Integrating ASEAN economies

Opinion and Editorial - November 23, 2007

We should magnanimously acknowledge that we are the laggard in the marathon run to the ASEAN Economic Community in 2015 as our economy, though the largest of the ten member countries, accounting for 230 million of the region's 570 million population, is among the least efficient and least competitive.

The ASEAN Economic Community (AEC) Blueprint adopted at the summit meeting in Singapore on Tuesday therefore imposes on us a heavy load of homework to improve physical infrastructure such as roads, seaport, telecommunications and power supply as well as regulatory and bureaucratic frameworks.

We have only about seven years to gear up for the ASEAN single market -- the main foundation of the economic community -- which allows for the free flow of goods, services, investments and skilled professionals in order to integrate the ASEAN economies into a global economy through global supply chains.

Integration into the global supply chain is perhaps the most important intermediate goal of the AEC Blueprint, because unlike the European Union, ASEAN depends on the external world for more than 25 percent of its trade and for the bulk of its investment needs.

The basic idea has never been to build a European Union-modeled economic community. The main objective is to woo more foreign investment to the ASEAN region as businesses can use one of ASEAN's ten member countries as a regional base for production not only for that particular country but also for the region and the entire global market.

Different investment and trade regimes and different quality standards and regulations on business operations in ASEAN countries as they are now make them less attractive to such potentially giant economies as India and China, which offer huge economies of scale.

The rationale is that foreign investors will have advantages to establish regional production networks in ASEAN countries only if the region has become a reliable part of the global supply chain. That is because without superior logistics capabilities, companies will not be able to tap local comparative advantages and economies of scale.

Manufacturers now require an efficient supply-chain management to allow for lower storage costs, lean manufacturing and just-in-time delivery because they have to adjust to the changes in the whole demand cycle. Without such advances in logistics and supply capability, regional market integration through subdivision and dispersion of production processes among ASEAN countries will not be cost effective.

The groundwork for creating an efficient ASEAN single market is already an uphill challenge by itself because it requires efficient transport, expedient customs services and harmonized customs procedures, common production standards, efficient licensing bureaucracy and easy visa requirements.

ASEAN should make concerted efforts to facilitate the smooth transit of goods between two ASEAN countries through a third and open up air-cargo services, including express delivery firms.

ASEAN needs an independent dispute-settlement mechanism to resolve disputes between members within free-trade implementations, because there are many areas that could cause different views or disputes. Take for example the verification of the country-of-origin certificate with regard to the minimum 40 percent ASEAN content to make products eligible for the tariff-cut regime.

Assessing this minimum ASEAN content could become a major source of disputes because many factories in the ASEAN region still depend on input, parts or components from suppliers outside the region.

Unfortunately, when it comes to logistical arrangements, Indonesia is among the least efficient of ASEAN's six founding members, Brunei, Indonesia, Malaysia, Singapore, Thailand and the Philippines, as national and international surveys have often confirmed. The main reasons are crumbling basic infrastructure, red tape and corruption.

The Asian Development Bank rightly pointed out in a recent report that Indonesia's top-priority homework with regards to preparations for the AEC should be the development of good governance and improvement of basic infrastructure and the investment climate.

If our economy does not improve its overall efficiency and competitiveness it will be other ASEAN countries that will benefit greatly from the single market concept as foreign investors will set up their regional production bases in other ASEAN countries, such as Vietnam, Thailand or Malaysia.

Our economy will become simply the market outlet for products and services from other ASEAN countries. We will not even be able benefit from the free flow of skilled professionals between ASEAN. We may instead lose many of our best doctors, nurses, accountants, architects or other professionals to other ASEAN countries which can offer a better working atmosphere and remuneration.

Source: http://www.thejakartapost.com/yesterdaydetail.asp?fileid=20071123.G01

Law on Corporate Accounts, Their Audit and The Accounting Profession

The Law on Corporate Accounts, Their Audit and The Accounting Profession, which is adopted by the National Assembly on the 24th May 2002 at its 8th plenary session of the second legislature and entirely approved by the Senate on its form and legal concepts on the 21st June 2002 at its 7th plenary session of the first legislature, and which has its full substance as follows: Read More

GOVERNANCE ACTION PLAN II 2005-2008

FINANCIAL SECTOR DEVELOPMENT

The financial sector including banking and insurance sectors and other relevant activities are in their starting stage and have played their crucial roles and the development of the national economy. The Royal Government of Cambodia has made its efforts to reform the financial sector in Cambodia that has been successful and so far obtained many big achievements. The sector is developed and generated increasing confidence.

The Royal Government has successfully implemented the first step of the 2001-2010 Financial Sector Development Blueprint by mobilizing all the financial resources to meet the needs in manufacturing and support economic growth.

In the financial sector, the Royal Government has strengthen law enforcement and supervise commercial banks through the issuance of new licenses together with increased capital requirements, initiate monitoring and control mechanism to develop single account. The Government is drafting other legislation in order to strengthen the confidence in the banking sector. In the rural financial sector, the Royal Government has strengthened micro finance institutions requiring them to abide by the laws to facilitate control and monitoring as well as to reduce interest rates. As a result, a number of MFIs have expanded their financial services and become commercial banks.

