"BCM Mongolia Newswire: A Good Law, The Right Way, But Challenges Ahead"

Business:    Oyun sees no need to change “good” Minerals Law; All eyes on what Parliament does; Gatsuurt agreement a priority, say officials; Uranium policy soon; Petrol companies urge businesses to lower prices; BCM listed in international directory. 

Economy: Fiscal tightening imperative, says World Bank; Mongolia no cause for worry, feels rating agency; Warning against exporting labor; Central Bank lowers reserve ratio; Plans for industries in provinces; US dollar stronger; External trade turnover rises, along with deficit; 70% Mongolians are of working age; Economic growth to reach 9.8 percent, inflation falls to 27.9 percent; Government injects speed into apartment building program; Credit policy hits smaller housing companies; Minister seeks Russian investment; New NGO to help develop stock market. 

Politics:     Putin to be in Erdenet on November 26; 43%, up from 30% in May, think MPRP is going the right way; Mongolia to have atomic power plant by 2021; How sensitive is the windfall tax to copper prices?; Jail for 213 July 1 accused; Proposed law offers incentives for voter turnout; Mongolia uses her geography well; Mongolia slips in press freedom index; Critical shortage of pure water feared; Distracting billboards to go.

OYUN SEES NO NEED TO CHANGE “GOOD” MINERALS LAW

“We have lost our golden chance and now must make sure the silver or the bronze does not elude us,” said Ms. S. Oyun, a mining professional and a former foreign minister, who is now a member of the MPs’ group entrusted with drafting amendments to the 2006 Minerals Law. Talking to media she recently said the law as it stands “is good” and she saw no reason to change it in any way.

Refusing to speculate what the group’s final recommendations would be, she said its members were seriously assessing the implications of the Government owning 51% of strategic deposits. They understand that the financial responsibility would be huge and could be difficult to fulfill. At current estimates, half the share of developing Oyu Tolgoi would be around USD2.5 billion, equivalent to the annual budget of Mongolia. They are not sure if the Government should dare take the risk, or if it should leave ownership and development costs to the private sector and just tax them on their profits. Considering that no business venture can guarantee regular high profits, she wondered if it also would be prudent to put the taxpayers’ money into such uncertainty.

In any case, she said, a government did not have to insist on majority shareholding to exercise control over a project.  The terms of any investment agreement could give it sufficient leeway to monitor progress and enforce its wishes. Ms. Oyun was clear that the windfall profits tax is counterproductive and should be scrapped. It may bring some money in the short run, but it stifles long-term exploration and investment.

Calling product sharing “not the perfect alternative”, Ms. Oyun said every deposit has its own features and demands different methods of exploration and excavation. “It is sensible to make separate agreements for, say, Asgat and Tavan Tolgoi.” 

43%, UP FROM 30% IN MAY, THINK MPRP IS GOING THE RIGHT WAY

The latest political barometer survey by the Sant Maral Foundation finds that nationwide 34.8% Mongolians are satisfied with the last Parliamentary elections while 57.4% are not. Just about half or 50.1% think the elections were a fraud. Asked if the MPRP is headed in the right or wrong direction, 43% said “right” and 22.8%, “wrong”. This is a substantial improvement from May when 30.4% said “right” and 29.6% said “wrong”.  In the case of the DP 38.3% said “right” and 21.8% “wrong”, an improvement compared to May when 33.0% said “right” and 23.2% said “wrong”.

Nationwide 16.8% said they were very satisfied with the Government, while 11.8% were totally unsatisfied. Asked which party they would vote for if elections to Parliament were held tomorrow, 23.7% nationwide chose the MPRP and 20.6% the DP. The respective figures in the countryside were 26.3% and 23.8%, while in Ulaanbaatar they were 19.8% and 15.8%.

      Asked to rate the biggest problems in the country unemployment was the choice of 22.5% of respondents, while 22.1% thought it was the standard of living and 21.9% inflation. Only 5.3% considered corruption to be among the major problems.

The representative sample of 1,200 respondents from the capital city and Uvs, Bayankhongor, Uvurhangay, Dornod and Selenge provinces was collected from October 24 to November 7, 2008. The survey is sponsored by the Konrad Adenauer Foundation of Germany and has been taken regularly since 1995.

For the full findings of the survey that asked 59 questions visit BCM website, Articles/Reports on Mongolia. 

FISCAL TIGHTENING IMPERATIVE, SAYS WORLD BANK

The World Bank’s recently released Mongolia Quarterly provides an update on recent economic and social developments and policies in the country. The Bank feels that the implications of the world financial crisis, falling copper prices, and likely lower FDI -- a larger current account deficit, much lower government revenues, and continued large investment needs -- will pose significant policy challenges for the Government to maintain growth while lowering inflation. Fiscal tightening is imperative. There should be no further increase in public wages or in universal cash transfer. A prioritized investment program limited to what the economy can absorb has to be adopted and adhered to. Fiscal space should be kept for a targeted social safety net to protect the most vulnerable sections of society. The Bank acknowledges that reducing inflation is always painful, but the slower the authorities react, the more protracted the process is, with deeper impact on economic activity, employment and poverty.

The main engines of growth in the second quarter of 2008 were services and agriculture, contributing 4.2 and 3.8 percentage points respectively to GDP growth. By contrast, as of July, real gross industrial output increased by only 2.3 percent year-on-year (yoy), with mining production even recording a decline of 1.9 percent in real terms. Despite sustained export growth, the trade deficit widened sharply due to a rapid expansion of imports. Inflation accelerated further over the summer, up to 34.2 percent yoy as of August, but started declining in September down to 31.2 percent yoy, with the drivers shifting from food to non-food items. The inflation is to a large extent domestically induced, as local prices of imported goods have increased faster than their international prices.

The combination of a relatively rigid exchange rate and increasing commercial access by domestic banks to foreign financial markets has undermined the effectiveness of monetary policy as an instrument to manage inflation. Key indicators of the soundness of the financial system appear stable, but close supervision may be required given the fast growth of credit, high inflation and the likely slowdown of economic activity due to the fall of copper prices and the world economic slowdown.

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