World Bank President, Robert B. Zoellick: Media Conference in Cambodia, August 5, 2007

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And so, in that sense, Cambodia is one of the challenges that I and others in the development community are most concerned about, which is dealing with post conflict and fragile states which pose particular challenges for development and growth.

I have some personal association with this because when I was at the State Department the first time from 1989 to '92, I was very involved with the Paris Peace Accords which were reached in 1991; and then, when I returned to government, I was involved with the accession process for Cambodia to the WTO in 2004 and the textile and apparel preferences which were based on the ILO Labor Standards.

It's a good time for me to come because I can see that the country has now benefited from a few yeas of very strong growth. But as I mentioned to the Prime Minister and other governmental colleagues, I think that Cambodia is at a key point of decision.  Part of this is economic and part of it deals with the larger challenge of where Cambodia will fit in the international system, given global competition and change.

And one of the ideas that I developed, with the help of some of the ambassadors from the foreign missions I met with this morning, was the notion that Cambodia has a particular opportunity and need to develop a global brand.  I first was thinking about this because, as many of you know, Cambodia had this preferential trade arrangement with the United States based on ILO Labor Standards; and, at the end of the quotas, many were concerned that the industry would get overcome by bigger competitors.  But it's been able to stay in the game and in fact grow in part because at least for some buyers, there is a special value to the social responsibility that is included in that industry.

Well similarly, this is a country that has an extraordinary heritage. It draws people from all over the world because of that.  People understand the shattering past. And so one of the points that I suggested to my Cambodian colleagues was the need to build on this as a country that emphasizes distinctive standards, whether with labor standards; trying to help the poor; moving up the ladder to be a constructive participant in ASEAN.  I talked a little bit with the Prime Minister, as some of you may know, that Cambodia has actually contributed some de mining forces in Sudan, another country that I have dealt with.  This will also be a key question for Cambodia with natural resource development - will it apply high standards, whether it be the energy sector or the forestry sector.

So the challenge is for Cambodia to move from an environment of global sympathy to one of support because of the high standards that are set here.

Now this, of course, has implications. One which we discussed in our meetings with strengthening the governance and building the institutional infrastructure so resources are used well and international support can be maintained.  As many of you know, Cambodia draws about $690 million of assistance a year from international donors, which is no small sum in a world of competitive aid. And to be able to continue and strengthen that support it will need to build a positive record and encounter the challenge of corruption.

But it's more than an issue of Cambodia and outsiders. It's of fairness to the Cambodian people.  For people who have suffered enormously, they need to share in the benefit of the growth and development. 

A second aspect is the challenge of the Millennium Development Goals, so we talked about the work with the rural poor.  We talked about maternal mortality.  And I met yesterday with a very impressive doctor who is the Minister of Gender and she was explaining some of the efforts they are making.  Keeping people in schools and upgrading the education system is going to be vital because, otherwise, you won't have the skill set to be able to compete.  And as one of the ambassadors told me, there’s a need to create about 300,000 jobs a year, which is no small sum.

So part of this is also to benefit and broaden the base of Cambodia 's development by drawing in all of Cambodia 's people. And we have some projects that are related to that, including one that I saw yesterday which is a very moving example of giving the Cambodian people not only their own property but their own share in Cambodia's future through this land titling exercise.  It's one that I hope we could help the government speed up and expand all throughout the country.

Another key challenge is strengthening the investment climate. And here I have been very delighted to see how the World Bank Group, including not only the IBRD but also IFC working with our IDA program, has been very effective in trying to strengthen the private business sector.  One of the stops I made yesterday was a small agricultural machinery producer that had gotten some of its capital from ACLEDA Bank, which started out as an NGO and now is the second biggest bank in . It has a large branch network, and we were talking again about how it can expand its services so that both saving and microlending can help support a broadened development program.

There are other things that IFC is looking at in terms of advisory assistance and how we can help try to support the infrastructure, whether it be tourism, airport or others.

We talked about the development of oil and gas and how this would be a really significant moment and challenge.  It gives an opportunity for Cambodia that many countries that have had energy wealth have frankly found it to be a curse as much as a blessing because it goes to benefit a select few as opposed to drive the development of a country.  One of the ideas that we discussed was the need to expand rural electricity.  If you compare Cambodia 's development with Vietnam, Vietnam has been much more successful in terms of expanding electricity to the rural areas. 

