Volume 2, Number 4 April 2004 EastAsiaonsolidground,settogrowby6percentin2004 Cambodia records lower than expected growth; prospects look favorable for 2004 WASHINGTON, DC,PHNOM PENH growth also bodes well for the region's Global investment in information and April 20, 2004 ­ Fueled by growing ex- poor, with an estimated 3349 million communications technology and high ports, low interest rates, and high invest- moving above the $2 a day line in this tech electronics has rebounded and is rap- mentinChina,Vietnam,andThailand,East latest upsurge,." Mr. Kassum said. continued on page 2 Asia's economy is expected to grow by more than 6 percent in 2004, the strongest since the beginning of the global slow- down in early 2000, according to the lat- est EastAsia and Pacific Regional Update, the World Bank's twice-yearly look at the region's economies. "With the strong recovery in the United States and Japan, increased de- mand for East Asian exports and the long- awaited rebound in the high-tech sector, the outlook for the region is very posi- tive both for the big countries and for the smaller ones," said Regional Vice Presi- dent for East Asia and Pacific Mr. Jemal- ud-din Kassum. "By the end of 2003, the low and middle-income countries of the region were growing at a combined rate of 7.6 percent, their fastest rate since 1996. This PHOTO: CHHOY PISEI strong recovery to pre-crisis levels of A vender sell her products at the market in Phnom penh Cambodia needs to diversify and reform to help the poor As part of the World Bank's outreach Cambodia, Ms. Nisha Agrawal, recently ity and growth," she told students at the efforts to youth and students in Cambo- spoke to nearly two hundred university Build Bright University's Ph.D program, dia, the World Bank country manager for students about Cambodia and how the where students are from government, pri- World Bank is working to help in the fight vate sector and civil society. "Your roles against poverty. ­ whether from the public or private sec- She talked about how the Bank's work tor ­ are important. If you are in the in Cambodia covers such areas as provid- government you could prepare and help ing knowledge and ideas, technical assis- deliver strategies that will help people tance, and financing for projects aimed at in need, especially the poor. And if you reducing poverty. Aid coordination ­ and are in the private sector, you can help by working in increased partnership with creating more jobs and help people to Cambodian counterparts and donor agen- earn a better living." cies ­ is an important part of the Bank's At the University of Cambodia, where program as well, she noted. more than 100 students participated in the "Cambodia has made some solid discussion, Ms.Agrawal said that growth achievements in recent years, including is coming mostly from the garment and establishing peace and stability, regional tourism sectors. She warned, however, reintegration, and adoption of a reform that depending on these two sectors alone agenda. But progress has been slow. And is not enough for the country's growth, the poor have not been able to benefit as the economic base remains fragile. The Nisha Agrawal talks to students much from these achievements in stabil- continued on page 3 2 The World Bank Newsletter April 2004 EastAsiaonsolidground... continued from page 1 ness (and yield the 6-7 percent growth excessive investment, the report says. idly growing, to the benefit of manyAsian rates targeted in the 2003-2005 National Just what effect this slow down will have economies. This recovery will likely fur- Poverty Reduction Strategy); to mitigate on China's neighbors remains to be seen. ther growth in intra-regional production constraints and develop new opportuni- "Although it is true that slower growth and trade networks, centered on China, ties in the rural business environment; in China would hurt other economies in which is taking in a growing number of its and to cultivate new sources of growth, the region, our view is that the impact neighbors' exports. including export diversification." She would be modest," said Mr. Homi Kharas, noted that poverty remains a major con- Chief Economist for the EastAsia and Pa- Cambodia's growth was lower than ex- cern, with $1/day figures showing that 43 cific Region. "Even a 10 percent reduc- pected in 2003, recording 4.8 percent com- percent of the population is below the tion in the growth of China's imports pared to 5.5 percent in 2002, adversely af- poverty line and $2/day, nearly 78 percent. would result in a loss of less than 1 per- fecting by the anti-Thai riots and the SARS Aconcretereformagenda­whichincludes cent of gross domestic product (GDP) in outbreak in the first part of the year, both a solid focus on governance reform ­ is Korea and Taiwan (China) and less than of which hurt tourism, which fell by 11 needed to restore momentum in the me- half of one percent GDP in a country like percent from 2002. Growth was