MP and former President of Mongol Bank O.Chuluunbat has his views on the recent developments in the financial sector of Mongolia.
Q: The Budget has loss of 6.1% of GDP. The Ministry of Finance explains that it will cover the deficit from the foreign source. But experienced experts and economists say that foreigners will not give loan to the economy with budget that has loss of 6.1% of GDP. Where to get the deficit fund of 400 billion MNT for the budget?
MP O.Chuluunbat: We haven’t had such a budget in last 8 years. By approving such a budget, we give signal to the world community that Mongolia spends fund without any control and cannot manage its income and expenditure. If the loss is over 5%, the Government shall get rid of its bonds. In this case, it is hard for Mongolia to raise money from the world financial market. Actually we had a chance, but we lost it. There is so much administration cost and investment in countryside. We had chance to cut it by one third, but we didn’t. There is also a “competition” of spending the budget money in everything that is not applicable for the local development, when the budget fund is approved and distributed. In year 2000, budget was 300 billion MNT, but today we can’t. We have such a budget. I say it because I have been working in banking sector last 20 years.
Q: You mentioned that we need to get rid of stock. Do we have a chance to do so? Our Government issues bond. But its sale is not good enough.
MP O.Chuluunbat: Do you think that foreigners will buy our bond when domestic buyers won’t buy it? Actually, it would be bought by foreigners, but when we have budget loss of 6.15% of GDP, everyone will think that it is not longer profitable.
Q: In doing budget reform, it is not only the issue of cutting cost, but it will also consider many fields and factors such as election structure, administration division of Mongolia etc?
MP O.Chuluunbat: In addition to your words, budget will not be reformed without amending or changing the law on Funding and Administration of the Budget dependent organization. If we don’t think globally, we will not develop.
Q: The biggest hope for Mongolia was the copper commodity price. There are not few people hesitate about whether to find the external source to cover the deficit of the budget. Therefore, there will be numerous budget modifications in next year. When the first modification will be made?
MP O.Chuluunbat: It will be made more than once, according to the copper price surge. Mongolia has lower chance of getting loan from the world. Even with such a budget, the chance has become almost zero. But Mongolia has a chance of raising fund with its various projects. The Government must pay special attention on it and be active in raising funds. I haven’t lost my belief in it.
Q: We lost this golden moment. Do we have hope?
MP O.Chuluunbat: We have chance of raising fund through projects. We are next to the world’s biggest consumer market. People’s Republic of China is rapidly developing. It needs copper, uranium, iron, coal, zinc, silver, molybdenum. We have them all. If we prepare truly good project we can raise fund for it.
If we react immediately, but the structure is the biggest hindrance for this reaction. There are so many steps and procedures required to make a decision. We have structure that has malfunction in the quick reaction mechanism, but perfect operation in its obstacles. Therefore, Mongolia can’t develop rapidly. But we should get through the financial difficulties. The decision making process is so clumsy and this clumsy structure is the main problem. Pity, isn’t it?
Q: Can the financial market of Mongolia be stable? Some part of Mongolia Development Fund is to be placed at commercial banks and the State announced to secure the saving deposits holders. I think you have your own scenario on where it leads to?
MP O.Chuluunbat: I support these actions. I made initiative to support commercial banks. But the measure was taken late. The world financial crisis was noticed by the mid of this year. If this measure was taken in July or August, these constructions will be completed and people would have salary. A man, who traveled to Zamyn Uud, said that the border traffic was decreased almost by 90%, decreased down to 30-40 vehicles a day from 400-5000 vehicles before. Business and investment activity is falling in such amount also.
Banks are not to be bankrupted; their money resource is decreased only. People started to withdraw their savings from banks with fear of bankruptcy. They should not. I repeat again that it is better and beneficial to you and to the state when money is deposited in banks. Savings insurance law was adopted by the State Great Khural. It is huge trust and hope.
Q: Is it a complex measure to protect financial sector of Mongolia to deposit reserve of Mongolia Development Fund at combanks and to secure saving deposits at banks?
MP O.Chuluunbat: Yes it can be complex measure. It is right measure even it was bit late.
Q: How realistic and reliable the information that is given to Bank of Mongolia from combanks? People have hesitation in combanks are in deficit of money when 96% of 2.7 trillion MNT in the market is secure loan.
MP O.Chuluunbat: It can’t be understood that big portion of secure loan is big cash. It is like to provide loan when they had money and now the money is limited to take it back. Loan takers’ production sale is decreasing when the market has less money. Hence, the loan repayment is falling. We have such a problem.
Q: The State is supporting combanks. When its effect will be felt to the public? Combanks’ saving interest rate reached almost 20%. Business people expects further decrease in loan interest rate.
MP O.Chuluunbat: Loan interest rate shall be decreased. The pending projects must be funded and advanced. Many workplaces will be created or their income will be deposited at combanks’ savings. It will surely influence help people in increasing their income and sales.
Mongolia Development Fund money will be placed at combanks, but it will be used for banks internal expense. It is wrong. If this will be given to banks directly, the high interest rate will not decrease. If it will be provided like today, it will be given to businesses. But in other countries distribute money to the end consumers in order to create real consumption. It must be solved in a way that can reach to the consumers as directly as possible. If to buy housing secured loan with 300 billion MNT, then it will be much softer and lower interest for the people. This money will return to the combanks. Combanks shall worry about their profit in the second round.
Q: Government secures saving deposits and Mongolia Development Fund money is to be placed at combanks. How can it be helpful for combanks that Bank of Mongolia cut its rate? When the result will be shown?
MP O.Chuluunbat: Of course it will take positive effect. Financial outcome will be seen so easy and rapidly. First the market must have enough money. We should think about to raise fund with our projects. If we can start positive negotiation and deal in China, Japan, Russian Federation, South Korea and USA, we have chance of raising fund there. Some countries are in financial crisis and their economy in recession, but they are capable of investing billions of US$ into Mongolia.
Q: Will inflation be decreased?
MP O.Chuluunbat: Inflation will decrease due to the world economy recession. Mongolia should not aim inflation only, but it should target providing economy growth, creating workplaces, maintaining investment. Inflation is mainly headache for developed countries.
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