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Ulrich Zachau's interview with Phnom Penh Post

Ulrich Zachau

December 5, 2013

Transcript

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Phnom Penh Post:
All right, well, I sent through a few ideas to [unclear name] yesterday, but I guess I’m going to start with probably the most controversial thing that’s happening, but it’s a very important thing to our readers, and that’s the freeze on loans and due to what’s been happening to the land evictions and the like here in Cambodia. So I wanted to ask you if there’s, what are the plans? Has anything changed to convince the World Bank to lift that freeze on loans to Cambodia?

Ulrich Zachau:         
Let me start by saying it’s been my first visit to Cambodia, over the last couple of days, in my new role as country director for Cambodia, as well as Thailand, Malaysia, Lao and Myanmar.I  It was a good visit with a first set of meetings with stakeholders. I met with the government, I met with civil society, I met with all the development partners and many of the stakeholders. It was a first set of initial meetings for me to gain first impressions and to continue our dialogue with all the stakeholders. So that’s really what I was here for.

Phnom Penh Post:    
Okay, and was there discussions on resuming loans with stakeholders?

Ulrich Zachau:         
Our role as the World Bank Group is to support the development and help improve the lives of people in our member countries, that’s our role. We see a major, substantial development challenge in Cambodia. Cambodia has made a lot of progress in terms of per capita income growth, but also in terms of human development indicators, MDG goals, more progress than most countries in the world, more rapid progress than most countries in the world. Still, there are a whole lot of poor people in Cambodia, almost three million poor people, and that’s the development challenge. Our mandate is to help countries address this development challenge in all our member countries. We would like to meet that development mandate that we have with our member countries, and that’s what we were talking about with all the stakeholders, and we talked about that with the government, I talked about it with civil society, I talked about it with the development partners, and we were doing all this as World Bank Group, our public and private sector arms alike, and our discussions focused on how we can best do so with both knowledge, expertise, as well as financing.

Phnom Penh Post:    
So as well as finance, so what does that mean? What’s next for the World Bank in Cambodia? What were the outcomes of these discussions and what are the next steps for the World Bank in general?

Ulrich Zachau:         
The next step is that we are beginning a process toward engagement, reengagement, and that process will continue. The next step is that we will launch and undertake a structured process of consultations with all stakeholders in Cambodia, all key stakeholders, government as well as civil society, as well as development partners and privat sector, academia, think tanks.

Phnom Penh Post:    
Everybody.

Ulrich Zachau:         
Not every single individual.  But representative.

Phnom Penh Post:    
Media as well then?

Ulrich Zachau:         
I think media will be invited to participate, to observe, and it’s an open process. That process we hope is going to start early next year, and then after that we will look at what comes out of these consultations, and we will incorporate that into the preparation of what we call an Interim Strategy Note, which is a tool that the World Bank uses for engagement with countries such as Cambodia.  The idea is that that will be put forward to our Board of Executive Directors for its consideration in due course when it’s ready.

Phnom Penh Post:    
For its consideration for what?

Ulrich Zachau:         
I’m using the expression for consideration because it is the decision of the Board whether or not to endorse this proposed strategy, approve it or not. I’m not in a position to prejudge the views of the Board.

Phnom Penh Post:    
So you’re consulting now to put together an interim strategy, you said. What does that interim strategy look like? Does it define, I mean what does that look like?

Ulrich Zachau:         
I think the interim strategy, the specifics of it, will emerge out of the whole process of consultations, as well as the subsequent preparation of the strategy, which is a product that we prepare in partnership with the government and with Cambodia as a whole.  It’s a product that we put forward to our Board of Executive Directors, and it outlines both the country background as well as the risks, the challenges, the opportunities, and it outlines how we, as part of, as one of Cambodia’s development partners, plan to work Cambodia to meet the development needs of Cambodia’s people.

Phnom Penh Post:
Okay. You said that you met with government here when you visited. Can you tell me about that and in the recent outcomes of the election and, the opposition party’s still refusing to acknowledge the election. Do you think that will have an impact on, one, the economy, and maybe what are the social impacts [fades]?

Ulrich Zachau:         
You asked actually a couple of different questions.

Phnom Penh Post:    
Oh, sorry.

