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Hopes Fade for Cambodia Winning US Debt Relief, Analysts Say

  • Luke Hunt

FILE - A currency trader counts Cambodian riels to exchange for U.S. dollars at a money exchange stall in the capital Phnom Penh, Cambodia, Feb. 15, 2008. Cambodia racked up $278 million in U.S. loans under the Lon Nol government in the 1970s.

FILE - A currency trader counts Cambodian riels to exchange for U.S. dollars at a money exchange stall in the capital Phnom Penh, Cambodia, Feb. 15, 2008. Cambodia racked up $278 million in U.S. loans under the Lon Nol government in the 1970s.

Cambodian Prime Minister Hun Sen's recent plea for relief from decades-old debt to the United States appears to have little chance of success, regional analyst say.

Cambodians, they say, would be better off seeking to restructure the debt, easing the repayment burden. But Hun Sen is sticking with his mantra and has repeatedly noted the debt issue in public since Donald Trump was elected U.S. president in November.

“It is difficult for us to tell Cambodians to accept debt to buy bombs and bullets to kill Cambodian people,” Hun Sen said, last week.

Cambodia racked-up $278 million in U.S. loans under the Lon Nol government in the 1970s, whose efforts to defeat the Khmer Rouge were undermined by gross corruption within his own administration. U.S. records say the loans were for food and other agricultural goods.

But the amount has gone up sharply over the years due to interest.

Cambodia now owes the U.S. about $505 million, all in arrears with a concessional three percent interest rate, which is below market rates.

Last debt talks in 2011

“We believe resolving the issue would be in both countries’ interest,” said Jay Raman, public affairs officer with the U.S. embassy in Phnom Penh. “The United States has encouraged Cambodia to work with us on finding a solution to the debt since shortly after the 1995 Paris Club negotiations.”

Raman said there was a brief discussion of Cambodia’s official debt to the United States during the November 2015 U.S.-Cambodia Competitiveness and Growth Dialogue, while the last detailed discussion of the issue occurred in 2011, when a U.S. delegation visited Phnom Penh.

Local residents buy fresh vegetables at a morning market in Phnom Penh, Cambodia, Nov. 8, 2015. With interest accumulated over the years, Cambodia today owes the U.S. about half a billion dollars.

Local residents buy fresh vegetables at a morning market in Phnom Penh, Cambodia, Nov. 8, 2015. With interest accumulated over the years, Cambodia today owes the U.S. about half a billion dollars.

In 2008 testimony before Congress on the debt, U.S. officials said they had negotiated for several years with the Hun Sen government to work out a payment schedule but to no avail. U.S. and World Bank officials have said Cambodia doesn't meet World Bank standards for debt forgiveness.

Importantly, Congress must agree to write off debts for countries that are able to pay, as Cambodia is.

Cambodia does not suffer from the same poverty levels as it once did. It was recently promoted to the ranks of the lower-middle income countries and despite this, the U.S. allocates an average of about $70 million a year in direct foreign aid. It has committed $78 million for 2017.

Subtle approach urged

Billy Chia-Lung Tai, an independent human rights consultant at CL Consulting, urged Cambodians to think carefully on this issue, even though they can argue the debt is the result of U.S. backing for the weak Lon Nol government and Washington's bombing in Cambodia during the Vietnam War.

“I don't think having a shouting match with the Americans helps. I agree the Americans in a way don't really have the moral high ground, considering what they were doing in the early '70s in the region and this essentially is money that was used to prop [up] a regime that they desperately want legitimacy [for] in the middle of the Vietnam war," Tai said. “So, you know, I wonder if a more subtle diplomatic approach would be the way to go.”

Hun Sen began his push for debt relief in 2002 when the Chinese wrote off debts incurred by the Khmer Rouge during their 1975-79 rule. But Russia has also balked at canceling $1.3 billion worth of loans made during the Vietnamese occupation of Cambodia in the 1980s.

Ongoing debate

Sambo Manara, a history lecturer with Pannasastra University said it remains unclear whether the U.S. money was debt or humanitarian aid because it arrived during a difficult period in Cambodia's history, during a civil war, and as the Khmer Rouge militants were threatening the government.

“Whether it was for humanitarian aid or diplomatic relations, these are important factors that need to be considered. Is it a debt or humanitarian?” asked Manara. “Clearly, the U.S. must accept that this was the beginning for them to use all their resources to compete in this war. Therefore, it cannot be a debt because it was an action to resolve the tension with the Cold War between two powerful ideals, democracy and communism.”

Analysts said there were several other reasons why President Trump is unlikely to listen.

“It is a lot of money, but I think the real point is the Americans always favor the sanctity of the International finance system,” said one analyst, who declined to be named out of fear of upsetting the Hun Sen government. “I'm sure there is room in there to reschedule the debt with lighter payments over a longer period, but they have to act and negotiate within that system.”

Molyny Pann contributed to this report.

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