|Written by Scott Powers Houston|
|Friday, February 19, 2010.|
Today I’m again sitting with D.Jargalsaikhan, a highly regarded Mongolian economist, and frequent contributor to our paper, to ask him about the recent Mongolian economic forum which was held here in Ulaan Baatar, last week.
You were so excited about this upcoming forum that you were organizing last week, that I had to come back now that it’s ended, to ask you about the results - were they as productive and promising as you had hoped?
Well it was like the recent international forum they had in Davos, Switzerland, only this was just concerning Mongolia. It was productive and encouraging in that it helps us now, keep an ear to the ground, so to speak. We now have an annual forum whereby we can see and feel the general sense of what people are really planning with the economy, both from business, and from the government. And like at Davos, we discussed eminent economic problems, and how to best address these problems. At Davos, of course, the main agenda was discussing the recent problems in Spain, and especially in Greece, and they’re trying to decide the best course of action. There’s even speculation that the Euro may one day be dissolved.
What they should do is just kick Greece out; that would immediately solve the problem with the Euro. There should be minimum accountability rules in place, and guidelines set regarding operating at a deficit, and how much the deficit can be.
Well the EU already has rules, the problem is that the Greek government did not record the debits as a “sovereign debt”, so it was not clear whether they were operating at a true deficit, or not, or by what percentage. There needs to be better accountability, and clearer guidelines on how you manage debt of any kind. That goes for here, as well.
So how do you manage the debt?
That’s what the EU is fighting over right now. It’s a very big debate. The problem in Greece was caused mainly by the borrowing of the previous government, and how it was recorded, and what the new government should do about it.
So what was the news at the forum here?
The news was that we’re also incurring a huge debt now. In Mongolia, we heard the same general news about government spending, and that was bad news to me.
It seems that they’re now borrowing too much against the future. Now that they’ve discovered this “commodity futures selling” thing, they seem to be merrily selling off Mongolia’s potentially huge future resource revenue, for big bucks today.
Yes, they are selling out the future, in more ways than that. It seems to be a warped sense of propriety over the pursuit of money today, and with the recent campaign promises of cash payouts to the public, there’s clear evidence now that the two parties are conducting these policies in coalition with each other. I saw in a Bloomberg report that the Mongolian Minister of finance has recently announced the issuance of Government Bonds, which will be Dollar-based.
Like the United States did to finance WWII? It’s fine to get more money today, and the U.S. did it out of necessity, but it’s kind of like, devil be damned about the future to do that, isn’t it?
Yes, and according to the report, the government plans to issue US$ 1.2 Billion in bonds reaching a maturity in 10 years, at a guaranteed minimum of 5%. This is alarming, because it will increase our deficit by as much as 25%, yet it’s in the IMF restrictions that the deficit should not ever exceed more than 5% of the GDP. This is the bad news I’m reading from all the discussions at the forum.
I think there’s three main things that are needed to improve the economic prospects here.
And what would they be?
Number one, the people themselves need to change. It’s not just the government that’s to blame; there’s more to “developing” a country than just throwing money at it, and bringing in new technology. You also have to develop the minds of the people to be able to live in the modern world. If you take a child and keep him in a closet until he reaches maturity, he won’t have any idea about not only academic and social things, but so many other things about modern society (including macro-economics), as well. And unfortunately, most Mongolians who have not been exposed to Western cultures, just don’t even realize how much they don’t yet understand. Also, their development in this way was retarded by being under the Soviet regime for 70 years. And more specifically, one thing they don’t yet seem to comprehend, is the value of establishing good credit. Local bank lending rates here have to remain stiflingly high to compensate for the fact that there’s so many people here who are defaulting on their loans, and it’s so difficult to determine a person’s credit worthiness here, with no established rating system in place.
Well, it’s not only bad debts that are keeping bank’s lending rates so high. It’s also because the savings rates are so high as well. People here also are still largely of the nomadic mentality of “live for today”. They’re not yet able to really think ahead too well, because as a nomadic herder, you just make decisions day to day, usually based on the weather. And that’s also why I like Hernando DeSoto’s idea of developing the Ger districts with low cost housing. That would help the mindset become more modern, faster.
