World Socialist Web Site
By James Cogan
15 November 2010
Two days of talks in Yokohama, Japan by the leaders of the 21-member Asia-Pacific Economic Cooperation (APEC) ended yesterday with a clear divergence between the United States and China over the future of regional trade. Following the failure of last week’s G20 summit to resolve festering currency disputes, the APEC meeting further underscored the drift toward a breakdown of relations between the major powers in the Asia Pacific region.
The Obama administration, backed by the Japanese government of Prime Minister Naoto Kan, pushed over the weekend for APEC to commit to the establishment of a Free Trade Area of the Asia-Pacific (FTAAP). The perspective of a FTAAP, which would include the US and attempt to supplant various bilateral pacts operating in the region, is intimately bound up with Obama’s perspective of doubling US exports in five years. Such a transformation could be achieved only by American-based corporations seizing the markets of rivals the world over, and particularly from Chinese companies.
As he had at the G20 summit, Obama used the APEC meeting to attack China and other major exporting countries over their trade surpluses with the US. Addressing a business forum on Saturday, Obama declared: “One of the important lessons the economic crisis taught us is the limits of depending primarily on American consumers and Asian exports to drive economic growth. Going forward, no nation should assume that their path to prosperity is simply paved with exports to America.”
Obama’s repeated demands that countries reduce their trade imbalances with the US contain the implicit threat of trade sanctions if they fail to take measures to raise the value of their currencies and open their markets to American companies. US National Security Advisor Thomas Donilon announced to reporters that Obama had told Chinese President Hu Jintao that the US expected China to lift the value of its currency, the yuan, before a scheduled meeting between the two leaders next January.
To pursue an agenda of expanding US trade in the Asia-Pacific, Obama announced at APEC that the US had joined the little-known Trans Pacific Partnership (TPP), which until the weekend had formally consisted only of Brunei, Singapore, New Zealand and Chile. The TPP had the vague aim of removing all tariffs between its members by 2020. Australia, Malaysia, Vietnam and Peru announced that they too had been admitted to the group. Japan’s Kan declared “interest” in joining.
US Trade Representative Ron Kirk told Bloomberg: “TTP members aim to create the most forward-leaning, high standard trade agreement ever engaged in.” The Obama administration, he said, would keep its “foot to the pedal” throughout 2011 to finalise the terms of a pact by the time the US hosted the next APEC meeting in Hawaii next year. Kirk declared that the TPP would be the basis for the largest trade agreement entered into by the US since the 1994 NAFTA pact with Canada and Mexico.
The subtext of the APEC talks and final communiqué was the beginning of a free trade agreement on January 1 this year between China and the member-states of the Association of South East Asian Nations (ASEAN). China and six ASEAN countries—Brunei, Singapore, Thailand, Malaysia, Indonesia and the Philippines—have slashed tariffs on roughly 90 percent of trade items to zero. Over the coming years, the remaining ASEAN states—Vietnam, Cambodia, Laos and Burma—will follow suit.
Partly as a result of this free trade pact, two-way trade between China and ASEAN members has grown by more than 50 percent this year. China has also initiated a trade agreement with Taiwan and is moving to finalise one with South Korea. Across the Asia-Pacific, there are some 120 bilateral and regional free trade pacts now operating, few of which include the United States. A web of relations is emerging that places China at the centre of what is expected to emerge as the largest economic region in the world, with China surpassing the US as the world’s largest economy by 2020.
The US agenda spelt out at APEC follows intense diplomatic activity by both Obama and Secretary of State Hillary Clinton to reassert US interests in the Asia-Pacific. Obama’s visits to India, Indonesia, South Korea and Japan, and Clinton’s trips to Vietnam, Cambodia, Malaysia, Papua New Guinea, New Zealand and Australia were aimed at shoring up or forging economic and military alliances against China’s growing influence. (See: “US diplomatic offensive tightens strategic encirclement of China”)
While Hu Jintao signed the final APEC communiqué—which declared mutual support for the concept of a region-wide free trade agreement—he pointedly did not signal any intention to take part in the TPP talks. Few commentators expect anything concrete to come from them. Over recent years, the US has failed to make any progress toward bilateral trade pacts with South Korea, Thailand and Malaysia. In a significant blow to Obama, his attempts to renew talks with South Korea collapsed during the G20 summit.
Moreover, the Obama administration is increasingly advocating protectionist measures against its more competitive rivals. In the process, the US is provoking widespread opposition. At the G20 summit, numbers of countries condemned the US policy of pushing down the value of the dollar though “quantitative easing”—or massive bond purchases by the US Treasury.
The depth of international tensions was revealed at the G20 summit when the US received only scant support for its demand that China revalue its currency. Germany and Japan instead joined with China to oppose a proposal by US Treasury Secretary Timothy Geithner that countries limit their current account surpluses or deficits to 4 percent of gross domestic product.
The Chinese regime, on behalf of the emergent Chinese capitalist elite, is not responding passively to the US attempt to force it to pay for the crisis and decline of American capitalism. It is seeking to strengthen its existing trade and strategic partnerships that exclude the US. Even as APEC was meeting, the Chinese transport minister was finalising an agreement with ASEAN member-states in Brunei on opening up greater access to each other’s airports, ports and sea-lanes.
Talks also began yesterday in the Chinese city of Wuhan between the foreign ministers of China, Russia and India. A Russian foreign ministry spokesman told journalists that the talks would focus on “issues of forming a new, better security and cooperation architecture for the Asia-Pacific Region” and the role of the three countries “within the network of multilateral regional associations”. China is matching US overtures to India by urging New Delhi to play a greater role in the Shanghai Cooperation Organisation and stressing its interest in an eventual free trade agreement.
During the APEC meeting, China even made efforts to calm relations with Japan, with which Beijing is engaged in a bitter territorial dispute over islands in the East China Sea. Hu and Kan held brief talks, as did the two countries’ trade ministers. According to Japanese trade minister Akihiro Ohata, China gave an undertaking to step up its exports to Japan of rare earths—critical raw materials for high tech industries. Japan had accused China of slashing rare earth exports in retaliation for the island clashes.
A strategic battle has emerged in the Asia-Pacific for market share, profit and geo-political dominance, centring on the struggle between the US and China. The repeated failure of international talks, such as the G20 and APEC, to establish any new framework to regulate relations stems from the conflicting interests of rival capitalist cliques and the governments that serve them. What is developing is the prospect of antagonistic trade blocs and outright protectionism.
Monday, November 15, 2010
Friday, October 1, 2010
Cambodia's Small Debt: When Will the U.S. Forgive?
Joe Yun
Deputy Assistant Secretary, Bureau of East Asian and Pacific Affairs
Statement before the Subcommittee on Asia, the Pacific, and the Global Environment House Foreign Affairs Committee
Washington, DC
September 30, 2010
Source: http://www.state.gov/p/eap/rls/rm/2010/09/148427.htm
Mr. Chairman, Ranking Member Manzullo, and Members of the Subcommittee, thank you for inviting me here today to testify about the growing U.S.- Cambodia bilateral relationship and, in particular, Cambodia’s outstanding bilateral debt to the United States.
