Just like the herders, we must prepare ourselves for hard times

February 1, 2010

Arshad Sayed, Rogier van den Brink

Arshad Sayed, Country Manager, the World Bank in Mongolia
Rogier van den Brink, a lead economist for Mongolia, the World Bank

February 1, 2010 – Mongolia’s herders have learnt a hard lesson this winter; a lesson that can perhaps be applied to managing Mongolia’s economy.

This winter has been harsher than usual. Nineteen out of Mongolia’s 21 aimags have experienced the effects of a white dzud. Heavy winter snow, strong winds and lower-than-normal temperatures over a prolonged period of time have resulted in some herder families losing up to 70 per cent of their livestock. The ripple effects of this dzud will be felt by herder families, soum centres, aimags and the country as a whole for years to come.

Could the dzud’s impact have been reduced with more planning and preparation? Yes.

Before the transition from a Socialist system to a market economy in 1990, Mongolia’s government and herder collectives were diligent about setting aside reserve pastures and adequate supplies of hay and fodder during milder years. Together, the collectives prepared for the next dzud. Unfortunately, such measures were discontinued after 1990. Livestock experts are not surprised that livestock mortality during dzuds is now more severe than before 1990.

Interesting parallels can be drawn between the lack of planning and preparedness of the herders’ situation and the lack of planning and preparedness within the management of Mongolia’s economy. Summer months and financial boom periods are not times to relax, but times to prepare.

For a long time, resource-rich Chile suffered endless busts and booms at the hands of rising and falling commodity prices. But following the introduction of a structural balance rule, Chile’s susceptibility to boom and bust cycles decreased.

Chile’s fiscal regime, which was implemented in 2001, was simple, clearly defined and transparent. The country’s expenditure is now based on long-term conservative commodity projections and not on actual revenue. This enforces savings during boom periods and cushions the fall through the availability of saved capital during busts.

Because of this, Chile and the many other countries who have implemented a Fiscal Stability Law, were relatively unscathed during the recent Global Financial Crisis. Unlike Mongolia, these countries were well-prepared.

Pasture and fodder management is as important to the survival of livestock, as fiscal management is to the health of the Mongolian economy. Excess hay and fodder and winter reserve pastures will greatly increase the chance of livestock survival during a dzud, and financial reserves as a result of a Fiscal Stability Law, will ensure the health of Mongolia’s economy, the stability of its currency and the continuity of government-funded social services provided for the people of Mongolia, especially the poor.  

It’s now up to the Parliament to recognize the worth, value and importance of financial planning and preparedness. Soon, a Fiscal Stability Law will be discussed here in Mongolia. This law proposes to adopt a structural balance rule. It would be a great pity if the Parliament passes up this opportunity to implement a law that will benefit future generations of Mongolians.

Mongolians say the choice is clear:
“Сайн малчны өмнө зуд сөхөрнө, Саар малчны өмнө зуд асна”. 
A dzud will kneel in front of a hard-working herder; a lazy herder will kneel in front of a dzud.