Tuesday, March 10, 2009

Keynote Address at the Launching Ceremony of The Public Financial Management Reform Program – Stage 2

Government Palace, 3rd December 2008

Excellencies Members of the Royal Government of Cambodia,
Excellencies, Ladies and Gentlemen,
Dear Distinguished Guests!

1. Today, I am greatly honored and pleased to participate with Excellencies, Ladies and Gentlemen, distinguished guests in this important event of “the Launching Ceremony of the Public Financial Management Reform Program-Stage 2”.

I would like to join His Excellency Deputy Prime Minister Keat Chhon in warmly welcoming Excellecies, Ladies and Gentlemen and would like to express profound gratitude for your participation today.

2. In fact, as H.E Deputy Prime Minister Keat Chhon already stressed that the move to the 2nd Stage of the Public Financial Management Reform Program (PFMRP), which happened along with the launching the Rectangular Strategy-Phase II is not by chance. The effective and efficient public financial management is the necessary foundation to ensure the promotion of national development and poverty reduction, especially through ensuring sustainable economic growth and improving effectiveness and efficiency in delivering public services to the people, which is the main objective of the Rectangular Strategy-Phase II and the National Strategic Development Plan.

In this connection, I would like to highly evaluate the Ministry of Economy and Finance (MEF), especially H.E. Deputy Prime Minister Keat Chhon, the Chairman of the Economic and Finance Policy Committee (EFPC) and H.E. Dr. Aun Porn Moniroth, the Chairman of the Public Financial Management Reform Steering Committee (PFMSC) who have closely cooperated with all line ministries/institutions and relevant development partners to lead and promote the implementation the public financial management-stage 1 to a proud success as well as preparing action plan and improving institutional framework and the coordination mechanism in order to better start the 2nd stage of the Public Financial Management Reform Program, which allow us to meet here to launch the implementation.

Taking this opportunity, I would like to thank the bilateral and multilateral cooperation partners who have actively participated and supported with goodwill the greatest efforts made by the Royal Government in all reform pillars, especially the public financial reform by focusing on the Sector-Wide Approach for the sake of promoting poverty reduction of the people and the development of Cambodia.

3. As illustrated in the "Rectangular Strategy-Phase II", the implementation of “Public Financial Management Reform Program–Stage 1” was the most remarkable and leading achievements among nine important achievements of the 3rd Legislature of the Royal Government. The positive results of the implementation of this reform program have been particularly reflected, through improving the national revenues, which increase in average of 26% per year.

Within a short period, as demonstrated by H.E Dr. Aun Porn Moniroth, the Royal Government has converted the situation of budget implementation from “a Chronic Cash Deficit to a Cash Surplus”. This really enables the Royal Government to better rationalize its national budget expenditure through raising salary for teachers, civil servants and all kinds of armed forces annually, especially through increasing the public investment capital on socio-economic infrastructures aiming to strengthen and expand public services and poverty reduction of the people.

4. This success not just only reflects the distance that Cambodia has come across in a short while, but it specially reflects the better accomplishment of the Royal Government resulting from right-charted policy and strategy vision of the firm willingness and the efforts to overcome with strong commitment and full support and the active participation as well as the ownership with high responsibility of all ministries/institutions and all levels of civil servants of the Royal Government in implementing this significant reform. However, with this proud achievement, the Royal Government recognizes that we still have a long way to move and many challenges to be curtailed and other uncountable obstacles, which require us to jointly overcome in order to reach the end objective of this reform. In actuality, the Rectangular Strategy-Phase II has highlighted 17 major challenges which need to be overcome by Cambodia in order to achieve the four strategic objectives illustrated through the motto of Growth, Employment, Equity, and Efficiency.

In this context, the Royal Government through the Rectangular Strategy-Phase II has set and committed to implementing without retreat strategic reform and systematic and integrated package policy measures to overcome obstacles and sharp challenges on the road of Cambodia development by relying on 4 parts of the long term foundation policy for tackling obstacles and challenges based on four core long-term policies:

First, is to ensure the sustainable peace, political stability, security and social order through various practical measures in order to promote the state of law, respect of human rights and dignities and multi-parties liberal democracy in order to create conducive political and security environment for long-term sustainable development.