however, dium-term and promote high quality Thailand. And if this slowdown took place supported by a solid 23 percent gain in growth necessary for greater poverty re- in 2004, it would be offset by an accelera- goods exports, underpinned by the con- duction. the market for a growing number tion of Japanese imports from the region tinued strength of garment exports, which of exports from EastAsian economies. and higher global trade growth. surpassed US$1.6 billion, representing Chinastilldrivingtheregion,butforhow "Therealrisktotheregion,"Mr.Kharas nearly 80 percent of total exports. At the long? noted, "comes not from slower growth in same time prudent monetary policy con- Long the driver of regional growth, China but from a hard landing, which tributed to continued expansion of net will take skillful and coordinated foreign assets, a stable exchange rate and East Asia Economic Growth policymaking to avoid." a low inflation rate of 0.5 percent. 2002 2003 2004 2005 In another positive sign for the region, The anti-Thai riots, and SARS, and the East Asia 5.9 5.7 6.3 5.9 domestic and foreign investment are also gridlock resulting from the July 2003 elec- Develop E. Asia 6.6 7.6 6.9 6.5 showing signs of recovery. Net portfolio tions affected Cambodia's fiscal standings S.E. Asia 4.4 5.1 5.4 5.4 flows to six large regional economies ­ as well, with total revenue reaching only Indonesia 3.7 4.1 4.5 5.4 China and the five post-crisis economies, 85 percent of the budget target, which Malaysia 4.1 5.2 5.5 5.5 Indonesia, Korea, Malaysia, Philippines contributed to an increase in the overall Philippines 4.4 4.5 4.2 4.1 and Thailand ­ are estimated to have budget deficit to 7.1 percent of GDP, up Thailand 5.4 6.7 7.2 6.5 jumped to around $33 billion from a net from 6.8 percent in 2002. The revenue Transition Econ. outflowof$9billionin2002. FDIintoChina shortfall led to a reduction in priority sec- China 8.0 9.1 7.7 7.2 has remained stable at about 4 percent of tor spending in health, education, agricul- Vietnam 6.0 7.2 7.0 7.2 its GDP since 1990, while Korea, Malay- ture, and rural development. small countries 1.5 4.0 4.3 4.1 sia, Philippines, and Thailand are receiv- Mr. Kazi Matin, Lead Economist for Newly Ind. Econ. 4.8 3.0 5.4 4.9 ing about 2 percent of GDP or about the Cambodia, said, "Despite some of the set- Korea 7.0 3.1 5.3 5.3 same as the world average. backs, Cambodia achieved a major ac- 3 other NIEs 3.0 2.9 5.5 4.5 Increasingly other regional econo- complishment with its accession to the Japan -0.3 2.7 3.1 4.4 mies are also looking forward to solid in- WTO in September 2003, as well as made World Bank East asia Region;April 2004 vestment growth. Looking forward, a progress on the structural reform agenda combination of low interest rates, avail- in the financial and monetary sectors. ability of credit, and higher corporate Economic prospects for 2004 are posi- China's imports surged 40 percent in 2003, profits and productivity are an impetus tive, with an expected recovery and and figures from the first quarter of 2004 to an upturn in investment spending growth expectations of 5.5 percent, show continued growth, fueled by de- around the region. driven by construction, the fledgling tour- mand for inputs to China's its manufac- Foreign direct investment (FDI) in- ism sector, and urban-based garment in- tured exports, mostly from China'sits flows to six main East Asian economies dustries." He cautioned however that neighbors. Intra-regional trade still ac- are estimated at about $60 billion in 2003, growth prospects could be challenged by counts for around 70 percent of the gross about $1.5 billion higher than in 2002. But the January 2005 scheduled phasing out growth in exports of EastAsia's develop- of this total, about $53.5 billion went to of the textile and apparel quotas (under ing economies, as has been the case for China and only about $6.5 billion to the the Agreement in Textile and Clothing), the past three years. But this trend will other five economies, Indonesia, Korea, since the bulk of exports to the US and surely slow as China cools from its cur- Malaysia, Philippines, Thailand, whose the EU are channeled through the quota rent torrid rapid growth rates. The Chi- combined share of FDI continues to fall and special preferences system. nese authorities are working hard to slow while China's share rises. Commented Ms. Nisha Agrawal, the country's pace of growth to a more Risingcommoditiesprices­goodforthe Country Manager for Cambodia, "This manageable level. To do this, they must small economies risk can be managed if the government balance the need to continue creating jobs "In the present recovery Ggrowth and takes decisive action to improve the in- and reforming the economy while keep- poverty reduction in the region is more vestment climate to boost competitive- ing the economy stable and slowing down continued on next page April 2004 The World Bank Newsletter 3 Workshop on participatory poverty