Sure, I like that idea too, in theory. I also think you could oblige the settlers in that ever-growing area (with many more expected to come this Spring), by demanding that they use more environmentally friendly ways to generate heat and power. You can offer them what would be basically homesteading rights, in exchange for meeting these various basic requirements.
Then by becoming property owners, that would empower them financially, and help to broaden their thinking.
But it will take at least two generations for these social changes to come about. What do you notice of the young people during your teaching?
I’m encouraged. Even the 15 year-olds seem much more socially evolved than even the 25 year-olds that I’ve taught here in Mongolia, in the past. So there is noticeable progress, and improvement being made I think.
But there’s more than human factors that need to change for development, and understanding, there’s also economic and social conditions that need to contribute as well. So what was number two?
Foreign governments need to stop pandering to the government here. Stop giving them so many free hand-outs. Most of the overseas development assistance is just being rendered on the Mongolian government’s own terms. They’re not even accepting loans at 1% because they’re spoiled and they say, “we never are asked to pay interest”, or they reject money which comes with a requirement that the European government offering the loan must monitor the funds themselves by sending one of their own people here to monitor it. It’s rejected because they just want to use the money to buy personal things, and then the foreign governments just pander to these unreasonable demands, and they allow the Mongolian government to monitor the funds, themselves, with no accountability. This has to stop. There has to come a time when someone bigger than the Parliament members themselves have to make ultimatums for them to comply with. “Play ball, or else no more help”. Because the Parliament members are never going to voluntarily relinquish their absolute power over business, by themselves. No one would voluntarily, or unconditionally just do that. Someone bigger than them needs to force them. The problem was established with the formation of the government in the first place, which allowed for Parliament members to also own private enterprises. No other democracy allows this, because of the obvious conflict of interest problems.
Well I agree that there should be a requirement of accountability for these overseas assistance loans. But we can not have a coup d’etat.
The damage is done, and now we must make change through the economic process with the Parliamentary elections in 2012. And as far as stopping the assistance, there were times when we certainly needed it, (like 1991-1994, and again in 2001), and we appreciated it, because without it, we may have collapsed. But these funds need to be independently managed. We need to manage for the best developmental results.
So who best to manage?
It depends, and the management’s success needs to be measured by the outcome only, and not by any other means.
And what I’ve also seen here, is that you have young, intelligent, ambitious Mongolians who have means, still being stopped in their tracks, with their projects, by the government. I have a friend who’s a young businessman, and this is all he wants to be. But now he says, “unfortunately, to really achieve what I want to do, I must become a politician”.
That’s the problem. It’s a double-edged sword. Politicians retain the ultimate power to decide on any business, without transparency. To move your business agenda forward, you must become a politician. That’s what happens when public property is sold under the table. Business and politics (well they’re always going to be connected in some way), but nonetheless, they need to be clearly separated. So what was the third thing?
Well the third thing is something that happily, already exists here. It’s something that Mongolians as a people have always possessed as part of their inherrant culture even since the times of Chinggis Khaan. It’s something other countries who suffered the fate of being stripped of their resources without the people ever being benefited, like (in history) Bolivia, Venezuela, Saudi Arabia and Iraq, didn’t have. And it’s the one thing that I think might ultimately save Mongolia, and possibly, eventually, secure a better future for all of it’s people.
And what is that?
Freedom of speech. Mongolian people have always respected different ideas from abroad, and have always exercised a lot of religious tolerance. In fact, I’ve noticed, especially in writing for the UB Post and City Night magazine, that we all actually have more freedom of speech here in Mongolia, than I even have within my own embassy, which threw me out simply for making the same suggestions I just made here, earlier.
I agree that this is a great strength of the Mongolian people. And we need to encourage and develop this more. We were surpressed during the Soviet times and we weren’t able to express ourselves freely, or grow as a culture. Now that we’re free, we can eventually reach solutions by dialog. But we can not force things. We can not create something on unhappiness. The choice, in the end, must come from free will and be borne out of a free society. We have to let it take its course.
So back to the forum, what else came from it?
Well we learned that with future forums we could do better. Unfortunately we could not accommodate all of the interesting opinion makers in our society. For one, we should not hold it again in the government house. By having it held there, only a certain limited list of people were allowed to enter. Secondly, we learned that we should prepare more in advance for the next forum, rather than just putting it together quickly, like we did with this one.
