The presidents of both central banks of Mongolia and Japan are having the exact same headache. Although the amounts of money they are handling vary, if we compare the main causesof their headaches, Mongolians have many things to be careful about. Countries differ from each other by geo-dimension, socioeconomic conditions and its needs. Their principle to develop and to exist as a functioning community however, is the same.
While the cause of Mongolbank President N.Zoljargal’s headache is concerned with how prices (inflation) can be kept from increasing, M.Shirakawa is trying to figure out how prices can be kept from falling (deflation). Both excessive increases and excessive decreases in price levels, have adverse impacts on economies.If a monetary policy (a policy implemented by a central bank) can influence price fluctuations through commercial banks and is made coherent with other economic measures, it can strongly assist the development process of a country.
The main purpose of economic policies of a given country is to raise living standards, to create a safe business environment, to promote environmental sustainability and to ensure that social interaction is mutually supportive and stable.Living standards, which indicate the development level of a country, is measured by productivity.Human and financial sources define the development level of the country as well as the value of its citizen. Labor productivity of the country (including individuals, households, companies, businesses and organizations) is the main indicator of development and a decisive factor of competitiveness.
MONGOLIA’S PRODUCTIVITY AND MONETARY POLICY
We have never had a separate policy aimed at increasing our labor productivity. It is also hard to discuss this due to ourlabor force and infrastructure. We have a bad electricity supply, lack of asphalt roads, outdated engineering and weak urban planning. Nevertheless, we have become a country whose government distributes cash for free and allows millionaires to emerge from political careers.We have been digging our natural resources out of the ground, selling them and spending the money on luxuries -it has been many years since economic crisis has hit us. Today, Mongolia needs to acquire labor productivity that is capable of producing food products that can be produced domestically, decreasing the dependency on imports and competing in the international market with certain products and services.The needed financial sources have never been found and those that were found have always had an interest rate that exceeded 24 percent.Therefore, in order to inject a huge amount of money into the market, Mongolbank has started pursuing a policy that either prints paper money or buys government bonds in great amounts.
Without mentioning the source, N.Zoljargal recently announced that Mongolbank would lend billions of tugrugs with very low interest rates through commercial banks to companies that import and distribute fuel in order to stabilize prices. Also, he said Mongolbank would support middle-income families, but he did not say exactly how. Last month, the President of Mongolbank promised to keep inflation from exceeding eight percent. Even though he said that he would take different measures than his predecessors did and pursue a loose monetary policy in order to cut today’s inflation of 15 percent twice as much,commercial banks have not currently made any changes to the interest rates of overnight mutual loans.
Mr.Zoljargal has completely bowed to political pressure. We all know that the central bank has become dependent on the government as certain political party leader’s son (a young 24 year old) was appointed to Zoljargal’s previous position.
JAPAN’S PRODUCTIVITY AND MONETARY POLICY
It is likely that the Liberal Democratic Party will come back to power after Japan’s general elections, which will take place on December 16. Shinzo Abe, the President of the Liberal Democratic Party, has announced that the central bank of Japan would be under pressure to buy bonds issued by the government. Abe also made it clear that he would pursue a policy to set a negative policy rate, make the government issue and sell “construction bonds,” inject money into the economy and renew and improve large infrastructure.
However, Y.Noda, the current Prime Minister of Japan and the President of the Democratic Party, said that this policy would affect the independence of the Bank of Japan. After two days of discussions, the Bank of Japan Policy Board made a decision to make no changes to the policy rate and to keep on holding it at 0.1 percent.Furthermore, a policy to keep inflation at one percent will continue to be implemented.
Although there has been almost no growth in Japan’s economy for the last 20 years, its international trade has always had surpluses because Japanese products are in huge demand overseas and big Japanese industries are operating abroad.A lot of Japanese products and services are competitive in the world market and Japan supports investment into research and innovation, develops science-based manufacturing domestically and supplies its products to its factories operating beyond the border. Therefore, Japan is wary of increases in the prices of Japanese products and loss of competitiveness when the yen is tightened.They are conducting a policy to improve Japan’s competitiveness by further developing infrastructure. Even though Mr.Shirakawa is under political pressure, he is protecting the independency of the Bank of Japan.
AN OBJECTIVE TO IMPROVE COMPETITIVENESS
Mongolia’s economy is in a great need of money.However, it will require a long period of time to raise enough capital and money. Therefore, the government will get loans by issuing bonds in order to build infrastructure. Mongolia has never acquired large loans from international capital markets before, which is why Mongolia’s economy is facing a considerable risk. It may have a huge loss if we fail to accurately calculate the implementation and duration of every infrastructure project.
We always have to remember that the main purpose of getting loans is to increase Mongolia’s labor productivity and to become competitive in a certain industry in the world market. It does not mean that we will be manufacturing every product domestically. We have to look at experiences of those countries such as Singapore and the Netherlands, their high living standards and their competitiveness in services despite the fact that they do not manufacture products or own great amounts of natural resources.
It is not difficult to acquire a big loan. The time has come for us to use the loan expeditiously and efficiently and to dramatically improve Mongolia’s labor productivity.