Sand dredging has taken a severe toll on the environment and on local fishing businesses in southwestern Cambodia. © Reuters

Debt and corruption muddy US-Cambodia relations

Row over Cambodia's political parties law undermines Washington as China's influence grows

Nikkei Asian Review | 15 April 2017

SINGAPORE -- In contrast to the anguish and astonishment expressed in many national capitals, Cambodia's Prime Minister Hun Sen welcomed Donald Trump's election as U.S. president in November. While the warm response augured well for Phnom Penh's often troubled relations with Washington, prospects for improved bilateral ties have since faded.

In January, the month of Trump's inauguration, Cambodia pulled out of the "Angkor Sentinel" joint military exercises with the U.S. In early April Phnom Penh followed up that snub to Washington by halting a nine-year-old humanitarian program run by the U.S. military that involved building schools and maternity facilities in rural areas of Cambodia.

These affronts were punctuated by testy exchanges between the U.S. embassy in Phnom Penh and the Cambodian government, notably over a political parties law passed in February that will make it easier for the Cambodian courts to suspend or even dissolve opposition parties.

"Any government action to ban or restrict parties under the new amendments would constitute a significant setback for Cambodia's political development, and would seriously call into question the legitimacy of the upcoming elections," the embassy said, referring to local elections scheduled for June and a national poll due in 2018.

The law has been widely criticized in Cambodia, too. Chak Sopheap, executive director of the Cambodian Center for Human Rights, described it as "an affront to the principles of liberal democracy, [which] effectively gives the ruling party a delete button which can be arbitrarily applied to their political opponents at any time."

Rhona Smith, the United Nations Special Rapporteur on Human Rights in Cambodia, said the government "must ensure fair application of all laws without unequal treatment of political parties, in reality as well as in law."

The law appears to target the Cambodian National Rescue Party, the main opposition grouping, whose exiled leader, Sam Rainsy, resigned before it was passed. The CNRP, which came close to winning Cambodia's last national election in 2013, has vowed to repeal the law if it wins in 2018 and ends Hun Sen's three decades in power.

"They try to use the law to dissolve the CNRP," said Yim Sovann, a CNRP parliamentarian. "When we are in power we will amend this law."

Phay Siphan, a government spokesman, denied that the law was aimed at the CNRP. "It says that someone who is a criminal cannot be president or vice president of a party," he said. Asked about U.S. reaction to the new law, Phay Siphan said that "ambassadors have no right to interfere in local affairs."

The row over the U.S. embassy's comments on the political parties law contrasts sharply with silence on the issue from Beijing, which is rapidly developing an economic and political relationship with Phnom Penh that many see as providing a potential strategic alternative for Hun Sen.

Incongruously, perhaps, both countries are supporting Cambodia's electoral cycle with donations to the election commission and nongovernmental organizations -- funding that is being delivered despite U.S. criticism of the parties law and China's status as a one party state.

Biggest source

China has been the biggest source of foreign direct investment into Cambodia since 2011, accumulating a total of $5.1 billion by the end of 2016, according to an April 11 speech given by Hun Sen in Phnom Penh. These investments have given Beijing growing diplomatic influence in the Cambodian capital, which is reflected in Hun Sen's cancellation of military exercises with the U.S. and his resistance to attempts by partners in the 10-country Association of Southeast Asian Nations to challenge China's claims to much of the South China Sea.

The political parties dispute has also become entangled in a legacy issue for Cambodia that is further reducing U.S. influence in Phnom Penh: American demands for repayment of $274 million in loans disbursed  while the U.S. was at war in Vietnam.

The loans coincided with heavy bombing of communist positions in Cambodia and Laos, which is seen by some historians as a contributing factor in the Khmer Rouge's victory in the country's 1970-75 civil war and the four-year period of communist government that followed, costing the lives of up to 2 million Cambodians. "The United States screwed up Cambodia, and is now asking us to repay debt as well," Phay Siphan said.

