Credit Rating Seen as Step Toward Gov’t Bond Issue

Cambodia’s debut credit rating from the international rating agencies Standard & Poor’s and Mood­y’s—which was announced Thurs­day—will help pave the way for the government to issue bonds, a long-anticipated step in the development of the country’s capital markets, a government official said.

“We want to have another sour­ce of funding to serve the country’s development plan,” said Sec­retary of State Chea Pheng Chh­eang at the Ministry of Eco­nomy and Finance.

Cambodia has also been working on a $1.8-million project with the South Korean stock exchange to study the development of securities markets, which the country hopes to establish by 2010, he said.

This might be crucial for the country as the ability for companies to issue securities would have a much more profound effect on the nation’s economic growth than the issuance of government bonds, said Sok Hach, director of the Eco­nomic Institute of Cambodia, an in­dependent economic research institute.

“From an economic perspective, I think it’s now time to think very seriously about how to develop capital markets in the country,” he said.

“The government budget is about $700 million, plus foreign aid,” Sok Hach said. “It’s very small. The government has no money to pay the salaries of its staff.”

It is the private sector, he continued, that has real potential to drive Cambodia’s development.

“The private sector has money—what they need are good rules and regulations.”

But it remains unclear to what extent Cambodia will be able to transform its economy into a more mature one, answerable to markets rather than foreign aid donors. And few predict that Cambodia will wean itself from aid money anytime soon.

Some have privately expressed skepticism that Cambodia will be able to effectively tap into global fin­ancial markets in the absence of serious judicial reform, improved transparency and the passage of an anti-corruption law.

Chea Pheng Chheang, however, argues that, by developing its financial markets, Cambodia will streng­then its anti-corruption measures, accounting standards and judiciary.

“Before we entered the World Trade Organization, we had a lack of laws. But after we joined, we had to create many laws to be on track with the organization,” he said by way of example.

Despite more than a decade of economic liberalization and recent high-profile deals with US oil giant Chevron and Australian mining gi­ant BHP Billiton, it is not clear whether Cambodia’s economic growth and relative peace and prosperity have resulted in a broad kindling of foreign investment interest.

Foreign direct investment has surged in the last few years, hitting nearly $4 billion in 2006, but that money covered just 96 projects, according to data from the Eco­nomic Institute of Cambodia. The six mega-projects approved by the Council for the Development of Cambodia in 2006 alone amounted to more than $3 billion.

These projects, however, are un­likely to be implemented in the near term, Sok Hach said, adding that information released by the National Bank of Cambodia indicates that actual investment last year represented only about 10 percent of investment approved by the CDC.

The apparent increase in foreign direct investment might reflect a change in Cambodia’s in­vestment approval rules, which essentially encourage investors to overstate their planned investment, he said.

In a research note on its rating re­port, Standard & Poor’s characterized the level of foreign direct in­vestment in Cambodia as “low,” and emphasized the importance of continued donor assistance.

One senior government economist, speaking on condition of an­onymity, said Cambodia stands to make some $500 million a year from oil revenues if production goes ahead as planned in 2009. But even that significant shot in the arm, he said, will not be enough to replace donor funding.

“One grocery store can get $500 million in a year,” he said. “It is not much for a national government.”

Vietnam, he added, still receives hefty foreign aid, despite its active petroleum industry.

“Why not Cambodia?” he asked.


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