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Discovering an emerging potential in Asia.

Samdech Hun Sen Interview with:

Samdech Hun Sen

Prime Minister
Royal Government of Cambodia

The Kingdom of Cambodia is opening itself to the world economy with agreements such as your incorporation to ASEAN, the Great Mekong Sub region (GMS) or the WTO. What is the strategy of the kingdom within this context?

The royal Government of Cambodia (RGC) has adopted a "win-win" policy and strategy that has led to genuine national reconciliation in the entire kingdom. The political and military organisation of the Khmer Rouge has been fully dismantled, and for the first time in the last four centuries, the entire Kingdom territory has been unified and peace restored. Cambodia, therefore has marched into the 21st century with a vibrant peace, ample national reconciliation and strengthened Democracy.

Cambodia's quest for integration into the regional and world economy constitutes one of the three pillars of the strategy of the RGC to maintain peace and security in the country, and in the region to embrace regional and world affairs and embark on multi-faceted reforms which will have far reaching effects on the country's social and economic development.

Soon after the 1998 elections we worked out a new political platform and formulated a "triangular strategy", which has underpinned our domestic and foreign policy. The first side of this strategic triangle is building peace, restoring stability and maintaining security for the nation.

The second side is Cambodia's rapid integration into the international community, especially into the community of regional nations, and normalization of our relationships with the international financial institutions.

The third side of the RGC's strategic triangle is to promote national development within the favourable context created by the implementation of key reform programs: military demobilization, public sector, judiciary and economic reforms including fiscal and banking reforms, land reform, fisheries reform and stringent measures taken to crack down on illegal logging and to promote environmental protection.

It is my conviction that to catch up with the rest of the world, Cambodia must open up and strengthen its own institutional capacity to benefit from globalisation, information and communication technology and thereby build our status as a real partner in regional and global affairs on par with the more advanced countries in the region.

For Cambodia to play a meaningful role in the community of nations, we have to rigorously implement the reform programs in all areas to rebuild a socially connected, educationally advanced, and culturally vibrant society in Cambodia.

Regional economic integration will generate positive externalities in stimulating economic development in Cambodia. Active membership in the ASEAN, the Great Mekong Sub-region program and accession to the WTO are expected to bring about many challenges as well as opportunities for the country which, if well managed, will promote economic take-off.

Cambodia can play a positive role in transforming the entire sub continental Southeast Asia from a region stricken by backwardness and poverty into an epicentre of peace, security, stability and cooperation. It is my conviction that this sub-regional cooperation, within a framework of an open economy, will pave the way for a more rapid transformation of this part of the world into a region of prosperity. This will contribute substantially to narrowing the gaps in development across our region and enable all our people to truly enjoy the benefits of prosperity and peace.

As underlined, within this context of opening of the country, since 1993, the Royal Government of Cambodia (RGC) has undertaken an ambitious program of economic reforms with the assistance of the IMF, World Bank, ADB, UNDP and other bilateral and multilateral donors. Could you give us a brief outline of the evolution of the Cambodian economy for the past 10 years and the several reforms undertaken to strengthen your national economy?

Since the establishment of the Royal Government of Cambodia in 1993, annual GDP growth has averaged a healthy 5.6 percent. From 1999 to 2001, overall growth averaged 7 percent annually. In per capita terms, such growths was 4 ½ percent per annum. Inflation was kept below 4 percent. However, growth in 2002 is estimated to be lower, at 4 ½ - 5 percent due to adverse weather conditions.

Agriculture is the most important sector of the economy, accounting for 40 percent of the GDP and employing more than 70 percent of the labour force. The industrial sector has been the main engine of growth, increasing annually by average of 16 percent. This industrial growth has been due mainly to spurts in garments and tourism. The textile and garment sub-sectors have displayed remarkable dynamism, with exports growing rapidly during the last four years following the grant by the US to Cambodia of Most Favoured Nation (MFN) status in 1996 and access under the Generalised System of Preferences in 1997. In 1996-98 garment exports increase by 70 to 190 percent, but slowed down to 13 to 75 percent in 1999-2001 after the US imposed quotas on 12 categories of garment products. Employment in garment and textile has been a major stabilizing force for the population and the economy in recent years, as the sector has absorbed about two hundred thousand workers, a large number of skilled and semi-skilled labour, especially poor female workers.

