Ex-PM Amarjargal warns of poor economic outlook for 2021

[One of the leaders of the opposition Democratic Party ex-Prime Minister Amarjargal talks with Ganzorig in the Syndicate Talk]


Amarjargal was the Prime Minister of Mongolia from 1999-2000 and is a leading figure in the opposition Democratic Party. In this interview, he discusses his views on Mongolia’s economy and democracy.

Ganzorig: 2020 is coming to an end, so let's start the conversation with a look at this year's economic situation.


Amarjargal: Our economy is a direct reflection of our current situation. This year, COVID-19 is shaking the global economy.


However, Mongolia's economy is a little different from the rest of the world. It’s based on raw materials and is highly dependent on exports. Our population has a high proportion of young people and almost half of Mongolia’s population is concentrated in Ulaanbaatar. 


Taking all this into account, economic growth is expected to be negative. All sectors are in decline and fiscal policy indicators are poor. By the end of this year, economic growth will be somewhere around minus two to minus four percent. That's a big number for us. Losing four percent of our economy is a big deal.


How do you see the economy in 2021?


The economy is in an inherently difficult position. Salaries, pensions and welfare payments are beginning to fall short. This trend will continue and will be a big problem at the beginning of the new year. There’s also the 2021 presidential election to think about.


Until September 2021, the economic picture does not look good to me. I told people last May and June that the effects of the pandemic would last until the 2021 Naadam festival. Now I see it lasting until autumn.


After Covid-19, the change will take place around the world and a new normal will come. We need to see all of this, support what we have to support, and get rid of plans that don't work. 


Let's imagine the worst-case economic situation. What should decision-makers and economists do if Covid-19 shuts down businesses, citizens have no income, there’s no welfare money, and the government can't collect taxes?


Well, it’d be necessary to mobilize the economy and all our resources. This can be a short or long term effort.


In an emergency, I'd pin my hopes on two things. First, we had a good harvest this year. With 450,000 tons of grain, we probably won't run out of bread and flour next year. Second, animal husbandry: if this situation actually arises, our other main hope is livestock.


In the history of Mongolia's economy, we have always depended on agriculture during the most vulnerable and critical periods of our development. In the 20th century, all our resources - which we used during the construction of our first industrial facilities, World War II, the steppe occupation campaign, and socialist construction activities - were squeezed out of the agricultural sector through centrally-planned economic violence. 


Thanks to our livestock, we survived the horrific 1990s, when one-third of the economy disappeared in one day. Furthermore, even during the crises in 2007, 2012, and 2014, agriculture helped the economy. If the situation you ask about returns, I’d hope it would help again.


You mentioned economic mobilization. What do you mean by that?


Mobilization is used in case of an emergency. Examples include World War II, major earthquakes, and catastrophic floods. This has been extensively studied in the field of military economics, and there are strong theories about mobilization economics.


The private sector is preparing budgets and plans for next year. What advice would you give to businesses at this time?


In terms of macroeconomics, all I can say is that now we need to get rid of our excesses and shortcomings. 


My advice to business owners is that you have to do an inventory and evaluation of your business. The first thing to do is get rid of things you don't use or won't use immediately. Second, carefully calculate your cash flow and focus on cash management. Third, keep an eye on the trends around you. Covid-related online services are gaining momentum; maybe you should introduce it to your business. 


You also need to stop buying big things and investing in different things. Should you buy a new car today? Ordinary people have already cut back on such purchases.


You said that during the election, a lot of money came in from the ‘shadow economy’. How big is the shadow economy?


If I'm not mistaken, there was a study done 10 years ago that showed the shadow economy accounts for 1/3 or 33-35 percent of the Mongolian economy. 


However, I think the size of the shadow economy is now 20 percent, probably due to the fact that things are a bit more organized and VAT is being refunded. 


The state budget deficit was approved at two trillion MNT, amended and reached four trillion MNT. My understanding is that this amount of money was spent on public investment for purely political purposes. The recent budget amendment is an example.


What about Mongolia's debt?


There’s a lot of noise about the debt issue. This noise is not a solution. It's just diverting people's attention. 


