PHNOM PENH -- As Cambodia's economic woes mount, Prime Minister Hun Sen has pushed financial institutions to confiscate the property of borrowers who refuse to pay loans.
Hun Sen's remarks were delivered at an event Wednesday to launch a cash relief scheme for the country's poor in response to the economic blow wrought by COVID-19.
They come at a time when hundreds of thousands of indebted Cambodians face unemployment amid what one expert has called a "crisis" in the country's $10 billion microcredit sector. While the government has moved to shore up lenders, human rights activists and political opponents say the Hun Sen administration has done little to protect borrowers.
In his speech, the prime minister took aim at what he called "propaganda" intended to "incite" people to stop making repayments or to withdraw deposits -- an apparent reference to a call by self-exiled opposition leader Sam Rainsy for the indebted to hold onto their money.
"Those who want the banks to collapse by refusing to pay their bank loans back and by withdrawing their deposits might be disappointed," Hun Sen said, according to a state outlet.
"I would emphasize that I encourage the banks to seize the collateral of those who believe the propaganda. For those who are trying to pay off their loans, I appealed to the banks to understand them because this is a very hard time."
Rainsy, who fled to France in 2015 to avoid arrest in a case widely considered politically motivated, has seized upon the issue of personal debt to criticize the government.
"We have to get rid of this miserable regime through a campaign of passive resistance by refusing to repay our debts to the banks controlled by the Hun family on grounds of force majeure," he wrote on Facebook on May 30.
Cambodia has the world's highest average microloan debt per borrower at around $3,804 -- more than double the country's gross domestic product per capita.
Before the pandemic, the International Monetary Fund warned that microfinance institutions (MFIs), with more than 2.6 million borrowers, posed a risk for Cambodia's financial and macroeconomic stability because of their "growing systemic importance" to the economy.
Some MFI lenders have also been accused of reckless and predatory lending practices. In an address to the United Nations this year, a debt expert characterized the situation in Cambodia as an MFI "crisis" as most loans were for "nonproductive purposes."
Now, the ability of hundreds of thousands of borrowers to make repayments on loans, which in Cambodia are largely collateralized by land titles, is further in question. The pandemic has slammed Cambodia's economic drivers of apparel exports, tourism and construction.
The World Bank says 1.7 million jobs are at risk. The Asian Development Bank predicts Cambodia's GDP will contract by 5.5% this year, a steep drop from the more than 7% expansion the country has enjoyed in recent years.
Amid the downturn, the National Bank of Cambodia has announced measures to support banks and MFIs. These include decreased liquidity requirements, access to cheap loans, and a reduction of withholding tax owed on the interest of intra-bank loan payments.
The NBC has also issued nonbinding guidance for banks and MFIs to restructure loans to provide relief to those unable to pay.
Stephen Higgins, a former bank chief in Cambodia, said the NBC had taken a "pragmatic approach" in terms of allowing loan repayment holidays and injecting liquidity into the system.
He said financial institutions would prefer extended repayment holidays because repossessing and selling-off property would "almost certainly guarantee a loss" in the current climate.
"The sector has plenty of capital and good liquidity," Higgins, now a partner of investment management and advisory company Mekong Strategic Partners, added.
So far, MFIs have restructured loans for more than 220,000 customers whose total loans add up to more than $1 billion, according to Kaing Tongngy, spokesman for the Cambodian Microfinance Association.
Tongngy claimed no cases of collateral confiscation had occurred during the pandemic.
However, this was refuted by rights group Licadho, which has released reports scrutinizing the microfinance sector.
"Licadho has spoken with multiple people who have been coerced by MFI credit officers into selling their land since the start of the COVID-19 pandemic," said the group's director Naly Pilorge.
"As we have described before in our reports, coerced land sales rarely occur through the formal court processes and most often are due to direct coercion of clients by credit officers."
With job losses mounting, Pilorge reiterated a call made by a coalition of 135 local communities, unions and NGOs in April to suspend microloan debt repayments and return borrowers' land titles.
"Many Cambodians cannot afford to repay their loans during this economic crisis brought on by COVID-19, and the restructuring options being offered to them are not enough," she said.
"Without real debt relief and a return of borrowers' land titles, there will be more defaults and harmful coping mechanisms, such as land sales and debt-driven migration -- not because borrowers are making a choice, but because they are drowning in debt."