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Report to the Chairman and to the Ranking Member, Subcommittee on 

Foreign Operations, Committee on Appropriations, U.S. Senate:



United States General Accounting Office:



GAO:



June 2002:



Cambodia:



Governance Reform Progressing, but Key Efforts Are Lagging:



Cambodian Governance:



GAO-02-569:



GAO Highlights: Cambodia: Governance Reform Progressing, but Key 

Efforts Are Lagging:



Highlights of GAO-02-569, a report to the Subcommittee on Foreign 

Operations, Committee on Appropriations, U.S. Senate:



Why GAO Did This Study:



As one of the poorest countries in the world (see table 1), 

Cambodia has received since 1993 over $200 million of assistance 

from the United Staes and over $3 billion from all other donors to 

help reduce poverty and foster economic growth. However, the United 

States and other donors are concerned that weak governance could 

undermine these efforts. In response, the Cambodian government has 

emphasized good governance in its reform activities, including 

transparent (open) decision making; a professional, accountable civil 

service; and the rule of law. 



Given the importance of good governance to the long-term impact to U.S. 

assistance, the Subcommittee on Foreign Operations, Senate Committee on 

Appropriations, asked GAO to review Cambodia’s governance reform goals 
in 

seven areas and the progress the government has made toward achieving 

those goals. The seven areas are public finance, military reform, 

anticorruption, public administration, and forestry management. As part 

of GAO’s review, GAO analysts traveled to Cambodia to meet with 
government 

and donor officials. 



What GAO Found: 



The Cambodian government and its donors have established goals for 

strengthening governance in seven areas of reform. The government has 
made 

progress in achieving its goals in three of these areas--public 
finance, 

the military, and land management. The government has increased 
revenue, 

reduced military spending, and begun isuing legal land titles. However, 

it has yet to take critical steps in accomplishing its goals in the 
other 

four areas--legal and judicial reform, anticorruption, public 
administration, 

and forestry management. For example, the government has been 
deliberating for 

7 years on a draft law that would establish penalties for corrupt 
activities. 

Donors expressed concern over Cambodia’s lack of progress to reform its 
legal 

and judicial system, tackle corruption, and reorganize its public 
administration. 

We believe that this lack of progress could undermine steps taken in 
public 

finance, military, and land management reforms, as well as the 
government’s 

larger objectives of achieving economic and social development. 



We received comments on a draft of this report from the U.S. Department 
of 

State, the U.S. Agency for International Development, the government of 

Cambodia, the Asian Development Bank, the International Monetary Fund, 
and 

the World Bank. They generally agreed with our findings, while nothing 

that Cambodia’s limited financial and human resources impede the pace 

of reform. 



Table 1: Poverty Indicators for Cambodia Compared to Select Countries 
in 1999:



[See PDF for image]



[A]: GDP=Gross Domestic Product:



[B]: PPP=Purchase Price Parity:



Source: World Bank:



[End of table]



Contents:



Letter:



Results in Brief:



Background:



The Cambodian Government and Donors Have Established Goals to 

Strengthen Governance in Seven Areas:



Progress Made in Achieving Three Reform Goals; Government Has Not Taken 

Critical Actions to Achieve the Other Four:



Observations:



Agency Comments:



Scope and Methodology:



Appendix I: Comments from the Department of State:



Appendix II: Comments from the U.S. Agency for International 
Development:



Appendix III: Department of the Treasury:



Appendix IV: Comments from the World Bank:



Figures:



Figure 1: Typical Cambodian Homes in Kampong Thom Province:



Figure 2: Former Cambodian Soldiers Participating in a Military 

Discharge Ceremony:



United States General Accounting Office:



Washington, DC 20548:



June 13, 2002:



The Honorable Patrick Leahy

Chairman

The Honorable Mitch McConnell

Ranking Member

Subcommittee on Foreign Operations

Committee on Appropriations

United States Senate:



Three decades of internal political struggle and intermittent war have 

left Cambodia with poor public services, high military spending, and 

weak government institutions. As one of the poorest countries in the 

world, according to United Nations (U.N.) data, Cambodia has received 

more than $3 billion in assistance since 1993. While Cambodia has 

achieved relative peace and stability during this period, continued 

widespread corruption[Footnote 1] and a weak judicial system undermine 

its efforts to reduce poverty and foster economic growth. In response, 

the Cambodian government and donors of financial and technical 

assistance have emphasized good governance --including transparent 

(open) decision making; a professional, accountable civil service; and 

the rule of law --as necessary for the country to achieve these larger, 

longer-term objectives.



Since 1993, the United States has provided Cambodia with over $200 

million of assistance to help reduce poverty and foster economic 

growth.[Footnote 2] This assistance has included programs to strengthen 

democracy, improve education and health care, and address problems 

posed by land mines. Given the importance of good governance to the 

long-term impact of U.S. assistance efforts, you asked us to review 

several aspects of governance reform in Cambodia. In response, we 

looked at the following seven areas of governance: public finance, the 

military, land management, the legal and judicial system, 

anticorruption efforts, public administration, and forestry 

management. In this report, we (1) describe the goals that the 

Cambodian government and its donors have established for strengthening 

governance in seven areas, including a discussion of the problems that 

these goals are intended to address, and (2) assess the government’s 

progress in meeting those goals.



As part of our review, we examined key Cambodian government documents, 

including the Governance Action Plan of March 2001 and related strategy 

documents, action plans, and progress reports presented to donors of 

financial and technical assistance. The Governance Action Plan, which 

the government cites as a guide for measuring its progress in 

governance reform, describes the actions the government plans to 

undertake to strengthen governance. We traveled to Cambodia and met 

with numerous officials of the Cambodian government, including the 

prime minister and members of parliament. We also interviewed officials 

from the World Bank; the International Monetary Fund (IMF); the Asian 

Development Bank; the U.N.; various bilateral donors, including 

Australia, Canada, Germany, Japan, and the United Kingdom; and 

nongovernmental organizations in Cambodia and the United States.



Results in Brief:



To address weaknesses in Cambodia’s economic, social, and legal 

foundations, the Cambodian government and international donors of 

financial and technical assistance have established goals for 

strengthening governance in seven areas. Specific goals include:



* increasing government revenue and strengthening budget management;



* creating a smaller, more professional military;



* providing Cambodian citizens with legal titles to land;



* developing Cambodia’s weak legal framework and establishing an 

independent and competent judiciary;



* increasing the risks associated with engaging in corrupt activities 

in the public sector and making public officials more accountable for 

their behavior;



* restructuring the civil service so that it can effectively provide 

services such as health care, primary education, and licenses to begin 

businesses; and:



* preserving Cambodia’s forests to ensure continued government revenue 

from commercial logging fees.



While the Cambodian government has achieved some of its goals in three 

areas of governance --public finance, military reform, and land 

management --it has yet to make progress in four other areas --legal 

and judicial reform, public administration, anticorruption, and 

forestry management. Examples of achievements as well as lack of 

progress include the following:



* The government has increased revenue --from 9 percent of gross 

domestic product to 12.5 percent of gross domestic product --since 1999 

and intensified its management of funds so that the ministries of 

Health and of Education, Youth, and Sports have more money available to 

serve the public.



* The government has discharged 16,500 soldiers, many of whom were 

elderly, disabled, or holding jobs outside their military service.



* The government and two donor countries have prepared maps of Phnom 

Penh and five provinces and issued approximately 2,000 land titles to 

Cambodians.



* In contrast, the government has yet to finalize its strategy 

detailing the actions it will take to increase the independence or 

competence of the judiciary and, therefore, it has not taken 

significant actions in this area.



* The government has not passed legislation that defines and provides 

specific penalties for engaging in corrupt activities, such as 

accepting bribes.



* The government has not selected or trained civil servants to carry 

out priority reforms that senior government officials believe must be 

done quickly.



* The government has not fully implemented its forestry crime 

monitoring project to detect and track illegal logging.



We believe that the government’s limited progress in enhancing the 

judiciary, reducing corruption, and strengthening the civil service 

will undermine its efforts to further economic and social development.



We received comments on a draft of this report from the U.S. Department 

of State, the U.S. Agency for International Development, the government 

of Cambodia, the Asian Development Bank, the IMF, and the World Bank. 

They generally agreed with our findings, while noting that Cambodia’s 

limited financial and human resources impede the pace of reform.



