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?