World Bank boss farewells Cambodia with warning on future growth

Phnom Penh Post, Issue 17 / 03,
February 8 - 21, 2008

Indian born Nisha Agrawal arrived in Cambodia as country manager for the World Bank in April 2003 to find herself eventually thrust into the bank’s biggest ever confrontation with the government of Cambodia over corruption. The problems culminated in June 2006 in the dramatic ten month suspension of funds for three World Bank projects. The ban was lifted in February 2007, but the bank cancelled over $2.5 million in project funding and the government subsequently was asked to repay the World Bank $2.9 million. The bank has since hired Crown Agents, a British company, to handle procurement in their Cambodia projects. At the end of February, Agrawal will leave the World Bank after 18 years to go back to India and take the helm of a new NGO, Oxfam India. In an interview with the Post’s Susan Postlewaite on February 7, the director discussed the highs and lows of her five-year tenure at the Bank, which, with a budget of $50 million, is one of Cambodia’s most influential development partners.

What do you count as the accomplishments of your five years as country manager for Cambodia?

Four things. Firstly we have done a lot of research that has generated very useful knowledge about what is happening in the Cambodian economy. Before I came we really didn’t know whether the growth that Cambodia has seen in the last decade was having an impact on poverty or not. The Poverty Report was a very important piece of work by the World Bank to show that growth was actually benefiting poor people and that their lives were getting better off as a result.

Secondly, a very big thing is helping Cambodia agree on the priorities for reform and supporting the reforms that are happening.

Third, the way the development community works together has changed very dramatically and the World Bank has played a key role in bringing all the donors together around a common agenda. When I came here everybody had different priorities. We helped put in place a very elaborate architecture – 18 technical groups which meet and talk together with the government, with NGOs, with the development partners. We have quarterly meetings at senior levels of the government to discuss major policy issues.

Finally, the World Bank has built a very strong and large country office. When I came we were about five people and now we are 45 and most of these are Cambodian staff, and very high capacity staff.

What do you leave for your successor? What needs to be done?

During my five years, the economy has almost doubled in size, and government revenues have almost doubled in size. Foreign investment has taken off and is now larger than foreign aid for the first time. The challenge ahead is to ensure there’s also high quality development going on at the same time as a high growth rate. These would be the things my successor would focus on. Cambodia after ten years has been having an impact on poverty but only about one percent of the population is being lifted out of poverty per year. Vietnam is able to raise four percent of its population out of poverty each year. The difference is the emphasis that Vietnam has on agriculture.

The second challenge is how to make sure the growth is not coming at the cost of just cannibalizing your natural resources. One big choice the government faces is in the mining sector. How the government decides to do mining in the future will have a big impact on how sustainable it will be. These debates should happen very openly and transparently. Do Cambodians really want to be mining everywhere including in the national parks, or do they value their national parks?

A second choice is on how to manage the oil and gas revenues. That is a huge challenge. Suppose there are these large orders of magnitude that people are talking about. How they are managed would really make or break this country. If the government doesn’t use those revenues well, Cambodia could go down a very bad path where the revenues not only kill off other industry and employment, but corruption levels rise to such a level that everything else could fall apart.

The World Bank has come under heavy criticism – from The Wall Street Journal and others – for allowing corruption in its programs in Cambodia. Are you satisfied that you’ve corrected the problems?

We are making a huge effort to make sure that funds from our own projects don’t leak. Our projects are implemented by the government and supervised by us. The biggest problem was in the way procurement was done and who got the contracts. Because there were systematic problems in procurement, we are taking a two-track approach to deal with this issue: in the short-run, all procurement will be done by an independent procurement agent, while in the medium to long term, we will work with government to build and strengthen their systems.

Ultimately it should not be just about whether the World Bank money is leaking or not, but it should be about the country’s own spending. Our funds in this country are $50 million a year. What we would like to do is work with the government to improve their procurement and financial management system in the long run to make sure that the whole $1.2-billion budget is spent wisely.

In retrospect was your decision to suspend disbursement on three World Bank projects in 2006 and then to reinstate the funding ten months later the most effective way to handle the corruption problem?

It was the best way. It was tough on our relationship with the government because it’s a very drastic measure to take. But once we have evidence that our funds are leaking, we really have no other choice but to halt disbursement while we put in place measures to prevent those kinds of leakages in the future. We wanted to send a very strong signal in this country that we are not going to tolerate corruption in our projects and the suspension did that. Many people in Cambodia felt reassured that the Bank was taking this issue very seriously,