Cambodia in Context
Given the many challenges that Cambodia faced as recent as a decade ago, the country has come a long way in recent years. It is enjoying increasing political stability and is slowly recovering from 30 years of war, including the atrocities of the Khmer Rouge era. Cambodia’s economy was the seventh fastest growing economy in the world over the past decade. While Cambodia experienced a recession in 2009, current predictions call for a return to strong growth in 2010 and 2011.
There has been meaningful progress on political and social issues as well. National elections in July 2008—while falling short of international standards on several counts—were peaceful and allowed the Cambodian people to express their preferences in an open and fair manner. The Cambodian government allowed significantly greater freedom to the political opposition during the 2008 elections than in previous elections and showed some willingness to engage on civil liberties and human rights issues. The government recently passed anti-corruption legislation and revised its massive penal code—significant steps in Cambodia’s fight against corruption. Cambodia has also made commendable progress in combating human trafficking, increasing prosecutions and convictions of traffickers, and launching a new National Committee to combat human trafficking, as well as establishing new national minimum standards on victim protection. According to an August 2009 public opinion poll, 79 percent of the Cambodian population believes that the country is headed in the right direction.
In regional and global arenas, Cambodia has sought a larger role in recent years, as illustrated by its participation in international peacekeeping efforts, its involvement in the Lower Mekong Initiative in partnership with the United States, and its campaign for a rotating seat on the UN Security Council. Cambodia’s main foreign policy challenge is, not surprisingly, managing relations with its larger neighbors. Cambodia-Thailand relations have been strained since 2008, in part related to border disputes, but bilateral dialogue has begun to diminish that tension. Relations with Vietnam are good, but final resolution of an ongoing Cambodia-Vietnam border demarcation process remains elusive. China is an increasingly important provider of assistance and foreign investment in recent years, a fact that encourages Cambodia to keep relations with China on a positive footing.
Despite a generally positive trend on most of Cambodia’s domestic matters, several economic and political issues continue to cause significant concern among local populations as well as the international community. Most Cambodians remain poor, with endemic corruption and impunity limiting efforts to improve their standard of living. Political expression is stifled, including by employing criminal defamation and disinformation laws to intimidate and prosecute politicians and journalists. The judiciary remains weak, politicized, and overwhelmed. Arbitrary arrests and extrajudicial killings remain a problem. Land disputes and forced evictions, sometimes accompanied by violence, persist. HIV/AIDS and maternal mortality as well as persistent gender based violence stand as critical areas for continued improvement. All of these issues must be successfully and fully addressed for Cambodia to achieve its full democratic and economic potential.
U.S.-Cambodia Bilateral Relations
U.S.-Cambodian relations have continued to improve over the past few years. The tempo of interaction has quickened, and there has been both a broadening and deepening of positive engagement in a number of key areas. We benefit from Cambodia’s cooperation on law enforcement issues, human trafficking, counterterrorism, demining, and efforts to account fully for Americans missing from the Indochina conflict. Our security cooperation with Cambodia is maturing, allowing us to focus even more on such areas as defense reform and professionalization, regional cooperation, international peacekeeping, border and maritime security, counterterrorism, and civil-military operations. The Global Peace Operations Initiative “Angkor Sentinel” exercise in 2010 was a milestone in our growing military-to-military cooperation and exemplifies Cambodia’s commitment to international peace and stability. With United States encouragement and support, Cambodia has taken increasingly responsible positions on the world stage, including sending de-mining teams to participate in UN missions to the Central African Republic, Chad, and the Sudan.
We have actively supported the Khmer Rouge Tribunal’s efforts to bring perpetrators of that era’s atrocities to justice, and commended the tribunal’s handling of the Kaing Guek Eav, aka “Duch,” case. We paid close attention to previous allegations of mismanagement and corruption within the court administration, and successfully pushed for the appointment of an Independent Counselor function in August, 2009. Since then, the Independent Counselor has developed as a credible oversight and preventive mechanism. We and other donors are satisfied with its work. On March 31 of this year, Ambassador-at-Large for War Crimes Stephen J. Rapp announced a U.S. contribution of $5 million in FY2010 Economic Support Funds to the court, and we will seek ways to continue our support. Former Ambassador-at-Large for War Crimes Clint Williamson was recently appointed by the UN as Special Expert to the court in order to provide legal and administrative expertise as it continues its work.
Unfortunately, Cambodia’s December 2009 forced removal to China of 20 Uighur asylum seekers, in contravention of its international obligations and long-standing cooperation with the UN High Commissioner for Refugees, has complicated our efforts to further deepen the bilateral relationship. We have called on the government publicly and privately to uphold its international obligations to asylum seekers and refugees in the future, and seek assurances that cooperation on these issues in the future will be the norm.
We also continue to push the Cambodian government on human rights and rule of law. We have targeted our foreign assistance to support programs that strengthen civil society’s ability to address legal and judicial reform, land rights, anti-corruption, the rights of women and children, prevention of human trafficking, and improving the quality of and access to education. We have also supported reform-minded institutions and individuals, sought to build capacity of public and private institutions, and encouraged expanded political participation by youth and women in elections and political processes. Our foreign assistance is also directed at a broad array of other important issues, including HIV/AIDS, maternal health, demining, professionalization of the military, and promoting economic development. Cambodia’s identification as a “focus country” under the Administration’s “Feed the Future” Initiative allows us to consider ways to expand our assistance into agriculture, food security, and resilience to climate change. The Peace Corps has been active in Cambodia since 2007 and is so popular that the Deputy Prime Minister spoke at the swearing-in ceremony of the most recent group of volunteers. In all, we are aiding Cambodia’s development in FY2010 with more than $72 million, which makes it the fourth largest recipient of Department of State and USAID assistance in the East Asia and Pacific region.
Economy and Trade with the United States:
In 2004 Cambodia joined the World Trade Organization. Between 2004 and 2008, Cambodia was the seventh fastest-growing economy in the world. This rapid development was driven largely by expansion in the garment, tourism, and construction sectors. The global economic crisis had a particularly painful impact on Cambodian economic growth. Because of a slowdown in external demand and foreign investment, Cambodia’s growth dropped from 10.2 percent in 2007 to negative 2.5 percent in 2009. However, there is a positive sign for recovery: International Monetary Fund (IMF) growth predictions for the Cambodian economy currently range from 4 to 7 percent in 2010 and 2011.
The United States has been Cambodia’s top trading partner since 1998, with exports to the United States accounting for approximately 17 percent of Cambodia’s GDP last year. Garments dominate Cambodia’s exports—especially to the United States—and accounted for over $2.6 billion, or 70 percent, of the country’s overall exports between 2007 and 2009. The garment industry employs roughly 350,000 workers, mostly women. Cambodia has developed a relatively good labor record in the garment sector, built through close cooperation with the International Labor Organization and the United States under the Better Work Program. Since the expiration of the World Trade Organization’s (WTO) Multi-Fiber Agreement in 2004, Cambodian garment exports have grown by nearly 20 percent, due in part to safeguards placed on imports of certain apparel from China permitted under China’s WTO accession agreement. These safeguards expired at the end of 2008. Due in large part to poor external demand, merchandise exports contracted by 8.6 percent in 2009, the first annual contraction since the mid-1990s. The Cambodian government, the garment industry, and labor unions are strong supporters of legislation that would allow duty-free access for garments from Cambodia and other less developed countries.
