The dilemma over a new and bold economic policy

By S.Bold-Erdene

International organizations and the Government of Mongolia have announced in one voice that Mongolia has come out of the economic crisis in which it found itself together with the rest of the world. Its success in emerging out of the tunnel in just 18 months is largely due to the Stand By Program, implemented in collaboration of the IMF. The Government did a good job with the program, as appreciated by the IMF itself and other international donor organizations. Immediately after the restrictions imposed by the program were withdrawn, the Government started to talk about new economic plans and policies to develop industry by making more efficient use of the money to come from the mining sector. The period of fiscal austerity enforced by the international financial organizations is to be followed by a burst of state spending, as the budget for the coming year makes clear.

Economic reforms, overshadowed by the crisis, have again become important. The Budget Stability Law passed in the summer, is the basis of all planned reforms. The law will ensure budgetary stability by reducing deficits and, in years of surplus, putting this surplus into a Stability Fund. 

The Spring session of Parliament passed the state policy on the railway and approved the Government decision to build an industrial complex in Sainshand. A National Development Bank was established to provide capital for these and other large scale development projects. However, as of now, the Bank exists almost only on paper, with no assets beyond its authorized share capital of MNT16 billion. Estimates prepared by the National Development and Innovation Committee say MNT17 trillion is needed for the projects, including an oil refinery. With neither the state budget nor the Bank able to provide this huge amount of money, the Government will have to look for an international market loan carrying interest at commercial rates.

With money expected to pour into the national coffers, rapid economic growth will start in real earnest in 2014, according to expert forecasts. But, are we to passively wait for the money to drop into our pockets or do we adopt a provisional strategy to speed up the development rhythm? Being active is always better than a passive existence. The Finance Ministry has already prepared a draft to amend provisions in the Law on Managing and Financing the Budget that was passed in 2002 that prohibit the Government from taking a commercial loan, or to provide guarantees for loans. Parliament will soon discuss the proposed amendments which seeks to allow the Government for the first time to take a commercial loan in any form within certain limits. They will also allow the Government to sell bonds in the international capital market to raise capital to finance investment programs under the Policy of National Development and the Mid-term Development Strategy.