O.Chuluunbat: We Are Importing Inflation

Mar 11 • Business, Economy, Government, Mining, Politics • 807 Views • No Comments on O.Chuluunbat: We Are Importing Inflation

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Mr.O.Chuluunbat, former governer of the Bank of MongoliaInflation is related with the political decisions.

You are the product of the period when the professionals were produced according to the policy. When did you graduate, specializing in what major?

I studied at International Relations Institute of Moscow between 1976-1981, majoring in international economy, financial relations. My generation was educated during the centrally planned economy and under one party strict control. The State prepared me as the world financial expert and appointed in the currency clearance and administration of currency reserve of the Central Bank of Mongolia. I studied market economy so called market of capitalist world. I measured, made research and investigated about many financial relations of the market economy, such as why increase price of commodity, budget deficit occurs and so on. Finally, I understood the market and have my own view towards many operations and acts. Anyone will become same as me if study the market for many years. Then, between 1987-1991, I worked at the International Bank of Moscow.

It was not that usual to send such a young professional who was recently graduated from the university, to work at the International Bank of Moscow, was it?

It seems to me that it was the state policy. It was also so risky and responsible work to send 28-years old young professional to the international bank. I was discussed by the Meeting of the Secretariat of the Central Committee. I returned from there when the democracy began in Mongolia. I had been working for the bank and financial sector for 28 years since my graduation, twice were in abroad, Russia and USA as currency, gold and commodity dealer, between 1996-2000.

Have you been the President of Mongol Bank for six years?

Yes, between 2000-2006. I was striving to create the favorable financial environment that is safe for the Mongolians to keep their money at banks and foreign investors to place their savings at national banks. I studied keenly why Switzerland, Singapore, Luxembourg, Hong Kong became the financial center of the world and reserve most of the capital. The only key issue is to form and maintain financially favorable or friendly environment. People maintain and deposit their money to the bank when banks’ general standing is good, capable to provide money whenever necessary and not affected by police or other inspection agencies. Okay, lets leave America and Europe, but we still have two big neighbors which is becoming richer. In fact we don’t need that much money. We don’t need several trillion USD. If the Mongolian banks reserve ten or twenty billion USD, we can invest our own projects.

I think situation is changed today. Since 2000, especially macro economy is revived. Reserve of banks increased ten times. In August 2000, 230-240 million USD was deposited at the Mongolian commercial banks. At that time banks were so poor and weak, but now any bank has such money. The Mongolain banks have about three billion USD.

Someone said that if O.Chuluunbat was the President of Mongol Bank, the inflation rate would be less than ten. Can you really maintain inflation rate less than ten?

Increase of inflation is not relevant to only monetary policy of Mongol Bank. Government policy, political decisions are equally affects the money issue. Especially those money which is being provided freely to the people under the names of “children’s money”, “marriage money”. Also the method of increasing salary will affect on it. To increase of government officials’ salary is not that wise idea. The number government officials and other workers subsidiary to the state budget shall be decreased and that money shall be redistributed to the sectors that make money. But it is so pity and hurtful that today people tends to become even guard, service man of the organizations and agencies that is beneficent to the budget rather than making bread or weaving a sock. Salary increased “thanks” to the political decision and it affects to the inflation rate. There is another reason for this.

We are importing almost 80-90% of our total consumption. Most of it is from China. But Chinese RMB rate is getting stronger against USD. We sell our entire product in USD. It looks like that USD and MNT rate is steady. But due to the Chinese RMB rate, the Chinese product in Mongolia is getting expensive. Therefore, it can be said that practically we are importing inflation.

Is there any other method to halt it?

Yes, can make MNT rate stronger against USD through monetary policy. It seems to me that Mongol Bank thinks this action is not necessary. Mongol Bank has sufficient enough reserve of USD, around 1.5 billion. We are securing 70-80% our import reserve through the above-mentioned USD reserve. Commercial banks have same size reserve. If Mongol Bank buys back its MNT from the market, then MNT will get stronger. In this case imported products price will not increase. Such a measure can be taken. But it seems to me that Mongol Bank thinks it is not that necessary.

If you were President of Mongol Bank, what would be your measure?

It can be same as today. I think that this inflation is not because of Mongol Bank’s action but of political decision.

I never fear of risk and making decision.

Regardless of those people who would like to extend your position as the President of Mongol Bank, the Speaker of Parliament pushed another man as the President…

I worked for six years which was clearly stated in the law. My team and staff were strong, robust and well-educated. At least they don’t have language problem and therefore it is time wise. It was so easy for me to work with such team.

