The following is an interview with former Prime Minister D.Byambasuren about current economic issues.
Inflation was supposed to be kept at a single digit rate but it wasn’t. Will inflation decrease in the future?
The Mongolian economy absorbs inflation increase in June. Before the 2012 election, it was decreasing but for the last two years, the economy wasn’t able to absorb it. This is connected to adverse government policies. We’re unable to detect the main cause of inflation. Inflation continues to rise and the current situation isn’t good. Since government policies are stimulating major issues, instead of grasping them, inflation will not decrease.
Inflation increase is connected to deficit in balance of payment and foreign trade as well as decrease in currency reserves. Parliament approved the state budget taking into account that one USD will cost 1,380 MNT when its rate was 1,700 USD. It’s wrong for them to approve official rate for USD at 1,400 MNT when the recent budget reports estimates show that it was at 1,800 MNT. This sort of pathetic conduct prevents inflation from dropping. Reducing inflation is not a child’s play.
The “100 day plan to stimulate the economy” was approved. How realistic do you think this idea is?
How can they achieve something that they weren’t able to do for two years in just 100 days? It’s just a cheap deceit created by the government who are running out of options to temporarily maintain current situations.
It seem that if we can find the correct baseline now, we can get a huge advantage for stimulating the economy?
When we can’t straighten the policies for stabilization, it’s impossible. The government isn’t grasping the main problem of the economy. They need to become aware of the fact that they’re going in the wrong direction. There isn’t any guarantee that situations will become better.
One part of economic recovery is the budget report. What’s your opinion on this?
The main aspect the government is interested in is to discover something that can make up 70 percent of the GDP by itself. This is absurd. Budget reports used to be made rather late but now, they are about to make it when not even half of the year has passed. They’ll probably discuss this again in autumn. They’re taking this issue very lightly.
In the first half of the year, the GDP growth decreased to 7.4 percent. More decrease is expected in the future. What is your thought on the matter?
The capacity of the Mongolian economy itself can only sustain five to seven percent growth. Other factors affect in artificial growth. It’s unnecessary to run after extremely high growth. It’s better to develop programs to stabilize it while we have it.
Many buildings with zero budgets were included in the state budget report. The deadline for their commissioning is approaching. What’s your assessment for this?
It’s true that the little amount of money Mongolia has is being used for new buildings. This is worsening the economy. Internal balance of the economy is being lost. We’re unable to put it back into balance through policies. Evidently, the aftermath of incorrect policies is giving negative effects to the economy.
What is causing USD rates to near 2,000 MNT in your opinion?
Propaganda about Mongolian economic crisis from the decreasing foreign investments has continued for over a year. The majority of foreign investments are owned by Oyu Tolgoi. Investments for open pit and underground mines will progress in precise stages. You’re daydreaming if you think large amounts of investments will come flooding in billions of MNT each year.
USD exchange rate reaching 2,000 MNT is a conspiracy of those interested in using the current situations to their own profit and stay in power at the government. From export level and profit, two trends can be observed. Although export levels are increasing, foreign trade is losing its balance even more rapidly. Behind the increasing quantity, many challenges are emerging. Prices of products exported from Mongolia is falling. For instance, in 2010, a ton of coal used to be sold for 101 USD. Now, it only costs 39 USD. This shows that Mongolia is getting two to three times less profit even with the increase in quantity. Revenues from goods which were supposed to be exported in 2011 and at the beginning of 2012 was taken out in advance and wasted. Although export levels and evaluations are being reviewed, the 350 million USD from CHALCO, 100 million USD from Erdenet and 250 million USD from Oyu Tolgoi was wasted away so we will not get any profit. Exports may seem to be rising but there’ll be no currency inflow. More economic crisis and expense are inevitable for Mongolia.
Another factor affecting the economic crisis is said to be inconsistent government decision related to the monetary policy. What’s your opinion on this?
It’s true that we’re weak on money supply. The index for economic growth is completely different from the reality. The amount of coal sold increased but the price has halved. Furthermore, revenues are taken in advance and wasted. Even though we’re exporting coal, we need to rationally consider that money isn’t coming in. Mongolians have talked about exporting goods and saving money abroad. This is related to the underground economy. With customs registration, we can calculate how much each company is exporting. Mongolia doesn’t have a bank monitoring system to indicate how much revenue is coming in.
Economists reported that information from customs registration and statistical data don’t match. What’s your take on the matter?
Goods coming in and out of the customs can be verified through data. For example, Oyu Tolgoi started exporting copper concentrate, from which some 20 tons of gold and some 100 tons of silver are extracted each year. Mongolia doesn’t have laboratories to analyze this. The customs sector will become powerless someday. On the other hand, we can calculate how much iron ore was exported. In any case, issues to equip customs with high capacity technologies and personnel issues must be urgently resolved. The current capacity must also monitor everything very well. Notably, it’s stated in article 9.13 of the Oyu Tolgoi contract that revenue from exported goods will not come to Mongolia. The two presidents should take responsibility. During contract verification, specialists informed about this article plenty of times. I don’t understand these people who are causing so much panic when they’ve signed the contract in this format.
Lately, there’s been a talk of developing national industries and establishing Mongolian brands. The Mongolian Economic Forum was also held under the motto “Let’s create in Mongolia.” Will this objective of the forum be able to become the bridge to escaping the economic crisis?
We’re interpreting the economic forum as nothing but an advertisement bogus. Since the autumn session begun last year, the Investment Promotion Law was adopted. This doesn’t support small and medium factories. The government gave a law to ensure stability to major investors with several billions and put up a big white banner to support small and medium factories; yet, they’re running policies for stock domination and strengthen their position. While major investors have contracts for 30 years of stability, small producers constantly fear tax increase. Soon small and medium producers will be driven into a corner to give up their entity to larger producers. I see this as an indication of adverse government policy.
For the economy to recover, does the proper consumption of the people give any significant effects?
That’s not something an economist would say. It’s too primitive. To narrow economy is the same as saying that Mongolian poverty is a good thing. When there’s economic crisis, all countries go into economizing mode. This isn’t appraisable. During crises, savings need to be accumulated. The government should reduce budget expenditures and the people should reduce inefficient spending. Presently, Mongolia doesn’t have such programs. In 2008 and 2009, Mongolia became the laughing stock of the world. A resolution with five provisions to overcome the crisis was submitted to Parliament including provisions about getting a 500 million USD loan and building a 21 km long power line to Govi-Altai Province.
For Mongolia, government policies are the main factors for economic crisis. The current economic crisis is the result of distributing cash handouts, being unable to implement the policy to stabilize internal economy and giving excessive attention to mining and construction sectors in 2011 and 2012. Without noticing this and talking about shrinking Mongolian internal economy is too ignorant.
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