World Bank threatens 64 mln dollar Cambodia aid freeze

PHNOM PENH, May 29 (Reuters) The World Bank threatened today to freeze more than 64 million dollar destined for Cambodian development projects plagued by corruption.

An investigation ''found the problems included misuse of funds and misprocurement'' in seven projects, the bank said, in a country where foreign donors provide half the government budget and complain frequently about graft.

Its options ''include, for example, seeking repayment of funds that were misused and suspending or closing the projects involved'', the bank said in a statement.

''The government and the bank are in the process of discussing these options, as well as ways to strengthen financial management systems, improve auditing and transparency, to reduce the likelihood of further corrupt acts,'' it said.

In 2003, the government repaid 2.8 million dollar to the bank after the donor threatened to cut aid for other projects if it failed to return the money meant for a military demobilisation project.

But in a letter seen by Reuters, Cambodian Finance Minister Keat Chhon told his colleagues at the ministries of rural development and land management involved in the projects there was a real risk the World Bank could cancel them this time.

The World Bank statement coincided with the opening of the headquarters of Cambodia's new anti-graft body where Prime Minister Hun Sen promised ''tougher acts to fight growing corruption''.

''We need more mechanism to fight corruption,'' said Hun Sen.

Cambodia, still emerging from 30 years of civil war and the Khmer Rouge ''Killing Fields'' in which an estimated 1.7 million people died, needs foreign aid desperately.

It has promised frequently to pass anti-corruption legislation, most recently in March at its annual donor conference in March, but has not done so yet.

Complaints about graft from donors who provide 600 million dollar a year have become increasingly loud in a country which ranks 131 out of 158 countries on Transparency International's 2005 corruption index.

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