Economic Policy Review ISSN 1313 - 0544

10 Facts about the Unneeded Bank

Author: Zornitsa Manolova / 04.08.2009
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There are a lot of talks about the role of Bulgarian Development Bank (BDB) in the national economy. Many great hopes rely on it about "supporting" the awkward business in a period of crisis. IME had already made some publications about the effect of existence of the previous "Encouragement bank" and today's Bulgarian Development Bank (BDB), but the public debate provokes the need of systematizing and pointing the facts for the essence of the existence of a bank like BDB and its main task "to support the growth of the Bulgarian economy by encouraging the export and supporting the realization of the government economic policy about micro, small and medium-sized enterprises":

  • 1) Banks in their role as financial mediators are specialized in evaluating winning ideas and measuring risks. Government officials do not have such a specific knowledge.
  • 2) The economic excuse of every sponsored or guaranteed by the government program should be based on an existence of some steady "defect" in the private sector concerning its ability to distribute the resources efficiently. If there is no such problem, the only thing done by the BDB is wasting funds, politically motivated subsidy for the small and medium-sized enterprises.
  • 3) There is no information about the model used by BDB for choosing which enterprise to be given a credit and why BDB should finance enterprises which could not find funds by themselves. It is important to point out that, in fact, when there is a government guaranty there is no risk about the financing because the entrepreneur does not take any risk.
  • 4) BDB does not have clearly set annual indicators for success and its after-effect on the economic growth. This makes it impossible to follow the results of its actions and its progress. BDB does not collect information about the enterprise's status after receiving a credit from it. The only information is about how well the funds have been given. On the other side, the government does not have the prone to confess its failure.
  • 5) By the policy of BDB are created mistaken stimulus for the entrepreneurs who now can rely on the government not on their own abilities. All of the rest entrepreneurs on the market have to pay the market price for the credit.
  • 6) The special treating creates groups with special interests which purpose is to lobby for more support. An example for this is how some days ago tourist organizations wanted tourism to be recognized as an export branch because they wanted to make use of BDB`s program.
  • 7) In comparison to all credits given by the whole bank branch, BDB has an insignificant part but undeserved supporting for some, harms the others on the competitive market.
  • 8) There are a lot of examples for the ineffectiveness when the government spends funds. The main role here is played by the corruption.
  • 9) The role of the entrepreneurs is to be enterprising and the government should not only stop to intervene with taxpayers` money in this specific case but it is also pointless in geberal because it is not an entrepreneur and will never be.
  • 10) There are no evidences that there is any correlation between the size of the government investitions - by special government banks or by any other mechanisms - and economic growth. Current drive against the crisis once again demonstrates just the opposite.

The future Minister of finance knows the last not worse than me.