The end of 1992 marked a watershed event for Cambodia-the Asian Development Bank (ADB) made the first loan to the nation in more than two decades by an international financial institution (IFI). The bank promised $67.7 million repayable over 40 years to help rebuild infrastructure damaged from years of civil war.

The loan came with a ten-year grace period on interest charges. That expired this year, and in June the government paid a 1 percent charge of just under $1 million to the ADB. Another $1 million is due by the end of the year, with similar payments scheduled for another 30 years.

The June payment passed unnoticed by most, but serves as a significant moment on the local calendar-the first interest payment on the country's first loan from an IFI. Since 1992, the government has borrowed another $700 million from the three major IFIs. Repayments on some of that money are falling due, marking the start of a long haul in meeting debt obligations.

The government has been servicing some of its debts taken on since 1992. It was already paying $600,000 a year of principal on its 26 ADB loans. And in the 2003 Budget, it has earmarked around $6.25 million to repay external debts.

Robert Hagemann, the resident representative of the International Monetary Fund (IMF), says the government made about $10 million in payments in 2001 and 2002 to various creditors. Most of those were interest payments.

For now, at least, the Kingdom is not yet in the situation where it must repay more to the IFIs than it receives in loans each year. But some are questioning whether that could happen in the next ten years, before the government has reaped enough income to repay loans when they fall due. Some observers feel the country has already taken on more than it can handle.

The Japanese government, for one, is debating whether it should lend more money. To date it has signed off on around $40 million for the redevelopment of Sihanoukville Port. However, says Juro Chikaraishi, the resident representative of the Japan International Cooperation Agency (JICA), Tokyo is "not sure [whether in] ten years Cambodia can repay".

The government's ability to repay the debt is dependent on how much money it can raise. And the stronger the economy, the more it should be able to earn through taxation and other forms of revenue collection.

The IMF estimates Gross Domestic Product (GDP) was worth nearly $3.7 billion last year. Most lenders agree that if the country is to meet its poverty reduction targets, GDP must grow at a real rate of more than 6 percent for a sustained period in the coming years. That did not happen last year.

Another factor that needs addressing is the government's collection of revenue. The March 2003 IMF country report notes Cambodia needs to improve its fiscal performance in the medium term, both so that the economy can develop and the Treasury earns enough to allow for increased debt service payments.

The IMF's Hagemann says it will prove a challenge for the government to substantially boost revenue so that it can service its debt.

"Without further improvements in government's capacity to service the debt, it would be unwise for them not to be cautious," says Hagemann. "I wouldn't say it's a timebomb or anything, but it's definitely a constraint."

Leading local economist Sok Hach, who is the director of the Economic Institute of Cambodia (EIC), says the debt is deceptively substantial.

"When you look at the debt service ratio to GDP, it's not very high [at 2 to 3 percent]. But you have to look at government revenue," he says, explaining that in future around 20 percent of government revenue will have to go towards debt reduction. "It's more than the Ministry of Interior gets right now; it's something like what the Ministry of Defense gets."

ADB country head Urooj Malik says he discussed the debt issue on a recent visit to Tokyo. He says Japan is usually more cautious than others in its decisions about whether or not to lend further funds.

Malik stresses that Cambodia still needs to develop the collection of tax and customs revenues, but says the capacity to enforce laws "will remain squarely on the horizon for the next four to five years".

But, he adds, there is no doubt the loans are necessary to allow the country to develop infrastructure, revenue and employment.

"It's like the environment and development-there's always a trade-off," he says. "These are soft resources that Cambodia needs."

It is unclear exactly how much Cambodia owes in nation-to-nation debt. Debts to the US, Russia and China are either hidden or are the subject of negotiations. Debts to the IFIs is clearer-a website established by the Bretton Woods institutions stated as of March 2003 that the Kingdom owes $762 million to the ADB, the World Bank and the IMF.

Kang Chandararot, an economist on macroeconomic issues at the Cambodian Development Resource Institute (CDRI), feels such a sum means the economic outlook for the country is "not favorable".

Chandararot says Cambodia has a much weaker ability to earn the dollars needed to repay debt because of its poor performance both in exports and in attracting foreign direct investment.

"These two options don't allow you to think this $750 million [owed to IFIs] is small," he says.

Yet that figure does not take into account bilateral loans. Last year the Post calculated that Cambodia's total foreign debt was more than $3 billion-approximately 100 percent of GDP. While those are not official figures, what is clear is that the US and Russia still claim they are owed some $1.6 billion.

Exact figures are impossible to come by. The finance ministry is not saying, although the IMF estimates that outstanding external debt last year was almost two-thirds of GDP. The Fund also assumes that the US and Russian debt will soon be negotiated through the Paris Club, a group of creditors that helps debtor nations find solutions.

However, the EIC's Sok Hach cautions that a payment scheduling agreement will not necessarily make the debt burden manageable. He estimates that even if the government cuts a deal with the US and Russia to halve their claims, its foreign debt burden will still stand at 50 percent of GDP.

"Even if Cambodia benefits from a kind of Paris Club agreement, it will still have to pay around $700 million [to the US and Russia]," Sok Hach says. "The government's capacity to pay back external debt is very limited."

And at a July 7 meeting between donors, Prime Minister Hun Sen and members of the Cabinet, the government was told by the ADB that when it came to public expenditure management, there were already difficulties in generating sufficient cash flow to pay the interest on externally funded loans.

The ADB's Malik said his comment at the meeting referred mainly to delays in payments to the state utility Electricité du Cambodge (EdC) and the education sector. He claims the situation has somewhat improved since that meeting.

But it remains unclear just how the government will meet its future debt repayment obligations. Certainly the Ministry of Economy and Finance is not speaking about the issue, despite numerous attempts for comment.

For Chea Vannath of the Center for Social Development, the ministry's silence is part of the problem. She asserts that public participation will help ensure the repayment of debts. But, she adds, some responsibility also rests with those lending the money in the first place.

"To better manage the foreign debt payments, they need to inform the people," Vannath says. "Any construction of roads or buildings should be spelled out right there for the public to see. The government needs to inform the people, but the lending institutions need to inform the people as well."