So with it being in the government house, even though it was “closed door” as you had said, do you think that there was still some pontificating, and political posturing on the part of the speakers, and not really people speaking from their heart.
Yes, and unfortunately, we also don’t really have effective leadership in this country, either. It’s hard to accomplish any real progress this way, but at least we were still able to get a true feel for what the upcoming economic climate will be, and that was the good news coming from the forum. We now can make a reliable assumption of what will happen in the future, or over the next year, and we can now develop an effective strategy, knowing essentially what we can expect to happen. And people can still learn more about all of these happenings by visiting our website.
So you mention “leadership”. Are you disappointed with the new President?
(Chuckles) Well, I know him very well, and he’s a good man at heart, but I don’t think he really carries much clout or influence over his peers – not even within his own party. And he’s not establishing strong ideas by leading with his own example.
But I see he seems to be proactive about trying to bring the real process of democracy to the people, to the common man, who I think at this time, most Mongolians fell ostracized by the process. I don’t think they fully understand yet, how much of a difference they themselves can make.
This time in history has needed him. And then one day, maybe we’ll actually see more progress if we eventually enter a time of real difficulty. But right now, despite the current world economic environment, this is not really a time of great difficulty.
Hopefully we can still make significant progress without that time ever coming.
I hope so, too.
Thank you for talking with me today.
It was my pleasure.
Friday, February 26, 2010
We also have the right to expect that the city’s air is reasonably pure and is not harmful to our health. Don’t we?
The only problem is that we have to be patient, and we must wait longer to exercise these rights. The reality is that we live in the coldest capital city in the world, and we can hardly take a breath in this most polluted city, like fish fighting until their last breath, after being taken out of the water.
As a country with a ministry for non-existing affairs, a so-called Air Quality Authority, was founded in Ulaanbaatar City a year ago. They printed a first-year report in a book with a deep blue cover – almost as if they’re mocking us and reminding us that once our city’s sky had been pure like that on the cover.
According to the book, major sources for city’s air pollution include stoves used by 145 thousand ger families (50.0%), thermal power plants (6.0%), 137 thousand vehicles (20.0%) 1,400 small and medium low-pressure heating boilders (10.0%) and other sources like, earth-road and building facilities under construction (14 % ).
Thermal power plants, low-pressure boilers, ger families, business entities and organizations combine to use 5.9 million tons of raw coal and burn 237,195.8 м3 cords of wood in a single year, producing 260,000 tons of toxic substances to be released into the air, or 317.8 kg’s of toxic substances per annum in Ulaanbaatar. It means each city resident everyday “consumes” nearly a kilogram of toxic substances (irrespective of which politicial party they belong to). That’s the reason we’re putting on weight, and I was wondering why this has to be.
While the situation is such, nonetheless, the city’s air quality service says they’ve performed a number of actions, like implementation of policies and decisions passed by the government and city administration on determining, inspecting, and monitoring the air quality, releasing relevant statistics and information, prevention and reduction of air pollution, as well as drafting of air conservation related regulations, programs, standards, and projects.
In just the last three years, Tg6.2 billion was spent from the city budget for pollution reducing efforts like manufacturing of smokeless stoves and efficient fuels. However, for this period, the city’s air pollution rate actually increased by 28 percent.
Recently, the Health minister suddenly noticed that the city’s smoke and air pollution has already reached to the level of “disaster status”, and announced that 56 percent of all illnesses among children under the age of 16 in Ulaanbaatar, was caused by dust (establishing some green city parks could help this), or otherwise, air pollution. 10 percent of pregnant women had miscarriages and the birth of children with abnormalities has increased. Out of 4200 cases of cancer in 2009, 8.2 percent were cases of pulmonary tumors.
In our country, 90,700 persons suffer from respiratory diseases on average, and Tg4.8 billion is spent annually for their treatment. Tg2.4 billion was spent for the treatment of 36,400 patients in total. Estimates show that the number of sick persons may reach up to 42 thousand persons and Tg5 billion may need to be spent for their treatment by 2015, if we cannot manage to take considerable, reversable actions, today.
