Friday, November 6, 2009

Mongolia and Chile

Mongolia and Chile are similar in many ways. Minerals, including copper play an important role in both economies. If the state owned company, Codelko makes a central contribution to Chile’s economy, Erdenet, the two states-owned joint venture does the same for Mongolia. Yet Chile’s copper is an established business, which having one third of the world’s copper reserve, creates 1/3 of world production. Chile has a population five times larger and two times smaller the territory compared to Mongolia. It skirts half of the Pacific coast line of South America. Mongolia’s Oyutolgoi is considered the world’s largest unexploited copper mine.

There are many differences between the two countries as well. Beaches and forests are some of the major geographical differences. Yet, at this time of information and technological revolution, one would assume that there would be fewer differences in terms of individual capacity and governance. In Chile, the government was changed many times but the economy kept growing and at the present moment the country has entered the club of developed nations. The way that they achieved this result is very simple: Chile has been saving a certain part of its revenues coming from the increasing price of copper and when the prices went down, putting it back into the economy in order to keep the economic growth dynamic.

In Mongolia, when copper prices rise, the size of our government increases immediately along with its expenses, festivals, holidays and entertainment. Remember the fable where the grasshopper, freezing in winter’s cold, comes to the ant’s house and asks for food and heat: The ant, after having worked hard during the summer to collect and dry wheat, and now enjoying his rest in the winter asked: “Why have you not treasured your food and prepared a house for winter when the time was warm?” The grasshopper replied: “I was busy singing and entertaining myself.” To this the ant said: “If you could sing the whole summer, surely you could dance through the winter as well.” Sounds similar to the story of our government, doesn’t it? When money comes in from the higher price, their first task is to spend. Plus, it is both parties, ruling in coalition that compete with each other in their promise to people to give cash one more than the other. Then in difficult times, our government asks for foreign aids and even charges the foreign investor with cash before they can produce anything.

The state budget is a tool for economic development in Chile. But in Mongolia, it is a tool for implementing political promises and funding election campaigns of participating political parties.

Actually, our government including parliament members, government representatives and working groups, has made so many study tours to Chile, that by this time they could implement any program. Furthermore, the Chilean ministers of finance, other officials and advisers have visited Mongolia several times. There should be many costs related to these trips but the question is, “where are the results?”

We did establish a “Stabilization fund.” But have we not seen the initiatives created by Chileans to spend a part of their revenues for the diversification of the economy, for less dependence on market prices of one commodity and for increase of economic competitiveness? In Chile, they have developed salmon farms, superior wines and have diversified their export. The whole preparation was made under a careful plan. It could have been our major mission of our study of Chile, but nothing has been brought back to Mongolia. It is indeed a time for fewer visits and more work. It is also a time to develop and strengthen our private sector as Chile has done.


  1. There are a lot of analogies being made of Mongolia and Kuwait. I read in the FT that a better analogy for us would be Botswana. Apparently, this African country is underpopulated and yet has a lot of natural resources. It's one of those rare success stories in Africa.

  2. Thanks. That's a most important understansding and people really need to concern on this subject.
    I think you wrote it very well.
    But if you put in some calculations and some numbers as evidence, that would be wonderful. 'Cause obviously you are an economist, at least your profession is related to it. So people who have capability to understand your column and think about your ideas need more numbers as evidence and some simple calculations.
    Thank you for your nice columm and keep it up please.

  3. It's a nice posting ,i like it ,
    thank you for this kind of posting,
    this is a real good page.

  4. Your posting is so valuable.
    Thanks for your posting.