Economic Policy Reform and Competitiveness Project (EPRC) Update
Chemonics
www.eprc-chemonics.biz

SO1: PRIVATE SECTOR-LED ECONOMIC GROWTH
posted by Skip Waskin on Thursday, September 15, 2005 1:56 AM

Economic, Financial, and Trade Policy Support
MCA Support. During August the project continued to provide intensive technical support to the Mongolian Millennium Challenge Account (MCA) National Council, assisting with the preparation of proposals to be submitted for potential funding from the Millennium Challenge Corporation (MCC). In accordance with the procedures formulated by the MCC, EPRC is assisting with the cost-benefit analysis of projects prepared by the National Council.

Shadow Economy Survey. The project continued helping with production of the final report on the shadow economy survey conducted in 2004 by the National Statistics Office, The Open Society Forum (OSF), the IRIS Institute (University of Maryland), and EPRC. Current plans include a presentation on the report by IRIS at an OSF seminar in September.

Macroeconomic Policy Analysis. The project continued development of macroeconomic database indicators and analyses of trends in the Mongolian economy for use by decision makers and for public education. Analysis of these indicators showed several important trends:

• Interest rate analysis has shown that, despite Mongol Bank’s effort to increase interest rates in Mongolia in order to rein in inflation, real interest rates on bank credits have been falling and reached the lowest level since the 1990s.
• Price inflation has been increasing, reaching its highest level since 1997. The annual consumer price index (CPI) has increased to 15-18%, with food prices growing by more than 20%. Economic policy measures aimed at reducing inflation are urgently needed.
• In foreign trade the trends observed throughout 2004 have continued in 2005. The share of mining products in export has grown. The trade deficit has continued declining, predominantly because of increased exports of gold and improving terms of trade (changes in commodity prices). An analysis of the effects of free trade agreements, currently considered/negotiated by the GOM with a number of countries, has been undertaken jointly with GTZ. Major changes in trade structure will be necessary in order to generate positive impacts of these agreements on the Mongolian economy.
• Progress has been made in meeting Mongolia’s Millennium Development Goals (MDG) targets in health care and education, but results in terms of poverty reduction have not been satisfactory. Recent food price changes have had a negative effect on low income households whose economic status has worsened. A comprehensive poverty reduction program is necessary in order to reverse this trend, reduce poverty during the next decade, and meet the MDG targets.

Tax Reform
Tax Reform Communications Strategy. The weekly national newspaper tax briefing series continued during August. Four briefings appeared in four national newspapers—two explaining the need for tax reform, one introducing the current tax reform package, and another discussing changes in the proposed personal income tax law. EPRC is negotiating with other websites to expand public distribution and access of the briefings and the text of currently proposed laws. The briefing series will also be incorporated into a “pocket book guide” to Mongolian taxes, to serve as educational materials for the public and to help policy makers involved in the tax reform process.

National Tax Reform. At the request of MP Oyun on behalf of the Parliament Tax Working Group (PTWG), EPRC started recruitment of an international tax legislation expert to help Parliament review and draft new tax laws. The corporate and personal income tax laws drafted within MoF in April with IMF assistance are being translated into Mongolian for consideration by the PTWG. The project continued to update the comparative matrices and analytical material showing the positions and interests of a variety of parties concerning tax proposals, as well as the differences in the proposed laws from those currently in place.

Tax Reform Analytical Support. Analytic support for tax reform has continued. EPRC has constructed a Computable General Equilibrium (CGE) model to be used in evaluation of alternative tax reform scenarios considered by the GOM. During the summer this model has been updated with 2004 economic and tax data. The model will be used to support the work of the PTWG after mid September.

Cluster and Business Development Support
Tourism
Tourist Information Center. By the end of August, almost 11,000 tourists had visited the Tourist Information Center (TIC) in the Central Post Office and a further 3,000 had visited the centers in the airport and railway station. A visitor satisfaction survey was conducted in late August with encouraging results, and compliments for the level of service given by the TICs in terms of attitude and helpfulness, speed and accuracy of information, and English language skills. The main complaint expressed by users was having to wait for service at busy periods because of insufficient staff and the small size of the information counters.