assessment Cambodia,April 6 ­Aone-day joint work- way and to identify gaps in research. The study will cover a range of factors shop hosted by the Asian Development Participants worked to generate concrete affecting poverty including governance Bank (ADB) and the World Bank on par- recommendations on key issues and pri- andpoliticalparticipation,economictrends ticipatory poverty assessment (PPA) meth- orities to include in the two studies, both andpolicies,naturalresourcemanagement, odology was held in Phnom Penh; more in terms of content and process. social capital and institutions, and gender than100participantsfromtheGovernment, At the opening speech, Madame relations. NGOs, Donors and local communities Khiev Bory, representative from the Min- The World Bank Country Manager, around the Tonle Sap participated. istry of Planning, stressed: "We do not Nisha Agrawal, presented the five steps The objective of the workshop was to see today's workshop as a one-off event, in implementing the National Poverty Re- consult on two proposed poverty assess- but as the start of an on-going dialogue duction Strategy (NPRS) such as pov- ments - the ADB's Tonle Sap participa- with our development partners on the PPA erty diagnosis, setting strategic targets, tory poverty assessment and the WB initiative. We aim to reconvene with key defining strategies, implementation, and Moving out of Poverty research - as well stakeholders at all major steps along the monitoring outcomes and evaluation. She as to gain a better understanding of the way to share findings, refine the analysis added that there are ongoing survey and different analystical work currently under- and discuss policy implications." continued on 4 EastAsiaonsolidground... continued from page 2 gional growth, however, the present level "To ensure that these windfalls truly widespread than in most other of high oil prices is expected to drag down benefit countries over the long term, par- recoveriesare being more widely shared some of the key economies of the region, ticularly in the poorest countries, rev- around the region, thanks in large part and significantly higher prices over an enues must be managed well, which his- to rising commodity prices, which are extended period could paint a grimmer torically has not been the case," Mr. boosting incomes in several of the low i­ picture for regional and global growth," Brahmbhatt concluded. income, commodity exporting countries," hecontinued.Highercommoditypriceswill The special focus section of the report said Lead Economist Mr. Milan benefit others, however, particularly some looks at the lessons from China, Indone- Brahmbhatt, lead economist and principal of the smaller economies in the region, in sia, Korea, and Malaysia in reducing pov- author of the Regional Update. Oil and particular, like Mongolia and Papua New erty on a large scale, the subject of the up- primarycommoditypricesforcotton,,rice, Guinea as well as some of the larger ones coming Shanghai Poverty Conference, rubber, metals, and edible oils like palm oil, likeVietnam and Indonesia. Higher prices May25-27,andanongoingglobaldialogue rice, rubber and metals rose 10 to 20 per- will, on the other hand, tend to eat into the on ways to accelerate poverty reduction. cent in 2003 and have continued to rise in income of the more developed commodity For more information please contact early2004. importing economies, but so far not by visit: www.worldbank.org "These increases are no threat to re- enough to damage the overall recovery. Cambodia needs to diversify ... continued from page 1 Development Bank (ADB) and the United accountability. garment industry, she explained, grew by Kingdom'saidagency,DFID. Shesaidthe Aspartofthediscussion,manystudents relying on the protection afforded by the strategy is centered on four key pillars to asked questions. Concerns were raised MFA, which expires on January 1, 2005. improve governane ­ ensuring a frame- about having to pay back loans (credits) The future of this industry is uncertain work for private investment; access of the which the Bank provides; how the World once Cambodia is no longer sheltered by poor to productive assets; public admin- Bank deals with the corruption issues; and quotas but has to compete with other coun- istration and financial management sys- howCambodia'sjoiningtheWTOwillhelp tries, especially China. tem; and improved local governance and the country's growth prospects. The tourism sector, which has been dominated by travel to Angkor Wat, was hit by the SARS crisis in 2003 and is vul- nerable to further declines due to the glo- bal threat of terrorism. She added, however, that if Cambodia was to improve the investment climate, it has the potential to develop a wide range of industries such as agriculture and food processing, shoes, electronics, and many others. Ms.Agrawal also discussed briefly the new Country Assistance Strategy (CAS), currently being developed by the World Bank in close