Second, is to ensure long-term sustainable economic growth at the high rate of 7% per year on a broader basis and more competitive capacity in the context of low one-digit inflation, stable exchange rate, and constant increase in reserves.

Third, is to ensure equitable distribution of the opportunities and fruits of economic growth.

Fourth, is to ensure environmental sustainability, especially through the sustainable management and use of natural resources.

5. The priority to further deepen the implementation of the “Public Financial Management Reform Program” is even more updated and additionally crucial in this coming stage while the world has been suffering from the financial crisis, which is currently having negative impact on the world economy. Cambodia as part of a globalization cannot really escape from this kind of consequence. We are truly to receive the bad impact from this crisis to some extent, just a matter of less or more. However, what we are clear in mind is that the improvement and strengthening of the public financial management will help strengthen our capacity in dealing with all these challenges and will also help reduce the negative effect from this crisis on the possibility of promoting the implementation of the development policy of the Royal Government and the ability of providing public services to the people. Therefore, in such unfavorable condition like this, the strengthening of public financial management, especially the improvement of efficiency in the management of national budget, which is the key instrument for implementing the development policy of the Royal Government, is actually more essential than any other times.

6. In addition, the “Public Financial Management Reform Program” is also very important for other key reforms pillars of the Royal Government. As illustrated in the “Rectangular Strategy-Phase II” of the 4th Legislature of the National Assembly, the Royal Government will continue deepening the implementation of reforms and important sectoral development programs such as private sector development, financial sector development programs, which particularly focus on banking sector development, insurance, and security and stock markets, and prioritized sectoral governance reform including fighting corruption, public administration reform, legal and judicial reform, land reform, armed force reform as well as decentralization and de-concentration. Therefore, the success of this “Public Financial Management Reform Program”, which is one of the core programs of the “Rectangular Strategy-Phase II”, will significantly contribute to the success of the whole strategy implementation.

7. Generally, in terms of macro-policy by looking at the strategic steps of the development of Cambodia, which has been gradually crossing the long distance path in nearly three decades is also very similar to the four stages of the Public Financial Management Reform Program that we have been implementing as reported earlier by H.E. Dr. Aun Porn Moniroth. Our first stage was from 1979 to 1993, which was the period of relief and restoration of both human and all kinds of infrastructures including the prevention of the country from the return of genocidal regime, and the most difficult time for Cambodia. The second stage was from 1994 to 1998, which was the stage for trying to build democracy and strengthen the foundation for political, economic and social stability as well as to continue restoring the socio-economic infrastructures in the context that the country was still at either peace or war.

After 1999, Cambodia obtained historical achievement of full peace and total territory unity either in politics or physical institutions under a “Win-Win Policy” resulting from the purely Cambodian wisdom, the development process of Cambodia has now come to its third stage, which could be called as “Stage of Cambodia development through building, strengthening and expanding socio-economic bases and improving institutional capacity and human resources on the foundation of full peace and total territory unity”, which also includes a measure of rapid integration of Cambodia into regional and international groupings with equity and equal rights after Cambodia has been in isolation for long. It should be demonstrated that the historical achievement is also the reflection of the success of the implementation of “Triangle Strategy” which was linked with the “Rectangular Strategy”. Thus, in the new stage from 1999 Cambodia started to have full possibility in promoting the implementation of the deepen sectoral reform. It was in this third stage that in my capacity as Head of the Royal Government, I have set “Rectangular Strategy” for Growth, Employment, Equity, and Efficiency in Cambodia, in which Phase I was successfully completed during the 3rd Legislature and now move to the implementation of Phase II of in this 4th Legislature.

8. There is no doubt that based on international experience and especially our own positive experience during the last few years, as I mentioned earlier by clearly illustrating that “effective and efficient public financial management is the necessary foundation to promote country development and poverty reduction of the people” the Royal Government of the 4th Legislature still continues to place “Public Financial Management Reform Program” as its first priority. In this sense, in order to ensure the success of the Stage 2 of this important reform I would like to provide some recommendations and orders as follows:

First, the Ministry of Economy and Finance must continue to play core roles as leader in leading and supporting this reform process in cooperation with all ministries/institutions within the framework of the EFPC and PFMSC.

Second, all ministries/institutions must actively participate and take roles as owners in preparing their own reform action plan and lead the management of the implementation of their own reforms more effectively and efficiently with high responsibility.

