33277 Volume 2, Number 12 December 2004 Government, donors resolve to tackle corruption and governance reform at the CGmeeting The 7th Consultative Group (CG) Meeting "However, we are living in a tough SeniorMinisterMr.KeatChhon,Minis- on Cambodia ended December 7, 2004 in and challenging time," Prime Minister ter of Economy and Finance and Co-Chair Phnom Penh with Government and Donors Hun Sen continued, citing the changing of the meeting, updated the group on ac- agreeing that Cambodia is indeed, as Prime regional and world dynamics and eco- tions taken since the last meeting of the Minister Samdech Hun Sen stated, at a nomic landscape, increasing uncertainty, Consultative Group in June 2002, noting "crossroads in its difficult journey towards and increasing competition for Foreign progress in, "implementing pro-poor de- sustainable development and poverty re- Direct Investment (FDI ) and ODA (Offi- velopment policies, achieving macro eco- duction." The time has come, all agreed, cial DevelopmentAssistance) resources, nomic stability, public finance manage- to move beyond action plans and strate- leading him to conclude, "the prosperity mentreforms,strengtheningdemocracyand gies to decisive implementation of a com- of our country depends on our ability to rule of law, mobilizing technical and finan- prehensive reform program. implement reforms at all levels. In this cial resources, and improving the delivery The CG Meeting, held December 6-7 in context, the biggest challenge for us is of public services to meet the needs and Phnom Penh, was attended by members of to strengthen government institutions expectations of the poor people." He cau- the donor community, including 18 partner and improve governance." see DONORS page 2 countries and 5 international development organizations,andtheGovernmentofCam- bodia. Civil society and private sector rep- resentatives attended as well. Delegates noted that all ­ government, donors, civil society, private sector ­ were united behind the message that it is time to transform the promisesandcommitmentsintoactionswith concrete outcomes. The Prime Minister noted that Cambodia's last decade had seen signs of progress,includingrestoringpeaceandmac- roeconomicstability;consolidatinggovern- ment institutions and an emerging democ- racy,civilsociety,andmedia;andaresump- tion of growth and foreign investment. The 7th Consultative Group Meeting held in Phnom Penh, December 6 - 7, 2004 Overseas buyers plan to continue purchasing Cambodian garments after quotas expire The World Bank Group announced on De- ropean and North American buyers at the The survey revealed that almost 80% cember 3, 2004 that key overseas buyers requestoftheMinistryofCommerce,listed of buyers consider auditing of labor stan- fromCambodia'sgarmentindustrycurrently anumberofkeyfindings."Buyerssurveyed dards to be crucial after January 1st, and plan to retain or increase their purchasing ­ purchase about half of Cambodia's gar- they have high praise for ILO's current not withdraw, as many Cambodian factory ments by value of sales. Of these buyers, monitoring scheme. Buyers also state that owners fear. These and other findings of sixtypercentsaidtheyplantoincreasetheir improved labor standards have positive an International Finance Corporation and garment purchases from Cambodia ­ none effects on accident rates, workplace pro- World Bank survey were discussed in a has plans to buy less. Findings also show ductivity, product quality, worker turnover closed workshop with representatives from that Cambodia's overseas buyers rate la- and absenteeism. the garment industry and government. bor standards as one of their top priorities Buyers were, however, insistent that NigelTwose,ManageroftheIFC/World in their sourcing decisions, and consider compliance with labor standards is not suf- Bank Foreign InvestmentAdvisory Service Cambodia to have an advantage over ficient for the garment industry to survive (FIAS), which undertook the survey of Eu- Bangladesh,Thailand,VietnamandChina." see GARMENT page 3 2 The World Bank Newsletter December 2004 Donorsunderscoredtheurgencyofgovernancereform continued from page 1 progress on legal and judicial reform and tionedhowever,"therearemanychallenges public administration and fiscal manage- facing us, the most formidable one is the ment was weak, donors agreed. reductionofpovertyandimprovingthelive- Donors underscored the urgency of lihoodsandqualityoflifeofarapidlygrow- governance reform in all areas and sec- ing population." tors as essential for Cambodia to move Delegates congratulated the Govern- ahead, increase growth, and reduce pov- ment for their