The tugrug’s rate [against the US dollar] fell over 28 percent which made our purchasing power weaker. Under this condition, the citizens would not be able to benefit from the economy.
Mongolian Economy magazine interviewed Ochirbatyn Chuluunbat, vice minister of economic development.
Parliament passed several foreign investment-friendly laws last year. Do you think investment will increase this year?
FDI [Foreign direct investment] in Mongolia declined by 50 percent last year. This is heavily affecting the economy. The decline in the amount of general income resulted in lower-than-expected new job creation. The state budget revenue fell short unprecedentedly. There has been an increasing loss in foreign trade and the inflation rate did not reach its targeted level last year. The Mongolian tugrug rate fell enormously against foreign currencies. The amount of loan issuance by commercial banks was not sufficient.
A new Investment Law was approved last November and is aimed at appeasing the aforementioned situation. This cannot bring a quick recovery to FDI. Trading is similar to the selection of correct life partner.
An unpredictable investment environment and government disputes with Rio Tinto’s Oyu Tolgoi mine led to the large decreases in FDI. Did we learn from these situations?
Foreign investors are carefully observing the recent changes in the legal setting of Mongolia. Their interests are long term. It will take a certain period of time to bring the foreign investors’ confidence back. Today, the legal setting could be improved in Mongolia, but it is obvious that this would not happen tomorrow. We should learn from our big mistake that we broke the investors’ confidence easily. We should put our effort on not repeating this mistake. It made us understand that we should think and act smarter. It showed us the risk of being biased.
The state policy should not be change always when it comes to the succession of policy. Somehow, the proper succession plans were was missing in certain policies. Investors do not see Mongolia in relation to any political party. They will see it as a whole country.
We need to reach a deal on an integrated investment concept as our doing represents Mongolia. But we cannot deny the previous policy and decisions made by the previous state. The above situation is the result of our doing in the past including a controlling attitude and unstable decision and policy. The new investment law will not be able bring their confidence back in the same day.
What do you think of the poor performance of Mongolian stocks listed abroad?
Stocks of large projects implemented in Mongolia are being traded on the international stock markets including London Stock Exchange, Toronto Stock Exchange and Singapore Exchange. The value of Mongolia’s stocks is being lowered. Half a year ago, the value of the stocks was approaching USD 30 billion in total. But today’s value is a mere USD 3 billion. Typically, it is good indicator if stocks are traded at a high price on international stock markets.
Some civil movements and politicians are biased in thinking that foreigners trade Mongolia’s minerals wealth in foreign countries. They need to get rid of this perception. In order to not repeat the above mistake, the recent legal changes need to be shown to the investors through our actions. Because actions speak louder than words, we need to think several times before coming up with the final solution.
Mongolia’s economy grew 11.7 percent last year. Did this transpire into an improved quality of life for the average Mongolian?
Personally, I am critical on this growth issue without any political perspective. As a former member of the State Great Khural who acted as a policy maker, the growth was not beneficial for the citizens. The tugrug’s rate [against the US dollar] fell over 28 percent which made our purchasing power weaker. Under this condition, the citizens would not be able to benefit from the economy.
What needs to be done about bringing equal access to the increasing growth?
Budget and monetary policies need to be consistent in order to have equal access to the increasing growth. The monetary policy needs to contribute to the economy. Loans comprised the majority of the growth last year including USD 500 million by the Development Bank of Mongolia and the USD 1.5 billion proceeds of Chinggis bond. As a result of the proceeds, job creation and citizens’ revenue increased.
If the proceeds were not in the economy, the situation could have been much worse. The bond proceeds recovered the loss of FDI. People say that the economic growth was 11.7 percent last year. This is an estimate made in regard to the Mongolian tugrug. If the estimate was made by the current rate of U.S. dollar against the tugrug, there would have been much lower growth or, even no growth. This is the reason why the citizens cannot benefit from the growth last year. According to a study on the economic indicators by the Ministry of Economic Development, the main economic indicators were poor.
What indicators are you referring to?
The revenue generated from service sectors that largely created new jobs. I guess that there are no companies that had revenue increases from the service sector last year. I met the chief executives of many companies. None of them said their revenue had grown.
Freight turnover declined in Mongolia. Besides that, the number of airplane passengers and the number of inbound tourists also declined. These indicators affected revenue and are the sign of economic inactivity.
What we need to do now is to make a conclusion on this issue and work for making the legal setting clear and stable.
Has the policy change attracted the attention of foreign investors?
After the approval of the laws, we need to show the foreign investors [our intentions] through our actions. It is said that the investment environment is being improved in Mongolia. Yet it needs to be shown to them whether it improved or not.
Now the state needs to remove any obstacles from mining companies and let them move forward. Some ready-to-launch projects are being delayed due to
A draft Wealth Fund Law will be discussed in March by the State Great Khural. How should the revenue generated from the mining sector be spent?
Mongolians received their wealth fund when they were born. When we inherited this land from our ancestors, the wealth fund was also given together. The wealth is underneath our land. It is important to convert it to money.
For instance, Saudi Arabia was a country some 50 years ago. This country has managed to convert its wealth to money successfully. This is the main contribution to its development. Some countries, including South Korea, Singapore and China, are making money by working really hard. But for Mongolia, we need to convert our wealth into money at initial stages.
What would be the main pillar of the economic development in upcoming years?
The mining sector. The sector needs more open policy. I work for the government, but I think that the opportunity should be given to the private sector rather than striving to reduce the state intervention in the private sector and thinking that the state will do everything. The government would only need to generate tax from the mining sector in a way of making good regulation. It is true that the state intervention in the private sector is too much. The way that the state wants to do everything, in return, is freezing development. The state does not necessarily need to intervene in everything.
By B. Togtokh
SOURCE OF THIS ARTICLE : Mongolian Economy