Cambodia’s liberal investment regime has led to increased investment from Asian countries, particularly South Korea and China. American investors have lagged behind this trend, but a U.S. commercial presence is starting to expand rapidly. A weak business environment, poor infrastructure, inadequate enforcement of labor laws, and the highest energy costs in the region pose significant challenges to private sector-led growth. The government needs a more comprehensive, coordinated response to improve the competitiveness of Cambodia’s economy. Moreover, irregular adherence to rule of law, endemic corruption, an incomplete regulatory framework, and underdeveloped human resources prevent Cambodia from becoming more economically competitive and hinder its full development potential. For all its growth over the past decade, Cambodia remains one of the poorest countries in Asia, relying on close to $1 billion per year in foreign assistance.
Under the United States-Cambodia Trade and Investment Framework Agreement (TIFA) and the Economic Growth Bilateral Assistance Agreement, the United States is seeking to deepen and expand bilateral trade and investment ties. We support Cambodia’s efforts to implement its WTO commitments and other domestic economic reforms, and seek ways to assist Cambodian authorities in areas such as Intellectual Property Rights enforcement, transparency, anti-corruption, and effectiveness of the banking and financial sectors.
U.S. Policy on Restructuring Official Foreign Debts
Debt relief can be an important means of achieving U.S. goals of promoting economic growth, well-functioning financial markets, and economic reform abroad. Longstanding United States policy is to coordinate sovereign debt restructuring internationally, primarily through the Paris Club group of official creditors. This multilateral approach is a good value for the U.S. taxpayer because it increases recoveries from countries that are not paying their debts to the United States while maximizing benefits of debt relief for heavily-indebted, low-income countries that are unable to meet their payment obligations.
The United States provides debt cancellation only in limited circumstances, the majority of which are through the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative. This approach provides U.S. resources to pay for the budgetary cost of debt relief for countries that are facing an unsustainable debt burden. To be eligible, HIPC countries must face a debt-to-export ratio greater than 150 percent and a debt-to-revenue ratio above 250 percent, among other factors. In the first stage, debtor countries commit to implementing economic reforms aimed at reducing poverty and avoiding a new build-up of unsustainable debt. Upon successful completion of the first stage, the United States and other Paris Club members jointly evaluate requests for debt cancellation and then reach individual implementation agreements with the debtor country. Throughout the process, State and Treasury officials rely heavily on International Monetary Fund (IMF) and World Bank assessments of a debtor country’s financial need for debt relief and willingness to undertake reforms. Congress has reinforced this need-based approach to debt relief by enacting statutes such as the Special Debt for the Poorest authorization (enacted this year as Section 7033 of Division F, Department of State, Foreign Operations and Related Program, of the Consolidated Appropriations Act, 2010, P.L. 111-117) and the Enhanced Heavily Indebted Poor Countries Initiative (Title V of Appendix E of H.R. 3425, as enacted into law by Section 1000(a)(5) of P.L. 106-113, as amended). These statutes authorize the Executive Branch, under specific circumstances and criteria, to reduce sovereign debts.
Cambodia’s External Debt
Cambodia’s public debt is almost entirely external. In 2009, Cambodia’s debt outstanding to foreign creditors was nearly $3.2 billion, over one-quarter of which is owed to the United States and Russia. At the end of 2008, Cambodia’s external public debt was 25 percent of its GDP. According to the most recent assessment by the IMF, Cambodia is at a moderate risk of debt distress, with rising contingent liabilities warranting increased vigilance. IMF data indicate that in 2008, Cambodia’s debt-to-exports ratio was 37 percent and its debt-to-government revenues ratio was 167 percent (net present value terms). Cambodia, therefore, does not qualify for HIPC status. In 2005, HIPC was supplemented by the Multilateral Debt Relief Initiative (MDRI), under which the IMF and the World Bank grant full debt forgiveness to any country that has completed its HIPC program. Cambodia, however, was granted an exception to the usual eligibility criteria for MDRI and benefited from $82 million in IMF debt relief in January 2006.
Cambodia’s Debt to the United States
Cambodia’s bilateral debt to the U.S. government remains an irritant to the relationship. A satisfactory resolution of Cambodia’s debt would accelerate the development of an already improving bilateral relationship and enhance Cambodia’s own economic development by improving its creditworthiness and access to international capital markets.
Cambodia’s debt stems from shipments of U.S. agricultural commodities, such as cotton, rice, and wheat flour, financed with low interest-rate loans by the U.S. Department of Agriculture (USDA) under Title I of the Agricultural Trade Development and Assistance Act of 1954, or P.L. 480 (now entitled the Food for Peace Act). The United States and Cambodia signed three P.L. 480 Title I agreements in 1972, 1973, and 1974, during the Vietnam War and Cambodia’s turbulent Lon Nol era. The United States accepted significant payments in local currency under a “Currency Use Payment” provision commonly included in such agreements; the remainder of the debt was to be paid in dollars. The Lon Nol regime never consolidated its hold on the country and in 1975 Cambodia fell to the Khmer Rouge, which ceased servicing this debt. Arrears and late interest have accumulated since that time. By the end of 2009, Cambodia’s total debt to the United States totaled approximately $445 million. About $405 million of that amount is in arrears and would be due immediately upon the implementation of any agreement to pay the debt.
In 1995, the Paris Club group of creditor nations and Cambodia reached an agreement to restructure Cambodia’s debt on Naples terms – then the most generous treatment in the Paris Club’s “toolkit.” At the time, the United States was by far Cambodia’s largest Paris Club creditor. Cambodia benefited from a 67 percent reduction of certain non-concessional debts and a long-term rescheduling of certain concessional debts. Since all of Cambodia’s debt to the United States was contracted on concessional terms at below-market interest rates, the Paris Club agreement called on the United States to consolidate arrears and future payments scheduled between January 1, 1995 and June 30, 1997 into a new loan payable over 40 years following a 16-year grace period. Debt service falling due on or after July 1, 1997 was to be paid according to the original schedule. Cambodia eventually signed debt agreements with France, Germany, Italy, and Japan to implement the 1995 Paris Club agreement and began paying those countries accordingly. The United States and Cambodia never concluded a bilateral implementing agreement, in part because the Cambodian government refused to accept responsibility for debts incurred by the Lon Nol regime and also because of a disagreement at the time over the amount of debt owed.
After several years of deadlock, debt negotiations resumed over the 2001-2005 period, with the active involvement of the U.S. Departments of State, Treasury, and Agriculture, and U.S. Embassy in Phnom Penh. After carefully examining the available legal authorities, the U.S. negotiating team's offer to the Cambodian government showed significant flexibility on the amount of debt owed, offering concessions of nearly $100 million from USDA.