So, it would be fantastic if the development of energy here could be connected not only with lowering energy prices in Cambodia, which is important for many industries, but also expanding rural electrification.  And as a part of this, we talked about the EITI, the Extractive Industry Transparency Initiative.  I also connected this to the forestry sector because that's another one where the natural resource development obviously has to be done with great sensitivity.  The Prime Minister actually emphasized, himself, the need to stop the logging operations because they’d become too significant a source of corruption.

And we talked in a number of the meetings with the public financing program that is a key aspect instead of building the internal good governance aspects of the fiscal sector.

Another core aspect of this which IFC as well as others in the World Bank Group can help with is the need to broaden the base of economic growth here.  As I had mentioned, I’d worked with the apparel industry.  That's about 80 percent of exports of Cambodia.  That's really a narrow base on which to be developing.  And so to draw in other businesses, it's important to create the climate for investment, whether it be Cambodian or whether it be from the external environment.

Having said that, I was very impressed with the garment factory that I visited, and I have had an opportunity to visit a number of them around the world, and again, the skill of the Thai employees was pretty impressive.

What draws all this together is the need to have strong emphasis on a rule of law agenda.  Again, Cambodia was shattered in terms of the basic infrastructure, of the legal system, the judiciary.  I know this won't get built overnight, but we talked about different mediation and arbitration systems to help create the need for a more secure environment for investors and for individuals in the country.

So part of my purpose was to listen and to learn from both my colleagues and from those in Cambodia.  We have a great team here which we have expanded very significantly in recent years.  They're working on everything from the social development agenda; the Millennium Development Goals; to creating the proper investment climate and the rule of law issues, so I'm very pleased and proud to be associated with them.

In addition to the meetings that I have mentioned in the course of this, I also met with the head of the NGO Forum and had a working dinner last night that was guided by the Finance Minister, and just finished this morning after a meeting with some the donors from other countries and then seeing the Prime Minister.  We had a working lunch with the Economic Council that seems to be an interesting device that draws people together from different ministries but also is kind of a guiding source of energy. 

So, I would be pleased to take your questions.

Journalist:  You mentioned the potential of the oil and gas industry in Cambodia.  How concerned are you about the absence of real transparency in relation to what the Cambodian Government is doing in relation to that?  And are you concerned about the absence of guarantees about how any profits might be spent?

Zoellick:  Well, as I mentioned in my opening statement, this is the context in which I discussed the Extractive Industry Transparency Initiative. And in the meeting with the Finance Minister, we talked about some of the costs of implementing that and ways that we might be able to help as they proceed with it.

I frankly employed the discussion of that energy topic to make two broader points.  One was the one that I mentioned, that it would be very important that, along with the development of the energy sector, that the benefits were expanded for the general public and in particular the need for the rural electrification, which again we had some experience working with and would like to help here. But also that this would be part of the challenge of the brand of Cambodia for the whole natural resource sector. And rather than see it as a concern, I see it as an opportunity where people can look at Cambodia as a model of development and how it, while though it's a relatively small country, can distinguish itself from some of its bigger neighbors in the region.

So, these will be the issues that we will want to follow up on.  I got a sense of whether talking about this or anticorruption practices or others that there is a recognition of them. People aren't sort of afraid to talk about them. But I think we need to continue to press ahead with the government to try to urge the execution of it.

Journalist:  When (sic: where)  you told that the Government of Cambodia can give you a time frame when Cambodia is going to adopt a law in the way of anticorruption?  Thank you.

Zoellick:  In our dinner last night, the Minister talked about the work that is being done on the Civil Code and how they were expecting to move on this after the Civil Code.  In the discussions that I have had with ambassadors in the various missions, I think there is an interest to try to continue to press the government to move this forward.  It's one of the points that I made. And going back to the first question, I said that I urged Cambodia to help me help them. And my point was that the country's governance and corruption issues are front and center on people's agenda.

I think there is a tremendous opportunity to help a country that has suffered incredibly but yet has important opportunity ahead of it.  But to do so, we need to work with them to overcome these issues and anticorruption law is a key element.  And it's not only passing the law, but it's implementing it. 

