were endorsed at the High Level Forum that was attended by the heads of multilateral and bilateral development institutions and representatives of the IMF, other multilateral financial institutions, and partner countries gathered in Rome in February 2003. The Forum also issued a declaration that committed development partners to support the harmonization efforts to improve aid effectiveness that is now known as the Rome Declaration. 95. The Royal Government has also prepared an RGC action plan to implement the Rome Declaration’s commitment in close collaboration and support from the development partners. This action plan is presented in the Royal Government's report on "Building Partnerships for Development: An Update". In moving ahead with the implementation of the Action Plan, the Royal Government recognizes that there are serious challenges ahead. The most serious of these challenges is the divide between agreed global policies on harmonization and alignment by the authorities at the national or headquarters of our development partners, and the follow up actions needed to change the practices and behavior of donor operations at the country level. In the case of a number of our bi-lateral partners, the authorities in the capitals have now prepared their Action Plans for harmonization and alignment in line with OECD/DAC principles. Early this year, on behalf of the Royal Government, the Council for the Development of Cambodia (CDC) had asked the OECD/DAC Task Team to not only share these Action Plans with partner countries but also to closely monitor and periodically report to partner countries on:
96. On the national front, the Government-Donor Partnership Working Group that was established in response to Royal Government’s proposal at the last CG Meeting in June 2002 has been busy in supporting both the work of the OECD/DAC as well as examining harmonization issues in Cambodia's context. The Working Group commissioned three studies to collect and analyze the necessary background information, in early 2003, to begin its work on tackling the harmonization issues. These studies focused on three areas: (i) the capacity building practices of Cambodia's development partners, (ii) practices and lessons learned in the management of development cooperation; and (iii) preparation of national operational guidelines for development cooperation. The first two studies have been completed. Also, the first draft of the third study has been prepared. The study on the capacity building practices is now being discussed by the Council for Administrative Reform with development partners to arrive at a set of recommendations on which there is consensus, and to develop an action plan for their implementation. 97. To foster Government-Private Sector partnership, a Government-Private Sector Forum has been in operation since 1999. As noted earlier, the Government-Private Sector consultation mechanisms are being strengthened further through the establishment of a Steering Committee for Private Sector Development that will be supported by three Sub-committees. The Steering Committee and its three Sub-committees will work closely with the development partners who want to assist Cambodia in developing the private sector, based on a SWAP for private sector development. 98. The Royal Government believes that the civil society has played and should continue to play an important role in monitoring the implementation of poverty reduction initiatives. Cambodian NGOs are a part of the civil society as well as international NGOs who represent the international civil society. NGOs can contribute much to poverty reduction plans based on their development experiences and are in a strong position to convey the needs and concerns of vulnerable groups to policy makers. The Royal Government would like to encourage a greater participation of the trade unions, ethnic associations and farmers' associations in the monitoring of the implementation of the poverty reduction initiatives. To better target poverty reduction initiatives the participation of the poor and vulnerable groups in the monitoring of the poverty reduction efforts should also be strengthened. There is also a need to strengthen the capacity of the Parliament in order for it to make concrete inputs. FINANCIAL REQUIREMENTS AND ODA MOBILIZATION TARGETS 99. The alleviation of poverty among Cambodia’s population through economic progress and social development is the highest priority of the Royal Government. The Rectangular Strategy of the Royal Government of the Third Legislature of the National Assembly is aimed at promoting economic growth, full employment for Cambodian workers, equity and social justice, and enhanced efficiency of the public sector through the implementation of the Governance Action Plan and in-depth reforms that are coordinated and consistent across all levels and sectors. The Rectangular Strategy selects key elements from Cambodia's Millennium Development Goals, Cambodia's Socio-Economic Development Plan 2001-2005 (SEDP2), Cambodia’s National Poverty Reduction Strategy 2003-2005 (NPRS), and various policies, strategies, plans and other important reform programs. The implementation of these strategies and policies will be achieved through a focused and prioritized Public Investment Program (PIP) which is one important instrument to implement these strategies and policies. The PIP is designed within the framework of a three‑year rolling plan to capture priority proposals and needs on an on-going basis. The programs and projects that constitute our public investment program will be financed both from the National Budget and with the assistance of our external development partners. The PIP is comprised of the Government’s priority programs that are being implemented and/or are planned to be implemented in various sectors and constitute the basic information for the allocation of national budget resources as well as for the mobilization of assistance from our external development partners. 100. The Royal Government is currently in the process of strengthening its public debt management system. The outcome of the negotiations on the rescheduling of loans with the governments of the United States and Russia that were delivered in the 1970s and 1980s is likely to increase the debt service burden on the limited domestic revenues of Cambodia. To optimize the benefits of the ODA for the people of Cambodia and to minimize the burden on future generations, the Royal Government encourages its development partners to consider financing through grants the development programs in the social sectors, including Education and Health, as well as programs for human resources development, and information technology. The Royal Government would like to limit the use of concessional loans for development activities that will result in a quick economic and financial return to service the related debt charges. The use of non-concessional loans for financing development programs will be strongly discouraged. 101. Over the years, our external development partners have been generous in providing support to Cambodia’s public investment program. At the previous six CG Meetings for Cambodia the Royal Government had worked hard to keep resource mobilization targets for external assistance at around US$500 million per annum to cover on-going and new projects. Because of the large number of high priority needs identified by the ministries it has not been possible to contain the mobilization target within this limit. The total cost of the Government’s planned development programs, both on-going and new programs, over the next three years (2005-2007) is estimated to be around US $ 1,937.6 million. The Royal Government of Cambodia has committed from its own resources US $ 290.4 million for these development programs. After adjustments for estimated Government contribution (US$ 290.4 million), and taking into consideration the requirements for budget support (US$ 150 million), and balance of payments support/stand-by-facility from IMF (US$ 66 million); the total requirements for external assistance over the next three years amount to US$ 1,863.2 million that averages to US$ 621.1 million per annum. Some of our external development partners have already committed to provide US$ 1,062.6 million. Thus a gap of US $ 800.6 million in the financing of these development programs remains at the present time for which the RGC is seeking additional support from its external development partners. |
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