Recently, a heated discussion took place at the Tuushin Hotel with members of parliament, some ministers, the public, and almost all media outlets under the slogan "They should pay the debt themselves - let's unite and demand payments" in connection with the Development Bank's (DB) non-performing loans. The discussion, which was broadcast live on many TV channels and social networks across the country, has exacerbated public frustration and caused a wave of protests within the Mongolian society.

The issue of non-performing loans given by the DB has had a considerable amount of media coverage before. A year and a half ago, I also wrote on the issue that this bank technically went "bankrupt." The public now needs to be informed well on why this problem is finally in the spotlight now and what the solutions are.

The reason is the escalation of the DB loan problem to a level where the ruling MPP leaders cannot solve it alone, requiring some public support.

The fact that more than half of the loans issued by the DB fall under the category of non-performing loans is a clear sign of how entangled the Government of Mongolia has become with decades-long corruption and that the legislative system benefits corrupt officials and oligarchs.

To demand payment of the loans, by all means, is crucial to fight against organized political-economic gangs, which are backed by power, money, and judiciary protection.

If the DB fails to pay its bond payments of almost 1 billion dollars next year, the government will not be able to pay it even in the case of a bailout. There is not much money because the government has exhausted all its resources when spending the equivalent of its full-year budget to fight the pandemic and revive the economy.

Fortunately, the authorities seem to have understood that Mongolia is on the brink of bankruptcy if it does not eliminate corruption, regardless of the DB issue. With rampant corruption, the risk of losing the 2024 election is high for the MPP.

The DB drama goes as follows:

The beginning

The Development Bank of Mongolia was established in 2011 to finance development projects with long-term financing, particularly infrastructure and export promotion programs, as seen in many other countries. A highly experienced Korean DB management team was invited to work in its initial phase. Issuing bonds abroad has raised 600 million dollars. Then on August 10, 2012, N. Altankhuyag's government was formed, and the Ministry of Economy was established with B. Batbayar as its Minister. The government soon issued its first foreign bond (Chinggis), raising 1.5 billion dollars. Suddenly, the government, which had its hands on a lot of money, rescinded their agreement with the Koreans, who were making rules and regulations a subject of discussion, which prevented them from using the funds as they pleased.

That is how the foreign debt history of democratic Mongolia began. Mongolia has not paid any of the debt during the last decade. Instead, it only resorted to new loans to pay its previous debts. Even the then Prime Minister openly said that the next generation would pay the debt. Since then, the successive governments have put their people in leadership positions of the DB and have issued billions of tugriks in loans for their benefit. Mongolian authorities demonstrated that nobody bears responsibility for state funds.

The plot

Half of the loans provided by the DB, which saw six governments and six directors, are now non-performing loans. The failure to receive loan repayments and the absence of a contingency fund is no surprise when the underlying situation of unstable governance and loans linked to politicians are taken into account.

Currently, out of the loans provided to 66 legal entities, 14 are normal, 10 are likely to deteriorate, and 42 are non-performing. Out of 2.6 trillion tugriks in loans, 1.8 trillion was classified as non-performing. Of the 42 borrowers with non-performing loans, 30 were taken to the courts, 22 are at first instance court, two were on appeal, and six were acquitted. The back and forth process takes almost five years.

The amendment to the law on the DB in February of 2017 allowed the DB to make decisions on its own, whereas the loans had to be approved by the parliament previously. Moreover, the board received the power to dictate the procedure to issue loans. Illegal activities to conspire and embezzle public funds were thus legalized.

There is no system in place to investigate, correct, or hold accountable politically motivated criminal activities, such as misappropriation of loans, money laundering through banks and NBFCs, and release of collateral.

It has become the norm to take a low-interest loan and then take it to court for various reasons to halt the interest rate and keep the money at a high-interest rate in commercial banks for several years during the court proceedings. Recently, it was uncovered that even the four largest commercial banks in Mongolia borrowed from the DB and used the money to further lend at high-interest rates. The DB management bought two floors of the new TDB building for 27 billion tugriks, which is many times the market price. It is said that the entire building was built at the cost of 25 billion tugriks.

It is not that the government was unaware of all this, but the leaders and officials of the two ruling parties have been keeping each other's secrets and working hand in hand with each other. Various members of the Parliament and the Government have been the main actors in this DB drama.

