GOVERNMENT-DONOR QUARTERLY MEETING: ECONOMIC CRISIS TAKES

UNCLAS SECTION 01 OF 02 PHNOM PENH 000287

SENSITIVE
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STATE FOR EAP/MLS

E.O. 12958: N/A
TAGS: PGOV ECON EAID CB
SUBJECT: GOVERNMENT-DONOR QUARTERLY MEETING: ECONOMIC CRISIS TAKES
CENTER STAGE


1. (SBU) Summary: The Royal Government of Cambodia (RGC) April 28
hosted the 14th Meeting of the Government-Donor Coordination
Committee (GDCC) to review progress made toward their national
development strategy and discuss policy impediments. The RGC
presented thoughtful economic analyses and serious policy responses
to mitigate the impact of the global economic crisis. The
Ambassador led the session on the joint indicators -- measures of
progress. In a departure from the past, the response from the RGC
was complete and the dialogue engaging. Some of the policy
responses offered by the RGC indicated a greater awareness of a
sense of urgency to take action. The GDCC continues to get negative
English-language press as a "talk fest" without regard for some of
the commitments made behind closed doors. While the RGC's
painstakingly slow Asian consensus model irritates critics, we
believe some positive change is afoot, though it remains to be seen
how much. End Summary.


2. (SBU) The Government-Donor Coordination Committee (GDCC) is a
quarterly meeting designed to review jointly progress made in
implementing the RGC's National Strategic Development Plan, as
measured by the joint monitoring indicators (JMI). The meeting was
attended by seven Ambassadors and eight representatives of bilateral
missions providing assistance to Cambodia, multilateral bank
representatives, a few Ministers, secretaries of state from 15
ministries and co-facilitators of the 19 established donor technical
working groups (TWG). This meeting focused on the economic crisis,
conducted a review of indicators, and discussed aid effectiveness.


3. (SBU) The RGC presented a thoughtful analysis of the macro
economic trends, the garment sector, and the strength of the
Government's social safety net. In a departure from the past, the
RGC also presented a number of economic policies and other measures
to retain investment and mitigate the growing negative consequences
of the global economic crises. Some of the measures included
strengthening tax administration; shifting treasury funds to invest
in infrastructure, transportation and agriculture; decreasing
reserves to 12%; increasing the minimum capital requirements [once
again]; providing a three-year tax holiday for agriculture
investments; adding incentives for agriculture processing and
vocational skills training investments; suspending the one-percent
pre-payment tax on profits. The Chair of the GDCC, Deputy Prime
Minister and Minister of Economy and Finance Keat Chhon, remarked
that the economic crisis could be viewed as an opportunity to not
only mitigate negative consequences but also to make needed
improvements to enhance Cambodia's competitiveness. The policy
responses offered by the RGC is an indicator of the seriousness of
the situation and the sense of urgency with which they are taking
action.


4. (SBU) The Ambassador presented the donor consensus statement on
the joint indicators where a dozen issues covering governance,
corruption, justice and land were raised to the RGC as well as areas
of substantial progress most notably in health, public
administration reform, and trade. Unlike previous years' meetings,
the RGC engaged in an hour of dialogue responding to each of the
issues raised. While the actions offered in response were not as
concrete as those in response to the economic crisis, the RGC agreed
to certain key items: to revive the public administration reform
working group that had lapsed due to inactivity; to allow the donors
to review the anti-corruption law (as had been requested); and to
stop the sale of forest or protected flood lands, among others.
Progress in administration reform was made in a number of
activities; however, it was insufficient to meet the established
target. For example, judicial professionals have been trained but
neither JMI, the penal code or the statute on judges, has been
passed. This session was marked by a greater degree of dialogue on
these issues than previous years, though the progress was minimal.


5. (SBU) Coverage in the English press was critical of the lack of
progress on the JMI and based those statements largely on the
government written presentations and donor consensus statements.
The Khmer-language press was divided, with the pro-government press
more accurately reflecting the meeting and capturing the Chair's
message to view the crisis as an opportunity to enhance
competitiveness but warning of difficulty in maintaining the
improved standard of living achieved over the last decade. The
opposition press criticized the government for the lack of political
will to make needed reforms and pointed to the delayed passage of
the anti-corruption law as an example. The press was not privy to
the government responses to the issues raised by donors nor were
post-GDCC statements from Embassies carried in the local press.


6. (SBU) Comment: The RGC appeared seized with the growing
negative impact of the economic crisis. The participants noted a
sense of urgency both in the RGC's presentations and responses to
issues raised. The economic crisis seems to have spurred a renewed
effort for some needed reforms; time will tell if the RGC follows
through on policy remedies and commitments it offered.


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