Third, must continue to link this public financial management reforms pillars to the development pillars and others reforms to be more cohesive, interconnected and consistent. This linkage is very important and indispensable to ensure the effectiveness and success of important reforms within the framework of “Rectangular Strategy”, especially the Public Administration Reform and the De-concentration and Decentralization Program. Preparing a civil administration, based on democratic development principle, which is closer to people, efficient, transparent enough in providing public services is the highest priority of the Royal Government in the 4th Legislature.

Fourth, in this regard, the Council for Administrative Reform must closely cooperate with the EFPC and PFMSC to improve civil servants’ encouragement in order to enhance quality, efficiency, and loyalty of the whole public administration. Therefore, it is very important that the Royal Government and all relevant Development Partners must learn from the experiences of the 1st stage implementation of the Merit Based Pay Initiative (MBPI), which has been so far carried out and now continues to expand its extensive encouragement to other relevant ministries/institutions.

Fifth, all ministries/institutions must be aware that if any of the 39 ministries/institutions cannot assume their ownership roles in implementing this PFMRP- Stage 2, meaning that if anyone of them cannot prepare their action plans or set their indicators for monitoring failed performance or know how to prepare action plans or set indicators, but could not put into successful implementation, this will lead to the failure of the whole reform program. In the same token, this PFMRP cannot successfully implemented if other related reforms or development pillars cannot succeed as expected. Therefore, I would order the head of each ministries/institutions, head of each reform council, head of each reform committee, and head of each reform and development working group to be stick to highest responsibility in implementing this PFMRP-Stage 2 and the implementation of reform program and development programs based on their respective roles by strictly adhering to the pro-active management approach.

9. Actions and achievements we have achieved so far have clearly shown that the Royal Government does have firm will, especially this public financial reform, which is one of the key important governance reforms as stipulated in the “Rectangular Strategy”. Through active implementation of the reform in the past years both Royal Government and Development Partners have learnt and gained a great deal of valuable experiences.

Moreover, through these working experiences, ownership and competence of the institutions of the Royal Government have been gradually improved. These are our rarely precious resources and solid foundation for moving us toward subsequent achievements and success, which is consistent with my view addressed at the official launching of the “PFMRP-Stage 1” on the 5th of December 2004 that “reform is a life and death of Cambodia. Reform must be regarded as a day to day work to improve, strengthen and expand our capacity and capability for the best use of all available potentials to keep up with the socio, political, and economic development within the country, region, and the world”.

10. Before ending, once again, in my capacity as Head of the Royal Government, I would like to highly evaluate and honestly appreciate the dedicated efforts of management and staff at all levels of ministries/institutions in promoting the implementation of the “PFMRP” during the past years with goodwill, strong ownership and high responsibility, leading to the encouraging success. Indeed, our Development Partners have also made financial contribution and technical support together with the excellent coordination through the Wide Sector Approach in implementing this public financial reform.

11. Finally, I wish these goodwill, ownership, responsibilities, dedicated efforts and contribution as well as the excellent cooperation would continue to grow even stronger in order to ensure the successful implementation of the “PFMRP-Stage 2” as well as other related reform programs as expected.


Page 2

… In the last four years I may say that I am being relieved from debts. About twenty years ago or 24 years as the Prime Minister of this country, I have come across so many difficulties as at one stage we had adopted the practice of printing money. We have borrowed from private sector for building infrastructure and even for the preparation of the election in 1998. The State owed its employees their salaries some times more than one month. Our people used to complain that there are 100 to 120 days a month in Cambodia. It was a difficult time for us because we do not have money.

… Everyone could remember that IMF left Cambodia once in 1996 when the country was in turmoil because it did not follow the set norms, especially in 1993, 1994 and 1995 and returned only in 1999. I then assured IMF that from that time first, I would not overspend the budget, second, no more money printing, and third, no more financing from banks, at the same time we introduced value added tax or VAT.

What happened in 2003 could be compared to the situation that the country had 10 Riels while it had 500 Riel in debt. As of now we have 500 or 1,000 Riels as we owe only 10 Riels. In my experience, being the Prime Minister, I felt relaxed when making sufficient money… As the situation has been favorable we could increase salaries for our officials and staff - once at the rate 15% and again 20%. In the last three years no one complains about the Treasury having no money anymore. Before, people with mandate to disburse money did not have money there.