Recently, however, MPP leaders announced that they would hold their party members accountable for their ethical misconduct in connection with the DB, suspend their membership, and bar them if found guilty by the court. A mere announcement is different from actual implementation. It is doubtful that the oligarchs of the two parties, possessing wealth and power over the media, will be defeated.

After the Lunar New Year, the Mongolian government unveiled that the Development Bank has become a significant obstacle to our development.

The ending

Banks in a similar situation as the DB end up liquidated or restructured. The Prime Minister has said that the DB will not be liquidated or bankrupt. Instead, he stated, it would be turned into the Exim Bank to promote increased exports and substituted imports. Therefore, it means that there will be restructuring and restarting. There are three ways to do so:

1). Sorting the non-performing loans and establishing an asset management corporation,

2). Selling the collateral properties of non-performing loans and ensuring repayment,

3). Exponentially increasing the bank's assets and paying bad loans. In the case of the first and third methods, the owner of the DBM - the Mongolian government does not have the budget capacity to allocate such funds. As for Mongolian commercial banks, they lack capital. The Bank of Mongolia is restricted from conducting fiscal activities. The only way left is to sell the collateral as soon as possible.

However, the judiciary system is weak in Mongolia. Moreover, there are almost no experts available for disputes over the release and sale of real estate. Even if there are, they are linked too closely with politicians. Income and assets declarations show that members of parliament, government officials, the judiciary, and law enforcement servants earn much higher than the average population.

Regardless of the recovery or renaming of the DB, this drama will repeat itself if the leading cause of the bankruptcy is not cleared. The root cause is corruption, and the DB is only an example.

The primary reason for Mongolia being in this situation is the so-called state properties that nobody owns. It is impossible to change the system of corruption without turning all state-owned enterprises into joint-stock companies with specific owners. The right to manage state property is handed over to a political party through democratic elections. Since the political parties are not institutionalized, no one bears the responsibility for state properties in Mongolia.

What's more, public funds have been embezzled through unfeasible projects such as the Price Stabilization Program. Immunity and legal protection are granted once elected as parliament members. There is also a common practice of dismissing a case due to the expiry of the statute of limitations. After severe money laundering cases, they are usually forgiven in the name of tax forgiveness.

Only by changing and fixing all this can we get rid of corruption. Strong public participation and demands are essential. It has been forgotten at all levels of society that democracy is at the intersection between freedom and responsibility. Only a country where citizens are aware of their duty to actively fight to keep the government free of corruption will prosper.

Are we Mongolians going to keep allowing a few thieves to steal the money from the DB and SME Fund?

The war in Ukraine has had big consequences for Poland as a country. 100,000 war refugees are crossing the Polish border every day, while Ukrainian male employees in Poland are making their way back to their home country to defend it. Naturally, the situation has brought difficulties for the export of apples as well.

Jakub Krawczyk, export manager for Polish apple exporter Appolonia, states Poland is doing what it can to help the Ukrainian people in this time of war: “As a community, we’re all involved in helping Ukrainian people with transportation, food, medical healthcare and organization of basic needs here in Poland. All Polish people are involved; private companies, governmental officials or just regular people, they are trying to do everything to help our neighbors in these hard wartimes.”

“The situation has a tremendous impact on apples sector as well. We have a few big problems; sales of apples are low, as there is a decrease in consumption of fruits and of course the increasing cost of energy, petrol and gas. There is a lack of qualified employees like truck, forklift and tractor drivers,” Krawczyk explains. “Eastern markets are closed for us right now. It’s been more than two months since the Belarus embargo started and it had a huge negative effect on apple sales in Poland. The Russian embargo is really bad for us, but the Belarus embargo is even worse, as Belarus was one of the biggest importers of our apples. This means that we all have less orders at the moment, and lot of companies are not working at full capacity, unlike how it was before the embargo.”

Overall, apple consumption seems to be down compared to the usual level, Krawczyk says: “We feel the decrease in consumption of apples on both the Polish domestic market as well as in the rest of Europe. Right now, stocks of apples in Western Europe are quite large and orders for Polish apples from this region are much lower than usual. To have a war just behind the European Union border has caused a significant increase in costs of petrol, and it’s obvious that those costs will have an effect on everything else.”

Because of the conflict in Ukraine, road transport to Kazakhstan or Mongolia is a hard thing to organize according to Krawczyk: “I would say it is almost impossible at this time. There are also fewer sales to Serbia. But the conflict has also caused a shift in the container sector, as availability for containers has dropped dramatically. Sales to Egypt has been much more difficult as a result and Egypt is a very big importer of Polish apples. There’s also been a new law in Egypt that is only allowing a Letter of Credit as a payment term, which has really slowed down orders to that region. A lack of containers also means less opportunities for sales to Asia and the Middle East.”

