The following is an interview with member of Parliament J.Bat-Erdene about current economic and social situation in Mongolia, touching upon issues related the International Monetary Fund (IMF)’s extended three-year extended fund facility (EFF), the Investment Banking Law, the cashmere industry, and veterinary issues.
Mongolia is in a need of foreign investment and foreign currency. There were some problems in launching the EFF. Has it been resolved now?
We’re facing something similar to the woes of poverty. The economy of Mongolia is in a very difficult shape. Mongolia will be able to continue growing only by increasing foreign exchange reserves and money circulation. The government and Parliament have no option but to move forward with the EFF. The IMF instructed us to decrease the state budget deficit and improve budgetary discipline. This way, Mongolia can rejuvenate its exhausted economy by 2018 and 2019. Parliament passed Resolution No. 29, which has become the topic of the day. It was passed to increase foreign exchange reserves and establish a way to make money pass through local banks before it outflows to another country. Unfortunately, foreign organizations are standing against us like they always do. From my observation of recent events, these requirements were put in place due to lobbying of some extent.
MPs discussed this matter thoroughly at standing committee and group meetings. The situation is likely to become worse than it already was. The IMF didn’t accept the Mongolian Prime Minister’s vague response and ultimately, the draft parliamentary resolution was withdrawn to push forward with the EFF. We can’t take another step if we continue to protest against all the requirement put on us. We might have taken a step back today, but this enables us to get the IMF’s support for recovering the economy. Mongolia needs to improve its economy.
So, can we assume that the parliamentary resolution will not cause more problems?
We will immediately report the IMF as an oppressive organization if something like this happens again. Putting more requirements will be a sign of crossing over the line. If the IMF demands more, Parliament will uphold a strong stance against it.
Parliament approved amendments to the Investment Banking Law. Will investment increase after the law becomes effective? Some observers say that the law provides opportunities for Chinese banks to come into Mongolia and monopolize the sector. Is it true?
The main reason amendments were made to the Investment Banking Law is to enable the state to determine the direction investments will be used for. The law was modified to ensure that investments are used to minimize imports, maximize exports, and expand local businesses.
The CEO of the Development Bank of Mongolia used to be a Korean person when I served as the State Secretary of the Ministry of Roads, Transportation, Construction and Urban Development. We tried to make several project proposals to him but we weren’t able to reach an agreement because he insisted on issuing business and service loans. We told him that it was inconsistent with the state policy but he stood firm with his decision until a new chief executive was appointed in 2012. The former chief executive is being investigated by a legal body. At the time, the ruling party, the Democratic Party, demanded a loan but half of the loans issued by the bank had become impossible to repay. Due to this, we passed a law to finance projects and programs that can circulate money in the economy.
I believe it’s correct to bring in foreign banks to support investment activities. All our activities are completed with funds from active savings accounts of Mongolian banks. The interest rate of savings is high and if you add loan interests, banks have no choice but to issue loans with high interest rate. Many people would complain if the savings interest is lowered so by bringing in foreign banks to Mongolia, we can ask them to issue loans with their own money. Low-interest loans will ultimately lower savings interests and then, reduce loan interest rates of local banks.
Prices of mining products have been increasing. Is there a way to increase foreign exchange reserves and the economic growth using the price spike rather than through the EFF and foreign banks? Last winter, you stated that it’s possible to improve the economy if 500 billion MNT is channeled into the wool and cashmere industry. What happened to that?
For sure, we can expect positive outcomes from the price increase of coal and copper. Had Mongolia not been in debt, it would have benefited greatly from this. Next year, for instance, Mongolia will have to spend over a trillion MNT for bond debt repayment. Our nation can’t generate savings even with the price spike of raw materials because of the sovereign debt. I think that the economy can stabilize within two years if we strengthen the foundation of our economy through the EFF.
