Saturday, February 7, 2015

Mongolia Brief February 6, 2015 Part I

Conference runs for environmental administrators
By B. Amarsaikhan
Ulaanbaatar, February 6 (MONTSAME) The Ministry of Environment, Green Development and Tourism held a conference for executives of its departments on February 5.

The gathered received information on the actions planned for 2015, exchanged their perspectives on consistency of activities of the local departments and on pressing issues such as climate change, air and soil pollution caused by urbanization and industrialization, insufficiency of natural resources, pastoral land degradation and desertification.
The Minister D.Oyunkhorol underlined that a role of the localities' environmental administrators is to implement state policies towards the environment and to serve as a bridge to connect the localities' state administrations and the citizen-led civil societies. She said it is because of the lack of motive by the local administrators that the implementation of the package of law on the Đânvironment is deficient. As a result of the environment protection frameworks, a significant progress has been observed in frames of landmarks’ preservation, stable use of natural resources and prevention of illegal use of those resources, as well in forest and steppe fire prevention. "These works also create jobs for the local inhabitants," she said.
The participants noted that the air pollution is no longer an issue of only Ulaanbaatar, "it has now become common in Bayankhongor, Bayan-Olgii, Dornogovi, Khovd, Khovsgol, and Darkhan-Uul aimags". A situation is also worsening regarding the drinking water, for example, in Ulaanbaatar the drinking water from the Tuul river has been polluted by the Central Treatment Plant, whereas in localities the rivers of Khiagt, Khangal, Orkhon, Buyant and Khovd are polluted due to a lack of treatment facilities. "Decisive actions must be taken with integral visions," said the participants and offered some solutions such as improvement of treatment plant capacities, strict observance of regulations on river preservation area, and banning litterage.
In conclusion, the gathered agreed that the cooperation of civil societies and public organizations along with state administrations is crucial for resolving the problems.

Draft submitted on state properties privatization
By B. Khuder
Ulaanbaatar, February 6 (MONTSAME) Head of the Cabinet Secretariat for Government S.Bayartsogt Thursday submitted to the Speaker Z.Enkhbold a parliamentary draft resolution on basic guidelines of privatizing and reforming state properties in 2015-2016.
In accordance with the law on state and local properties, these guidelines are adopted by parliament within its discretion, and it has been worked by the government to privatize/reform the state-owned and parastatal properties.
With a key aim to run a structural reform needed due to the market needs, the guidelines have been formulated under a method of attracting private investments in a way of issuing additional shares in conjunction with requirements of taking both domestic and foreign investments for the energy, post and communication sectors, and reducing the state participation in these spheres. The resolution reflects a clause on creating systems of conference for shareholders, steering council and executive authority for the management of some state-run organizations in order to ensure the independence of these organizations. The governance environment of these organizations will be refined, and state-owned hospitals, universities, institutes and other cultural institutions will be converted into non-profit organizations.
Draft version of criminal law submitted
By B. Khuder
Ulaanbaatar, February 6 (MONTSAME) The Minister of Justice D.Dorligjav Thursday submitted to the Speaker Z.Enkhbold a draft new wording of the criminal law.
Since its first adoption in 2002, this law has been amended ten times to harmonize it with time conditions and social needs and to focus on sizes of damage caused by crimes, on making clear a consideration of crimes, on legalizing elements of new crimes in conjunction with joining international treaties and conventions, and on altering other related laws.
The new version has been worked out after scrutinizing the law’s advantages and disadvantages, making clear some clauses, correcting non-understandable and illogical terms, and harmonizing them with international laws and conventions. 

Bill on conflicts sent
By B. Khuder
Ulaanbaatar, February 6 (MONTSAME) The Minister of Justice D.Dorligjav Thursday submitted to parliament a draft law on conflicts.
The bill consolidates administrative conflicts and norms of responsibilities to be imposed upon these conflicts regulated by some 220 valid laws. It has been formulated under the concept, content and legal techniques of the draft new wording of the criminal law.
The bill clarifies the understanding of conflicts and stipulates that any actions, activities and attempts which breach laws and administrative norms are considered as violation of laws. It also has a clause on punishment.  

