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 only the transparency, but also the budget, the financial report, the balance sheet and so on.

Another aspect we would like to approach is the high dollarization of the Cambodian economy, which has allow till now the stability of the Riel. What is your personal point of view on that situation and which are the main concerns of the Central Bank?

In the early 1990s when the UNTAC came to Cambodia to help organize the general elections in 1993, around two billion US Dollars flowed into the country. As a consequence of that, the US dollar started to circulate massively in the country and people started to use it along with our own national currency, the Riel.

Currently, our objective is to "de-dollarize" the economy. But this process should be done step by step, prudently and consciously in order to avoid possible harmful effects. So far, the Central Bank has tried to keep the exchange rate between the Riel against the US dollar stable. This way we create an environment where the general public feels confident with the national currency. With this financial stability added to the political one, the people will start saving in Riels or US Dollars. Our policy is very flexible; we are not enforcing the "de-dollarization", we want the market mechanism to function and progressively build up the confidence of the general public. This is why our concern is to ensure micro-program stability to increase our international foreign reserve. The plan to issue a Treasury Bill will contribute to the process of the de-dollarization as well. In order to create a market for the national currency a lot things need to be done.

Can you tell us more about your career path?

I took part in the re-establishment of the Central Bank in 1979 along with the former as Deputy Governor of the NBC. In 1985 I was appointed as the Minister in charge of the Ministry of Planning. At that time it was a centrally planned economy, and I fulfilled my function of Minister for 12 years. I participated with the Government during the reform program to pass from a centrally planned economy to a market economy. It was only after 1998 that I moved from Ministry of Planning to the NBC to become the Governor. Now, this is my second term as Governor and this term will come to an end in 2006.

What Final message would you address to those investors looking at Cambodia as an investment destination?

As I just mentioned, our mission is to strengthen the banking sector and banking business. This means we want to create a smooth, safe and efficient payment system, facilitate financial transactions and encourage savings to arise the confidence of both, the general public and investors.

Could you tell us more about the main matters that are essential for foreign investors such as the interest rate and its development or the credit system in Cambodia?

As you may aware of that at present the gap between the borrowing rate and the lending rate is very high. The banking system is constrained by the lack of financial infrastructure, especially legal infrastructure. In Cambodia, investment is practically not fully sensitive to the interest rate as stated in the theory or worked in most developed countries.

Given this environment, the main factor that Cambodia is able to encourage investors, both foreign and local, is to strengthen and develop a competitive, safe, and sound banking system so that to gain more public confidence and to be a good service for all customers. At present, it is necessary to develop the banking system that is well regulated and supervised, and effectively mobilizes savings to provide financing to support the growth of the private sector. In addition, there needs also to create a good payment system that is a safe and reliable system for the transfer of funds between customers/investors and banks, and for the settlement of payment between banks in order to facilitate all kind of transactions, locally and internationally, to all economic agents. Using these mechanisms, it means that we encourage investors.