Pundits Ponder Whether IMF Will Return

Investors greeted it with joy: The Asian Development Bank said it could lead to the resumption of assistance to the Cam­bodian government.

Now economic pundits are wondering whether the outcome of the July 26 elections will be met as warmly by the Interna­tional Monetary Fund, which canceled a multi-million dollar loan to Cambodia nearly two years ago, in frustration at the government’s failure to live up to its fiscal pro­mises.

“The elections have gone quite well, but the formation of the new government will be the criteria for any aid,” said one Asean diplomat. “Stability would be the criteria, as would the credibility of the government and whether it gets UN and Asean membership.”

But given the IMF’s past experience in Cambodia, the new government will have its work cut out to prove that things will be different in the future, analysts say.

“The government will have to prove they can follow through on promises that they have failed to in the past,” the diplomat said. “But I’m sure [Second Prime Minister Hun Sen] is prepared to make some concessions to the international community.”

The IMF in late 1996 canceled a $20-million installment of its three-year, $120 million loan, citing a lack of progress by the government to control illegal logging and channel timber revenues to the national budget.

In March 1997, the government and the IMF drew up an economic policy plan, indicating what steps would be necessary for the resumption of the loan. These included cuts in military expenditure, forestry reform and tax reforms leading to increased revenue collection.

One economic adviser to the government said Tuesday steps had already been taken to implement IMF recommended fiscal policies. But he could not comment on the IMF’s assessment of the progress, saying it had been several months since the matter had been discussed.

One Western analyst said discussions would likely take place during an expected visit by IMF officials later this year, during which conditions for a new loan would likely be discussed.

“There will be strict conditionality on any future loan,” said the analyst. “There may be more conditions than before. It’s inconceivable that there will be less.”

Also at stake is a multi-million dollar budgetary support program from the World Bank, which was halted when the IMF suspended its assistance.

“That program will depend on negotiations with the IMF,” said World Bank chief liaison officer R Natarajan.

But if the government can convince lending institutions it has the political will to reform, the IMF may be willing to give it the benefit of the doubt, rather than waiting for them to prove it.

“I think they would have to give [the government] some leeway,” said the Asean diplomat.

The IMF’s return could bring more than just financial backing, said the government adviser.

“We have lived without the IMF, but it’s a matter of confidence,” he said. “It is important for the market and the donors. If you have a good relationship with the IMF, it leads to a good relationship with donors and the international community.”

An IMF representative visited Phnom Penh in January to do an assessment of the country’s economic situation. The report is expected in the next few months.

 

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