Excellencies, Ladies and Gentlemen
Today, I am pleased and have a great honor to attend the launching of the official report on “Financial Sector Development Strategy for 2006-2015” and the opening of the conference on “Royal Government of Cambodia-Asian Development Bank Partnership toward an Integrated and Sound Financial System”. I would like to show my appreciation to the Asian Development Bank and the National Bank of Cambodia, which are the operational agencies of this technical assistance project for initiating and organizing this meeting amongst all concerned stakeholders including national and international guests.
I strongly believe that this meeting will produce good methods for creating new ideas and a consensus on certain solutions in order to speed up the financial sector development and partnership between the Royal Government of Cambodia and the Asian Development Bank in the path to a sound and integrated financial system which will contribute to the improvement of the people’s standard of living.
At the same time, I noticed that this conference has been organized for the purposes of, (1) official launching of theFinancial Sector Development Strategy for 2006-2015 report which is the updated edition of the Financial Sector Blueprint 2001-2010 report, and (2) providing the opportunity to all interested parties either domestic or regional to share their views and provide their ideas on how the banking and financial sector should progress.
Therefore, the main focus of this conference really responses timely and appropriately to the current development of the financial market and new challenges faced by market participants, policy and law makers alike.
Obviously, financial sector reform is not our final destination. Banking and financial system must play an important role in mobilizing resources and distributing those resources to the users as much as possible in order to act as an important linkage with economic growth. For instance, the reform in this sector has contributed successfully to the growth of the Cambodian economy which is reflected by a highly sustainable economic growth and remarkable poverty reduction in the last decade.
In the last decade, Cambodia has achieved a notable macro-economic stability, social and economic development. Between 1994 and 2006, the average annual growth rate was 9.8%, higher than other developing countries. In 2005, the growth rate jumped to 13.4%. In 2006, the growth rate was 10.4%. Even though the figure was lower than 2005, it is still ranked as high and encouraging. Income per capita doubled, from USD $249 in 1994 to USD $500 in 2005. Inflation rate has been kept low. Foreign currencies exchange rate have been generally stable. The Cambodian foreign currency reserves increased markedly from USD $100 million in 1994 to USD $ 1 000 million in 2006.
Without any doubt, these tremendous achievements do not ignore the challenges that still and will pose large and small obstacles in the path of further development of Cambodia. The Royal Government must actively continue to fight many more battles to ensure the continuity and sustainability of the economic and financial conditions which are favorable for the development and for rapid poverty reduction. The Government must continue its special effort to expand its revenue base and to rationalize its expenditure in order to increase public investments, diversify the economic growth base by boosting agricultural sector and rural development, push for further implementation of reform on private sector development and employment through practical and effective measures aiming at improving investment climate, trade facilitation, better governance and the promotion of small and medium enterprises. Still, all the achievements that Cambodia has attained recently made us believe that Cambodia has the full potential and ability to overcome and succeed any challenge in the present and future and move quickly forward to realize permanent peace and sustainable development.
Regarding the financial sector, we have many important achievements that should be outlined, including laws reinforcement and commercial banks supervision through licensing renewal which requires higher investment capital, the introduction of monitoring and control procedures, the standardization of the chart of accounts for all banks, strengthening the ability of the central bank to monitor and control commercial banks and other financial institutions, and making laws and other important regulation to increase public confidence in the banking sector. In our effort to reduce poverty, the Royal Government has considered the adequate delivery of microfinance services as an important mean for supporting rural development. Base on this context, the Royal Government has been actively putting its effort in placing all the microfinance institutions under the scope of the law aiming at effectively promoting the development of microfinance sector to have a broader coverage, and to achieve low and appropriate market rates of interest.
In addition, the Government has implemented its cautious monetary policy in which the main goal is to join in the process of creating a very stable and favorable macro-economic condition for economic growth and transactions, especially by ensuring a stable exchange rate and limiting inflation rate with the use of monetary instruments. In this context, the implementation of its economic and financial policy the Royal Government is determined to stick to its rule of not financing the government’s budget through banks or printing money. The Government’s money supply policy has been prepared to address the necessary market demand but not to fund the Government’s budget deficit.
With respect to the insurance sector, the Royal Government has prepared and implemented some standard regulatory frameworks to strengthen the supervision of insurance companies through licensing renewals, the implementation of permanent controlling procedures, and the application of accounting principles.
In the capital market sector, laws relating to the Government Bond have been recently prepared and approved by the Legislative Institutions. At the same time, the Royal Government is finalizing the drafted law on the publication and transaction of corporation bonds with the objective of introducing the capital market in Cambodia by 2009.