Journalist: In case of corruption, if the money of the World Bank seems to be mismanaged for one reason or another, who is responsible?  How far goes the responsibility of the World Bank?  Are you supposed to control up to the end the use of the money?

Zoellick:  Well, as we tried to make clear from the recent past, we can't be in a position where the money that we are investing or devoting to Cambodia gets stolen. And because of that we took actions based on some of the past investigations. At the same time, what we want to do is now work with the government going forward to strengthen its capacity, to urge it to have transparency.  I just finished a presentation about new budgetary processes that are going to be imposed in various ministries. We’re not going to rely only on that.  We set up an independent procurement agent and I was talking to the World Bank staff that are in charge of that, emphasizing the importance of that.

Now over time- and this is one of the challenges of Cambodia- the governance structure needs to build these capabilities itself and they need to build their own country systems. And again, as I emphasized in my opening remarks, this is not just a question of pleasing the external world.  It's a question of being fair to the Cambodian people. When - I'm sure all of you know and you covered this, and I certainly had a sense from my past work, but spending a couple of days here and seeing it - people have suffered tremendously.  People deserve a fair chance. And that means making sure that - whether it be foreign aid or government revenues - which it's spent appropriately.

I also think that it's simply important for the external business community, and I made this point at the session I just attended in terms of helping us to help Cambodia.  One of the benefits of my experience in the private financial sector as well as in the government over the course of some 20 years is I have some sense of what the international competitive environment is like.  Cambodia is a small country.  It needs to be distinctive to get on the map, and I believe it can be distinctive by emphasizing its heritage, better labor practices, better transparency, fighting corruption. And so, this is also important if Cambodia is going to draw the foreign investment to create the jobs.

Journalist:  I have heard that the World Bank is actually working on trade preservation issues and trying to overcome most relevant bottlenecks in Cambodia's economy.  What are the results of that?

Zoellick:I'm sorry.  I didn't hear your second to last sentence.  Overcoming??

Question:  World Bank trying to overcome most relevant bottlenecks.

Zoellick:  I'm glad you mentioned that because that's another topic that we discussed.  We had a briefing on the SEZs, (that’s my concession to British English; otherwise I’d call them SEZee’s (sic). Since my last name begins with “z” this is a particular concession) but also some of the work that IFC may be able to provide, whether it be in terms of airports, port facilities.  In the rural areas, we’ve had some projects that are also related to helping to create some of the basic infrastructure so that goods can come to market, and I think this will be a key part of the competitiveness of Cambodia going forward.

Journalist:  I heard that the World Bank does not allow individual donors' names to appear on projects that have received matching funds from the Bank and that opening ceremonies celebrating those projects are not allowed to acknowledge individual donors' contributions. How would you respond to allegations that this is a way in which your organization has become more aloof or arrogant?

Zoellick: Well, that's an issue of whether she can give me more particulars?  All I can say is I went to a land titling exercise yesterday that acknowledged all the other donors, so I have never heard that.

Nisha Agrawal, the World Bank’s Country Manager, Cambodia:  No, there is a particular issue about an NGO that, in the past, was providing computers to some of the schools that we were funding and they would like to continue to do that, but they put their names on the schools and the government doesn't like that because, I think, once we decide to give assistance to the government, these are really government schools.  So, it's not an issue of arrogance.  We don't see them as World Bank projects or schools because they’re supported by us.  We see them as Cambodian schools, and we prefer they be seen as such.

Zoellick:  In fact, let me take your question to make a broader point.  What's quite important in the development effort in Cambodia is how all the different donors are brought together, and it's one reason why I wanted to meet this morning with representatives of many of the different donor countries because this only works if the different aid and development programs are synchronized effectively.  And I got a very good sense today and it’s one reason I did this,  was to talk to people from all the different countries, and they recognized the importance of this and the need to do it together. But I'm always pleased to share the credit because I think that's the way you get more support.

Let me make sure I get everybody once.  Then we can come back to you. Anyone else have one? 

Journalist:  Very generally speaking, having all the information you have, having met the important people here, and being new to this job, as far as I understand, do you intend to modify the general politics of the World Bank in Cambodia in a way or another, or just do more of the same?

