Wednesday, May 28, 2014

Mongolia Brief May 27, 2014 Part III

Mongolian professionals enter international competition

May 27 (UB Post) Mongolia joined WorldSkills International as the 69th member in order to train skilled professionals based on labor market demands, to challenge the skills and knowledge of teachers and students, improve the vocational education system, introduce Mongolia’s skills to the world, and to learn from the experiences of foreign countries.

As a Member of WorldSkills, Mongolians can now participate in the WorldSkills competitions and other activities, gain access to their network of worldwide resources and expertise in skills training and promotion, and set themselves against the highest global benchmarks set by countries and regions with the most advanced skill levels.
WorldSkills International annually organizes the WorldSkills competition, and in order to select competitors, Mongolia is organizing Mongolian Skills-2014 for nine professions in two phases.
Students from vocational education training organizations selected for competition will be trained in South Korea as part of the preparation for WorldSkills.
The Mongolian Technical Vocational Education and Training system is focused on becoming demand driven, with importance placed on improving learning environments through upgrading equipment, workshops, and instructional learning materials.

Contract to develop Doloonbuudal and Bayakhoshuu ger district areas approved

May 27 (UB Post) According to Finance Minister Ch.Ulaan, 1.3 million Mongolians were living in Ulaanbaatar by 2012, indicating that over the last ten years, Ulaanbaatar’s population has increased by six percent annually. In order to resolve the issues that ger districts face, in cooperation with Asian Development Bank, an investment program to develop and improve Ulaanbaatar’s ger districts will take place in three phases over the next ten years.
The program correlates with the “Street” project implemented by the Economic Development Ministry. Within this ten-year term six sub-centers will be created in ger districts.
Population, mass migration, and the number of people living in ger districts are increasing year by year, however, development policy to improve ger districts, infrastructure and land use management has been insufficient. In accordance with the “General plan amendment to develop Ulaanbaatar until 2020 and Ulaanbaatar’s development outlook to 2030”, approved in 2013 through Parliament, the population of Ulaanbaatar is expected to increase by 400 thousand citizens in the next decade. This mass migration will cause over-crowding in the city and will create challenges for city residents.

Construction of Buyant Ukhaa-2 town launches

May 27 (UB Post) Buyant Ukhaa-1 government housing project construction has been recently completed and residents are expected to move in soon. Following the project, Buyant Ukhaa-2 town’s groundbreaking ceremony was held on Monday with the same objective to supply reasonably priced apartments to citizens with average income.
Buyant Ukhaa-1 covers 4.6 hectares and will become home to 1,764 households. The town has a kindergarten for 120 children and a 380 square meter service center. According to authorities, Buyant Ukhaa-2 town will be built on a much bigger scale, on 28 hectares of land to accommodate 7,000 households in total.
The town will have 48 nine-story apartments for 54 households each, and 60 12-story buildings for 72 households each. Also, four kindergartens for 960 pre-schoolers, two general education schools for 1,880 students and a seven-story garage will be built at Buyant Ukhaa-2.
Apartments for 3,000 households and a kindergarten for 240 kids will open by next year in the first phase of the project.
National Development Corporation (NDC) LLC, which executed the construction of Buyant Ukhaa-1, has been selected as constructor for Buyant Ukhaa-2.
The corporation comprises of Delta Construction LLC, BUTI LLC, ECC LLC, Ulaanbaatar Barilga LLC and Erelt Impex LLC.
General engineer of NDC B.Enkhbayar commented, “The town will be constructed with the latest technologies which are known for lasting results. All the construction materials will be purchased from national manufacturers to support domestic economy.”
The following is a brief interview with executive director of Mongolian Housing Finance Corporation (MHFC) A.Gantulga about the town’s construction plans.
Buyant Ukhaa-2 will be a very big development project compared to Buyant Ukhaa-1. How will MHFC manage the budget issues?
The required budget for Buyant Ukhaa-2 construction will be drawn from the Chinggis Bond fund. A large sum of financing will be required for sure, as it is a very big project which will house 7,000 households. Buyant Ukhaa-1 financers will provide the budget for the first phase of the town that will house 3,000 households. We are planning to draw investment from both foreign and national investors for the second phase.
How much financing is required for the construction in total?
Approximately 500 million USD.
Will price per square meter be the same as Buyant Ukhaa-1 for Buyant Ukhaa-2?
It is too early to talk about the price as of now. It will be set shortly before the opening. But I can assure you that the price will be lower than the average market price as the core purpose of this development project is to supply reasonably priced apartments for citizens.
There are many criteria that citizens will have to pass to purchase apartments in Buyant Ukhaa-1. Will there be similar criteria for Buyant Ukhaa-2?
We will try to apply as little condition as possible for purchase, but we can’t tell for sure until the construction is completed.