Background:



Since gaining its independence from France in 1953, Cambodia has 

experienced frequent and drastic changes in its political, economic, 

social, and legal systems. The most significant of these events was the 

destruction wrought under the Khmer Rouge between 1975 and 1979. Under 

this regime, widespread executions, forced labor, and famine killed an 

estimated 1 million to 2 million Cambodians, out of a total population 

of about 7 million to 8 million. Large numbers of educated civil 

servants and professionals were executed, and many Cambodians fled to 

other countries. The regime abolished the market economy, all laws, and 

the judicial system; isolated the country from the rest of the world 

except China; and destroyed many facets of society. Vietnamese troops 

and Cambodian resistance forces ousted the Khmer Rouge from power in 

1979, but civil war raged for another 10 years, destroying much of the 

remaining infrastructure and leaving most Cambodians impoverished.



In 1993, Cambodia adopted its current constitution establishing a 

constitutional monarchy and three branches of government --legislative, 

judicial, and executive. In practice, the legislature and the judiciary 

are not well developed, and the executive holds most of the 

government’s power, according to a recent U.S. Department of State 

report.[Footnote 3] Also, in 1993 Cambodia held its first general 

election, with support from the U.N. The election resulted in a 

coalition government between the Cambodian People’s Party and the 

royalist party, with two co-prime ministers. This uneasy coalition 

became untenable in 1997, as factions of the military loyal to the 

various political parties began fighting in the capital, and one co-

prime minister remained in power. By the end of 1997, the parties 

agreed to cease fighting and hold new elections in 1998. The 1998 

elections reestablished the coalition, but under one prime minister 

from the Cambodian People’s Party.



Cambodia continues to deal with the impact of nearly 3 decades of 

intermittent war and internal political struggle on the poverty of its 

people and on its government institutions. Cambodians have an annual 

per capita income of less than $300, and nearly 40 percent of 

Cambodia’s roughly 12 million citizens live below the poverty line. In 

2000, the U.N. ranked Cambodia 136 out of 174 countries based on 

various social and economic indicators such as life expectancy, adult 

literacy, and per capita income. About 85 percent of the population 

lives in rural areas, most depending on subsistence agriculture that 

generates extremely low levels of income. Given these conditions, 

Cambodia depends heavily on foreign aid. Approximately a third to a 

half of its budget each year comes from other governments and 

multilateral organizations. At the end of 2001, Cambodia’s gross 

domestic product, or national income, was about $3.3 billion, according 

to IMF estimates. The government’s expenditures totaled $590 million in 

2001.



The Cambodian Government and Donors Have Established Goals to 

Strengthen Governance in Seven Areas:



Through the development of the 2001 Governance Action Plan and related 

documents, the Cambodian government and donors have agreed to goals to 

strengthen governance in seven areas. The government and the donors 

based the goals on the donors’ research and on consultations with 

Cambodian government officials. These consultations identified 

specific governance problems in Cambodia, their causes, and the 

possible reforms in each area.



Increasing Revenue and Improving Budget Management:



Because the Cambodian government has had one of the lowest rates of 

revenue collection in the world, at about half the average for low-

income countries in 1998, its primary goal in reforming public finance 

is to increase government revenue. Without sufficient revenue, the 

Cambodian government is unable to provide adequate public services or 

to finance programs that will improve economic growth and reduce 

poverty. To increase revenue, the government is making improvements to 

its customs and tax administration. Cambodia’s second goal in reforming 

public finance is to improve its budget management, which includes 

honoring planned budget disbursements to social sector ministries and 

establishing a National Audit Authority to increase accountability.



To raise revenues and improve budget management, the government must 

determine how to expand its small tax base, reduce corruption among 

public finance officials, and enhance management of public funds, 

according to officials with whom we spoke. The small tax base is a 

result of Cambodia’s low level of industrialization and its high 

numbers of subsistence farmers who generate little taxable income. In 

addition, the IMF reports that Cambodia’s tax laws provide businesses 

with excessive tax exemptions and incentives, including a tax on 

profits that is 10 to 15 percent lower than that of other Association 

of South East Asian Nations (ASEAN) members.[Footnote 4] Furthermore, 

government officials accept bribes for providing tax and customs 

exemptions when there is no legal basis for doing so, according to 

World Bank documents. The World Bank also noted that ineffective 

management of public services has resulted in diversions of public 

funds away from their intended uses. For example, the Ministry of 

Economy and Finance does not provide provincial departments with 

monthly plans detailing how funds are to be spent, making it easier for 

provincial officials to divert funds away from social programs and 

redirect them to other areas. Funding for social ministries, such as 

the Ministry of Health, has been extremely slow and unreliable, leaving 

these ministries unable to plan their programs for future months. 

Previously, allocations to these ministries were not adequate to meet 

their needs and arrived late in the year, or sometimes not at all, 

according to the World Bank.



Creating a Smaller, More Professional Military:



To address problems in the military, the Cambodian government and 

donors agreed to establish a smaller, more professional military. 

Specifically, the goals were to:



* lower military spending by formally discharging 31,500 soldiers 

(about 24 percent of the armed forces) out of a total registered force 

of more than 130,000, by the end of 2002;[Footnote 5]



* channel savings into priorities such as health, education, and rural 

development;



* transition soldiers to full civilian employment; and:



* create a professional military.



Cambodia must contend with three issues related to its military that 

could undermine the country’s development, according to Cambodian 

government and donor officials. First, the government’s spending on 

defense has been high in relation to Cambodia’s other needs. In 1999, 

military spending consumed nearly half of the Cambodian government’s 

revenue and was higher than its spending on health, education, 

agriculture, and rural development combined. Second, for many Cambodian 

soldiers, the military is more of a social welfare program than a full-

time job, according to Cambodian and donor government officials we 

interviewed. Many soldiers live in their own homes rather than in 

military housing, are farmers or engaged in other trades, and have not 

seen active military service in years, according to the government and 

donors. Third, the U.N., the U.S. Department of State, and other 

observers have reported that some members of the military have 

committed numerous abuses within Cambodia such as stealing land, 

participating in illegal logging activities, and violating human 

rights.[Footnote 6] The Cambodian government reported that its military 

force is too large, poorly equipped, and not well trained.[Footnote 7]



Providing Cambodians with Legal Land Titles:



To help reduce Cambodia’s widespread poverty, encourage economic 

growth, and address the increasing number of land disputes, the 

government has committed to developing an effective system for managing 

land and providing Cambodians with legal land titles. Specifically, the 

government has committed to (1) adopt a new land law and implementing 

regulations, (2) undertake efforts to systematically map Cambodia and 

provide Cambodians with legal land titles, and (3) improve the 

government’s ability to develop and implement land policies and land 

titling in the future.



The government and donors agree that having legal title to land 

provides an important incentive for farmers to make investments in 

their land, such as irrigation systems and equipment to work the land. 

These improvements could help increase agricultural production and 

reduce poverty. Approximately 85 percent of Cambodians live in rural 

areas, and most depend on agriculture to sustain their families. 

However, most Cambodians do not hold legal title to the land on which 

they live, in part because Cambodians had no right to land from 1975 to 

1989 and all land records were destroyed under the Khmer Rouge.



The government, donors, and nongovernmental organizations note that 

land disputes and land theft have become escalating problems. They cite 

Cambodia’s weak legal framework for property rights and corruption at 

all levels of government as facilitating land theft. Cambodia’s 1992 

land law is vague concerning the criteria for private land ownership 

and the process for registering a land claim, according to donors. In 

addition, donor-funded studies on Cambodia’s land management note that 

government officials at the national, provincial, and local levels 

often accept unofficial payments in return for approving land title 

applications, whether the individual making the application lives on 

the land or not.[Footnote 8]



Developing Cambodia’s Legal Framework and Establishing a Competent 

Judiciary:



To establish the rule of law in Cambodia --which the Cambodian prime 

minister has defined as having laws, regulations, and formal rules 

publicly known and enforced in a predictable manner through transparent 

mechanisms --the government has committed to develop new laws and 

increase the independence and competence of its judiciary. 

Specifically, the government committed to develop new civil and 

criminal codes and complete a strategy document for legal and judicial 

reforms. This document is to address several reforms of the judiciary, 

including publication of Cambodian law, implementation of a code of 

ethics for judges, and separation of the budget for the courts from the 

budget for the Ministry of Justice.



The government has noted that Cambodia’s legal framework lacks 

significant basic items, such as a comprehensive civil code and a new 

criminal code. The government also identified other areas of law that 

are in need of revision, including land law, forestry law, commercial 

law, and anticorruption law. In addition, the government has not 

maintained a comprehensive archive of laws in force. Therefore, judges, 

attorneys, government officials, and common citizens cannot know what 

are all of Cambodia’s laws.



