VZCZCXRO6074
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHPF #0372/01 1270743
ZNR UUUUU ZZH
P 060743Z MAY 08
FM AMEMBASSY PHNOM PENH
TO RUEHC/SECSTATE WASHINGTON DC PRIORITY
INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RUEHFR/AMEMBASSY PARIS PRIORITY 0604
RUEHCHI/AMCONSUL CHIANG MAI PRIORITY 0056
RUEHHM/AMCONSUL HO CHI MINH PRIORITY 0139
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY 0769

UNCLAS SECTION 01 OF 03 PHNOM PENH 000372

SENSITIVE
SIPDIS

STATE FOR EAP/MLS, EAP/PD, IO, EEB/IFD/OMA--FREUDENWALD,
STATE PLEASE PASS TO USTR--BISBEE
BANGKOK FOR FCS AND ECON
HO CHI MINH CITY FOR FCS
PARIS FOR UNESCO AMBASSADOR OLIVER
TREASURY FOR CHUN

E.O. 12958: N/A
TAGS: EINV PREL EPET PGOV ENRG CB TH
SUBJECT: CAMBODIA: INVESTMENT, TEMPLE CONTROVERSY, DEBT, AND OVERLAPPING CLAIMS HEADLINE BUSINESS DELEGATION MEETINGS

PHNOM PENH 00000372  001.2 OF 003

SENSITIVE BUT UNCLASSIFIED. NOT FOR DISSEMINATION ON THE INTERNET.

¶1.  (SBU)  SUMMARY:  Riding on a wave of increased U.S.
investor interest in Cambodia, 17 corporate leaders
representing nine major companies visited Cambodia May 1-3 as
part of a U.S.-ASEAN Business Council delegation.  Prime
Minister Hun Sen used his two-hour-long meeting with the
group to press for progress on two high-priority foreign
policy issues:  the pending inscription of the Preah Vihear
temple on the UNESCO World Heritage list and Cambodia's
bilateral debt with the U.S.  Delegation members and the
embassy believe that successful resolution of the Preah
Vihear issue could open the door to a resolution of the
overlapping claims area in the Gulf of Thailand.  End Summary.

Preah Vihear Dominates Meeting with PM Hun Sen
--------------------------------------------- -

¶2.  (SBU) Opening the meeting with the Prime Minister,
US-ASEAN Business Council (US-ABC) President Matt Daley noted
how pleased he was to have a larger number of businesses
joining each successive business mission to Cambodia.
Boeing SE Asia President and former U.S. Ambassador to
Thailand Skip Boyce remarked on the impressive economic
growth he had witnessed in Cambodia over the past ten years,
while Boeing Asia Sales Director Chris Flint invited the PM
to discuss separately ways that Boeing could contribute to
civil aviation development in Cambodia.  Liam Benham, Ford
VP, noted that his company was operating the first car
manufacturing facility in Cambodia--a plant modifying pick up
trucks for use as U.S. military ambulances in Iraq.  As an
aside, Daley mentioned that the business delegation had just
come from meetings in Thailand and relayed a message from
Thai Foreign Minister Noppadoh Pattama that Thailand does
not/not oppose the inscription of the Preah Vihear temple on
the UNESCO World Heritage list, but would like a joint
Thai-Cambodian management plan for a 4.7 square kilometer
area adjacent to the main temple.  Daley mentioned that the
US-ABC took no position on the dispute.

¶3.  (SBU) Focusing his attention on Preah Vihear, the PM
asserted that "In Preah Vihear, there are no overlapping
claims areas--only in the sea."  (Comment:  Clearly, to the
Cambodians, the 1962 ICJ decision awarded the 4.7 square
kilometer area to Cambodia and Cambodia currently occupies
this territory.  Therefore, it is "not overlapping" and a
joint management plan is not politically or legally feasible.
 End Comment.)  The Thais are "going one step forward and two
steps back" on the Preah Vihear issue, Hun Sen said.  He
recalled that he and Thai PM Samak had discussed Preah Vihear
in a side meeting during the March Greater Mekong Summit in
Laos.  Hun Sen said he had emphasized that the proposed
inscription covered the main temple site (the area awarded to
Cambodia by the International Court of Justice)--implying
that because the proposal covers only Cambodian territory,
there is no need for a joint management plan.

¶4.  (SBU) The Prime Minister painted himself as having the
moral high ground in the Preah Vihear dispute.  He also
expressed frustration with recent statements from Thai
defense officials claiming that Cambodia had deployed troops
near Preah Vihear.  He viewed these inaccurate assertions as
Thailand "creating problems."  Cambodia did not respond to
this provocation, instead waiting patiently until the Thai
government retracted the statement.  Finally, Hun Sen urged a
swift resolution of the issue, saying that further delay
endangers the site, which is "the heritage of humankind."

