US Says Lon Nol-Era Debt Now at $339 Million

Cambodia’s debt to the US, arising from the purchase of commodities by the US-backed Lon Nol government in the turbulent 1970s, now stands at $339 million, a senior US diplomat said Feb 14.

Deputy Assistant Secretary of State Scot Marciel told lawmakers in Washington that Cambodia has resisted signing a bilateral agreement on repayment of the debt and is seeking a reduction in the interest rate on the debt to less than 3 percent, which the US does not accept.

Marciel told a subcommittee of the House of Representatives that Cambodia had reached an agreement to restructure all its foreign debt with the 19-member Paris Club of creditor nations in 1995 but never signed a bilateral agreement with the US on the Lon Nol debt.

This was “in part because the Cambodian government refused to accept responsibility for debts incurred by the Lon Nol regime and in part because of a disagreement at the time over the amount of debt owed,” Marciel said in prepared remarks to a subcommittee of the Foreign Affairs Committee.

From 1972 to 1974, the US Department of Agriculture financed $274 million in purchases of US cotton, rice and wheat flour, the source of all of Cambodia’s current debts to the US, payment on which ceased in 1975—the year the country fell to the Khmer Rouge.

Finance Ministry Secretary-General Hang Chuon Naron said Friday that negotiations were continuing with the US and declined to comment.

Government spokesman and Information Minister Khieu Kan­harith said that the government’s post-war obligations had preoccupied it, preventing it from reaching an agreement with the US.

“We were busy stabilizing the country,” Khieu Kanharith said, adding that reaching an agreement on the debt would require further negotiation and the National Assembly in 1993 declared that the entire Lon Nol regime was illegal.

He also noted the US debt was incurred as the US drop­ped over two million tons of bombs on Cambodia in an effort to stem the flow of communist forces during the war in neighboring Vietnam.

“Americans need to consider how to compensate Cambodia,” he said of the damaged done, and added that war reparation was not a part of negotiations over the Lon Nol debt.

According to Marciel, in February 2006, Finance Minister Keat Chhon agreed on the amount of principal debt owed.

However $154 million in arrears accrued since 1997 would be payable to Washington immediately under a proposed US agreement, though the US would support rescheduling that payment if Cambodia signs the agreement, Marciel said.

In August, International Monetary Fund Managing Director Roderigo de Rato recommended that Cam­bodia continue negotiations for US debt relief.

Debt relief campaigners have long championed the legal principle of “odious debt,” according to which debts incurred by undemocratic regimes should not be honored.

Marciel said the Lon Nol-era debt is legal and that Cambodia’s current economic circumstances make it ineligible for debt relief from the US.

“Although Cambodian observers may consider this debt illegitimate, the US has on its side the international law principle that governments are generally responsible for the obligations of their predecessors,” Marciel said.

In 1997, Vietnam signed an agreement to repay debt to the US Agen­cy for International De­vel­op­ment and Department of Ag­ri­cul­ture, which was incurred by the then US-backed government of South Vietnam, also toppled in 1975.

Marciel noted that 40 percent of Vietnam’s debt repayments to the US are refunded to the country through programs supported by the Vietnam Education Foun­dation, an independent US government agen­cy that promotes educational ex­changes with Vietnam.

Cambodian officials have ex­pres­sed interest in a similar arrangement for the Lon Nol debt, Marciel said.

(Additional reporting by Prak Chan Thul)

 

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