We don’t want to give our money to scammers

May 27 (UB Post) Mongolians wishing to earn easy money can often end up with financial and emotional losses. Due to specious laws and ordinances passed by the State, regular citizens are losing their money on useless things. For instance, herders and consumers are seeing the darker side of the law on compensating loss with repayment conditions. For 8,000 people who lost money on their investments, the State passed the law and then the Ministry of Justice drafted a bill on amendments to the law. Taxpayers, how long do we have to be defrauded by herders who rely on hand-outs and people who receive grants regularly? During harsh times in winter “zud” disasters, we help herders a lot, but why can’t they decrease the price of meat?
For more examples of the state spending taxpayer funds on useless things, they passed a law for the 8,000 victims of a savings and credit cooperative and are now making amendments to it. Is this fair? Every spring, the victims of the savings and credit cooperative demonstrate. This year they threatened to declare a hunger strike. Prime Minister N.Altankhuyag met with their representatives and created a working group led by Kh.Temuujin, Minister of Justice. As a result, the Democratic Party made amendments to this useless law without any difficulty.
If we estimate that the Mongolian population is three million, at least one percent of the population was ripped off by the savings and credit cooperative’s scam eight years ago. Taxpayer money is not meant to be spent on charity. Instead of the government passing useless laws, they should invest in the frozen tenders for building schools and kindergartens. The state should not cover the losses of the savings and credit cooperation. I will say again and again that these funds are not state property! It is taxpayer money. When the Mongolian economy has fallen and people’s lives are becoming more difficult, taxpayers do not want to pay for losses on behalf of others. The government can’t spend the money from billions of dollars in loans efficiently. If they really have such a huge amount of money, why can’t they build schools, kindergartens and hospitals? Victims of the savings and credit cooperation may get their money from the State. How are we supposed to understand how they are spending our money?
In 2006, when a lot of savings and credit cooperatives went bankrupt, over 30 cooperatives were destroyed and the owners went to prison. In 2007, 33 billion MNT was paid to victims by order of the Minister of Finance. The following year it was, 2.1 billion MNT, for a total of 35.1 billion MNT paid to 7,290 victims.
Honestly, those victims are not the very poor, or vulnerable people in our communities. One survey said that most of them live quite well, their children study abroad, they own multiple flats and summer cottages, and run their own businesses. However, when they were talking about declaring a hunger strike, they pretended like they were really poor and shed crocodile tears. I saw someone who knew them looking and laughing. They are being guided by their greed. How do they dare to have their fingers in our pockets with the help of politicians? I question paying taxes to help these “victims”. Perhaps it’s time to demonstrate for terminating the law that lines their pockets.

