Behind the Curtain; The country is at peace and still receiving lots of aid money. So why are its citizens growing ever poorer?(Cambodia)

Byline: Joe Cochrane

Veal Kandal is the kind of village the Cambodian government doesn't want anyone to know about. The 40 farming families that live among dusty, drought-stricken paddies were facing ruin last week as the crops they need to survive wilted before their eyes. Thirteen years after a historic United Nations-brokered peace agreement, and despite several billion dollars in foreign aid that's been doled out to Cambodia since the 1991 accord, the village, only 30 kilometers from the capital Phnom Penh, still has no electricity or running water. Veal Kandal is no model for postconflict development; it's painful evidence of the failure of the nation-building project in Cambodia. "The more elections we have," says San Siek, 67, a widowed mother of five, "the worse our living conditions are."

The plight of San and her neighbors will surely be weighing on the minds of donor nations and international lending institutions as they gather in Phnom Penh this week to pledge their annual aid package to Cambodia. The group is expected to promise around $600 million for next year--$100 million more than in 2003. They will hail a country that is free from war, has held three elections since 1998 and is slowly strengthening democratic institutions.

Cambodia, however, also remains a country with a corrupt and incompetent judiciary, where the rule of law is a dream. After years of turning a blind eye to the country's glaring problems because of its tragic history of genocide, foreign donors are now facing some uncomfortable questions: Why has the poverty rate increased by more than 20 percent since 1996, when it's steadily decreasing in neighboring Laos and Vietnam? How could infant mortality be on the rise? And why has bureaucratic corruption skyrocketed? "We have set up the democratic facade," says Sam Rainsy, opposition leader of Cambodia's Parliament. "[But] the country has gone backwards."

Two recent reports on Cambodia bolster that assessment. A corruption report by the U.S. Agency for International Development states that as much as $500 million in potential government revenues is lost annually to smuggling, embezzlement and other illegal activities. A ...