As for the wool and cashmere industry, a kilogram of cashmere used to be sold for 100,000 MNT but now, it’s reduced to 70,000 MNT per kilogram. China is doing its tricks again. China supplies 50 percent of the world’s cashmere while Mongolia supplies around 40 percent. Since we’re one of the major suppliers, it’s crucial for us to produce raw cashmere by ourselves, process it by ourselves, and export it to large markets by ourselves. We need to meet with representatives of Northeast Asia and Europe, where there’s high demand for cashmere.
The Prime Minister will soon visit China. The cashmere industry will probably be one of the prime discussion points. It is necessary to establish a mutually beneficial agreement in this area. Experts estimate that the cashmere industry can generate approximately 2.5 trillion MNT (annually). We must keep a good grip of such a large market. Rather than concentrating on the local market with around three million people, it’s better to form a policy directed at billions of people over the border.
...Experts estimate that the cashmere industry can generate approximately 2.5 trillion MNT (annually). We must keep a good grip of such a large market. Rather than concentrating on the local market with around three million people, it’s better to form a policy directed at billions of people over the border...
It seems that the slow development of the agricultural sector is linked to the Agricultural Commodities Exchange (Exchange). People say that the price of cashmere hit rock bottom right after a cashmere auction was held. Others say that a couple of foreign companies have purchased stocks of the Agricultural Commodities Exchange. Can you comment on this?
The exchange is not developing due to poor foundation. The existence of this institute is absolutely crucial. Mongolians tend to build new things before fixing the general system and structure. The Mongolian system for the trade of wool, cashmere, meat, hide, and leather doesn’t go beyond small supply chains. When we haven’t established a proper system for the trade of agricultural exchange, some big shot established the exchange. The products are being trader before they go to the exchange. Yet, the law states that products can’t be traded before they pass through the exchange.
Raw materials are passed from one person to another. Traders can’t export it because of the law. Ultimately, traders asked the staff of the exchange to forge a document stating that a certain amount of wool, cashmere, meat or leather has been inspected by the exchange but the staff demand money in return. That forged paper helps them export products through customs inspection but everyone knows what really happened.
Mongolians have a tendency to immediately adopt new systems of developed countries even though it’s impossible to implement them in reality. I feel like closing down the exchange for some time since all that it does is forge papers and eat away people’s money.
Wouldn’t people oppose if the state tries to shut it down?
Yes, I’m sure there’ll be those who’ll oppose. We need to either shut it down or establish the necessary sub-systems. One of the reasons agriculture isn’t advancing is because of animal disease outbreaks. A bill on animal health and animal genetic resources has been submitted to Parliament.
I led the working group in charge of developing the law on animal health. Our team met with Australian and New Zealand NGOs. According to the international veterinary standard, the quick response action to quarantine an area where an animal disease breaks out needs to be very accurate.
Mongolian herders believe that the veterinary sector needs to have a hierarchy system. At present, it’s not possible for soum mayors to directly give orders to a private veterinary in the area. A contract must be made to do that. When a disease breaks out, no one is held accountable because veterinaries are not owned by the state. The public and private sector needs a system where both sides can keep each other in check. People protest for better health system to protect their rights. Like so, people also need to protest for better veterinary services to protect the health of livestock and animals.
If there’s a disease outbreak, locals need to guard the area so that affected livestock don’t escape or enter the area, control administrative movement, and supervise vaccination for livestock. They need to be ready to report to authorities if necessary. Private veterinaries should be capable of taking responsibility.
A recent study indicated that there are over 1,000 veterinaries in Mongolia. We will establish an accountability system for them, starting from the Ministry Of Food, Agriculture and Light Industry to soums and bagas. Foreigners tell us right to our face that Mongolia will not be able to export meat as long as foot and mouth disease is recorded in the country. However, we’re happily daydreaming about selling millions of livestock to other countries. All we have for livestock protection is a single article about livestock being under the protection of the state in the Constitution – that’s all.