Visitor Survey. EPRC continued work on the visitor survey during August, interviewing departing visitors in the departure lounge at Buyant Ukhaa airport and on trains to Beijing. The survey is patterned after a similar survey conducted in 2002 and will provide comparative data on tourists’ perceptions over the past three years. To date, 3,000 questionnaires have been completed. Data input and analysis will begin in mid September and results should be available to the industry in November.

Tourism Portal. EPRC started work on the design and site map for the tourism portal in August. A demonstration model should be available for presentation to the industry next month. The portal will link all relevant web sites, and provide platforms for on-line booking reservations and, eventually, payment. Peace Corps volunteers in Khentii and Ovorhangai aimags have completed a pilot program to survey and document tourism sites, attractions, and events in the aimags for inclusion on the portal. The program will be expanded to cover other aimags based on the lessons learned from the pilot.

Natural Fibers
Cashmere Producer Linkages with Hong Kong. EPRC began preparations for a cashmere trade delegation to visit Hong Kong in November 2005. Cashmere producers will be introduced to buyers representing brand holders, retailers, and distributors. The project is assisting companies in preparing corporate profiles for distribution in Hong Kong, and is recruiting a part time logistics manager in Hong Kong to help the Mongolian companies.

Cashmere Project/Berlin. The CEO of the Cashmere Project in Berlin visited Mongolia to report to the Board. Mr. St Lewis reported that although the summer months had been quiet, all the indications point to a busy autumn and winter. The cashmere project is 90% Mongolian owned and represents four Mongolian producers in Europe. EPRC facilitates transactions between Berlin and the Mongolian producers.

Wool Record. The August issue of “Wool Record” featured the EPRC cashmere initiatives, under the headline “Cashmere companies step onto the world stage.”

Finance
SME Financing. Assisted by two experts on structuring Development Credit Authority (DCA) bank loan portfolio and bond guarantees, EPRC completed an assessment of the banks and potential small and medium enterprise (SME) loan demand. The team recommended that USAID consider further investigation of the use of the DCA Loan Guarantee to assist a limited number of banks to secure medium-term loans from foreign financial institutions in order to help address the problem of a shortage of medium-term funding from domestic sources. This would support increased medium-term lending for SMEs capital investment, and expansion. Given current bank system liquidity, and banks’ expressed interests, the team recommended against the use of the DCA Loan Portfolio Guarantee or the DCA Bond Guarantee at this time.

Energy Sector Support
Energy Law. In early August the project consolidated its recommendations with those of the ERA and resubmitted a “joint” version to the Ministry of Fuel and Energy. The Ministry held an internal drafting session to consolidate all comments from August 30-September 1. The daft amendments will go to Parliament in early September and be submitted by September 15 for the fall session of Parliament, which begins in early October.

Renewable Energy Law. The Ministry surprised us by completing a draft law and requesting that the project review and comment on the draft. EPRC’s comments were well received and incorporated into the ministry’s draft, which will now be presented to the Minister for presentation to the cabinet. The draft law should go to Parliament for consideration during the fall session.

State and Public Property Law. EPRC met with the MOJ lawyer who has been assigned to work on the concept paper and draft amendments. We are concerned that with the extensive review by several infrastructure-related ministries, these amendments do not have a realistic chance of being considered by Parliament during the fall session.

Proposed Merger of Power Plants # 2 and # 3. The Ministry of Fuel and Energy informed the project in August that they intend to discuss our proposals with the Ministry of Finance, the State Property Committee, and other shareholders of state-owned energy sector companies.

Proposed Merger. The Ministry solicited project comments on the idea of merging the National Dispatch Center with the National Transmission Company in August. EPRC provided a letter explaining that a merger would hinder development of a newly proposed market structure for the energy sector.

Specialized Software Training. EPRC provided the National Dispatch Center six days of training for seven staff members to learn how to use a software package which will help them with transmission/distribution system stability issues and predict possible system stability outages. Siemens Technologies, Inc. of Schenectady, NY, the original supplier of this software, conducted the training under a subcontract with the project.

Uniform System of Accounts (USOA) Implementation. In August, generating companies prepared summary balance sheet and income statements for 2004. EPRC will prepare adjusted versions to accompany these for presentation to and discussion with relevant parties. Adjusted versions prepared by the project will correct and/or adjust for known and suspected issues with original financial statements. Much of the debt shown on the balance sheets is uncollectible, and there has been extensive capitalization of maintenance and other activities that should be considered period expenses.

