Just Coalition - News.MN

Old News! Published on: 2012.08.28

Just Coalition

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Мөнгөнтамир
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We’ve left behind the dire situation- 70% of our state budget used to come in the form of loan from Russia. It’s difficult to understand the size of government budget at that time if you factor in open currency exchange. The official exchange rate for USD versus MNT was 2.9, albeit in the black market it went up to 25. In 1992-1996, the government budget under PM Jasrai was USD 700-800 million. In 2000-2004, it went up to about USD 1.5 billion while in 2008-2012, PM Batbold’s government spent close to USD 15 billion. The total budget, as analysts expect, requires at least USD 30 billion for the years 2012-2016. Regardless of accuracy of this estimation, there is a substantial difference between these administrations in terms of budget size: 20 fold increase from Jasrai to Batbold and 10 fold increase from Enkhbayar to Batbold. Nonetheless, under any of these administrations, we kept body and soul together. However, complaint is flooding along with increase in money like the geometrical progression. The more money we have, the more quarrel and complaint we get despite the happy times without money in the past.
 
When we question the source of our wealth it may not have almost anything to do with our people’s hard work, courageous struggle and resilience. Rather, it has more to do with abundant natural resource, unexpected commodity price increase in the global market and sudden economic growth wave hitting from the neighbouring countries. To a lesser extent, innovation in science and technology and resultant geological research also played a role. The clichй is that it’s the heritage from Genghis Khan. That’s a lie. Genghis himself did not entrust it to Altankhuyag or Batbold. Heritage comes in two forms: cultural and natural. The big coal resource dates back to 60-70 million years ago, a time when mammals had just originated in the form of a mouse-like creature and lived in an underground hole.
 
The budget is estimated between USD 30 billion, a conservative figure, and USD 50 million. The government budget occupied 28% of the GDP in 1998 while it is 56% now. The figure is likely to increase up to 70% as a result of the new government’s guiding policies and proposed laws. The participation of the private industries in the economy was high at 80% but the capitalist era is coming to an end with future, where their participation is going be merely 30% after the swift fall from 60% to 30% in 4 years. This is the result of the government that pushed its way into the industries that generate much of the wealth in the society and aggressively took them under its control. This keeps the growth of corruption faster than anything else.
 
This will continue to increase even faster. Therefore, I want to draw a general picture of the next 4 years. As of today, mining commodities or natural resources constitute 94% of the country’s export whereas the remaining 4% is agricultural products such as animal hides, cashmere and meat. This is not a startling figure for a country at its earlier stage of development. 85% of the total export of Russia, once the second biggest economy in the world, is natural resources. Therefore, for a country underdeveloped like ours, this is very acceptable. Certainly, we should try to avoid a one-sector economy. However, we need money to do that. The money that will only come from the mining sector. There was a time when smugglers constituted the country’s export and import. It was followed by cashmere and then gold thanks to the gold program. This brought us some export capacity. The achievements in the roads, construction and service sectors are attributed to the higher capability to export. Of foreign loans worth USD 7 billion dollars flown into Mongolia, 90% of it went to the private sector. This is a significant figure that signifies increased loan-worthiness and trust rating. The private sector actors now have access to large foreign loans without sovereign guarantee. This is a symptom of growth in the economy. In another words, increased export capacity brings development in the other key sectors. It would be foolish to suppress the only industry that we owe our wealth to, with the intention to balance the proportion of export sectors.
 
The mining sector is carrying the weight of Mongolia’s economy, society and politics. An injection of USD 2 billion in the country’s economy under the investment agreement with OT in 2011 alone meant that 1 out of every MNT 3 exists due its signing. If we spent the money from such big investments on education, infrastructure, healthcare and service sectors, we could have come close to mining economies such as Australia, Chile, Norway, and Canada. Unfortunately, the money was mismanaged and is now gone- it went into alcohol consumption, bribes and cash distribution.
 
What will the new government do? Honestly, not much can be expected. One part of the coalition is the “just” force. This group of people has been most well known to the public as the loudest opponent of foreign investment and mining industry since 2009 presidential election. Their mottos and slogans frequent such vocabulary as “expulsion, rebellion and coup d’йtat and shooting, hanging and execution” whereas in the past general election the additional highlights were “seize, expulsion and confiscation”. Its election platform must have been it too. As elect political force governing the administration, it apparently will stay committed to their election promise.
 
