Was Mongolia infected with Dutch disease?

Was Mongolia infected with Dutch disease?

            Have appeared some symptoms of Dutch disease which with already have infected Mongolian economics. In addition to we should take account into commenced troubles which similarly to a crisis incurred since early 2008 & consequences of which disappeared. Indeed global economic crisis, which pulled all social-economics fields, that is proceeding in uncertain form still now & the chaos factors dominate to giving an economics decisions. Waiting for overheating & bubble growth of economics based as on the export of one & two raw materials as: coal & copper to burst, in the other side country holds election’s promising prospects for 4 years frequency in future. Economics bubble growth at 20 & 26% per annum fueled by foreign investment inflows are stimulating chaos & financial risks in economics management. The GDP growth reached 20.8% in 3^rd quarter of 2011. Herein the fiscal balance should be connected with material resources properly, otherwise if the prices of mineral resources as coal & copper drop these would be faced difficulties in huge budgetary expenditure & meet cash handouts promises. Despite the promise oriented overheated economics growth citizens livelihoods have not stepped forward & the poverty rate was up if compare to 1990, some promises on social security remained only on papers. Somebody says that politicians are producing by of regular election inflation on cash handouts promises. The prices of copper fluctuates under global economic outlook, financial uncertainty climate, namely copper demand in China, which accounts for about 40% of global copper demand are affecting the economical stability of our country. Indeed some researchers concern that if the European debt crisis would move to Asia, what we should do because of our economy is quite vulnerable as it depends on exports & imports of neighboring both countries. Here are cited few examples belong to boost in mining exploitation & its huge export which creates economic conditions hurting all other manufacturing sectors & these would be led to Dutch disease, & its economical property have  been  appeared: (1). Continuously raising deficit of consolidated budget expected as for 2012 is 483,7 billion MNT or -3.0% of GDP, (2). Uncontrollable growth of external debt & credit, which nearly has totaled US $ 9,0 billion or its percentage amounts 78.1% of planned GDP for 2012, (3). Official data source shows more than 30% of the population lives on less than US $1.25 a day. It conforms via researcher’s survey in which by 40% of population or 2,754,600*0.4 = 1,101,840 people live on poverty. If compute daily income per capita of households the given indicator amounts US $3.21 in other words that only just higher than in poor African countries, namely Congo & Niger etc. News paper’s review expresses approximately 130,000 poverty households or 130,000:720,000*100=18.1% of total household lives without a means/course of livelihood instead of 21,000MNT, which grants from Human development fund, & its activities will terminate on June, 2012. (4). The foreign investment inflow[1] has tremendously been increasing & as if of 3^rd quarter of 2011 since 1990 cumulative volume of foreign direct investment registered in Mongolia has reached 5,8 billion US $. Have been revised current account deficit forecast of Mongolia in 2011 to 28.6% of GDP, from 17.3% previously, with the deficit coming in at 27.8% in 2012[2]. The investment in mining sector increases too fast making real economic an overheating, & particularly spreading Dutch disease, which bridles developments in other non- mining industries. (5). Obviously has rose foreign trade turnover, if refer to that external trade balance[3] showed a deficit of 1,563,7 million US $ in the first 10 months of 2011, increased by 1,305,7 million US $ or 6.1 times compared to the same period of the previous year. Also total external trade turnover increased by 4,331.2 million US $ or 90.0% compared to the same period of the 2010, of which imports up by 2,818,4 million  US $ or 2.1 times, and exports up by 1,512,7 million US $ or 66.5%. Here should emphasize that above mentioned deficit mainly was generated due to the increase of heavy machinery, equipment, transport vehicles, electric appliances & their technical spare parts etc.                                                                                                                                           Table2

Periods	Total turnover, million US $	Exports	Imports	Balance
2000	1,150,3	535,8	614,5	-78,7
2005	2,241,2	1,063,9	1,177,3	-113,4
2010	6,108,6	2,908,5	3,200,1	-291,6
2011.01.X	9,141,0	3,788,6	5,352,4	-1,563,7