Achievements made include:

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Introduction and implementation of on and off-site inspections to financial institutions
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Liquidation of non performing banks
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Privatization of the Foreign Trade Bank
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Revision and improvement of existing rules and regulations to ascertain better and effective law enforcement
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Monitoring and control banks performance with the Uniform Chart of Accounts that is in line with the International Accounting Standards

Financial Industry Development

The financial industry has remarkably developed since its inception in the early 1990s. It is made of big sectors such as Insurance and Capital Market. The Insurance sector was established in the early 1990s starting with the Cambodian National Insurance Company (CAMINCO) and in 1994 it was under the direct supervision of MEF. In 2002, 4 insurance companies that invested in the sector include Indochine, Forte, Asia, and Pana.

To achieve development MEF has formulated legislations, Sub-decrees, and Prakas to supervise the financial industry. Insurance premium increased from USD 5,487,087 in 2002 to USD 8,821,708 in 2003 with an increase equivalent to about 60 percent. On the other hand, the sales of insurance policies increased from 23,120 in 2002 to 28,297 in 2003. At the same time, the supply of insurance services has subsequently increased: from property to general travel insurance.

Concerning the capital market, the Royal Government has made its efforts and decided to form a Capital Market Task Force. The team has been very active in laying the foundation for capital market including the establishment of Capital Market Monitoring Mechanism and developing the activities of the officials of the Capital Market Office. The team has conducted inter-ministerial meetings to discuss the draft Law on the Issuance and transactions of Public Bonds.

National Accounting Council Development

The Law on Enterprise Accounting, Auditing and Their Professions that became effective led to the submission of the Sub-decree on the Establishment of the National Accounting Council to the plenary session of the Council of Ministers that was approved and signed by Samdech Prime Minister HUN SEN on March 03, 2003. On March 27, 2003, MEF issued a Prakas on the Assignment of the Board of Directors to the National Accounting Council that comprises of 13 members from state institutions and private organizations. So far the Board of Directors have convened many meetings to review and to discuss the 15 Accounting Standards and 10 Auditing Standards and on many other provisions.

Similarly, the draft Sub-decree on the Establishment of the Khmer Institute of Certified Public Accountants and Auditors (KICPAA) was also approved at the plenary session of the Council of Ministers and signed by Samdech Prime Minister HUN SEN on March 19, 2003. Due to the efforts made by the National Accounting Council as well as the International Accounting Standards Research Committee (IASRC) with the collaboration and Assistance from NGOs and the private sector, the 15 Accounting Standards and 10 Auditing Standards were approved on October 16, 2003.

IASRC, NAC, and KICPAA shall continue to study and research the remaining standards among the overall 43 accounting standards, and 20 auditing standards used worldwide to meet the requirement of the Cambodian Economy that is gradually taking off. Apart from that, a number of legal frameworks and institutions have been established as well, such as:

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The implementation of the Cambodian Accounting and Auditing Standards
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The establishment of a Commission to register licensed Certified Public Accountants and Auditors

Also, in order to develop and supervise the accounting profession so as to suit its development either within national or international framework, norms or rules are required for licensed certified public accountants and auditors, so that they can conduct these businesses in Cambodia. In response to such a need, NAC and KICPAA have jointly made efforts to produce the Code of Conduct for licensed certified public accountants and auditors through a Sub-decree that was approved at the plenary session of the Council of Ministers on June 03, 2005. Samdech Prime Minister HUN SEN signed the Sub-decree No. 83 on June 17, 2005.

The Sub-decree divided into 7 Chapters with 38 Articles with its major substance focused on Public Interests, Basic Principles for Accountants, Resolution of Conflicts on Code of Conduct, and Disciplinary Sanctions.

On top of that, NAC has tried to conduct training through a Perfect and Strict Training Program organized by CamEd which is a private vocational training organization. NAC and CamEd have conducted 6-generation trainings to 233 students (only for those who received scholarships from the Government). Of which, one session on Certified Accounting Technicians with 43 students and 5 sessions on Certified Public Accountants and Auditors with 190 students following ACCA’s curricula will receive their degrees from ACCA.

For Certified Public Accountants, training will require at least 3 years and go through a course of instructions directed at Accounting and Auditing Firms at least for 3 more years to become a CPA. Provisional results of generations 1, 3, and 4 have shown that there were at least 40-60 percent of civil servants who passed each course successfully and may receive the CPA degree in the near future.

In the short run NAC has much work to complete such as the verification of the name of registered companies and those that registered tax payments as the real regime; the dissemination of the Law on Enterprise Accounting, Auditing, and Their Professions, and Cambodian Accounting and Auditing Standards to students of tertiary education and companies that are conducting their business in the Kingdom of Cambodia; and the preparation of the Cambodian Syllabus for CPA.


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