By B.BYAMBADORJ

Translation of an interview with D. Delgersaikhan, Director of the International Department at the Bank of Mongolia. “Udriin Sonin” newspaper.

The Bank of Mongolia (BOM) announced that the gas price increase was not related to the exchange rate, however fuel importers have not reduced the price of fuel.
There are numerous additional charges to an imported product: its initial price, importation tax, the exchange rate, transportation cost and the importer’s profit.
The Agency for Fair Competition and Consumers has made conducted research on the matter and concluded that the increased exchange rate is not related to fuel price increase. Even if the exchange rate of MNT increases, the price of fuel probably will not decrease much.
Currently, the Government is planning to create a stockpile of oil and build new fuel storage. They are also researching whether it's viable to introduce a high tax on fuel in special circumstances.

Would you say that fuel importers have less access to information on currency and exchange rates?
I would disagree. There are thousands of young, educated people working in private sectors who aren't as proactive about reducing exchange rate risks.
As for BOM, we have been conducting seminars and workshops on how to reduce exchange rate risks. One of them was organised last Monday, it was the fourth training session held for fuel importers on how to reduce exchange rate risks.
What is the reason for MNT’s decreased exchange rate?
Let us look at the past 2 years. In 2010, our economy recovered quickly, gaining trust from investors, and a lot of currency was circulating in Mongolia. Additionally, mining operations were in their initial stages, and the public demand for US Dollars was low. This caused MNT’s rate to increase by 13 percent.
In 2011, the economy had grown by 17 percent; mining operations were under heavy development and the demand for USD increased rapidly, both from public and the Government.
Although the USD input was the same, its output had increased; causing an 11 percent drop in MNT rate. In other words, the rate depends on the way we spend our income. The world economy is fragile, and it is not wise to have too much budget loss; it will create macroeconomic instability.
We have sent numerous requests to the State Great Khural to reduce budget loss, but they are still giving out cash. I would like to point out that when the BOM warns the Government about possible risks, they sit back and stay silent as if they do not care about it.
But when the forewarned risk becomes a reality and economic damages are inflicted, they begin looking for people to put the blame on, as usual.
Is the BOM taking actions towards dealing with drop in exchange rate?
Of course, firstly, we have a strategy that the MNT’s exchange rate should be set in a flexible manner according to supply and demand; and if the difference between supply and demand is too great or if there is an extreme instability in exchange rate due to sudden change in delay, we are always ready to intervene.
That said, we only intervene if there is an unexpected sudden fluctuation in the exchange rate. In the past 3 months, we have placed USD 300 million into circulation to ease the fluctuation.
The increase in the USD exchange rate had upset the public. Is there any way to decrease it?
Attempting to keep the exchange rate constant or forcing it either way can only end badly; we even have bad past experiences with it. If you remember, in 2008 we tried to utilise this very strategy and ended up decreasing the MNT exchange rate by 34 percent.
It was said that the BOM received a request from the National Committee on Social Welfare and Labor to bring the exchange rate of MNT back to what it was three months ago. Have you accepted this request?
As an economist, I would say that it is not possible to accept this request. It would severely damage our economy.
Firstly, investors will lose trust in us and our economy will be a lot more fragile if we begin forcing the exchange rate.
Secondly, we do not have the necessary currency reservoir to implement this strategy, and thirdly it will merge with external and internal risks that will lead to an economic recession, just like we experienced in 2009.