Russian President V.Putin will be visiting Mongolia in a few days. During his last visit in 2000, Mongolia had a huge debt to Russia. In 2003, when N.Enkhbayar served as Prime Minister (PM), the “Great debt” was annulled.
The following is an interview with MP and Finance Minister Ch.Ulaan, who worked as the Finance and Economic Minister in 2003, covering important aspects of the Great debt and upcoming state visit of President Putin to Mongolia.
You worked as the Minister of Finance when the Great debt to Russia was annulled. Now, you’re serving the same duty in the “new government for changes”. What do you think about the agreements and negotiations that annulled the Great Debt, and its value and significance?
The huge debt made during the previous government was completely repaid and that’s what we refer to as annulling the Great Debt. People are well-informed about only the negotiations and how the debt was repaid but two fundamental issues were resolved by repaying the debt. Firstly, we got to mutually understand principles at conference levels, starting from political conditions.
During President Putin’s visit in 2000, the Mongolian government discussed the Great Debt. Former PM N.Enkhbayar negotiated the mechanisms for settling convertible RUB debt between the two countries during his official visit from June 26 to July 2, 2003. This became a historically significant decision. Mongolian and Russian ministries did detailed estimations on evaluations, mechanisms through which to settle the debt, and ensured strict adherence to international standards to settle the debt, which was unsettled for many years, by relieving 95 percent of the total amount.
After the PM’s visit, the commission to coordinate and resolve the great debt issue, supervised by the Finance and Economy Minister, continued to work in association with Russian bodies and the debt discount was settled through negotiation methods.
What was the method?
The use of accurate methodologies established in international markets and ensure that Mongolian economy and financing condition doesn’t face difficulties was our main principle. We needed to make decisions by combining these two principles. The debt was relieved by a sufficient amount and the remaining balance needed to be paid off on the spot.
At the time, Mongolia didn’t have the capacity to pay 250 million USD on the spot. The issue couldn’t be resolved without creating that capacity. The issue was concluded after going through several stages and by using debt sale method from internationally developed practices.
Mongolia resolved the debt via intermediary and international markets that were recognized and approved by the people that can actually accept payments.
What was the method that was chosen?
There were several choices. Government gave trust deeds to PIT Company. The company was able to discount approximately 98 percent of the Great debt by intermediating between creditors and borrowers. Previously, political agreements specified principles to relieve the debt by up to 95 percent and have associated ministries manage and decide detailed calculations as well as rationale. By working according to these principles, 98 percent of the debt was discounted. This is a major negotiation between the two countries, which continued for six months.
The last stage for resolving the Great Debt was to make the transaction. Paying on time was very important. Mongolia needed to make the last two transactions from December 21 and 25, 2003. Building up that money source wasn’t easy. The Mongolian economy didn’t have that amount of savings at the time and the government approached Parliament to get support from the national exchange reserves.
The government also saved up money using its own opportunities and managed to reserve some 20 percent of the total payment. Erdenet industry got taxation down-payment with some agreements and the government acquired short-term loans from mining companies by signing rigid agreements. This way, Mongolia was able to completely repay its debt to Russia. This was a huge financial operation as well as a unique transaction which Mongolia had never done before. Mongolia doing transaction of 250 million USD was a huge event.
All three sides, associated banks, financing companies, and the government, approved and validated the repayment and the debt was annulled on December 25, 2003.
What were the risks of this repayment process?
Mongolia made a huge sum of transaction by using some of its exchange reserves and by getting short-term loans. The risk was losing the economic stability. Some newspapers and the media warned that Mongolia would lose its economic stability, the USD exchange rates would rise up to 3,000 MNT, and that it’ll become the destruction of the economy. However, the Mongolian economy and financial conditions didn’t encounter any amortization. That huge operation was successful thanks to the correct and accurate management of the government, the Ministry of Finance, and the Mongol Bank.
Later, sources notified that the Great Debt wasn’t completely repaid and there was a remaining balance of the Great Debt. The media was considerably chaotic. What’s the reason for this rumor?
There was a certain amount of loan issues in the collective fund rules with Mongolrostsvetmet LLC. That issue was cleared after a bilateral meeting. The Mongolian side managed to end all problems officially. The Russian side now has to discuss and approve it in their highest legislative body, Duma. This work still hasn’t been completed.
Why isn’t the Russian State Assembly discussing this issue?
A certain political force and politicians repeatedly refused to finalize and close the Great Debt nullification as they viewed it as unbeneficial to Russia. However, associated bodies of both countries completed all financial procedures. All that’s left is the political approval.
During the forthcoming Russian President Putin’s state visit, will the Mongolian side inquire about this matter?
Obviously, the government will focus on finalizing and determining cooperation matters that haven’t been resolved. This was acknowledged and both sides know exactly where the issues are. I’m anticipating the finalization process to hasten with the state visit.
The upcoming visit of Russian President Putin will become a major contribution for [state] principles. Especially in market conditions, relations and cooperation in current global conditions should draw closer and intensify in mutually beneficial terms.
Mongolia has two big neighbors. Trilateral cooperation activities have been approached and it’s progressing well. We’re expecting to cover and set foundations for major comprehensive and regional issues.
Chinese President Xi Jinping’s two-day state visit is over. As the Minister of Finance, what is your evaluation and assessment for its economic value?
I see President Xi Jinping’s state visit to Mongolia as fundamentally contributive. With the visit, all bilateral cooperation, mutual trust, and perspective cooperation principles, issues and topics were agreed upon and specified. The Chinese President Xi proposed four cooperation principles. Mongolia was able to create favorable conditions for future bilateral cooperation focused on developing Mongolia.
Several economic and finance issues were also determined. The two countries established a mutual understanding on some unclear, unresolved and problematic issues in the bilateral cooperation. Most importantly, China and Mongolia was able to freely share information at the highest level. The two countries established mutual understanding and trust, and advanced Mongolia-China relations.
From my perspectives as the Minister of Finance, several major issues for principles were covered. Particularly, cooperation between the two countries’ state banks and swap volume were enhanced. This is significant and supportive for providing assistance in the business sector as well as implementing major programs and projects for intensifying Mongolia’s economy.
China promised extreme amounts of grant aids which it never granted before. Grant aids are focused on implementing specific development priority measures. In other words, China will focus on development, while advancing together with its neighboring countries.
China is issuing a loan worth billions of USD with huge discounts to Mongolia. This discount will become a huge leverage for intensifying Mongolian economy. The loan should be used as efficiently as possible for the state financial and economic condition, without coercion. We have a loan, which was used this way before, which is giving off results.
At the moment, there is a caution that Mongolian debt may increase. Can you comment on this?
It seems that there are these sorts of cautions but the government has developed a financial mechanism that utilizes the loan, without turning it into debt, and has accumulated practical experience. The loan and aid should be used efficiently and used for economically beneficial projects. The project itself should function to repay the loan.
Mongolians are very concerned but there’s no need as it is possible to resolve the inadequate investment for development in the economy. Everyone is anticipating a similar level of new cooperation ideas and initiations to be made and implemented within the framework of the upcoming state visit of the Russian President to Mongolia. Mongolia is working actively in this area.
SOURCE: Ub Post