Overall, the assistance of the international community to Cambodia these past 10 years has been very valuable and well spent. Official development assistance has reinforced ongoing national efforts. It has strengthened Cambodia's unceasing efforts to lift the country to a higher destiny, to a new plateau of sustainable development. For example, ten years ago, Cambodia was plagued by accidents due to land mines; today, such incidents have been reduced by half. Ten years ago, significant proportions of Cambodian children were crippled by polio; now Cambodia is free from the poliovirus. The HIV/AIDS epidemic has been put under control. Ten years ago, Cambodia was not self sufficient in rice; now Cambodia has attained a rice surplus. Ten years ago, Cambodia was crippled by malaria; Cambodia is now being cited as a success story in combating malaria. The list of achievements can go on and on.

However, the most important development that has taken place in the Kingdom and its people has been the transformation of attitudes, virtues and values, and above all else toward democratic values. The Cambodian people have taken firm hold of democratic ideals, and steadily adopted democratic norms of behaviour, inclusive in the political process. Indeed, in democratic governance we have moved far forward; that it is clear, as the ancient Greek philosophers say: "once cannot cross a river twice!"

Yet so much more remains to be done in Cambodia. Foreign direct investment and continuing donor support will be crucial to the achievement of GDP growth target of 6 to 7 percent per year in the medium term. Attraction of FDI will require relaxing several constraints that weaken Cambodia's competitiveness. In the short term, the civil service and legal and judicial systems must be improved in order to facilitate the implementation of governance reforms and to enhance the environment for private investment. Reduce trade facilitation costs and generally foster private sector development and trade-driven growth is also a must. It will also be important to improve road infrastructure to facilitate market access and reduce transportation costs, as well as enhance port management and power and utility services to reduce production costs.

A Key objective of the RGC's reform program, that you just underlined, is to improve Cambodia's attractiveness as a destination for foreign direct investment in order to enhance economic growth. Could you tell us more about Cambodia's foreign investment regulations?

Cambodia's foreign investment regime is set out in the Law on Investment (1994), the Sub-decree on the Law on Investment (1997) and the Amendments to the Law on Investment (2003). These regulations provide the regulatory framework aimed at attracting foreign investment, highlighted by land tenure of 99 year, 100 percent enterprise ownership by foreigners, favourable labour relations and investment protection. Note that Cambodia does not have law on Foreign Investment; it has a law on Investment, indicating that all investments whether by foreigners or nationals are treated alike, apart from the Constitutional prohibition on land ownership.

The Law on Investment is supported by recent revisions to the Law on Taxation under which investors can choose to be subject to a special depreciation schedule rather than the automatic three years tax holiday provisions under the Law on Investment. The law provides tax and duty exemptions, including those for projects located in Export Promotion Zones (EPZ). Other incentives available to investors include; (i) a corporate tax rate of 20 percent, the lowest in the region; (ii) five year carry forward of looses; (iii) exemption from import duties of all imports used as inputs in certain projects, particularly export oriented projects; and (iv) exemption from export taxes.

Cambodia's investment and tax framework facilitates investment by streamlining procedures and paperwork in applying for investment approval, imports and exports of goods and equipment within the framework of the investment project. The main objective is to simplify paperwork and promote transparency, predictability of approval, monitoring and implementation of investment projects.

Moreover, the RGC has set out a comprehensive policy to improve Cambodia's international competitiveness by focusing on the development and improvement of its physical infrastructure, thereby effectively responding to the increasing need for basic services, such as low-cost water and power supply, finance, information and telecommunications services. Furthermore, we have streamlined the functioning of the Cambodian Investment Board (CIB) so that it serves as a "one stop shop" in the facilitation of investment procedures.

If one has single out one of the many achievements of the Royal Government in the promotion of the private sector, it is that; for the first time, we have established a sound mechanism for consultation with the private sector. This has been accomplished through the organisation of the Government-Private Sector Forum and its seven working groups divided by sector. This consultative structure has been effective in allaying the concerns and difficulties faced by investors and entrepreneurs. Moreover, this mechanism has also enabled the adoption of many measures that have facilitated trade and nurtured an environment conductive to investment.

