Rapidly Growing Mongolia Hopes to Avoid Overheating

Mongolian Prime Minister Sukhbaatar Batbold said a tight monetary policy and budget discipline will check the rate of inflation and prevent Mongolia’s economy, one of the world’s fastest-growing, from overheating.

Buoyed by a wave of foreign direct investment to exploit its extensive but largely untapped natural resources, Mongolia’s gross domestic product surged 17.3% last year—up from 6.4% in 2010. That has sparked concern that inflation, which reached 11.1% in December, could end up short-circuiting its blistering economic growth.

“We have to have tight monetary policy. And also we will have to take control over the expenditures, especially on the budget side,” Mr. Batbold said in an interview with The Wall Street Journal during a visit to Japan.

Last month, the World Bank reported that government spending in Mongolia rose 56% in 2011 and is expected to increase 32% this year.

Noting that the stepped-up spending was enabled by a gusher of natural resources-related revenue, the international aid organization warned that Mongolia’s economy may see a repeat of previous boom-and-bust cycles.

Weak global growth has also prompted questions about Mongolia’s ability to ride out a potential downswing in the prices of commodities such as copper, coal and gold.

The Mongolian currency depreciated by 11% in 2011 because of steady inflationary pressure and sagging commodity prices late in the year.

But the Mongolian leader said he is confident his country’s economy will stay on track for elevated yet sustainable growth for the coming years, largely through infrastructure investments that he says will help fuel longer-term productivity.

“We had quite good growth last year, and we think we have an opportunity to keep this momentum for years to come. As international financial institutions predict, our growth rate will be maintained for [the] next decade,” Mr. Batbold said.

In a meeting with Japanese Prime Minister Yoshihiko Noda on Monday, the two leaders agreed to start talks on a bilateral free-trade agreement, which if concluded would be Mongolia’s first such pact.

The landlocked country, which is wedged between China and Russia, has grabbed the attention of Japan’s trading companies—along with the world’s biggest mining conglomerates—by opening up vast tracts of land for natural-resource exploration and development.

Mr. Batbold said selection of the winning bids for rights to develop the massive Tavan Tolgoi coal mine in the South Gobi Desert near China’s northern border will still “take some time,” signaling a decision may not be made before parliamentary elections in June.

“The sooner the better of course, but looks like it will take some time,” Mr. Batbold said. “It’s not related to the elections. It’s just a legal process according to the rules.”

The Mongolian prime minister said part of Erdenes-Tavan Tolgoi Co., the state-owned company in charge of the world’s largest coking-coal deposit, may be publicly listed both in Mongolia and on one or more overseas stock exchanges.

Mr. Batbold said Mongolia is very interested in establishing new air routes and more frequent service linking his country with Japan and other regional destinations. “It is very important for Mongolia. This is one of the bottlenecks for growth,” he said.

Currently, there are only two nonstop flights a week between Tokyo and the capital city of Ulan Bator, both via MIAT Mongolian Airlines.

The prime minister met Sunday with senior officials of All Nippon Airways, which entered a strategic cooperation accord with Mongolia’s privately held Eznis Airways last May. ANA is considering adding direct flight service between Japan and Mongolia and may decide to do so as soon as this year, said Bayanjargal Byambasaikhan, chief executive of Mongolian conglomerate Newcom Group LLC, which owns Eznis. ANA couldn’t be reached in Tokyo late Tuesday for comment.

“The Mongolian economy is growing, and we need more diverse ways of connecting to the rest of the world,” he said in an interview.

Source: http://online.wsj.com

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