No Bond Market in 2007, Finance Minister Says

Plans to develop bond markets in Cam­bodia by 2007 will be de­lay­ed, Finance Minister Keat Chhon said Wednesday, because the go­vern­­ment needs more time to get con­trol over its money.

“We don’t want to start it now,” Ke­at Chhon said after a Finance Mi­­nistry meeting on creating a bond market. “The government can­­not do it by 2007 because ma­ny ob­stacles need to be fixed, in­clud­ing revenue collection, cash and debt management and ex­pen­diture con­­trol…[treasury]-bills and government bond issuance need to start af­ter those problems are under con­trol.”

In 2001 the government adopted a 10-year Financial Sector Blue­­print cal­ling for the development of capital markets in Cam­bo­­dia by the end of 2007.

Cambodia needs to develop a bond market, in which the go­vern­­ment sells treasury bills to the public and promises to repay the in­ves­tment with interest in or­der to pay for infrastructure, Keat Chhon said.

“Money collected from government bonds will be used to for ir­ri­­ga­tion, roads and bridges. These of­fer a quick return and ge­ne­rate public services,” he said.

But, he said, because budgets have not been credible in recent years, Cambodian government pro­­missory notes would not be met with confidence by the public.

“2003 was a bad year in the life of the minister of economy and fi­nance,” he said, adding that un­fore­­seen events and natural disasters wrecked havoc on the budget that year.

He said that the draft laws on government and non-government securities were submitted to the National Assembly in 2004 but they are still waiting to be debated.

The minister on Wednesday re­­­ceived a Japanese government-fun­­ded report by one of Japan’s leading business consultants, the No­­mu­ra Research Institute, on the chal­lenges that lie ahead for the birth of a Cambodian bond mar­ket.

Ta­king on public debt is how countries that are not de­pen­dent on foreign aid traditionally finance growth, and in­sure that spending on government functions such as health care and education is regular and not sub­ject to monthly tax and fee in­take, the report states.

But the Cambodian government’s fiscal regime must inspire con­fidence before that can happen.

“The National Treasury needs to be well prepared to make re­demp­tion upon maturity, otherwise it can be junk securities,” the re­port added.

The report calls for better control of the government’s cash, which is currently distributed in 1,580 bank accounts.

Ministries currently collect re­ve­­n­ue and spend at their own dis­cre­­tion, without reporting to the Mi­­ni­stry of Finance, the report notes.

Debt owed to a number of private companies is also not reflected in the budget, the report states.

Recommendations in the re­port in­clude prohibiting minis­tries from open­ing accounts in com­mercial banks and reducing the amount of mo­ney the treasu­ry owes minis­tries.

These moves are necessary be­cause bond investors want to know that a government’s expen­di­tures are regular and predic­ta­ble in order to determine the risk they face that their money will not be returned with interest.

The Nomura plan recommends trading Cambodian treasury bills on foreign exchanges as domestic bond trading develops. Once the bond market is op­erational, a corporate bond market would follow suit.