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Deputy Finance Minister: Government is handing out taxpayers money to citizens saying “here it is “. Last year 590m USD, this year 517m USD

According to Mongolian news portal news.mn on February 7, 2012, Deputy Finance Minister of Mongolia Ch.Gankhuyag has commented on current economic and finance issues

  • Regarding reason why every Mongolian family is not benefitting from 17.3% growth in the country

Mongolian economy was in stagnation till 2000. Since 2005 our economy is benefitting favorably from structural changes in world economy, Chinese economy is developing very rapidly for the last 10 years.  Today’s robust growth is display of how Chinese growth is influencing Mongolia. Chinese demand for Mongolian mineral resources is increasing greatly. This demand is giving opportunity for Mongolia’s growth and for Mongolia to amass wealth and capital.

Certain time is required for benefits of this economic growth to reach to all people. It takes time to build apartments, roads and power plants. One cannot expect high economic growth to impact one’s life immediately.

On the other hand, we have free market economy. There is no such thing as free ride. The companies who influenced and participated in the high economic growth are to reap most its benefits by “selling “ themselves.

  • Regarding increasing  wide between rich/poor and income inequality

China processes our raw materials and exports to USA and European market. Those markets are unstable at the moment. Perhaps we cannot be 100% confident that China will always be our buyer because the major markets it supplies have issues.

Mongolian people are only starting to have a taste  of high economic growth.  Today anyone can get consumer or financial loan. Lives of herders are getting better. One can see abundance of products and services from media and imports, vacancies advertised. We have so many choices these days. Another indicator of growth is increasing traffic. So called poor Mongolian people are driving all these cars.  Hard facts and documents about poverty from foreign and domestic research organizations are different from 70% in poverty number said by some.

Indeed, we have a rapid change. Yet it is so easy to say populist things that we all must equally get benefits of economic growth. I am not saying that everything is fine, there are many issues.  I think that today’s high economic growth is result of Government working very hard last 20 years.  We have convinced foreign investors that Mongolia is reliable, trustworthy partner, that Mongolia can do business together and that there is healthy business environment here.

Now, we, Mongolians, must prepare each other and do what we must to do to participate in this high growth and reap its full benefits. There are so many opportunities for someone who is determined to do something, someone who has dreams, someone who has invested in oneself. There is plenty of opportunity to not only taste but to reap bounty of high economic growth from hard working, talented, smart and skilled people.

  • Regarding cash handouts,

This is becoming thing of the past. It is political culture to fulfill last election promise of 2008. Politicians must have political culture and fulfill promises. Rather than debating whether it is right or wrong, perhaps it should be seen more as a political culture. On the other hand, perhaps our citizens should get rid of a free ride mentality.

Last year 800 billion MNT( 590 million USD using Bank of Mongolia’s today’s reference rate) has been handed out to citizens to spend as they see fit. This is a result of high economic growth. This year 700 billion MNT(517 million USD)  will be handed out before the election. For example, student tuition will be subsidized and investment into future will be done. Is not this a benefit of economic growth?

Indeed,  Government is handing out  taxpayers money that came in as a result of high economic growth to citizens saying “ Here it is “. Also, 1072 TT shares will be handed out within the framework of 1.5 million MNT elections promise.

  • Regarding will budget have the money to buy back TT shares from citizens if citizens will decide to cash it,

Mongolia has budgeted spending of 6,3 trillion MNT. Adding 172 billion MNT to increase public servants salaries, pensions and subsidies it will be 6.4 trillion MNT. Budget revenues are approved at 5.8 trillion MNT. TT shares are not related to any foreign currency prepayment.  Citizens can choose freely whether to keep or sell TT shares. Budget expenses of buy back of TT shares are reflected at 334 billion MNT. However, it is necessary for our TT shares taskforce to make more detailed calculations.

  • Regarding 33%-40% population in poverty,

There are differences in methods on how to calculate poverty whether it would be 1 USD per day or 2 USD per day. In fact, poverty has declined. If we calculate based on consumption, income of the population has increased.  Indeed, construction companies cannot get help laborers for 35 thousand MNT per day. Yet there are huge lines to get monthly handouts of free 21 thousand MNT.

We say we are poor, starving and tired yet we prefer not to do 35 thousand MNT per day work.

More than state’s fault, I think that the issue should be considered with individuals views, thoughts and goals. Perhaps, there could be connection with free rides from the state.  Still, I have not heard a person has died in Mongolia because of starvation. But I heard the persons have died from drinking and freezing. Still, number of homeless is declining too.

  • Regarding when 100 thousand apartment program will be started implemented and loans with the 6% be issued

It has been not even one year since Development Bank of Mongolia has been established.  It is impossible for one organization to be established and right away raise money from abroad. It takes time and hard work to raise money. Money is not always given when asked for. Global markets are still weak. We have a lot of work to do and there is still issues with funding. But time will come when Mongolia will issue its national Eurobonds.  Government has issued bonds domestically and Government is asking Parliament permission to issue bonds to fund 300 billion MNT budget deficit.

