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Cambodian in Debt Trap?

China is pouring money into Cambodia, but will the political cost be even bigger than the interest bill? 

PHNOM PENH (10 February 2012) — A multi-million dollar “no strings attached” loan by China to Cambodia has ignited debate in the kingdom about the economic, political and social costs of its rising dependence on the world’s second biggest economy.

The state-run Export-Import Bank of China promised to advance the US$302 million loan during a visit by its chairman Li Ruogu last week. It is the latest in a string of investments byChinasince 2007 as it strives to bolster its economic and political influence inSoutheast Asia.

The flood of Chinese money is likely to continue, with Cambodian Prime Minister Hun Sen petitioning Li to finance seven infrastructure and irrigation projects this year to the tune of US$500 million. He said the projects were crucial to the development ofCambodia’s economy.

Cambodiahas borrowed vast sums fromChinain recent years to finance road, hydropower and defence projects, many of which are contracted to Chinese firms. Last November, Hun Sen put the total debt owed toChinaat US$2 billion.

Concerns at the rising bill were compounded when National Assembly Finance Commission Chairman Cheam Yeap put the China debt at US$6 billion then hastily backtracked saying he was not sure how much was owed.

Cambodiaalso owes US$1.8 billion toRussiain a deal dating back to Soviet times, and another US$444 million to theUnited Statesfollowing a loan to the Lon Nol regime in the 1970s.

Chea Kimsong, a development programme manager of the NGO Forum for Cambodia, told Asia360 News that worries were spreading aboutCambodia’s rising foreign debt.

“Loans don’t have to be a bad thing as they can help the economy, but our revenue should be improved so we can meet our future debt obligations,” he said.

A recent report by the NGO Forum found thatChinaprovided the least favourable concessionary loan terms, demanding interest five times higher than other creditors such asSouth KoreaandJapan.

The interest bill has raised fears thatBeijing’s strategy is to wooCambodiawith largesse, then snare it in a debt trap later — thus securing political influence at both ends of the deal.

“It goes without saying that more debt Cambodia owes to China, the more comfortable China feels about exerting influence over Cambodia politically, socially and economically — like it or not,” former director of Cambodian Centre for Social Development Chea Vannath told Asia360 News.

For now, however,CambodiawelcomesChina’s money. Hun Sen laudedChinalast week for contributing toCambodia’s recent economic growth without attaching onerous conditions to its loans.

Hun Sen is reported to favour Chinese loans as support from Western nations often comes with conditions attached, such as improvements on human rights issues and market-opening economic reforms.

AndChinais getting its pound of flesh as well. Recent evictions of residents at Beng Kak lake in northernPhnom Penhhave been conducted by a local partner ofChina’s Erdos Hong Jun Investment Co, which has pledged to spend US$3 billion on property development, metal processing and power generation.

Moreover, activists claim thatPhnom PenhdidBeijing’s bidding in 2009, when it deported 20 Uyghur asylum seekers toChinareportedly in exchange for military equipment. Some Uyghur residents ofChina’s Xinjiang province had fled toCambodiaafter regional unrest in July that year but were repatriated to face possible prosecution and severe punishment back home, according to Amnesty International.

Some analysts believeCambodiashould shun debt-driven growth in favour of market-based reforms — such as rule of law and a level playing field for investors — which would attract ample capital given time.

But withChinadetermined to consolidate influence in the region and impoverished Cambodia eager to catch up with neighbouring economies likeThailand, the cash will continue to flow.

Read more on Asia360News.

4 thoughts on “Cambodian in Debt Trap?

  1. i’ve never noticed the debt with the US and Russia. Do you have more information toward it? Does the government still owe the previous Soviet Union, Russia and the states? Hello, i am curious to learn about this…

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