VZCZCXYZ0000
OO RUEHWEB

DE RUEHPF #0493 1680501
ZNR UUUUU ZZH
O 160501Z JUN 08
FM AMEMBASSY PHNOM PENH
TO RUEHC/SECSTATE WASHINGTON DC IMMEDIATE0000
INFO RUEHMO/AMEMBASSY MOSCOW PRIORITY 0398
RUEHFR/AMEMBASSY PARIS PRIORITY 0613
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY 0776

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