Growing Pains: An external analysis of the Mongolian economy

May 27 (UB Post) It is immediately clear to all external observers that Mongolia’s is a unique and fascinating economy. With the fifth highest growth rate in the world in 2013 according to the CIA World Factbook, Mongolia’s ongoing rapid transition from nomadic agriculture to booming industry, and from a planned economy to competitive markets, ever since the democratic revolution in 1990, makes the country a hugely interesting case study for an economist.
However, it is clear that the economic outlook is not all rosy. High inflation creates economic uncertainty, erodes wealth, and imposes unnecessary economic inefficiencies, all of which deter valuable investment, as well as diminishing the proceeds of growth that improve individuals’ living standards. Inflation threatens to derail the economy, as Mongolia increasingly becomes a less attractive recipient of foreign investment. 
What problems face Mongolia? 
The economy faces dual issues that create the need for both short-term and long-term strategies. The deeper issue is one of economic dependence on export revenues from primary industry (mining) and therefore the country relies on importing most of its manufactured goods, resulting in an unbalanced economy that is vulnerable to external shocks. This is exactly what has happened over the last few years in Mongolia – the business cycle has been almost wholly determined by the mineral demand of its main trading partners, Russia and China, which dipped substantially in 2007-2009, causing an economic crisis in Mongolia. This vulnerability and lack of balance must be tackled by long-term structural plans and fiscal policies pioneered by the government to change the emphasis of economic activity in the country.
The secondary problem is a consequence of the former: high inflation and a rapidly depreciating exchange rate, which are both threatening to run out of control. This must be tackled with short-term monetary policy changes led by Mongol Bank to stabilize the economy, but should not be considered impetus to change the necessary long-term economic strategy.
What needs to change?
Mongolians often despair that the government is pursuing policies for decades in the future while they see prices rising in the shops week by week, with annual CPI (Consumer Prices Index) inflation rate running at over 12 percent for several months, according to Mongol Bank, Mongolia’s central bank. There is a very real dilemma here, as structural economic reform is necessary. Consumers’ current woes are clearly a product of structural issues, as inflation is being caused by a weakening MNT as a result of the balance of payments deficit (imports are greater than exports), so the resulting low demand for the MNT makes the currency fall in value). This requires a long-term readjustment to improve the balance of payments by basing more production locally to boost exports and decrease reliance on imports. This would both strengthen the MNT directly, and also ensure that future international shocks, either from rising import costs or falling foreign demand, will have less of an inflationary impact in Mongolia.
However, it is clear that short-term instability in the form of inflation could weaken the strong growth of the last few years, so in addition to this long-term plan, more immediate action must also be taken now to tame inflation. 
What policies can achieve both of these goals? 
The trade-off between structural reform and short-term prosperity is not as stark as it currently seems. Firstly, accepted economic wisdom since the 1980s holds that the most important tool to tackle short-term inflationary issues is monetary policy. There is a proven link between money supply and prices, and monetary policy has faster effects than other policy options. Therefore, Mongol Bank should take bolder steps to reign in inflation and to control the exchange rate, as the IMF has proposed. In 2013, the IMF called for Mongol Bank to tighten monetary policy by halting its mortgage program and price stabilization program which have pumped excess liquidity into the economy, encouraging currency depreciation and inflation. Both programs are still in place. Reversing these policies, as well as more aggressive raising of interest rates to combat inflation, are steps that can quickly and effectively control the immediate inflationary crisis facing Mongolia.
Secondly, the long-term economic strategy that the government is currently pursuing should be promoted using different mechanisms. Currently, approaches such as the “Let’s Construct and Create in Mongolia” program involve high government spending, investment and effective subsidies, all of which create large government budget deficits, only worsening short-term inflation.
According to the IMF, government expenditure increased by 70 percent from 2010 to 2012 – an unsustainable strategy. Instead, incentives to promote domestic production could be created through a discretionary tax system, giving tax breaks to companies in desirable industries (those that manufacture goods locally, to replace imports), and increasing tax revenues in other areas. Industry incentive tax credits have been implemented in many successful economies, principally the United States. This policy shift would achieve the same end-goal that the government is already targeting, while lessening the negative short-term consequences that high government spending currently has. 
An external perspective of Mongolia in the world economy
Economists often refer to the “resource curse,” a paradigm whereby most countries rich in natural resources suffer from worse development outcomes than countries who have to import minerals and fuel. This is because the resource-rich economies are excessively biased towards primary industries, leaving the nation open to turbulent and destructive boom-and-bust cycles, as well as the fact that prices rise faster in secondary products than primary goods. Whereas economies across Africa demonstrate the negative consequences of this, other nations such as Norway and the UAE show that an alternative sustainable and prosperous future is possible for resource-rich nations, so long as there is effective macroeconomic management. As these nations have shown, this involves government-sponsored investment in more diversified industries such as manufacturing and services, funded by efficient taxation policies.
All of this can be summarized as targeting sustainable growth. Mongolia’s extraordinarily high growth rates of recent years are to be admired, but they are difficult to achieve continuously without experiencing the negative externalities associated with growth—inflation, environmental degradation, underinvestment in both physical and human capital, and of course the bust that inevitably follows the boom.
Mongolia is well situated for the transition towards diversification and sustainability. Compared to other economies of the same size, Mongolia has a very successful education system (with high levels of numeracy and literacy) and a sound financial system, both of which act as a strong basis to allow a more diversified economy to flourish. The increasing prosperity of all Mongolians will surely be a consequence of this more balanced economic strategy.

