R.Shinegerel: The independence of monetary policy has been lost

R.Shinegerel: The independence of monetary policy has been lost

  • By Misheel   -   May 22,2023
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Economist R.Shinegerel shared his opinion about the current economic situation in the following interview.

The government always talks about developing rural areas. How favorable is the local business environment for new businesses? Have the indicators generally improved, such as markets, investment, and regional competitiveness in rural areas? 

Our country is not very friendly to new businesses. A favorable policy environment for start-up business in cities and rural areas has not yet been created. Pressure from the government, taxes, social security, fees, and contributions do not give businesses a chance to grow. Compared to other countries, we have to see if there is an environment where small businesses can stand on their feet and expand. Today, our country has a very tough and difficult situation. That’s why the business does not grow, or cannot develop stably and steadily. Most of them are unable to pass the first stage. Support and ancillary services should be provided to villages that are based on intensive animal husbandry or near newly operating mines. There may also be some opportunities in tourism. 

Recently, people have been going abroad a lot to work and live. For example, some of them sell their business and leave to live in a foreign country for a long time. What do you think is the main reason for this? 

In a country like Mongolia where development is slow, where corruption and bureaucracy is rampant, where the state has attacked the values and dignity of individuals, two types of human resources flee from their countries. This is confirmed by economic theory and research. First, young people go abroad a lot. It is said that the largest core part of the labor market is leaving. We are losing young people. Today, many young people are ready to go to Australia, the USA, and South Korea to work. Second, the most highly skilled and specialized workers are recruited by such countries. This phenomenon is quite common, and to that extent it is very harmful to the development of the country. It takes a lot of time to build such a highly skilled workforce. Young people who are engaged in business are going abroad as well. This is very sad news. People who create wealth are leaving like this, and a “tough” situation is emerging in our labor market. The lack of human resources has already started. Labor productivity is declining in both the public and private sectors. People themselves are capital. The beginning of the country’s change is people. However, the fact that people were not appreciated and neglected is manifested in this way today. A country will develop if people develop. A rich citizen means a rich country. So, losing our most creative part is a big risk. It is necessary to quickly investigate and find out why this is happening with such intensity, and take immediate measures. Most of them should not be left like that. The state and government policies should also be aimed at this issue. The state’s involvement in business and economy has increased too much, and the state itself has turned into a business competitor. With a “big” government, the door to corruption will not be closed. These are the factors that have the biggest negative impact. 

The state bureaucracy is invincible. The index of economic freedom also decreased. The biggest influence is corruption in the government. Property rights, free investment, and the financing environment also scored low. If the state does not reduce its excessive involvement in business, it will turn into a state economy, not based on the private sector. Politicization also affects the above situation. We will reduce this flow by staunchly supporting the free market and by making the big government smaller and more productive.

Inequity is a major social frustration, and the income gap is widening. This is probably one of the reasons why people go abroad, right?

Yes. This is another big factor. When the support of the party and the region comes first, the value of spirituality and knowledge is lost. It has been many years since this unfair space started. No one wants to live with injustice. Unfortunately, this situation has become too widespread.

You said that the high level of government involvement has a negative impact even on the labor market. Can you elaborate on this?

A huge sector of state-owned business has emerged. There is no governance. There are no qualified and professional human resources. There is no transparency, plans and targets are not realistic. Party appointments are served there. Because of this, people have to leave their country. The government itself has put its people in such a difficult situation. It leads to such a choice. For many years, we have been talking about losses in the public service, not economic efficiency. Most of them are not driven by business principles, but by political goals, and only some mining companies are operating profitably. More than 90 percent of the rest have lost production for almost the last 30 years. Today there are more than 100 state-owned companies. Their debts and loans have increased year by year, and there is no accountability system. An unhealthy system has been created.

Ulaanbaatar will operate a coal mine. The mayor says that the city’s problems will be solved with the profits. Is that correct? Is this a sign that the government is trying to do business by itself, not the private sector?

This is the biggest example of the state trying to do business today, which is tragic and deviated from the path chosen in 1990. This is a sign of going back to the old days. Is Ulaanbaatar running out of money? No. The city has enough money, sources of money, and resources. Many enterprises operate in the capital and collect taxes. A legal framework has also been created. Power has expanded. But what is missing in the city is proper management. Running a coal business is an impossible “stupidity”. Today, our country is not moving forward, it is going backwards.

The livelihoods of the people are deteriorating day by day. How well is the budget and monetary policy implemented? How would you rate macroeconomic policy today? Can you express your opinion on how to raise the declining livelihood of the family?

The weakening of tugrug has the biggest impact on today’s price increase. Last year, the exchange rate of the USD was 2,800 MNT, but today it is about 3,500 MNT. It is impossible to see what caused the devaluation of tugrug. The government does not want to see it. This situation is likely to continue. Too flattened welfare destroys the interest to work. The lack of care for the target group and the massive distribution of worthless money in the market ultimately leads to an endless crisis. The independence of monetary policy has been lost. Budget deficit, external and internal debt burden have brought today’s economy to such a difficult situation. If we don’t review our macroeconomic policy, listen to the opinions of academics, and make realistic conclusions, we are going to get even deeper into a dead end. Today’s government is questioning whether macroeconomic policies are in place.

The Ministry of Economy and Development was newly established. It’s the old structure that was set up before. How do you see the ministry working in today’s difficult economic environment?

A large ministry was formed in terms of rights and duties. This shows that not only the Ministry of Finance, but also the prime minister has reached the same level of power and influence, and in some cases, their activities are overlapping and contradictory. The first “work” from this ministry has not yet been produced. It is not clear what “product” to release, and it seems that the process is going on only to understand its duties. Big programs and development policies such as “Vision-2050” and New Revival Policy are being discussed. Investments are required to implement these. So far, no major reforms are in sight. If we don’t eliminate government intervention in business, our development path is still blocked. Also, if the state intervenes in the economy of every company and household, it will not change the interest in working and productivity, it will only worsen. The work of the Ministry of Economy and Development should begin with the reduction of government involvement. It starts with sorting out and cutting out the flattened care and welfare. It should only go to those who need it. Big behavioral and psychological decisions need to be made. Household income goes through the government in the form of welfare, not as a job or salary, and the benefits are not visible. This situation has continuously led the society for more than 10 years. If this is the case, even if there are 10,000 Tavan Tolgoi mines, the current situation will not change.

Misheel Lkhasuren

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