Thursday, November 24, 2011

B.Batjargal: DB to finance railroad projects first

B.Batjargal, head of the Budget Policy Board of the Finance Ministry and head of the Representative Managing Council of the Development Bank (DB), recently spoke with one of our correspondents.

Q: Critics say the proposed 2012 budget has too many expenditures and the deficit is too large. Can the proposed MNT 7 trillion budget be reduced?

A: The proposed 2012 budget has several large changes of expenditure from the 2011 budget in accordance with policy decisions. There are changes in five areas of budget expenditure: salary, pensions, investment, social welfare, and foreign loans.

Q: Mongol Bank has warned that enlarging the budget will lead to inflation. Some economists say inflation has been rising rapidly in recent months. What do you say about that?

A: Inflation is not only related to enlarging the budget. Economic growth in Mongolia was six percent in 2010 but it will be 20 percent at the end of 2011. There is an unwritten law of economics that inflation is high during times of economic growth. The Government can take action to reduce inflation and it has done that in some areas.

Q: There is also criticism that not all citizens are benefitting from Mongolia’s economic growth. Poverty and unemployment have not been reduced despite the growth. What is your opinion?

A: Economic growth is an arithmetic equation that comprises all indicators. The mining sector has high growth, and six or seven companies that exploit copper and coal have had an impact on the equation.

Q: Does that mean only those six or seven companies are earning capital?

A: Private organizations work for a profit. But there is a crucial issue, and that is how to divide the revenue from private organizations and what taxes would be levied. In other words, it is important to apportion wealth appropriately. Citizens’ lives could be improved by the taxation issue.

Q: The proposed 2012 budget has not focused on creating large projects and programs. But the Government has promised to implement some large projects and programs. How will those programs be paid for?

A: If the budget allocated for large programs, the budget deficit would be 100 percent or 200 percent. All countries have mechanisms for investing in development that are outside the budget. Mongolia is at the start of a period of rapid development at present. Economists estimate that the rapid development will continue for three or four years. Neither the Government nor commercial banks invest in large programs. An organization that does not work in either of those spheres should be involved.

Q: Do you mean the Development Bank?

A: Yes. The DB was established by law, and that was discussed two or three years ago.

Q: But the DB has been seen by some as a secret organization, and people do not know its activities. Could you explain what the DB is doing as head of its Representative Managing Council?

A: The DB is doing work, but its work has not been widely reported. And it has some projects that need time. One drawback of the bank is that it has not reported its work.

Q: The DB says it will implement 26 large projects in mining, construction, and infrastructure. What about that?

A: There are some organizations looking to invest in the bank. But investing in projects must take into account risks, loan rates, and repayment terms. It is true that borrowing money from foreign markets takes time. On the other hand, the DB is young and has little experience. The first financing will be granted to the DB next week.

Q: Where has the DB borrowed from?

A: DB is borrowing from the international finance organization ING. The first financing of USD 20 million will be transferred to DB.

Q: What project will the DB finance first?

A: Railroads. Railway construction needs USD 5 billion and USD 60 million will be financed in the first stage. Projects and programs of the Government have been in the planning frames. Those frames have large scales.

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