Cambodia shrugs off aid curb

Aug 23, 2011
By Brian McCartan
Asia Times Online

Cambodian leaders have shrugged off a World Bank move this month to suspend new lending due to state-sponsored, large-scale evictions to clear land for development projects. While rising access to private Asian capital, particularly from China, has helped Cambodia weather previous Western donor pressure for reform, the socio-economic costs of the latest sanction could be much higher.

The World Bank had come under pressure from local and foreign non-governmental organizations (NGOs) to take a tough stance against Cambodia's government in response to well-documented forced evictions of communities. The issue centered on a large-scale urban development project planned for central Phnom Penh at Boeung Kak lake where many of the residents are involved in catering to a growing tourist industry.

The pressure increased late last year after an internal investigation found that the World Bank had violated its own social and environmental policies in supporting the project. It is being led by the privately-held Cambodian Shukaku company, which signed a 99-year lease with the government in 2007 to develop Boeung Kak and the surrounding area into a district of luxury apartments and high-end shops.

The company is chaired by Lao Meng Khin, a powerful senator affiliated with the ruling Cambodian People's Party (CPP) and a close associate of Prime Minister Hun Sen. Shukaku is partnered with the Inner Mongolia Erdos Hongjun Investment Co Ltd of China, which has pledged broadly to spend US$3 billion in Cambodia on property development, metal processing and power generation.

However, the joint venture has raised some eyebrows due to the unlisted Chinese company's murky background and ownership. Critics say that the company has no proven expertise in any of the areas in which it has pledged to invest, and there is an unusual lack of publicity around a company that has promised to commit such a large amount of capital outside China.

The developers began pumping sand into the lake in 2008, flooding homes and virtually wiping out the once tranquil lake's ecology. Land holders have had no say in the process and have been accused by the government as illegal squatters on state-owned land. These accusations, NGOs say, run counter to Cambodia's land law, which provides protections against evictions to long-time land holders. Many of the residents at Boeung Kak have lived there for decades.

However, the lake's residents were excluded from a process organized by the World Bank to adjudicate property claims. Over 2,000 have already been forced from their homes and another 10,000 now face eviction. The international lender has since called on the Cambodian government to halt the evictions and agree to fair compensation for land holders. After failing to reach an agreement, the World Bank stated on August 9, "Until an agreement is reached with the residents of Boeung Kak lake we do not expect to provide new lending to Cambodia."

The World Bank has lent Cambodia between US$50 million and $70 million annually for the past few years with the last disbursement made in December 2010. Most of the loans have been committed to health and education projects. Despite these capital commitments, Cambodian leaders have so far shrugged off the World Bank's statement about withholding future loans.

Analysts say they can afford to, given the billions of dollars of aid and investment the government now receives from China without strings attached. Cambodia's foreign donors pledged $1.1 billion in aid last year, with China committing the most of any country. China has also become Cambodia's largest source of foreign direct investment (FDI), with stated plans to spend $8 billion on 360 different projects during the first seven months of 2011.

It is difficult to separate Chinese foreign aid from investment since they are often intertwined. Chinese companies receive government subsidies to participate in projects that by Western standards would often be considered as development related. During a 2010 visit by Hun Sen to Beijing, China promised to provide a $300 million loan to construct two national highways and irrigation projects. Other deals concluded during the visit, mostly related to infrastructure, were worth around $293 million.

Hun Sen has made it clear in several speeches that he prefers Chinese to Western aid due to the lack of attached conditions. Western donors often predicate their aid packages on democratic reforms and improvements in human rights and counter-corruption. Hun Sen is apparently not alone in this opinion: the opaque regimes in Laos and Myanmar have also shown a preference for Chinese aid and investment for similar reasons.

Sphere of interest

Together with Cambodia, Myanmar and Laos are often considered Beijing's "sphere of interest" in Southeast Asia.

China became Laos' largest foreign investor in 2010 with total investments amounting $2.9 billion since 2000. Much of China's investment there is in mining, hydropower projects, agribusiness and services. It has also secured a prominent place as an aid donor through large-scale infrastructure projects such as the construction of Route 3 connecting southwestern China with northern Thailand through Laos.

Some of these projects have aimed more at securing goodwill, such as the widening of the Central Avenue in downtown Vientiane and the construction of the National Cultural Hall, than making money. That's evidenced in the fact that many loans are dispensed interest-free.