Zoellick:  Well, I think what the role of the Bank has played in Cambodia and this is the message I got from the Cambodian officials with whom I talked as well as the Bank that we supported and others  has been one that has been very important in terms of trying to create the base of stronger development and growth.  And, as I said in answer to the last question, our aid program here is relatively modest compared to some of the others.  So, while we provide financial assistance, we do so in the context of coordinating with others.  Now, one of the steps that the Board took in my first month was to move forward with a new program loan of budget support which reflects our interest in trying to work with the government to overcome some of these governance challenges, but support its overall direction as part of the Country Assistance Strategy.

I would say that, as we had talked in our last meeting with our Cambodian colleagues, I think we need a multifaceted approach to this.  One aspect is the social development.  Another aspect is the institutional and rule of law development.  Another aspect is supporting the trade and ability to compete. But a critical part and one that  I don't know if it's different, but it's one that I certainly want to emphasize  is the effective integration of our IFC team, our private sector investment team, as part of the World Bank Group.  Frankly, this to me is more of a model that I had seen here that I want to try to expand elsewhere because the IFC team has played a key role with some rather modest investments that, in terms of economic return for IFC, are not going to be very big, but the payoff in terms of development is very significant and I’d like us to try to support that more. So, when we discussed some of the ideas that came out of our conversations with our Cambodian colleagues about areas in the future, whether it be energy development or some of the infrastructure issues, I’d like to think that IFC can play a leveraging role and help draw in other private sector players.

Journalist:  My question is about supporting private sector development here in Cambodia. So I think there is no doubt such an investment could provide a huge engine for economic growth and development. But I wonder as the Bank is thinks about supporting the private sector, what mechanisms need to be in place to ensure that growth is shared equally? I mean we’ve had a problem here in Cambodia with an increasing division of wealth,  as we have in many other places in the world, so what needs to be done to make sure those gains are equitably distributed? 

Zoellick: Well, first, this land titling effort that the Bank has played a critical role in is very significant to keep it going and expand it, because it was actually quite moving yesterday to see individuals and to learn a little bit about how the program works so that people could have physical documentation that showed they own this land, they could borrow against this land; they could if they need, they could sell it; they could develop it, they could leave it to their kids.  I’ve just seen in so many developing economies, unless you establish basic property rights, it's hard to grow.  In this case, establishing property rights for small land holders is a very important step.

Now one aspect that we discussed is there still needs to be more work done particularly in indigenous and ethnic communities, a lot of them in the north where you have such community land holdings, and we talked with the government about sort of the legal process.  So that's one key step.

Second, this microfinance program here has been fantastic.  My colleagues have the exact numbers, but first you have to get the property, but then you have to be able to get some modest working capital, and this to me is a wonderful story of working with a local institution, helping it grow.  I think its now overall book of business is $330 million U.S., as I recall, in assets.  But what struck me was its branching system and its overall effort to kind of spread its business throughout the country.  So that's a second core element - property rights and then financing systems.

And then looking to the future, it's a question in this area of energy costs.  Energy costs are higher here than they are in other areas. 

So, one of the topics that we are trying to do is at least start to link Cambodia to an energy grid, including Laos, which, as you know, we are having other projects that are trying to help develop hydropower which could lower the costs of energy for businesses here.  Over time, as I mentioned in my answer to the other question, I’d  love to see the energy resources that had been discovered here partly channeled for broad based growth and use and reducing costs in rural electrification.  So, that's a third element.

The fourth is this question of doing business.  We do a Doing Business Report.  Cambodia still ranks rather low in that process, so use that report to guide what could be done in terms of making it easier to start a business, to grow a business.  This little agricultural machinery business that I visited yesterday the proprietor was someone who was disabled that lost part his leg but was using his brain as an engineer   I mean, a very self taught engineer in designing this equipment   and we had the customer there as they built this sort of usual rice threshing machine which could also be used as a general truck.  It costs about $5,000 for one these, but when I asked the customer, he owned a few hectares of land but he was going to go into business to do the rice threshing for all of the neighbors.  That entrepreneurial spirit can't work unless people can be able to get some working capital and be able to start to expand their business.  So that's another core area here.

But underneath it all is a sense that, while working for it today, you have to work for the future, and that means you have got to create the legal system, the reliability of courts or arbitration or mediation systems - so when people get in disputes commercially, they can be handled as opposed to drive them out of business.  And then you have to invest in your people for the future, and education is going to be very key here.