Endemic corruption, lack of judicial independence from the executive 

branch, and lack of legal training in the judiciary significantly 

weaken the enforcement of Cambodian law, according to donors. The 

government, donors, and nongovernmental organizations note that 

corruption is a significant problem in the judiciary. A U.S. government 

official noted that court clerks commonly ask plaintiffs and defendants 

how much they are willing to pay the judge to win their case. 

Cambodia’s judiciary is also weakened by its limited independence from 

the executive branch of government. For example, the Ministry of 

Justice has removed judges from their positions, even though the 

Cambodian constitution provides that only the Supreme Council of the 

Magistracy --the judiciary’s independent oversight body --has the 

authority to do so. Finally, few of Cambodia’s approximately 200 judges 

have any substantial legal training. A 2000 

Asian Development Bank-sponsored study found that about 37 percent 

of Cambodia’s judges had any legal training and only 40 percent had 

reached --although not necessarily completed --a high school level 

education.[Footnote 9]



Anticorruption: Increase the Risks of Engaging in Corrupt Activities 

and Make Public Officials More Accountable for Their Behavior:



To combat widespread corruption that may undermine Cambodia’s further 

economic and social development, the Cambodian government has committed 

to the following goals: (1) increasing the risks associated with 

engaging in corrupt activities in the public sector and (2) making 

public officials more accountable for their behavior. In its Governance 

Action Plan, the Cambodian government described two broad themes for 

fighting corruption: setting standards and strengthening enforcement 

and scrutiny. Given the widespread nature of corruption in Cambodia, 

many actions to fight corruption are also part of other more general 

reforms, such as those involving public finance, the legal framework 

and the judiciary, and public administration.



Corruption adversely affects Cambodia’s social and economic 

development, according to the government, donors, Cambodian civil 

society, and nongovernmental organizations. Corruption occurs in many 

activities, ranging from citizens paying unofficial fees for public 

officials such as teachers to do their jobs to large-scale activities -

-such as the government’s granting of improper tax exemptions --that 

diminish government revenue. While it is inherently difficult to 

determine the precise financial impact of corruption, estimates 

indicate it is severe. In 1997, IMF staff estimated that the amount of 

public revenue lost due to corrupt activities was nearly equal to the 

amount of budget revenue actually collected, or about 10 percent of 

gross domestic product. Cambodians are well aware of the corruption and 

its impact on their country. A World Bank survey in 2000 found that 

Cambodian citizens and businesses ranked corruption as either the first 

or second largest constraint to development in Cambodia.[Footnote 10]



Restructuring Public Administration:



Recognizing that Cambodia’s public administration is unable to deliver 

adequate services to the Cambodian people, the government adopted its 

National Program on Administrative Reform in 1999. The program defined 

overarching goals for public administration reform. These goals were 

to:



* make public institutions and government structures more efficient and 

capable of providing services to citizens;



* transfer central government responsibilities to local governments 

(decentralize) to improve the delivery of services such as water, 

sanitation, and basic health and education and thereby reduce poverty, 

especially among the rural population;



* modernize and improve management of the civil service, including 

reorganizing staff, offering higher salaries, and providing technical 

training opportunities; and:



* introduce Priority Mission Groups to the civil service, which means 

selecting civil servants to carry out reforms that higher-level 

government officials believe must be done quickly.



The government and donors have identified three interrelated problems 

that underlie the current condition of Cambodia’s public 

administration. First, widespread corruption limits the Cambodian 

peoples’ access to government services. Most Cambodians cannot afford 

to pay the unofficial fees that are often necessary to receive services 

such as health care, education, or approval of land titles. Second, 

Cambodia does not have a professional, well-trained civil service at 

the national or local level. A large number of public employees 

received their jobs because they supported one of the political parties 

rather than as a result of their qualifications, according to the 

Cambodian prime minister[Footnote 11] and others. Finally, civil 

servants’ average salaries are low compared to the private sector and 

the living wage. Civil servant salaries average $24 a month, which is 

about half of the minimum wage of $50 a month provided in the garment 

sector, Cambodia’s largest private industry, according to IMF staff. 

The living monthly wage in Cambodia’s capital city, Phnom Penh, is 

$150, according to a senior Cambodian government official. These low 

salaries encourage corruption and are insufficient to attract competent 

staff to the civil service.



Preserving Cambodia’s Forests:



To ensure continued government revenue from commercial logging fees and 

the sustainability of Cambodia’s forest resources for the Cambodian 

people, the government has committed to take a number of actions to 

improve forest management so as to decrease illegal logging. These 

actions include implementing sustainable forestry management 

regulations, establishing a special government unit to detect and 

monitor illegal logging and other forestry crimes, and adopting a new 

forestry law.



The Cambodian government has not effectively managed the country’s 

forests, leading to lost revenue and forestland, according to donors. 

The IMF estimates that in 1996 the government lost approximately $100 

million in revenue to illegal logging --equal to more than one-third of 

the government’s actual revenue collection; the World Bank estimates 

that in 1997 the government lost an additional $60 million in revenue. 

Moreover, over-logging has led to the deforestation of approximately 10 

percent of the commercial forestland and the degradation of an unknown 

amount of forestland to the point that it no longer has commercial 

value, according to a World Bank study.[Footnote 12]



Deforestation and illegal logging have also hurt Cambodia’s rural 

communities. Cambodia’s rural population depends on resources from the 

forests, including timber, charcoal, and food to build homes, sustain 

their families, and earn income, according to the World Bank and Global 

Witness, a nongovernmental organization (see fig. 1). [Footnote 13]



Figure 1: Typical Cambodian Homes in Kampong Thom Province:



[See PDF for image]



Source: GAO.



[End of figure]



Corruption at all levels of Cambodia’s government, its weak legal 

framework for forestry management, and its lack of trained forestry 

officials are impeding efforts to combat illegal logging, according to 

donors and the government. Donors and nongovernmental organizations 

cite “unofficial payments” to civil servants at all levels of 

Cambodia’s government, including the military. The Cambodian government 

noted it has not paid civil servants charged with managing Cambodia’s 

forests a living wage, creating an incentive for corruption that must 

be addressed if reforms are to be successful. In addition, existing 

forestry law does not clearly designate the authority to manage the 

commercial logging system to any one government body, according to the 

World Bank. Furthermore, the Cambodian government acknowledges that it 

does not have appropriately trained staff who can effectively implement 

forestry reforms.



Progress Made in Achieving Three Reform Goals; Government Has Not Taken 

Critical Actions to Achieve the Other Four:



While the Cambodian government has achieved some of its goals in three 

areas of governance --public finance, military reform, and land 

management --it has yet to make progress in four other areas --legal 

and judicial reform, public administration, anticorruption, and 

forestry management.



The Cambodian Government Has Made Some Progress in Public Finance, 

Military, and Land Management Reform:



The Cambodian government has made progress in achieving its goals in 

three areas: public finance, military reform, and land management. It 

has implemented several actions to achieve its goals and is working to 

complete the remaining actions. In each of these areas we determined 

that, even though the government had not completed all of its actions, 

there was momentum on the part of the government and donors to continue 

with the reform process. The ultimate effect of the actions taken 

remains to be seen, however.



Public Finance Reforms Have Increased Revenue and Improved Budget 

Management:



In the area of public finance reform, the Cambodian government has 

taken actions to achieve its goals of increasing revenue and improving 

budget management. The government increased revenues from 9 percent of 

gross domestic product in 1998 to 12.5 percent in 2001. This revenue 

increase was a result of reforms in the tax and customs 

administrations, according to the IMF. The government has also taken 

steps to improve budget management by introducing a program to increase 

the reliability of funding for social ministries and by establishing a 

National Audit Authority.



Reforms in tax administration have led to improvements in revenue 

collection. Revenues increased significantly when the government 

introduced a value-added tax in 1999. The Tax Department is also 

developing new tax policies and granting fewer tax exemptions. For 

example, government officials have not granted any exemptions to the 

value-added tax since 2000.



The government has begun several reforms in customs administration to 

increase revenue. However, the IMF has said that Cambodia will need to 

sustain its work in this area, as smuggling activities continue to 

undermine revenue collection. The Customs and Excise Department has 

introduced an antismuggling task force, but it is still working to make 

this unit operational. The department is developing a new customs code 

as well, with assistance from the IMF, but it has not yet submitted the 

code to the National Assembly. The government is also working to 

consolidate all aspects of customs administration under one government 

body and to simplify customs procedures. In addition, the customs 

department has signed a contract with a private company to inspect 

shipments at major international ports before they enter Cambodia. The 

private company will train Cambodian customs officials in inspecting 

import shipments so that they can take responsibility for this activity 

in 2 to 3 years.



