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Asean Affairs   12 February 2014

Addressing Cambodia’s Aid Dependence: Too Little Too Late?

By Abby Seiff

In the past two decades, Cambodia has morphed into one of the world’s largest recipients of foreign aid.

In the early 1990s, the United Nations Transitional Authority (UNTAC) carried out the biggest and most expensive experiment in foreign assistance worldwide in Cambodia. At a cost of more than $1.5 billion, UNTAC helped repatriate hundreds of thousands of refugees, put an end to civil war, and install at least the facade of democracy. It also set Cambodia off on a path of aid dependency from which there has been little sign of reprieve.

In 1990, a year before the start of UNTAC, Cambodia received $40 million in foreign aid. Three years later, at the close of UNTAC, it was receiving $301 million. In 2012, the last year for which data is available, the country received nearly $1.3 billion – a significant portion of its $14.06 billion GDP. Apart from aid, Cambodia also receives hundreds of millions of dollars annually in low-interest rate loans from development banks and foreign governments.

Corruption in Cambodia is pervasive; economists and even former U.S. ambassador Carol Rodley have pegged the costs of corruption at as much as $500 million a year. Human rights violations (though harder to quantify) are also rampant, but the money has continued to roll in even after the government suspended meetings with donors at which the latter could have linked their money to requests for improvement.

And so, perhaps unsurprisingly, there has been very little pressure for Cambodia to reform. As long as the money keeps coming in, the government has scant obligation to defend its track record. But donors and lenders, whose funds come from foreign taxpayers and governments, cannot escape so easily.

The Asian Development Bank (ADB) on January 31 admitted it had made serious failures in overseeing a $143 million railway rehabilitation project it co-funded with the Australian Agency for International Development. ADB’s internal auditors highlighted in a report “instances of insufficient compensation to affected households.” The report also found ADB did not fully comply with its own policies relating to consultation and communication with affected households.

While the admission was rare, the content within was not surprising for those who closely follow Cambodia. In order to make way for the reconstruction and development project, thousands have had to be relocated, and insufficient compensation has plunged many displaced residents into debt. At distant resettlement sites set up in more remote areas, health problems often proliferate due to inadequate water and sanitation. These problems have been well-documented by newspapers, non-governmental organizations, and even by the ADB in reports both public and private. Yet the bank could only task its Compliance Review Panel with conducting an internal audit of the railway project after affected families filed a complaint in September 2012.

Certainly complex bureaucracies can make oversight difficult, but there also appears to be a level of willful ignorance on the parts of banks and donors. Like the ADB, the Global Fund – which has donated more than $350 million over the past decade to combat malaria, AIDS, and tuberculosis – has repeatedly highlighted disbursement fraud and budget mismanagement to no avail. Yet it has taken little concrete action to link its aid to real reform.

While institutions are gradually and grudgingly coping with faults in their programs, there is an element of closing the barn door after the horse has bolted. Although monitors have long urged governments and development banks to tie their aid to concrete rights and development goals, there has been precious little interest in doing so, save for a handful of officials pandering to specific constituencies and advocacy groups. For instance, buried in a 1,500 page spending bill signed into law last month, the U.S. government threatens to hold some small, unspecified portion of assistance unless an investigation into electoral irregularities is held and the opposition takes its boycotted parliament seats. The bill also requires the World Bank to report to Congress several times over the next eight months on the conditions of families evicted or displaced to make way for a large World Bank-funded development project in the center of Phnom Penh. The move comes amid ongoing protests over the site, some four years after the Bank admitted it had failed to properly oversee land titling for residents living there and in other embattled communities and suspended lending in 2011.

In the meantime, the past 20 years have seen a marked shift when it comes to Cambodia’s financing options. Today, China is Cambodia’s largest provider of loans and one of its biggest donors. This trend has left traditional major donors, including the United States, Japan, and Australia, with their hands tied when it comes to linking aid to reform as they seek to keep a foothold in the country and counter China’s growing presence in the region.

In his book Aid Dependence in Cambodia: How Foreign Assistance Dependence Undermines Democracy, political economist Sophal Ear argues that while Cambodia’s systemic problems are “largely the result of the government’s own lack of political will and poor leadership” donors bear no small measure of responsibility. Though 20 years of aid has certainly improved health, infrastructure, and education, the free flow of money, coupled with scant oversight, has also cemented some of Cambodia’s most intractable problems, including corruption, weak institutions, and poor governance. It is commendable then that development banks and governments are starting to recognize their role in this situation; it is also, quite likely, far too late.

Courtesy: This post originally appeared on the Center for Strategic and International Studies, Washington D.C. cogitASIA blog

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