Cambodia: Governance Reform Progressing, But Key Efforts Are	 
Lagging (13-JUN-02, GAO-02-569).				 
                                                                 
According to the United Nations data, Cambodia has received more 
than $3 billion in assistance since 1993. Although Cambodia has  
achieved relative peace and stability,	continued widespread	 
corruption and weak judicial system undermine efforts to reduce  
poverty and foster economic growth. Since 1993, the United States
has provided Cambodia with over $200 million to reduce poverty	 
and foster economic growth. This assistance has included programs
to strengthen democracy, improve education and health care, and  
address problems posed by land mines. 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: 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; reducing risks 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. Although 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,	 
anitcorruption, and forestry management. The government has	 
increased revenue from nine percent of gross domestic product to 
12.5 percent 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. 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. Legislation that	 
defines and provides specific penalties for engaging in corrupt  
activities has not been passed. Civil servants have not been	 
selected or trained to carry out priority reforms that senior	 
government officials believe must be done quickly. The government
has not fully implemented its forestry monitoring project to	 
detect and track illegal logging.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-569 					        
    ACCNO:   A03560						        
  TITLE:     Cambodia: Governance Reform Progressing, But Key Efforts 
Are Lagging							 
     DATE:   06/13/2002 
  SUBJECT:   Economic growth					 
	     Economically depressed areas			 
	     International economic relations			 
	     Economic development				 
	     Foreign governments				 
	     Cambodia						 
	     U.N. World Food Program				 
	     International Monetary Fund			 

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GAO-02-569
     
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

GAO- 02- 569

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 States
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 of 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, land management,
legal and judicial 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.

June 2002 CAMBODIA Governance Reform Progressing, but Key Efforts Are
Lagging

This is a test for developing highlights for a GAO report. The full report,
including GAO's objectives, scope, methodology, and analysis is available at
www. gao. gov/ cgi- bin/ getrpt? GAO- 02- 569. For additional information
about the report, contact Joseph A. Christoff (202- 512- 8979). To provide
comments on this test highlights, contact Keith Fultz (202- 512- 3200) or e-
mail [email protected] gao. gov.

Highlights of GAO- 02- 569, a report to the Subcommittee on Foreign
Operations, Committee on Appropriations, U. S. Senate United States General
Accounting Office

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 issuing 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 noting 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

GDP a per capita (PPP b dollars) Life expectancy (years)

Adult illiteracy (percent) Population under 14 yrs (percent)

Cambodia $1,360 54 61% 38% Vietnam 1,860 69 7 34 Low-income countries
(world) 1,920 59 39 37 Indonesia 2,860 66 14 31 Thailand 6,130 69 5 26
Malaysia 8,210 72 13 34

a GDP = Gross Domestic Product b PPP = Purchase Price Parity

Source: World Bank.

G A O Accountability Integrity Reliability

Highlights

Page i GAO- 02- 569 Cambodian Governance Letter 1

Results in Brief 2 Background 3 The Cambodian Government and Donors Have
Established Goals

to Strengthen Governance in Seven Areas 5 Progress Made in Achieving Three
Reform Goals; Government Has

Not Taken Critical Actions to Achieve the Other Four 13 Observations 25
Agency Comments 26 Scope and Methodology 27

Appendix I Comments from the Department of State 29

Appendix II Comments from U. S. Agency for International Development 33

Appendix III Comments from the Department of the Treasury 34

Appendix IV Comments from the World Bank 36

Figures

Figure 1: Typical Cambodian Homes in Kampong Thom Province 12 Figure 2:
Former Cambodian Soldiers Participating in a Military

Discharge Ceremony 15 Contents

Page 1 GAO- 02- 569 Cambodian Governance

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 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. 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

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).

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 02- 569 Cambodian Governance

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.

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 Results in Brief

Page 3 GAO- 02- 569 Cambodian Governance

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.

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 Background

Page 4 GAO- 02- 569 Cambodian Governance

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. 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 coprime
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

3 U. S. Department of State, Country Reports on Human Rights Practices- 2001

(Washington, DC: U. S. Department of State, Mar. 4, 2002).

Page 5 GAO- 02- 569 Cambodian Governance

billion, according to IMF estimates. The government?s expenditures totaled
$590 million in 2001.

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.

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. 4
Furthermore, government officials accept bribes for

4 The other members of ASEAN are Brunei Darussalam, Burma, Indonesia, Laos,
Malaysia, Philippines, Singapore, and Thailand. The Cambodian

Government and Donors Have Established Goals to Strengthen Governance in
Seven Areas

Increasing Revenue and Improving Budget Management

Page 6 GAO- 02- 569 Cambodian Governance

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.

