Beyond Resources

What are your first impressions of Mongolia?

Beautiful. We spent about, I think, 12 hours and looked at some of the projects that the bank, IFC [International Finance Corporation], and private sector are financing here. So we saw solar power for gers, a school we’re supporting (more broadly we support a whole program for changing how education is done), and a wind farm (that’s a big investment from Newcom that will hopefully be on line in December). We do a sustainable livelihoods programme where we give small grants to communities to decide on their own development needs. We drove a little bit, but the country is very, very big.

Most of the news coming from Mongolia is its enormous mining boom and 17 percent growth. Having seen the country first hand, are the boom and its effects apparent?

The World Bank is even involved in the mining boom because IFC is investing in Oyu Tolgoi (OT), and MIGA [Multilateral Investment Guarantee Agency], our investment guarantee arm, is looking to guarantee investments as well.

What’s interesting to me is Mongolia has such great potential—even beyond resources. We were talking about the wind farm; Mongolia has wind resources and solar resources, it could also export power generated through those sorts of resources as well. Mongolia has huge potential.

Having mentioned green energy and its export, do you believe selling energy to foreign countries is a practical long-term economic strategy?

According to this company, it was. But I think Mongolia is very unique because here is a very large country with a lot of resources sitting between two big economies with about one and a half billion people. That’s a tremendous opportunity for Mongolia.

In addition, sitting fairly nearby are the economies of Japan, and Korea. There are a lot of economies growing in Asia and Mongolia has a great location.

What differences do you see between Asia and the other regions you’ve worked in?

I think the advantages of East Asia are, first of all, that this is a region that is growing and has been growing for quite a long time. That has been hugely successful at reducing poverty and educating millions of people. It’s a very dynamic region—economically and from a growth point a view. I think right now the rest of the world is watching East Asia.

What role is Mongolia playing among emerging economies?

I think Mongolia in this region has the opportunity to do things right. Many countries have learnt the lessons, good and bad, about managing resources. Some have the bad experiences named after it, such as “Dutch disease,” where the Netherlands experienced bad effects from managing their resources. I think Mongolia has a wonderful opportunity from countries across the world on how to do it right.

You keep mentioning all the opportunities available to Mongolia. What opportunities are we talking about exactly?

I think there are opportunities big and small available to Mongolia. We invest in large projects but we also invest in projects that have people at the grass-roots level, and that’s sort of what we saw both sides of yesterday. 

We saw this very large wind farm development. It’s very exciting that it’s a Mongolian company taking the lead on this. This is an opportunity to generate sustainable energy for the country. 

At the same time we saw a project that provided solar power to individual herders in their gers. This was a wonderful opportunity for them: they have power at night, and they can read and watch television. They can do many of the things that those of us who live in cities take for granted.

I think that, for me, was a big contrast on how we can have an impact on a big-scale and small-scale.

What do you believe are the primary needs of this country?

I’m glad you had an issue on education because this is a country that has a lot of opportunities but it only has three million people. That means that education and bringing people in to develop the skills that the country is going to need in the future is going to be absolutely critically. 

And it will mean changing the economy. It needs to be a diversified economy; it cannot depend just on mineral resources. There need to be job opportunities for people.

But certainly education is going to be key.

It looks as though Mongolia will inevitably suffer from the fall in coal prices and slowed growth in China. Mongolia already has problems with its state budget. What are some options Mongolia has to resolve these issues?

There is the short term and long term. In the short term, running a deficit, just like you can’t run a deficit in your personal budget, is just not going to be possible for a long time. So when countries run deficits, they need to find ways to reduce those deficits. They need to postpone some projects, do some things that are lesser priority, target some of their spending better (especially spending for the poor). In the medium term, what we find across the world is that countries that live off exports of natural resources need to have a way to smooth out the revenues from those resources. 

If you look, for example, at Chile, we’ve connected Chile to Mongolia so Mongolia can learn from Chile’s experience. Of course, Chile is very dependent on copper exports. Chile has a stabilisation fund so in good times, when copper is high, they put extra money into the stabilisation fund. Then, in bad times, when copper prices fall, they use those revenues to smooth out their budget expenditures. So, they don’t have their budgets going way up and way down year by year. 

This is something that Mongolia would do well to look at because clearly commodity prices don’t always stay up. You know there are going to be some years they’re down and some years they’re up. What’s important is that you know you have—and I know Mongolia has the fiscal stability law—a way of smoothing out budget expenditures—so when times are good you don’t spend all your money, you put some of it aside.

Right now Mongolia does not have that kind of money. What other options does are available?

There are a couple things governments can usually do. One is postpone some projects. Secondly is when you look at spending (social spending in particular) make sure it is well targeted. Give grants and so on to the poorest members of the population, and not necessarily to everyone.

Last June Mongolia had its general parliamentary elections and has since installed a new Parliament that is forming a new government. Parliament has promised to stop giving out general handouts, but more recently promised to continue giving handouts to children. Another MNT 300,000, which is left over from the original MNT 1 million promised to citizens in 2008 elections is due for distribution very soon. How big of an impact will this have on the Mongolian economy in this current backdrop of low coal prices for export and slowed growth to Mongolia’s biggest trading partner?

One reasons governments have parliaments is so they can debate their options. Their options are going to be how do you reduce spending and what is on the table. Our experience is child allowances work better if they’re targeted at the very poor because the middle class doesn’t really need them. 

Thankfully Mongolia has a robust government. It just had elections and a parliament that can debate these sorts of issues.

I think we ate the World Bank are very happy to provide the experiences of what has worked and not worked across the world. Of course, at the end of the day it is the decision of the newly elected parliament.

Mongolia’s position as a landlocked country is possibly its greatest challenge for reaching foreign markets. What possibilities does Mongolia have to overcome these trade challenges with two giant neighbors on either side of it.

Well, two giant neighbors mean syou have two big, giant markets for your goods. I understand that about 90 percent of Mongolia’s goods go to China, so clearly you’re taking advantage of that. 

Countries that are landlocked can look at a number of options. One is to export high-value sorts of goods. Mongolia may not be necessarily at that stage, but that is one thing that landlocked countries do.

Another possibility is exporting things like power. If you generate solar power or wind power, that can be exported with transmission lines, which you have to use whether or not the country is landlocked.

What kind of financial aid can the World Bank provide to countries during times like now?

We helped Mongolia during its last downturn. In this crisis there are a few things we can do. We can provide extra financing to the government to help it stabilise its budget. But even more importantly, we can also put money into social programmes that can help people at the lowest rungs of society, things like targeted social spending or grants to communities to help them do some small projects.