Normally the price of apples would increase this time of the year, as storing the apples increases the costs that exporters have. However, currently the price of apples has been decreasing, says Krawczyk. “Over the last few weeks, the price of apples in Poland have dropped down just a little bit, but normally in this stage of the season the prices should rise, because of the increasing costs of storage. In the last week, there hasn’t been any change in the price at all that we noticed. The cost of food is increasing due to the war, but the price of apples is not going up at the same level. We think the season will be hard, conflicts have blocked our sales, we face some difficulties with logistics and sometimes with payment conditions. Issues that are usually just a few bumps in the road, have now combined together with the war to create this negative situation. It’s not a guarantee the situation will remain this bad, but we need to monitor situation on every market to see how we can react.”

“I think Polish apples are a good option for importers, because there are lot of varieties they can choose, quality is still very good and we can provide very large quantities. Producers like us will be happy to start cooperation with new partners, and even though there are many problems that are accumulating we still want to move ahead to deliver healthy food on every table.” Krawczyk concludes.

For more information:

Jakub Krawczyk

Appolonia

Tel: +48 785 342 930

Email: jakub.krawczyk@appolonia.pl

The Ministry of Health reported today that 190 СOVID-19 cases were recorded in the last 24 hours nationwide. In detail, 136 cases were reported in Ulaanbaatar city, with 54 cases in 21 provinces.

It was also reported that two COVID-19 related deaths have been reported in the past 24 hours. Currently, there are 1.535 people are receiving hospital treatment for COVID-19 whilst 5,312 people with mild symptoms are being treated at home. Of the total patients currently undergoing treatment at hospitals, there are 380 patients in mild, 988 in serious, 148 in critical, and 19 in very critical conditions.

As of today, the coverage of 1st dose has reached 69.8 percent (2,271,836), 2nd dose – 66.8 percent (2,173,300), and 3rd dose or a booster shot of COVID-19 vaccines – 31.5 percent (1,026,267) of the total population. In addition, 106,880 people (3.3 percent) have received the 4th vaccine dose.

At the regular meeting of the Cabinet dated March 2, Minister of Energy N.Tavinbekh presented the progress of the Erdeneburen hydropower plant project, which is being implemented as part of the ‘New Revival Policy’.

The Ministry of Energy signed a turnkey contract with the project’s contractor last September to ensure the timely construction of the Erdeneburen 90 MW hydropower plant. Construction of the plant will begin on April 1 and be completed within 61 months.

The western region where more than 390 thousand people reside imports 75 percent of its energy needs from Russia and China, which means it uses five or six times expensive energy than that being produced at Durgun HPP. The establishment of the hydropower plant will create the possibility to provide the country’s western region with domestically produced energy.

At the Cabinet’s regular meeting, Minister of Finance gave updates on budget funding earmarked in the law on 2022 Budget and procurement for the projects and actions.

Bids have been announced for 575 or 80.3 percent of the 716 projects and actions to be implemented with funding from the budget, but not for 141 projects and actions.

Budget governors were ordered to make the procurements arrangements for the 575 projects and actions with promptitude and establish contracts by April 1, 2022.

At its regular meeting on March 2, the Cabinet approved the Bill to amend the Law on Procurement of Goods, Works and services with State and Local Funds and decided to submit it to the State Great Khural for a very urgent consideration.

The amendments propose that projects and actions on the list of development projects to be implemented as part of the New Revival Policy be processed with the establishment of contracts and not to follow the law if less than 30 percent of the funding for a project or an action is provided from a state owned or state controlled enterprise.

It has become possible to make procurement arrangements online and retrieve necessary information from state databases. Therefore, the proposed amendments also include the reduction of the timeframe for the client to make a decision and establish a contract from 30 days to 15 days.

As there are times when the budgeted cost rises beyond the control of the client or the contractor for some long-term projects and actions, an amendment enables to increase the contract price if the budgeted price has been renewed.

The client can establish a contract with a term of up to three years upon reaching agreement of the price per unit and other terms for the procurement of goods and products in regular demand. To reduce the financial burdens on the bidding individuals or companies, a reduction of the tender guarantee amount is also proposed.

