The very name Cambodia evokes many different responses among outsiders. There is first of all, of course, the association with the magnificent and extraordinary ruins of Angkor, which are unparalleled and remain etched in the memory long after the initial viewing. Then there are other more traumatic associations with violence: the appalling and massive illicit carpet bombing of the Cambodian countryside by the United States military as it struggled to cope with its losses against Vietnam in the early 1970s; the subsequent, much-publicised atrocities of the Khmer Rouge against its own population between 1975 and 1977; the quieter but systematic economic and political violence of the US-led international community which penalised Cambodia with more than a decade of sanctions and isolation until 1991.

For others, there would be the association of Cambodia with other Least Developed Countries, a poor backward nation with an anguished history and little development. It is this feature which has spawned what may well be the secret response of many outsiders who are at present living in Cambodia, which of course would almost never be admitted to. The country is a haven for the international do-gooder. And the past decade and more of international manipulation and interference in Cambodia's polity and economy, while it may have contributed little to the living conditions of the average Cambodian, has enriched and even captivated the lives of the many expatriates who have flocked there over the years.

It is this which makes Cambodia so very different, and yet so disturbingly similar, to other less developed countries. It is a poor and beautiful country, with citizens who are remarkably gracious and friendly to foreigners, despite (or perhaps because of?) their uncertain experience of them. Of course the dependence upon tourism encourages this, but the warmth of Cambodians extends well beyond that found in other countries of Southeast Asia. The extremes of wealth and poverty that now appear characteristic of almost the whole world, are also found in their extremes in this country as well.

One of the first things that strikes the visitor, is how this small and backward economy is almost completely dollarised. The US dollar apparently forms the medium of exchange for as much as 90 per cent of the total value of domestic transactions, according to one estimate. This obviously renders domestic monetary policy completely ineffective, but even more than that, it 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. These flows may be relatively small in the total portfolio of donors, but they are huge in relation to Cambodia's tiny economy, and dwarf 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, in activities as disparate as the crucial clearing of landmines and dealing with disabled people, to advice on education and plant regeneration, to macroeconomic policy guidance. The largest number of NGOs deal in some way with human rights, even though, on civil and political rights, the current government's record is probably better than that of say, the administration of George Bush.

The personnel of these outfits range from experienced and perceptive old Cambodia hands to young people who have barely graduated from college, eager to impose their expertise, however inappropriate, on the hapless residents. And young Cambodians with education see the most rapid route to mobility and success as being achieved through working with such organisations, or even through forming NGOs of their own which will receive aid funds.

Phnom Penh is not a big city – the population is just above a million people - but it must boast of one of the widest ranges of international cuisine available in the region, in chic restaurants, cafes and bistros that cater dominantly to the expatriate population. Many of the restaurants and smaller boutique-style hotels that dot the city as well as the town of Siem Reap (the base for visiting the famous Angkor sites) are actually owned and run by foreigners, who originally came as part of the aid-disbursing community.

Lives of expatriates in Cambodia are not just pleasant but typically delightful, with a little discount for some inevitable inconveniences of living in a poor country. Not only can resident foreigners have lavish lifestyles with all the consumption goods that are now international, but they live in a country where labour is cheap and generally obedient. Unlike in some other recipient countries, aid-givers and other foreign do-gooders are treated with great respect, hospitality and generosity, and are easily allowed to persuade themselves of their usefulness and importance. It is little wonder that very few people leave this paradise.

Yet the record of economic and social outcomes of the donor community over the past decade is not an impressive one. While political stability and peace have come to the country after years of devastating fighting, the economic growth of the past decade has not translated into any decline in the incidence of 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.

The past few years have seen deterioration even in more conventional macroeconomic performance as well. 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. The big source of export growth in garments was the filling up of MFA quotas made available to Cambodia by the US and the European Union; as these get filled, such exports are tapering off and in the past two years several garments factories have closed.

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, the basic activity of the state and its various organs and personnel today seems to be in participating in the free-for-all looting of the natural and human resources of the country. While “corruption” and “bad governance” have become grossly misused terms that are often used to camouflage more serious structural issues, there is no doubt that in Cambodia these issues have become so significant as to dominate everyday reality.

Corruption is now so widespread and so extreme that it can be mind-boggling. The enormous mansions of the rich – some of them taking up several acres and fulfilling the most expansive and flamboyant Bollywood dreams of luxury – bear witness to the gains made by the political and military elite. Several of these houses are said to be owned by former and current generals and other military officers, 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. Of course, corruption is not new to Cambodia – the Lon Nol regime propped up by the US government in the early 1970s was famously corrupt, to the point of ensuring their own undoing by some officers even selling military equipment to the enemy Khmer Rouge for a fee.

But the period of the 1980s was marked by quite a different social reality. 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 main forces making for instability in the country were openly and covertly helped by western powers anxious to reduce Soviet and Vietnamese influence. 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 Sihanoukist faction, 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, and several observers point out that UNTAC personnel were involved in attempts to destabilise the regime and promote more rightwing and openly pro-Western alternatives.

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 has 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, despite the evident cynicism operating at the level of government, and the apparent reneging of the state's basic responsibilities towards the people, the general impression is that this government is better than the available alternatives. Elections are due in July.

The current darling of the Western powers is the Opposition leader Sam Rainsy, who lived for decades in France prior to the 1990s, and who has been pushing a right-wing agenda including inciting hatred against ethnic Vietnamese living in Cambodia. This support for Rainsy is rather absurd, because the current regime has already given in on economic policies, virtually everything that can be given to the advantage of the West. Changing it would only involve a political shift to the right which could be very destabilising in a country and region that has a lot of recent history of potential and actual explosion.

This is not to deny the role played by internal factors in creating the inequalising tendencies in the economy, or to downplay the very positive role played by some expatriates, who have contributed and continue to contribute greatly to Cambodian society. Even granting all this, the net effect of foreign – especially US – influence on Cambodia in the past decade has been largely negative.With its small size and complex recent history, it may be that 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. We now live in a world characterised by a combination of rampant and bare-faced imperialism on one hand, and on the other a more sophisticated and less obstreperous, but still insidious and dangerous proto-colonialism.

June 30, 2003.