In February 2006, the Cambodian Minister of Finance indicated that Cambodia agreed with the United States, in principle, that the amount of principal it owed was $162 million. He also agreed to move forward in drafting a Bilateral Agreement implementing the 1995 Paris Club Agreed Minute. Based on this understanding, the United States drafted a bilateral agreement that retroactively implemented the 1995 Paris Club agreement, including USDA’s concessions, and presented it to the Cambodian government in the summer of 2006. The proposed U.S.-Cambodia bilateral debt agreement would reschedule the consolidated P.L. 480 debt at the original interest rate of 3 percent – a highly-concessional rate given the interest rate environment of the early 1970s.
To date, the Cambodian government has been unwilling to sign the draft bilateral agreement and now seeks additional concessions. Specifically, it seeks a lower interest rate and/or a debt swap arrangement. Longstanding U.S. debt policy, in keeping with Paris Club principles and U.S. budget rules, is to retain the same interest rate of the original loans in any rescheduling of those loans. Offering a lower interest rate would be an unauthorized form of debt reduction.
Cambodian officials have also indicated that domestic political obstacles still make the government reluctant to accept responsibility for debts incurred by the Lon Nol regime. Although some Cambodian observers may argue that this debt is illegitimate, the United States has on its side the international law principle that governments are generally responsible for the obligations of their predecessors. The government of Iraq accepted the debts incurred by Saddam Hussein. The civilian government of Nigeria accepted responsibility for debts accumulated by military governments that ruled the country in the 1980s and 1990s. Similarly, Afghanistan accepted the heavy debt burden left by decades of foreign occupation and civil war. There are many other examples.
Senior U.S. government officials have repeatedly encouraged Cambodia to live up to the 1995 Paris Club agreement it signed with the United States and other creditors, and urged it to sign the pending U.S.-Cambodia bilateral agreement without further delay. However, Cambodia may be reluctant to accept the current proposal to settle the bilateral debt issue if it believes there are good prospects of converting a significant amount of the debt service it would otherwise pay to the United States into a form of increased U.S. assistance.
In past years Cambodia has expressed interest in a debt-for-assistance swap. The only general debt swap program that the United States currently offers is through the Tropical Forest Conservation Act, for which Cambodia is not eligible because of its arrears. Cambodia, however, has focused on the swap arrangement that the United States established with Vietnam in 2000, and is seeking a similar statutory program. Observers often compare Vietnam and Cambodia for geographic and historical reasons, but several distinctions about the treatment of the debts these countries contracted with the United States are worth highlighting. In 1993, Paris Club creditors provided Vietnam a debt rescheduling on terms similar to Cambodia’s 1995 Paris Club debt agreement. Vietnam signed a bilateral implementing agreement with the United States in 1997, resumed making scheduled payments, and was in good financial standing when Congress created the Vietnam Education Foundation several years later. This program directs about 40 percent of Vietnam’s total debt payments to the Foundation for joint education initiatives. Because Cambodia is not making scheduled payments, such an individualized debt-swap program is not a possibility.
The Administration is concerned that creating a special statutory debt reduction program for a country that is unwilling, rather than unable, to pay its debts sets a poor precedent for other counties in similar circumstances and sends the wrong message about prudent debt management. Cambodia has accumulated arrears to the United States while paying other creditors on time, and in at least one case, early. Every year, both within and outside of the Paris Club context, the United States reviews and declines similar requests for debt-for-assistance swap arrangements from debtor countries that are current on their debt service and may owe billions of dollars of debt.
The Administration has therefore urged the Cambodian government to sign the pending bilateral debt agreement and re-establish a track record of timely repayments under that agreement. We have told the Cambodian government that if it makes scheduled payments for at least one year, the U.S. government would communicate to the IMF that efforts are underway to resolve official arrears. This action could pave the way, should Cambodia then obtain an IMF program and a future Paris Club debt treatment, for a rescheduling of the accumulated arrears. Unfortunately, the Cambodian government has not responded to this overture and continues to accumulate arrears on debts owed to the United States.
Congress has also expressed its view on the importance of maintaining orderly creditor-debtor relations in a number of statutes, including Section 620(q) of the Foreign Assistance Act of 1961 and the Brooke Amendment (enacted this year as Section 7012 of Division F, Department of State, Foreign Operations and related Programs, Consolidated Appropriations Act, 2010, P.L. 111-117). These statutes provide for an automatic cutoff of U.S. economic assistance to a country that is in default on certain loans for certain periods of time. Although Cambodia’s USDA debts are not subject to these default sanctions, these statutes reflect Congress's expectation that countries repay their debts to the United States in a timely manner.
Another concern about funding foreign assistance programs through the principal and interest payments of debtor counties is that it circumvents normal budget rules. Congress passed the Federal Credit Reform Act of 1990 requiring U.S. creditor agencies to make realistic estimates about recoveries when calculating the true cost of lending programs. This approach saves U.S. taxpayers money by creating transparent incentives for agencies to manage credit programs efficiently and effectively. Accordingly, the Administration requests, and Congress annually appropriate, funds to be used to pay the U.S. budget cost of cancelling a country’s debt obligation or providing a debt swap. The Cambodian proposal would circumvent this congressional budget oversight mechanism.
In sum, Cambodia’s prompt agreement to resolve U.S. debt claims by drafting a Bilateral Agreement implementing the 1995 Paris Club Agreed Minute, as Cambodian officials proposed in 2006, would eliminate this long-standing dispute in a scenario of otherwise improving bilateral relations. A Cambodian agreement would also enhance the country’s creditworthiness and its ability to access international capital markets. Other countries following this path have benefited enormously.
Mr. Chairman, I appreciate this opportunity to appear before you today and welcome any questions you may have. Thank you.
Deputy Assistant Secretary, Bureau of East Asian and Pacific Affairs
Statement before the Subcommittee on Asia, the Pacific, and the Global Environment House Foreign Affairs Committee
Washington, DC
September 30, 2010
Source: http://www.state.gov/p/eap/rls/rm/2010/09/148427.htm
Mr. Chairman, Ranking Member Manzullo, and Members of the Subcommittee, thank you for inviting me here today to testify about the growing U.S.- Cambodia bilateral relationship and, in particular, Cambodia’s outstanding bilateral debt to the United States.
Cambodia in Context
Given the many challenges that Cambodia faced as recent as a decade ago, the country has come a long way in recent years. It is enjoying increasing political stability and is slowly recovering from 30 years of war, including the atrocities of the Khmer Rouge era. Cambodia’s economy was the seventh fastest growing economy in the world over the past decade. While Cambodia experienced a recession in 2009, current predictions call for a return to strong growth in 2010 and 2011.
There has been meaningful progress on political and social issues as well. National elections in July 2008—while falling short of international standards on several counts—were peaceful and allowed the Cambodian people to express their preferences in an open and fair manner. The Cambodian government allowed significantly greater freedom to the political opposition during the 2008 elections than in previous elections and showed some willingness to engage on civil liberties and human rights issues. The government recently passed anti-corruption legislation and revised its massive penal code—significant steps in Cambodia’s fight against corruption. Cambodia has also made commendable progress in combating human trafficking, increasing prosecutions and convictions of traffickers, and launching a new National Committee to combat human trafficking, as well as establishing new national minimum standards on victim protection. According to an August 2009 public opinion poll, 79 percent of the Cambodian population believes that the country is headed in the right direction.
