CDC - Statement by Germany

Federal Ministry for Economic Cooperation and Development (BMZ)

Sixth Consultative Group Meeting for Cambodia

Phnom Penh, June 20^th — 21^st 2002

Statement by Germany

The dialog of the Royal Cambodian Government with the donor community in the context of the CG process has been marked by the initiation and implementation of a huge reform agenda. The regulatory framework for government actions, the strengthening of democratisation, decentralisation and deconcentration and not least public administration reform have been the core activities. The progress achieved so far is impressive. It is however worrisome to see that in spite of these achievements abuse of power, arbitrariness, and unlawful actions still prevails unchallenged primarily at provincial and district levels where also corruption remains endemic. If no counter actions are taken, implementation and effectiveness of reforms are at stake.

Economic and Fiscal Policy

Progress in these fields is partially highly encouraging: despite the worsening global economic situation Cambodia has achieved remarkable economic growth. Inflation was kept low; revenue mobilization and expenditure restraint has improved. Next to this, the shift of allocations from military spending to social spending is laudable. However, these favourable trends have not been adequately reflected in pro-poor economic growth especially in the SME sector. The continuous decline in foreign direct investments is disappointing and requires, due to its complexity, thorough analysis. Without strong commitment by FDIs progress in the restructuring of the economy to the benefit of SMEs the much-needed broad base for sustainable growth cannot be achieved. More emphasis has to be placed on equitable distribution of income capital and resources.

Foreign investors play a predominant role in economic growth. Therefore gaining and restoring their confidence should be of utmost priority. The recent mission of German investors to Cambodia reflects the potential for private public partnerships. No multi- or bilateral generosity of the donor community can possibly substitute the lack of private sector initiatives!

It is only logic that RGC has attributed highest priority to alleviate poverty by sustained economic growth with special emphasis on private sector development. We therefore strongly endorse the plans of the RGC to formulate policies and to strengthen the legal framework for SME’s. Special emphasis should be given to the formulation and implementation of a strategy to prepare SME’s for Cambodia’s accession to the World Trade Organization. However this alone is not a means in itself. Cambodia must find out about its comparative advantages in order to succeed in the regional and international markets. Only true competitiveness can lead to success in this field. They must become far more competitive in regional and international terms Germany is focussing its assistance program accordingly also by supplying special credit lines for SME. The Small medium enterprise is the backbone of any burgeoning economy.

Legal and judicial reforms

Germany is pleased that RGC has announced the establishment of the Council for Legal and Judicial Reform in order to speed up the process, which has so far been slow. The submission of a first draft strategy paper is seen as a step in the right direction but needs further careful elaboration in view of the immediate needs for thorough implementation. In spite of some progress in the fields of good governance and combating corruption major legislative work still needs to be done.

The adoption of an anti-corruption law and its enforcement deserve much greater attention by the RGC government and National assembly. Equally, the establishment of full implementation of public procurement procedures cannot remain limited to four priority ministries alone but must be expanded to the whole public procurement system. We hope that the National Audit Authority with the assistance of several donors, including Germany, will soon function along the lines of internationally accepted values, principles, standards and procedures.

A recent evaluation of several Cambodian-German development cooperation projects in the field of environmental protection and resource management by the National German Audit Authority came to the conclusion that further assistance to the RGC can be justified only if there is significant progress in the handling of accountable, transparent public finances. Hence, at this stage it is seen premature to consider new forms of financing such as direct budget support.

Decentralization and Deconcentration

Substantial and impressive progress has been made in the field of decentralization and deconcentration (commune councils, implementation decrees).

Capacity building commune councils and clerks as well as the intermediate levels (provincial and districts) and awareness building (especially civil society) will need further attention. The necessary support mechanism through intermediate institutions of province and district level has yet to be put in place.

Most problematic is that the communes have not yet achieved significant results in collecting their own revenues. Without these the meaning of decentralisation is jeopardised.

Forestry

We commend the significant progress achieved since the last CG meeting in Tokyo. However, the gap to bridge the national goal of sustainable management of forest resources is paramount. Strict monitoring, control and conviction of forest crimes, such as illegal logging and the reform of concession management system remain broadly unresolved. In addition community based forest management, conservation and protection, as well as rehabilitation of degraded forest areas have to be strengthened. The development of a comprehensive forest policy framework is in its initial phase, but can easily rely on internationally agreed standards and criteria, such as the Forest Stardship Council recommendations.

