The sad fate of Mongolia these days makes me think of the late Mexican President Porfirio Díaz’s famously cited lamentation:
“Poor Mexico, so far from God and so close to the United States!”
Hit hard by the financial crisis due to the sharp decline in the price of copper, Mongolia’s main export, the country is now facing a new crisis – in the form of the zud – a disease which threatens to kill millions of animals in a country where livestock outnumber people by 16 to one. A dry summer followed by a harsh winter has compounded the deadly phenomenon, and the resulting toll on Mongolians is a bitter one.
Once again, the Mongolian drama shows that a permanent state of vulnerability hits the world’s poorest countries as a continuum of several interlinked crises. This vulnerability is not a natural inevitability, though. The swift liberalisation and privatisation of Mongolia’s once Soviet-style economy at the beginning of the 1990s led to a rapid decline of the country’s industry and the return of many of its citizens to their ancient herding activities. Moreover, a recent article in the Economist – which is not known for its Communist allegiances – reports that the post-Communist era also witnessed a “dismantling of large collectives, and herders now find themselves missing some of the underappreciated benefits of scale – not to mention access to technical and management expertise of the kind that helped sustain operations through harsh winters.”
However, the “new” IMF seems to have little mercy for the country’s misfortunes. According to forthcoming Eurodad research on IMF crisis loans for low-income countries to be published on 20th April, spending targets by the Mongolian government are already expected to be cut in 2010 since the economic recovery is expected to start. Public investment is programmed to decline, jeopardising prospects for long-term growth and development. In particular, capital investment is set to shrink from 10.4% of GDP in 2007 to 6.7% in 2010. The Memorandum of Economic Policies between Mongolia and the IMF released in February 2010 confirms the above: the IMF is requiring Mongolia to increase its level of international reserves by mid-2010; to decrease the government’s deficit; and is banning the government to contract any new nonconcessional external debt.
With regards to social protection spending, the IMF has also been putting pressure on Mongolia to reform its social welfare system. While this is being done on the grounds of making social spending more effective and enhancing pro-poor targeting, the reality of the reform agenda is that it will include a consolidation and reduction of the number of social welfare benefits, a discontinuation of selected social welfare benefits not essential for the poor (although it is difficult to imagine that the poor in Mongolia are being spoilt by an excess of unnecessary benefits), and a total amount of $81 million “savings” on welfare from 2008 to 2010.
These are very short-sighted savings for a country with more than one third of its population living under the poverty line and which desperately needs to undo what years of unfettered privatisation and liberalisation have done to dramatically increase the country’s vulnerabilities to external shocks.
Although I’m not quite sure what God could do for Mongolia, by now it is slightly clearer what the IMF is not willing to do.
SOURCE:
Mongolia: so far from God and so close to the IMF
Nuria Molina, 2010-04-07
http://www.eurodad.org/blog/index.aspx?id=4062&blogid=1758