The key issue is the content and nature of the debt, and what it is used for. Being in debt means that your income and expenses are not equal. Say I live on a monthly income of 80 MNT and have living expenses of 100 MNT. There are ways to get out of this situation; sell what you have, ask your parents for money, or borrow 20 MNT from a friend. In this case, the main solution should be to increase revenue and reduce costs. This is an example of micro-level borrowing.


At the macro level, there is nothing wrong with borrowing. It is not wrong to take out a loan during a period of rapid economic development because as the economy grows, investors' monetary conditions become more favourable. When the economy is good, loans are good.


The question is whether the state is able to use loans properly. The burden of repaying the loan must be matched with state budget revenues and expenditure forecasts, which is directly related to our exports, imports and foreign trade. If the foreign trade balance is profitable, it means that it’s possible to repay any loan easily. This is a basic principle.


Second, there is the issue of credit sources. If you don't have financial resources at home, you are borrowing from abroad. 


Now, there are two concepts I’ll discuss: domestic savings and investment.


Say I want to invest 500 MNT in my economy. But my domestic savings are only 250 MNT. The difference of 250 tugrugs must be earned through a loan. 


So the question is, how do we increase our domestic savings? This should be a concern for Khurelbaatar, the Minister of Finance. There are several factors involved. 


First, labour productivity, which raises the issue of business efficiency. As productivity increases, so do revenue and efficiency indicators. Second, we must strengthen our financial markets. For example, if I'm not mistaken, there are 27, almost 28 trillion MNT savings in Mongolia today. That's a lot of money. There must be a mechanism to send this money where it is needed, which is the job of the state. That's the big picture.


Now, on the issue of investment. It looks like the government is going to the Bank of Mongolia for money. Now, the Bank of Mongolia can issue money if necessary; it should be clear that investing in certain sectors of the economy will generate returns, which will then increase our domestic savings. In this case, the Bank of Mongolia will provide funding. 


However, without such an investment policy, we should not encroach on the independence of the Bank of Mongolia through building a bridge here or erecting a monument there. If decision-makers can't invest that money, they shouldn't be fired. The threatening speeches of esteemed MPs and ministers addressing the Governor of the Bank of Mongolia can be seen in the media, and show that these people do not understand the institutional system.


You said that Mongolia is a country of young people. But just a few days ago, information was published that revealed almost 70 percent of the population receives some form of welfare. Personally, I was shocked. Why have we become a country with such a large welfare policy?


This issue has been around for a long time because populists use promises of food stamps and welfare to win elections. 


If I'm not mistaken, in 2003 and 2004, food stamps were issued for the most vulnerable. I was involved in initiating that law. Today, however, it has become a mechanism for achieving political goals. The issue of universal welfare is now more about politics and the current political system than economics. 


On the other hand, there are always vulnerable groups in society who need welfare. Elderly, infants, people with disabilities, etc. In addition, giving money to children is an investment in the future. When a child grows up healthy, educated, and becomes a highly productive worker, he or she can multiply returns on that investment. These are two reasons why welfare cannot be ruled out entirely.


So the key question is whether the care is going to the right person. There is no control mechanism. Welfare must reflect our situation, our mindset, our values, our perspective, and our values. 


On a related point, some liberals and neo-liberals do not support the green economy. It is said to be more expensive than the traditional economy.


There is a group of people who do not know about global warming and do not care about climate change. It's one thing to debate this topic at the academic level, and it's another to discuss it in the political arena. 


The cases that are being implemented as state policy are completely different. Green development has become an example of public policy in the European Union. China is on this path. Korea and Japan have already started. 


What will be the value of our lignite until 2060? Can we turn it into a chemical industry? By 2030 and 2040, we’ll have to save money on coal and move to completely new sectors of the economy. We should take all this into account and listen to our scientists.


There’s a lot of talk that it’s time to reform the pension fund and social insurance. What are your thoughts on that?


We need to increase our domestic savings and develop the financial system. The pension system is a key part of that effort.


People’s pension savings should be a source of long-term investment. There are young people who are talking about it, and maybe it should have been done 10 years ago, but today we have the opportunity. Therefore, this change must be made - and made with courage. 