Cambodia has asked the U.S. to cancel the debt, which now amounts to about $500 million, including accrued interest, but the U.S. has refused, arguing that rapid economic growth in recent years has put Phnom Penh in a position to make debt repayments without undue strain.

Bolstered by growing tourist numbers and increasing garment exports to Europe and the U.S. -- and more recently by a Chinese-driven construction boom around Phnom Penh -- Cambodia's economy has grown by about 7% a year on average since the early 1990s.

With 50% of its 16 million population aged under 24, and two-thirds below 30, Cambodia is well placed to expand economically, after last year crossing the World Bank's gross domestic product threshold for "lower middle income" countries.

However, the country's economic growth has been criticized as elite-driven and marred by corruption. Transparency International, an international non-governmental organization, deemed Cambodia the most corrupt country in Southeast Asia in its 2016 assessment of global perceptions of corruption, ranking it 156th of 176 countries surveyed.

In March, Moody's Investors Service praised the government for improving revenue collection, but warned that Cambodia's "vulnerabilities in the highly dollarized financial system, very low incomes, weak rule of law and control of corruption and factious political environment will remain sovereign credit constraints."

There are ample examples of high-level corruption in Cambodia. In one case, the Cambodian government repaid nearly half a million dollars after officials were exposed by The Global Fund to Fight AIDS, Tuberculosis and Malaria in late 2013. The officials had taken bribes from foreign manufacturers of mosquito nets in exchange for supply contracts in Cambodia.

Murky data

A more recent case suggests that Cambodia's murky graft problems are large-scale and ongoing. In 2016, United Nations trade data showed that Cambodia had reported exports of less than 3 million tons of sand to Singapore from 2008 to 2016. Separate figures from the Cambodian Ministry of Mines and Energy showed exports of 16.2 million tons. But Singaporean data showed that the island state imported more than 70 million tons from Cambodia during the period, which it used to expand its land area.

The Singaporean Ministry of National Development said in an emailed reply to questions that it was unable to explain the disparity. "The figures reported by various parties and countries are dependent on their own calculation formulas, which we are not privy to," the ministry said, adding that anyone assessing U.N. trade data "should bear in mind that figures are self-reported by countries," making such discrepancies common.

Both countries said in January that the sand trade had been suspended, but Mother Nature Cambodia, an environmental protection organization, has commissioned a Singaporean law firm to review the possibility of legal action in Singapore against the Singaporean government or private companies involved in mining and exporting Cambodian sand.

Sand dredging has taken a severe toll on the environment and on local fishing businesses, notably in Koh Kong Province in southwestern Cambodia, which borders the Gulf of Thailand.

Alex Gonzalez-Davidson, executive director of Mother Nature Cambodia, said that "the Cambodian government agencies relevant to the mining and export of sand have given varied explanations on why there is such a huge discrepancy."

He added: "They started by saying that the U.N. data was incorrect, and then, when we obtained trade data from both governments which corroborated the U.N.'s data, they started saying that perhaps the Singaporean government might have wrongly recorded some sand imports as having come from Cambodia, when in fact they hadn't," he told the Nikkei Asian Review.

The cost of Singapore's sand imports from Cambodia between 2008 and 2016 was $752 million, according to Singaporean trade data, while Cambodia's reported exports were valued by Phnom Penh at $5 million -- a gap in value that exceeds Cambodia's disputed debt to the U.S. Overall, embezzlement costs Cambodia about $1.7 billion a year, according to a 2014 report by the International Labor Organization, a U.N. agency.

Hun Sen has appealed directly to Trump on the debt issue. But it is questionable whether Cambodia can really afford to antagonize the U.S, which buys about a quarter of Cambodia's exports, valued at $2.8 billion in 2016 -- mostly garments. That compares with about $830 million of exports to China in 2016.

"Hun Sen's actions could come back and bite him. Cambodia needs special access to the U.S. market for its garment industry," Carlyle Thayer of the Australian Defense Forces Academy wrote in a recent assessment of U.S.-Cambodia relations.