All of the above mentioned achievements clearly showed us that we have already reached a point that we need to move forward, hence we must clarify our visions for banking and financial services in Cambodia. Obviously, preparing a roadmap for growth and development of financial sector is not an easy task given the challenges faced by Cambodia. But planning for uncertainties and looking for opportunities are the keys to success for financial sector in the future. In this regards, I would like to fully endorse the carefully-thought policy direction and strategy as stated in the “Financial Sector Development Strategy for 2006-2015”.
However, along with the above achievements I would like to demonstrate my own thoughts regarding to financial sector development in the context of Cambodia as follows:
First, particular attention has to be paid to the means of strengthening of public confidence which is an essential element for fostering the role of banks in the economy. To this end, the concerned authorities need to create an environment conducive to activity of a sound banking sector, and develop a strong and well functioning infrastructure for banking activities as well as for fair and competitive market structures.
Second, developing a national payment system is one of the key priorities in the “Financial Sector Development Strategy in 2006-2015”. Without an efficient and wide-reaching national payment system, the financial sector will not be able to provide effective intermediation, or offer its services throughout the economy. The enactment of the “Law on Negotiable Instruments and Payment Transactions” is a necessary first step that gives the NBC clear authority over the payment system and to make improvements. The design of the payment system should ensure that the needs of individual consumers as well as corporations in the real sector will be adequately accommodated.
Third, given Cambodia’s current economic structure, it is very important to focus on the role of microfinance and entrepreneurship in poverty alleviation and economic development. Within this framework, I am glad to see that the microfinance sector reserves a chapter of its own in the “Financial Sector Development Strategy for 2006-2015”. Currently, the financial sector has focused its services mainly on the advanced sectors, while micro enterprises still not gained adequate access to financial services. To address the financing needs of small farmers, the competent authorities need to be opened to innovative ideas, encourage banks to lend to MFIs using proper microfinance methodologies, but at the same time we need to also set in place certain parameters to ensure that risks associated with agriculture financing are properly managed. In addition, further efforts need to be made to reduce the cost of borrowing and make microfinance affordable for the poor.
Fourth, to support microfinance, we need to continue, on schedule, the implementation of systematic land titling and registration in a transparent, decentralized and efficient manner. Such measures will not only stimulate farmers to invest in the improvement of the productivity and profitability of their land, but also will promote their access to funding by increasing the safety of their collaterals.
Fifth, the introduction of financial market is very important. It can help to mobilize the Cambodian people’s saving and channel them into long-term investments in social, economic and infrastructure projects. A good start for a financial market would be the government bonds, which are very crucial for the development of money and inter-bank market.
Sixth, the insurance sector is of considerable importance to every developing economy. It inculcates the saving habit, which in turn generates long-term investible funds for long-term investment in the real sector, and protects businesses and individuals from catastrophic events. With increased per capita income there is also great potential to develop the insurance market. In this regards, the supervisory and regulatory framework should be enhanced, while skills and experiences on risk management need to be upgraded.
Seventh, A well-functioning financial system depends on legal and regulatory underpinnings. There is no doubt that establishing financial institutions and introducing financial processes without necessary legal, supervisory framework and other legal underpinnings would impede the reform process. Thus, the Royal Government is committed to develop the financial infrastructure to effectively receive legal information, regulation and law, which enable financial institutions to provide benefit that we wish to see.
Last but not least, I would like to emphasize capacity building and capacity development in the financial sector. At the moment, specific technical capacities seem to be very thin across the system, while financial services require human resources of high capacity in order to spur economic growth and development. In this context, to timely meet the market demand and to ensure the sustainability we must focus our attention to capacity building both in the private and public sectors.
The theme of today’s symposium “ADB-Royal Government of Cambodia Partnership toward an Integrated and Sound Financial System” is a thought-provoking one and I am very pleased that all stakeholders concerned in the sector are gathering to explore ways to promote a well-functioning and healthy financial system in this increasingly globalized economy.
Before closing, I would like to convey my gratitude to the ADB for supporting the preparation and launching of the“Financial Sector Development Strategy for 2006-2015”, which aims at turning our knowledge and insights into action. Furthermore, on behalf of the Royal Government of Cambodia and myself, I would like to extend my appreciation to National Bank of Cambodia, Ministry of Economy and Finance and the establishments concerned, especially technical working group on the formulation of this important document for their great efforts.
I am convinced that there will be great support from ADB and development partners for elaborating policies for financial sector development in region, particularly arrangement for this kind of discussion in the future in order to share experience and knowledge in Asia.
Finally, I would like to wish you all with Five Gems of Buddhist Blessings. And may this discussion be a fruitful one.May I announce the launching of “Financial Sector Development Strategy for 2006-2015”.