|The following interview touches on the economic situation of Mongolia and the impact of the MNT exchange rate depreciation with former Prime Minister D.Byambasuren.|
Mongolia is facing an economic meltdown. The value of MNT continues to fall by the day and the Mongol Bank was just able to stabilize the exchange rate for the past few days by injecting large amount of USD into the market. Was this the correct course of action?
It’s clear to everyone that the economy is in an extremely difficult shape in general. The state budget has been approved with the most deficit it has ever had in history. The USD reserve has been at its lowest in the last 10 years. From objective assessment of the economic growth, we can conclude that growth has been completely stopped. This is the result of running a nation in the wrong policy for many years. It wouldn’t be an exaggeration to say that rather than a crisis or economic fall, the nation is on the brink of bankruptcy. The exchange rate of USD to MNT is increasing rapidly. Mongol Bank released large amounts of USD following the government order to take immediate action. The situation might have stabilized for now but USD reserves will not last a month at this rate.
On top of that, the national debt has expanded considerably and the state budget deficit amount has reached its peak. Politicians don’t seem to understand that Mongolia will not be able to escape from these two traps. The public wasn’t informed of the real situation during election campaigns. Instead, empty lies were spread, saying that everything was good. The public can see and feel the real situation but they continue to trust promises made by the ruling party. Now that the economy is in a crisis, it will not be easy to recover. The most important step is to tell the truth about the current situation to the public. The only ones who can resolve Mongolia’s economic issues and change the economic outlook is us, Mongolians. Everyone should know that a stranger wouldn’t willingly help others. Ways to overcome this situation should be discussed at the national level. Intervening in the market and seeking loans from other countries will only worsen Mongolia’s situation and increase its debt. Unfortunately, neither the government nor Parliament are able to objectively handle the situation at the moment.
Since 2008, Mongolians have experienced many stages of economic difficulty. All we’ve considered were loans and bonds as the only solutions to improving the economy instead of finding a better option. We’ve yet to develop a more accurate policy. From looking at the process, people handling state affairs seem to be continuing to do things in the old way. It’s been long past the time we start talking about accountability of members of Parliament and government. It will not be easy to raise other issues without handling this matter.
There hasn’t been improvement in the economy. Will the economy grow?
Generating substantial economic growth is really hard. People say the price of copper, coal and gold is rising. Although this could bring a little bit of hope, it isn’t a substantial leverage for economic growth. Unless foreign currency reserves are increased, we will continue to see negative consequences.
…The most important step is to tell the truth about the current situation to the public. The only ones who can resolve Mongolia’s economic issues and change the economic outlook is us, Mongolians…
With all the economic talk, people are curious about Mongolia’s extravagant expenditure. According to research, 60 percent of Mongolia’s imports are petroleum. Increase in USD vs MNT exchange rate hiked fuel prices. This sector is huge and affects everybody. Many people are questioning why Mongolia can’t build an oil refinery. What’s your opinion on this?
We’ve talked about this for many years. Countless candidates promised to build an oil refinery during election campaigns since 2008. The public believed them and expected their lives to improve when an oil refinery was finally built. However, it wasn’t helpful at all. Mongolia used to have an oil refinery.
Zuunbayan oil refinery was commissioned in December 1950 and produced 209.4 tons of petroleum in that year. During its peak year, the refinery produced 150,000 tons of petroleum. Unfortunately, the top part of the evaporator of the cracker facility broke and caused a fire on November 8, 1969. The amount of petroleum produced back then was very efficient but the refinery was closed.
The first President of Mongolia stated that the Mongolian government would build an oil refinery seven years later in 1996 when he soaked his cashmere deel in the oil drilled from Dornod Province. Yet, oil refinery is nonexistent in Mongolia today. The public has the right to know the truth. In 1993, the government ruled by the Mongolian People’s Revolutionary Party (now the Mongolian People’s Party) signed an agreement with the USA, stating that Mongolia will not refine locally drilled oil.
Why hasn’t this been announced to the public?
When I broached the people who were in charge back then, they replied that they were told to do it that way and followed the order. The American side transferred the contract to Chinese people and left. The Mongolian side, on the other hand, was left unable to change that agreement.
It’s become impossible to establish an oil refinery in Dornod Province in terms of the legal environment because it’s now somebody else’s property. The main reason for this is that the government doesn’t consider the nation’s interests as first priority. They respect foreigners’ interests and suck up to them. Another big reason is that people managing state affairs aren’t actually interested in building an oil refinery.
How would establishing an oil refinery impact the economy?
It is absolutely beneficial. Mongolia could keep the 400 million USD that is scattered to foreign countries every year if we build an oil refinery. Putting this amount of money into economic circulation could make it possible to maintain the balance of foreign trade. It will influence positively on the lives of three million people living in Mongolia and boost the economy. With a refinery, we will not have to be anxious because of fluctuating exchange rates. Mongolia’s territory stretches over 3,000 km from east to west so it will be quite challenging to transport locally produced petroleum to every part of the country. As long as there’s a base and area for an oil refinery, it’s possible to build a small oil refinery and fully supply that particular region. There needs to be a realistic estimate and calculation that determines which areas could be locally supplied and how many additional suppliers it needs. One person claimed that building an oil refinery is inefficient for Mongolia unless two million tons of oil is drilled locally every year. Yet, there are quite a lot of successful oil refineries around the world that manage 100,000 tons of oil a year.
Is it true that establishing an oil refinery would open up opportunities to build many different kinds of factories?
Even if it seems like an unimaginable and almost dream-like thing, it’s possible to build an oil refinery. During my time as the Prime Minister, Mongolia was put in a difficult situation in relation to fuel. Back then, a study was conducted and a group of people were sent to the USA to do a presentation on the oil refinery project. It was believed at the time that it was possible to construct an oil refinery capable of producing 100,000 tons of petroleum a year within two months. Many feasible projects were developed in the late 1990s but they didn’t see the light after the government changed.
Both locals and foreigners know that Mongolia is in financial difficulties. Do you see a solution for recovering the economy?
It’s very hard to hear this kind of news about my own country. I never imagined Mongolia to come to the brink of bankruptcy. This situation is the result of irresponsible work of the two main political parties. They don’t have a specific strategy. The only way to fix this situation is to remove politicians who use their power for their own or group interests. Mongolia will not develop as long as we continue to have corrupt politicians. There’s almost no good news nowadays. Authorities lack the heart and will to work for the nation’s interest and make wise decisions. Mongolia urgently needs a general policy consistent to Mongolia’s geological features, people’s mentality, tradition and customs. Only us, Mongolians, can protect our future and interests and develop the nation.