Ulrich Zachau:         
All mixed into one.

Phnom Penh Post:    
I’m sorry. Well, will the recent results of the election, will the recent opposition standoff to acknowledge the election, will that have an impact on growth?

Ulrich Zachau:         
On economic growth?

Phnom Penh Post:    
Yeah.

Ulrich Zachau:         
Let me say a couple of things. In terms of the actual economic performance of Cambodia, it has been very good, meaning you look at per capita growth, you look at economic growth, you look at the performance of macroeconomic indicators. Christine Lagarde, the Managing Director of the International Monetary Fund, was just in town. She had discussions on this with the government, with the Prime Minister, and you will all have read about it, your own paper reported on it. I would just like to refer to it. I don’t have much to add to what Christine Lagarde said on the economic conditions of Cambodia, which was favorable. She also outlined some of the challenges, of course, and risks, and we see them similarly.  We are sister institutions, Bretton Woods sister institutions.  In terms of the assessment of economic prospects, I think we see the situation similarly.

Now, in terms of our own institution, I would just like to emphasize again that our mandate is to help improve the lives of people in our member countries.  It’s a development mandate, and there is a major, huge development challenge. As part of my visit here, I visited the Khmer-Soviet Friendship Hospital, and I talked with patients there. These were patients, poor patients, who have access to the Health Equity Fund, and they are now able to get treatment, subsidized treatment, basically for free.  So poor people who can’t pay for this treatment themselvesare able to get that access, for some time now. So these are programs that help poor people, these are the kinds of programs that, in our judgment, will help improve the lives of the poor of Cambodia. These are the kinds of programs that we like to support.

Phnom Penh Post:    
Lagarde also said that more investment was needed in these programs.

Ulrich Zachau:         
Actually, when you look at it compared to a few years ago, investment has risen, including foreign investment has risen. Of course, even more investment can help. Investment, productive investment, is good for economic growth. It’s the plan and the hope of Cambodia to attract more such investment, both domestic investment as well as foreign investment.

Phnom Penh Post:    
Yeah, well, there’s been concerns that the election, actually the results of the election or the political situation here might deter investment. Economists have said that on the ground here. There was a Business Confidence Survey taken after the election, where businesses said they’d lost confidence here. Do you think that that will affect the growth of the country?

Ulrich Zachau:         
Let me say, I live in Bangkok right now. I used to serve in Turkey, I have worked in, you know, 50 or 100 countries in the world.  Often this question is raised whether or how political developments in a country  may affect economic performance and investors’ appetite for investing funds, resources in a country. In my experience around the world, and I think this is borne out also by what we have seen here so far, investors invest and stay in markets, as long as the economic conditions are right and as long as there is reasonable stability. , What investors are interested in, the for-profit investors, is to be able to earn a good return on their investments and to be able to do that with some stability and reasonable likelihood and then be able to take the profits out. That’s what is critical. Stability is the most important thing. As the World Bank Group, we’re a development institution, so we carefully watch the economic developments, we provide advice on economic policy, on the social conditions of people, like I just mentioned in the conditions of the poor and programs like the Health Equity Fund. So we’re watching from this perspective.  In my experience I haven’t seen such developments that you mentioned in Cambodia yet. My full expectation is, as Cambodia is able to continue its good economic performance and maintain stability, the investors will continue coming in actually and investments will continue rising.

Phnom Penh Post:
Okay, thank you.

Phnom Penh Post:
Okay, I think the Trade Development Support Program that the World Bank is engaged in here in Cambodia, there’s been a few, there’s been some sweeping changes actually over the last month here. One of them was in customs, I don’t know if you’re aware of it, but they have, the government cracked down on customs to charge the correct, to apply the correct tax rate at the borders. So traditionally they’ve undercut the tax rate and achieved influence, their imports have actually increased, but that’s just one example as the reform that’s coming. They’ve also announced changes to the investment laws here that they’re going to bring in next year to make it more business friendly. There’s a big push to start increasing their revenue gains from tax. I wanted to get the World Bank’s opinion on this because, I mean, I’m pretty, is it, from what I understand is the World Bank’s actually involved in these through this Trade Development Support Program. So they’re involved in these types of reforms. So I wanted to ask you about that. Why is it the right time for Cambodia to be reducing, you know, they’ve always been in place, but I guess things are being tightened up now in Cambodia? Why is this happening now in Cambodia?

