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Ch.Khashchuluun: Mongolia produced its own problems

Trans.by B.DULGUUN

 

The following is an interview with professor of the National University of Mongolia and economist Ch.Khashchuluun about timely issues.

 

Mongolbank has created a new term, “new economic balance”. Can you explain what this term means?

 

Raw material prices started to rise in 2000. Prices reached its peak from 2006 to 2013. Economists view this as a mining supercycle. Parliament approved the National Development Policy in 2008, in relation to the mineral price spike and increase of revenue. This policy aimed to improve infrastructure and support sectors other than mining. For instance, Atriin Ayan 3, New Development and Street programs were developed for increasing production.

In less than 10 years, Mongolia’s economy grew rapidly, expanding the economy by 10 folds. In other words, Mongolia was able to use its resources, raw minerals and agricultural opportunities to execute various policies aimed at developing the society, the capital and provinces.

 

Politicians and economists criticized that the economic growth at the time was merely a bubble and when it burst, it gave a heavy blow to the economy. Can you comment on this?

 

Mining cycle is repetitive and takes turns. Unfortunately, Mongolia lost time delaying major projects for Tavan Tolgoi, power plants, railways, and processing plants until the end of the mining supercycle. Mongolia stumbled upon economic collapse without being able to decrease dependency on mining products or increasing money flow to Mongolia. The policy should be adjusted to the new macro economic conditions. Mongolbank named this situation as “new economic balance”.

In other words, Mongolia has to adjust to the new world market situation and develop the nation with a different policy during the current raw material price drop. We could list all the incorrect policy decisions which led local and foreign investors to lose confidence in Mongolia. Compared to Mongolia’s economy in 2000, the current economy has expanded and become very large. Mongolia’s GDP growth has surpassed Armenia, Georgia and Kyrgyzstan’s growth. Therefore, Mongolia must enforce a new policy consistent with the new circumstances.

 

What is different about the new economic policy?

 

First of all, it’s absolutely crucial to review social policy and welfare. Social welfare should only be focused to target groups. Secondly, sustainable support should be provided for agriculture, intensive husbandry, energy and heavy industrial projects to eliminate dependence on mining. Thirdly, technological innovation has to be promoted. In relation to this, innovation for new biotechnology, telecommunications, and education and science sectors should be developed.

Mongolia needs to start large mines and attract foreign investment more effectively within a short period, in accordance with the Comprehensive National Development Strategy. The government should direct its resources to other sectors.

 

Mongolia doesn’t have the fund to implement the Comprehensive National Development Strategy. How would the government enforce this strategy when it’s barely able to provide wages and pension?

 

I understand that it’s difficult to direct resources, which have been put up as collateral for loans, for taking these progressive steps now that the bond money has nearly exhausted. Even so, now is the time to partner with the private sector. In the past six years, the state built up a bunch of dirt piles, insisting that it does things alone. It wasn’t able to construct a railway. Coal processing plant and steel mills haven’t been established. Politicians were saying they will build an oil refinery, but where has that talk disappeared to? They took away private sector projects, which were going perfectly fine, and made a mess.

The new economic policy should minimize the government structure, and make them more productive and cooperative with the private sector.  The government shouldn’t  be pressuring and taking away the private sector’s work, but use their resource to save budget. This is what the new economic balance is aiming for. In any case, the Concession Law should be revised and approved urgently. It’s possible to resolve school, kindergarten, infrastructure and hospital issues through the private sector. Although the nation doesn’t have financial resources at the moment, Mongolia will be able to overcome economic crisis by using future revenue and complete development projects now.

 

Foreign investment has reached the lowest figure in the last five years. Although investors are still interested in Mongolia, why are they hesitant? Is it connected to China’s economic hiccough or domestic political disputes?