The DP, the main force leading the government, has just announced the new Cabinet Members. The new Minister of Minerals is a person, who rose to public spotlight with his 1000 hours of endless conversation aired on TV. He finds much delight while he speaks of his scheme to nullify the OT agreement and confiscate other deposits. Honestly, he seems to lack even the most basic common sense, let alone the intricate complexity of mining sector. However, Chuka does not seem to be stupid either- he knew that endlessly claiming with his arms on his head that Mongolia has become a foreign country’s colony would get endorsement from his fellow politicians during the election. To ensure his re-election, he will now start confiscating every deposit and kicking off investors. He thinks 51% is a magic number. It is more beneficial to the country to claim half of the profits through better arrangements of royalty and tax under production sharing agreement. It does not have to take a tech-geologist to do it considering it’s how most foreign governments deal. There is a hidden message that state property can be robbed off. Coal worth USD 10 million is missing in the coal pile of Tavan Tolgoi pit, owned by Erdenes. There is no way the nearby nomads could have consumed that much coal- a big hill of coal is gone. This is only the beginning. Generations of government officials made fortune stealing off Erdenet. It is easy to guess why nationalisation gains so much support.
 
A new Ministry of Economic Development has been established. The mandate is to identify the development pathways. It’s revival of the former National Development Agency. However, anecdotally, foreign investment affair is now a new addition of responsibility for this ministry. What’s funnier is that the very person, who made the biggest contribution to anti-foreign investment movement and outright threats to foreigners (almost walking around with a knife and screw-drivers), has been appointed as the Minister. Any western investor interested in Mongolia learns about him first and is told to fear. His nickname among investors is “disaster”. He is a guy with pathological problems. But it does not take a doctor to really diagnose that. He seeks first-hand solution to any problem from shamans and fortune-tellers. His hobby is to perform a fire-ritual as a shaman. There is an honest person, who heard him openly speak of his conviction that apocalypse is bound to happen in 2012 but Mongolia’s survival will be guaranteed if we put an end to foreign investment.
 
History will remember him for his two accomplishments in Mongolia’s economy. Firstly, it’s the 68% tax, enforced for 3 years after passing the law, according to him, as his daughter’s Google and yahoo search engine-based research pointed to benefits of this tax for the country. It resulted in 90% decrease in gold production, reduced tax revenue and imprisonment of many decent guys, who were charged with illegal gold export. Many companies that left the country at the time but the biggest is the Anglo-American. Secondly, it’s the amendment to the Foreign Investment Law, which was initiated by him in spring of this year. The law says that Mongolia shall be entitled to 51% of any deposits owned by foreign companies. Only Ministries have the authority to issue licenses and thus, such centralization of decision-making has led to pull-down of many mid-level agencies. Thanks to this law, many western companies started to walk out of Mongolia. The decision is almost final for most companies after hearing the election results since these guys represent the fact that Mongolia’s saddled up its horse. On the other hand, the companies already invested heavily in Mongolia are praying that the new law will not apply back in time. Despite provisions in the Civil Code and other laws prohibiting application of new laws back in time, mention of such regulation was deliberately omitted from the amendment in order to apply it back in time. Stealing and robbing will spring up. It’s a sure thing that he has many more surprise to offer from his chest. In any language, mind is associated with head but in Mongolian languages, it is thought to be associated with chest. It is interesting, isn’t it?
 
There are too many movements that highjack and kick out foreign investors. Japan’s first investor in Mongolia is Suruga. He built Japan Town. That old man was sent from his hotel room to prison on drug abuse charges. It apparently was a clumsy ploy- drugs were put into his hotel room while he was gone and then sudden police search was performed. That’s Mongolia’s police for you. It ranks high among the major players of confiscation movement. After 20 years of caution, the Japanese decides to invest in Mongolia after a guarantee from the PM and President. And this is what happens. This will probably be the first and last investment for Mongolia from Japanese private companies. In any civilized society, investors are well respected and their favour appreciated. And countries compete for their money, offering more flexible conditions. Developing countries, on the contrary, hate foreign investors and blame their failure on them. Even when they get the money, they mismanage. This stupidity is called resource curse.
 
Foreign investors that get cheated most frequently are the Chinese. They are robbed, threatened, arrested, imprisoned in some cases and even beaten. However, they never complain. Mining partnership between China and Mongolia is at its best. Despite being cheated frequently, they managed to set up 75% control over Mongolia’s wealth. Smart Chinese will not complain about little things. They will focus on the overall balance sheet. Mongolia’s policy is to support anyone flagged Mongolian regardless of whether he or she trades the resource in exchange for cash from the Chinese. This whole process goes outside the law enforcement sphere. The westerners face much discrimination due to strong pressure to operate legally in a transparent way. This is what motivates Mongolian mining-related laws to be developed not in favour of foreign investors. Since those who are not subject to law enforcement do not abide by the law, the Chinese are taking the opportunity to keep their investment returns optimal on their balance sheet. Therefore, China’s State Councilor noted during his visit, “Sino-Mongolian relation is at its historical best”. May this be true!
 