Conference runs dedicated to Choibalsan's birth anniversary
By B. Amarsaikhan
Ulaanbaatar, February 6 (MONTSAME) A scientific conference themed "Role of Kh.Choibalsan in Mongolia’s Independence" was held at the State House on Friday.
It was organized by the Institute for Defense Policy Studies and the Strategy Academy on the anticipation of the 120th birth anniversary of the former leader of Mongolia Kh.Choibalsan. A chairman of the Mongolian People’s Party (MPP) M.Enkhbold gave the opening remarks. "Marshall Choibalsan was one of the founders of the MPP and is one of the seven leaders of the National Democratic Revolution of 1921. He founded the People’s Army and was appointed the Deputy General for Propaganda, and worked for the country’s independence all his life," he said.
The history of the People’s Republic of Mongolia is often twisted nowadays, but indeed Choibalsan played an important role in liberating the country from foreign interventions in 1921 and 1939 and in the declaration of Mongolia’s independence on the international level in 1945. "Therefore, the history of Mongolia is inseparable from the history of Choibalsan’s life," he added.
The key lectors at the conference were also Yo.Otgonbayar and N.Nomtoibayar MPs, academician and Professor of history J.Boldbaatar, and a historian D.Erdenetsetseg.
Marshall Kh.Choibalsan was born in Setsen Khan aimag on February 8 of 1895 to the family of a herder Khorloo becoming her third son. He was called Dugar in his younger age, then was given name Choibalsan since he started his religious studies when he was 13 years old. At the age of 17, he studied in “Russian and Mongolian Language School” at the Foreign ministry of Mongolia, then was sent to Irkutsk of the Soviet along with eight children to study in 1914-1917. Young Choibalsan became close friends with Bodoo, a social-democrat, and became a member of the national revolutionary group--the Consul Group. He was one of the "First Seven" who led the People’s Revolution in 1921.

Earthwork of Tavantolgoi-Ganshuunsukhait railroad near to completion
By B. Amarsaikhan
Ulaanbaatar, February 6 (MONTSAME) The deputy director of “Mongolian Railways” state-owned company Mr P.Bat-Erdene said Friday the earthwork of the railroad that will connect Tavantolgoi deposit to Gashuunsukhait borderport is going with 90 percent.
A special permission for the construction project was issued by the Government on November 3 of 2012 for the "Mongolian Railways". The Development Bank of Mongolia allocated USD 200 million in 2013 for the construction from the capital of "Chingis" government bonds. The project group signed a concession agreement with an executing company in June of 2013. Bridge pillars of 435 meters have been built over the river of Umdai in Omnogovi aimag, gravel plants have been established in two locations, and a factory of iron and concrete cross-ties has been erected in a scope of this project, he said.
A matter on a size of iron and concrete cross-ties has been discussed at a state administrators' level in regard to the debate over the track types.

