TOKYO -- After its natural resource revenue fell in tandem with commodity prices, Mongolia was left with another hurdle between it and economic growth. The Nikkei Asian Review on Tuesday talked with Foreign Minister Lundeg Purevsuren about this and other issues during the 22nd International Conference on The Future of Asia, in Tokyo.
Q: Low commodity prices have hit Mongolia's economy. How will the country deal with this?
A: Because of the global commodity slowdown, suddenly Mongolia has a huge problem. Mongolians say there are two [types of] horses: one that can reach far, and one that can run fast. We need more horses, not only the mining sectors, but also other sectors.
To reach other markets, we must produce value-added or finished products. We have more than 60 million livestock from which we can develop food, textile and leather [industries]. We also have 1.5 million sq. km of land, which gives us possibilities to develop the agriculture sector and supply food to other markets.
Above all, I think our population, [a] young and well-educated population, will be most important for the future of the Mongolian economy. The government is heavily investing in people, in education sectors.
Q: How do you plan to attract more investments from overseas?
A: In the past, because of the high price of commodities, we made some mistakes. There were certain symptoms of "resource nationalism" in the country, and we changed our rules very often. We have learned that the most important things for investors are the sustainability and predictability of the government and investment environment.
We have learned our lessons. Now, investment conditions in Mongolia are quite good. Our corporate, income and social taxes are 10%, and import tax is only 5%, making Mongolia one of the lowest tax rate countries in the region.
I think more Japanese companies will discover this through our new economic partnership agreement. We hope very much that the partnership will bring technology transfers, investments and [training] ... to Mongolia. We hope that Mongolia can become a part of the supply chain for Japanese industries.
Q: Currently, 90% of Mongolia's exports go to China. How has China's slowdown impacted Mongolia?
A: Of course, China's slowdown heavily hit the Mongolian economy. There is an immediate need for us to diversify our trading partners. In November, we started the first round of trade negotiations with the Eurasian Economic Union. One year ago, we signed our first free trade agreement with Japan. With the U.S., we have signed the first part of a free trade agreement. We would like to increase our exports to the Russian market, too.
For landlocked countries like us, transit roads are very important. We have signed a bilateral agreement with China to use transit roads going through Chinese territory towards Chinese ports. We will enjoy certain discounts transporting goods across Chinese borders. We have clinched a similar [deal] with Russia. With the Japanese government, we very soon [expect to clinch an] airport project.
Q: The IMF has projected Mongolia's economic growth this year to be as low as 0.4%. What is your outlook?
A: I am much more positive. We have a good sense of the current economy. In the first quarter of this year, we increased our production. Some economies in the world, including our partners, are doing well. I am optimistic that Mongolia will see higher economic growth than what is projected. The only question is how soon we can recover.
Q: Mongolia has been talking up the Forum of Asia, a multilateral cooperation platform. Have you seen any progress?
A: It will be a long-term project. I think smaller countries need to sit together first, and later the bigger countries will join. We have already identified smaller countries to work for us as regional partners. In the midterm, we will work with sub-regional coordinators [from] about five or six countries. This will be the core group for the future. We are starting with think tanks and scholars. Step by step, we will work with the government.
We are closely looking at what happened in Europe after the second world war. At that time, there were enemies within the region. It took Europe 40 years to build a core mechanism, and this was started by smaller and neutral countries, like Finland and Sweden. I think in Asia, it could take even longer.
Q: Anti-China sentiment remains within Mongolia. Some have expressed concerns over how increased economic ties with China could threaten Mongolia's sovereignty. Do you think this is a valid concern?
A: I think such talk has absolutely no grounds. China has officially recognized our sovereignty, and Chinese leaders have expressed that they will honor all existing agreements. We have agreements, treaties, and friendship with the good neighbor that are working very well.
On the other hand, China is a very big power, and its economic influence is huge. Mongolia is an open society, where everyone can raise questions and publish their own opinions. The two countries have had issues in the past, and historically, there were times when we had mistrust. But we have managed them. You can hear some voices, but it is only a sign of a free society. We are talking about this to the Chinese very openly -- why such sentiments are there in Mongolia and how we can increase our trust and cooperation.
Interviewed by Nikkei staff writer Tomomi Kikuchi