Today, we would happen to be walking on the streets of the most unpolluted city in the world, if only legislations passed by the government and all pledges made by city authorities were truly fulfilled.
The Law on Air act was even passed in 1995. Following this, the government and city administrators launched and passed various national programs and a number of decisions and resolutions. Most recently, was a national project called “Smokeless Ulaanbaatar”. Prime Minister S.Batbold initiated the project and submitted it this February for parliament consideration. In addition, it is said that the Minister for the Environment, L.Gansukh, will have completed his “war strategy against smoke” by tomorrow, at the latest.
Anyway, the central and city authorities have been fighting windmills, like Don Quixote did, and billions of tugrogs that have been paid in tax, have been disappearing under the name of smokeless fuel; etc. We have to sell smokeless fuel with the help of subsidies equivalent to 75 percent of the fuel manufacturing costs, in order to bring it to a rate competitive with the prices of the fuel they buy. Though, it is still too far to bring it to every family living in the gers.
Minerals and Energy Minister Zorigt stated once that Tg100 billion out of Tg180 billion required for the reduction of air pollution by 5 percent will be spent for such subsidies, only. Probably the economists above do not know that such spending is exactly the same as burning the money in a fireplace. Nor do political parties raise money in such ways as to win their next elections. They really do not care if we breathe pure air, or not. Their only concern is to be elected one more time. Wouldn’t it be more proper and effective to run the city’s parliamentary elections in January. It is even suitable for the cabinet of ministers to appoint the city mayor.
The only method to eliminate air pollution completely is to turn ger districts into dwelling apartment blocks, and I am writing this to remind us once again that now is the time to focus on solving this problem through the registration of lands in the ger districts, in cooperation with ger district homesteaders.
Friday, February 19, 2010
If to only mention one issue among many topics and views, the issue of government debt was raised both at the Davos and Ulaanbaatar forums. During the Davos Economic Forum, well-known economist Nouriel Roubini stated that increasing budget deficits and government debts in Greece and Spain pose looming and fundamental threats to the EU holding together and might eventually cause a breakup of the monetary union.
The Greek budget deficit consistently ran more than four times the European Union limit of 3 percent of gross domestic product, and recently finally became insolvent, becoming unable to pay federal salaries and wages of employees, which prompted teachers and public employees to go on strike, followed by a strike by public transport workers. At the request of the current Greek premier, the European Union carried out an inspection of the situation and it revealed that the country’s debt was actually four times more than what was stated in the country’s report to the EU. It is no longer a secret that the Socialist Party that previously ruled the government is responsible for these debts and that they were hiding this fact by using divisive inventorial means. Consequently, the search for the guilty persons are underway. The European Commission now demands Greece to cut its budget deficit down to 3 percent of GDP.
During the Economic Forum in Ulaanbaatar, Mongolia’s Finance Minister, in an interview to Bloomberg (A U.S. business news TV network), said Mongolia plans to sell as much as US$1.2 billion of bonds overseas later this year, its first benchmark offering of a dollar-denominated debt, to fund infrastructure to support its mining industry, with the maturity of the bonds set to be between 8-10 years. It means an independent country is going to get a credit with a minimum annual coupon rate of 5 percent, meaning the country is to pay $60 million at the end of every year, and again upon maturity, together with the basic principle of loan.
‘Later this year’ means the end of a deadline put forth by the International Monetary Fund in the autumn of 2008 to retain the budget deficit below the mandated 5 percent of GDP.
Probably this is the reason why the Mongolian Prime Minister made a statement that the Tavan Tolgoi Coal Deposit would be 100% owned by the Mongolian government, to the address of less informed or less educated electors, shortly before that.
It is all about our government getting a long-term credit from abroad, while paying high-rate interests and thus raising the 2010 budget deficit (which was previously approved with just a 5% deficit), by 25 percent, then subsequently building power plants, subsidizing the auto, railroad, and mining industries, and modern, high-tech concentrating and processing plants, but all these debts will be paid off not by the current cabinet assembly, but by successive future cabinets.
Originally, we, the Mongolian people, could be free from debts if all these works could be performed by foreign investors with their investments, and then the government collects relevant taxes from them, properly.