I really don't know why we don't support this change. There may be a conflict of interest, but I don't really understand. Of course, there are risks involved in doing something new, and there is no denying that a certain amount of money will be lost. But if you are afraid and do nothing, you’ll never move forward.


There has been a long-standing debate over whether or not to establish a Chinese banking branch in Mongolia. China is Mongolia's largest trading partner. As an economist, I want to hear your position.


There are people who get paid to study this issue. The President, Prime Minister, National Security Council, Bank of Mongolia, members of Parliament, etc. They should be asked this question. These policymakers have a responsibility to study this issue; to look at the economy, finance, and banking markets, and to make decisions based on Mongolia’s political, geoeconomic, and geopolitical interests. 


Of course, economic and national security must be the core criteria. This means that we have to think of a large equation with many layers and many unknown terms. That's probably the way to solve the problem.


Before we bring in a Chinese bank, we need to be clear about what we want. For example, what do we mean by security? How do we define ‘dangerous’? If we can clarify these, the answer to the above questions will come easily. 


Mongolia's security and the interests of the Mongolian government are two very different things. In particular, the interests and security of the ruling party are different: there is a big difference between the security of high-ranking politicians and Mongolia's security. We first need to figure out who we are talking about and what kind of security we are talking about.


I can’t end our interview without asking the former Prime Minister of Mongolia and the founder of the Democratic Party about politics. I would like to hear your views on the Democratic Party's reform.


The DP is no different from other parties. Today, however, the DP is becoming more and more an opposition force, and the processes taking place within it are becoming more visible and more controversial. 


The MPP and the DP are exactly the same. The DP is suffering from defeat, while the MPP is suffering from victory. For the DP, it is time to reach a stage of development and open a new page. Personally, I see it as a matter of setting new goals, new leadership, new strategies, and implementing them in new ways. 


Frankly, I don't know how many people in Mongolia really understand the meaning of the word democracy. Is it a social democracy? Communism with a centralized ‘democratic’ government? There is conservative and liberal democracy.


So we must understand what democracy really is. Democracy, in the most classical sense, originally existed in the city of Athens. Over the course of history, kings, tyrants and dictators have appeared, and liberals and democrats have fought together to overthrow them. However, liberals and democrats then split up because of their interests; liberals emphasize more human freedom, while democracy emphasizes majority rule. 


So we need to understand how and in what form democracy is manifested in the 21st century, what it is in Mongolia, and what it is not.


The DP may have made a mistake. It has made very little investment in democracy. 


I’d first caveat this by saying that democracy is not the property of the DP or the work of the DP. In 1990, every citizen of Mongolia fought for democracy, hoping that the government would be honest, that there would be no corruption, and that there would be a mechanism to bring out honest people. However, as this went on, democracy was misunderstood as the property of several DP leaders.


Since 2000, the DP has done very little to strengthen, develop and protect democracy, and has invested very little in democracy. That was our biggest mistake. As a result, people still do not understand the nature of democracy. 


I often wonder what led to this mistake. At that time, we thought our citizens were highly educated. We've been recognized by the UN as we have made all our people 100 percent literate. Personally, I thought that these people were educated and could think about what was right and what was wrong, and then make wise decisions without the need to talk about democracy and explain its importance.


Looking back today, we didn’t have the right mindset. People often make decisions based on irrational emotions, and they tend to abandon their role in developing, educating, and fulfilling their civic responsibilities. That's why when politicians reach out to them, they follow them wholeheartedly. For politicians, however, this is merely a technical exercise on whether to buy votes with money, food vouchers, or promises.


This situation means we have to make a lot of educational investment. But this is 10-20 percent of the total work. The remaining 80-90 percent is just economic growth. I'm sure that democracy can only be achieved in real terms by growing the economy and dramatically improving people's living standards. 


All those who have no money for food, no place to live, no money to buy shoes, who run for office from one party and then sell their reputation, must be freed from economic dependence. Democracy will flourish when the economy is modernized, when people's wages are enough to solve their problems, and when they have an income that means they don’t have to worry about small things. In fact, the DP said these things during the recent election, but no one seemed to pay attention.

The full interview appeared in Mongolian on YouTube - https://www.youtube.com/watch?v=tt_t_ftVOJA - on November 10, 2020.


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