A. Munkhbold: Our product supply methods have gone back to ancient times

Although Mongolia’s economy seems to be growing very quickly, there is a perception among many that its benefits are not reaching the public. The following interview with the President of the Logistics Union of Mongolia, A. Munkhbold, discusses this issue. Translated from Udriin Shuudan newspaper.

-The economy of Mongolia is growing rapidly. But the public seems convinced that this is not solid growth; it cannot be felt in everyday life. In your opinion, is Mongolia’s economy going in the right direction?

-Mongolia began to transition towards a free market economy in the year 1990. During the transition Mongolia lost the most important part of its structure: logistics infrastructure. In other words, Mongolia’s product flow system was entirely privatized. This proved to be a very serious problem in the following years of Mongolia’s development. We are now establishing an Agricultural Exchange, for the the second time. One was established in 1990 but was unsuccessful; it nevertheless became part of commercial society. It has been 22 years since then and it is still unclear whether we have made a complete transition to a market economy. This is because a country needs core infrastructure for its products and services to reach the people evenly. If we don’t have such a system there is no use in trying to grow the economy.

Other countries with the same history of economic development as Mongolia, such as Czechoslovakia, Hungary and Slovakia have made the transition to the free market correctly. Comparing Mongolia to these countries, we can see that the transition by the Mongolian government was rather quick, but its economic transition was not as successful. The reason for this difference is that the other countries were able to preserve their logistics infrastructure systems. But Mongolians failed to take this important aspect of the previous economy with them when they adopted a commercial economic system.

-Didn’t they make a lot of privatizations during their transitions, just like us?

-Yes. But they were successful in that the privatizations took place while preserving the aims and goals that they were intended for. In other words, they were cautious when making privatizations as they kept the duties the same. That is how they were able to preserve their logistics infrastructure.
After the transition, they were able to stand on their feet very quickly because they had the entire core infrastructure they needed.

-Do you mean that our economy has been negatively affected because we made our transition incorrectly and lost our logistics infrastructure in the process?

-In short, yes.

-How do the eastern-European countries organize their logistics infrastructure?

-Logistics infrastructure should be organized and set in a way that can protect and ensure the rights of consumers. The previously-mentioned countries were able to hold on to this idea. Those countries have correctly managed the pricing, quality and delivery times of products and services. Also, they did not leave their countries’ monetary policies behind.

-Do we have a chance to revive our logistics infrastructures?

-Looking at today’s situation, Mongolia’s logistics infrastructure is a supply system centred solely on Erenhot. A system exactly like this one existed in Mongolia when the nation was under Manchu rule. It means we have gone back to the system of the past. So right now we are looking for ways to get out of this situation. Now, before I spoke about economic theories, I would have to think about how to correctly organize the most important infrastructure in Mongolia today – logistics.

Foreign inflation is affecting Mongolia through imports, and it is clear that the world’s economic recession will affect Mongolia. But every economic recession presents an opportunity. In other words, we need to change our current strategy, which is focused on delivering supplies and instead aggressively develop our logistics. After that, the essential factors for a very good life will be created in Mongolia.

There are also many other problems to solve. Previous governments are more commonly criticized than praised, but they did not always make mistakes and do the wrong thing. In my opinion, I would not say that the previous government made bad decisions. Some great benefits have come from their decisions. For example, a complete plan was developed for Mongolia’s economic development (up to the year 2021). I was part of the working committee that worked on this plan. This strategy was conceived on the initiative of N. Enkhbayar and developed by many researchers. Thus, I would like to say that it would be a good idea to make this kind of study a tradition and ask the current government to listen to the researchers and professors before making their decisions. Mongolia should further improve its national development strategies.

Mongolia’s development will be even foggier if we leave behind the already developed strategies and keep bringing up new ones. I will not say that this development strategy we prepared is perfect, but it shows where Mongolia is headed. There is no use in copying the strategies of foreign countries. It is more important to have a national plan for ourselves.
I’d also like to say that the law on prices should be approved and set in motion for the improvement and development of logistics.

-What economic changes might be expected if the law on prices is approved?

-Firstly, the producers will determine what steps need to be taken to sell their products, who will benefit and by what amount. By doing this, we will have a system that will protect our people from inflation.
Secondly, we still need the commerce law. This law is required no matter what. For example, with the customs law, they are blindly enforcing inflation. Looking at the customs law and its accompanying laws, taxes on importation and customs are calculated in six different ways. In all of these methods, the price of transportation is added to all the services and products. But the closest trade seaport is 1,700 kilometres away so this is impacting negatively on consumers. In other words, all the services and products we Mongolians use today include transportation and logistics costs of around 30 percent. So for now we need to reduce this cost. To do so, we need to deduct transportation costs from taxes and instead add a little more customs tax. If we do that, we will be able to import and use higher quality products from countries such as the US and Japan. With today’s tax methods we can only use products from China. Why can’t Mongolians use better quality products at a fair price?

-In Mongolia the same products have different prices depending on the part of the country. Is this because of the lack of logistics?

-All product flow is distributed from UB. So if we revive our old logistics and slowly turn them into commercial logistics, this problem will easily be solved. Currently, the 92 octane fuel in UB is being sold at the price of 1,570 per litre but in Dornod Province it is being sold at 1,820 per litre. This is wrong. This only happens in Mongolia. In other countries the same product is sold at the same price anywhere in the country. This shows that their logistics systems are positively affecting their economies. This also shows that the laws on prices and the accompanying strategies are in full effect in those countries. In the US, they have laws on prices and retail products. A rare sort of rogue capitalism is happening in Mongolia. Thus we need to make huge changes to the core strategies of our economy.
The second largest factor negatively affecting Mongolia’s economy is our monetary policy. We have been going in the wrong direction for 22 years. Due to this, Mongolians are living by taking on huge loans and mortgages.

-Is increasing monetary policy a good way to fight inflation?

-People tend to think that we run monetary policy to fight inflation. It is a question of whether the egg or chicken came first. Firstly, we need to dispose of the mechanical growth system of commercial banks, which increases note values. Commercial banks need to stop providing the same service that pawn shops provide. To do so, they need competition. In other words, we need to open the doors to foreign banks. The domestic commercial banks need to compete with them and in the process learn more about them. The more defensive and safe strategies we run, the more spoiled we become. That is what’s happening to domestic commercial banks. Now it is time for them to use their brains and learn more.

Thus, we need to have a competitive market. Mongolia does not have CitiBank. If we give CitiBank an opportunity to enter the Mongolian economy, Mongolia’s commercial banks will have no choice but to compete. Thus the pawn shop business will become more like a service that supports businesses.
The largest part of economy is business. If we don’t support this, the country will not develop further. Mongolia’s current situation is that larger businessmen are going out to get loans from foreign countries. SMEs are under heavy pressure due to their domestic loans, which have an interest rate of 20 percent. This is cutting off the opportunity for people to start businesses.

-What should be the government’s view and involvement in supporting businesses?

-In a business environment, money and information are very important. Also, the supply flow and distribution of raw materials should be effective. Once these requirements are met, the business environment will inevitably improve. But today, information in Mongolia is not open, it is closed. The government should supply businesses with useful and correct information.
Secondly, the Mongolian government has become the National Chamber of Commerce and Industry. This is because every businessman began turning into the government. This shows that Mongolia is heading in the wrong direction. If these problems are solved, it will be easier to improve the business environment.

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