The government has completed several actions to enhance budget 

management, most notably improving disbursements of funds to social 

ministries and establishing a National Audit Authority. In particular, 

it has introduced a Priority Action Program that ensures that priority 

ministries, such as the Ministries of Health and of Education, Youth, 

and Sports, receive funds in a timely manner even if the government 

experiences budget shortfalls. IMF staff report that they receive far 

fewer complaints from these ministries about getting their funds on 

time from the Ministry of Economy and Finance. The government 

implemented the Priority Action Program in the Ministries of Health and 

of Education, Youth, and Sports and plans to expand it in the future to 

the Ministries of Agriculture, Forestry, and Fisheries, and of Rural 

Development. With funding from the World Bank, the government has also 

established a training center to increase the skills of budget 

officials at the Ministry of Economy and Finance.



To increase the accountability of government officials, the Cambodian 

government has created a National Audit Authority, with donor 

assistance. As head of this agency, the auditor general will audit the 

transactions, accounts, systems, controls, operations, and programs of 

government institutions, in accordance with generally accepted auditing 

standards and government auditing standards. The National Audit 

Authority is to be an independent agency that reports directly to the 

National Assembly. To help maintain its independence from external 

influence, it will have its own budget in 2002. The National Audit 

Authority currently has 20 staff members and is led by an auditor 

general and 2 deputies. In commenting on a draft of this report, the 

U.S. Department of State noted that since the National Audit Authority 

is a new agency, it is unclear what impact the agency will have on the 

Cambodian government’s budget management.



Military Reform Is Progressing:



Cambodia is making progress in implementing its military reform 

program, according to government and donor officials. With extensive 

technical and financial assistance from the donors --most notably the 

World Bank --the Cambodian government has implemented many of the 

actions it agreed to undertake and is working to complete the rest.



To achieve its goal of lowering military spending, the government 

discharged 1,500 soldiers in 2000 and 15,000 in 2001 and removed them 

from the government payroll, according to World Bank officials. It 

plans to discharge another 15,000 soldiers in 2002, for a total of 

31,500 discharged solders. The government classified about 80 percent 

of the discharged soldiers as chronically ill, disabled, or elderly. 

This further demonstrates that, for many soldiers, the military has 

been a social welfare program. When we attended a Cambodian military 

discharge ceremony in Siem Reap province in December 2001, we found 

that many of those being discharged that day were elderly or disabled 

(see fig. 2).



Figure 2: Former Cambodian Soldiers Participating in a Military 

Discharge Ceremony:



[See PDF for image]



Source: GAO.



[End of figure]



As a result of these military discharges, the government lowered 

overall defense and security (i.e., police) spending to about 18 

percent of total expenditures in 2001, allowing the government to 

achieve its goal of increasing spending on the four priorities of 

health, education, agriculture, and rural development. The government’s 

spending on these four priorities is expected to surpass that for 

defense and security spending in 2002, according to IMF estimates. For 

2002, the IMF estimates that government spending on the four priority 

areas will be 3.7 percent of national income (about $132 million), 

whereas spending on defense and security will be 2.8 percent of 

national income (about $100 million) --almost the opposite of the 

distribution for 2000. However, the IMF noted that despite this 

significant improvement, the Cambodian government’s spending on health 

and education is still considerably lower than the average of 21 poor 

countries.[Footnote 14]



To help soldiers make the transition to full civilian employment and 

away from reliance on the military as a social welfare program, the 

government and donors are providing soldiers with two assistance 

packages and training to enhance their skills. Upon discharge, soldiers 

receive $240 in cash from the Cambodian government, as well as 

household items and food rations that donors such as the U.N. World 

Food Program, Japan, Canada, Germany, the Netherlands, and Sweden have 

funded.



In addition, through an $18 million World Bank loan, the Cambodian 

government is to provide each discharged soldier with a second, larger 

assistance package. The government is to deliver the larger packages 

within 6 months of the date that the last soldier was discharged for 

that year.[Footnote 15] The government delivered most of these larger 

assistance packages to all 1,500 soldiers discharged in 2000, according 

to World Bank officials. However, the government delivered the larger 

packages almost 1 year late in December 2001. Problems in administering 

funds from several donors and in designing and planning the purchase of 

the assistance packages caused this delay. As of May 7, 2002, the 

Cambodian government is in the process of hiring a private sector firm 

to oversee financial management and procurement of the larger 

assistance packages for the 15,000 soldiers discharged in 2001.



To create a more professional military, the Cambodian and Australian 

governments collaborated on a strategy document that describes the 

military’s roles and responsibilities in light of Cambodia’s return to 

relative peace. The strategy document, Defending the Kingdom of 

Cambodia, is an important initial step for addressing the problems of 

corruption, overstaffing, and limited skills in the military. According 

to the Cambodian government, this paper is the first defense policy 

that it has published. In addition, the governments of Australia, 

China, France, India, and Vietnam are training Cambodia’s armed forces.



Cambodia Adopts New Land Law and Begins Issuing Land Titles:



To help reduce poverty, ensure private persons’ rights to land, and 

reduce land theft, the government committed to adopt a new land law, 

undertake efforts to systematically issue legal land titles, and 

improve its ability to develop and implement land policies. We found 

that, with substantial donor support, the government has made progress 

toward achieving these goals. However, in commenting on a draft of this 

report, the U.S. Department of State noted that these actions alone are 

not sufficient to solve the problem of land theft in Cambodia.



The government adopted a new land law in July 2001. The Asian 

Development Bank assisted the government with drafting the land law, 

and the government sought extensive input from other donors and 

nongovernmental organizations. The new land law clarifies private 

property rights and establishes the government’s responsibility for 

carrying out systematic land registration and maintaining records of 

land ownership. With assistance from the Asian Development Bank and the 

World Bank, the Cambodian government has begun drafting a number of 

regulations to implement the new land law.



To provide private citizens with legal land titles, the government has 

been working with Finland and Germany to conduct a pilot land mapping 

and titling project and has signed a loan with the World Bank to 

continue these efforts. Under the pilot project, government officials 

and donor-provided technical advisors developed detailed maps for Phnom 

Penh and 5 of Cambodia’s 23 provinces.[Footnote 16] According to World 

Bank officials, they then systematically determined the boundaries of 

each community in the province and each plot of land in those 

communities. They defined the plots and determined ownership one 

community at a time so that they could resolve all boundary disputes in 

a community at once. So far, the government and donors have identified 

approximately 60,000 plots of land through their mapping efforts and 

issued about 2,000 land titles at no cost to the recipients, as of 

December 2001, according to the Cambodian minister of land management. 

The government signed a $24 million loan agreement with the World Bank 

in March 2002 to complete titling on the remaining plots and expand 

mapping and titling efforts to five more provinces in the next 5 years. 

According to the World Bank, Germany and Finland have agreed to 

continue their technical assistance and are contributing $3.5 million 

each toward the World Bank project.



In addition to land mapping and titling, Cambodia’s new loan with the 

World Bank includes technical assistance and equipment to improve the 

government’s ability to develop and implement land policies. This 

assistance is meant to help the government undertake essential land 

management tasks, such as developing land use policies and recording 

land ownership and transactions. It will also help the government 

establish a university level curriculum in land management and land 

titling that can be used to train future civil servants.



Critical Actions Not Taken in Four Areas:



The Cambodian government has completed few critical actions to achieve 

its goals in the areas of legal and judicial, anticorruption, public 

administration, and forestry management reform. Donors have expressed 

concern about the government’s lack of progress in these areas.



Cambodia’s Initial Actions to Develop Legal Framework and Lack of 

Progress Toward Judicial Reform:



In the area of legal and judicial reform, we found that the government 

has taken some preliminary actions to develop Cambodia’s legal 

framework but has made no progress in its planned actions to reform the 

judicial system. The government had committed to develop new laws, 

including new civil and criminal codes, and finalize a strategy 

document for several other legal and judicial reforms.



The government has been working closely with various donors to draft 

new laws. In particular, France has drafted a new criminal code for 

Cambodia that the Ministry of Justice is currently reviewing and 

revising, according to ministry officials. Japan is drafting a new 

civil code, which the Ministry of Justice is also reviewing and 

revising. Government officials said that the government will send the 

draft laws to the National Assembly in 2003 for consideration, although 

donor officials believe it could take until 2007 for the draft laws to 

be ready for the National Assembly. The Asian Development Bank helped 

the government write draft land and forestry laws; the land law was 

adopted in July 2001 and the forestry law is currently with the 

National Assembly for consideration.