However, judging from the last two decades of experience of how cabinets of ministers formed by two big political parties in conert, or jointly, have dealt with the capital of Mongolia and how they’ve cooperated to sack the money belonging to the country and its people, it is hardly believable that they can use such an equivalently huge loan (half of the country’s GDP), in a way beneficial for all Mongolians. But there is no doubt that politicians will take on this big debt on their own and raise funding for election expenses from their own political parties.
Isn’t it a bit too early to take on such debt, for such a country like ours, where it is still too complicated to decide who is a minister and who is a parliement member, or when a European Union member state like Greece is in panic wondering when, how, and which cabinet of ministers were distributed credits, and how the credits are stated in accounts?
If we cannot pay off this big debt and its interests that the government is happily willing to take-on within due maturity, foreign countries, organizations, and large companies will no longer do businesses and trade with Mongolia. Then the only way to raise funds after that, will be to raise tax rates, cut expenses, and cut the wages of physicians and teachers first.
The forboding signs and consequenses of a big debt is the injustice in the fact that only a few people (hiding behind political parties) will accept funds in the name of each Mongolian citizen, only to make themselves personally wealthy and rich, while leaving the citizens to pay off their debts with their own hard work, the effects of which extending beyond the country, is approaching.
Friday, February 12, 2010
His famous book “the Mystery of Capital” was translated into Mongolian a few years ago, and at that time, several of us made a proposal to city officials addressing housing and air pollution problems in Ulaanbaatar city. The proposal was made based on DeSoto’s theory of property registration.
This proposal was made by many of us, who eventually founded the Mongolian Civic Union in order to make a number of changes in the political and public management structure of the country.
This proposal of replacing the Ger area with apartment housing, based on the following six steps are still valid. Low income housing construction is a viable solution to the disastrous smog problems we have been facing for the past few years. The city can solve this problem in close cooperation with the residents of the Ger area.
Here are the six steps:
- Every household in the Ger district of Ulaanbaatar must register the land they occupy within their fence (up to 0.07 hectare) as their property, which would thus entitle them to the rights to the land, and become their own property.
- If there are two or more households within an enclosure, they may get separate or individual titles for them by agreeing to a division of the land.
- A comparable apartment unit value will be calculated according to the size of the enclosure.
. Creating housing cooperative(s):
- Upon receiving the title for the land, owners in blocks of (about 100 owners) can make an agreement to form a cooperative.
- The cooperative members must agree on terms and conditions of cooperation regarding how to build and divvy up structures: For example, a household which already runs some shops in the ger district would have the first choice to use the first floor of the apartment building for their proprietorship. This would be another shop that would face the street.
- A cooperative(s) will plan the housing project, including public services, infrastructure to administer the general city plan, and agreements with city authorities on the final plan.
- A cooperative(s) will participate through its representative board in the final planning of the housing district. Schools, parks, public transportation, parking lots, hospitals and shopping centers should all be a part of the feasibility study and final business plan.
- All titles of land ownership will serve as part collateral against the proceeds for bonds issued by the city for that micro-district’s housing project. The other portion of the collateral will be the investments that the city authority commits to invest in the district.
- The rest of the financing will come from the open market sales scheme. The apartments that are remaining, after each union member receives their unit of apartments, may then be sold on the open market.
5. Building Houses:
- The contractors will consist of construction companies, chosen by an open bid. Those companies who train and hire local people, will have priority over the others. The entity responsible for the project will be the Management Council which will consist of the city authority, and of individual representatives of the cooperative(s). The Council will make progress reports to the cooperative(s) on a monthly basis. The cooperative(s) will nominate an independent auditor for independent inspection or monitoring of the implementation of the project.
6. Managing new communities:
- After the construction of these houses and related public service buildings are completed, there will be a managing board (or neighbors union, or an owner’s association) formed that will ensure the proper maintenance of the buildings and related operating services. That committee will be based on self-management principles from within the community which will in turn, cooperate with the local district administration.
We, the Civic Union of Mongolia, appeal to all citizens of the city, engineers, architects and other professionals, to participate actively in this socially impacting project for our city.
Friday, February 5, 2010
The amount of money circulating in the economy of any country is controlled by two means. One approach is a budget policy and the other is a monetary policy.