The nurturing of active partnership between the RGC and the private sector has enabled us to candidly and productively exchange views and experience, ensured the transfer of knowledge by promoting communication and the search for mutually beneficial solutions to various issues. Through this partnership, stakeholders can identify realistic goals, take significant steps to carry out their respective commitments and become genuine owners of the resulting policies and strategies.

Within the objectives of all reform programs, the Social aspect of poverty reduction is the first priority of the RGC. With this in regards, your government is implementing an important National Poverty Reduction Strategy. Could you give us further details on the strategy's main lines and achievements?

To facilitate the attainment of our ultimate objective of poverty reduction, in December 2002 the RGC adopted the National Poverty Reduction Strategy (NPRS) to address the challenges of development in a more holistic, integrated way. The NPRS complements several other important initiatives, in particular the First Social and Economic Development Plan, 1995-2000 and the Second Social and Economic Development Plan, 2001-2005.

The main thrust of these strategies include: (i) strengthen peace, stability and social order thought concrete measures aims at enhancing the state of law, human rights protection, and democracy in order to create a favourable political environment and security for the long-term sustainable development; (ii) ensure long term sustainable economic growth of 6-7 percent per annum; (iii) facilitate the equitable distribution of economic growth between the rich and the poor, city and rural, female and male; and (iv) guarantee sustainable management and use of environment and natural resources.

As a result of the implementation of the above strategies, we have managed to maintain macroeconomic stability and promote sustainable economic growth with law inflation and stable exchange rate. We have in particular enabled the private sector to play a leading role in economic growth as already mentioned.

Rural livelihoods have been improved through the multiplication of opportunities for the use of local services, principally by focusing in policy implementation and concrete measures to ensure the increase of income of the people. Program and policy focus include: land reform, water, agriculture, forestry and fisheries policies, and infrastructure projects especially the construction and maintenance of rural transportation infrastructure.

These advances have enabled the expansion of job opportunities, increases the exports, the promotion of light and medium manufacturing industry and the expansion of tourism.

Furthermore we have implemented a New Social Policy Agenda and are pouring a massive proportion of our budget into the priority sectors; education, health, agriculture and rural development.

These sectors served as the foundation for future growth, improved equity and accelerated progress. We are ceaselessly pursuing reforms in the educational system and promote other avenues of human capital formation to make Cambodians more productive and competitive in the global economy.

We are restructuring our health programs to better finance referral hospitals and health centres at the district level. We are waging a war against deadly diseases, such as HIV/AIDS, tuberculosis and malaria. We adopted a new Land Law to prevent the eviction of the poor by the powerful. We are reducing the size of official fishing lots to improve the access by the poor to fisheries resources. We are cracking down on illegal logging to improve official collection of timber royalties. And last but not least we are implementing military demobilization to shift spending from defence and security to the social and economic sectors.

The results of these policies are conspicuous; poverty fell from 39 percent in 1993 to 35.9 percent in 1999 and school enrolment rate, especially among girls, has drastically increased during the last few years. Other indicators show similarly dramatic gains.

Of course there are still many challenges ahead and many milestones to attain. But, what we have so far achieved, gives us confidence that we shall overcome the obstacles and difficulties that lie ahead. Indeed, the road ahead is long and difficult, but you must agree that the considerable distance Cambodia has traversed so far in such a short time, by a society resurrecting itself from destruction, is a clear indicator of our future potential.

The subject of "good governance" is a major theme of the reform process; civil service reform, improvement of the public services, judicial and legal reform and fight against corruption are the relevant main points within this context. How is the RGC reaching its targets so far?

The subject of good governance has gained popularity not only in Cambodia but also in the international arena. Governance is the subject of concern in various venues, and in particular with international frameworks such as the UN, WB, IMF and OECD. Indeed, the RGC and its development partners have come to consider "good governance" as the key to economic reforms and poverty alleviation.

In development thinking, there is growing recognition of the crucial role played by institutions in the promotion of development. A nation's level of administrative skills helps determine the ability of public sector to alter the structure of production and set the character and pace of its economic and social development. The critical role of civil service reform in successful fiscal reforms is also recognised. Institutions, coupled with technology, determine the overall structure and level of transaction and production cost in the economy.