To improve transparency and give judges, lawyers, and the Cambodian 

people access to Cambodian law, the government has also begun 

periodically distributing an official gazette of new Cambodian laws and 

some implementing regulations. However, all Cambodians, including 

judges and civil servants, must pay for the gazette. In addition, the 

gazette does not include previously enacted Cambodian laws or all of 

the numerous implementing regulations that the government ministries 

have adopted, according to the World Bank and attorneys practicing in 

Cambodia with whom we met. Government officials indicated that no 

further actions are likely in this area until the government signs a 

loan with the World Bank to fund legal and judicial reforms. World Bank 

officials estimate that this loan agreement will not be signed before 

early 2003. According to the U.S. Department of State, the Cambodian 

government already has the capacity to compile and distribute copies of 

a comprehensive archive of Cambodian laws in force, but it has not 

chosen to do so.



The government has not made progress toward increasing the independence 

or competence of the judiciary. The government’s primary commitment in 

this area is to finalize a strategy document to describe how it would 

accomplish several reform actions, such as producing and updating a 

comprehensive archive of Cambodian law, enacting a code of ethics for 

judges, requiring judges to declare their assets, separating the budget 

for the courts from the Ministry of Justice’s budget, and strengthening 

the Supreme Council of the Magistracy --the judiciary’s independent 

oversight body. The government presented the most recent draft of this 

strategy document to donors in June 2001, but that draft did not 

specify how the government was going to implement these reforms. Donors 

have become increasingly frustrated with the government’s lack of 

effort since June 2001 toward finalizing this document. Some have 

questioned the government’s commitment to making lasting reforms in 

this area, particularly before the next national election, scheduled 

for July 2003. The World Bank agreed in January 2002 to help the 

government finalize the strategy document by June 2002. World Bank 

officials told us that they suggested changes to this document and that 

they hoped the government would take “greater ownership” of 

it.[Footnote 17]



The Government Has Taken Few Actions to Curb Corruption:



The Cambodian government has completed only one action --establishing a 

national auditing agency --to achieve its goals of increasing the risks 

associated with engaging in corrupt activities and making public 

officials more accountable for their behavior. (See public finance 

section for further discussion of the national audit agency). The 

government has not completed other critical reforms in this area. For 

example, the government has not adopted codes of ethics to guide the 

behavior of public officials and judges, required public officials to 

declare their assets, or enforced a regulation meant to decrease 

corruption in public procurement. The government also has not submitted 

to parliament a law to define and establish penalties for corruption. 

In 1995, the government began working to develop such a law. However, 

the government is not likely to pass an anticorruption law until after 

the 2003 national elections, according to some donor officials. A 

senior Cambodian government official said the government is not 

prioritizing passage of the anticorruption law because Cambodia does 

not have an adequate judicial system to enforce it. He said that, when 

legal and judicial reforms are sufficiently completed, Cambodia would 

pass the anticorruption law.



Donors have also expressed concern about the government’s lack of 

progress in implementing its 1995 regulation on public procurement, 

which they said is central to the transparent and accountable 

management of public resources. Donors said the government’s 

procurement regulation is a reasonably good foundation, but that it has 

not been applied. Among other things, the regulation would ensure that 

public agencies purchase goods and services at the lowest possible 

price and give suppliers the opportunity to compete for government 

contracts. In recognition that the regulation has not been fully 

implemented, in December 2001 the government required that four 

priority ministries --Agriculture, Forestry, and Fisheries; Education, 

Youth, and Sports; Health; and Rural Development --fully implement the 

procurement regulation except in the areas of heavy capital investment 

in roads, bridges, and sewerage construction.



Donors we interviewed have expressed concern and frustration about the 

government’s lack of progress, given that donors and the government 

consider corruption to be adversely affecting the country’s social and 

economic development. Several donor officials said that the Cambodian 

government has not made progress in tackling corruption because it 

lacks the political will to do so. Donors have also expressed the 

concern that government officials may be more focused on building 

support for the 2003 national elections than on implementing reforms to 

tackle corruption.



Fundamental Actions Not Taken to Reform Public Administration:



The government has completed few actions to achieve its goals in public 

administration reform; the actions are coming slowly; and the most 

critical ones, such as defining the roles of each ministry, remain 

incomplete. In its National Program for Administrative Reform, the 

government committed to take actions to achieve its four goals. These 

goals are to (1) make public institutions more efficient, (2) transfer 

responsibilities to local governments, (3) improve management of the 

civil service, and (4) select civil servants to carry out reforms 

quickly. The government has been working to reform its public 

administration since 1993 and introduced its National Program for 

Administrative Reform in 1999, but so far it has only taken some very 

preliminary actions. Overall, the government is about 2 years behind in 

its schedule to reform public administration.



In 2001, the government finalized a strategy intended to explain the 

detailed actions it would take to achieve the four goals laid out in 

the National Program for Administrative Reform. These actions include 

restructuring the civil service, improving motivation of staff, and 

implementing a new system to manage staff and activities. However, the 

strategy document is a brief presentation with limited details about 

how the government will implement reforms to achieve its goals. Also, 

it was finalized a year behind schedule. World Bank staff stated that 

they are satisfied with the strategy and that the World Bank would be 

prepared to consider providing a loan to support reforms in this area.



Furthermore, the government took the initial step in its reform program 

of completing a census of civil service employees in 2000. Through this 

census, the government eliminated more than 8,000 ghost workers from 

the civil service payroll.[Footnote 18] It also used data from the 

census to automate the civil service payroll throughout the country.



To help make its institutions more efficient, the government has agreed 

to undertake an analysis of the responsibilities, size, and staff 

required for each ministry. The government committed to completing this 

analysis by June 2000, but it has yet to do so. This analysis is to be 

the foundation for a complete restructuring of public administration 

institutions. Once the analysis is completed, the government will 

reorganize ministries based on their new responsibilities, reassign 

staff according to their skills and qualifications, and train staff in 

their new positions.



Cambodia began transferring central government responsibilities to 

local governments when it held its first election for 1,621 newly 

established commune councils in February 2002.[Footnote 19] Cambodia is 

establishing the councils, drafting regulations to define how the 

councils are to operate, and outlining plans to determine the skills -

-such as preparing and executing local development plans and budgets -

-that the councils will need. Providing the newly elected officials 

with the technical skills needed to prepare and administer plans, 

projects, and budgets will require significant time and resources. 

Donors are expected to provide most of these resources, given the 

Cambodian government’s limited revenue.[Footnote 20] However, it is not 

clear how commune councils will obtain the financial resources needed 

to fund their projects.



To improve management of the civil service, the government committed to 

implementing a new, merit-based pay scale. However, it has not fully 

implemented this new system. The government intends to raise salaries 

to enhance staff motivation and provide incentives for civil servants 

to perform their job duties. IMF staff report that the government 

instituted the new pay scale in two smaller government ministries in 

early 2002, but they are unclear when the government will expand this 

plan to other ministries. Donors are also unsure whether the government 

can afford the salary increases it announced in December 2001. While 

the previous plan, developed in 2000, allowed for salary increases of 

between 7 and 38 percent of civil servants’ current salaries, in 

December 2001 the government announced that every civil servant would 

receive a salary increase of between 38 and 100 percent. Senior 

Cambodian government officials stated that they would finance the 

salary increases with savings from eliminated ghost workers, but we 

found that the government had already earmarked those funds for other 

programs. Prior to the December announcement, officials from the U.N. 

Development Program, the lead donor in public administration reform, 

stated that the government did not have the funds to increase all civil 

servants’ salaries. Moreover, officials from the IMF, which has been 

extensively involved in Cambodia’s fiscal planning, said it would be 

very difficult for the government to raise salaries under the current 

budget.



The government also has not achieved its goal of implementing the 

Priority Mission Group program, a critical reform aimed at beginning 

reforms quickly and improving civil servants’ motivation. Priority 

Mission Groups are supposed to be teams of the most qualified civil 

servants chosen to spearhead reforms in each ministry. Members are to 

receive higher salaries and be held accountable for achieving specific 

missions. Once the government has mobilized Priority Mission Groups, 

the government expects that the civil service will be more productive 

and deliver better services such as health care and education. Although 

the government has cited this program as key to its other reform 

efforts, it has not yet articulated a clear plan for how it will form 

or manage the Priority Mission Groups. Donors stated that the details 

of the program have not been explained to them, even though the 

government plans for donors to provide most of the financing for the 

groups after the first year.