(6). Continuously weakens exchange rate of MNT against US dollar & its exchange rate shows 1,426 MNT= US $1(as of 6^th January, 2011), in fact it’s the same coefficient as of period of great recession started since 2008-2009. By the way Mongol bank (The State Bank) couldn’t cope with managing of rational means on bridling inflation boast & making of which understandable interpretation publicly so far, though it has professional, analytical department that responsible for steering of money policy & therefore foreign currency resources in its disposal have exceeded US $ 3,0 billion. By the way ordinary researchers, tutors, & practical staffs of accounting ask whatever methodological materials from authorities of higher organs of power, who has privilege opportunities to hearing  new ideas & innovations in the field of economics, finance, & accounting by taking parts in as overseas as well as domestic workshops, discussions, courses & conferences etc. (7). Haven’t yet appeared perceptible positive steps in development of South Gobi area with vast mineral resources & in means/course of livelihood for local area residents, where have started huge construction by Ivanhoe Mines a long period ago, which possess a 66% stake in project. However authorities of Ivanhoe Mines has informed that construction at its Oyu Tolgoi copper & gold project will be 70% complete by the end of 2011, but which hasn’t yet started construction of a power plant & it has requested a permission to import energy from China, that suffers energy deficiency at an equal pace as for South Gobi area. Meanwhile the reputation of foreign investment mining companies is so lower among local area residents owing to the investors prefer only communicating with higher authorities of power, excavating more earth by all means & exporting natural resources as quickly as possible priory to build proper infrastructure as: electric power base, motor road, railway, dwelling housing, school, rural hospital, kindergarten etc, which seriously affects a deterioration of livestock pastures, increasing a soil erosion, air dust, shortening livelihood sources for cattle-breeders & growing poverty index etc.

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[1] www. investmongolia.com

[2] www.marketresearch.com

[3] The UB post, edition 103(948), November 25,2011, In association with frontier securities

Are you ready to coming economics crisis?

Are you ready to coming economics crisis?

         We are receiving very updated & abundant information by watching TV & traveling through internet. Herein majority of people used to hear such news without any reactions, sometimes authorities hide relative information, statistical data, summaries from their consumers, also they purposely manipulate which in accordance with own interests. Recall huge economic crisis commenced since the end 2008. Indeed many international monetarily & financial organizations, also independent researchers had been warned beforehand leaders of banking, financial & infrastructure organizations about probably crisis. Actually its consequences continuous until now, everywhere possible to see uncompleted many dwelling building, disputes between liquidated commercial banks & their depositors about caused losses, an employee’s unpaid social insurances by entities covered with act of tax remit, losses of compensation caused by savings & credit cooperatives for their clients. Economics relative & steady development of China & its market-oriented economy with rational state regulation positively has effected on weakening of crisis shock in neighboring countries. The copper-molybdenum ore concentration combination “Erdenet” has played key role in buffering of crisis chock, as which has produced more than 40% of export for that time as 10^th biggest producer with estimated reserves & exploitations.   By credit rating of the report on 29 November, 2011of Standard & Poor's Mongolia has foreign rate BB with stable outlook & the country has included into 10 countries in order of economic freedoms as with most favored status for foreign investors.  But however a number of poor & low income people rises continuously, wasn’t gave designed effects a lot of projects carried out by government & international organizations, which resulted increasing of poverty level to 40% of total population & amounts 2,754,7*0.4=1,101,9 thousand persons. Herein by 60% of this data comprises of rural population owing to natural disaster resulting from excessive snow, drought, desertification, rising of no renewed mining sites, & shortage of grassland pastures for livestock.  The State bank couldn’t control foreign exchange rate, though which has sufficient resources of convertible currencies. Statistical average foreign exchange rate was 1,350MNT/US $1  last year, but it obviously has been fluctuated, in the first quarter, 2011, MNT/US$ toughen up to 1,290 than situation gradually worsened at the early of 2012, MNT/US$ has reached 1,450-1,480. The border price continuously changes under as: price behavior of raw oil at world market & economics stabilization of country, which supplied a fuel. As for Mongolia imports by 90% of fuel supply, & the border price of which continuously changes, besides domestic market of many kind of consumes directly depends on China. The country imports all construction materials except sand, pit gravel, appreciable quantity of cement & ferrous-concrete reinforcement. Indeed our market couldn’t withstand the trouble situation if close the border with conterminous both states for rather long term. Now the domestic market provides as for wheat & potatoes needs at 100%, & for potherbs by 62.8%. The necessity of growing of reserve meat for urban dwellers rises. Representatives of some fuel suppliers state that the structure of fuel border wholesale price in US $ as following: by 86%-the border cost, 9%-an excuse tax, & only 5%-the retained income in disposal for company respectively. The computation table of the structure of retail price for 1 liter petrol of AИ-92 at domestic market in MNT