Due to the international situation, the number of international flights over the Mongolian territory have decreased by 50 percent, said S. Munkhnasan, chief of the Civil Aviation Authority.

At the Cabinet meeting on March 2, he introduced about the establishment of air freight logistics center and improvement of air freight circulation. At the press briefing following the cabinet meeting, he said, “In 2019 there were about 500 flights a day flying over the territory of Mongolia, but fell to 150 during the pandemic. It rose back to about 200 flights at the end of last month, but has fallen by about 50 percent in the last three days, which connects with restrictions on airspace by countries.

A draft of general procedures on trade and services in the capital city is being developed, and polls are open for relevant organizations, citizens, businesses, and NGOs for suggestions. We had an interview with Head of the Food and Agriculture Department of Ulaanbaatar T.Zoljargal on the motives for updating the procedures and the regulations that are being renewed.

-Why the general procedures on trade and services in the capital city have been changed?

-The procedure has been renewed several times since 2004. Recently, in 2019, certain provisions were renewed and approved by the City Council. In the past, our general service procedures were considered legally incompetent. With the amendment of the Law on Legal Status of Ulaanbaatar City on January 1, 2022, the opportunity has been opened up for the capital city to approve and enforce common service procedures. Therefore, it has been redesigned. A working group with 27 members consisting of representatives from the government, private sectors, and citizens is preparing to get approval for the draft procedure next month.

-What new changes are included in the draft procedure?

-Several changes have been made over time. A number of changes have been made in connection with the allowance to conduct 74 types of trade and services without permission in the capital city. There have been changes in the regulation of markets and shopping centers and in the e-services of online centers. This is an advantage over the previous general procedure.

-Trade services provided in the capital city were divided into 18 categories. These include convenience stores, exhibition halls, outlets, and boutiques. Also, includes all kinds of services such as seasonal tent trade and recycling points?

- Yes. It covers all areas of trade and services which have been emerging in the last 4-5 years. The convenience store standard has been added to the 2019 trade and service standard. Trade and service providers are also adapting to new services. The standard includes convenience stores, wireless internet, self-service fast food chains with standard heating and refrigeration equipment. International stores, large national chain stores offer convenience store services. Retailers are also moving their services to the convenience store standard.

-Convenience stores are mainly located in the city center. How do you focus on providing a service to ger district residents?

-According to the research, in the last two years, large supermarkets have sprung up in the suburbs due to the pandemic. There are a lot of convenience stores in the suburbs. A network of convenience stores is growing in ger districts. In the future, our department is working on a plan to introduce convenience store service in ger districts.

-The range of household services includes moving services and cleaning households and offices. Although it is widely used in foreign countries, is there a license, requirements, and standards for this service that is becoming more and more popular in our country?

-There are no approved standards and permits for moving services and cleaning services for households and organizations. We have started to get feedback from relevant organizations. Based on that proposal, standards will be developed and get approved. This type of service requires responsibility and standards.

-There is a fee for using the toilets of trade and service organizations. Does it seem new to make it free of charge in the newly developed common service regulations?

-Another provision added to the public service regulations is to make service toilets free of charge. It may seem simple, but we have to focus on meeting basic human needs. It's time to introduce this service, which is not common in our country. A business organization can attract customers only if it introduces a comfortable and humane service. Today, there are 18,664 business entities operating in the capital city. Whoever is able to create a comfortable environment for customers, offer favorable prices and provide satisfactory services, the organization's business will expand. Therefore, organizations and companies must pay attention to the operation and cleanliness of public toilets in order to attract customers.

CAPITAL CITY TRAINING, RESEARCH, AND PUBLIC RELATIONS AGENCY

SHANGHAI, March 3 (Reuters) - Russia's invasion of Ukraine and the imposition of tough sanctions on Moscow has put landlocked Mongolia in a tight spot economically and diplomatically, and experts warn that its delicate balancing act between East and West could be upset.

On Tuesday, a small group of protesters gathered on Ulaanbaatar's Sukhbaatar Square to call for an end to hostilities in Ukraine, only to be confronted by residents worried about antagonising Russia.

The stand-off reflected the faultlines in a country that underwent a democratic transition in 1990 following decades of Soviet hegemony, and now worries about the growing regional dominance of China.

Surrounded by Russia in the north and China in the south, Mongolia has cultivated allies such as Japan, South Korea and the United States in a "third neighbour" diplomatic strategy aimed at reinforcing its political independence, but its economy has continued to rely on its two giant neighbours.