E.Batshugar: The Bank of Mongolia made the choice of jumping from a plane with a parachute and “soft land” the economy on its feet
By B. Solongo
February 6 ( We had a discussion with the Deputy Governor of the Bank of Mongolia, Mr. E.Batshugar, about how the central bank has been dealing with the economic downturn.
-The Bank of Mongolia has reached a decision to raise its policy rate. The policy rate was raised just in July of last year. Would you say that this is the right decision given the current conditions?
This is just one of the measures taken to improve our economy. Today, the biggest challenge facing the Mongolian economy is a balance of payments shortfall. Foreign direct investment has decreased 5.6 times compared to 2012 level. In 2014, the weight of foreign direct investment as a percentage of GDP was below 7 percent; 2 years ago it was 40 percent. Simultaneously, prices obtained on our main export products (coal and iron) – have fallen significantly. All of the above have lead to a slowdown in foreign currency inflows. This situation caused a depreciation of the tugrik and an increase in prices (in local currency) of imported goods; this led to a slowdown of the overall economy. In order to cool down exchange rate driven inflation and to improve economic stability, we implemented policies geared at increasing the yield of the tugrik.
-But won’t this decision hit producers and businesses? At a time when banks have tightened their borrowing, won’t this cause a hike in loan rates?
- In contrary, our monetary policy is aiming to lower inflation in the medium to long term, which in turn will create the conditions for a decrease in loan rates in due time. Today the private sector is facing challenges which are not caused by monetary policy tightening, but by the shortage in foreign currency inflow experienced over the last 2-3 years. The most crucial step in addressing an economic imbalance is to determine the underlying cause and to take measures to address the situation swiftly. Today, we need to increase the amount of foreign currency inflows and to revive foreign direct investments which, as I mentioned, has fallen to as low as 7 percent of GDP.
-The budget revenue for 2015 has been increased by 17 percent. However, this budget bubble cause even bigger budget loss. This is one of the many causes of inflation. Do you feel it is right to silently watch this and change the monetary policy accordingly? Aren’t these two policies supposed to be coordinated to have a common goal?
-There has been a change in terms of guidelines and sound fiscal policies are being taken to reduce budget revenue and expenditure, and to make the budget more conservative. Additionally, investments made by the Development Bank are being included in the consolidated budget. The budget is being reduced even though it remains in deficit. To address this and prevent possible inflationary pressures we made appropriate changes to the monetary policy. The coordination of monetary and fiscal policy will, in the end, maintain inflation under control.
-Then, what kinds of options will the Bank of Mongolia have if investment doesn’t pick up and budget expenditure is not reduced in 2015.
- The Bank of Mongolia will not just sit by and watch. We will take the necessary measures. As we were not anticipating significant improvements in foreign currency inflows in the short run, a base rate change is one of the measures that we had to take to maintain the stability of our economy. Let us summarize the events of the last two years in Mongolia. The balance of payments issue that I described earlier began in late 2012. At that time, the Bank of Mongolia made the right decision. Metaphorically speaking, the Bank of Mongolia made the choice of jumping from a plane with a parachute and “soft land” the economy. At the other side of the spectrum, we had the choice of jumping without a parachute, leading the economy into a “crash landing”. The Bank of Mongolia has been working for two years to ensure that the economy lands softly. This also provided the opportunity to implement structural changes in the economy and to make the necessary adjustments to avoid the risk of a GDP contraction, which would have resulted in many hundreds of thousand people becoming unemployed. As a result of these measures, foreign trade balance, which used to have a deficit of USD 2.0 billion each year, was turned into a USD 540 million surplus in 2014. This created favorable conditions for growth in domestic production. For instance, import of construction materials has remained flat at USD 600 million, however the number of housing units constructed has increased 2.3 times between 2012 and 2014. This indicates that the weight of domestic production in the construction material sector has increased significantly and we are now less dependent on imports. Inflation has dropped to 11 percent in comparison to 14 percent in 2012.  Within the composition of inflation, food price increases have decreased significantly, and the negative impacts of food inflation on low to middle income households have been eased. Now we can expect more stability in the exchange rate as the balance of payments improves. These are not negative changes, on the contrary these are healthy and positive changes.
Did we have the option of jumping from the plane with no parachute? Yes we did. In that case, the Bank of Mongolia would have raised its interest rate without supplying money into the economy. If we had made this choice, the price of meat, flour and oil would have been much higher today. How many of people would have become unemployed? How much would the exchange rate be today? It is worth considering how deep the crisis would have hit the economy. If the Bank of Mongolia had not supplied money into the economy in 2013, we would have had a negative GDP growth in 2013 and 2014.
