CAMBODIA EXPLORING FORWARD MOVEMENT ON DEBT

UNCLAS PHNOM PENH 000493

SENSITIVE
SIPDIS

STATE FOR EAP DAS MARCIEL, P, D, H
STATE ALSO FOR EAP/MLS, EEB/IFD/OMA - D. FREUDENWALD
TREASURY FOR ANDREW JEWEL

E.O. 12958: N/A
TAGS: EFIN PREL ECON CB
SUBJECT: CAMBODIA EXPLORING FORWARD MOVEMENT ON DEBT

REF: A. PHNOM PENH 372

B. PHNOM PENH 143

C. 07 PHNOM PENH 1484

D. 07 PHNOM PENH 868

E. 07 PHNOM PENH 670

F. 07 STATE 19310

SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET DISSEMINATION.


1. (SBU) SUMMARY: The Ambassador called on Minister of
Economy and Finance Keat Chhon June 12 to raise the bilateral
debt in the wake of Prime Minister Hun Sen's positive
statements on debt repayment in a meeting with the U.S. ASEAN
Business Council (Ref A). Minister Keat cautioned that
Cambodia would soon have a caretaker government in advance of
its July 27 parliamentary election but that by September the
new Royal Government of Cambodia (RGC) should be prepared to
explore the issue again. Embassy believes that any
Congressional assurance on recycling a portion of Cambodia's
debt would create an environment that allows the RGC to
explore going forward, possibly on a fast track for this
year. Depending on how the issue is framed, Cambodia could
contemplate concessions beyond its previously stated
position. END SUMMARY.


2. (SBU) The Ambassador accompanied by DCM was literally
given a red carpet reception by Minister Keat, who was
clearly pleased to discuss the debt issue. The Minister
noted that the caretaker government would begin at the end of
June and last as long as 60 days after the July election,
until September 27. Thus, it would be difficult to make any
progress on the debt this summer. (NOTE: MOEF Secretary of
State Aun Porn Moniroth later told DCM there could be a new
government by September 15. END NOTE.) Minister Keat
indicated that he thought the new government could explore
new options on the debt within a short time after that. The
Ambassador reiterated past statements (Ref A) that the RGC
should honor its debt and that there could be no discussion
on debt recycling until after the RGC had signed a debt
repayment agreement along the lines proposed in 2006 (Ref F).
However, the Ambassador noted that in his most recent visit
to Washington, some members of Congress had expressed strong
interest in resolving the Cambodian debt problem and were
possibly considering issuing a non-binding Congressional
statement on the subject that would include reference to debt
recycling. The Ambassador asked the Minister what his views
were on this potential development.

RGC: A Step Forward
--------------


3. (SBU) Minister Keat warmly welcomed this proposal and
turned to his lead debt negotiator, Aun Porn Moniroth, to
elaborate. Aun Porn Moniroth said this would be another step
forward in terms of trying to facilitate a resolution to this
issue. For the Cambodians, signing two agreements (repayment
and recycling) back-to-back would be best, but any
Congressional assurance would be a big gesture by the U.S.
side and would help the RGC explain the debt agreement to its
National Assembly and the Palace during any ratification
process. Aun Porn Moniroth added that the RGC would not
worry about penalties and would be much more willing to pay
the standard three percent interest on arrears since 1995 if
it had a good sense that a debt swap would follow and the
money would support the development of Cambodia.


4. (SBU) COMMENT: Since the U.S. ASEAN Business Council
raised Congressional interest in the Cambodian debt last May
(Ref A),the Cambodian government has been more attentive to
our requests to focus again on the bilateral debt. We view
Aun Porn Moniroth's attitude to be very supportive, compared
to past interactions, when he has been very cool to our
urging to discuss the bilateral debt agreement.
MUSSOMELI