The border cost in US $	Exchange rate, MNT/US$	An excuse tax	The retained income, needed in portable operations for fuel supplier-company	The retail price for 1 liter petrol of AИ-92 at domestic market in MNT
≈US $1.136	≈ 1.136*1,400=1,591	166.5MNT	92.5MNT	1,850MNT
86%	1,400/1	9%	≈ 5%	100%

Also fuel retail price in local provinces consists of several additional components as of fuel border price in US $, holding & ordering expenses of fuel & plus transportation expenses etc.                                                                                     

           After writing off enormous external debt accumulated in the time of socialism again has rose hard currency debt burden rapidly. If refer to press review the total external debt & credit in arrears amounts by US $ 9,0 billion. It means that the external debt & credit in arrears per capita of population accounted US $3,267, herein should recall that the total external debt stocks reported US $ 2,444,1 million in 2010, according to a World Bank report released in 2011. Meanwhile should compare above cited data with an annual family income amounted by US $4,400 from all sources as of November, 2011. By 70% of total external debt & credit or 9,0*0.7 = US $ 6,3 billion applies to legal entities & individuals, they mainly have put up licenses of natural resources as collateral for borrowing a loan from abroad. Recommendable take proper account into growth of external debt & credit, which is giving by independent researchers. The percentage of external debt & credit applied to GDP roughly calculates as following: 9,0:(16,133,500,0:1,400)11,527 ≈ 0.781 or 78.1% of planned GDP for 2012. The increasing external debt & credit burden would be became preliminary negative cause for probable economical stagnation in the future.

        Obviously the chaos play a definite role in economics management, in otherwise owners of trading & manufacturing companies prefer following homo economics doctrine of Adam Smith, who used the term “the invisible hand”, they ignore proper control on retail price as of fuel other goods necessity as from state, public institutions & trade union. Besides they advocate equilibrium concept supply & demand as joint determinations of price & quantity in market equilibrium, which effects an allocation of output & the distribution of income. In proportion as raising border fuel price generates uncontrolled inflationary boom at domestic market. Funny, in return dropping of fuel price doesn’t affect on slowing down of inflation. Exhausted & impoverished public, activists of trade unions, & also government authorities hold Keynesian-ism which advocates a mixed economy-predominantly private sector, but with a government’s moderate role & private owned entity’s participation. Tight monetary policy conducting by State bank positively effects on weakening consequences of global financial crisis incurred since 2008, in which Keynesian thought caused resurgence in economic animations. But should emphasize the government agencies unable to affect on dropping of fuel retail prices set by suppliers administratively. Also consumers the same as government couldn’t disrupt private owned gasoline station’s services because of in state disposal haven’t got sufficient oil reserves. The sample review shows gasoline stations hold permanently fuel reserves which would be met 15 day’s demands for consumers.