Hun Sen Reiterates "Debt for Development" Approach
--------------------------------------------- -----

¶5.  (SBU) Hun Sen appealed for help from the US-ABC in
resolving its bilateral debt with the U.S.  The debt is a
state legacy, the PM said, and Cambodia will repay it.
However, Cambodia would like flexibility in how it repays the
debt.  Specifically, he requested that the U.S. consider that
the interest rate be set at 3% for the amount outstanding
since the original loans were made in the 1970s, with an
interest rate of 1% during the repayment period.
Furthermore, Cambodia would like the repaid monies to be used
for development, similar to the use of Vietnamese loan
payments for education programs there.  He noted that he will
have a difficult time selling the Cambodian people on
repaying this debt, which was borrowed by the Lon Nol
government that deposed the still-revered former king,
Sihanouk, father of the sitting king, Sihamoni.

¶6.  (SBU) The Ambassador stressed that all countries had to
repay their debts, even when the loans were taken out by a
different government.  The bottom line for the U.S.
administration, he stated, is that Cambodia must agree to
debt repayment terms first, before the possibility of using
repaid funds for development could even be considered.
US-ABC staffer Frances Zwenig then noted that the business
council had been working with Congress to secure support for
a debt recycling deal for Cambodia which could be discussed
only after/after Cambodia agreed to terms with the Executive
Branch.  Senators Kerry, McCain, Biden, Lugar, and Webb were
particularly receptive, she noted.

PM's "Checkerboard" Proposal for Overlapping Maritime Claims
--------------------------------------------- ---------------

¶7.  (SBU) Speaking about the overlapping claims area (OCA) in
the Gulf of Thailand, the PM wanted to consider this issue
separately from the contentious Preah Vihear question--an
approach that Thailand accepted years ago, he said.  The
Thais wanted to divide the OCA into strips running north to
south with Cambodia and Thailand sharing different
percentages of petroleum revenues in each strip.  Hun Sen
suggested instead that the area be divided into a
checkerboard pattern with each country having sole control of
its assigned blocks.  (Comment:  The PM asserted that his
plan would be simpler than the shared profits and
decisionmaking suggested by Thailand, but we suspect that his
real motivation is to present a system likely to be closer to
a 50-50 split of petroleum revenues than other proposals
being discussed.  End Comment.)

Food Prices Hurting Even Cambodia's Stable Economy
--------------------------------------------- -----

¶8.  (U) Meeting with the delegation, World Bank economist
Stephane Guimbert said while many impediments to doing
business such as corruption remained largely unchanged, the
economy has grown at high annual rates because of investors'
perceptions of increased political stability and investment
security.  He added that the government is committed to
managing the macroeconomy well.  Despite shocks in oil price,
weather, and the garment sector, the country still managed to
sustain double-digit growth and single-digit inflation.
However, the latest shock--in food prices--has broken this
string of successes, with inflation jumping to double digits
and economic growth likely to slow to single digits.
Guimbert suggested that the idea of a "rice cartel" proposed
more than a year ago by Prime Minister Hun Sen in response to
low rice prices, and raised again recently by Thai Prime
Minister Samak in response to high rice prices, may be useful
to help coordinate and stabilize rice prices.

Comment
-------

¶9.  (SBU) While a few major U.S. companies have already begun
operations in the Cambodian market, this delegation reflects
the state of play more typical for American corporations:
having just a toehold or no presence at all in the Cambodian
market and just beginning to consider expanding into Cambodia
in a serious way.  As the fourth business delegation to come
to Cambodia in just over a year, with no previous delegations
in the embassy's collective memory in the decades before,
this group also reflected the quickly growing investor
interest in Cambodia.  Participants walked away impressed by
the availability and level of interest displayed by the
Cambodian officials, particularly during the two hour meeting
with Prime Minister Hun Sen, which Deputy Prime Minister Sok
An, Minister of Economics and Finance Keat Chhon, and other
senior officials also attended.

¶10.  (SBU) The meetings also served as a reality check that
intense political debates lie behind some key economic
issues.  On the Preah Vihear issue, it seems likely
that--despite Thai and Cambodian statements to the
contrary--the inscription of the temple is linked to
resolving the maritime claims dispute, at least in the minds
of senior Thai and Cambodian government leaders.  Both sides
are looking at the issues from political, cultural, and
economic perspectives.  It is in the interest of both
countries to find a way to settle these differences; the
challenge for the USG is to find a way to push both countries
towards an acceptable solution.  Post agrees with the
observation by US-ABC reps Daley and Zwenig that inscribing
Preah Vihear on the UNESCO World Heritage list, if handled
correctly, actually could open opportunities for the two
countries to work more closely both on cultural issues and
the more lucrative issue of the overlapping claims in the
Gulf of Thailand.  Perhaps the upcoming visit to Phnom Penh
by Thai MFA official Weerasak Futrakal to discuss Preah
Vihear will allow the two parties to find a way to move ahead
on this issue.

MUSSOMELI