partnership with the Asian Students at the University of Cambodia hear about Bank strategies to defeat poverty April 2004 The World Bank Newsletter 4 Workshop on participatory poverty assessment continued from page 3 studies such as the National Institute of Statistics Household survey to be com- pleted by the end of 2004, which will pro- vide reliable and current quantitative data on poverty , the WB's Moving out of Poverty study, and the ADB study on Tonle Sap on Participatory Poverty As- sessment. She said other donors and NGOs should work together to address poverty issues and that "we should not separate the NPRS and Millennium De- velopment Goals (MDG)," she said. Deepa Narayan, SeniorAdvisor to the Poverty Reduction Economic Manage- ment Unit (PREM) said at the workshop that Cambodia is one of 20 countries con- ducting a global comparative study to learn retrospectively from those who were once poor but have moved out of poverty and stayed out of poverty and those who have remained poor in different political, social and economic environments. Attendees at the Workshop on Participatory Poverty Assessment on April 6 "The value added in this study is that it will be explicitly policy-oriented, it will Specialist at the said this workshop social factors refer to membership in provide a historical perspective with a represents a significant step forward in groups and networks, and the impact of strong qualitative analysis from the per- government-donor-NGO partnership, as local institutions in poverty reduction. spective of the poor and those who have this is a joint initiative between WB and The political or governance factors in- recentlymovedoutofpoverty,tounderstand ADB, funded by DFID, and carried out in clude control over decisions, political par- the key factors influencing economic and close collaboration with the Ministry of ticipation, access to information, vulner- socialmobility." Planning and CDRI. ability to crime and violence. Mia Hyun, World Bank poverty spe- Naresh C. Saxena, head of the ADB Chin Vuthy, project officer of the cialist, said the study will have a strong research team on PPA of the Tonle Sap, Fisheries Action Coalition Team, an emphasis on supporting capacity build- said the study begins the process of NGO based in Siem Reap which is one ing for participatory data collection and strategic planning to ensure that poverty of PPA participants, said this workshop analysis skills, as well as evidence-based reduction and sustainable livelihoods are gives local NGOs a chance to provide policy formulation, grounded in the reali- addressed in all stages of project plan- comments and documents related to ties and experiences of the poor them- ning, implementation, and monitoring poverty reduction as reference material selves, and those who have successfully and evaluation. to improve the quality of the studies. moved out of poverty, in Cambodia. "The study should contain recom- "One concern we have is that the re- "This is an important step in the lead- mended actions in policy, programs, insti- search team might not go to villages where up to the formulation of the next five-year tution building, decentralization, local access is difficult," he said. national development strategy, which government, and public sector manage- Thay Somony, Chief of the Commu- should be underpinned by a joint National ment, investment in physical infrastruc- nityFisheriesDevelopmentOffice,Depart- Poverty Assessment," she said. " With ture and human capital, and social-politi- ment of Fisheries, said the workshop was the new WB and ADB initiatives on the cal arenas," he said. organized in a way that participants from Participatory Poverty Assessments Chan Sophal, the lead researcher from various institutions can freely express and (PPAs), we will be able to complement the CambodiaDevelopmentResourceInstitute provide comments to the PPA research quantitative analysis from the forthcom- (CDRI)saidtheresearchwillbeconducted design. ing household survey, the existing pov- in nine villages from different provinces "By doing this, it improves communi- ertyassessmentworkwithinformationand where they have data from 1996 and 2001. cation and enhances the research meth- analysis based on direct consultation with "The scope of our study is on the eco- odology as well," he said. the poor at local levels, on specific issues nomic,socialandpoliticalfactors."hesaid. For more information contact: which affect their well-being and ability The economic factors refer to asset Mia Hyun, Poverty specialist to move out of poverty." ownership, sources of income, expendi- Email: mhyun@worldbank.org Manoshi Mitra, Social development ture, credit, employment and services. The We Welcome Your Opinions and Comments We welcome your opinions, comments and questions. Please send them to: Bou Saroeun, Communications Specialist, at 113 Norodom Blvd., Phnom Penh, email: sbou@worldbank.org. We very much appreciate your valuable assistance.