achievements of the past de- erty. Government confirmed their commit- cade and more recent reforms ­ including ment to implementing their reform agenda WTO accession, progress in the fight through the Rectangular Strategy and to against the spread of HIV/AIDs, improved improving the effectiveness of develop- literacy rates and increased school enrol- ment aid in order to reduce poverty and ments, particularly among girls. The Rect- maximize the benefits of aid, but stressed Ian Porter spoke at the opening angular Strategy ­ whose core is gover- that reforms would take time. As Prime nance ­ and recent initiatives on public fi- Minister Hun Sen commented in his cludingimprovingeducation,health,HIV/ nancial management, decentralization, and speech, "Doing is much harder than say- AIDs, and mainstreaming gender equity private sector development are all positive ing. We more than anyone else are acutely in social and economic development. developments. However, donors stressed aware there is a long march ahead... Increasing Aid Effectiveness includ- that some of these reforms are in prelimi- Nevertheless, we have the horizon firmly ing harmonization and donor alignment and external financing requirements. In each session, a series of common indicators were agreed upon, to help Gov- ernment and development partners alike monitor performance in the coming year. A sample of these actions include: pass- ing a draft anti-corruption law in compli- ance with international best practice; tri- als on the key reported corruption cases; adoptionofafundamentallegalframework that establishes rule of law for all; civil service reform founded on merit-based pay and employment reform; passing of key laws and sub-decrees on natural resources management and increased access to in- formation in particular concerning land, forests, and other forms of concessions; establishing a single entry point, or Single Cambodia Government officials present at the Consultative Group Meeting Window, for import-export activities; and nary stages and that much more remained in our sights and we will spare no mea- passing domestic violence and anti-traf- to be done to break the hold of poverty that sures to take Cambodia forward for the ficking laws. Actions were identified in grips the bulk of the population ­ with re- betterment of its people." each of the key areas of good governance; portsshowingthatincomepovertyremains The governance theme ran through rural development; human development stagnant, at around 40 percent, and that each of the discussion sessions, with the and health and education; and increasing Cambodia is unlikely to meet most of its first session focusing solely on issues re- aid effectiveness. MillenniumDevelopmentGoals(MDGs). lated to governance and corruption. The On aid effectiveness, donors were Morespecifically,Governmentprogress sessions included discussions on: urged to change the way they provided in meeting the set of performance indica- Promoting Good Governance includ- aid. In particular, they were urged to pro- tors established at the last CG Meeting in ing fighting corruption and increasing vide technical assistance in a manner that June2002wasmixed. Whiletherehavebeen accountability; legal and judicial reform builds Cambodia's capacity and to rely less improvementsinprocurement,implementa- and protection of human rights; public on foreign technical assistance (TA); to tionhasraisednewissues.Progressinnatu- administration reform; decentralization phase out and replace the ad hoc salary ral resources management ­ suspension of and deconcentration; and public finan- supplements they provide to civil servants forest concession and improvements in cial management. to work on their projects with support for public disclosure ­ was offset by continua- Accelerating Growth and Improving merit-based pay initiatives; and to work tion of illegal logging and visible gover- Rural Livelihoods, including enhancing in sector wide approaches (SWAPs) wher- nance failures associated with the misuse the agricultural sector; promoting pri- ever appropriate. While supportive of of state resources. Progress in the social vate sector development; and further these general directions, donors stressed sectorswasmixed,withspecificbudgetary rehabilitation and construction of infra- the need for better and more transparent goals unmet but some progress towards structure. systems in the country to underpin effec- those goals and on HIV/AIDs. And Supporting Human Development in- See NEXT page 3 December 2004 The World Bank Newsletter 3 Garmentexportswilldependonimprovedbusinessclimate continued from page 1 competitiveness. percent