Past Treasury — No Money

You may still remember that in years we had this situation that the treasury did not have money for provincial authorities. When they could disburse some money for only two provinces out of ten or more at a time, they were being accused of corruption. So as I told you we already had the Prime Minister who printed money, who borrowed from banks for payrolls whereas we now have come to surplus in cash. However, this does not mean that we should speed up spending at all. We have to discipline ourselves while implementing the method of acting in accordance with one commander - the Prime Minister, and one acting agent - the Minister for Economy and Finance.

In this instance I would like to seek understanding from those who have been promoted that the State will not bear anymore cost of purchasing cars for you and I have exercised this stringent policy and saved some money in past terms for the sake of building water canals for our farmers. Saving is a must and I have set an example as we could see that I do not spend money building new office of the Prime Minister at all. It were not because Cambodia could not find 20 to 30 million to build one but we wished to use that money in infrastructure - bridges, roads and canals. However, we thank the Government of the People's Republic of China who, having seen the state of the former office, offered to build us a new one.

No Unnecessary Expenses

All I have said is to remind you all of the difficulties that we have overcome but also to warn you against suggesting unnecessary expenses because of the cash available in the treasury. As of now the Prime Minister in our country has efficient power and debt relaxation but perhaps I will not make it to contribute assistance to foreign countries at all. Five years ahead Cambodia would not be able to give assistance to outside, only to pay back foreign debt … We have though sent troops abroad, like to Sudan, to help with de-mining … and if Cambodia were to have more money, I would try to meet the commitment of 0.7% of GDP contribution according to the goal set for developed world to help poorer countries.

Together Implement PFMRP

The Public Financial Management Reform Program (PFMRP) first should be seen as a victory not only for the Ministry of Economy and Finance but for all institutions and ministries related, and second, reforming financial role is not a separate task of the Ministry of Economy and Finance but there is a demand of participation by all ministries and institutions as any parts of the program are not functioning properly, it will be a failure to all. I would continue to suggest what I have said that if we conduct reform, it would be 99% that we survive, while 1% that we die, but, we would die 99% and survive only 1% if we were to neglect reform.

No Retreat on Reform

We have come this far and I would urge to speed up in this front. Every country is doing the same thing, Japan, France, the US also included. If you notice, the IMF and the World Bank are also on this track. The latest development in the world financial sector made us all asking question as to who would tell who to do what. As of now there would not be a choice between good and bad but only less bad. We should be prepared for impacts and try to cushion and avert it to the least impact. We should try and save ourselves from being bankrupted in the whole country like some countries - Iceland for example.

We have moved this country away from crisis like in the 1970s when we had only 70 people living in the city and we should not let this country falling back to where it was. As everyone is here and our people will also listen to this speech relayed by the media, I would reiterate that no retreat happens on my watch and stringent policy should continue to be implemented no matter how much money we have in surplus at the Treasury. By saying that I would urge you to follow strictly the rule or I would not agree with any actions deemed to be detrimental to this sector reform. There would not be any consent with actions to delay sending money to the Treasury. It is a discipline and we have internal auditing mechanism to monitor that.

Running Again in 2013 Election

You may ask a question as to why this Government is garnering more and more support from one election to another. It is because the Royal Government is doing things in a correct way, and therefore we have to widen the right side and lessen the wrong side. We have come from 64 seats, and then 73 seats whereas 17 seats more have been given by the people in 2008 - a sum of seats representing two-third majority (90 over 123) that not any political party in this world could have achieved. This should be analyzed on the basis of the Royal Government's performance, as it represents also the ruling Party. I have a good understanding that our effort is not for the Party to win but for our nation to win, only that in order for the nation to win, the ruling Party has to have a leading role and a correct path of leadership.

I would urge you to remember that we will meet again in December 2013 to proclaim the third phase as I have a clear objective that I would run for the Premiership again in the next term as I will be 61 only. Why? If we were to lose ten seats by then we would have the majority of 80 seats as well. I would say some people will be Prime Minister in example for a long time to come because even if I do not talk of gaining seats but losing ten seats at a time, by 2018 CPP will still have 70 seats left, so it would be a long time for the opposition candidates to be Prime Minister …■


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