Cambodian Debt to the United States: Ring of Consecrated Sand
July 13, 2010
Phnom Penh was a small town in 1969, but one that writhed with intrigue worthy of theRamayana, the ancient Sanskrit epic that would redden Shakespeare’s cheeks even as he sat with pen over scroll conceiving Act III ofRichard III.
As the Vietnam War raged to the east, its tendrils crept down the alleys and creek beds each night as darkness fell. Phnom Penh joined other restive capitals in Southeast Asia as a setting for casting key characters in the Cold War drama. In many some ways, Cambodia has yet to shake that legacy. Unfortunately, in lieu of a U.S. strategy for ASEAN that would provide guidance and rationale for assessing complicated situations around the region, shortsighted U.S. debt policy and narrowly focused legislators on Capitol Hill are driving hopes for American engagement in Cambodia into the ground and dead-ending opportunities for creativity and diplomacy.
This is the story of a problem that can be fixed.
As dominoes teetered in neighboring countries, the man who came out on top—at least temporarily—of that internecine and uniquely Khmer spasm of Cold War backstabbing was a general named Lon Nol. In return for his Machiavellian willingness to slit the throats of North Vietnamese Communists and their alleged acolytes among the left-leaning Cambodian nationalists, as well as betray his former mentor, Cambodia’s fickle and socialist-inclined King Norodom Sihanouk, the United States supported Lon Nol in various ways.
One of those thrusts, implemented at a time when the United States did have a clear and well-articulated vision of its goals for mainland Southeast Asia, was agricultural aid. To be more precise, $276,211,806 worth of cotton, edible oils, feed grains, rice, tobacco and tobacco products, and wheat and wheat flour were given as aid to Lon Nol’s government at a rate of 3 percent interest. Lon Nol and his supporters needed the supplies badly because, from 1970 to 1975, his regime folded in upon Phnom Penh and was literally encircled by a genocidal Khmer Rouge regime that had quickly taken control of the Cambodian countryside under their notorious leader, Pol Pot.
Lon Nol did not last long. In 1975, in desperation and influenced by Buddhist futurists and secular soothsayers, he ordered a thin line of consecrated sand ringed around Phnom Penh to protect it from the Khmer Rouge. By then, the CIA and other U.S. entities, prioritizing staunching the flow of communism over other traditional U.S. foreign policy objectives, were indirectly providing arms and support to the Khmer Rouge as the next best force with the potential to stop the Vietnamese communists. The line of sand was crossed, pushing Cambodia into the most hell-like chapter of its history as over a third of the country’s people were tortured and killed by Pol Pot and his followers.
Fast-forward to today. Cambodia is seeking debt relief from the United States for the agricultural loan taken on board by Lon Nol in the early 1970s. The United States has declined this request. The State Department is referring the case to Treasury, and not even to the Southeast Asia/Cambodia team at Treasury, but instead to the Debt Office. Its mandate is clear and not troubled by strategic or foreign policy context. Unsurprisingly, the Debt Office argues that Cambodia must begin paying the debt, which it calculates now amounts to approximately $444 million (with interest).
Cambodia argues that the wartime debt was incurred by a completely different government. In fact, U.S. Congressman Eni Faleomavaega, chairman of the House Subcommittee on Asian and Pacific Affairs says that “Cambodia’s debt it not a new debt accumulated by its current administration ... it is an old debt accumulated between 1970–1975 and, most likely, expended by the Khmer Rouge from 1975–1979” during a House hearing on the Cambodia debt issue on February 14, 2008. In its efforts to resolve the issue, Cambodia has demonstrated creativity and flexibility, suggesting lower interest rates or a debt swap similar to the one Congress developed for Vietnam in 2000 where funds were used, in part, to create the Vietnam Education Fund (VEF) to meet a desperate need for education and training for talented Vietnamese students.
To date, the U.S. response has been not been creative or flexible. The official position is that Cambodia does not merit debt forgiveness or reduction because it does not meet the criteria of a heavily indebted country, nor is it experiencing a balance of payments (BOP) crisis.
In addition, avenues for addressing the issue and using diplomacy to strengthen U.S.-Cambodian relations in general have been squeezed by the new Cambodia Trade Act of 2010 (H.R. 5320). The act was tabled by two narrowly focused U.S. legislators seeking to punish Cambodia for recent actions it has taken to apparently secure significant aid from China, a country with very clear strategic goals to bring Cambodia and other Southeast Asia countries into its sphere of influence, including the return from Cambodia of 20 Chinese Uighers (a predominantly Muslim ethnic minority in China) seeking refugee-status there. The act’s proponents are Congressmen Dana Rohrbacher and Bill Delahunt, whose legislation states, “The United States may not reduce or forgive any debt owed by Cambodia to the United States.”