 

Both have influences. Mongolia has changed governments three times since 2012. Ministers are being changed regularly. Now they’ve restarted discussions to dismiss ministers and the government. Changing the government and ministers means that Mongolia’s state continuity is being lost. This will make the government unable to control, supervise or make correct decisions. An entire sector can collapse along with the dismissal of its minister. Some random people who don’t even know what to do are being appointed as ministers.

Never mind foreigners, even locals aren’t able to understand which policies are the core of some sectors and what kind of interrelation they have. Instead of wanting to invest, foreign investors would probably consider fleeing from Mongolia once they see our current situation.

 

Are you implying that Mongolia has brought the current difficulty on itself?

 

The problems we’re facing right now are, without a doubt, our own “production”. Strictly speaking, these difficulties are consequences of our negligent and pathetic politicians. It’s true that the world mining industry is in a crisis. However, countries aren’t listing or revealing the challenges they’re facing like Mongolia. Instead, they are battling with their problems discreetly. Every nation is building infrastructure and striving to improve its competitiveness to minimize losses from the crisis. Is there any other country other than Mongolia that’s unable to construct a 280 km railway, which has been discussed for eight years? China, for example, is managing its development policy for export incredibly well.

For starters, Mongolia should supply domestically produced cheap electricity to Oyu Tolgoi concentrator  plant and quickly complete the railway for faster coal exportation. It’s possible to recover the mining sector and relevant foreign investment if we start projects that’ll boost Mongolia’s competitiveness.

 

It’s clear that major projects such as Tavan Tolgoi and Gatsuurt will not start this year. Mongolia will have to repay Chinggis Bond starting from 2017. Are there any opportunities for repaying this bond loan?

 

Parliament discussed issues related to settling debts and passed a policy for it. There are three important issues related to this.

Firstly, the development strategy should be formally approved, its yield should be calculated precisely, and then, bond financing should be executed.  Basically, we should first determine vital projects, calculate their efficiency and yield, and afterwards, allocate appropriate financial sources for those projects. But Mongolia was searching for projects to implement after taking out the Chinggis bond. While ministers seek projects, the interests rate of the bonds continue to increase.

Looking at the previous bond financing, only a small amount had been invested into the industrial sector, making it problematic to continue projects that brought immense amount of revenue in 2012. Mongolia wasn’t able to eliminate dependency on mining despite having necessary funds.

 

What is the most important thing to do now?

 

It’s important to not repeat this mistake ever again. Before anything, the development strategy has to be planned out. Later, investment projects have to be chosen based on that strategy and financial resources need to be mobilized. Secondly, various options for repaying the bonds is being discussed. It’s inevitable that Mongolia will have to repay it no matter what condition we’re facing. Even if loans are paid off with another loan, it will still come back as another debt after 10 years.  In my opinion, it’s best to make realistic estimations for the revenue and expenditure of the next 10 to 15 years and create a specific amount of saving every year. Furthermore, we need to establish a very strict financial discipline. Politicians should start attending and actively participating in regular sessions where fiscal and other important issues are discussed. They should fix their habit of recklessly changing budget plans and starting a bunch of projects.

 

Mongolia will have to repay a total of 4.4 billion USD from 2017 to 2023. What opportunities does Mongolia have for repaying this? What would you recommend to politicians?

 

The most important task to do now is to develop and organize the Comprehensive National Development Strategy and planning system extremely well. We should set criteria and begin planning economic and financial resources. Later, we must carefully review improvements. But a government institute to enforce these projects should be assigned.

In the past term, a Ministry of Economic Development was established, but was soon liquidated because they were unskilled. Due to this, it’s become unclear who is in charge of the projects the liquidated ministry used to manage. Moreover, the economy didn’t improve. Our difficulties and problems have increased because Mongolia hadn’t developed an economic strategy. We failed to seize opportunities right before us and the nation started to operate without a vision, policy, regulation or management. Mongolia must turn the tables around now.

Source: news.mn

 

Short URL: http://ubpost.mongolnews.mn/?p=16605

Posted by on Oct 27 2015. Filed under Prime Interview. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

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