Ulrich Zachau:         
Let me say a couple of things. One is, Cambodia is a member of ASEAN, and I think the bigger context here is that ASEAN countries, including Cambodia, stand to benefit very substantially from the continued opening up and liberalization of trade throughout the ASEAN Region.  Cambodia has already begun gaining from the trade reforms it has undertaken.  When you compare Cambodia’s trade performance with that of some other countries, including neighboring countries. Cambodia’s trade performance has been better than that of some other countries.  That’s due both to the significant economic growth, and it’s both that the exports drive the growth and that the growth drives the exports, and it’s also due to to the good and improving trade policies. We all know 2015 is  a little more than a year away, and I think Cambodia is well-advised, as are other ASEAN countries, in preparation for 2015, to undertake trade reforms, improve trade performance, so that they can gain as much as possible when 2015 comes and when ASEAN integration happens. Yes, we, the World Bank, we have been involved, and we have been working with our Cambodian partners on trade issues, and actually this is an opportunity for me to say there are two parts of the World Bank Group. There is the public sector arm and the World Bank IDA, International Development Association, the World Bank Groups arm for the poorest. We are mostly involved on, through knowledge, sharing knowledge, advice, technical assistance. Our private sector arm, the IFC, actually provides financing as well as technical advice directly to private sector entities, and they’re involved in supporting trade directly in that fashion with the private sector.

Phnom Penh Post:    
Okay, excellent. While we’re on ASEAN, what are the risks for Cambodia? What are the risks for Cambodia as there’s less mature industries, for example, in Cambodia than some of its neighbors? What are the risks for Cambodia in terms of ASEAN integration?

Ulrich Zachau:         
I think that, with any such trade integration, there’s experience on that in other areas of the world, for example, in Central America when they opened up to the North American markets. I’m a European Union citizen, we have quite some experience in the European Union, with the impact of trade liberalization on countries, as they integrate further, first as the core European Union and then when countries that formerly were members of Eastern and Central Europe, when they joined. So there is international experience on these questions, and I think the evidence out there is that the opportunities outweigh the risks. For countries that have open trade policies and have developed,,as Cambodia has, particular exports that sell very successfully. You know about the rice story of Cambodia, and it’s remarkable really how well Cambodia’s rice industry has been doing, including compared with its immediate neighboring countries.

Not everybody will benefit equally. Most people will benefit, but not everybody will benefit equally. So the open industries, the ones that are associated with trade themselves and the people employed in those industries, they stand to gain more than the people in the industries which are not associated with trade directly. Now, each government can put in place mechanisms, and there are different types of policies that governments can put in place to help their people and their citizens to address possible adverse effects, and that’s why policies that have to deal with opportunities for all people, education policies, health policies, social protection policies, are very important, and as far as I understand this is something that Cambodia is actually putting a lot of attention on, too, and is looking at.

Phnom Penh Post:    
Great, all right. Could I just take you back to that interim strategy guide again?

Ulrich Zachau:
Of course.

Phnom Penh Post:
So you said that this, you’re working with civil society groups and government at the moment. When was the Interim Strategy Note to be presented to the Board?

Ulrich Zachau:
As I mentioned, the next step is the consultations, and the consultations will start early next year, and we will talk with everybody. There will be a structured process. Again, I want to be careful and say it will be a representative process. So we will not be able to talk with all individual Cambodians.  There will be a process of consultation that will be open. We will also have online consultations, where everybody can write in, express their views, suggestions, comments, completely openly and transparently. There will be a feedback loop, so we will be open and transparent, and document what suggestions have been made and how they have been considered. And once that process is over, then we will turn to the actual preparation of the interim strategy document, and when that’s ready we will take it to our Board. At this point in time, it’s our hope and expectations that this is going to happen some time next year. We will move forward as expeditiously as we can, but it’s very important that this process that we’re engaged in, of consulting with all key stakeholders and then reflecting that in the preparation of the Interim Strategy Note itself, that we give that process time and we give that process what it needs to succeed so that really all stakeholders can be heard.

