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Cambodia Facing Key Choices to Build Domestic Opportunity, Manage International Challenges: World Bank President

In Washington: Mohamad Al-Arief
In Phnom Penh: Bou Saroeun

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PHNOM PENH, August 5, 2007 — “Cambodia is at a pivotal moment in its recent history, facing key choices as it marks its first decade of peace and stability after many years of shattering conflict and suffering,” according to Mr. Robert B. Zoellick, President of the World Bank Group, at the end of a two-day visit – his first to a developing country since becoming President in July.   Mr. Zoellick’s involvement with the country goes back to working on the 1991 Paris Peace Accords, under which the United Nations was authorized to oversee a ceasefire and prepare for elections, and assisting Cambodia’s accession to the World Trade Organization in 2004.


Mr. Zoellick said today that “Cambodia has the opportunity to build on its recent strong economic performance to broaden and deepen the foundation for sustainable economic growth. The World Bank wants to assist the Government to enact reforms to reduce rural poverty, encourage social development, improve the business and investment climate, and strengthen the rule of law. These next, essential steps would help the Government earn the respect of entrepreneurs and investors and, more importantly, the appreciation of Cambodians, who have suffered much and seek the full benefits of peace, growth and opportunity.”


Mr. Zoellick spoke with a cross-section of people to learn first-hand about the challenges and opportunities facing the country. He met senior government officials, including Prime Minister Hun Sen, Minister of Economy and Finance Keat Chhon, Minister of Education Kol Pheng, Minister of Land Management, Urban Planning and Construction Im Chun Lim, and Minister of Women’s Affairs Dr. Ing Kantha Phavi.  Mr. Zoellick also met with garment workers, a small manufacturer, a community that received new titles to land, a fast-expanding local bank, members of the private sector, members of the donor community, and a leader of the civil society forum.


Impact of Microfinance


In the past decade, microfinance has transformed Cambodia’s young and undeveloped finance sector and, in the process, provided important financial services to small businesses, reaching almost a fifth of all Cambodian households.  Mr. Zoellick visited a small business client of one such institution, ACLEDA Bank, whose borrowers include artisans, service providers, shopkeepers and market traders.   The private sector arm of the Bank Group, the International Finance Corporation, has supported ACLEDA since 1999, and seen it grow into the country’s second-largest bank, reaching 181,000 people through 166 branches in all 24 provinces. Mr. Zoellick said that “the success of the microfinance industry in Cambodia is remarkable given the challenging business environment and the difficulty of reaching rural and remote areas.  I am delighted that the Bank Group has been able to help ACLEDA grow from an NGO to a licensed financial institution that now provides working capital to small business owners, more that two-thirds of them women. We hope to help ACLEDA expand its successful service to other areas, too.”


Garment Sector, and Beyond


Mr. Zoellick visited a garment factory, and met with private sector representatives.  The garment sector is Cambodia’s largest industry, worth $2.5 billion in 2006, and accounting for 80 percent of exports.   Mr. Zoellick’s association with the garment sector goes back to 2001 when, as United States Trade Representative, he extended a program of support to Cambodian manufacturers which provided incentives for compliance with labor standards established by the International Labor Organization (ILO). Cambodia’s garment sector has grown steadily, even after the end of the Multi-Fiber Arrangement in 2005 which had afforded some protection from bigger producers. Mr. Zoellick said it was heartening to see the strength of the sector, and that its success contained lessons about the important role of adhering to internationally acceptable standards in building confidence with foreign buyers and investors. “These lessons apply more broadly,” he said. “They can be put into action so that not only the garment sector thrives, but other sectors do as well, and Cambodia can develop an international brand for socially responsible production, resource development and tourism. That reputation would help Cambodia to sustain high growth and overcome poverty in the face of tough global competition.”


