Mongolia had a hot craze over its mining income in recent years and has been continuously throwing parties and celebrations. Those in high ranking seats were eating and drinking on an endless spree. Citizens joined the government and went on a binge like there was no tomorrow.
Even fairytales come to an end though, and so did Mongolia’s party, when midnight came and mining income declined. Mongolians found themselves suffering from a dreadful hangover when they wearily woke up with a stinging headache. The wallet that was so thick the day before became flimsy and thin, it barely held enough money for food for the day. Then everyone started blaming anyone but themselves for this unfortunate situation.
Partying with loan money
During his “PM’s 30 Minutes” conference with the press, Prime Minister N.Altankhuyag said, “Although our coal, gold and copper are being extracted and exported, we are not seeing any money coming in. The government borrowed a total of 800 million USD -received 250 million USD from Oyu Tolgoi, 350 million USD from Tavan Tolgoi and 200 million USD from Erdenet in advance- and allocated the money to its citizens.” He explained that this loan that was allocated came to be the reason why our economic growth has been slowing down and why the Mongolian tugrug was in decline.
Our current Prime Minister, who is also the leader of the Democratic Party, worked as the First Deputy Prime Minister in the coalition government and was seated in the top seat at the table during the boom-time party. However, now he seems to have forgotten that the two political parties had conspired to borrow such a great amount of money in order to fulfill their election promises and hand out free cash to the people.
Former Minister of Foreign Affairs, G.Zandanshatar, who was settled next to the top seat during the party, said: “Populist decisions brought the investors an enormous amount of loss in time and money,” on the Daily News (Udriin sonin) newspaper’s August 12, 2013 edition. It was the same G.Zandanshatar, the current General Secretary of Mongolian People’s Party, who initiated the strategic investment law just before the 2012 parliamentary elections. Because of his attempt to play a national hero, many foreign investors suffered from real losses and have been leaving Mongolia ever since. In his statement in the newspaper, he tried to represent the opposition by criticizing the Democratic Party and demanding an urgent, irregular plenary session of parliament.
In order to retain their political power, one or two political parties with unclear opinions and several politicians who lost their sense of responsibility, gambled with the country’s natural resources to acquire a loan only to spend it on luxury. And now that it is time to repay the debt, they are avoiding the problem and blaming it on one another. This ridiculous spectacle of theirs is only beginning and shall continue until the bond repayments have to be made.
The Hangover
The government forgot about the cycle where the price of minerals is not always high and has fluctuations. On the basis of their arrogant belief that there would be consistently high economic growth and a continuous flow of budget revenue, the government started mistreating its foreign investors.
Therefore, it led to a point where the government could not take any good measures in response to the dropping price of minerals, reduction of the budget revenue, decrease in exports and the tugrug’s decline. On top of that, the series of Oyu Tolgoi Board of Directors meetings resulted in a decision to stop its underground project. A daily investment of one million USD is now frozen and 4,000 Mongolian employees are being laid off.
The Prime Minister stated that Tavan Tolgoi had already gone bankrupt. It looks like the huge open-cut mine with seven billion tons of coking coal beneath the ground could actually go bankrupt if the government deceives its people by distributing shares, receives a part of future sales income in advance, and spends that money on election campaigns.
Discussions have recently started about establishing a new company by combining 51 percent of Erdenet Mining Corporation shares with 34 percent of Oyu Tolgoi shares. According to these discussions, shares of this new company would then be sold publicly. It is obviously another fairytale, yet the notion is good. Generally speaking, it is a logical step to transform all state-owned companies into public ones and offer their shares on the domestic and foreign capital markets. Looking at the conditions we have in Mongolia, this is the only way to put an end to the theft that is taking place under the name the government.
Nevertheless, the first thing that needs to be done is to make changes to the part in the mining law that states that 34 percent of any strategic deposit shall be owned by the government. Afterwards, shares can be sold to the public. Instead of being stakeholders, the government could just double the taxes and royalties that they collect. However, the Mongolian economy is now suffering from the real consequences of the existing subjectivity among politicians when it comes to actual decision making.
Mongolian lawmakers today have an opportunity to project long-term development by having better organized assembly and alignment among different sets of laws, supporting investment that can improve the business environment and streamlining the required processes.
There is also an opportunity to boost economic independence and protect our economy from potential fluctuations in the price of minerals by re-arranging the dozens of funds established at ministries and centralizing them in a Sovereign Wealth Fund.
All in all, we, the Mongolian citizens, have the power to decide whether we are going to live a nice life or not, regardless of what internal and external conditions may arise. We possess the power to do so because we can replace any politician or political party that is disrupting the normality of our lives.
Suffering from a dreadful hangover, Mongolia once again faces a need to acquire another loan to recover from the consequences of our excess and to pay for daily expenditures. It is time for us Mongolians to learn the culture of knowing your limit in everything we do.
2013.08.14