Forestry Reforms Not Fully Implemented and Have Not Had a Sustained 

Impact:



Although the prime minister, the government’s action plan, and donors 

have identified forestry management as an important area of reform, the 

government’s reform actions in this area have not been fully 

implemented and, therefore, have not yet had a sustained impact on the 

level of illegal logging in Cambodia. The government committed to 

undertake several actions including establishing a special unit to 

detect and monitor illegal logging, enforcing new sustainable forestry 

management regulations, and adopting a new forestry law. While illegal 

logging decreased in 1999 and 2000, donors and a nongovernmental 

organization have noted an increase in illegal logging in 

2001.[Footnote 21]



To develop the government’s ability to detect and track illegal 

logging, the government, the U.N. Development Program, and the U.N.’s 

Food and Agriculture Organization initiated a 3-year project that in 

October 1999 created forestry crimes monitoring and reporting units in 

both the Department of Forestry and Wildlife and the Department of 

Inspection. The government and donors agreed to include an independent 

monitor --the nongovernmental organization Global Witness --as a third 

unit to monitor illegal logging and oversee the other units’ 

activities. In addition, the U.N.’s Food and Agriculture Organization 

provides technical advisors to the project.



Reports that the technical advisors and Global Witness prepared 

indicate that the Forestry Crimes Monitoring Unit has not met its goals 

toward developing the government’s ability to detect and track illegal 

logging. Both stated that while the Department of Inspections has been 

cooperative in these efforts, the Department of Forestry and Wildlife 

has not been a fully cooperative partner. They also assert that the 

Department of Forestry and Wildlife does not effectively pursue reports 

of illegal logging concerning commercial logging companies. Instead, 

they note that the department pursues small-time logging operations. 

The technical advisors and Global Witness also assert that the 

Department of Forestry and Wildlife has denied both of them access to 

the unit’s computerized database of illegal logging reports and various 

key documents that they have the right to see. In addition, they note 

that poor coordination between the U.N. Development Program and the 

U.N.’s Food and Agriculture Organization has caused significant funding 

delays and hampered the Forestry Crime Monitoring Unit’s efforts. The 

longest delay was 8 months in 2001. These delays have prevented the 

unit from paying staff and making basic equipment purchases, according 

to one technical advisor.



To implement new regulations on the management of commercial logging, 

the government announced that it would not issue new cutting permits or 

transport permits to logging companies after January 1, 2002, until 

logging companies comply with the regulations. Specifically, the 

government will not provide these permits until the logging companies 

have submitted new inventories of the trees remaining in their logging 

area, an environmental and social impact assessment, and a sustainable 

forestry management plan. However, the impact of this measure is 

unclear. The World Bank has recognized that illegal logging continues 

in Cambodia. Officials from Global Witness stated that they have 

evidence that one logging company has been cutting a large number of 

trees since January 1, 2002. However, government and World Bank 

officials told us that they will not have measures that would 

significantly improve Cambodia’s methods for monitoring logging 

activities in place until the beginning of the next logging season 

(September 2002).



As for Cambodia’s draft forestry law, it was presented to the National 

Assembly in July 2001, but it has yet to be adopted and referred to the 

Senate for its consideration. It is unclear at this time when the 

National Assembly will complete its deliberations. The government wrote 

the draft law with substantial assistance from the Asian Development 

Bank and World Bank. The draft law calls for the development of a 

national forest policy to ensure the sustainable management of forests 

and would require the Ministry of Agriculture, Fisheries, and Forestry 

to prepare a national forest development plan and report annually on 

its implementation. The new law would also distinguish between legal 

and illegal logging, establish procedures for investigating and 

prosecuting illegal logging, and define the penalties. Such cases would 

still be prosecuted within Cambodia’s current judicial system.



Observations:



Cambodia has made strides toward establishing a democratic government 

and a market-based economy in recent years. It has also repeatedly 

stated its commitment to improving governance so as to attract the 

investment needed to foster economic growth and development, which in 

turn could help Cambodia reduce poverty. However, Cambodia faces three 

cross-cutting challenges --a weak legal and judicial system, endemic 

corruption, and ineffective public administration. The Cambodian 

government has identified reform in these areas as fundamental for a 

functioning government and for providing the foundations of a robust 

economy and society. The government’s limited progress in these areas 

will, therefore, undermine its efforts in other areas of governance 

reform, as well as in achieving the government’s larger objectives of 

furthering economic and social development.



Agency Comments:



We received written comments from the U.S. Department of State, the 

U.S. Agency for International Development, the IMF, and the World Bank, 

which are reprinted in appendixes I through IV. We also received 

informal comments from the government of Cambodia. We received 

technical comments from the Department of State, the Asian Development 

Bank, the IMF, and the World Bank. We incorporated these comments into 

the report where appropriate.



The Department of State concurred with our general findings. It noted 

that even in areas where the Cambodian government has made progress 

toward governance reform, there is room for continued improvement. The 

department also noted that Cambodia’s limited financial and human 

resources, constrained political will, and opposition to some reforms 

from powerful vested interests slow the otherwise forward-moving 

progress of reform.



The U.S. Agency for International Development also concurred with our 

findings. It noted that the government of Cambodia has taken positive 

steps in certain areas. The agency also noted that problems of 

political will, resources, and human capital have resulted in the 

government’s taking few actions to reduce corruption or improve the 

legal and judicial system, public administration, and forestry 

management.



The IMF shared our conclusion that efforts need to continue in all 

areas of governance reform and that greater efforts need to be made in 

areas where progress has been lagging.



The World Bank agreed that the Cambodian government had made progress 

in public finance, the military, and land management reform. It also 

asserted that the Cambodian government had accomplished important 

achievements in forestry management reform, although illegal logging 

continues, forestry crime monitoring is not working as it should, and 

more must be done to solidify any progress made. The bank stressed that 

Cambodia’s lack of human and institutional capacity must be taken into 

account when evaluating Cambodia’s progress toward governance reform.



The government of Cambodia, through the acting minister in charge of 

the Office of the Council of Ministers, stated that the Cambodian 

government is proud of the reforms achieved to date but recognizes that 

more needs to be done on several fronts. He added that the government 

is very conscious of the need to accelerate the pace of reforms, 

particularly in establishing the rule of law.



Scope and Methodology:



To describe the goals that the Cambodian government and its donors 

established for strengthening governance in seven areas, we reviewed 

the government’s March 2001 Governance Action Plan and related 

documents, such as progress reports that the government regularly 

published and submitted to the donors. We also reviewed strategy 

documents that the government wrote to describe further its reform 

goals and the actions it plans to take to achieve those goals. For 

example, we reviewed the National Program for Administrative Reform, 

the civil service rationalization strategy, and the strategy to reform 

the judiciary. We reviewed donor papers and reports, including the 

Asian Development Bank’s Enhancing Governance for Sustainable 

Development and the World Bank’s Cambodia: Governance and Corruption 

Diagnostic. In addition, we met with Cambodian government officials and 

international donors to confirm the reform goals and clarify the steps 

the government would take to achieve them. We interviewed the prime 

minister, the senior minister in charge of the office of the Council of 

Ministers, senior officials in charge of reforms within various 

ministries, and members of the National Assembly.



To assess the government’s progress in achieving its governance reform 

goals, we reviewed what actions the government committed to take in the 

Governance Action Plan. We also gathered evidence concerning actual 

steps taken to complete reform actions, the momentum for reform in each 

area, and the extent of donor involvement. We then determined which 

actions the government had taken, which were under way, and which it 

had not taken. To make this determination, we examined many Cambodian 

government documents, including the Governance Action Plan, progress 

reports, and draft strategy documents. We also examined documents from 

donors, including progress reports on donor-funded projects, loan 

agreement documents, and donor-funded governance assessment reports. In 

addition, we interviewed key Cambodian government officials in Phnom 

Penh, Kampong Thom, and Siem Reap, as well as members of the National 

Assembly. We discussed with them the reform actions and what they have 

done to implement them.



To understand the views of donors and nongovernmental organizations on 

the government’s progress in implementing reforms, we interviewed 

officials from the World Bank, the IMF, the Asian Development Bank, the 

U.N., Australia, Canada, Germany, Japan, and the United Kingdom in 

Cambodia and the United States. We also met with numerous 

nongovernmental organizations in the United States and Cambodia, 

including Global Witness, the Center for Social Development, the Khmer 

Institute for Democracy, the Cambodian Research and Development

Institute, NGO Forum, and OXFAM-Great Britain. We also met with 

officials from the U.S. Department of State, the U.S. Agency for 

International Development, and the U.S. Department of the Treasury.