Western law firm was in town with the invitation of the new government to give consulting service. Their recommendation included a strange sentence that said,  “Mongolia should officially depart from its third neighbour policy as China and Russia see it as hostility”. In fact, the third neighbour policy signifies that it is encourage to develop a good relation with a country in addition to the two neighbours. It does not signify that Mongolia will ignore and oppose its neighbours. Specifically, the third neighbour policy has been merely a declaration for the past 20 years. The government has not implemented the policy in any meaningful way. From everyone the top administration to the civil movement hooligans chants this policy loudly while the law enforcement agencies keep a closed eye giving a passive encouragement. Therefore, it’s not clear where departing from this policy on non-existing neighbour makes any difference. I personally believe that secret lords commissioned these strange policies. The current “just” lawmakers do not even hide their price tag. However, they are not lords themselves. They are many kilometres away from those who play with geopolitics. Also, they are not supporters of Russia or China, USA and Japan. They only care about money.
 
What’s going to happen now? The revenues from the recent years have gone mismanaged, bribed and distributed. The state account is empty. There is no money. It’s almost certain that the current authority is about to go on Crusade against the West and investment. Thus, there will be no money flowing into the country. We will have nothing. Any shares on stock exchanges that is marked “Mongolia” started to fall since spring. Election results and announcement of newly appointed Ministers all caused the shares to plummet further down. It is going down by 2-3% a day, which is 20% a month. For example, Southgobi’s net worth was USD 4 billion and within a few months it shrank to USD 1 billion. No wonder as the licenses were revoked and the company faces police threats. These guys in the authority treat the wealth generated by shareholders as if their own. Let’s forget then about the potato-eaters who elected them. There is a charm phrase, “national security”, going around. It’s unclear what this phrase refers to. Anyways, you will hear it from street hooligans to Ministers. Threats against foreign investment backed up by this vague phrase are commonplace from top to the bottom. The international notion of national security is definitely different from the one applied here. It’s said that Mongolians speak wrong, yet understand right. Perhaps it’s true.
 
If foreign investors leave, the government will inevitably have no USD 30 billion to splurge on. It’s noteworthy that 15 years ago we lived decent lives on budget 15 times less that that. Perhaps, we were happier then! No wonder. We had nothing to scrimmage on. If any quarrel, it was over a bottle of vodka or two. Starvation is impossible with this many livestocks. Someone in the Parliament House famously said, “Why call foreign imperialists to operate but essentially allowing them to rob us while we could shovel it over the White Wall”. When foreign investors are gone, there will be a historic change in Mongolian mentality: digging with 5kg shovel does not work. Both the just authority and the general public will learn that. Therefore, it could be concluded the advantages outweigh the disadvantages in this case. With nothing to export, there will be no import either. The thriving sectors such as construction driven by mining will collapse. There will be no more economic bubble. Of course, there are benefits too. The prices will go down. Remember the days of 2008 when those who sold products at Saikhansambuus’ Narantuul market could not sell their products now matter how low the price went down? With desperate need for cash, the herders will start to sell their livestock. The city residents will buy cheap meat. The export paradigms of the 1990s will revive- products such as manhole cover, cable wire, and camel toes and deer antlers. Agricultural products esp. cashmere will play a sudden, prominent role in Mongolia’s export. No matter how poor, there will be money for cigarettes though!
 
The concept of “just” even existed in the Ancient Greek legal system. It is a comparative concept as someone’s perception of “just” is not “just” to others. It’s difficult to draw concrete legal lines. As a consequence, the laws are scrutinized where it is just. In opinion polls, all Mongolian voters believe that “just” is the top quality required for candidates. However,  “law-abiding” came in 15 out of 18 qualities. Therefore, our understanding of “just” is very different from that of the rest of the world. I have seen many people cheerfully call a person, who swoops a candy from the guest’s table, as a “just buddy”. Also, a man, who blows a whistle, is always up for fight, or strikes first punch and is never embarrassed or fears and who takes a dump or piss in front of people and who is uncivilized overall, also seems to fit the very same description. I don’t know if it is a complement or insult.

BAABAR
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