Two days after Cambodia returned the Uighers to China, on December 19, 2009, China signed 14 deals with Cambodia worth over $1 billion. Perhaps appropriately, on April 1, 2010, the United States suspended military aid (provision of 200 trucks and related material) to Cambodia. (China later provided almost exactly the same equipment to the Cambodians in June.)
Cambodia joined ASEAN in 1999 in hope that becoming part of the region’s dynamic economy, security dialogue, and community of nations would help it step away from its horror-filled Cold War legacy. The Cambodian government has made significant efforts to address issues like child labor, workers rights, and human and narcotics trafficking amid the need to address serious corruption and strengthen the rule of law and institutions. By its own account, Cambodia has a long way to go.
As the country addresses those challenges, the United States would do well to consider the case of Lon Nol’s war debt and think strategically about the future of Cambodia. By enforcing Paris Club agreements and forcing Cambodia to pay the debt, the United States may find itself encircling its interests in the Cambodia with a thin line of consecrated sand—a line that is already being trampled by other partners who see the country in a strategic context.
In this Issue
- Singapore may overtake China as Asia’s fastest-growing economy
- Malaysia appoints first women judges to its Islamic courts
- Members of U.S. Senate press for the release of Hmong people
- Hotline between Vietnam and China to be established
- CSIS SEAO Roundtable with departing NZ ambassador Roy Ferguson
- Angkor Sentinel 10
- 17th ASEAN Regional Forum (ARF)
State of emergency extended. Despite an air of relative calm, authorities opted to extend the state of emergency in 18 provinces, mainly in the northern region and Bangkok, for another three months. The decree was ended in fivce other provinces. The National Human Rights Commission and International Crisis Group have said the ban should be lifted. A bombing at the Bhumjaithai Party building and rocket-propelled grenade attacks at fuel tanks in an army installation in June has kept policymakers weary. Critics assert that censorship and emergency rule are not in accordance with the government’s call for reconciliation. A Bangkok by-election July 25 that includes a Red Shirt candidate running for office from jail will test the public sentiment.
International Crisis Group’s report on Thailand—Bridging Thailand’s deep divide. The International Crisis Group (ICG) has issued a 16-point recommendation to the Royal Thai Government (RTG), the Red Shirt leaders, Thaksin, and Thailand’s political parties. The report urges the RTG to lift the emergency decree, end the media blackout of Red Shirts, strengthen internal security, and introduce new economic policies. Finally, it recommends that Thaksin and Red Shirt leaders refrain from violence and explore a peaceful solution.
Cambodia returned two Thais bombing suspects. Two suspects who allegedly planned the botched bombing outside the headquarters of the Bhumjaithai Party, a major party in the ruling coalition, were apprehended in Siem Riep and turned over to the Thai police. While there was no formal request from the Thai government for extradition, the Cambodian Foreign Ministry stated that sending the suspects back to Thailand was consistent with Cambodia’s antiterrorist policy. Thailand has seen a trend of improving relations with its immediate neighbors over the last several weeks.
Bank of Thailand gets a new boss. The CEO of Kasikorn Bank, Prasarn Trairatvorakul, 57, has been appointed as the new central bank governor. Prasarn is noted for his private sector experience. He worked for the central bank for 9 years, followed by 11 years at the Securities and Exchange Commission. His appointment will take effect on October 1, 2010.
The International Finance Corporation (IFC) plans to invest $300 million in the Philippines’ energy sector. This news follows the recent announcement that the Asian Development Bank (ADB) is planning to invest in a $1 billion fund to finance energy efficiency and renewable energy projects the country. To date, the IFC has invested $600–$700 million into the private energy sector over the past three years through loans, equity financing, syndicated loans, and credit guarantees.
IMF raises Philippines growth rate to 6 percent. The International Monetary Fund’s World Economic Outlook revised its GDP forecast for the Philippines from 3.6 to 6.0 percent after the country grew 7.3 percent in the first quarter. Despite the new figures, the Philippines will lag slightly behind its ASEAN neighbors (Thailand is expected to grow at 7 percent, Malaysia at 6.7 percent, and Vietnam at 6.5 percent). The IMF warned that although there has been strong growth and steady recovery in emerging markets, recent fluctuations in financial markets could dim growth prospects.
