http://blogs.state.gov/index.php/site/index/ en U.S. Department of State 2008-08-29T19:16:00-05:00 Ask the Ambassador" program. I was very surprised, however, that one rather thorny subject was not raised: Cambodia's debt to the U.S. This issue has been a contentious one in our bilateral relationship for more than 15 years, and with the recent passage by the House of Representatives of the "Jubilee Act" for debt relief, I felt this was an opportune time to discuss this issue with DipNote's readers. An excellent primer on the topic is DAS Scott Marciel's recent testimony before Congress, but here's how the situation stands in brief.

Cambodia’s debt to the U.S. totals $162 million, but with arrears factored in could reach approximately $339 million. This debt stems from shipments of U.S. agricultural commodities (e.g., cotton, rice, wheat flour) to Cambodia in the early 1970s -- during the Vietnam War and Cambodia’s Lon Nol era -- and financed with USDA loans. When the country fell to the Khmer Rouge in 1975, the regime ceased servicing this debt, and interest accumulated over the next three decades. In February 2006 -- after many years of deadlock followed by a fruitful series of negotiations -- an agreement in principle was reached on the amount of Cambodian principal owed to the U.S.

The Cambodian government, however, remains reluctant to sign a bilateral re-payment agreement due to domestic political obstacles on accepting responsibility for debts incurred by the Lon Nol regime, viewed by many Cambodians as an illegal and illegitimate government. Furthermore, many Cambodian observers believe a good deal of this assistance never arrived. They contend that Cambodia only served as a conduit for moving the USDA-financed commodities to other locations in Asia and that the Cambodian government and the Cambodian people did not benefit from the loans, even if some Cambodian individuals did gain. Finally, some argue that it is fundamentally unfair that Vietnam, which is far better off economically and was America’s major adversary in the war, was granted a form of debt forgiveness from the United States, while an innocent bystander to that conflict—Cambodia—is offered nothing.

The U.S. has on its side the international law principle that governments are generally responsible for the obligations of their predecessors. And while Cambodia is a poor country, it’s economic and financial situation does not merit debt reduction because the country is neither heavily indebted nor experiencing an external balance of payments crisis. The U.S. Government is concerned that creating a special debt reduction program for a country that is unwilling, rather than unable, to pay its debts, sets a poor precedent for other counties in similar circumstances and sends the wrong message about prudent debt management. Every year, the U.S. Government reviews and declines requests for debt forgiveness from debtor countries that are both current on their debt service and may owe billions of dollars of debt.

As a possible compromise, the Cambodian Government has expressed an interest in a debt-swap program similar to debt-for-assistance measures that were enacted for Vietnam in 2000. With this program, Congress created the Vietnam Education Foundation, which refunds to the Foundation's programs about 40 percent of Vietnam’s total debt payments to USAID and USDA. While observers often compare Vietnam and Cambodia for geographic and historical reasons, it is important to note that, before Congress set up this arrangement, Vietnam signed a bilateral implementing agreement with the U.S. in 1997, resumed making scheduled payments, and was in good financial standing with the U.S. The same is not currently true with Cambodia.

It is my hope that an agreement to resolve Cambodia's debt to the U.S. can be reached soon in order to eliminate this long-standing dispute in the midst of otherwise improving bilateral relations. Such an agreement would also enhance Cambodia’s creditworthiness and its ability to access international capital markets, thus contributing to the country's economic development. Please let me know your thoughts on this issue.
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