This is a concise translation of an interview with M.Bold, President of the Mongolian Banking Association appeared on Undesnii Shuudan on 4th of March, 2014.
USD has been appreciating against MNT and reached 3 year record level. In the coming months, construction and development works will begin which will require large amount of foreign currency. Therefore, how can we protect ourselves from the appreciation?
In our economy, USD can be a indicator how well we are doing economically. One of the outcomes of having weak export production and food and service industry is the current situation. If we exported more goods and services we would have had enough foreign currency in the economy. Therefore, our sole reliance on mining sector brought us here. Again, USD is an indicator of how well the economy is doing, therefore there is no single entity that could hinder the appreciation of USD. Only when Mongolia becomes a producer and manufacturer that could produce at least basic commodities, then we will have a stable domestic currency. Exchange rate is decided by the market.
How should we manage the current exchange rate?
We cannot clearly identify a single responsible entity for the current situation. The only thing we need to do is promote domestic production. We have been talking about it for a while, it is only left to execute it.
Bank of Mongolia has been intervening in the foreign exchange market to hold MNT stable. Some say that due to continued intervention we are in the current situation.
Intervening with real exchange rate will create depravity. However, today the Bank of Mongolia only intervenes to offset the sharp volatility. Exchange rate is decided in the market after many steps. 650 thousand households in Mongolia are more or less participants of the foreign exchange market. In addition, 60 thousand companies who are registered also conducts various trades. Government is participating with billions. Therefore, all these participants are playing important role on establishing the rate. Thus, it is wrong to accuse someone.
Some say that Oyu Tolgoi project is one of the main sources of currency import. Would you agree?
Oyu Tolgoi is one of many. In addition we have agricultural goods and import replacing goods etc. We have a chance to export electricity. Also, programming and software industries that we could develop an app is one of the opportunities out there. Thus, private sector always ask the government to stop putting barriers on production and businesses. Government should fulfil the request.
Samurai Bond money will be spent on promoting domestic producers. It is a good thing, however, how else we should promote businesses to strengthen them?
Government shall not intervene or conduct private businesses. It needs to stop putting barriers and excessive taxes on businesses. Also, courts need to work on making quicker decisions and implement it. Due to the court’s slow process on deciding business disputes some businesses halt. Also, we need to build the mega projects such as railway and power plant as soon as possible. Domestic oil production has been a long saga for many years. Although the Investment Law has been approved, rules to implement them has been released after a year. If government decides and states the legal framework clearly, private sector can take care itself. It will make conducting business easier. However, today, the government is everywhere and wasting its time.
We have approved a new regulation in order to increase the gold reserves in the bank. It has been calculated that it will help MNT appreciation. Is it a correct decision?
It is a very correct decision. Pure gold is a foreign currency. If we could utilize our natural resources correctly, we have the full strength to cause MNT appreciation. It is a good thing we started it.
Will USD still be volatile this year, or will it be stable?
Increase in gold production, and its marketization through commercial banks will help stabilizing MNT. In the other hand, mining industry is still on its path of development. We lived through the years when we didn’t have Oyu Tolgoi or Tavan Tolgoi. Then, we started having problems after we discovered them. We need to produce what we can and start mass export of finished goods. Again, the current exchange rate is a result of 3 million Mongolians. Thus, it means we are not working hard. It means we are buying a lot from outside. Due to the negative external situation our condition is more contrasted. When the mining boom was in its peak we didn’t manage the revenues wisely and spent it on investments or infrastructures, and this is the result.
Business owners criticize the commercial banks on their weak governance and lack of long-term loans. How could we solve this?
It is true that our banks are lacking funds for loans. However, the question is why? Because, banks are accepting deposits with high interest rate and loaning them out after adding its cost. Saving has to be more than the inflation rate. Therefore, high inflation rate will always results a high interest rate. It is a reason also why the domestic production has not been developing. Like this, all the economic activities are interconnected. Thus, domestic production is the key to solve all these problems. At least, we have to create an environment that cashmere, wool, vegetables and basic clothing will be produced 100% domestically. We talked about processing the raw materials and resources domestically for a long time, but never reached a substantial result. If we could do these, we will escape the vicious circle.