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; 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

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. Creating a Smaller,
More

Professional Military

Page 7 GAO- 02- 569 Cambodian Governance

active military service in years, according to the government and donors.
Third, the U. N., the 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. 6 The Cambodian government reported that its
military force is too large, poorly equipped, and not well trained. 7

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

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). Providing Cambodians

With Legal Land Titles

Page 8 GAO- 02- 569 Cambodian Governance

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. 8

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

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). Developing Cambodia?s

Legal Framework and Establishing a Competent Judiciary

Page 9 GAO- 02- 569 Cambodian Governance

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. 9

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

9 Kato, Cambodia: Enhancing Governance.

Anticorruption: Increase the Risks of Engaging in Corrupt Activities and
Make Public Officials More Accountable for Their Behavior

Page 10 GAO- 02- 569 Cambodian Governance

businesses ranked corruption as either the first or second largest
constraint to development in Cambodia. 10

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 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

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.

Restructuring Public Administration

Page 11 GAO- 02- 569 Cambodian Governance

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.

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. 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). 13

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.

Preserving Cambodia?s Forests

Page 12 GAO- 02- 569 Cambodian Governance

Figure 1: Typical Cambodian Homes in Kampong Thom Province

Source: GAO.

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.

Page 13 GAO- 02- 569 Cambodian Governance

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 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.

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 Progress
Made in

Achieving Three Reform Goals; Government Has Not Taken Critical Actions to
Achieve the Other Four

The Cambodian Government Has Made Some Progress in Public Finance, Military,
and Land Management Reform

Public Finance Reforms Have Increased Revenue and Improved Budget Management

Page 14 GAO- 02- 569 Cambodian Governance

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.

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 -

Military Reform Is Progressing

Page 15 GAO- 02- 569 Cambodian Governance

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

Source: GAO.

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

Page 16 GAO- 02- 569 Cambodian Governance

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 Fund 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 Fund 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. 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. 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.

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.

Page 17 GAO- 02- 569 Cambodian Governance

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.

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. 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

16 The areas being mapped and titled are Phnom Penh and the provinces
Kampong Speu, Kampot, Kandal, Krong Preah Sihanouk, and Takeo. Cambodia
Adopts New Land

Law and Begins Issuing Land Titles

Page 18 GAO- 02- 569 Cambodian Governance

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.

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.

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 Critical
Actions Not Taken

in Four Areas Cambodia?s Initial Actions to Develop Legal Framework and Lack
of Progress Toward Judicial Reform

Page 19 GAO- 02- 569 Cambodian Governance

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
June 2003. The World Bank agreed in January 2002 to help the government
finalize the strategy document by June 2002. World Bank officials told us

Page 20 GAO- 02- 569 Cambodian Governance

that they suggested changes to this document and that they hoped the
government would take ?greater ownership? of it. 17

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.

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. The Government Has
Taken

Few Actions to Curb Corruption

Page 21 GAO- 02- 569 Cambodian Governance

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.

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 Fundamental
Actions Not

Taken to Reform Public Administration

Page 22 GAO- 02- 569 Cambodian Governance

the civil service payroll. 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. 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. 20 However, it is not clear how
commune councils will obtain the financial resources needed to fund their
projects.

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.

Page 23 GAO- 02- 569 Cambodian Governance

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.

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 Forestry
Reforms Not Fully

Implemented and Have Not Had a Sustained Impact

Page 24 GAO- 02- 569 Cambodian Governance

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. 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 by
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

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

Page 25 GAO- 02- 569 Cambodian Governance

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 must still be prosecuted within Cambodia?s current
judicial system.

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 crosscutting 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. Observations

Page 26 GAO- 02- 569 Cambodian Governance

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. Agency Comments

Page 27 GAO- 02- 569 Cambodian Governance

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 Scope and

Methodology

Page 28 GAO- 02- 569 Cambodian Governance

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, and the managing director of
the IMF. We will make copies available to others on request.

If you or your staff have any questions about this report, please contact me
at (202) 512- 8979. Other GAO contacts and staff acknowledgments are listed
in appendix V.

Joseph A. Christoff, Director International Affairs and Trade

Appendix I: Comments from the Department of State

Page 29 GAO- 02- 569 Cambodian Governance

Appendix I: Comments from the Department of State

Appendix I: Comments from the Department of State

Page 30 GAO- 02- 569 Cambodian Governance

Appendix I: Comments from the Department of State

Page 31 GAO- 02- 569 Cambodian Governance

Appendix I: Comments from the Department of State

Page 32 GAO- 02- 569 Cambodian Governance

Appendix II: Comments from U. S. Agency for International Development Page
33 GAO- 02- 569 Cambodian Governance

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

Appendix III: Comments from the Department of the Treasury Page 34 GAO- 02-
569 Cambodian Governance

Appendix III: Comments from the Department of the Treasury

Appendix III: Comments from the Department of the Treasury Page 35 GAO- 02-
569 Cambodian Governance

Appendix IV: Comments from the World Bank Page 36 GAO- 02- 569 Cambodian
Governance

Appendix IV: Comments from the World Bank

(320070)

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