O. Chuluunbat: Copper price fall has had an impact, but it would be truer to say, it is a policy crisis

At the moment you read this issue of the MMJ, the first issue in the New Year, our economy will have changed from what it was half a month ago. We all are witnesses of an unexpectedly tumultuous scale of fluctuations in rates and prices in the ever aggravating global crisis. The MMJ will continue delivering to its readers the voices and concerns of the people who are capable to foresee the magnitude of the volatile changes and thus are capable to mitigate their effects on our lives.

MMJ: The update the BOM gave the public a few days ago about the present status of our commercial banks and the situation of “Anod“ bank today are notably different. Who is responsible for the failure to supervise “Anod“ banking operations?

There are two standard banking supervision systems in the world – a system whereby the Government provides supervision over commercial banks, or a system with the Central Bank’s supervisory powers. When a problem associated with commercial banks arises, that  very supervisor is supposed to be asked first. In Mongolia the risks of commercial banks are assessed not by the Government, but by the Central Bank, therefore, the BOM should be the responsible body. By pledging the Risk Fund money [of the Development Fund], the responsibility is shifted to the Government. Actually, the BOM does have a right to deploy monetary policy tools such as providing a clearing loan. It just didn’t use this tool, and even if it did use, it would have been too late already.

MMJ: Why did they fail to undertake a bold and timely action? Or were they unaware of the possibilities and ways to address the problems?

Even if the Governor Batsukh didn’t know, his two deputies should know. In fact, I even told them, told them to resort to the clearing lending. They responded only the Governor had the right to decide.

MMJ: Does the BOM Board of Directors have a decision-making power? Or is it only the Governor who exclusively enjoys the decision making rights?

The Governor of the Central Bank does have the right to make decisions exclusively by himself. The Board of Directors has only advisory powers. In fact, our system   generously endows the BOM Governor with necessary rights and powers; the question is how to most effectively and educatedly use those rights. If those rights are used wisely - competently and timely -  our system is a fairly good system.  Unfortunately, the opportunity was lost.

MMJ: Four days have passed since a BOM Receiver was appointed at Anod Bank. As of the moment, close to 48 billion tugrugs savings have been withdrawn from the bank. Will this pool of money escalate the level of inflation once it pours into the economy? Didn’t we need a mechanism in place to regulate this huge inflow of money into the economy?

According to the information I have, by the evening of the fourth day, a total of 78 billion tugrugs have fled the bank. When people draw their deposits from banks, the money is injected back to the banking system. Assumingly, the money from Anod is now flowing into the system back through the Trade and Development and Khaan Bank, the two banks doing rather well.

MMJ: The BOM doesn’t have much capacity to supervise the commercial banks, does it? If each of the 16 commercial banks is inspected once a year, the timing between two inspections looks way too long?

The BOM does have a possibility to supervise the commercial banks on a daily basis – it can see the transactions executed at the commercial banks. Liquidity of our banks is deteriorating; asset to loan ratio has already leaped to beyond 70%, whereas for a banking system in a sound health this ratio should comprise 50-55%. For Anod bank, the ratio accounted for more than 70%, which is a clear sign of a serious problem.

MMJ: Was it possible to prevent the Anod problems?

Of course, measures could be taken. The State acted brutally toward the Anod bank. The directors were arrested right away - how could this act be read by the world? The world may think that in Mongolia the bank directors are all criminals and crooks. The bulk of the money fled the bank after the directors were arrested.

MMJ: Don’t [the directors’] acts contain any criminal elements?

But those accusations have to be proven first, before they are arrested, right?

MMJ: How do you see the year 2009 be for Mongolia?

The situation might be tough in the first six months. We did have chances not to let the situation aggravate this badly. Now the chances are gone, they are lost. Imports have shrunk. I cannot really comprehend the rationale, the logic of the people who say Mongolia could benefit from plunging global prices. Look, we do not have money to buy those cheap things, don’t we?!

MMJ: The Government said it would issue bonds. Can’t we earn some dollars in that way?

These days no one buys government bonds of even the ger, powerful countries. Why do we have to bother to issue bonds now? Too late. Mongolia is being too slow with her responses. I kept telling everywhere that we were to be raising funds as early as since July. “No worries, let’s see what happens. We are OK, we are doing fine” -  I heard in response. In fact, financial and banking information must be most transparent and open. Even the Parliament was being told lies.

MMJ: What is the solution, what could save the economy now?

Secure loans. It’s just vital for us to find money from outside. Plus, cut expenditures internally to the extent possible.