The budget policy is implemented by the government through the state budget. The government collects the revenue for the state budget from a number of sources; such as individual income tax, cooperative profits, real estates taxes, excise taxes on vodka and tobacco, etc. Then it provides services for public consumption and thus disposes of the state budget in this way. These actions affect the amount of money in an economy and its circulation. It can also be used as political propaganda by the government that was formed from the political party that won an election in a democratic state.
The second approach is one which must be kept away from politicians, because it’s a weapon which must only be possessed by professional people who can implement a far-seeing policy long past the election terms of any politician. Only in a country that can implement such monetary policies as mentioned above, can its economy can go in a relatively proper direction, and inflation can be limited.
Every country with successful economic progress has followed the principles of implementing these two policies, and keeping them separated, and they have laws in place supporting this trend. Our current political regime, which so easily takes the law into their own hands, has made the central MongolBank management, a major objective for a long time. Their latest move demonstrates this is in full swing.
The Mongolbank has two vice presidents and both have recently submitted their requests for dismissal, simultaneously – one is for “health reasons”. This is a very curious coincidence. “The most interesting thing about it, is what made these vice presidents apply for dismissal at the same time”. Before the two deputies finished writing their petitions for dismissal, the two ruling parties had already started to play out their usual ”drama”. The two parties each nominated their own men by holding the central bank’s boss accountable.
We Mongolians must analyze the reasons and subsequent consequences of such actions. Actions which makes it clearer that politicians just completely seized the monetary policy to control the budget policy. The most unfortunate and unfair thing is that we, the citizens, pay for all the costs of this game through inflation, and all of the benefits of the game go to the two political parties, being spent for building big luxury houses, travelling and undertaking treatments abroad.
Such a poorly-produced political drama is performed by some people who hold the power of Mongolian state, alternately, and is the expression of their personal interests for power. Their political weapon is the cash and its circulation (M1). They control all the money in circulation (M2 or M1+ savings) through commercial banks, which they own. Through the Central Bank, only they are the ones who decide which commercial bank must be inspected, how they must be inspected, which of their mistakes must be exposed or not exposed, how much money must be kept at the Central Bank as a reserve, and what interest rates should be for Central Bank securities purchased only by commercial banks. It is possible for them to control and regulate all these just by putting only their men at the top of the Central Bank. At least, they’re able to know what the other party is going to take before it’s taken. By controlling the money circulation, they can give the cash promised during election campaigns to people, (of course reducing the originally-promised amount), and then on the other hand, find it a useful way to establish and measure the real volume of the big cake they divvy up.
Such politicizing of monetary policy exerts a critical impact to the amount of money – the main provider for economic turnover, and is at best, a risky step which causes inflation. The normal (or ideallic) rate of inflation is 2-3 percent per year and economists claim that any growth exceeding this rate means the government is stealing money from its citizens. In order to prevent this inflation, which is the strongest enemy of economy monetary policy, it must be isolated from politicians.
In most developed countries, the supreme management of the central bank is controlled by its Governing Board. This Governing Board defines long-term monetary policy for the country. Members of the board must meet criterions of qualifications, have professional experience, knowledge and ethics, and they are appointed for many years. For instance, in the U.S.A, each of the seven members of the Governing Board is appointed by the president for a term of twelve years, without the right for renewal.
In the case of Mongolbank, all members are appointed by the MongolBank president and the current Governing Board comprises of department heads and two teachers. Of them, only the two vice presidents are approved by parliament, and you see how they make approvals. In our country where such a ceremonial, and superficial Governing Board is appointed by only a few people in the name of their political parties, the dismissal and replacement of central bank heads and deputies have more impact than the replacement of a sectoral minister.
The only thing they can do is to issue loans with interest rates, the likes of which exist nowhere else in the world, and force non-political, ordinary businesses to pay the high costs of the loan, thereby extracting all the juice out of them. Isn’t it a major anomalism of our banking system in which big creditors are linked with politicians, that they can simply force the non-performing banks, for which they are liable, to be closed with the help of politicians, instead of paying off their debts, hiding inside this puppet bank?
It is time to think about ensuring the independent activity of a central bank in a new, more effective way, and make the changes necessary to make this happen.