Written on October 16, 2008 – 6:26 pm | by Amarsanaa |
Commodity price is decreasing in last three months due to the world financial crisis. Decreasing copper price will affect the Mongolian economy. Therefore, world economy policy is very important to Mongolia also. The Government of Mongolia is organizing the very first conference on economy policy jointly with Wolrd Bank. Mr. Arhsad Sayed, resident representative of World Bank in Mongolia is giving his thoughts and remarks regarding this conference.
Q: What will be your evaluation on the Mongolian economy and development position at the moment?
Arshad Sayed: The Mongolian economy is good now. Average economy growth was 9% in recent years. It was influenced by the commodity price. Also mining industry, construction and retail business were developed rapidly. By March of 2008, average increase of salary was 62%. But inflation hit 32%. The main contributor to the inflation was food price increase. Mongolia set record in the North East Asia region. Therefore, the most important issue for Mongolia now is to harness the soaring inflation.
Q: Bank of Mongolia increased its interest rate in order to decelerate inflation. Will it cause decelartion in our economy growth? But, in order to stabilize financial condition, major banks in the world decreasing their policy interest rate.
Arshad Sayed: The situation in Mongolia is different than others. The Mongolian economy was warming up. But it is cooling now due to inflation. Economy growth is decelerating in the world. Therefore, major countries are pursuing policy to accelerate economy growth through activating money environment. Credit source is decreasing in the international market and economy is freezing. But in reverse, Mongolian banks has given away so many loans. Total loan size was increased by 70% if compares with the last year. Size of loan was increased by 50% by the end of the first half of this year. It is high number. The main package of the loan was concentrated only on three sectors; construction, real estate and trade. All in all, the measure taken by the Bank of Mongolia was correct. In next 3-5 years, Mongolia needs mixed policy to keep its inflation in stability and maintain its economy growth. In other words, it is not good idea to fight against inflation by increasing interest rate. It is clever to develop multiple policies and move wisely. Food inflation weighs 75% of total inflation. But recently, there was some tendency of decreasing food price. If this will continue this way, inflation can be down to 26%.
Q: Last year the main export commodity of Mongolia was very high, but our budget balance was negative. As for today, copper commodity is decreasing. How long will it continue.
Arshad Sayed: If copper price will continue decrease in mid-term, the Mongolian economy will surely decrease. Mid-term is 3-4 years. Therefore, income of the Government will decrease and will have to limit its social welfare. Need to consider budget expenditure. Also the government must pay attention on increasing productivity. It is no good to increase salary productivity decreases. Also social welfare must be precise and hit the target. It is necessary to locate who is the most vulnerable in this situation when inflation reaches 32%. Also if copper price is stable, then Mongolia needs to save its income. Like nomads need to prepare for winter, Mongolia needs to build its reserve. In the time when it is hard to predict how long the financial crisis will continue, money distribution is not the best way. Today, world is suffering three crisis; financial, food and oil. In last three years, world food price increased by 83% and wheat by 130%. If it continues like this way long, millions of people would starve. But recently crude oil price is decreasing sharply. Because world economy growth is decelerating and capital market is instable, crude oil price is decreasing also. Average growth of economy of developing countries was 7% and it will be around 5%. There is also a research study that when world economy growth decreases by 1%, 20 million people will suffer poverty.
Q: What will be the main influence of the world financial crisis to Mongolia?
Arshad Sayed: First of all direct investment rate will decrease. Also money transfer from abroad by Mongolians will be decreased. This money is around 200 million US$. Due to decrease of copper price, state income will be decreased.
Q: What do you think about long awaiting draft mineral law?
Arshad Sayed: As for the mineral law, the condition for the domestic and foreign investment must be very favorable and friendly. Also, it is good to insert measure to distribute income to the socially vulnerable parts, evenly. I have no words about why it is pending or lingering. It is issue of the Mongolian Government, therefore I abstain any pressure or comments on it. Being as an observer, I think it is better to have mineral law as soon as possible.
Q: The very first conference on economy policy in Mongolia. What is the main importance of it?
Arshad Sayed: There are not few issues to be discussed, at this time of crisis. Many experienced economists will attend to this conference. Shortly, it is very good chance to change point of views and information. There will be discussion panel on the Mongolian economy, development and inflation. This conference meeting is being jointly organized by the Government of Mongolia and World Bank and I believe it will surely take effect on its discussed issues.
Source: http://www.business-mongolia.com/mongolia-economy/arshad-sayed-the-mongolian-economy-needs-mixed-policy/
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