Cambodian Debt to the United States: Ring of Consecrated Sand

By Ernest Z. Bower, Senior Adviser and Director, CSIS Southeast Asia Program

Phnom Penh was a small town in 1969, but one that writhed with intrigue worthy of the Ramayana, the ancient Sanskrit epic that would redden Shakespeare’s cheeks even as he sat with pen over scroll conceiving Act III of Richard 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.