When I looked at some of the statistics in terms of the primary education, there’s still too many kids leaving school before they finish primary education. And then, obviously, you want to expand people going on to high school.  There’s going to have to be greater opportunity here in the university sector, which I have learned is primarily private run. We need that expansion.  I met with the Education Minister yesterday.  He is somebody that had worked and lived in the United States from the energy sector, came back to this country to help build its future.  I was very impressed with the things that he wants to do.

So, all of those are areas where I think we can contribute. But the core point is this ultimately has to be driven by Cambodians.  This is Cambodia's future.  What I was here to do was to learn more about their particular concerns and interests and ways we could help, but also to share this notion that I think for Cambodia to develop, it needs to reflect on setting high standards throughout its development process to make it distinctive.

You know, I’ve seen this happen in other parts of the world.  You get a lot of tourists coming here.  Tourists include business people.  People see it as an area that can grow in opportunity and you can get a few investors out of that.  It doesn't take too many investors to start to build a record.  So, for all the benefits that the apparel sector has brought this needs to be broadened.  It's too narrow a base.

Question:  On behalf of DVC, a private group to invest in Cambodia, we are interested in Vietnam and Indonesia, mainly.  We have got two interests, one for oil and gas exploration, which you talked a little bit about, but the second is the coal industry.  We have been offered a piece of land of 24,000 hectares, which is significant.

I have several questions.  First of all, would you consider biofuels is a good sector do you consider the World Bank be involved in - let’s say, contract farming support projects? 

That's the first question. The second question, of course, we raised some question and we had concern regarding the land issue, the land status, and guarantees that investors can get at the end of that.  Again, can the World Bank or IFC give some support and assistance to a private investor?

Zoellick:  Well first, I want to make sure my colleagues follow up with you so we can learn about your interest more particularly. But to address your questions - first, I'm glad you mentioned agribusiness because it's one of the other sectors I forgot to mention that we discussed a lot, and we discussed it in a couple of contexts.  One is exploring what can be done with the hotel and tourist sector to try to strengthen the capabilities to supply some of the fruits and vegetables locally as opposed to having to import them.

But, more generally, this area struck me as where one you could expand through these land holdings with some agricultural extension services for small as well as large land holders.

Now, second part, the World Bank has been very interested in biofuels and alternative energy sources.  So, we would be pleased to try to talk to you, whether through the IBRD or IFC to learn more about the project you have in mind.

Next, I asked particularly at a couple of my meetings about the land concession process because what I have seen in some situations is you have got a movement to expand small land holders, but now and then there are these huge land concessions that  are given to favorites within the country. And I was trying to understand what the requirements were for people to develop those, including in an environmentally sound way. And I was pleased to learn that the Prime Minister has actually revoked five land concessions that had not been developed according to plan. 

But I don't know for sure what they are offering in terms of foreign investors other than to relay to you that, from some of the meetings that I just had, I think there was an interest in trying to expand, in addition to the small holding, some of the larger operations - if they can get a sense that there is a true development plan that can help the growth of the country.

I don't know if Nisha wants to add anything to that.  But we will follow up with you.  Thank you. We had probably better take one last question.

Journalist: I have one question that Cambodian Government has a plan to set up stock market in the future.  What do you think about these things and have you some advice for Cambodian Government?

Zoellick:  Which markets? Oh, the stock markets. Yes. I think the starting point, and again, this is one I've been pleased with our work so far,  is that normally when developing countries try to develop a financial system, it's important to get the banking system working right, and that's one of the areas that we have been involved with.

There was some discussion on the side in one of our sessions about setting up securities markets, and the Bank has tried to help countries do this.  The challenges are, first, you have to have a good legal system so that you understand; you get the basic information about the companies that are going to market, whether it be equities or bonds because otherwise people aren't certain what they're buying.

The second aspect is to lower the transactions cost, so this goes to the institutional nature.

And, third, over time you want to build a broader investor base, so this is savings societies, whether they be insurances, pension funds and others. 

So, we would be certainly pleased to work with Cambodia and share the experience of this.  I did this separately with China, for example, recently, as it's been trying to develop its bond market in particular. 

I think, at this stage, the most important thing is to get the basic financial intermediation system working with the banks throughout the country, but we certainly never want to turn away people who have bolder ambitions.

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