-Would the exchange rate of USD have appreciated more in that scenario?
-Yes, as I said before, had the Bank of Mongolia not chosen to “softly land” the economy we would have faced a deep crisis. This would have led to a drastic slowdown in all economic activities. If we had been hit by such a crisis, we would not have options to soften the exchange rate volatility, and large fluctuations would have caused further imbalances which would have caused the economy to shrink. Any monetary policy agency considers the macro economic impacts before implementing a decision. The Bank of Mongolia makes all its decisions taking in account possible risks and implications for the future. 
-How much is the balance sheet loss of the Bank of Mongolia?
-The Bank of Mongolia implemented certain programs in order to stabilize the economy from balance of payments imbalances and prevent possible risks associated with it. The issuance of central bank bills by the central bank will entail certain interest rate costs and these are recorded on the accounts as policy related costs. Although these items are recorded as policy related costs, these are in fact initiatives aimed at supporting our citizens, the entire economy and the financial sector. On this note, I would like to state that the Bank of Mongolia recorded on our accounts have been accrued over several years, and not just the last two years.
-Mongolia hasn’t been able to cure its Dutch disease and the disease is becoming more chronic as foreign factors start to deteriorate.
- In recent years, 90 percent of our exports were mining products and 80 percent of foreign direct investment was directed to the mining sector. We were not able to accumulate savings during these times of rapid economic expansion; on the contrary policies encouraged consumption. This resulted in an appreciation of the tugrik in real terms. As the international commodity cycle started to turn in 2012, our economy started suffering the consequences. In order to ensure a sustainable development for the future, we have no choice but to address these issues.  This requires time, effort and commitment to set the right policies. But it is something that needs to be done. We have to rebalance the economy so that at least 30 percent of our exports consists of non-mining, value added goods and products. We have to facilitate a stable economic, political and social environment in order to be able to diversify. In addition, we also need to have a consistently positive foreign currency flow and this can only be achieved by improving the balance of payments situation.
-There are mixed reactions to the results of the Price stabilization programs. While some say that they were able to promote their respective sectors, others criticize that they intensified the crisis by supplying a large amount of money into the economy.
-This is an absolutely incorrect conclusion. If we had not implemented the price stabilization programs, we would have encountered the repercussions of a hard landing. This in turn would have caused inflation to reach 30 percent, oil prices rocketing, people not being able to afford meat, high unemployment, and the number of households with savings would not only be a long distance from the current 60 thousand, but would also have probably caused some of the existing 28 thousand households with mortgage loans to default, causing further loss of assets, bank bankruptcies and a devaluation of the assets held by citizens and private entities. The price stabilization programs were able to act as a huge buffer for the entire economy in times of a balance of payments crisis. On the other hand, loans granted within the framework of these programs are fully collateralized and repayable.
-Most people understand the economy through their salary and the things they are able to buy with it. Institutions have reached a point where they are not able their employees’ salaries and have resorted to downsizing. Maybe the crisis is, in fact, here. Is there a full-blown economic crisis from a macroeconomic and theoretical standpoint?
-Economic growth is slowing down. But it is not negative. Let me state here again that the Bank of Mongolia has been working to maintain growth for the last two years. Currently the growth rate is 6-7 percent which is still higher than in most economies. We need to stabilize the economy once more this year. We are seeking to do this not through monetary policy but by improving the balance of payments. If that cannot be achieved then economic growth will probably decrease. There are further dangers if the economy becomes stagnant. The nearest example we have is the 2008-2009 crisis. In 2008, foreign assets declined 49 percent and as a result domestic assets fell 15 percent in 2009. This caused a credit crunch and bankruptcies in the banking sector, with non-performing loans plummeting to 20 percent of total loans, 80 thousand people becoming unemployed in a very short period of time. The economy shrunk by 1.3 percent in 2009. Compared to that time, we avoided the risks of a crisis during the last two years. But the Mongolian economy yet again faces the tough choice of whether to keep stabilizing the economy or to contract it. To keep the economy from contracting is obviously better. For this to happen, we need to have both the fiscal and monetary sectors directed at facilitating economic equilibrium. On the other hand, there is a need to increase the amount of foreign currency flowing into the economy.
Link to interview

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