We performed our work from July 2001 through April 2002, in accordance 

with generally accepted government auditing standards.



We are sending copies of this report to interested congressional 

committees, the Secretary of State, the Administrator of the U.S. 

Agency for International Development, the Secretary of the Treasury, 

the Prime Minister of Cambodia, the President of the World Bank, 

Managing Director of the IMF, and the President of the Asian 

Development Bank. We will make copies available to others on request. 

In addition, the report will be available at no charge on the GAO Web 

site at http://www.gao.gov.



If you or your staff have any questions about this report, please 

contact me at (202) 512-8979. An additional GAO contact and staff 

acknowledgments are listed in appendix V.



Joseph A. Christoff,

Director

International Affairs and Trade:



Signed by Joseph A. Christoff:



[End of section]



Appendix I: Comments from the Department of State:



United States Department of State Washington, D.C.20520:



MAY 28 2002:



Dear Ms. Westin:



We appreciate the opportunity to review your draft report, “CAMBODIA: 

Governance Reform Progressing but Key Efforts are Lagging,” GAO-02-569, 

GAO Job Code 320070.



The enclosed Department of State comments are provided for 

incorporation with this letter as an appendix to the final report.



If you have any questions concerning this response, please contact 

Gregory Lawless, Cambodia Desk Officer, Office for Burma, Cambodia, 

Laos, Thailand, and Vietnam Affairs, Bureau of Eastern Asian and 

Pacific Affairs, at (202)647-3095.



Chistopher B. Burnham, Assistant Secretary and Chief Financial Officer:



Signed by Chistopher B. Burnham



Enclosure:



As stated.



cc: GAO/IAT - Mr. Stephen Lord State/OIG - Mr. Berman State/EAP - Ms. 

Judith Strotz:



Ms. Susan S. Westin, Managing Director, International Affairs and 

Trade, U.S. General Accounting Office.



Department of State Comments on GAO Draft Report: “Cambodia: Governance 

Reform Progressing but Key Efforts are Lagging” (GAO-02-569, GAO Code 

320070):



The GAO has produced a good overview of some aspects of governance in 

Cambodia which could be a baseline for more detailed studies in the 

future. The GAO report has served a useful purpose in compiling the 

fundamental elements necessary to achieve progress in reforming some 

institutions of government in Cambodia.



The Department of State concurs with the general findings of the 

report. In each of three areas--public finance, military reform, and 

land management--the government has indeed achieved progress. However, 

on closer examination, there is much room for improvement in each of 

these same subject areas. Similarly, the other four areas under 

examination--legal and judicial reform, anticorruption, public 

administration, and forestry management--have shown bright spots and 

weak points that would become apparent on closer scrutiny and analysis. 

In short, in each area of reform, there are some aspects in which there 

has been progress, and others where there has not.



Before reviewing each of the seven sectors of governance that have come 

under examination by GAO, it should be noted that the U.S. government 

is largely prohibited by legislation from assisting the central 

government of Cambodia in these areas. This prevents possible 

assistance in certain areas of governance--or specialized subsectors--

where there might be potential for reaping an improvement in governance 

in return for our assistance.



Finance:



The report notes improvements in finance reform and budget management 

and the examples it cites would appear to indicate that the Royal 

Government of Cambodia (RGC) has the political will to achieve this 

goal. However, two examples cited are as yet untested. The National 

Audit Authority and a Customs Department anti-smuggling task force were 

only recently established. It is still unclear whether either of these 

bodies will be given the range of powers and independence from 

political parties or vested interests needed to perform their 

functions. At the same time, the GAO study’s finding that the 

government has increased revenue collection is on target; the trends in 

management and accountability appear to be in a positive direction.



Military:



The report gives a good accounting of efforts to reduce Cambodian 

military forces’ size. The Department concurs with the findings on 

demobilization, but notes that demobilization is not equivalent to 

professionalization of the armed forces.



Land:



The report accurately portrays developments in the government’s 

technical ability to develop land policies and manage land titling. 

While the government did indeed pass a new Immovable Properties Law in 

July 2001, implementing regulations are not in place. Moreover, these 

new steps do not by themselves solve the problem of corruption in land 

disputes.



Legal Framework and Judicial System:



The Department concurs that the RGC has not taken critical actions in 

either of these two sectors. However, the report should recognize the 

difficult and sometimes overwhelming tasks associated with passing 160 

laws since 1993. In addition, there are nearly 4,000 draft laws 

pending. Despite these accomplishments with the legal framework, it is 

important to note that the RGC has the capacity to collate and 

disseminate an archive of all current laws in force, but has not done 

so to date. Development of the judiciary, which is accurately described 

in the report, is in a worse state than reform of the legal sector.



Corruption:



The report on corruption is accurate. Fighting corruption will require 

political will at many levels.



Civil Service:



The assessment of civil service reform is generally on target. The 

Priority Mission Group program is accurately described, although it is 

worth noting that the program could form the basis for an entirely new 

civil service system in which employees are adequately compensated for 

efficiently performing their duties in the public interest.



Forestry:



Forestry reforms are not fully implemented, as the GAO report 

indicates; however, illegal logging remains below levels found prior to 

1999. The RGC’s periodic successes in logging show that better 

management of forest resources is possible in Cambodia.



The Department’s overall assessment is that economic and social 

development can continue in Cambodia--as can governance reform--as long 

as bilateral donors and international creditors apply principles of 

accountability in a realistic manner. In any assessment, it must be 

recognized that Cambodia as a whole has a thin layer of educated 

personnel and a large farm-based population with only a basic 

education. The RGC lacks both the budget and the human resources to 

accomplish at a fast pace all of the governance reforms established for 

it by the donor community. Combined with a constrained political will 

and powerful vested interests opposed to change in some sectors, these 

factors are a drag on the otherwise forward-moving direction of reform 

demanded by Cambodia’s fledgling democratic institutions and growing 

civil society.



[End of section]



Appendix II: Comments from the U.S. Agency for International 

Development:



USAID:



US. AGENCY FOR INTERNATIONAL DEVELOPMENT:



MAY 28 2002:



Mr. Joseph A. Christoff Director:



International Affairs and Trade U.S. General Accounting Office 441 G 

Street, N.W.



Washington, D.C. 20548:



Dear Mr. Christoff:



I am pleased to provide the U.S. Agency for International Development’s 

(USAID’s) formal response on the draft GAO report entitled “Cambodia 

Governance Reform Progressing, But Key:



Efforts Are Lagging.” (June 2002).



USAID is mainly in agreement with GAO’s findings on Cambodia’s progress 

in governance reform. While the Cambodian Government has taken positive 

steps in certain areas, problems of political will, resources, and 

human capital have so far resulted in few actions to diminish 

corruption or improve Cambodia’s civil service, its legal and judicial 

system, and its forestry management. Because of this, USAID has chosen 

to focus its assistance efforts in Cambodia on sectors and in ways 

whereby we can most expect to improve the health status, educational 

levels, and human rights of ordinary Cambodians.



Thank you for the opportunity to respond to the GAO draft report and 

for the courtesies extended by your staff in the conduct of this 

review.



Sincerely,



John Marshall:



Assistant Administrator Bureau for Management:



Signed by John Marshall:



[End of section]



Appendix III: Comments from the Department of the Treasury:



May 31, 2002:



Mr. Joseph A. Christoff:



Director, International Affairs and Trade U.S. General Accounting 

Office:



441 G. St. NW Washington, DC 20548:



Dear Mr. Christoff,



Attached please find two letters of comment regarding the General 

Accounting Office’s draft report entitled “Cambodia: Governance Reform 

Progressing, But Key Efforts Are Lagging.” One letter is from Mr. 

Yusuke Horiguchi, Director of the Asia and Pacific Department at the 

IMF and the other is from Mr. Ian Porter, Country Director for Cambodia 

for the World Bank.



Please let us know if you have any questions or need further 

assistance.



David Loevinger:



Acting Deputy Assistant Secretary Africa, the Middle East and Asia:



Signed by David Loevinger:



INTERNATIONAL MONETARY FUND WASHINGTON. D.C. 20431:



May 17, 2002:



Mr. Joseph A. Christoff:



Director, International Affairs and Trade United States General 

Accounting Office 441 G St N.W.