Timor Leste (East Timor) and Australia's refugee center plan. After some initial confusion, East Timor has expressed its willingness to discuss plans for housing a refugee processing center for Australia. Immigration and handling of refugees is a major national issue in Australia. New prime minister Julia Gillard claims that the goal of a regional processing center in East Timor will be to deter human-traffickers. Jose Ramos-Horta, president of East Timor, said he was open to the idea of the center as a transitory gateway while refugees’ credentials were being processed. There is considerable domestic opposition to the concept in East Timor, however. The border protection debate has resurfaced in Australia due, at least in part, to the imminent elections.
Singapore may overtake China as Asia’s fastest-growing economy, growing at 10.8 percent. Forecasts for Singapore’s GDP growth range from 9.7 percent to 13 percent among the economists surveyed by Bloomberg. China’s 2010 growth range is forecasted to grow from 9.5 percent to 10.1 percent. The last time Singapore’s GDP expanded faster than China’s was in 2000. The Bloomberg News Survey second-quarter GDP report will be released on July 14.
Singapore ratifies UN Convention on Electronic Communications in International Contracts. Singapore’s government ratified the UN Convention on Wednesday, July 7. The convention seeks to facilitate global electronic commerce trade by harmonizing laws among countries. The ratification reportedly complements the Singapore Electronic Transactions Act, the legal framework for domestic electronic transactions, as the Convention ensures that businesses are not subject do different standards for international standards as well.
16th Singapore-U.S. Cooperation Afloat Readiness and Training exercise (CARAT). The Singapore Armed Forces (SAF), the United States Navy (USN), and the United States Coast Guard (USCG) are participating in the exercise from July 5 to July 19 to enhance interoperability and professional cooperation between the participating forces. Conducted since 1995, the joint exercise will focus on honing maritime capabilities such as competencies in anti-air, anti-surface, and anti-submarine warfare, as well as maritime air operations.
Bank Negara, Malaysia’s central bank, raised interest rates for the third time in 2010. Bank Negara increased its overnight policy rate to 2.75 percent from 2.5 percent last Wednesday, July 7. The ringgit strengthened after the rate decision, climbing to as high as 3.1975 per dollar from 3.2045 before the announcement. The IMF predicts Malaysia’s economy will expand 6.7 percent in 2010 and 5.3 percent in 2011. GDP increased 10.1 percent in the three months ended March 31 from a year earlier, the fastest rate in a decade.
Malaysia-India bilateral trade rebounds. The bilateral trade between Malaysia and India has increased by 11 percent in the first five months of 2010. India is Malaysia's twelfth- largest trading partner and eleventh-largest major exports destination, while Malaysia is the thirteenth-largest export market for India. India expects trade with Malaysia to jump 50 percent to $15 billion (RM48.3 billion) by 2015 assisted by the two countries’ new free trade pact.
Malaysia appoints first women judges to its Islamic courts. Prime Minister Najib announced last week that two women judges would be appointed to key benches within the country’s Islamic courts system. This decision was reportedly well-received by Muslim women’s groups in the country. Malaysia runs two parallel legal systems—the civil courts for its non-Muslim citizens and the Islamic courts system. The move is seen as part of PM Najib’s larger reform efforts and underlines the historically strong role of women leaders in Malaysia’s government and key institutions.
Return of the Soehartos? One of the daughters of Soeharto, Siti Hediati Hariyadi, says she is running for the leadership of the Association of Indonesian Farmers. The move, seen as a step toward establishing a political platform, was instead described by Ibu Siti as a way to allow her to accomplish one of her father’s goals—namely, making the country’s farmers self-reliant. The farmers organization is currently headed by former general Prabowo. He is now a politician leading the Gerindra Party and is also Ibu Siti’s former husband.
Gita Wirjawan, chairman of Indonesia’s Coordinating Board for Investments, in the United States. The tireless leader of BKPM visited the United States, specifically New York and Washington, last week as part of a trip that began with his attendance with President Yudhoyono at the G-20 meeting in Toronto. Pak Gita then visited Turkey with the president and returned to the United States for consultations with leading investors and potential investors. Indonesia has made significant strides in resolving issues with existing investors, and as strong growth starts to take hold, new investment opportunities are attracting significant attention. Indonesia is one of nine major markets being targeted by the chairman of the U.S. Export-Import Bank, Fred Hochberg, for transforming growth of U.S. exports.
Burma and China discuss the Burmese nuclear program. The Burmese junta’s fifth-ranking minister, Tin Aung Myint Oo, was in China last week discussing Burma’s nuclear program, upcoming elections, and issues regarding the Sino-Burmese border. Since allegations on Burma’s nuclear weapons program surfaced, China has remained quiet on the issue. Some analysts suggest that China would oppose a Burmese nuclear weapons program because it would not favor the idea of another nuclear nation “in the neighborhood.”