Phnom Penh Post:    
Do you, I  mean, is this done to, is there going to be loans to be attached to this? Is this where we’re going to see if, is that, are recommendations made after you develop this strategy, the anticipating loans here.

Ulrich Zachau:         
I already said this in our discussions, initial discussions with the stakeholders I’ve met with so far during this visit, which have not yet been the structured consultations   the structured consultations are going to start next year. I already said that our expectation is that we want to engage with the full toolkit of the World Bank Group, which includes knowledge, experience, advice, technical assistance as well as financing, and it’s both from the private sector arm of the World Bank Group as well as the public sector arm, that’s for discussion. From our side, we are ready to do that, but it is for discussion. We want to hear from the stakeholders on how that is going. The stakeholders have begun expressing their thoughts and perspectives on this. We’re listening right now.  We are in this process of engagement with Cambodia. So it’s different from 18 months ago. We are in this process of engagement.

Phnom Penh Post:    
Okay. Have you met with civil society groups or NGOs that were representing the activists at the Bangkok [unclear/fades]?

Ulrich Zachau:         
I should tell you, I don’t know whether you know that, this wasn’t my first visit to Cambodia. It was my first visit in my current new capacity as the country director for Cambodia. I have been working in the East Asia and Pacific Region since the beginning of 2012, and so I was on a previous visit to Cambodia in my previous capacity as the Director for Strategy and Operations for the region as a whole. I have met both the actual, I don’t, you call them activists, I think, who are people, the people who have actually been affected by it, and I’ve met with them personally, and I’ve met with their representatives. I’ve met with NGOs, civil society, both domestic Cambodian ones as well as international ones, more than once. I, clearly they are an important stakeholder group and will be a stakeholder group with whom we will continue talking and consulting. It’s important that the issue continues to be addressed. It is being addressed as we’re speaking, it will continue to be addressed, and we encourage all parties to continue addressing it to bring it to a satisfactory conclusion.

Phnom Penh Post:    
Are you happy with the progress that’s being made?

Ulrich Zachau:         
We see progress, we are encouraged with the progress, and we also think that this is a matter that is best addressed by the people involved and the stakeholders involved, and we understand, we’re talking with the stakeholders, that they’re in the process of doing that, and we welcome that process.

Phnom Penh Post:    
Right.

Phnom Penh Post:    
Well let me ask this one more question then. Maybe I’ll just ask you what are some of the key challenges that you see for Cambodia right now in the short term?

Ulrich Zachau:         
I think in the short term, Cambodia is doing well economically, and there is also a tremendous reduction in poverty that has taken place that will continue, and continuing in terms of the economic and social policies in the same direction is going to help and continue improving lives. The key challenges that we in the World Bank see for Cambodia are actually very similar in the short and in the medium and the long term, I mean it’s more structural challenges, and they have to do with some of the fundamental challenges of a low-income country as it’s income rises and it aspires to move from low-income status into lower middle-income status and beyond. They have to do with attracting productive investment, improving labor productivity. Improving education and skills is critical for improving labor productivity over the medium term. There are issues around governance and transparency, which are issues that many countries face, there are technical challenges, there are program challenges for that, policy challenges. You mentioned before yourself what’s happening in customs, I think it’s a good example where, you know, more transparency, more clarity, more actual application and implementation of policies is beginning to take place. There are many such areas across the whole economy and, most of all, I think it is a challenge of helping those who have been left behind, and that’s what we in the World Bank care about the most. Our mission is to help reduce poverty, eliminate extreme poverty. As you know, the World Bank has articulated two big corporate goals. One is to end extreme poverty, and the other one is to share prosperity to care about the 40% that are the lower end of the income spectrum. So that’s why we want to engage in Cambodia, and that’s why we want to work with Cambodian stakeholders on programs that help the poor, such as the Health Equity Fund, but also others. I met with the Minister of Education, for example. Last time I was here I visited a rural school. This time I visited a hospital, and these are the programs that matter for the poor.

Phnom Penh Post:    
Yeah, okay. Thank you very much. I’ll let you go to the airport now.

Ulrich Zachau:         
You’re very welcome.