Public Education/National Dialogue Support
Tax Proposals Posted on Open Government Website. EPRC helped the Office of the Prime Minister with posting of tax reform proposals on the Open Government website. Electronic versions of the proposals—as approved by Cabinet and sent to Parliament—as well as English translations are now available for public use at: http://open-government.mn. Consistent with the public communications and consultation tax strategy, EPRC is also working with the Ministry of Finance (MoF) and the General Department of National Taxation (GDNT) websites to have them post the draft laws and English translations. EPRC will also engage in negotiations with Mongolian websites interested in hosting or providing links to these documents as well as tax briefings.

Open Government Website Organizing National Multimedia Dialogue. The “multimedia super chat” on tax reform originally scheduled for May is now being planned for September. Discussions are underway to commit policy makers from the Executive and Parliament involved in the process, as well as key business leaders. Current plans have the event broadcast nationally over radio, television and the Internet, with viewers and listeners able to pose live questions to the panel members.
Video Clip on IT and Public Participation. Project and subcontract personnel completed final pre-production changes to the video clip on uses of IT for better public participation. Production and public release of the video clip is expected in September.

Economic Policy Reform and Competitiveness Project (EPRC) Update
Chemonics
www.eprc-chemonics.biz

SO1: PRIVATE SECTOR-LED ECONOMIC GROWTH
posted by Skip Waskin on Thursday, August 11, 2005 9:18 PM

Economic, Financial, and Trade Policy Support
Tax reform
Tax Reform Communications Strategy. The weekly briefing series continued in July, with three updates published in four local newspapers. Topics included Corporate Income Tax, Value-Added Tax, and a commentary on what constitutes a “good” system of taxation. EPRC plans to continue this series for the foreseeable future, and is examining ways to broaden exposure to the briefings among key decision-makers.

National Tax Reform. The project has completed translations of the tax package submitted to Parliament, and is continuing to analyze the likely impacts of the various laws. Primary tax laws included are the corporate income tax, personal income tax, and value-added tax. A number of other laws, including excise, immovable property tax, and administrative tax laws, are also affected.

Cluster and Business Development Support
Tourism
Tourist Information Center. As of July 26, the Tourism Information Center in the Central Post Office had received over 3,500 visitors, 75% of whom were from foreign countries. Since opening in April, 9,000 tourists have visited the center. The most frequent inquiry has been for jeep/guide hire information for visits to the countryside.

Visitor Survey. A survey of 4,000 visitors to Mongolia will begin on August 1. Exit interviews will be conducted in the departure lounge at Ulaanbaatar airport and on the trains to Beijing. The survey follows a similar survey conducted in 2002, and will track developments in the tourism industry over the past three years.

Aimag Inventory of Tourist Sites. Peace Corps Volunteers in Khentii and Ovorhangai aimags have begun an exercise to survey and document tourism sites, attractions and events in the aimags. This information will be used as the basis for aimag websites, constructed by the volunteers, which in turn will be part of a national tourism portal to be developed in the near future.

Natural Fibers
Hong Kong Cashmere Linkage. Philip Eddleston, EPRC’s short-term textile specialist, has returned from Hong Kong where he has been planning a trade mission for selected cashmere garment producers. Hong Kong is home to the buying offices of all the major brand holders and retail chains. The mission will take place this fall, and will include some of the smaller Mongolian producers.

Business Development Fund (BDF). Work on the two cashmere-related BDF proposals approved in June continued in July. The companies were Eermel Cashmere for design and marketing of a new range of woven products, and Altai Cashmere for design and marketing of a new spring and summer collection. The Darkhan Nekhi project to investigate the possible introduction of new technologies to improve tanning and sewing processes was completed in July. As a result, the company will purchase new tanning machinery and introduce improved chemical processing.

Mongolian Competitiveness Fund (MCF) Applications. The trade mission of the Mongolian Meat Association to Beijing took place July 23-26. Delegates attended the Beijing Meat Fair and followed up with meetings with selected importers and processors.

