Corruption Choking Growth – World Bank

Corruption, coupled with non-transparent regulations, red tape and the lack of infrastructure, is choking economic growth in Cambodia according to a damning World Bank report released Thursday.

The World Bank surveyed 800 businesses in Cambodia and four-fifths of the private sector sampled, according to the report, acknowledged the necessity of paying bribes.

”Seventy one percent of large firms report that that these payments are frequent. The private sector estimates that unofficial payments cost firms an average of 5.2 percent of total sales revenue,” revealed the Bank’s report, titled ‘Cambodia Seizing the Global Opportunity: Investment Climate Assessment and Reform Strategy for Cambodia’.

”Firms’ financial data suggests that unofficial payments are a large component of the cost of doing business,” said the World Bank.

In a recent speech, insisting on the need to accelerate reform, Prime Minister Hun Sen explained that if business continued as usual, his country would not be on track to halve poverty, but rather would expect poverty to increase to 28 percent by 2015.

The report was prepared for the Cambodian government by the World Bank Group.

Cambodia gets around 640 million U.S. dollars a year from international agencies such as the World Bank and the Manila- based Asian Development Bank, as well as developed nations.

But most statistics about the South-east Asian country make gloomy reading. Illiteracy rates are hovering at just below 70 percent rising to more than 80 percent among women.

Infant mortality is 135 per 1,000 births. Over the last decade, the rate has risen – one of the few countries in which this has happened – from 115.

Cambodia’s legal system is considered to be one of the most corrupt in Asia, mainly because the judiciary is so closely controlled by the executive.

Over 80 percent of the firms interviewed by the World Bank perceived the judiciary negatively.

The Bank emphasised the importance of the judiciary in Cambodia to protect the economic rights of businesses and uphold contracts – including the enforcement of debt.

But that does not seem to be the case in the country.

”In specific ratings of the courts, 91 percent of the respondents say the judiciary is only ‘sometimes’, ‘seldom’, or ‘never’ fair or impartial, 83 percent rate it negatively in terms of quickness, and ratings indicate that Cambodia is both a costly place to enforce a contract,” the World Bank report pointed out.

A recent study done by the Phnom Penh-based Centre for Social Development indicated that there was a striking difference between the perception of corruption between government and prive sector workers.

”Government employees are much more likely to think that corruption ‘greases the wheel” and that most businesses pay bribes,” the study indicated.

On the other hand, the study revealed, Cambodian private employees are more likely to perceive bribery as normal and to believe that many of the poor are corrupt.

According to Private Sector Forum, in Phnom Penh, about 120 million U.S. dollars is made in under-the-table payments from the manufacturing and service sectors.

”By removing impediments like corruption and the lack of transparency in public-private partnerships, the impact of the private sector on growth and service delivery can be much greater,” Magdi Amin, who lead the World Bank team in writing the report, told reporters during its launch.

The World Bank wants the private sector to play a large role in the development of Cambodia’s backward infrastructure in order to wean the country away from foreign aid for financing the provision of basic goods and services.

Cambodia’s electrification rate is one of the lowest outside sub-Saharan Africa. Safe drinking water is only limited to Phnom Penh, even though 90 percent of the population lives outside the capital.

Rates of fixed and mobile telecommunications penetration are low by both regional and international standards at only 1.91 per 100 Cambodians, and the country’s road network is the least developed in the region.

”There is significant hope for the private sector to play a large role in bridging the gap between the enormous financing requirement and the equally large financial shortfall in available funds for infrastructure provision,” said the Bank’s report.

But the World Bank, too, is not without blame when it comes to corruption.

At a U.S. Senate hearing on corruption and multilateral development banks, in May, Sen. Richard Lugar, chairman of the Foreign Relations Committee, said that ”corrupt use of World Bank funds may exceed 100 billion dollars, and while the institution has moved to combat the problem, more must be done.”

Also at the hearing was Jeffrey Winters, an associate professor at North-western University.

He said his research suggested corruption wasted about 100 billion dollars of World Bank funds, and when other multilateral development banks are included, the total rises to about 200 billion dollars. Winters testified that the World Bank’s anti- corruption effort was having ”minimal effects” and the banks should all focus on supervising and auditing their lending.

”The lion’s share of the theft of development funds occurs in the implementation of projects and the use of loan funds by client governments,” he said.

In Cambodia, independent observers have questioned procedures followed by the World Bank’s Forest Concession Management and Control Pilot Project. They claim that the Bank is perpetuating a system that is dedicated to rent capture by corrupt officials and their business associates, and which offers no accountability to forest users and inhabitants.

”The World Bank project is currently recommending that the Cambodian government allow renewed logging by six of the forest concessionaires for a further 25 years. All six companies have breached Cambodian law or the terms of their contracts and have demonstrated an absence of technical capacity,” Mike Davis of the London-based environmental watchdog Global Witness told IPS.

”The World Bank claims that its over-riding priority for Cambodia is strengthening governance,” said Davis. ”With respect to the forest sector, this appears to mean using loan money to provide concessionaires with the necessary paperwork so that they can continue to operate illegally.”

Sonny Inbaraj,, August 12, 2004

Categories: Corruption, Odious Debts

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