Cambodia: The Perils Of Aid Dependence

Jayati Ghosh

CAMBODIA is well known as the home of the famous ruins of Angkor, dating from the 9th to 13th centuries, which are truly extraordinary and magnificent. In terms of more recent history, it is also known as the place which was subjected to the appalling and massive illicit carpet bombing of the countryside by the United States military in the early 1970s; the country in which the Khmer Rouge engaged in atrocities against its own population between 1975 and 1977; the country which suffered international isolation and sanctions imposed by the Western powers until 1991.

But Cambodia is also a “Least Developed Country”, a poor backward nation with an anguished history and little development. This has made the country a haven for the international do-gooder. The past decade has seen huge international manipulation and interference in Cambodia’s polity and economy. While this may have contributed little to the living conditions of the average Cambodian, it has enriched and even captivated the lives of the many foreigners who have flocked there over the years.

DOLLARISATION OF THE ECONOMY

This small and backward economy is almost completely dollarised. The US dollar forms the medium of exchange for as much as 90 per cent of the total value of domestic transactions, according to one estimate. This reveals the extent of dependence of the economy to the inflow of aid-related dollars.

Around 43 per cent of the government’s budget is financed by aid. In addition, there are aid inflows to NGOs, many of whom then fund other NGOs within the economy. Foreign aid dwarfs the effects of other sources of foreign exchange, which are mainly through tourism and more recently, garment exports.

Such aid is what explains how the capital Phnom Penh is literally swarming with donors and experts of all varieties and many nationalities. Multilateral, bilateral, non-governmental – they are all there, affecting the pattern of demand and benefiting from enviable lifestyles.

POOR RECORD

But the record of economic and social performance of the donor community is poor. While political stability and peace have come to the country after years of devastating fighting, the economic growth of the past decade has not meant any decline in poverty.

Instead, there are indications that the lot of most ordinary people has worsened. Per capita consumption has fallen, even as inequality has increased substantially. Infant and child mortality is on the increase again after the recovery of the 1980s. There is growing landlessness in the rural areas. Rapidly rising unemployment along with underemployment have become even more significant given Cambodia’s relatively young population. Public education facilities are poor and deteriorating. Public health services are poor or non-existent in most of the rural areas. Basic economic services, including agricultural extension services to farmers, are simply non-existent.

In the past few years, basic macroeconomic indicators have also worsened. Agricultural output and rural incomes have both been on the decline since 1999. Foreign direct investment – mainly in the garments sector and in non-tradeable services such as telecom – has been declining for the past two years. Garment exports are tapering off and in the past two years several garments factories have closed.

WITHDRAWAL OF THE STATE

Much of this poor economic and social performance is the direct result of the advice doled out by aid-givers, especially the multilateral institutions including the IMF and Asian Development Bank, which have encouraged, and sometimes even forced, the government to cut down its own provision of basic goods and services, and allow “market forces” to flourish. Government investment has fallen and the state has stopped trying to fulfil a number of basic commitments. Established state structures and institutions have been run down, and allowed to be replaced by private profiteering or even by nothing more than a vacuum.

Instead, many people who are part of the state are today participating in the free-for-all looting of the natural and human resources of the country. Corruption is now so widespread and so extreme that it can be mind-boggling. The enormous mansions of the rich in Phnom Penh bear witness to the gains made by the political and military elite. Several of these palaces are said to be owned by former and current military generals, who have been associated with the extensive sale of forest rights to plantation owners and loggers, including multinational companies.

At the other end of the spectrum, the appallingly low salaries paid to teachers and other civil servants have created other parallel payments. The common practice in government schools is for children to carry every day an amount to be handed over to the teacher – usually up to a dollar a day; if not, the child may well fail. This practice extends even to rural areas, and helps to explain the high dropout rate especially for girls after some basic schooling.

Western donors like to point to such practices to explain why their aid has not been more effective. But in fact this misses the point, that the donors themselves have been responsible for a lot of this dubious culture.

DUBIOUS ROLE OF THE DONORS

During the 1980s, despite the international isolation and the continuing war against the Khmer Rouge (which was then supported, ironically, by Sihanouk’s forces and assistance from western countries) the People’s Republic of Kampuchea, led by Hun Sen’s government, struggled to rebuild society and economy after the horrific violence and the continuing instability. Reports of corruption were rare, and while economic conditions were parlous, there was some stability in food consumption and income distribution was much more egalitarian.

At that time, the west supported the destabilising forces against the government, including the Khmer Rouge. The collapse of the Soviet Union set in train a set of processes in the region which culminated in the growing power of the Khmer Rouge and Sihanouk factions, forcing a peace agreement on the government in 1991.

Thereafter, the UN stepped in, and UNTAC (the United Nations Transitional Authority in Cambodia) was born in 1993. UNTAC had a very wide mandate, which it did not fulfil. It barely kept the peace, which was finally maintained only through the consolidation of power by the Hun Sen group.

The dollarisation of the economy was generated by UNTAC, coming in with resources which were huge relative to the size of the economy, and spending in what turned out to be indiscriminate and sometimes counterproductive fashion. UNTAC also set the pace for privatisation, reduction of state responsibility over a range of basic goods and services, aid dependence and also the bending of laws, especially in business dealings and parallel payments, that have now become the norm.

By the time of the 1998 elections which confirmed the control of the Hun Sen regime, the pattern had set, and the government since then has done little even to try and change the general direction of change. Nevertheless, the general impression is that this government is better than the available alternatives. Elections are due in July.

So the net effect of foreign – especially US – influence on Cambodia in the past decade has been largely negative. Maybe the current situation in Cambodia is the very extreme case of what can happen once donor domination sets in. But it may well be that it is a pointer to the new forms of twenty-first century dependency of developing countries.