How well do you know Mr. S.Paushok of “Altan Dornod Mongolia” (Golden East Mongolia), who sued against the Mongolian Government? You two connect each other through depositing gold at Mongol Bank in order to avoid windfall tax…

Before answering this question, I would like to express my opinion regarding windfall tax 68%. It was right decision for the copper commodity. It is related with the state-owned company, so we can control. I think it was not wise decision for gold. So many Mongolians are working in gold production business. State shall support those who create wealth. If imposing high tax on people, who worked hard to produce something, and provide salary for the government officials and workers, then creative people will be discouraged and those who are corrupted and granting licenses sitting in the office will be encouraged. Gold mining business and construction business are totally same. As for gold, its production cost per ounce became 400-500 USD. Average salary in Mongolia is 250.000 MNT. A member of parliament takes 700-800 thousand MNT. Then if we tax 68% from the difference of MP’s salary in order to make them equal, will those MPs be happy? It is exactly the same issue. To pressure people who are producing, using tax leverage is not that good idea.

As for Paushok…?

Yes, Mongol Bank did receive gold from Paushok in 2006. I am open to everyone who proposes good business. Principally, I approve the deal as beneficial and my dealers handled the details. If “Altan Dornod Mongol” paid the tax as of 2006, it would pay 7 billion MNT. It kept for two years and sold it 830 USD per ounce and made 15 billion MNT to the state budget. Almost doubled. It was beneficial for the State, for Mongol Bank and for him. We should consider our benefit when we discuss case of Mr. Paushok. Being as financer, I think this deal was very good deal. But some others filed it to the Authority against Corruption.

Do you think that this deal brought any damage to nobody?

Yes. It was mutually beneficial. All in all, my financial situation is not that bad to be corrupted. On the other hand, I am proud man not sells my name and reputation. We should be ashamed of those people who take money for providing government service. People who worked with me, team members, businessmen, bankers, know about me. I can give guarantee that I never beg for money or ask for bribe for making decision.

Not selling our soil and land, but driving capital into Mongolia.

In what stage are you in now when you made statement that you were going to help Mongolian mining companies go into the world market?

I started working on it already. Our mining companies haven’t gone into the world market yet. Some few companies are only foreign companies. Some of my projects are going well. As for the last week one of our companies received 30 million USD and additional 150 million USD is pending. If we reconsider windfall tax of 68%, foreign banks are ready to sell the Mongolian gold mining companies at the world market. It means that there are more fund is ready to be invested in Mongolia.

Can you explain about the procedure of selling shares of mining companies at the exchange? How it can be helpful for those people who are buying shares of those companies?

Let’s take one company owning license with 30 tons of gold in its deposit. A foreign bank will evaluate it as one billion USD and sell its 30-40% of share with 300-400 million USD. Foreigners who have some money will buy. Our company will mine and produce gold every year and distribute its dividend per share. Today, it is not surprise if one pays 20-30 cents per one dollar of mining company. Therefore, share price will increase. If the Mongolian company needs more fund, it can sell its share and raise money. Now all business in the world is going through this procedure. It is not selling the Mongolian soil or land, but it is whole procedure to attract more funds into Mongolia.

You are from Selenge province. What is your point of view towards the recently discussed campaign called “Atriin III ayan” (Third campaign for harvest)?

Yes. I was playing by the river of Orkhon. Then my parents moved to city. Some people and scholars are criticizing it. If we plow new land and make it desert, it is wrong. But this campaign is much different from it. Its main idea is to revitalize the old and used areas. It shame on us that we are importing and consuming imported food and vegetable. There are many people who harvesting 147 bushel wheat from one hectare from their irrigated land. It is time to get rid of the attitude to throw some seeds in spring, enjoying whole summer and checking whether there is harvest or not. Farming business is much different. Some companies invited irrigation companies. Even I brought one and making water research and investigation. If there will be initial sketch of drawing, then can lease irrigation equipments. But we’d better give the fund of this campaign to the non-direct insurance funds.

Are you member of MPRP (the Mongolian People’s Republic Party)? Are going to run for the election?

I became member just before going to work in Moscow at the international bank. At that time, no young professionals can go to abroad unless he or she is member of party. I became member when I was 28. If party decides to nominate me, I would like to go for it. I am hopeful that I can influence to resolve the problems and issues into the better way or positive way, relying on my expertise and knowledge. For example, I am totally against the windfall tax. Also Mr. Gombosuren and Baabar said that after this windfall tax law passed, Mongolia lost over 20 tons of gold. Even land use tax and income tax were lost. 150 gold mining companies decreased down to 20-30. Also I have different point of view towards the “Grant of the Nation” idea. We need to connect our internal market with the big market of world and to become part of it. Only after that there will be genuine share or grant or whatever such thing can be decided. Otherwise not everyone can get that 5000 USD, when just shouting loud to grant that much money. It will be like a story of “pink” and “blue” coupon. Such as many acts are needed to be optimized and reconsidered.

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