Unlocking Mongolia’s Potential

May 27 (UB Post) A small, well-educated, and open-to-the-world population living in a democracy with mineral wealth? Mongolia’s potential for development remains terrific.
It’s this potential that keeps investors (foreign and domestic) interested in Mongolia. It’s also this potential that makes Mongolia’s dynamic development fascinating to a social scientist like me.
I am quite confident that Mongolia will reach its potential to benefit Mongolians in the long run.
However, the actions – or rather inaction – of the current government seems to be putting that ultimate achievement of social development off by many years. On two visits to Ulaanbaatar in May, I heard a lot of fatalism and frustration about politics from Mongolians.
Once Mongolians decided to embark on a path of democratization and some form of capitalist development, mineral wealth has emerged as the strongest, if not the only basis on which to build such development. The discovery of Oyu Tolgoi made that potential all the more possible.
Yet, after some short years of growth built on Oyu Tolgoi investment, the Mongolian economy has ground to a sputtering halt. Or, more accurately, the current government has essentially stopped further development by scaring off foreign investment and delaying progress at Oyu Tolgoi while borrowing funds to paper over the resulting decline in economic activity.
When President Elbegdorj initiated the current protracted dispute with Rio Tinto in his speech to Parliament last year. He raised many important questions regarding the costs of construction and the Oyu Tolgoi governance structure. Initially it looked like there was follow-up to those questions by the shuffling of the government-appointed Oyu Tolgoi directors. The replacement of political figures with individuals who offer some substantive expertise seemed like a good sign. However, I see very little progress on any of the questions raised by Elbegdorj since then. Surely, there are private discussions with and about Rio Tinto that I have no access to, but there are no public signs of progress. I am not even sure that the government is better informed about Oyu Tolgoi activities now than a year ago.
Prime Minister Altankhuyag has been surprisingly successful at keeping together a rag-tag coalition with the MPRP and Civil Will, a coalition that seemed like an odd choice in 2012 in part because the likelihood of this coalition enduring seemed low. But despite the recurring rumors of an imminent demise of the Altankhuyag government (intensifying once again in the last several weeks), the prime minister has kept the cabinet together for the moment. But to what purpose? After a flurry of action last fall to undo some of the damage caused by the Foreign Investment Law, and a relatively quiet winter, energies during the always-turbulent-in-Mongolia spring have focused on political infighting.
As a scholar, I am very interested in questions surrounding institutional design and whether a parliament is impeded in its function when nearly 1/3 of its members are wearing the “double deel” of also serving in cabinet. But as an observer of current developments in Mongolia, I do not see this question as one that has much impact on developments. Will the Oyu Tolgoi impasse really be resolved more effectively by a cabinet of single-deel wearers?
The circumstances of attempts to remove Minister of Justice Temuujin from office also suggest that these efforts are more rooted in personalities than by disagreements over policy choices.
Will the DP’s efforts to replace all officials across Mongolia down to school principals with DP-friendly individuals really lead to a better future for Mongolia?
To my mind, the top priority for any current government is to structure the environment around Oyu Tolgoi in a way that allows that project to go ahead without inflicting environmental and social damage while yielding tangible and significant benefits for Mongolians now and in the future. A well-managed Oyu Tolgoi in any form will be the cornerstone of Mongolian development, so that management must come first. A lack of progress will devastate the economy and risk social development further, while progress on Oyu Tolgoi will produce the additional resources and experience to deepen the regulatory and policy analysis capacity of the government.
I would note that there is no perfect solution to how to manage such a project. There is no sense in searching for an optimal solution when this search delays progress and leads to a decline in confidence in Mongolia and hardship to Mongolians through inflation and the decline of the Tugrik, for example. Once good practices – not necessarily best practice – have been established around Oyu Tolgoi that will produce the resources and the time to address other issues. But to reach a decision for good practice must be the most important task for the government.
I hope that the current government is devoting much more time to seeking a solution to the Oyu Tolgoi impasse than is publicly visible. I also hope that they are investing heavily in their internal resources to help build capacity to analyze options regarding Oyu Tolgoi at future decision moments. If they are not focused in such a way, they are gambling with Mongolia’s future.
Julian Dierkes is an associate professor at the University of British Columbia in Vancouver, Canada. Read more of his views at or follow @jdierkes.

Art in a Bottle

May 27 (UB Post) A bottle can be a work of art, but most people focus on what’s in the bottle. While some people don’t care and throw away empty bottles and jars, others save them like treasure or reuse them. An exhibition showing that art can also be captured in a bottle opened at Blue Moon Art Gallery.
B.Tsevegsuren’s exhibition, “Art in a Bottle”, is the first exhibition of its kind in Mongolia. Bottle art has become advanced overseas, but it has not been developed in Mongolia. Every piece in the exhibition was really interesting and brand new.
The artist included miniature depictions of the five kinds of Mongolian livestock, the three manly sports, the Mongolian ger, the state hymn and flag, soyombo, daily life, traditions, culture, values, and buildings. He captured these themes in recycled light bulbs and vodka bottles. B.Tsevegsuren’s pieces are made with wood, paper, cotton, beads, copper wire, iron, and plastic. He recreated the State House in a bottle too. He may be criticized for it, but he said it is artwork.
The exhibition will continue through May 28.
The following is an interview with the artist.
How did you decide on the idea to create art in a bottle?
I found my idea from seeing souvenirs ship in a bottle. Throughout my work, I wanted to speak about the consequences of vodka and show that human intellect can be inside a bottle instead. I am not a professional artist and I just do them as a hobby.
When did you start creating these pieces?
I started three months ago. In total, I have made 200 pieces, out of which 80 pieces were presented.
It is really interesting to think about how you created them in a bottle.
It wasn’t so easy. First of all, I draw a picture of my work, estimate the size accurately, and connect and glue them together with a very thin device. I did not cut the bottles. I spent a week making the State House because it was made up of over 150 small pieces.
Have you patented your work?
I have sent a request to the Intellectual Property Agency. I will get the patent soon.
How many people want to buy your work and how much does it cost?
If you want to give people gifts of artwork instead of alcohol, you can buy it. They cost 10,000 to 150,000 MNT.

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