MMJ: But if we get money from Russia or China, won’t the consequences hurt us?

Everybody borrows from China. China might give us money. We just need to officially present our request. We Mongolians have always had a fear as if China might swallow us. China might give us money not because it loves Mongolia. With this money, we buy products and services mainly from China  it self. In a sense, it will virtually be Chinese who pay us salary and earn us revenues. China, I believe, wants Mongolia develop and prosper, wants our economy, how ever small it is, not to go bankrupt. Chinese might be interested to lend us money, attached to our megaprojects. Russians secured a 25 billion USD loan from China. South Korea did the same. There is one very specific feature of Asians and that very quality helps Asians at the times of crises – the habit, culture of saving is very strong among Asians. Asians are not like others who use up all of their income.

MMJ: Dollar exchange rate was kept at a rate of 1150 tugriks for quite a long time although credits and loans virtually stopped since April and May 2008. Wasn’t the rate supposed to be let free? Will you agree that ever since then Mongolia started draining its forex reserves?

Yes, I agree. If dollar is cheap in Mongolia, foreigners tend to take them away in large quantities.  

MMJ: I recall the BOM Governor saying on TV that forex reserves depletion was not a problem.  But isn’t it a signal of a danger? He was also saying that the methodology of foreign trade accounting was wrong and that the gap wouldn’t be as as was reported…. What is he talking about?

Depletion of reserves is a very bad news. Trade deficit increase is also a sign of a danger. As for the trade balance misreporting, the 300 million USD cash physically brought into the country by plane was accounted as a loss.

The BOM forex reserves accounted to 1.1 billion dollars, which now has slid to 500 million. Spending 600 million USD means pulling back from the market a total of 720-730 billion tugriks. Yes, I do admit, copper price fall does have a say, yet, it’s being basically a policy crisis.

MMJ:  More and more people become reluctant and disinterested to utter bitter but true words like yours. Can’t you make certain moves on your part, say, organize an economists’ lobby group within the Parliament to lead, to direct to more rational angles  the decision making process on major economic issues? Are there many economists in the Parliament with broad vision and economic sensibility?

It’s extremely important to adopt innovative, creative and aggressive modus operandi at such a sensitive time. There are many MPs with broad mind and vision. Their voices are heard regularly.  

MMJ: Do you often find yourself in situations when you are disappointed about the Parliament?

Yes, I do have such moments. We need to change the whole system, entire attitudes and inclinations. I’ll draw just a single simple example. When we were discussing budget for the next year in November, there was an item in the draft – construction of a hospital in a province. Why on earth the MPs should be voting on funding the roof of a hospital building in a soum of an aimag [soum – an administrative unit of an aimag, aimag is the largest administrative unit, identical to a province or a prefecture]. Investment would have been much more effective if such needs are discussed, examined and resolved locally. The governance will be more effective. And, such issues eventually are voted, with half of the votes in favor and the other half – against, and strangely enough, they get approved. Budgeting, in a sense, looks simply like burying money in mud.

MMJ: As an educated and informed analyst, you perhaps constantly observe the developments in the world and draw your conclusions and analysis of the causes and effects of the crisis. Have you ever questioned the virtue of capitalism? The west seems to be perplexed about capitalism, and many refresh their reading and interpretation of the “Capital” by Karl Marx and Friedrich Engels. Would you blame capitalism? For a human factor has had too much an effect on the cause of the current crisis…

Mr. Chuluunbat: I will tell you what I believe in, what my convictions are. Capitalist system should be there. Social development is a factor of human consciousness and perceptions. How would you make a person, who doesn’t realize his daily duties and responsibilities in front of the society, work? Perhaps, the only way to make him work would be to pay him to work. Look at Japanese, or Americans. They are responsible, they are fully aware of their daily obligations, they are highly conscientious members of their societies.

In Mongolia only few people have this consciousness. Most people are concerned about securing their bread for tomorrow, the very essential yet the most primitive pursuit of human life. Once a man learns how to feed himself, he would then think of securing a better clothing, a better housing, a better profession, better health, better education for his children, a better career, in a way, the level of his realization and assumption of his social obligations and duties rises. But in Mongolia that very stage of mental transformation, the very process of escalation to the higher levels of consciousness, coincided with the reign of socialism. That made everyone lazy. The mentality to be fed by others, by the state permeated everyone. That mentality needs to be done away with. Today only few people live decent lives because they work, they are entrepreneurial.    And these ones, who do better than others, should for some time carry the burden of sustaining the lives of others. Development history tells that eventually the degree of social consciousness levels up among the people. For instance, in the UK the royal family members and the common people have similar levels of information, education, consciousness, ethics. In Mongolia an average Mongolian can’t equal with family members of our high level dignitaries in every aspect, in all dimensions – education, information, consumption etc.

