American Elephants

Ghengis Khan and the Supply-Side Revolution. by The Elephant's Child
September 25, 2009, 3:27 am
Filed under: Economy, Foreign Policy, News | Tags: , ,


The world financial crisis hit Mongolia as well as the rest of the world. Everyone had to tighten their belts a bit, from camel drivers to horse herders.  Mongolia has a wealth of natural resources in copper, gold, silver and high-quality coal.  They thought they had the answer in 2006, when the legislature in Ulan Bator, the Great Hural, slapped a 68 percent windfall profits tax on copper exports, at $2,600 or above  a ton.  Gold exports they taxed at $500 an ounce or above, and settled back to watch the money flow in.

Not only did it not flow in, mining companies shut down their operations, gold was smuggled out of the country, and foreign investors vanished.  Then the boom times ended and the global financial crisis hit too.

The Great Hural borrowed a page from the supply-side notebook, and scrapped the tax.  Money is now flowing into the country.  Mining companies like Canada’s Ivanhoe Mines and Australian Rio Tinto are expected to sign a major deal to exploit the massive Oyu Tolgoi copper and gold mine.  The government would receive a $250 million advance against future royalties and taxes.

Tavan Tolgoi, the world’s largest undeveloped coal deposit with 6.5 billion tons of coal, may be the next project.  A consortium of Russian energy companies and other mining companies have submitted bids.

There is much more to do.  Corruption is endemic, amd officials at every level of society are on the take.  Education needs to be modernized so that Mongolians can supply their own financial expertise and business skills to support the economy.  Dumping the windfall profits tax is a good start.

Do you think our Congress might take a lesson from the Mongolians?

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