Bangladesh-Burma-China railway connection. On July 6, Bangladesh announced its plan to build a railroad to Burma by 2014. The railroad will be connected to the Trans-Asian Railway—a grand "Iron Silk Road" rail project linking Europe and Asia—as well as to the Chittagong-Gongdoon track, which will connect to China through Burma. The estimated cost for this 128-kilometer railroad undertaking is $266 million. The objective, if accomplished, will be another step toward building significant intra-Asian infrastructure linking countries through an ever-increasing system of modern roads and railways.
Conical hat symbol leads to interparty dispute. The National Democratic Force (NDF), a breakaway faction of Aung San Suu Kyi’s party, the National League for Democracy (NLD), recently announced its plans to use the conical hat, party symbol for the disbanded NLD, for its election campaign. The announcement triggered angry reactions from members of the NLD, who accused the new group of stealing the symbol in an attempt to secure votes in Burma. The NDF will contest upcoming Burmese elections, while the NLD has announced it will boycott the elections.
U.S.-Cambodia: 60 years of diplomatic relations. Last week, Cambodia and the United States began a celebration of 60 years of diplomatic relations. At the Cambodian embassy in Washington, Ambassador Hem Heng hosted more than 200 guests last Friday for a performance of traditional dance and a live concert; at the U.S. embassy in Cambodia, Ambassador Carol Rodley will host a week of activities starting July 18.
Duch fires lawyer before verdict. Former Khmer Rouge prison chief Duch has sacked his international lawyer just weeks before a verdict is due in his war crimes trial, citing a loss of confidence in Francois Roux as his counsel. Meanwhile, his Cambodian lawyer will continue to represent him.
Members of U.S. Senate press for the release of Hmong people. Following his visit to Laos last week, U.S. Senator Al Franken urged the LPDR government to allow 158 Hmong people, who are internationally recognized as refugees, to leave the country. Franken’s constituents include a large Hmong population. Under the United Nations resettlement processes, the 158 have been offered resettlement in Australia, Canada, the Netherlands, and the United States. Many Hmong people living in Laos say they face persecution due to their pro-U.S. role during the Vietnam War. Many Hmong fought under a U.S.-funded irregular army. Talks regarding the prospects for the Hmong will continue in Washington later this month, when the Lao foreign minister meets with U.S. Secretary of State Hillary Clinton.
Hotline between Vietnam and China to be established. After cochairing a four-day meeting that began on June 29 in China, Deputy Prime Minister and Minister of Foreign Affairs Pham Gia Khiem of Vietnam and State Councilor Dai Bingguo of China agreed to set up a hotline linking high-ranking officials of the two countries. Khiem also met with China’s vice president Xi Jinping to discuss ways to enhance bilateral relations during the Vietnam-China Friendship Year 2010.
Labor issues impede U.S.-Vietnam trade relations. Following a visit to Vietnam and Laos, four U.S. Senators, all Democrats, including Al Franken (Minnesota), Tom Harkin (Iowa), Bernie Sanders (Vermont), and Jeff Merkley (Oregon), said that Vietnam must allow free workers’ unions if it wants to liberalize trade with the United States. The senators want issues of labor rights and freedom of organization to be essential factors in determining future agreements with the United States. The visit was an indicator of Democratic Party concerns that will likely affect further movement on Vietnam trade issues in Congress, including the Trans-Pacific Partnership (TPP) agreement currently being negotiated by eight nations, including the United States and Vietnam.
Vietnam and the EU expected to sign a Partnership and Cooperation Agreement (PCA). According to the European Union (EU), it will sign a PCA with Vietnam later this year. The agreement came on July 6 in Hanoi after the eighth round of talks in two years. At this point, the parties have agreed on such issues as nonproliferation, migration, taxation, and employment. Notably, PCA will lay the groundwork for EU-Vietnam free trade agreement negotiations.
Inflation risk in Vietnam. The government of Vietnam continues its battle against inflation. Inflation rose by 9.44 percent from January to June, with an average monthly rise of 0.84 percent. To remedy the situation, the government has made loans worth $8.4 million to 13 major enterprises. Vietnamese people have been hoarding U.S. dollars as a hedge, and as result, analysts warn that the country’s central bank, the State Bank of Vietnam, is at risk of running out of greenbacks. Analysts fear that efforts to control inflation will be ineffective, as the Communist Party aims to hit its ambitious growth targets before the 11th Party Congress planned for early 2011.
Japanese aid to mainland Southeast Asia. On July 8, the Japanese government offered a $20 million aid package designed to enhance development in the provinces along the borders of Cambodia, Vietnam, and Laos. Cambodia and Laos will each get $7.5 million, and Vietnam will receive $3.5 million. The remaining $1.5 million will be used to reconstruct general infrastructure in the region. Recently affected by Typhoon Ketsana, this regional triangle needs focused development assistance to tackle poverty and improve basic infrastructure such as road networks.