of exports go to the United States, and grow. Seventy-five percent of buyers Worldwide, textiles and clothing is a and 27% to the European Union. Over the surveyed said that red tape, corruption and $350 billion industry, employing nearly 24 last five years, exports to the US have risen high energy costs must also be tackled, if million workers in 200 countries.Accord- 57%, and exports to the EU have risen production costs are to be competitive. ing to Twose, in many of these countries even more rapidly by 83%. Cambodia has Twose noted that bribe payments alone the quota system has encouraged the a relatively small group of international amounttoareportedaverageof5%ofCam- creation of garment industries that are not buyers, dominated by Gap Inc. bodianfirms'sales. "Becausegarmentpro- competitive. "These will almost certainly It is widely recognized that duction costs in China are estimated to be die away in the next few years, causing Cambodia's reputation as a "sweatshop- 15-20%lowerthaninCambodia,this5%and factories to close and significant job free" country stems from a unique provi- other costs of doing business here can ren- losses. But countries that are competitive sion in its trade agreement with the US. derCambodiauncompetitive." will find their market share increasing. Starting in 1999, Cambodia could earn a Nisha Agrawal, the World Bank's Cambodia's garment industry represents higher quota for demonstrated improve- Country Manager, welcomed the survey's less than 1% of the global industry, but it ments in working conditions. A monitor- findings, but echoed buyers' warnings is of great importance to the country be- ing system developed and implemented about Cambodia's business climate. "The causeitemploys220,000workers,andrep- by ILO, with support from the US Depart- issues that concern overseas buyers' resents 77% of the country's total exports ment of Labor, the Government of Cambo- about the costs of doing business in Cam- (in 2003 worth 12.4% of GDP)." dia, and the Garment Manufacturers'As- bodia are shared by the donor commu- The industry is fueled by significant sociation of Cambodia (GMAC) has vir- nity", she said. "The survey findings are levels of foreign investment. Seventy-one tually eliminated the worst labor abuses a valuable input from the business com- munity for the Consultative Group meet- ing being hold here on Monday and Tues- day (6-7 December)." Sok Siphana, Secretary of State for the Ministry of Commerce thanked FIAS for conducting the survey. "The results con- firm the importance of the market niche that cares about labor standards. We have global competitive advantage on this is- sue, and we want to capitalize on it." The Multi FiberArrangement, or MFA, which ends on 31 December, has provided many developing countries with access to markets and transitional shelter from the rigors of global competition. Starting Janu- ary 1, Cambodia's garment exports will no SOKHUNTHEA longer be determined by the amount of CHOR quota it has been allocated by govern- ments in importing countries. Instead, the PHOTO: success of the industry will depend on its A garment worker sews clothes at a garment factory in Phnom Penh such as child labor and sexual harassment. TheWorld Bank small Grants Program 2005 Van Sou Ieng, Chairman of GMAC, noted "The labor standards monitoring Call forApplications system that we have developed here is Closing date: January 31, 2005 unique. It involves all garment factories and is completely transparent." Whocanapply: The garment buyers survey was fi- In2005theWorldBankSmallGrantProgram(SmGP)fundsavailableisUS$34,000.The nanced by FIAS, with additional support SmGPis intended to support youth organizations activities related to the theme "Youth from the Agence Francaise de Engagement in Development of Cambodia. The activities of the grant support will Developpement and the French Ministry focus on youth groups including promotion engendering development, useful dialogue, of the Economy, Finance and Industry. As and dissemination of information about development. a next step, FIAS, the Ministry of Com- HowtoapplyforaGrants? merce and ILO will collaborate on adapt- Please send the proposal to the World Bank Country Office at #113 Norodom Blvd., ing the existing labor monitoring system Phnom Penh, before January 31, 2005. The application is available at the World Bank to the new market realities, and will also Public Information Center or at the website: www.worldbank.org/smallgrantsprogram consider implications for other industry sectors. Final recommendations and plans Formoreinformationcontact: for the future will be made in a follow-up Ms. Ou Narya, nou@worldbank.org or Ms. Nil Vanna: vnil@worldbank.org. Tel 855 workshop in February 2005. 