Therefore, in 2001 the RGC adopted its wide-ranging, long-term Governance Action Plan (GAP). The GAP identifies two categories of governance reform where action will be critical for Cambodia's development over the near to the medium-term. This includes legal and judicial reforms, fiscal reforms, civil administration reform and measures to fight corruption. In addition, the RGC has identified two specific policy issues on which governance reforms must be implemented. One is natural resource management, including land and forestry management. A final major policy and implementation challenge is the demobilisation of the armed forces.

Consistent with the GAP, the RGC's National Program of Administrative Reform (NPAR), consists of three stages: (i) consolidation of public services; (ii) restructuring and redeployment; and (iii) rationalisation and capacity building.

A comprehensive program has been put in place to improve the civil service, covering; (a) the rationalisation of civil service wages to attract and retain skilled staff necessary for high level management and priority sectors; and (b) strengthened civil administration to ensure that human resources are wisely deployed in high priority sectors and that human resource expenditures are subject to controls that enable managerial and fiduciary accountability.

The initial stages of the NPAR have been successfully implemented, including: (i) completion of an employee database; (ii) automation of the payroll; (iii) introduction of a new employee classification system and salary grid; (iv) design of Priority Mission Groups (PMG) and adoption of an implemented legal framework; (v) development and introduction of a Human Resource Management Information System; and (vi) initiatives to improve service delivery (e.g. de-concentration, reviews of "back office" processes, etc.).

Moreover, the NPAR has achieved laudable progress in the following key areas: (a) civil service remuneration, in which average pay has been increased by 44% in nominal terms via introduction of a new classification system in 2002, as per the Strategy to Rationalise the Civil Service 2002-2006; and (b) census and documentation of the work force completed in 2000 and which identify some 9.000 "ghost" workers; (c) issuance of a civil service identification card; (d) installation of an automatic pay roll system as part of the Human Resource Management Information System, and (e) by solidifying the legal framework, with the approval of statutes, to cover all civil servants under the Common Statute.

Starting in 2003, the implementation of the Priority Mission Groups program will address major service delivery bottlenecks. The PMGs are groups of civil servants who will be tasked to focus on identified "priority missions". To motivate these groups, they will be provided with special monthly allowances, a structure depending on staff category. In 2003 the government expects to create PMGs comprising a total of a thousand civil servers.

In our efforts to combat corruption, the RGC has drafted an Anti-Corruption Law, soon to be reviewed by an Inter-Ministerial Committee. The Anti-Corruption Law will encode the strategy and action plan to combat corruption, already formulated by the RGC. We are also considering how to ensure an efficient mechanism to effectively implement the law. Rigorous controls on revenue collection and expenditure management are essential for fighting corruption. The transparent application of the Sub-decree on Public Procurement, notably the decision to expand the scope of implementation of the law to all ministries except three, reflects our resolution to combat corruption. Finally the RGC has established and provided support for the efficient functioning of the National Audit Authority (NAA). The NAA has already completed its review of the accounts under the 2001 Financial Act and has submitted its audit report for review by the National Assembly.

The RGC has made considerable progress in the preparation and adoption of many laws and regulations. At the same time, we all know that the shift from one legal system to another requires much effort, particularly by a large corps of legal experts for research, review, formulation and all other legislatives processes. Within this context, Cambodia lacks experts in Anglo-Saxon law, as most of the few legal experts in the country were trained in Continental law. Nevertheless, we have prepared a Strategy for Legal and Judicial Reform that will be adopted in the near future. The amendments to the Law on the Supreme Council of the Magistracy have been drafted. The review of the Law on the Status of Magistrates is underway and the RGC is pushing for its adoption in 2003. This latter sets the duties, rights, obligations and independence of Judges.

As part of the judicial reforms, I have proposed measures to strengthen the Department of Court Inspection inside the Supreme Council of the Magistracy (SCM). The RGC has investigated and sanctioned 48 judges and prosecutors involved in misconducts. As soon as feasible, the SCM will consider the nomination of 12 chief judges, deputy chief judges, prosecutors and deputy prosecutors, and the transfer of 28 judges and prosecutors. In performing these actions, the SCM will adopt a set of principles and consistent procedures for the removal of judges and prosecutors in the Kingdom of Cambodia.

In addition, to improve the performance of the courts, we are preparing a report on the review of the status of Cambodian Court to identify needs and measures for improvement. The development of human resources for the judiciary is key to our success. In this regard, the RGC has conducted a competitive recruitment of the first batch of trainees for the Royal School of Magistracy.

