World Bank on loans, polls, ASEAN

Ulrich Zachau, the World Bank’s country director, talks to the Post
 at Raffles in Phnom Penh last week. Pha Lina

Daniel de Carteret, The Phnom Penh Post
13 December 2013

In this week’s interview, Daniel de Carteret sits down with Ulrich Zachau, the World Bank’s new country director, during his first visit to Cambodia since he took the post in October. Zachau, a German national, talks about ASEAN, politics, lending and the ongoing dispute over Boeung Kak lake.

The World Bank announced recently that it was preparing a new two-year interim strategy for Cambodia. What does this mean?

We have begun a process of engagement. The next step is that we will launch consultations with all stakeholders in Cambodia – all key stakeholders – in government as well as in civil society, development, the private sector and academia. We hope this is going to start early next year, and after that we will look at what comes out of these consultations. We will incorporate them into an interim strategy note, which is a tool that the World Bank uses for engagement with countries such as Cambodia. That will be put forward to the board of executive directors for consideration in due course when it is ready.

Do you have any concerns relating to political stability, given the recent contested election? Economists and analysts have suggested that the political impasse between the ruling Cambodian People’s Party and the opposition Cambodia National Rescue Party will deter investment. Do you think that will affect economic growth?

I have worked in 50 or 100 countries in the world and often this question is raised, on whether the conditions, the political development of a country, how it may affect economic performance and investors' appetite for investing, funds or resources in a country. In my experience in the world, and I think this is borne out of what I have seen so far, for investors and markets, as long as the economic conditions are right and as long as there is reasonable stability, investors stay in. What they are interested in is to earn a good return on their investments and to be able to do that with some stability and reasonable likelihood and then to be able to take their profits out. Stability is the most important thing. My full expectation is that if Cambodia is able to continue its good economic performance and maintain stability, the investors will continue coming in. Investment will continue rising.

There has been some sweeping changes announced recently, such as customs reforms, tax reforms and an announced investment law review that I understand the World Bank has been involved in. Why is this all happening now?

Cambodia is a member of ASEAN [the Association of Southeast Asian Nations]. The bigger context here is that ASEAN countries, including Cambodia, stand to benefit substantially from the continued opening up and liberalisation of trade throughout the region. Cambodia has already begun gaining from the trade reforms it has undertaken. When you compare, Cambodia’s trade performance has been better than that of some other countries. That is due to significant economic growth. Exports drive the growth and growth drives the exports – it’s due to that but also to good and improving trade policies. So we all know 2015 [the deadline for the ASEAN Economic Community] is little more than a year away and I think Cambodia is well advised as are other countries in preparation for 2015, to undertake trade reforms and improve trade performance so they can gain as much as possible when ASEAN integration happens.

What are risks for Cambodia in terms of the ASEAN Economic Community?

I think that with any such trade integration there are experiences with that in other such areas of the world. For example, in Central America, when they opened up to the North American markets. I am a European Union citizen, we have some experiences in the European Union on the impact of trade liberalisation on countries as they integrate further, first as the European Union at core and then when countries that were formally members of eastern and central Europe joined. So the international experience on these questions is that the opportunities outweigh the risks. For countries that have open trade policies and developed like Cambodia has, particular exports sell, and are very successful. You know about the rice story of Cambodia, it’s really remarkable how well Cambodia’s rice industry has been doing compared to its immediate neighbouring countries. The important thing is that not everybody will benefit equally. So the open industries that are associated with the trade themselves and people employed in those industries, they stand to gain.

What are some of the immediate challenges for Cambodia?

The key challenges that we see are very similar in the short, in the medium and in the long term. They have to do with some of the fundamental challenges of a low-income country as its income rises and it aspires to move from low-income status and low-middle-income status and beyond. They have to attract productive investment, improve labour productivity, improve education and skill sets.

The World Bank put a freeze on loans in 2011 in response to forced evictions at Boeung Kak lake. Disputes are still occurring today. Could the interim strategy provide for a return to lending?

The stakeholders have begun expressing their thoughts and perspectives on this, but we are in the process of engagement with Cambodia. For 18 months, we are in this process.

Have you met with those affected at the Boeung Kak lake?

In a previous visit to Cambodia in my capacity as director for strategy and operations for the region as a whole, I have met the people that have actually been affected by it. I have met with them personally, I have met with their representatives, I have met with NGOs, civil society, domestic Cambodian ones as well as internationals ones, and clearly they are an important stakeholder group with whom we will continue talking and consulting.

This interview has been edited for length and clarity.