Testimony: Cambodia's Debt

Posted by DipNote Bloggers
September 30, 2010

Joe Yun, Deputy Assistant Secretary for the Bureau of East Asian and Pacific Affairs, testified today before the House Foreign Affairs Subcommittee on Asia, the Pacific, and the Global Environment. Deputy Assistant Secretary Yun spoke about Cambodia's increasing political stability, progress on political and social issues, and improvement in U.S.-Cambodian relations.

Mr. Yun said, "Debt relief can be an important means of achieving U.S. goals of promoting economic growth, well-functioning financial markets, and economic reform abroad. Longstanding United States policy is to coordinate sovereign debt restructuring internationally, primarily through the Paris Club group of official creditors. This multilateral approach is a good value for the U.S. taxpayer because it increases recoveries from countries that are not paying their debts to the United States while maximizing benefits of debt relief for heavily-indebted, low-income countries that are unable to meet their payment obligations.

"...Cambodia's bilateral debt to the U.S. government remains an irritant to the relationship. A satisfactory resolution of Cambodia's debt would accelerate the development of an already improving bilateral relationship and enhance Cambodia's own economic development by improving its creditworthiness and access to international capital markets.

"...Senior U.S. government officials have repeatedly encouraged Cambodia to live up to the 1995 Paris Club agreement it signed with the United States and other creditors, and urged it to sign the pending U.S.-Cambodia bilateral agreement without further delay. However, Cambodia may be reluctant to accept the current proposal to settle the bilateral debt issue if it believes there are good prospects of converting a significant amount of the debt service it would otherwise pay to the United States into a form of increased U.S. assistance.

"...The Administration is concerned that creating a special statutory 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. Cambodia has accumulated arrears to the United States while paying other creditors on time, and in at least one case, early. Every year, both within and outside of the Paris Club context, the United States reviews and declines similar requests for debt-for-assistance swap arrangements from debtor countries that are current on their debt service and may owe billions of dollars of debt.

"The Administration has therefore urged the Cambodian government to sign the pending bilateral debt agreement and re-establish a track record of timely repayments under that agreement. We have told the Cambodian government that if it makes scheduled payments for at least one year, the U.S. government would communicate to the IMF that efforts are underway to resolve official arrears. This action could pave the way, should Cambodia then obtain an IMF program and a future Paris Club debt treatment, for a rescheduling of the accumulated arrears. Unfortunately, the Cambodian government has not responded to this overture and continues to accumulate arrears on debts owed to the United States.

"...In sum, Cambodia's prompt agreement to resolve U.S. debt claims by drafting a Bilateral Agreement implementing the 1995 Paris Club Agreed Minute, as Cambodian officials proposed in 2006, would eliminate this long-standing dispute in a scenario of otherwise improving bilateral relations. A Cambodian agreement would also enhance the country's creditworthiness and its ability to access international capital markets. Other countries following this path have benefited enormously."

You can read Deputy Assistant Secretary Yun's full remarks here.

Comments

Comments

Eric
|
New Mexico, USA
October 1, 2010

Eric in New Mexico writes:

Re:

"In sum, Cambodia’s prompt agreement to resolve U.S. debt claims by drafting a Bilateral Agreement implementing the 1995 Paris Club Agreed Minute, as Cambodian officials proposed in 2006, would eliminate this long-standing dispute in a scenario of otherwise improving bilateral relations. A Cambodian agreement would also enhance the country’s creditworthiness and its ability to access international capital markets. Other countries following this path have benefited enormously."-Sec. Joe Yun

Timely hearing, but in sum, there has been no movement on a diplomatic solution since 2006, and this puppy has been chasing its tail for awhile now.

When this subject came up originally on this blog;

http://blogs.state.gov/index.php/archive/entry/cambodias_war_era_debt

I tried to take a negative and turn it into a cooperative partnership to save lives.

Today, if anything , the situation on the ground regarding global food security has been exacerbated by Pakistan's floods and multiple typhoons in the region, floods in other countries, and I hope folks will toss this on Sec. Yun's desk for a revisit of the concept outlined.

As convoluted as contract law, and debts get, perhaps the global food crisis superceeds its legal worth to force adherance to past agreements if the parties are inclined to partner up and rice becomes the means of repayment via helping the US feed a lot of folks.

Basicly you are offering Cambodia alternate method of repayment, not "debt forgiveness" as it were, with perhaps arrears being dropped as incentive to partner up with us, and not have this become some political football within the Cambodian government.

Thing they will have to gain in the long run is in increased rice yields from reinvesting that 160 million (aprox) principal 1x over again to help create new rice fields w/ irrigation, is that even though they double their debt principal, once they finish off payment, they still have a cash crop we'll buy from them to supply NGO's with, increasing our capacity to deliver as much food needed anywhere, anytime, or through the UN, or they simply sell it on the open market as export.

I can't think of an easier way to make it worth their while to pay this debt, and make it worth it for our Congress to appropriate the funds to satisfy the doubling down and the restructuring of it.

It's not often you can offer a nation a way to get a doubling of respect earned for paying a simple debt, but the gain extra credit for helping to feed the world while doing it.

I think there's some mutual incentive here that will allow logic to prevail, that the whole point is to save lives, paydown on the debt is simply a means to that end.

Takes the politics of the past right out of the conversation.

EJ

Fred
|
California, USA
October 16, 2010

Fred in California writes:

I agree with the views of Joe Yun. Debt relief is definitely going to help the Americans to flourish economically.

.

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