Finance

SME Financing
Development Credit Authority (DCA) Assessment. Two experts on structuring DCA Loan Portfolio Guarantees (LPGs) arrived in Mongolia in July, working with the resident EPRC finance team to conduct an assessment of bank and small and medium enterprise (SME) loan demand. In early August the team will make recommendations to the Mission on appropriate DCA guarantees that could help the banking sector increase medium term lending to SMEs for capital investment and expansion.

SME Law. The Ministry of Industry and Trade and the Ministry of Justice have agreed on a draft SME Law to be presented to the SGH in the fall session. EPRC will review the draft law and provide comments to the Government.

Public Education/National Dialogue Support
Open Government Website Chats. Continuing the Open Government Website program of on-line chats of Ministers and public officials with citizens, Mr. Sarnatungalag, Advisor to the Minister of Roads, Transportation and Tourism, was on the hot seat July 22.

Economic Policy Reform and Competitiveness Project (EPRC) Update
Chemonics
www.eprc-chemonics.biz

SO1: PRIVATE SECTOR-LED ECONOMIC GROWTH
posted by Skip Waskin on Monday, July 18, 2005 8:58 PM

Economic, Financial, and Trade Policy Support.
Tax reform: With EPRC assistance, the Ministry of Finance (MoF) and the General Department on National Taxation (GDNT) began a tax education and information program for the general public and members of the press. Two newspaper briefs, one on the objectives of the tax reform and another on the current personal income tax, were published in four newspapers in June. EPRC also helped the MoF and GDNT with the first workshop for journalists on taxation. In line with the tax reform communications strategy developed early in 2005 by EPRC, the program is designed to educate the public and lay the groundwork for promoting reform.

Cluster and Business Development Support
Tourism: The Tourist Information Center in the Central Post Office received over 2,000 visitors in June, 70% of whom were foreign. A recent customer satisfaction survey praised the services offered by the TIC.

Project to work with Peace Corps: EPRC will work with Peace Corps volunteers (PCVs) in two aimags, Hentii and Ovorhangai, to develop aimag websites. The PCVs will tour the aimags, collecting detailed travel information prior to construction of the sites and incorporation of the information into a proposed Mongolia tourism portal. If successful, EPRC hopes to continue the collaboration with Peace Corps in other aimags in 2006.

Natural Fibers: Two cashmere-related applications for assistance from the project-sponsored Business Development Fund (BDF) were approved in June. One was for Eermel Cashmere for design and marketing of a new range of woven products; the other was for Altai Cashmere for design and marketing of a new spring and summer collection.

Meat and Leather: The project approved Darkhan Nekhi’s application for BDF assistance to help that company introduce new technologies to improve tanning and sewing processes. The project also approved an application from the Mongolian Meat Association for assistance from the project’s Mongolian Competitiveness Fund (MCF) to help that association carry out a trade mission to Beijing in July. This initiative was prompted by recent protocols signed with China on the export of Mongolian meat products, and agreement to allow the importation of horse meat.

Energy Sector Support
Training of Mongolian Accountants: In response to a request by the Institute and the Ministry of Finance, Larry Jensen, the project’s Accounting, Auditing and Tax Advisor, served as a guest instructor at the Mongolian Institute of Certified Public Accountants. Mr. Jensen provided two evenings of instruction on international accounting and financial reporting standards.

Local Staff Development: During June, senior Mongolian Energy staffer Amga Nordov attended the 18th International Training Program on Utility Regulation and Strategy conducted by the World Bank and the National Energy Regulatory Commission (NERC) in Gainesville, Florida. Amga also had the opportunity to visit Chemonics headquarters in Washington, and give a well-attended and well-received presentation on the Mongolian energy sector and EPRC’s policy and reform implementation program.

Accounting Specialist Mugii Dambiinyam, and Zaya Lkhagvasuren, Mongolia’s first Regulatory Auditor and an employee of the Energy Regulatory Authority (ERA) now working as in intern at EPRC, sat for and passed their Mongolian Certified Public Accounting Boards. Mugii, having studied accounting in the United States, had the third highest cumulative score of the group. Only 15 out of 284 participants passed all four exams on the first try. Zaya is also pursuing her Master’s degree in accounting and expects to graduate next May. We are proud of their achievements.