Washington, DC 20548:



Dear Mr. Christof^:



Thank you for seeking our comments on the May 2002 GAO draft report 

entitled “Cambodia: Governance Reform Progressing, But Key Efforts are 

Lagging.” As noted in the report, Cambodia has made progress toward 

establishing a democratic government and a market-based economy in 

recent years. The task is a difficult one, with Cambodia having 

inherited a very weak institutional and governance environment from the 

past.



The IMF-supported program under the Poverty Reduction and Growth 

Facility is designed to support fundamental economic reforms and 

institution building with the aim of fostering economic growth and 

reducing poverty. The program encompasses efforts to improve 

governance, particularly in the areas of tax administration and public 

expenditure management. There are also other important areas being 

supported by the IMF that go beyond the coverage of the GAO report. For 

example, financial sector reform has been a key aspect of the IMF-

supported program and has involved enacting new legislation and 

regulations, and the closing of financial institutions that are not in 

compliance. Efforts are also underway to improve bank supervision. The 

National Bank of Cambodia is in full compliance with the IMF’s 

Safeguards Policy which required, among other things, that the central 

bank have independent external audits based on international standards 

in each of the last two years.



There is still much to be done to sustain economic development and 

poverty reduction. While expectations have to be realistic given the 

weak institutional and policy environment, we broadly share the 

report’s conclusions that to be successful current efforts need to 

continue in all areas, and be strengthened in those areas where 

progress has been lagging.



Sincerely yours,



Yusuke Hoiguchi, Director:



Signed by Yusuke Hoiguchi:



Asia and Pacific Department:



[End of section]



Appendix IV: Comments from the World Bank:



The World Bank:



INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT:



May 23, 2002:



Ms. Carole Brookins U.S. Executive Director World Bank Washington, DC 

(USA):



Dear Ms. Brookins:



We welcome this opportunity to comment on GAO’s draft report entitled, 

“Cambodia - Governance Reform Progressing, But Key Efforts Are 

Lagging.” Our Country Assistance Strategy for Cambodia stresses the 

Bank’s support of good governance as a critical ingredient in building 

the foundations for poverty reduction in Cambodia. To this end, we are 

pleased to see the report’s focus on governance, and consider that it 

makes many valid and useful points about the areas of reform. We intend 

to share it with other key donors who are also working to promote 

Cambodia’s economic development efforts through improved governance.



In assessing Cambodia’s progress on governance reforms, it is important 

to recognize and put in proper context the situation in which the 

Cambodian government and its people are struggling. We appreciate that 

the report quite appropriately begins by acknowledging that Cambodia 

has been left bereft in terms of public services, excessive military 

build-up, and weak public institutions because of 30 years of internal 

political struggle and war. It highlights the fact that Cambodia is 

ranked only 136 out of 174 countries in terms of various social and 

economic indicators (United Nations). However, Cambodia’s lack of 

adequate human and institutional capacity should also be taken into 

account when evaluating the country’s progress in the seven areas of 

reform under Governance that were reviewed by the GAO.



We agree with the report’s conclusion that the government has made 

progress in achieving its goals in public finance, the military, and 

land management. We also believe that there have been some important 

achievements in forestry management reforms, although clearly more must 

be done to:



solidify the progress made. The Government should be recognized for the 

degree of commitment it has shown thus far in cutting back on the 

number of forestry concessions; inviting Global Witness, an 

international NGO, to help monitor forest crime; increasing forestry 

royalties; and, importantly, producing the draft forestry law. The 

drafting of the law was a significant achievement and goes a long way 

towards resolving some fundamental jurisdictional and governance issues 

in the forestry sector. That said, we recognize that illegal logging 

continues, and the forest crime monitoring system is still not working 

as it should.



To conclude, we welcome this timely and important report and hope that 

it will contribute to stimulating greater action on governance issues 

in Cambodia.



Sincerely yours,



Ian C. Porter Country Director, Cambodia East Asia and Pacific Region:



Signed by Ian C. Porter:



[End of Section]



FOOTNOTES



[1] Corruption is the abuse of public office for private gain.



[2] In recent years, U.S. appropriation laws have restricted U.S. 

agencies from using funds appropriated under those appropriation laws 

for direct assistance to the Cambodian government, with certain 

exceptions for humanitarian-type assistance. For example, the most 

recent restrictions were found in the Foreign Operations Fiscal Year 

2002 Appropriations Act (P.L. 107-115, sec. 563).



[3] U.S. Department of State, Country Reports on Human Rights 

Practices-2001 (Washington, DC: U.S. Department of State, Mar. 4, 

2002).



[4] The other members of ASEAN are Brunei Darussalam, Burma, Indonesia, 

Laos, Malaysia, Philippines, Singapore, and Thailand.



[5] In 1999, the Cambodian government --with the World Bank’s technical 

and financial assistance --registered more than 130,000 soldiers. This 

figure took into account the removal from the payroll of 15,551 

deceased, or “ghost,” soldiers and about 160,000 ghost dependents. 



[6] A senior U.N. human rights official reported that there are “almost 

daily reports of abuses by military and police officials against common 

people, including killing, rape, illegal arrest or kidnapping for 

extortion as well as beating and other violent acts.” See United 

Nations, Situation of Human Rights in Cambodia: Report of the Special 

Representative of the Secretary-General for Human Rights in Cambodia, 

Mr. Thomas Hammarberg, submitted in accordance with Commission 

resolution 1998/60 (New York: U.N. Economic and Social Council, Feb. 

26, 1999). 



[7] Royal Government of Cambodia, Defending the Kingdom of Cambodia 

(Phnom Penh, Cambodia: Royal Government, 2000). 



[8] So Sovannarith et al., Social Assessment of Land in Cambodia: A 

Field Study (Phnom Penh, Cambodia: Cambodia Development Resource 

Institute, July 2001) and Toshiyasu Kato et al., Cambodia: Enhancing 

Governance for Sustainable Development (Manila, Philippines: The Asian 

Development Bank, Oct. 2000).



[9] Kato, Cambodia: Enhancing Governance.



[10] World Bank, Cambodia Governance and Corruption Diagnostic: 

Evidence from Citizen, Enterprise and Public Official Surveys 

(Washington, D.C.: World Bank, May 10, 2000).



[11] Hun Sen, Address to the International Conference on Building a 

Coalition for Transparency, Phnom Penh, Cambodia; 22 August 2001. 

Cambodia New Vision Web site, http://www.cnv.org.kh.



[12] World Bank, Cambodia: A Vision for Forestry Sector Development 

(Washington, D.C.: World Bank, Feb. 1, 1999).



[13] World Bank, Cambodia: A Vision for Forestry Sector Development.



[14] As a percentage of gross domestic product, on average, poor 

countries spend roughly 2-3 times more on health and education than 

Cambodia, according to the IMF staff’s estimates of 21 low-income 

countries. 



[15] Each discharged soldier chooses one of the following four larger 

assistance packages: a shelter (a one-room house); an electric 

generator and a water pump; an electric generator and a sewing and 

knitting machine; or a motorcycle and a sewing machine. 



[16] The areas being mapped and titled are Phnom Penh and the provinces 

Kampong Speu, Kampot, Kandal, Krong Preah Sihanouk, and Takeo.



[17] Although not specifically called for in the Governance Action Plan 

or the Cambodian government’s draft strategy document for legal and 

judicial reform, the Cambodian government has adopted a decree to 

establish a judicial training college, according to the World Bank.



[18] World Bank officials stated that “ghost” workers were once 

employed in the civil service but have since left their government 

positions and yet remain on the payroll. The Cambodian government 

claims that more than 8,000 of these workers have been removed from the 

payroll, representing a savings of more than $1.2 million per year. We 

did not verify their removal. However, World Bank and IMF officials 

stated that there is evidence to indicate that the government removed 

the names from the payroll.



[19] Donor and nongovernmental officials described the elections as a 

first step toward democracy and “power sharing” in Cambodia, even 

though the ruling party will control almost 99 percent of the councils. 

Moreover, while international observers generally judged the results to 

be acceptable, they criticized the February elections as not being free 

or fair. 



[20] Since the mid-1990s, with donor funding, the Cambodian government, 

the U.N. Development Program, and the U.N. Office for Project Services 

have implemented a program, Cambodia Area Rehabilitation and 

Regeneration Project (CARERE/SEILA), to strengthen the local capacity 

to plan, finance, and manage development in five provinces. The program 

emphasizes involving citizens in identifying, prioritizing, and 

implementing projects of concern to them. 



[21] The severity of this increase is unclear at this time.



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