Home remedy for our economy

February 7th, 2018


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8 min

Two days ago, Prime Minister U.Khurelsukh reported to the public on what his cabinet has achieved in their first 100 days. During his one-hour speech he focused on what his 30 priorities or major work streams were and announced that the economy that was in ‘intensive care’ in 2016 was transferred to the ‘general ward’ in 2017. He then declared that, if the economy was a person, he would be discharged from the hospital this year, treated with a home remedy, so that he can get a job next year and achieve stable income in 2020.

Treatment in the last 100 days

Having been formed on 20 October 2017, U.Khurelsukh’s cabinet, which consists of 15 double-deel ministers, saw their 100th day on 28 January 2018. From a macroeconomic perspective, we can take a look at two of the programs this government has started.

Firstly, our budgetary policy is changing. Having seen soft loans flowing into the country from abroad as part of the IMF program, the government has stopped pulling cash from domestic banks with high interest rates. This meant that commercial banks now have no choice but to grant loans to the private sector instead of the government. Tugrug rates have stabilized.   

The State Bank, which is based on leftover capital from bankrupt commercial banks, made half of their 70 directors redundant. This bank now has over 500 branches across the country, operating at a national level. The State Bank was first established by a government decree issued in 2009, and 25 per cent of its shares are owned by the Ministry of Finance and 75 per cent by the Deposit Insurance Corporation of Mongolia (DICOM). Normally neither the government nor DICOM is supposed to own a commercial bank. It looks like the process has started to privatize this bank.

Secondly, the first step to freeing fuel prices has been made. The cancellation of excise tax on AI-80 and AI-92 petrol was a step in the right direction to have consumers, rather than the government, set prices. Establishing an oil refinery was discussed for many years as part of the wider dialogue on achieving independence in fuel supply. The work is about to start now to determine the location of this refinery and build it with a soft loan from the Indian government.   

Treatment in the next 880 days

Prime Minister U.Khurelsukh pointed to ‘unemployment, poverty, and lack of discipline, accountability, and order’ as key culprits for the conditions our economy is found in today.

He went on to announce that “The government will execute the right economic management for the remainder of its term. We will ensure discipline and order at all levels of public service and make 2018 a year of accountability. We will reduce the budget deficit and implement specific intiatives in every economic sector. For example, we will liberalize air transport and develop tourism. We will no longer have three shifts in our schools. All schools will be double shift. We will introduce flexibility in retirement age. We will not increase personal income tax, which will remain at 10 per cent. The housing mortgage (Ipotek) scheme will continue and it will have 120 billion MNT from the public budget this year. This will bring the total amount to 300 billion MNT, combined with the 180 billion MNT centralized at Mongolbank through repayments. Starting from April 2018, we will not allow raw coal to enter Ulaanbaatar if it is for industrial purposes.”

A lot of expectations of this cabinet resolving major problems have been created by the clear, organized, and energetic manner in which Prime Minister U.Khuresukh delivered his plan and statements of intent. However, the Prime Minister has hardly mentioned anything about where the government and the private sector fit in to achieve all those objectives, how they will make it work, and in what ways market mechanisms will be used.

Treatment method

Despite his accurate diagnosis of our current economic circumstances, the Prime Minister seemed to have treatment methods that are unclear and not supported by scientific grounds.  

The lack of discipline and accountability traces back to the absence of justice and the rule of law. Justice starts with getting rid of the corruption nested in the government. This corruption has originated from political party financing. Therefore, given he is also the leader of the majority party in the parliament, the Prime Minister must urgently reform the law on political parties by using his 65 fellow party members in the parliament and his 15 ministers who also happen to be MPs. Also, justice will not prevail unless those who stole from the public are held accountable regardless of their political affiliations.

The Prime Minister must disclose who stole and misused Ulaanbaatar’s land, especially the Bogd Mountain, Tuul River, and Yarmag areas, and ensure they pay for what they did. If he does that, half of the corruption problem will be solved.

The difference between fish and government lies in where you start the cleaning if it is rotten. You clean the fish from the bottom even if the rot has started from the top. But when it comes to the state or the government, you must start from the top because that is where the rot came from. After all, the Prime Minister said a hundred days ago “I am not afraid. I am not even afraid of losing my life. There is only one thing I am afraid of. I am afraid of the people losing faith and hope.” 

Unemployement and poverty are now huge problems because government involvement in the economy has grown so big. The money that is supposed to go into education and health is now being spent on making up the deficits of state-owned companes who feed from the public budget. State-owned companies must be given to the people (by being turned to public companies), instead of being allocated to political party members. Sixty per cent of the shares of all mining, air and rail transport, and water and electricity companies must be privatized first.  

Finally, all prices must be freed, and the Pricing Council has to be abolished. Fair competition must be supported and government authorities distanced from the companies they own. If the Prime Minister does this, the reform he wants to make will be made by the market itself. His 15 ministers have 30 eyes, but the people have 6 million eyes, so everything the Prime Minister and his cabinet does will be watched and seen.  

If the Prime Minister initiates these three things and sees through them, the people will achieve the prosperty and happiness he mentioned.

2018.01.31 B.Amar

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