In regional and global arenas, Cambodia has sought a larger role in recent years, as illustrated by its participation in international peacekeeping efforts, its involvement in the Lower Mekong Initiative in partnership with the United States, and its campaign for a rotating seat on the UN Security Council. Cambodia’s main foreign policy challenge is, not surprisingly, managing relations with its larger neighbors. Cambodia-Thailand relations have been strained since 2008, in part related to border disputes, but bilateral dialogue has begun to diminish that tension. Relations with Vietnam are good, but final resolution of an ongoing Cambodia-Vietnam border demarcation process remains elusive. China is an increasingly important provider of assistance and foreign investment in recent years, a fact that encourages Cambodia to keep relations with China on a positive footing.
Despite a generally positive trend on most of Cambodia’s domestic matters, several economic and political issues continue to cause significant concern among local populations as well as the international community. Most Cambodians remain poor, with endemic corruption and impunity limiting efforts to improve their standard of living. Political expression is stifled, including by employing criminal defamation and disinformation laws to intimidate and prosecute politicians and journalists. The judiciary remains weak, politicized, and overwhelmed. Arbitrary arrests and extrajudicial killings remain a problem. Land disputes and forced evictions, sometimes accompanied by violence, persist. HIV/AIDS and maternal mortality as well as persistent gender based violence stand as critical areas for continued improvement. All of these issues must be successfully and fully addressed for Cambodia to achieve its full democratic and economic potential.
U.S.-Cambodia Bilateral Relations
U.S.-Cambodian relations have continued to improve over the past few years. The tempo of interaction has quickened, and there has been both a broadening and deepening of positive engagement in a number of key areas. We benefit from Cambodia’s cooperation on law enforcement issues, human trafficking, counterterrorism, demining, and efforts to account fully for Americans missing from the Indochina conflict. Our security cooperation with Cambodia is maturing, allowing us to focus even more on such areas as defense reform and professionalization, regional cooperation, international peacekeeping, border and maritime security, counterterrorism, and civil-military operations. The Global Peace Operations Initiative “Angkor Sentinel” exercise in 2010 was a milestone in our growing military-to-military cooperation and exemplifies Cambodia’s commitment to international peace and stability. With United States encouragement and support, Cambodia has taken increasingly responsible positions on the world stage, including sending de-mining teams to participate in UN missions to the Central African Republic, Chad, and the Sudan.
We have actively supported the Khmer Rouge Tribunal’s efforts to bring perpetrators of that era’s atrocities to justice, and commended the tribunal’s handling of the Kaing Guek Eav, aka “Duch,” case. We paid close attention to previous allegations of mismanagement and corruption within the court administration, and successfully pushed for the appointment of an Independent Counselor function in August, 2009. Since then, the Independent Counselor has developed as a credible oversight and preventive mechanism. We and other donors are satisfied with its work. On March 31 of this year, Ambassador-at-Large for War Crimes Stephen J. Rapp announced a U.S. contribution of $5 million in FY2010 Economic Support Funds to the court, and we will seek ways to continue our support. Former Ambassador-at-Large for War Crimes Clint Williamson was recently appointed by the UN as Special Expert to the court in order to provide legal and administrative expertise as it continues its work.
Unfortunately, Cambodia’s December 2009 forced removal to China of 20 Uighur asylum seekers, in contravention of its international obligations and long-standing cooperation with the UN High Commissioner for Refugees, has complicated our efforts to further deepen the bilateral relationship. We have called on the government publicly and privately to uphold its international obligations to asylum seekers and refugees in the future, and seek assurances that cooperation on these issues in the future will be the norm.
We also continue to push the Cambodian government on human rights and rule of law. We have targeted our foreign assistance to support programs that strengthen civil society’s ability to address legal and judicial reform, land rights, anti-corruption, the rights of women and children, prevention of human trafficking, and improving the quality of and access to education. We have also supported reform-minded institutions and individuals, sought to build capacity of public and private institutions, and encouraged expanded political participation by youth and women in elections and political processes. Our foreign assistance is also directed at a broad array of other important issues, including HIV/AIDS, maternal health, demining, professionalization of the military, and promoting economic development. Cambodia’s identification as a “focus country” under the Administration’s “Feed the Future” Initiative allows us to consider ways to expand our assistance into agriculture, food security, and resilience to climate change. The Peace Corps has been active in Cambodia since 2007 and is so popular that the Deputy Prime Minister spoke at the swearing-in ceremony of the most recent group of volunteers. In all, we are aiding Cambodia’s development in FY2010 with more than $72 million, which makes it the fourth largest recipient of Department of State and USAID assistance in the East Asia and Pacific region.
Economy and Trade with the United States:
In 2004 Cambodia joined the World Trade Organization. Between 2004 and 2008, Cambodia was the seventh fastest-growing economy in the world. This rapid development was driven largely by expansion in the garment, tourism, and construction sectors. The global economic crisis had a particularly painful impact on Cambodian economic growth. Because of a slowdown in external demand and foreign investment, Cambodia’s growth dropped from 10.2 percent in 2007 to negative 2.5 percent in 2009. However, there is a positive sign for recovery: International Monetary Fund (IMF) growth predictions for the Cambodian economy currently range from 4 to 7 percent in 2010 and 2011.
The United States has been Cambodia’s top trading partner since 1998, with exports to the United States accounting for approximately 17 percent of Cambodia’s GDP last year. Garments dominate Cambodia’s exports—especially to the United States—and accounted for over $2.6 billion, or 70 percent, of the country’s overall exports between 2007 and 2009. The garment industry employs roughly 350,000 workers, mostly women. Cambodia has developed a relatively good labor record in the garment sector, built through close cooperation with the International Labor Organization and the United States under the Better Work Program. Since the expiration of the World Trade Organization’s (WTO) Multi-Fiber Agreement in 2004, Cambodian garment exports have grown by nearly 20 percent, due in part to safeguards placed on imports of certain apparel from China permitted under China’s WTO accession agreement. These safeguards expired at the end of 2008. Due in large part to poor external demand, merchandise exports contracted by 8.6 percent in 2009, the first annual contraction since the mid-1990s. The Cambodian government, the garment industry, and labor unions are strong supporters of legislation that would allow duty-free access for garments from Cambodia and other less developed countries.
Cambodia’s liberal investment regime has led to increased investment from Asian countries, particularly South Korea and China. American investors have lagged behind this trend, but a U.S. commercial presence is starting to expand rapidly. A weak business environment, poor infrastructure, inadequate enforcement of labor laws, and the highest energy costs in the region pose significant challenges to private sector-led growth. The government needs a more comprehensive, coordinated response to improve the competitiveness of Cambodia’s economy. Moreover, irregular adherence to rule of law, endemic corruption, an incomplete regulatory framework, and underdeveloped human resources prevent Cambodia from becoming more economically competitive and hinder its full development potential. For all its growth over the past decade, Cambodia remains one of the poorest countries in Asia, relying on close to $1 billion per year in foreign assistance.