Last year, largely Western aid agencies and donors cautioned Laos about racing ahead with a development plan based too heavily on natural resource exploitation without enough emphasis on health, education and capacity development among the local population.

The Lao government has stated some of its own concerns over investment, especially in terms of long-term and concessions, such as those granted to Chinese investors to build casino complexes. However, the government has made it clear it intends to reduce its high dependency on official development assistance in favor of increased access to Asian private capital, especially from China.

In Myanmar, where the country ostensibly made a transition from direct military rule to a democratic system earlier this year, there is increasing Chinese investment as the country's leaders continue to look to Beijing for economic as well as diplomatic support. Much of China's investment is in natural resource extraction, hydropower projects, and infrastructure, but there is a growing interest in acquiring agricultural land, especially for rubber.

Myanmar's rulers have long relied on Chinese investment and aid to make up for a lack of development assistance from the West. Sanctions and concern over human-rights issues have prevented Western donors from providing funding at levels similar to that donated to Laos and Cambodia. Human-rights and political opposition groups have long argued that Chinese aid has allowed the military to stay in power and continue to repress the population.

China plans in coming years to further expand its trade with the region and is making moves to develop more extensive physical trade arteries. Beijing has announced plans to pour money into road and rail projects in coming years, linking its landlocked southwestern region with ports in Myanmar, Thailand and Cambodia. It is hoped this will increase trade, promote regional investment and tourism, as well as strengthen ties with the member states of the Association of Southeast Asian Nations (ASEAN).

This may be music to the ears of Southeast Asian policymakers who are interested in developing their countries' economic potential as well as improving their own financial situations given the high levels of corruption in the region. However, growing Chinese influence, especially in the economic sphere, is becoming increasingly worrisome to the average farmer and shopkeeper in these countries.

For instance, there is growing discontent in Laos over what some see as too much Chinese influence in the country. Laos are especially concerned by the growing number of Chinese migrating to work in the country on Chinese projects. This became especially acute in Vientiane when plans for an urban development project near the iconic That Luang monastery came to light.

The project, which was widely perceived as building a "Chinese city" in the heart of the capital, has stirred nationalistic responses from the city's growing middle class. In addition to a penchant by Chinese companies to import Chinese workers to work on their projects, Laos are worried those workers will not return home after the projects are finished, as has been the case on certain roadway projects in remote northern areas.

Land concessions are also an issue, especially in the north where Chinese companies have been able to acquire large tracts of land for plantation agriculture. While many villagers have been able to arrange contracting agreements to provide rubber to Chinese companies, others say they have been forced to convert their land to rubber cultivation. The north is also the location of two Chinese casino, hotel and shopping complexes at Boten and Huay Xai, where sovereignty has seemingly been handed over to Chinese developers.

There is also a longstanding, but largely quiet, animosity towards Chinese influence in Myanmar. Growing Chinese economic influence in recent years has heightened a perception of Chinese as untrustworthy businessmen bent on taking over the country.

As evidence, many Burmese point to the large areas of Mandalay and other cities which have become crowded with shops with store signs only in Chinese and catering to the growing number of Chinese moving into them. This perception apparently extends to the upper echelons of government, where some leaders are reportedly alarmed by China's growing economic clout vis-a-vis the local population.

For the average Myanmar farmer, especially in the country's northern region where there is an increase in China-linked agribusiness projects, there is concern over being evicted from their lands in favor of commercial plantations. Human rights groups have documented this practice throughout the country in a process often carried out by military units.

Others are worried their land will be taken for infrastructure and other projects. Environmental groups have documented the confiscation of land to build a deep sea port in Myanmar's south that will ship oil and gas through pipelines being constructed by Chinese companies to China's land-locked southwestern region.

While not solely the work of Chinese companies, rising evictions in Cambodia are creating a huge number of landless displaced people across the country. Some analysts speculate that the sheer number of people displaced could lead to social stability problems in the future as Cambodians forced off their land and without other viable economic options become increasingly desperate.

Unless Cambodian government policymakers make a shift from their headlong rush for development and reckless policies to supply China's demand for natural resources, agricultural products and diplomatic allies, the risk will rise that their development projects cause more social problems than they resolve.

It's a message the World Bank has delivered belatedly with its suspension of new lending and advice Cambodia's leaders would be wise to heed if they are to maintain social stability amid rapid economic growth and rising Chinese influence.

Brian McCartan is a freelance journalist. He may be reached at brianpm@comcast.net.