In this context we strongly associate ourselves with the points raised by the EU

Land Management

Substantial progress has been achieved in the land sector during the past 12 months. Yet, accountability (courts, audit authority, anticorruption action plan, inspection departments in all public institutions, law enforcement, codes of conduct, transparency, public education) must still be strengthened. Two specific issues are of particular concern. First, in more than half of the huge number of land conflicts government and military officials are directly involved often with too little consequences. Second, state assets and especially state land (which comprises 80 % of Cambodia’s land stock) is inadequately managed. Economic concession contracts lack transparency, are not tendered and do not contribute significantly to the national budget. Hundreds of thousands of hectares benefit just a few concession holders who in turn only use actively an estimated 5 % of the concession area.

The rest serves speculative purposes. Given the weak governance associated with the sale or lease of state properties, we urge RGC to consider a total freeze and a thorough review of contracts awarded since 1993. Equally there should be a freeze on issuing concessions without social assessment. Otherwise thousands of local families in the future concession areas are driven into chanceless land disputes. The new land law is limiting future concession areas to 10 000 ha. Existing concessions exceeding these levels should be reviewed and brought back to legally foreseen levels. Such action would send a strong message to officials dealing with state property. On the other side confidence of aid agencies could be restored, seeing that government intends to deal with these highly sensitive issues.

Such action could release more than 500.000 ha of land for distribution to the rural poor as a significant contribution to the poverty reduction strategy.

Health

We commend the achievements in the health sector in a brief time period, i.e. the tripling of public funds to this sector. However, health indicators like infant or mother mortality are still among the highest in the region. Furthermore, 83% of health costs are born by the users, 12 percent by donors and only 5% by RGC. Illness and cost for treatments are major reasons for further impoverishment of the rural and urban poor. We ask RGC to increase allocations to the health sector especially because the return on investment will be poverty alleviation. Measures to secure refinancing the health expenditures need to be established for sustainable management of the public health institutions. RGC is encouraged to use the German study and expert fund to explore possibilities as to how the private insurance sector can be interested to establish health insurance schemes that primarily benefit the poor.

Youth and gender equality

The Federal Republic of Germany foresees with great concern the problems, if the pressing needs of children, youth and the inequality of gender are not addressed more vigorously. HIV/AIDS, drugs, prostitution and trafficking, child labour and the imbalances in gender access to higher education, lack of woman in responsible government positions and their unequal representations in commune councils are of concern. The law against domestic violence has been passed and appropriate measures for its enforcement are now expected to be implemented.

Future Cooperation

Germany has recently introduced new policies in order to increase significance and effectiveness of development co-operation. The key element is concentration. This concerns the number of cooperating countries now down to 80 and the number of focal areas within any given country is limited to a maximum of 3.

In the last Cambodian-German Government Negotiations it was agreed to concentrate in the following focal areas:

I. Democracy, civil society and public administration,

II. Health, family planning, HIV/AIDS,

III. Economic reform and development of the market system

In terms of regional concentration, the integrated activities will focus on the Mekong and Tonle Sap Basin.

For each of these priority areas strategy papers will be drawn up in near future. Total ODA spending during the past 3 years has been as follows:

	Year		Mio US$
	1999		21,6
	2000		19,4
	2001		16,8

Above average allocation in the fiscal year 1999/2000 reflect rehabilitation and rehabilitation measures in conjunction with the flood disaster. It is anticipated that future commitments of the forthcoming biannual Government negotiations remain at the present level. Concentration on fewer priority areas is regarded as a process and can be only being gradually achieved. Co-ordination and Cooperation with other donor countries is greatly sought after and we would be pleased to create further joint program platforms. Our first encouraging alliances have been established in the area of Land Management with World Bank, Finnish and German Governments. Germany supports collaborative efforts of donors to focus on implementation and impact. We fear that the spirit of progress and reform will disappear if sizable impacts on the quality in the lives of the people do not materialise.

Germany strongly supports efforts of joint donor coordination in planning and programming, which hopefully lead in future to more synergies and common projects and programs.

Thank you.