Under the United States-Cambodia Trade and Investment Framework Agreement (TIFA) and the Economic Growth Bilateral Assistance Agreement, the United States is seeking to deepen and expand bilateral trade and investment ties. We support Cambodia’s efforts to implement its WTO commitments and other domestic economic reforms, and seek ways to assist Cambodian authorities in areas such as Intellectual Property Rights enforcement, transparency, anti-corruption, and effectiveness of the banking and financial sectors.
U.S. Policy on Restructuring Official Foreign Debts
Debt relief can be an important means of achieving U.S. goals of promoting economic growth, well-functioning financial markets, and economic reform abroad. Longstanding United States policy is to coordinate sovereign debt restructuring internationally, primarily through the Paris Club group of official creditors. This multilateral approach is a good value for the U.S. taxpayer because it increases recoveries from countries that are not paying their debts to the United States while maximizing benefits of debt relief for heavily-indebted, low-income countries that are unable to meet their payment obligations.
The United States provides debt cancellation only in limited circumstances, the majority of which are through the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative. This approach provides U.S. resources to pay for the budgetary cost of debt relief for countries that are facing an unsustainable debt burden. To be eligible, HIPC countries must face a debt-to-export ratio greater than 150 percent and a debt-to-revenue ratio above 250 percent, among other factors. In the first stage, debtor countries commit to implementing economic reforms aimed at reducing poverty and avoiding a new build-up of unsustainable debt. Upon successful completion of the first stage, the United States and other Paris Club members jointly evaluate requests for debt cancellation and then reach individual implementation agreements with the debtor country. Throughout the process, State and Treasury officials rely heavily on International Monetary Fund (IMF) and World Bank assessments of a debtor country’s financial need for debt relief and willingness to undertake reforms. Congress has reinforced this need-based approach to debt relief by enacting statutes such as the Special Debt for the Poorest authorization (enacted this year as Section 7033 of Division F, Department of State, Foreign Operations and Related Program, of the Consolidated Appropriations Act, 2010, P.L. 111-117) and the Enhanced Heavily Indebted Poor Countries Initiative (Title V of Appendix E of H.R. 3425, as enacted into law by Section 1000(a)(5) of P.L. 106-113, as amended). These statutes authorize the Executive Branch, under specific circumstances and criteria, to reduce sovereign debts.
Cambodia’s External Debt
Cambodia’s public debt is almost entirely external. In 2009, Cambodia’s debt outstanding to foreign creditors was nearly $3.2 billion, over one-quarter of which is owed to the United States and Russia. At the end of 2008, Cambodia’s external public debt was 25 percent of its GDP. According to the most recent assessment by the IMF, Cambodia is at a moderate risk of debt distress, with rising contingent liabilities warranting increased vigilance. IMF data indicate that in 2008, Cambodia’s debt-to-exports ratio was 37 percent and its debt-to-government revenues ratio was 167 percent (net present value terms). Cambodia, therefore, does not qualify for HIPC status. In 2005, HIPC was supplemented by the Multilateral Debt Relief Initiative (MDRI), under which the IMF and the World Bank grant full debt forgiveness to any country that has completed its HIPC program. Cambodia, however, was granted an exception to the usual eligibility criteria for MDRI and benefited from $82 million in IMF debt relief in January 2006.
Cambodia’s Debt to the United States
Cambodia’s bilateral debt to the U.S. government remains an irritant to the relationship. A satisfactory resolution of Cambodia’s debt would accelerate the development of an already improving bilateral relationship and enhance Cambodia’s own economic development by improving its creditworthiness and access to international capital markets.
Cambodia’s debt stems from shipments of U.S. agricultural commodities, such as cotton, rice, and wheat flour, financed with low interest-rate loans by the U.S. Department of Agriculture (USDA) under Title I of the Agricultural Trade Development and Assistance Act of 1954, or P.L. 480 (now entitled the Food for Peace Act). The United States and Cambodia signed three P.L. 480 Title I agreements in 1972, 1973, and 1974, during the Vietnam War and Cambodia’s turbulent Lon Nol era. The United States accepted significant payments in local currency under a “Currency Use Payment” provision commonly included in such agreements; the remainder of the debt was to be paid in dollars. The Lon Nol regime never consolidated its hold on the country and in 1975 Cambodia fell to the Khmer Rouge, which ceased servicing this debt. Arrears and late interest have accumulated since that time. By the end of 2009, Cambodia’s total debt to the United States totaled approximately $445 million. About $405 million of that amount is in arrears and would be due immediately upon the implementation of any agreement to pay the debt.
In 1995, the Paris Club group of creditor nations and Cambodia reached an agreement to restructure Cambodia’s debt on Naples terms – then the most generous treatment in the Paris Club’s “toolkit.” At the time, the United States was by far Cambodia’s largest Paris Club creditor. Cambodia benefited from a 67 percent reduction of certain non-concessional debts and a long-term rescheduling of certain concessional debts. Since all of Cambodia’s debt to the United States was contracted on concessional terms at below-market interest rates, the Paris Club agreement called on the United States to consolidate arrears and future payments scheduled between January 1, 1995 and June 30, 1997 into a new loan payable over 40 years following a 16-year grace period. Debt service falling due on or after July 1, 1997 was to be paid according to the original schedule. Cambodia eventually signed debt agreements with France, Germany, Italy, and Japan to implement the 1995 Paris Club agreement and began paying those countries accordingly. The United States and Cambodia never concluded a bilateral implementing agreement, in part because the Cambodian government refused to accept responsibility for debts incurred by the Lon Nol regime and also because of a disagreement at the time over the amount of debt owed.
After several years of deadlock, debt negotiations resumed over the 2001-2005 period, with the active involvement of the U.S. Departments of State, Treasury, and Agriculture, and U.S. Embassy in Phnom Penh. After carefully examining the available legal authorities, the U.S. negotiating team's offer to the Cambodian government showed significant flexibility on the amount of debt owed, offering concessions of nearly $100 million from USDA.
In February 2006, the Cambodian Minister of Finance indicated that Cambodia agreed with the United States, in principle, that the amount of principal it owed was $162 million. He also agreed to move forward in drafting a Bilateral Agreement implementing the 1995 Paris Club Agreed Minute. Based on this understanding, the United States drafted a bilateral agreement that retroactively implemented the 1995 Paris Club agreement, including USDA’s concessions, and presented it to the Cambodian government in the summer of 2006. The proposed U.S.-Cambodia bilateral debt agreement would reschedule the consolidated P.L. 480 debt at the original interest rate of 3 percent – a highly-concessional rate given the interest rate environment of the early 1970s.
To date, the Cambodian government has been unwilling to sign the draft bilateral agreement and now seeks additional concessions. Specifically, it seeks a lower interest rate and/or a debt swap arrangement. Longstanding U.S. debt policy, in keeping with Paris Club principles and U.S. budget rules, is to retain the same interest rate of the original loans in any rescheduling of those loans. Offering a lower interest rate would be an unauthorized form of debt reduction.