Indeed, much more remains to be done to move to a performance-based civil service system, and the institutional reforms described above are crucial for Cambodia to move forward to a new plateau of development.

We are also interested in knowing more about the men behind the Royal Government. Can you tell us about your career path and your personal ambition as being part of the Royal Government?

I was born in a peasant family. While I was a student Cambodia, that was once known as an oasis of peace, became engulfed in the war that followed the coup d'Etat led by the Lon Nol clique against the then Prince Norodom Sihanouk. Our peaceful life was shattered and I followed Prince Sihanouk and joined the maquis. After the war against Lon Nol, I stood against the Khmer Rouge and their genocide policies, leading a group of brave soldiers who helped liberate Cambodia and our people.

After the liberation from the Pol Pot genocide regime, I was appointed Cambodian's Foreign Affairs Minister at the age of 27; I was the youngest Minister in the cabinet. Since then, I have devoted my time and efforts to learning the arts of politics and diplomacy. In 1985 I was elected Prime Minister.

In those early years, we had to start from scratch. There were no schools, hospitals, water and electricity. There were less than 100 people left in the capital city, Phnom Penh. We lived just like in the Dark Ages. The ravages of wars and genocide left tremendous burdens on Cambodia. In its painful efforts at recovery, the top priorities were to train people to deliver public services at all echelons of the bureaucracy.

You cannot imagine how hard our people's lives were at that time. Yet we managed to rebuild our country from the ashes of war. Furthermore we have accomplished this in such a short period, even though we were subject to an unjust political and economic embargo. Today's visitors will find very difficult to believe that just two decades ago Cambodia's status was comparable to the Middle Age. Those advances have been made with the tremendous efforts of our people, the Royal Government and friends from around the world.

I have always clearly understood that if Cambodia remains at war the country will be denied its rightful place in the community of nations. Many times, since 1987, I met with Prince Sihanouk until we reached a peaceful settlement of the Cambodian problems with the signing of the Paris Peace Agreement in 1991. This agreement restored the Monarchy, established a reviewed Constitution and proclaimed the second Kingdom of Cambodia. Peace, however, remained elusive as the Khmer Rouge boycotted the 1993 elections and continued to wage war against legitimate government.

In 1987, when Asia was hit by the financial crisis, our coalition government collapsed. Since then, by implementing the "win-win" policy, I managed to restore full peace in Cambodia. The political and military organization of the Khmer Rouge was dismantled. Then after the 1998 elections, I implemented the triangle strategy to push Cambodia into the path of long-term peace, reforms and integration with the regional and world community of nations.

In all these efforts, my ambition has always been to turn the first decade of the new millennium into a decade of economic growth, rapid reduction of poverty, social progress and prosperity for Cambodia and Cambodians. My ultimate goal is to create a socially connected, educationally advanced, and culturally vibrant Cambodian society. My agenda is to boost our once strong and proud nation to become a truly free and independent nation that can reclaim its own destiny, and be a real partner in regional and global affairs.

My vision for Cambodia is to have Democracy deeply rooted in the Cambodian society by strengthening the rule of law, implementing good governance, and promoting respect for the rights and dignity of Cambodians from all walks of life, religion and social strata.

As a final question, which is the final message you would like to address to foreign investors?

Cambodia needs financial resources to expand production and create employment. We are also in dire need for technology, knowledge and know-how to improve our capacity and productivity. When developed and enabled, these factors constitute the private sector's strengths. To attract investments, we have adopted a policy that regards the private sector as the national economy's engine of growth and the key partner of the RGC. We clearly understand that in the world of globalisation, capital and technology will flow into investment-friendly countries. As government, we guarantee all investors a favourable investment environment, especially peace, security, political and macroeconomic stability, an increasingly efficient legal and institutional framework, transparency, accountability and predictability.

Cambodia's ongoing structural reform programs shall lay the foundations for sustainable economic development. Moreover, the Royal Government has the good will and strong commitment for genuine cooperation with the private sector, both domestic and foreign. All these are bound by our common aspiration of improving the living standards of the Cambodian people so that they are assured of improved welfare and peace, and become the masters of their own destiny and development. It is in this spirit that I invite all investors to join us to face all challenges proactively.

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