H.E. CHEA CHANTO
GOVERNOR NATIONAL BANK OF CAMBODIA
Could you tell us briefly the historical development of the central Bank of Cambodia since its creation and its main responsibilities and objectives within the economic development of Cambodia?

The National Bank of Cambodia is the Central Bank of the country. In this position, it has several aims. The first objective and responsibility of the NBC is to conduct the monetary policy, the ultimate goal of which is price stability. As a second objective, the NBC conducts the foreign exchange policy in order to ensure a smooth transaction internationally. The third mission of the NBC is the supervision of the banking and financial institutions. The forth one is the exclusive role of issuing the national currency, the Riel. The fifth is to manage the international reserves of the country and sixth, on behalf of the government, we keep the contact with the international financial institutions.

Historically, the Central Bank was established in 1955 after the independence. During the Pol Pot regime from 1975 to 1979, the whole banking system was completely destroyed. Even the building of the Central Bank was physically destroyed. It was a society where there was no money, no markets even no schools. It was some kind of primitive communist society. It was in 1979 that we started to rehabilitate the economy. In 1980 we started to issue bank notes and national currency again. We had to start from zero. We don't even consider it a transition period, we started with a new balance sheet and we had to form our human resources to function correctly. We called that period the mono-bank system.

In 1989, we started economic reforms, so we shifted from a mono-bank system to a two-tier banking system. This new system meant that there is division between the Central Bank, which became the banking authority, and the Commercial Banks as the operators. In 1996, a new Central Bank Law was passed that formally committed us to the two-tier banking system. The law gave the Central Bank the independence in its operations. In 1999, the Law on Banking and Financial Institutions was passed. This law is the legal foundation for the Central Bank to perform its role as supervisory authority of the banking sector and to license those banking operators and to supervise them.

There have been major changes undertaken toward the commercial banks after the approval this new Banking Law. Could you tell us more about these developments?

After the opening up of the country and the completion of the private ownership, private banking flourished in Cambodia. Before re-licensing there were more than 30 commercial banks. In the economic context we were involved this high number of commercial banks was not suitable. This is why in 1999 we passed a new Law on Banking and Financial Institutions. The main component of that law was the requirement of a minimum capital to the banks and the imposition to provide the legal basis for supervision. Since the adoption of this law until the end of 2002 more than fifteen banks were closed for none compliance to that requirement. Presently, there are thus only 17 banks operating in the country, from which two banks are state-owned.

Besides this short-term action, we also have a long-term plan for the development of the banking sector in particular and the financial sector in general. This long-term vision is published under the name of Financial Sector Blueprint for 2001-2010. It includes the concept of the development of the legal and financial infrastructure, and also the plans for the development of a stock market and the future of the sector.

One of the points in the agenda of the Royal Government of Cambodia is, as you just mentioned, the creation of the Cambodian Stock Exchange. What can you tell us about the future formation of this institution?

Concerning the creation of this establishment, we have set a list of priorities. The first priority is to strengthen the banking sector this will be possible through the issuing of new and more appropriate regulations to shape the banking sector. Secondly, we have to introduce a sound accounting system in the whole country. In terms of capacity building, we focus on the filling up of capacity of the bank supervision department, so they can perform accurately both on-site and off-site examinations. Those priorities can be seen as the first step of our vision, which application began on 2001 and will last until 2004.

During the second step, planned from 2005 to 2007, we need to create the foundation for the stock market in terms of accounting system, legal environment and strengthen the audit system through the introduction of audit standards and security instruments. To initially establish the security market, the Government's securities needs to be issued first. This year we are even thinking about cooperating with the Ministry of Economy and Finance to issue a Treasury bill in the short term. The second phase of 2005 to 2007 will create the foundation, the environment and the instruments for the market. Finally, from 2008 to 2010, the conditions and foundations for the creation of a Stock Exchange will finally be in place and we will be able to establish it.

Financial institutions like the IMF, the ADB and the World Bank have been in Cambodia helping out for the economical reconstruction of the country. As you mentioned before, the National Bank of Cambodia is in charge of the contacts with those institutions. What are the current relations with them?

Generally speaking we have a very close collaboration with those international financial institutions. The IMF has even its resident representative in the NBC building. With the IMF, we have mainly a stabilization program called Poverty Reduction and Growth Facility (PRGF), so it concerns the macro-economic development of the country. Recently we have just finished the implementation of the first PRGF program the last disbursement has been done already, being the amount involved in that project around 84 million US Dollars.


With the Asian Development Bank we work closely on the formulation of a long term plan development and recently we have received the assistance from ADB for the implementation of the financial sector development plan. ADB has also provided us the technical assistance to strengthen the micro finance supervision. We also have collaboration with AFD (Agence Française de Développement) in the field of strengthening micro-finance institutions. Those operators are the main agents who provide the small credit to farmers in the rural area. What concerns the World Bank, we do not have direct contact with them as they work closely with the Ministry of Economy and Finance.

To implement all the reforms undertaken by the RGC and the guidelines from the international institutions, transparency is a must. Your government is fully aware of that and willing to comply, what are the measures undertaken from your side to ensure this Transparency Policy?

Indeed, transparency is one of the most important issues for the NBC. On that matter, the financial report of the NBC is subject to audit by an international firm. Those audited financial reports are also sent to the IMF on a yearly basis. Furthermore, the report, along with the management letters and the opinions from the Price Waterhouse Coopers auditors are available on the Internet. Also internally, within the country we have a monthly bulletin with monetary statistics.

The top decision making body at the NBC is the Board of Directors. We have the Governor as chairman and the following members: the Deputy Governor and representatives from the Government, from the Ministry of Economy and Finance, from the University of Economics, from the private sector, specifically from Chambers of Commerce and a representative of the NBC staff itself. This Board is the policy making body of the Central Bank, and ensures not onl