Cambodian officials have also indicated that domestic political obstacles still make the government reluctant to accept responsibility for debts incurred by the Lon Nol regime. Although some Cambodian observers may argue that this debt is illegitimate, the United States has on its side the international law principle that governments are generally responsible for the obligations of their predecessors. The government of Iraq accepted the debts incurred by Saddam Hussein. The civilian government of Nigeria accepted responsibility for debts accumulated by military governments that ruled the country in the 1980s and 1990s. Similarly, Afghanistan accepted the heavy debt burden left by decades of foreign occupation and civil war. There are many other examples.
Senior U.S. government officials have repeatedly encouraged Cambodia to live up to the 1995 Paris Club agreement it signed with the United States and other creditors, and urged it to sign the pending U.S.-Cambodia bilateral agreement without further delay. However, Cambodia may be reluctant to accept the current proposal to settle the bilateral debt issue if it believes there are good prospects of converting a significant amount of the debt service it would otherwise pay to the United States into a form of increased U.S. assistance.
In past years Cambodia has expressed interest in a debt-for-assistance swap. The only general debt swap program that the United States currently offers is through the Tropical Forest Conservation Act, for which Cambodia is not eligible because of its arrears. Cambodia, however, has focused on the swap arrangement that the United States established with Vietnam in 2000, and is seeking a similar statutory program. Observers often compare Vietnam and Cambodia for geographic and historical reasons, but several distinctions about the treatment of the debts these countries contracted with the United States are worth highlighting. In 1993, Paris Club creditors provided Vietnam a debt rescheduling on terms similar to Cambodia’s 1995 Paris Club debt agreement. Vietnam signed a bilateral implementing agreement with the United States in 1997, resumed making scheduled payments, and was in good financial standing when Congress created the Vietnam Education Foundation several years later. This program directs about 40 percent of Vietnam’s total debt payments to the Foundation for joint education initiatives. Because Cambodia is not making scheduled payments, such an individualized debt-swap program is not a possibility.
The Administration is concerned that creating a special statutory debt reduction program for a country that is unwilling, rather than unable, to pay its debts sets a poor precedent for other counties in similar circumstances and sends the wrong message about prudent debt management. Cambodia has accumulated arrears to the United States while paying other creditors on time, and in at least one case, early. Every year, both within and outside of the Paris Club context, the United States reviews and declines similar requests for debt-for-assistance swap arrangements from debtor countries that are current on their debt service and may owe billions of dollars of debt.
The Administration has therefore urged the Cambodian government to sign the pending bilateral debt agreement and re-establish a track record of timely repayments under that agreement. We have told the Cambodian government that if it makes scheduled payments for at least one year, the U.S. government would communicate to the IMF that efforts are underway to resolve official arrears. This action could pave the way, should Cambodia then obtain an IMF program and a future Paris Club debt treatment, for a rescheduling of the accumulated arrears. Unfortunately, the Cambodian government has not responded to this overture and continues to accumulate arrears on debts owed to the United States.
Congress has also expressed its view on the importance of maintaining orderly creditor-debtor relations in a number of statutes, including Section 620(q) of the Foreign Assistance Act of 1961 and the Brooke Amendment (enacted this year as Section 7012 of Division F, Department of State, Foreign Operations and related Programs, Consolidated Appropriations Act, 2010, P.L. 111-117). These statutes provide for an automatic cutoff of U.S. economic assistance to a country that is in default on certain loans for certain periods of time. Although Cambodia’s USDA debts are not subject to these default sanctions, these statutes reflect Congress's expectation that countries repay their debts to the United States in a timely manner.
Another concern about funding foreign assistance programs through the principal and interest payments of debtor counties is that it circumvents normal budget rules. Congress passed the Federal Credit Reform Act of 1990 requiring U.S. creditor agencies to make realistic estimates about recoveries when calculating the true cost of lending programs. This approach saves U.S. taxpayers money by creating transparent incentives for agencies to manage credit programs efficiently and effectively. Accordingly, the Administration requests, and Congress annually appropriate, funds to be used to pay the U.S. budget cost of cancelling a country’s debt obligation or providing a debt swap. The Cambodian proposal would circumvent this congressional budget oversight mechanism.
In sum, Cambodia’s prompt agreement to resolve U.S. debt claims by drafting a Bilateral Agreement implementing the 1995 Paris Club Agreed Minute, as Cambodian officials proposed in 2006, would eliminate this long-standing dispute in a scenario of otherwise improving bilateral relations. A Cambodian agreement would also enhance the country’s creditworthiness and its ability to access international capital markets. Other countries following this path have benefited enormously.
Mr. Chairman, I appreciate this opportunity to appear before you today and welcome any questions you may have. Thank you.
Thursday, September 30, 2010
What do we mean when we talk about an emerging middle class?
The Phnom Penh Post
Thursday, 30 September 2010 15:01 Michael Hansen
Dear Editor,
Noeleen Heyzer’s article about the Millennium Development Goals (“People key to MDG success”, September 23)was thought-provoking, but to assert that every country needs a new middle class surely needs some qualification.
In all states of the developed world, and in many of the developing world too, there are a considerable number families with prosperity rooted in entrepreneurship, the professions or the management of public and private organisations.
The fruits of their affluence are generally invested in property, improved healthcare, educational provision, leisure pursuits and pension funds.
However, I am not sure if these are the people Ms Heyzer refers to when she writes about the “new middle class” in Asia.
Last year, The Economist, the influential London-based magazine, promulgated the idea that the term middle class could be applied to a growing number of people taking the first steps out of poverty and able to spend about a third of their income in a discretionary way.
This definition may be the one that Ms Heyzer was using when writing about the new middle class. We might look at this idea in the context of the present dispute in the garment industry.
I would say, by any standard applied in the West, that most workers in the garment industry are poor.
Let us imagine the demand for US$93 a month, an increase of about a third in the agreed basic wage, is granted. Given the present minimum rate is set at virtually subsistence level, would this increase really project many thousands of workers into a middle class? I don’t think so.
The garment workers would still be relatively poor and accumulating the wealth, qualifications and property of most Western middle-class people, or even those of a similar status in Cambodia, would not be something they could reasonably achieve in a whole lifetime of work. Most are unlikely to become globally connected either, or internet savvy.
It would, perhaps, be better if organisations involved in trying to achieve the MDGs were more precise in their definition of what middle class actually means when they use it and make this clear in their published documents.
To use the term middle class as defined by The Economist may lead those unaware of the nuances of the terminology to assume greater positive changes are under way than is actually the case.
The growth of regional “traditional” middle classes will not necessarily expedite achievement of the MDGs.
History seems to show that an emerging middle class does not always have great sympathy with those lower down the social hierarchy.
In early 19th century Britain, for example, a new middle class, using wealth created by the British industrial revolution, began to flex its political muscle as it steadily increased its purchasing power and accumulated property.
Throughout the 1820s, agitation grew for a fairer electoral system that resulted in the Reform Act of 1832. Immediately afterwards, however, middle-class pressure for further change virtually evaporated. Working-class movements, like the Chartists of the Hungry Forties were not successful in extending the franchise, which only came slowly, later in the century.