            Although the leaders engage activities in market-oriented economy but they hold tightly with utopia socialistic thought, also they don’t get free from priory election’s empty promise about distribution of cash money among citizen still. Priory election’s money promise effect both the inflation of consumer prices & the spreading a spoon-fed way of life for people. Decision makers custom to include public financing into state budget up to 3,0 billion MNT or by US $ 2,1 million, its amount  has been rose over last 3 elections period from 0,5 million MNT to 3,0 billion MNT or rose 6 times.                                          Precursory symptom of upcoming economic crisis is appearing in some occasions. Mongolia has foreign trade relationship with 127 countries, & foreign trade turnover totaled US $ 11,307,2 million previously, but its sharply deficit  increased 6 times & amounted US $ 1,746,6 in 2011 as compared with previous year.  Foreign trade deficit amounted US $ 96,6 as of January, 2012, which has rose more 45% compared to a given period of previous year. The pr-election promise of money distribution of 1,500,000MNT per everyone or around US $ 1,077.4 expressed in joint government’s platform is causing troubles to state budget for 2012, its total amount is 1,500,000*2,754,685 = 4,132,0 billion MNT or 1,077.4*2,754,685 = US $ 2,967,897,6 thousand as referred to  population census’s results of 2011. Meanwhile 500,000MNT of that promise are granting from Human Development Fund in the form of 21,000MNT every month. Also the government has decided to grant to everyone 1,000 common shares for Erdenes-Tavan molgoi LLC at nominal price of 1000MNT within February 1^st, 2012. Herein should be remember, the consolidated budget of Mongolia for 2012 has adopted in total revenue 5,825,6 billion MNT, if consider here are 1,400MNT/US $1. The  government suggests both versions as distributions  of shares & as well as granting cash, but however people, who lives at poor & lower standard of life probably would be requested cash or 1,077.4*2,754,685*0.4 = US $1,187,159,0 thousand. In addition civil society organizations has commenced street demonstrations in leadership of trade union’s activities, who requires a realization of pre-election promise on money distribution comparatively earlier, probably which has connected with upcoming next Parliament election. Meanwhile obviously were increased number of social security-oriented decisions adopted by authorities of higher organs of power, namely shall grant a scholarship for every student at higher education establishment, which would be made do with 70,200*10*151,000 = 106,002,000,000MNT & plus a stimulus for academic achievement & incentive at 106,002,000,000*0.25 = 26,500,500,000MNT in accordance with pre-election promises at budget expenses since January 1^st, 2012. By the way students & tutors of school of economics at Mongolian National University have made a speech on declining to accept above cited decisions & came out in favor of a proposal with investing that money to development & construction measurements. In addition has started a discussion on drafts of state allowance to mothers of many children & rising a wages for state servants. The consumer spending is raising faster than an accumulation in productive investment, this situation affects on external debt & credit burden of Mongolia negatively. For instance has been inventoried more than 350,000 motor vehicles over the country & by 60% of which counted in capital city, however 80,000 motor vehicles imports every year. Here the people prefer buying any expensive car , sometimes a second hand car instead of engaging personal business which shall render numbers of operation’s positions.

     Although innumerable projects are carrying out by initiatives of foreign organizations but they haven’t achieved real results, particularly the measurements on poverty reduction, which was continued by 20 years, since 1990. The reputation of foreign investment mining companies is lower among local dwellers owing to the investors prefer excavating more earth by all means & exporting natural resources as quickly as possible priory to build proper infrastructure as: electric power base, motor road, railway, dwelling housing, school, rural hospital, kindergarten etc, which seriously grows hard currency outflow & affects a deficit of foreign trade balance. The local citizens anxious about soil erosion, dryness, shortage of livestock pastures, & a morality disregards from side of foreign investors. Some experts speak one’s mind & warn about probable coming Dutch disease of natural resource exploitations, which incurred in African countries, herein scholars suggest & Keynesian-ism & advocate a teaching of economics development based on knowledge in the future. At present an increase in huge exploitation of natural resources by mining industry is making the manufacturing sector less competitive & influences a weakening national currency compared to others.