Mongolia's central bank warned at the start of the week that most of its foreign trade is facilitated through Russian banks and it sources nearly all of its oil from its northern neighbour, which is now facing international isolation.

Bank Governor Lkhavgasuren Byadran warned there were risks that payments could not be made, and deliveries of food and consumer goods from Europe also faced disruption.

“We are too dependent on Russia and it will hit us in many aspects, not only petrol," said Sumati Luvsandendev, a Mongolian political analyst and opinion pollster, noting that Mongolia sourced large amounts of grain from Russian suppliers.

"Our banks are reliant on transfer through Russian banks so SWIFT will hit our import-export operations as well," he said.

Mongolia also remains one of the few remaining member countries of the Russia-led International Bank for Economic Cooperation and the International Investment Bank, following the withdrawal of five European nations on Wednesday. read more

SANDWICHED

By making Russia more dependent on China as a market for its raw materials, the crisis in Ukraine could undermine years of Mongolian efforts to escape from its neighbours' shadow.

"For a country like us, sandwiched between two giants, a landlocked but extremely open economy relies on smooth border trade," said Otgochuluu Chuluuntseren, economist and former government official. "The situation was tense anyway. Now, this war has made the Mongolian economy even more troubled."

Following a decision by Germany to cancel the Nord Stream II gas pipeline, Mongolia is also likely to become more strategically important for Russia's energy-dependent and increasingly east-facing economy.

Mongolia signed an agreement this week to build the Mongolian section of a transnational gas transmission project aimed at supplying 50 billion cubic metres of Russian gas to China, known as Power of Siberia 2.

Mongolia has usually tried to keep out of geopolitical disputes. It did not comment on Russia's decision to send troops to Kazakhstan to help quell protests last year, or on the U.S. withdrawal from Afghanistan – even though its own soldiers have been deployed there.

So far, it has stayed silent over the invasion of Ukraine, and it was one of 34 countries to abstain on a U.N. resolution demanding the withdrawal of Russian troops on Wednesday.

“The current leadership... is disinclined to rustle Putin or Xi's feathers," said Julian Dierkes, an expert in Mongolian politics at the University of British Columbia.

But it could come under pressure to take sides in an increasingly polarised geopolitical conflict, especially if Moscow – ostracized by Europe and the West – pivots eastwards.

"I used to think that Russia didn't really pay enough attention to Mongolia to be upset, but in the current circumstances that may not be the case," said Dierkes.

The more it is forced to take sides on issues like Ukraine, the less room for manoeuvre Mongolia will have when it comes to its strategy aimed at counterbalancing Russian and Chinese economic and political influence through the cultivation of "third neighbours" like the United States and Japan.

"Regarding our third neighbours, we hope that they understand our unique situation," said Otgochuluu. "Mongolia is committed to universal values of freedom and democracy. But its economy is not self-sufficient."

Reporting by David Stanway in Shanghai; Additional reporting by Anand Tumurtogoo in Ulaanbaatar; Editing by Simon Cameron-Moore

Japan is one of the few countries that contributed to Mongolia’s development not only financially but by contributing to tangible assets. In 1993, Japan provided technical assistance in railway transportation rehabilitation projects, the rehabilitation of a thermal power plant in Ulaanbaatar, and Baganuur coal mine. By 1996, Mongolia and Japan set a goal to build a comprehensive partnership. Most recently, Mongolia constructed its second international airport, located in Khoshig Valley, which required $493 million in investment.

Furthermore, Japan has become a favorable destination for Mongolian students, scholars, and intellectuals to study abroad. As of 2022, there are around 4,500 Mongolian students who have studied in Japan’s leading universities, such as Tokyo University and Kyoto University.

In 2010, Japan became Mongolia’s strategic partner and signed the Economic Partnership Agreement (EPA). The EPA aimed to tackle legal and technical aspects of the trade, tax, customs, investment, intellectual property, and cyber trade as such.

This year, Mongolia and Japan’s is marking the 50th anniversary of establishment of diplomatic relations.

The commemoration of the 50th anniversary highlights the two countries’ consistent and friendly relations. Last week, the Foreign Ministry of Mongolia organized a symposium titled “The strengthening of Mongolia-Japan strategic partnership in business and economic development” and “Mongolia-Japan Strategic Partners-50, Years,” a photo exhibit that sheds light on the two countries’ bilateral relations.