Land Titling


Another highlight of the visit was a ceremony for land titling certificates, where Mr. Zoellick assisted in handing out new land titles to the people of Prey Speu village, outside Phnom Penh. With support from the World Bank-financed Land Management and Administration Project, the Government is issuing more than 20,000 titles a month, mostly in rural areas, with 80 percent of the titles registered jointly by wife and husband or by female-headed households. The land titling progress enables poorer Cambodians to own a stake in both their own future and that of their country. Yet too many poor people remain landless. Some of the powerful are seeking to dominate large tracts.” he said. We want to work to accelerate this titling of land and to ensure that efforts are being made to reach the poorest and those most likely to be dispossessed of their lands, such as ethnic minorities. Also that Cambodia still faces a huge task of reclaiming productive land and clearing the millions of mines laid during the decades of conflict – mines which still kill and maim today.”  He said that having property rights would also enable people to invest in their farms, small businesses, and houses, to improve their financial security and their lives. “Land titling is at the heart of a strategy to overcome poverty and spread the benefits of a growing economy,” he said.


Aid Coordination


Tackling another key issue – aid harmonization and effectiveness – Mr. Zoellick met with a number of donors to discuss how to build on the Government’s efforts to increase the effectiveness of the nearly $690 million the country receives in aid each year. Mr. Zoellick noted the leadership role played by H.E. Keat Chhon, Minister of Economy and Finance, in harmonizing aid, with donors increasingly cooperating and aligning their programs with the Government’s priorities.  As in other areas, Minister Keat Chhon is trying to build a better foundation for the future. Partnership, better alignment, and strengthened country systems would help to ensure that aid reaches the people it is intended to help. “I am pleased the development partners have come a long way in the last few years and have worked hard to coordinate their policy messages.  But on the program delivery side, unfortunately, there is still too much fragmentation and waste, and more needs to be done to deliver aid through common programs rather than seeing it dissipated through small, unconnected projects.  The World Bank is committed to providing support through sector-wide programs led by the Government and delivered through the Government’s own systems. We are also committed to doing all we can to ensure the money we provide is used only for the intended purposes.”


Public Finances


Mr. Zoellick attended a lunch hosted by members of the Supreme National Economic Council (SNEC), a group of economic policy advisers to the Prime Minister.  Mr. Zoellick noted Cambodia’s strong growth and reduction of poverty over the past decade, and its improved approach to managing public finances. We want to work with the Government to do more in this area. Better management of government revenues and spending makes it more likely the people will receive better public services.  Central to this will be redoubling efforts to improve governance, fight corruption, and improve the quality of the legal system.”


Future Choices, Major Challenges


Mr. Zoellick also met with Prime Minister Hun Sen and discussed their common interest in a high quality relationship between the Bank and Cambodia, to better serve the Cambodian people. Speaking after the meeting, Mr. Zoellick said “The World Bank has worked with Cambodia since the early 1990s, and together we have come a long way. Cambodia has done well economically, with double-digit growth for the past three years, a sharp increase in tourism and reductions in overall poverty levels. Now Cambodia faces the challenge of moving to the next level of development. We wish to help it achieve the Millennium Development Goals, address rural poverty and keep students in schools. Cambodia would benefit by improving the ease of doing business. The World Bank can also help manage natural resources – especially forests and energy -- in a way that supports sustainable development. It is definitely possible to make progress in all these areas, and donors, civil society, business and government need to press one another to achieve greater effectiveness and accountability so that the poor of Cambodia enjoy the benefits and build hope.”


Oil and Gas Revenue


In his meetings, Mr. Zoellick underscored the vital need to improve governance and overcome corruption, especially following the recent discovery of oil and gas.  “The revenue from oil and gas could provide the basis for spreading rural electrification and eradicating poverty in Cambodia. In too many countries, resource income has fueled corruption and been squandered, often making the country worse off and its people more destitute. We discussed ways the Government could manage these and other natural resources transparently – for example, by adhering to the Extractive Industries Transparency Initiative --for the common good of all Cambodians.  The Bank Group wants to assist and help reduce the costs of compliance.”



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