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 fuelled by foreign investment inflows are stimulating chaos & financial risks in economics management. The GDP growth reached 20.8% in 3rd 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 DNP, (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 3rd 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

(6). Continuously weakens exchange rate of NMT against US dollar & its exchange rate shows 1,426 MNT= US $1(as of 6th 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.

[1] www.investmongolia.com

[2] www.marketresearch.com

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