Government reform is the way out of crisis


Having continued to decline, Mongolia’s economy has almost stopped growing today. Our economy is seeing a deficit of cash, and most businesses, especially those in the mining industry, are not able to pay back their loans or pay employee salaries.
Foreign investment has halted while the budget deficit reaches one trillion tugrug every year. The government is trying to settle its debts by borrowing more from domestic and foreign markets. The five-year bonds that the government has recently issued to the foreign capital market have an interest rate of more than 10 percent, which is more than the rates of commercial banks. It shows how huge Mongolia’s political and economic risks have grown.
Unless certain and prompt measures are taken, many companies will go bankrupt because of their debt. It will be followed by the collapse of banks and the government will become unable to pay its employees. Unemployment will spread, the tugrug will weaken, and prices will increase. It will trigger people to move abroad in search of jobs. The economy will slump, and it will have to be formally announced that we are in crisis if another quarter sees negative results.
Representatives of Mongolia’s public, social, and private sectors met in Ulaanbaatar last week for an annual economic forum to discuss the underlying cause of the economic decline and how to overcome it.


Mongolia’s President Ts.Elbegdorj explains that there are two reasons why our economy has almost stopped growing. One is that politicians were not able to take advantage of a big opportunity by moving the huge mining projects forward when commodity prices were high. He referenced it with the Mongolian phrase “pushing away the butter in your mouth”. The other reason is the lack of an accountability system in our politics. President Ts.Elbegdorj said that the politicians were “dancing on the butter they wasted”.
On the other hand, Prime Minister Ch.Saikhanbileg explains that there are three underlying causes of the economic decline. The first cause is that Mongolians have an unhealthy mindset when it comes to the economy. The next is that we are destroying more than we are creating. The third reason he outlined was that the accountable political parties are failing to work together.
Speaker of Parliament Z.Enkhbold believes that the reason our economy has heavily declined is closely associated with what is happening in the external environment. He said that the decrease in China’s demand made our economy slow down and created uncertainties. Speaker Z.Enkhbold said that the main culprit keeping strategic projects stuck is not the parliament, and that the deal to give the Tavan Tolgoi project to two companies for 60 years with a royalty of only two percent was not profitable for Mongolia.
M.Khaliunbat, who is the executive director of the Silk Road Foundation, said that the economic decline today was caused by crony capitalism. He used the construction and banking sectors as an example, and explained that no business in Mongolia can operate successfully unless it has political ties.
M.Khaliunbat explained that the housing mortgage program is not sustainable in the long run, because it is selling expensive apartments with low interest rate mortgages, while freezing the prices that would have eventually gone down due to excessive supply compared to demand. He noted that the mortgage program is increasing the total assets of the banking sector, and has housing loans making up almost half of all loans, which is resulting in an increase of bad loans. He concluded that the monopolization of the construction and banking sectors is a clear reflection of the interests of politicians who have businesses in these two industries.
It could be seen from the remarks of participants of the forum and those who addressed the audience, that, despite the external factors contributing to the economic decline, the hardships we face today are largely down to the capability and quality of public governance.


Daniel Kaufmann, a well-known economist and the CEO of the Natural Resource Governance Institute, said in his keynote speech that the economics are crucial, but economic issues are solved only after the economy is integrated into political, economic, and institutional governance.
Daniel Kaufmann defined governance as the set of traditions and institutions by which authority in a country is exercised. More specifically, governance is: 1) the process by which the authorities are selected and replaced, 2) the capacity of the government to develop and implement policies, and 3) the respect of citizens and the state for institutions that govern interactions among them.
It was previously mentioned that the decline in Mongolia’s economy traces back to public governance. Therefore, we can see where we need to improve from the definitions of governance above.
The main issue of elections, which select and replace the governing authorities, is that we are unable to assess politicians by comparing what they have accomplished to what they promised and hold them accountable. The free voice of the people and the media are essential to assessing the outcomes politicians have produced. Mongolia is lacking in this area. The authorities have been avoiding establishing an accountability system, while civil society does not demand it.
Although the previous governments have attempted to develop and implement many different policies, we do not have any independent institution that oversees, measures, and assesses the progress and outcome of those policies. Even though the government has its own auditing agency, its operations are heavily dependent on the government.
The structure of the auditing agency is too dependent on politics and is replaced almost every year. Therefore, its institutional capability is too weak and produces minimal outcomes. The people, let alone the government itself, does not trust its agencies. This is the reason why personal interests have prevailed over the rule of law and has been deeply embedded into government institutions.
This situation was discussed and analyzed thoroughly during the economic forum. Prime Minister Ch.Saikhanbileg said, “In order to overcome the crisis, the government has no other choice but to borrow more. This is the only way to ensure businesses have cash and get out of the debt network.” However, unless public governance is reinstituted with new principles, it will not matter how much in loans we acquire – we will still be in crisis.
A great opportunity to reform our public governance has come up during this economic decline. If we do not make this reform today, we will never become a highly developed country.
This time period is a golden opportunity for Mongolians to reform our public governance.

Trans. by B.AMAR