VZCZCXRO6157
OO RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHPF #0197 0331021
ZNR UUUUU ZZH
O 021021Z FEB 07
FM AMEMBASSY PHNOM PENH
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7970
INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RUEHKO/AMEMBASSY TOKYO PRIORITY 3131
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY 0645

UNCLAS PHNOM PENH 000197 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS, EB/IFD/OMA 
TREASURY FOR ANDREW JEWELL 
 
E.O. 12958: N/A 
TAGS: EFIN PREL ECON CB
SUBJECT: CAMBODIA'S BILATERAL DEBT: INTEREST RATE MAY STILL 
BE AN ISSUE 
 
REF: A. A) PHNOM PENH 109 
 
     ¶B. B) PHNOM PENH 62 
 
 ¶1.  (SBU)  On January 31, Pol/Econ Chief met with Ministry 
of Finance Secretary General Vongsey Vissoth regarding the 
US-Cambodian bilateral debt, and the Prime Minister's 
response to EAP PDAS Stephens' request that the RGC sign the 
draft bilateral agreement provided to the Cambodian 
government last summer.  The PM responded (reftel A) that 
while the USG and RGC were close to an agreement, he 
recommended further negotiation before an agreement could be 
signed, but did not specify what remaining issues might 
require additional discussion.  P/E Chief updated Vissoth on 
the exchange between the PM and PDAS Stephens, and requested 
that the MEF official clarify the RGC position. 
 
¶2.  (SBU)  Vissoth said he was aware of the meeting and the 
discussion on bilateral debt, but was not privy to the PM's 
thinking.  Vissoth opined that the interest rate of 3% was 
too high, and that Cambodia required a concessional rate 
lower than the USG proposal.  P/E Chief noted that the issue 
of the interest rate had been debated and discussed during 
the negotiations over the calculation of the overall debt, 
and there was no further flexibility on the USG side.  If the 
RGC wished to table a specific proposal and respond to the 
draft agreement, the Embassy would forward the proposal to 
Washington, but P/E Chief warned that the U.S. side had 
indicated very clearly that the USG offer submitted last year 
represented the USG bottom line.  P/E Chief reminded the MEF 
official that the USG had eliminated roughly USD 100 million 
due to faulty or lost documentation, which represented a 
considerable concession on the part of the U.S. side. 
 
¶3.  (SBU)  Vissoth agreed, but again reiterated that the 
terms requested by the USG were very tough.  The interest 
rate of 3%, Vissoth argued, was not concessional.  Further, 
the National Assembly's budgetary law dictated that the 
government could only take out loans at concessional rates, 
and the PLO-480 agreements from 1972-74 that form the basis 
of the bilateral debt were not in conformity with that 
principle.  Any decision to sign the bilateral debt agreement 
and accept a 3% interest rate would depend on the RGC taking 
up the issue with the National Assembly.  P/E Chief responded 
that the Lon Nol-era loans preceded current RGC budgetary 
legislation dealing with interest rates -- concessional or 
otherwise -- and therefore an approach to the National 
Assembly should not be necessary.  Vissoth said that he 
understood any interest rate less than 3% would require U.S. 
congressional approval.  P/E Chief noted that Vissoth's 
assertion was correct, and that Washington interagency 
agreement to seek such approval would be highly unlikely, as 
the Embassy and Washington negotiators have repeatedly told 
the RGC.  P/E Chief urged Vissoth to respond positively to 
the USG offer; Vissoth said that the decision was not his and 
that he would wait for the PM's instructions. 
 
¶4.  (SBU)  Comment.  Vissoth's remarks were not encouraging 
at best and at worst, suggest that the Cambodians are still 
holding out for an unrealistic debt deal.  Vissoth did 
mention that the RGC had repaid the Japanese debt of roughly 
USD 4.2 million related to pre-cut-off date Japanese loans; 
at least Japanese objections (reftel B) will not be used in 
future discussions, but we appear to back to a debate on 
interest rates.  This may be another delaying tactic, 
however, and we would welcome Washington thinking as how best 
to move the discussion forward with the MEF.  End Comment. 
MUSSOMELI