Cambodia will cancel all loan agreements with Thailand as a diplomatic crisis between the two countries spreads into economic development. The dispute could delay a railway through Southeast Asia.
Cambodian Prime Minister Hun Sen says all loans from Thailand will be canceled. His transportation department will annul a $40 million loan from Bangkok for road repairs.
This week he ordered provincial authorities to cancel all loans and suggested student scholarships from Thailand should be scrapped. Mr. Hun Sen says Cambodians are prepared to die for the country but would not be looked down upon by Thais.
The orders came as speculation rises that the rift between Phnom Penh and Bangkok threatens the completion of the Trans-Asian railway.
At risk is a six-kilometer track needed to connect the Cambodia side of the border within Thailand. It is crucial to a 5,300-kilometer railroad that will run from China to Singapore.
The State Railway of Thailand and sources close to the Cambodian leadership say negotiations about the link are on hold due to the diplomatic tensions.
Paul Power, a railway engineer and an advisor to the Cambodian government, says any decision to scrap the rail link has significant regional implications.
"Well this is a very important link in the rail network from Bangkok to Kunming," he said. "If that link is not constructed, I think it calls into question the viability of the track from Phnom Penh to Ho Chi Minh City. So it's very important that the link be built."
The route passes from China's Kunming down through Vietnam, Cambodia, Thailand and Malaysia, to Singapore. Spur lines will connect to Laos. The railway uses both new and abandoned routes that need to be rehabilitated.
Australia's Toll Holdings has the contract to reconstruct old French lines from the Thai border to Phnom Penh and then south to Cambodia's port at Sihanoukville.
China Railway Group is doing a feasibility study on building a new line linking Phnom Penh with Vietnam.
Relations between the Bangkok and Phnom Penh sunk to their lowest ebb in recent years after Cambodian Prime Minister Hun Sen recently offered his friend, former Thai leader Thaksin Shinawatra a home and a job as an economics adviser.
Cambodia also rejected a Thai extradition request for the former prime minister, who fled his country last year to avoid a two-year jail term for corruption.
The dispute has already resulted in the cancellation of agreements on oil reserves in the Gulf of Siam. Both countries have withdrawn their ambassadors.