CONFIDENTIAL

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           International Bank for Reconstruction and Development
                    International Development Association                                              87518
                       International Finance Corporation
                  Multilateral Investment Guarantee Agency
                                         FOR OFFICIAL USE ONLY


                                                                                                               EDS97-47
                                                                                                        February 21, 1997


Board Meeting of February 20,1997
Statement by Peter Nicholl

                                            CAMBODIA: CAS



1.      My Cambodian authorities have been fully consulted in the preparation of this Country
Assistance Strategy paper (CAS) and they broadly support the analysis contained in it and the
priorities it sets for the future. In particular, they strongly agree with the proposed focus on rural
development, education and infrastructure. They would like me to pass on their thanks to the
Bank generally, and to Mr. Shirazi and his team in particular, for the strong and cooperative
relationship that has been developed.

2.     As the CAS document acknowledges, the Cambodian Government has made impressive
progress on the macro-economic front in just the past three years. Their budget for 1997 will set
them further firmly on their chosen course of fiscal discipline, macro-economic stability and
growth oriented economic and social investments. The Cambodian government realises the
considerable degree of international support it has received has helped it to make this progress.
They would like to thank the World Bank and the Government of Japan for their role in
coordinating this international assistance.

3.      The forestry issues that caused considerable difficulties in 1996 have all been
satisfactorily resolved. A ban on export of all logs is effectively in place since 1 January 1997
and their immediate neighbors are fully cooperating with them in this matter. The World Bank
played an important role in ensuring there was a satisfactory resolution to these difficulties.

4.      My Cambodian authorities would like to thank the Bank also for                   opening up a liaison
office in Phnom Penh. The person appointed, Mr. Natarajan, as Mr.                         Peters said, is very
experienced, knows the country very well and has a very good working                     relationship with the
Cambodian Government. Of course, at some stage, they would like the                      Bank to upgrade the
office to a full Resident Mission.

5.      The Minister of Finance, the Honourable Keat Chhon, has asked me to try and put the
political issues in Cambodia in context for my fellow Board members. The political situation in



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Cambodia does get a lot of media attention and it is, as the CAS explicitly acknowledges, one of
the risks to the Bank's program in Cambodia. But we need to remember where they have come
from. Given the recent history of Cambodia, they have made extraordinary progress on the
political front - at least as much as they have made on the macro-economic front. The Minister
believes that the differences between the two major parties and coalition partners in the Royal
Government should be seen as part of the adjustment processes in a new democracy.


6.     Minister Keat Chhon asked me to urge this Board to support three propositions:

      (i)    The high-level lending scenario is the option they would like to be adopted. He says
             any other option would send unintended negative impressions about Cambodia.
             They are aware that this will require a continuation of sound policies by them and
             this is what they intend to do.

      (ii)   Unfortunately, the Bank's pipeline of projects in Cambodia is still very small. Ifthe
             high lending scenario is to be implemented, more energetic efforts will be needed to
             build up a pipe-line of more production oriented projects in rural development,
             agriculture, education and infrastructure.

      (iii) The budget support so far approved by the Bank has been exhausted. They have
            repeatedly requested the Bank authorities to commence a Structural Adjustment
            Credit to be effective preferably before 30 June 1997. They need this support to tide
            over their budget deficits in the short-term before their tax reform measures take hold
            and provide them with the sustained levels of domestic revenue. They are well aware
            of the need to increase domestic revenue and they are working on policies to do this
            but the process will take time.

7.     I have noted the offer made by my colleague, Andrei Bugrov, relating to the important
issue of ruble debt and I thank him for it. I will convey that information to the Royal
Government of Cambodia.

8.      Finally, I would like to thank my other colleagues for their generally positive support for
Cambodia. A number of my colleagues have asked in their written statements about the degree
of government ownership of the strategy set out in the CAS. I can assure them that the CAS
strategy is also the Cambodian Government's strategy.