The great danger of the way things are developing in Asia is that the middle classes cast in a traditional mould will see themselves increasingly set apart from those not so fortunate. They will be quite happy to benefit from, but largely indifferent to, a large and growing pool of inexpensive labour, and when pressure for fair treatment grows they will tend to support strong government against organisations, such as trade unions, perceived as a threat to the status quo.
In this sense the term middle class may become rather misleading in another way, as it assumes a three-class system when there are, in effect, only two: the haves and have-nots. Isn’t this part of the problem in Thailand?
It is fair to say that a growth in consumer demand from the traditional middle class might increase job opportunities, but it is also true that an increasing desire for expensive imports may lead to a flight of capital and the worsening of a trade balance.
Large new property developments may add a modern patina to the suburbs of an established city, but if constructed on land taken from rightful owners by nefarious means and built by cheap labour with little regard to the personal safety of workers who lack any kind of job security, is it likely this situation will contribute to real social progress, which after all is what the MDGs are all about?
What every country actually needs is a traditional middle class in which both the entrepreneurial spirit and a sense of public service is fostered and properly paid for. However, it is important that consciousness of privilege is cultivated too, and this should manifest itself in a willingness to support opportunities for the sons and daughters of those lower down the economic ladder.
Education is the key to progress in this respect, with well-funded scholarships for the brightest children from poor families.
When these young people, boys and girls, seek to enter the job market, they may need to be supported in order to feel their background is no barrier to interview success.
One way to help in this, in the Cambodian context, is for nongovernment organisations working in the development field to review the wording of their job advertisements in the English language press, ensuring that members of the lowest socio-economic groups are always encouraged to apply.
A poor boy from a village in Stung Treng or a girl who knew the dismal conditions at Stung Meanchey may well have struggled long and hard to get to the position from which they could make an application, but be nervous about doing so.
In my view, purely because of their class background, they are worthy of specific encouragement. The stairway leading upwards to the traditional middle class needs to be well-constructed, well-maintained and always in place.
Michael Hansen
Phnom Penh
Send letters to: newsroom@phnompenhpost.comThis e-mail address is being protected from spambots. You need JavaScript enabled to view it or PO?Box 146, Phnom Penh, Cambodia. The Post reserves the right to edit letters to a shorter length. The views expressed above are solely the authors’ and do not reflect any positions taken by The Phnom Penh Post.
Thursday, 30 September 2010 15:01 Michael Hansen
Dear Editor,
Noeleen Heyzer’s article about the Millennium Development Goals (“People key to MDG success”, September 23)was thought-provoking, but to assert that every country needs a new middle class surely needs some qualification.
In all states of the developed world, and in many of the developing world too, there are a considerable number families with prosperity rooted in entrepreneurship, the professions or the management of public and private organisations.
The fruits of their affluence are generally invested in property, improved healthcare, educational provision, leisure pursuits and pension funds.
However, I am not sure if these are the people Ms Heyzer refers to when she writes about the “new middle class” in Asia.
Last year, The Economist, the influential London-based magazine, promulgated the idea that the term middle class could be applied to a growing number of people taking the first steps out of poverty and able to spend about a third of their income in a discretionary way.
This definition may be the one that Ms Heyzer was using when writing about the new middle class. We might look at this idea in the context of the present dispute in the garment industry.
I would say, by any standard applied in the West, that most workers in the garment industry are poor.
Let us imagine the demand for US$93 a month, an increase of about a third in the agreed basic wage, is granted. Given the present minimum rate is set at virtually subsistence level, would this increase really project many thousands of workers into a middle class? I don’t think so.
The garment workers would still be relatively poor and accumulating the wealth, qualifications and property of most Western middle-class people, or even those of a similar status in Cambodia, would not be something they could reasonably achieve in a whole lifetime of work. Most are unlikely to become globally connected either, or internet savvy.
It would, perhaps, be better if organisations involved in trying to achieve the MDGs were more precise in their definition of what middle class actually means when they use it and make this clear in their published documents.
To use the term middle class as defined by The Economist may lead those unaware of the nuances of the terminology to assume greater positive changes are under way than is actually the case.
The growth of regional “traditional” middle classes will not necessarily expedite achievement of the MDGs.
History seems to show that an emerging middle class does not always have great sympathy with those lower down the social hierarchy.
In early 19th century Britain, for example, a new middle class, using wealth created by the British industrial revolution, began to flex its political muscle as it steadily increased its purchasing power and accumulated property.
Throughout the 1820s, agitation grew for a fairer electoral system that resulted in the Reform Act of 1832. Immediately afterwards, however, middle-class pressure for further change virtually evaporated. Working-class movements, like the Chartists of the Hungry Forties were not successful in extending the franchise, which only came slowly, later in the century.
The great danger of the way things are developing in Asia is that the middle classes cast in a traditional mould will see themselves increasingly set apart from those not so fortunate. They will be quite happy to benefit from, but largely indifferent to, a large and growing pool of inexpensive labour, and when pressure for fair treatment grows they will tend to support strong government against organisations, such as trade unions, perceived as a threat to the status quo.
In this sense the term middle class may become rather misleading in another way, as it assumes a three-class system when there are, in effect, only two: the haves and have-nots. Isn’t this part of the problem in Thailand?
It is fair to say that a growth in consumer demand from the traditional middle class might increase job opportunities, but it is also true that an increasing desire for expensive imports may lead to a flight of capital and the worsening of a trade balance.
Large new property developments may add a modern patina to the suburbs of an established city, but if constructed on land taken from rightful owners by nefarious means and built by cheap labour with little regard to the personal safety of workers who lack any kind of job security, is it likely this situation will contribute to real social progress, which after all is what the MDGs are all about?
What every country actually needs is a traditional middle class in which both the entrepreneurial spirit and a sense of public service is fostered and properly paid for. However, it is important that consciousness of privilege is cultivated too, and this should manifest itself in a willingness to support opportunities for the sons and daughters of those lower down the economic ladder.
Education is the key to progress in this respect, with well-funded scholarships for the brightest children from poor families.
When these young people, boys and girls, seek to enter the job market, they may need to be supported in order to feel their background is no barrier to interview success.
One way to help in this, in the Cambodian context, is for nongovernment organisations working in the development field to review the wording of their job advertisements in the English language press, ensuring that members of the lowest socio-economic groups are always encouraged to apply.
A poor boy from a village in Stung Treng or a girl who knew the dismal conditions at Stung Meanchey may well have struggled long and hard to get to the position from which they could make an application, but be nervous about doing so.
In my view, purely because of their class background, they are worthy of specific encouragement. The stairway leading upwards to the traditional middle class needs to be well-constructed, well-maintained and always in place.
Michael Hansen
Phnom Penh
Send letters to: newsroom@phnompenhpost.comThis e-mail address is being protected from spambots. You need JavaScript enabled to view it or PO?Box 146, Phnom Penh, Cambodia. The Post reserves the right to edit letters to a shorter length. The views expressed above are solely the authors’ and do not reflect any positions taken by The Phnom Penh Post.
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