MMJ: Yet, the capitalism has to be responsible…

That responsibility is cultivated gradually, small by small. The level of responsibility increases as the consciousness heightens. Therefore, capitalism should prevail. Once we experience in flesh what the capitalism is all about, one’s sense of responsibility for his own self will be greatly enhanced. In socialism, the Central Committee of the Party would resolve issues for us and would assume all the responsibilities for us.

Even these days national capitalists are hated, often they are intimidated and petrified [by actions and inactions of the government]. In fact, daily mileage, electricity and other essentials consumption of our top ten government officials is 2-3 times higher than those of our top ten businessmen, which means that these are not the businessmen who pump out taxpayers’ money. This is the Government which abuses taxpayers’ money with an appalling indifference because this is not their, but others’ money. Look, atop of their pompous consumption, these officials hold 2-3 bodyguards and the same number of sedans and jeeps. If you ask a businessman whether he’d want a bodyguard, he’d say “no” for it would simply be too reckless use of money.

MMJ: How many assistants do you have?

One. I disagree with the idea for an MP to have 5 assistants. As an MP, I am now on the state budget payroll. This is the first time I am ever paid a salary by the Government. I joined the Mongolbank in 1991. Mongolbank’s money is not the Government’s money. I have lived on my Mongolbank salary, private savings from my employment abroad. My salary, approved by the Parliament, was 200.000 tugrugs when I was the Governor of the BOM. This was the Governor’s salary when regular officers of the BOM were paid 400-500 thousand tugrugs. I would issue  decrees to increase the salaries of my staff, but couldn’t do the same about my own salary. I must admit, I had my car, phone and internet paid by the BOM, which was sufficient for me. My essential consumptions are phone and internet. Now, I am paid 700.000 tugrugs, a fortune for me, and of this, about a hundred thousand is spent for telephone and another hundred and fifty thousand for benzene, and I am comfortable with the remainder.

MMJ: Have you renewed your subscriptions for newspapers and journals?

A couple of MPs and myself wanted to subscribe for a few foreign press, but the Secretariat said it was too costly, so I privately subscribed for some.

MMJ: What do you read?

Almost all Mongolian newspapers, a couple of foreign journals and of course, plenty of Internet.

MMJ: You served in the Mongolbank, now an MP. Do you think we need a public administration reform?

We need a profound one.  First, I’d like to comment on the local budget regulation. I traveled extensively throughout the country in the last 2 years. At times, especially in winter, some schools and hospitals are almost empty. Coal is delivered from a very faraway, and it’s very costly. And this coal is burnt throughout a day, of which 16 hours in vain. A soum hospital has only a dozen or so beds, with two patients. My estimates show that it would be cheaper to bring those two patients to Ulaanbaatar, place them in “Chinggis Khan” hotel (not a clinic!) and treat them there. Most of our fiscal funds are wasted away in a similar manner. How, then, can we expect our lives better!?

MMJ: The threshold for the Windfall Profits Tax has been increased   850 USD. What is the aftermath of this tax?

It’s being now proven that it was a bad decision to enact such a law in the first place.

MMJ: The cost it incurred was too­ high…

Indeed, it cost us huge losses. Fifteen tons of gold slipped away. At the time I was the Governor of the BOM, Mongolia used to export 22-24 tons of gold – about 14 tons through the BOM and 8-9 tons by “Boroo Gold” company. Assuming that 1 ton would be smuggled, all in all Mongolia used to export 25 tons of gold a year. However, in the last 2 years, 15 tons of gold is missing. The gold which should have benefitted Mongolians leaked out benefitting outsiders. Before this law was adopted about 130 companies used to sell their gold to the BOM, but this number now has shrunk to 17-18. No other Parliament except Mongolian would ever adopt such a law. The decision to enact such a law is akin to stabbing, as of the sudden, a stranger walking in the street.

MMJ: Do you manage to carve out time for tennis?

For sure, I play 3-4 times a week. I need movement, physical exercise to stay healthy.

MMJ: Who do you play tennis with?

With the youth of the tennis club.

MMJ: Thank you very much for the time you spared for our journal. We wish you all the best.