213538fax:210504 December 2004 The World Bank Newsletter 4 Next CG meeting one year from now continued from page 2 tive aid harmonization efforts. The NGO civil society representatives expressedaninterestinparticipatinginjoint monitoring ofprogressandreformsthrough theTechnicalWorkingGroups(TWGs)and are committed to abide by the principles of the TWGs. They stressed the importance ofcommunityinvolvementinordertobring the people's voice to influence the government's decision-making process. The actions identified in each of the keyareasaresummarizedintheChairman's Concluding Remarks. The newly-estab- ANNARA lished Government Donor Coordinating SOV Committee(GDCC),chairedbySeniorMin- ister Keat Chhon, would play an important KHEM O: role in monitoring progress on a quarterly PHOT basis, delegates agreed. Donors and NGO representatives attended the CG meeting "These performance indicators repre- sent an ambitious undertaking," said Mr. words decisively translated into actions. DonorspledgedUS$504millioninsup- Ian Porter, World Bank Country Director This will take time, but we need to start port for Cambodia's development efforts, for Cambodia and Co-Chair of the Meet- now." He continued, "Cambodia faces as part of the country's budget and finan- ing. "What is being attempted here is to some difficult choices in the weeks and cial plan for 2005. In 2002, the pledge strengthen and in some cases build from months ahead. It needs to demonstrate amountwasUS$635million. However,be- scratch the systems of accountability of that it has chosen this road to improved cause of changes in the methodology and government to the people of Cambodia. governance and poverty reduction ­ and coverage,effectedrecentlyinordertocom- To move forward on this agenda, we would members of the Consultative Group stand plywiththeofficialDAC/OECDdefinition need to see momentum, commitment, po- readytosupport,bothfinanciallyandtech- ofODA,thecomparablefigurefor2002was litical will ­ and most importantly, to see nically, this reform agenda." recalculated at US$514 million. Both the amount and composition of future pledges The World Bank Development Marketplace 2005 will be a function of Cambodia's perfor- Call for proposals for Development Marketplace 2005 on mance on its reform agenda. The Royal Government of Cambodia Innovations for Livelihoods inAsustainable Environment and its development partners agreed to meetinPhnomPenhforthenextCGMeet- Closing date: January 21, 2005 ing one year from now. For more on the Consultative Group WhocanapplyandEligibilityCriteria on Cambodia, please see: DM2005 is open to all, including Non Governmental Organizations (NGOs) and www.worldbank.org/kh. other Civil Society Organizations (CSOs), multilateral and bilateral development agencies (including the World Bank), private foundations, universities and Q&A schools, private sector groups, individuals, and local and municipal governments. column Proposals will be screened to ensure that they conform to the following criteria: Theme: Proposals must reflect the theme of Innovations for Livelihoods in a Dear readers, Sustainable Environment in any of the following areas: We would like to organize a new - Renewable energy and energy efficiency at the community level column, as part of our Monthly - Innovative application of clean technologies in small enterprises Newsletter, called: This Month's Q&A - Biodiversity conservation (Question and Answer). This column - Environmental education and awareness will hopefully provide the opportunity - Protecting environmental health (air and water pollution, water supply and to readers to ask questions regarding sanitation, theWorld Bank activities in Cambodia. persistent organic pollutants (POPs) We will respond to questions - Sustainable use of natural resources (land, agriculture, water, forests) accordingly, though depending on How to Apply timing and quantity, some questions PROPOSALSmustbesumittedthroughthedevelopmentmarketplacewebsite.For may be answered at a later date. instructions and detailed information on how to apply, please visit our website at www.developmentmarketplace.org If you are unable to access the internet or the Please send your questions to: Bou website, please contact the DM team at (202) 522-2042 by fax or send an e-mail to: Saroeun, Communications Specialist, DMinfo@worldbank.org. The development marketplace team must receive your at 113 Norodom Blvd., Phnom Penh, proposal by 6 p.m (Washington local time or 23:00 GMT) on January 21st 2005. email: sbou@worldbank.org.