However, it is planned to start work on 100 thousand apartments from spring before elections. Some private companies have started construction works. It is Mongolian dream for young Mongolians to have apartment of their own. So it is important for Government to help as much it can for this Mongolian dream.

Our major strategy is to have GDP per capita by 2031 to reach 60 000 USD. Last year GDP per capita was 3100USD. If growth goes on like now, it is estimated that by end of this year it will reach 5000 USD.

  • Regarding recent inflation and why Government is not paying attention to it

If we nationalize everything like some people from parties with western, liberal views propose, we will perhaps will go back twenty years ago when products were rationed. State has a duty to ensure stable economy and free competition not to lower prices of some aunt seller in the food market. Price is regulated by market and competition not by some official walking into the store and ordering for prices to go down. If prices are not free, Mongolian economy will have products deficit. Indeed, this issue should be treated very carefully, it is same as playing with fire.

In related news, according to February 6, 2012 “The Globe Mail” article by Aubrey Belford, “ OVERSEEING Mongolia’s balancing act are urbane, Westernised, democratic politicians, among them Ganhuyag Chuluun Hutagt, the vice finance minister. Ganhuyag is a regular among the Davos crowd of global business luminaries and he, like the business magnate turned Prime Minister Sukhbaataryn Batbold, enjoys calling Mongolia Asia’s “Wolf Economy,” buzzwords deliberately playing off the better known, booming “Tiger Economies” of Southeast Asia.

Ganhuyag is a big believer in the idea that Mongolia will become a much richer country and will avoid the resource curse. The country’s key strength, he says, is that it’s a democracy. The government currently pays every Mongolian 21,000 tugrik, or about AUD$14.50, a month from mining income, although he concedes it is a policy is aimed at buying public support, money he thinks could be better spent on infrastructure. If everything goes to plan – an uncertain thing given elections set for this year the shakiness of global capital markets – every Mongolian is soon to become a shareholder as part of an initial public offering for Erdenes Tavan Tolgoi, or ETT, the Mongolian company involved in operating part of the massive Tavan Tolgoi coal deposit. A whole constellation of non-governmental organisations will make sure environmental standards are upheld, he says.

The real sticking point is geopolitics. Russia, which formerly ran the show, sits to the north. China wraps around the western, southern and eastern borders, and uses its position as the dominant buyer to get away with paying well below world prices for Mongolia’s commodities. The People’s Republic would prefer to keep all the processing industries — and the jobs that go with them — on its side of the border. It is also quick to anger; China has shut down the border for “maintenance” during one past visit by the Dalai Lama, and lodged a complaint during another visit in November.

“We really are not in a good position to negotiate,” Ganhuyag laments. Mongolia pursues a diplomatic policy of embracing so-called “Third Neighbours” in the West and countries such as Japan and Korea. It even sent troops to Iraq. But this does not completely get the country out of its bind. “Even if we allow American and European interests, Australian and Canadian interests, in Mongolian mining, the main buyers will be in China,” he says.

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The 1990s was when Mongolia’s urban influx really started, but the mining boom is adding to the slums of ger outside the capital and exacerbating social tensions, says Sumati Luvsandendev, the director of the Sant Maral Foundation, a non-profit organisation which surveys Mongolian society. The public is split on the benefits of mining, and a vast majority is convinced the money is not being spread fairly, he says.

“What is rather pessimistic are the two extremes, very rich and very poor,” Luvsandendev says. “We also have a quite significant part of the poor population which [has] actually immigrated to Ulaanbaatar and surrounded it, like a besieging army. On the other side we have these very rich people with their million-dollar apartments or houses.” Besides the big mining projects, there are black market mines, many of them run or backed by Chinese interests, which have popped up largely unnoticed in remote corners of the country, he says. Construction too has brought to the capital thousands of Chinese who live in high-walled compounds. No one, in the government or elsewhere, seems to know how many there are. While Mongolia’s democracy has proved resilient, an ugly ultranationalism has been on the rise. At the most extreme end, a handful of home-grown neo-Nazi groups have, with a blithe lack of irony, turned against Chinese and other foreigners, picking fights, harassing inter-ethnic couples, and carrying out vigilante attacks. More generally, the sort of reflexive racism of Gee’s music has become commonplace. If China’s economy loses strength, Mongolia goes down, Luvsandendev says. Problems also will arise if things go too well and Mongolia’s economy overheats. “If inflation is high then you should expect public disturbances,” he argues.

I ask Luvsandendev about the chipper pronouncements of leaders like Ganhuyag, the vice minister of finance. Earlier, the minister had told me Mongolia could avoid the resource curse with plans that included turning Ulaanbaatar — the world’s second-most polluted city, and the world’s coldest capital — into a Hong Kong or Switzerland-style finance and banking hub for northern and central Asia.

“I hope he knows what he’s talking about,” Luvsandendev says, “but I personally think it’s all bullshit.”

Dale Choi

Chief Investment Strategist,

Frontier Securities