ASEAN Defense Senior Officials Meeting (ADSOM). The ADSOM Working Group convened on July 2 to discuss the details and organization of the ASEAN Defense Ministers Meeting Plus (or ADMM+). ADMM Plus is now defined as the 10 ASEAN countries plus 8 partners— Australia, China, India, Japan, Korea, New Zealand, Russia, and the United States. Defense senior officials deliberated the framework of ADMM+ and plan to send the draft to ADMM+’s member countries in mid-July. ADSOM-WG is the first meeting on promotion and preparation of ADMM+. The ADMM+ meeting, including ministers of defense from the ASEAN countries and their eight partners, including U.S. Secretary of Defense Robert Gates, will meet in Hanoi in October. Secretary Gates has confirmed he will attend the meeting.
ASEAN telecoms conference. ASEAN telecoms administrators gathered in Hanoi on July 7 to collaborate and improve their management capacity. Firms plan to implement measures to promote cooperation among ASEAN states such as the sharing of telecom infrastructure, roaming, and television digitalization in the region. Participants also reviewed ASEAN’s progress in the framework the APEC Working Group on Telecommunications and Information (APEC TEL), the Asian Pacific Telecommunity (APT), and the International Telecommunication Union (ITU). Integration of regional infrastructure is a fundamental part of regional economic integration. CSIS Southeast Asia reported last week on progress made by ASEAN energy ministers on plans for a regional power grid, which could eventually expand the ability of ASEAN generators to sell power across borders.
APEC’s energy ministers met and provided direction to advance energy security, improve energy efficiency, and increase the clean energy supply in the APEC region. In a declaration issued on July 8, the ministers also recommended a larger energy-intensity-reduction target for the APEC region, given that the goal set in 2007 of a 25 percent reduction by 2030 is likely to be far surpassed. The declaration also reiterated APECs’ commitment to rationing and phasing out inefficient fossil fuel.
SOUTH CHINA SEA
China claims the South China Sea as one of its “core interests.” In addition to its recent military drills in the South China Sea, China for the first time has officially proclaimed to the United States that it perceives the South China Sea as part of its “core interests.” It declared that disputes regarding the South China Sea, Taiwan, Tibet, and Xinjiang are all domestic issues that concern China’s sovereignty and territorial integrity.
Lao PDR reassures zero dam effects on Mekong River. In response to hesitation from the Mekong River Commission (MRC) for continuing the construction of 12 dams in the Mekong region, the Lao minister of energy and mines affirmed that dams on the Lao tributaries of the Mekong will have no impact on the low water levels. He also sought to assure the international community that his country will follow international agreements if it eventually builds more dams on the Mekong River. It is not clear that Lao assurances can meet international standards and concerns about the environmental impact of the planned dams.
CSIS Southeast Asia Program Roundtable with departing New Zealand ambassador Roy Ferguson on Wednesday, July 14. Ambassador Ferguson will reflect on his time as ambassador in the United States and discuss the future of the U.S.-New Zealand relationship. This dialogue is on the record but is by invitation only. For an invitation, please email SoutheastAsiaProgram@csis.org
CSIS to roll out report on "Asia's Response to Climate Change and Natural Disasters: Implications for an Evolving Architecture" on Friday, July 16. This event will feature a panel discussion on the future of Asian regionalism and U.S. policy in the region. The study is a product of the CSIS Asian Regionalism Initiative, funded by the MacArthur Foundation. Please RSVP to DZhang@csis.org if you would like to attend the event.
Laos's minister of industry and commerce, Dr. Nam Viyaketh, will be leading a delegation to Washington, D.C., July 15–16 for bilateral talks with the U.S. Trade Representative regarding Laos's WTO accession.
Angkor Sentinel 10, the first large-scale multilateral peacekeeping exercise in Cambodia, cohosted with the United States, will be held on July 12–30 near Phnom Penh. The Royal Cambodia Armed Forces (RCAF) and the U.S. Army Pacific (USARPAC) will participate in the multinational exercise. The Global Peacekeeping Operations Initiative (GPOI) is cosponsored by RCAF and the U.S. Pacific Command.
Vietnam will host the 43rd ASEAN Ministerial Meeting and the 17th ASEAN Regional Forum (ARF) and Post Ministerial Conference (PMC) from July 19 to July 23 in Hanoi. U.S. Secretary of State Hillary Clinton is expected to lead the U.S. delegation for the ARF.
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