Interview
The IMF program “will not solve structural problems”
2017-10-12
Prof. Dr. Hans-Werner Sinn, who retired in 2016 as President of the Ifo Institute and Director of the Centre for Economic Studies in Munich, Germany, was in Mongolia in 2013 and then again in August-September, 2017. Following his return home, he had an e-mail interview with B.Tugsbilegt of the MMJ on the economic situation here.
Do you think the Mongolian economy will have a full recovery when the IMF program ends in three years’ time?
Mongolia’s structural problems will remain unresolved, but the country will stop overspending.
Do you think the recent fall of the government would lead to a further lowering of our credit rating and also affect the progress and the quality of the IMF program implementation?
It is a shame that Mongolia, such a resource-rich country, needs to borrow and look at spreads and credit ratings. The country urgently needs another business model where it can live on its revenues and not need foreign credit.
You warned against borrowing when you spoke at the National University of Mongolia. But our country is already in a non-stop debt cycle, with the Development Bank having to issue fresh bonds to redeem an earlier bond. More bonds will be maturing next year and then in the 2020s. What do you advise us to do about this?
Mongolia urgently needs to develop its own resource exploration facilities and make contracts with mining companies after exploration that involve fair joint ventures that generate a permanent flow of revenue, rather than force the country to give away its resources for free. For that, it has to set up state-owned exploration companies hiring specialists from all over the world. These will train young Mongolians in dual education. Only if Mongolia develops its own exploration capacity and forms joint ventures after successful exploration will it be able to avoid ruinous deals of the kind it did with reckless private investors in the past. It is a scandal that a copper mine in the Gobi is worth 50 billion dollars, while the country this year went bankrupt over the $1.5-billion Chinggis Khaan bond and was forced to ask the IMF for help.
Much of the bond money was spent on urban and rural infrastructure, which gives no immediate monetary return. Our small population and large territory mean building infrastructure is hugely expensive with low returns. Is there any way in which the situation can be changed?
Mongolia needs to build the roads itself. I fail to understand why you pay foreign companies to construct roads. Mongolians are proud and hardworking people. They should be able to build their own roads. Again, the country urgently needs dual education in road construction activities. If you ask foreigners to build the roads you will never learn how to do it on your own.
Now the economic situation is becoming better mainly because of increased coal export. The foreign trade balance has also shown a surplus. However, much of the export revenue is not spent inside Mongolia, but is kept in foreign banks. What do you think of this? If the export earnings in foreign exchange are put in domestic banks, will it help the MNT hold up against the USD?
All export revenue should be invested in mining, in particular exploration, road construction and building infrastructure for tourism. I fail to see why a country like Mongolia needs all those luxury shops in Ulaanbaatar and shops for other expensive consumer items. Mongolia needs to curtail consumption and use its money for investment in facilities that generate regular and long-term revenue. And it should close down most of its 100 universities and replace them with vocational, dual education schools. I fail to understand why the Russian vocational schools were closed down and why you want to build an economy with white collar workers. That is impossible. What Mongolia needs is craftsmen, not office clerks.
Our export items are mainly raw minerals, and our small economy is squeezed between the Bear and the Dragon? Will diversification and processing minerals help?
Mongolia should develop tourism attracting people from all over the world. It should also develop its food processing facilities. Mining remains most important though, and should give young Mongolians the chance to be trained so that Mongolia can do more mining itself in the future.