November 2009
Parliament is currently debating the guidelines for the economic and social development of the country in 2010. It was not so long ago when Mongolians saw how extravagant and non-productive economic expansion could lead to an implosion. Nonetheless, from what we hear about the discussions, the results of which will mould the budget, it is clear our members of Parliament have got over their gloom, got back their enthusiasm for spending, and want an “expansion” budget. That will give Mongolia the dubious distinction of being a country that has not learned its lesson from the crisis that debilitated its economic life.
The 2010 budget will almost certainly provide for payment of a share of the mining resources to all Mongolian citizens. Exactly a year ago, when the world financial crisis was at its peak, draft legislation about distribution of the Motherland Allowance was about to be submitted to Parliament. It was not done as the State coffers were empty and were sure to remain so for some more time, but now our political party leaders have resumed their vigorous push for the measure. This time the legislation has been drafted by the working group and subgroups formed in June this year.
Those who drafted the law want in effect the Mongolian Parliament to debate and adopt two different budgets every year. The first is the usual and mandatory State budget and the second an ad-hoc budget for the Motherland Wealth Fund. This threatens to enmesh the country’s financial and economic policy in countless contradictions and discrepancies. The proposed Fund will be made up of taxes and royalties that usually accrue to the State budget and, indeed, are a major part of State revenue. We are now told that most of the taxes paid by the holders of strategic deposit licenses will be allocated to the Motherland Wealth fund and then distributed among the populace as social welfare hand-outs.
As of now, the Fund looks towards the Oyu Tolgoi investors, but the one or ones to get the Tavan Tolgoi license will come next. More will follow and consequently the Fund will accumulate a considerable sum as capital. This will be used to pay for healthcare services, school fees, housing, pensions and health insurance, and also to pay cash allowances to each and every citizen. A monster welfare machine will be put in place.
The draft legislation reads, “Overall management of the fund will be carried out by the central state body in charge of finances.” This is the Finance Ministry, which will then have to manage both the State budget and the Motherland Wealth Fund. The Ministry is expected to set up a company, Bayan Mongol LLC, and either this or the Erdenes MGL LLC will manage the fund under the Ministry’s supervision. This is what I meant when I said at the beginning that Parliament will henceforth debate two budgets. But before that it will have more work on its hands, as it is asked to decide between these two companies.
The Finance Ministry will, through whichever company is chosen, have to allocate money from the Fund for healthcare and education, but at the same time make sure that these grants do not overlap or get mixed up with regular State budget funding for these sectors. The two sources will be complementary to each other but not compete for the same turf. And what will happen to the Social Security fund, if it is decided that pensions and health insurance also will be paid from the Motherland Wealth Fund? The general perception is being created among the population that everything, including health, education, housing, and insurances, will be paid for by the State. The gathering wave of the “total welfare” mentality will wash away the very concept of a special social policy for the poor. Now, the entire population will be waiting for the money in its various forms. One might wonder, who asked for this?
People desperately need jobs, long-term and low-interest investment credit, and they expect a friendly tax environment. They don’t demand free healthcare, but need high-quality medical services. They don’t expect education to be free, but they want better quality of general education and assert their right to attend world standard specialised institutions. Generally speaking, citizens need favorable market regulations to enable them to get all this. Nobody wants the devaluation that comes with State-sponsored universalisation. The people do not favor mediocre hospitals where they will wait in a queue. A free meal does not have to be a forced meal of instant noodles that the Motherland Wealth Fund promises or threatens to offer.
If a fund is what Mongolia needs, it should be a Stability Fund before we think of anything else. Didn’t we overcome the crisis mainly because we had the Mongolia Development Fund where money had poured in during the copper price hike days? At the end of February and the beginning of March this year the State had no money to pay salaries and pensions, and it was money from the Mongolia Development Fund that came to its rescue. The Fund also provided the resources to pay Anod Bank depositors the money they had saved, thus averting a collapse. But now, with copper prices rising again there is euphoria about the Motherland Wealth Fund and a hurry to quickly distribute everything we shall get from revenues.
Who’s asking for a free meal? What do the 2012 elections have to do with the people? Members of Parliament and the Government need these elections. The people, desiring a stable Mongolia where they can develop their potential to the full, need a commodity stability fund. Such funds have served other countries effectively. In Chile, where it is called the “copper fund”, the amount so far collected in it is USD19.3 billion, the most among all such funds. The money is kept in reserve for use only at times of some dire emergency. Norway also collects its revenues from oil and gas into a Stability Fund. We all have heard about Russia’s Stability Fund and how it saved the country from the economic crisis that hit Russia very badly in the last one year. Some believe Russia had to withdraw almost all the capital that was in the fund.
All these are classic examples of stability funds. The Mongolia Development Fund would not qualify as one, as it was meant to be and was also used for three purposes: social welfare, domestic investment, and the risk fund. Now is the time for us to establish a true stability fund, along with other special purpose funds such as an investment fund, and something that may be called the Next Generation fund. This latter is found in quite a few countries and takes care of pensions, healthcare and other social spending. This would be nearest to what the Mongolian members of Parliament would like their Motherland Wealth Fund to be. It goes without saying that almost every country has a development or investment fund to support its entrepreneurs. More business means more production and thus more prosperity for people in any country. Thus a development fund is of more importance to put the nation’s savings in than any welfare fund.
If Mongolia decides to put revenues from its strategic deposits into a Motherland Wealth Fund only to distribute them to the population over years, that will be the end of our dream of true national development. Instead of endless discussions on how to earn the gratitude of individuals by distributing among them their share of the country’s nonrenewable resources, we should show maturity and draft and adopt a law on setting up a stability fund. Our Government and Parliament refuse to see beyond the 2012 elections. The people of Mongolia do not need savings books with some money in them. They need good working conditions and money to run their business.