Auditus

Ub Post

December 28, 2010

Аuditus is a Latin word meaning heard or accepted. In English language, it is widely used as auditing or examination and review and was developed as a definite management tool in those countries where private property relations developed highly.

It can be defined as an art of communication to provide evaluation and conclusion by a third party into the utilization of a private property when an owner of the property is different from the user of the property.

As Mongolia undergoes rapid development of private property relations, there is an emerging challenge to carry financial and operational examinations into business establishments and the role and importance of internal and third or independent auditing is growing.

The terminology ‘internal and independent auditing’ is gaining wide acceptance in the private sector and as private companies get bigger and bigger their owners tend to become more reliant on the traditional management approach and entrust the management of their firms to professional people. Undergoing such examination on annual basis is a ‘must-do’ in every country in order to sell shares in capital markets. As for the public or government sector, auditing is still just on paper and developing auditing in its real context is almost like committing suicide for our politicians. Our politicians, who are responsible for transparency and openness of all government activities, speak out about theory very glamorously.

Unfortunately, it is the total opposite in reality. A primary and most important tool to maintain transparency in the government activities is a true independent auditing. Indeed, the Government has specialized agencies institutions in order to control or audit its activities. These are internal auditing and because they are appointed by political parties to which they belong, they serve only their parties not citizens who are owners of property. Such internal auditing is more appropriate only in a country with a strong opposite political force.

State-run business entities of Mongolia really need a true independent auditing. A foreign professional institution would be the right option to assess business activities of state-run firms in a true and complete way.

It should be noted here that MP Ya.Batsuuri last week submitted a definite proposal regarding the hiring a foreign auditing organization for this purpose.

“Election-winning party appoints only its own persons to preside over important state-run firms such as the Erdenet ore-processing factory, the railway system and the national airline MIAT. In this way, the parties continue compensating the costs spent to win elections and raising funds to finance next elections from the so-called state milk-cow. In this situation, it is not possible to place trust on internal auditing. Thus, it is essential to bring an in internationally accepted prestigious auditing firms immediately in order to charge punishment to guilty officials” Batsuuri said.

If the MP’s proposal gets approved and each of above-mentioned “milk-cows” undergo auditing by a foreign professional firm to find and punish those guilty officials, “it will cause the stopping of functioning of the Mongolian state in many areas”.
A war might break out in Mongolia, where guilty ones are not punished, instead, the Cabinet would be changed if the foreign auditing firm would reveal and publicize only a small portion of big deficiencies which are hidden by domestic auditing examination. For this reason, Mongolian politicians talk about internal auditing reports only when they share state property for own wallet or when they cannot deal over how to share their gains. They become silent if they reach a deal after making some noise in the newspapers.

In our government, there is no deal possible, only the price is negotiable. Besides, there is no office tradable because they can create as many new sub-offices as they wish to. Precisely for this reason, foreign auditing must be brought to examine state-run factories and companies, prior to inviting a foreign management team.

Only in this way can we determine where exactly do deficiencies occur and who makes mistakes, after which it will be possible to punish guilty persons based on evidence. It would be cost-efficient to appoint a new management and results would be seen immediately as the tasks are clear. If we are able to make business activities of these “milk-cows” more transparent, then the people’s real interest and requirement to penetrate into politics would disappear, thereby the number of public officials would automatically decrease, opening up the path to receive many public services through Internet.

Only in this manner will a business-like attitude revive, encouraging the young people try their strength in the business sector.

Only Sweden, which managed to develop independent auditing and make government activities transparent under pressure of its people (all-level auditors are appointed and financial and operational auditing is carried into all-level government institutions and its report is published), Norway and Finland (auditing is carried mostly by certified auditors), Denmark (Auditing is responsible for controlling and examining the Government and audit reports are introduced to all-level councils. Since 1997, it passed law on operation auditing), had practically managed to eliminate corruption. These countries have proved that corruption and government have proportional relationships.

The people and taxpayers of Mongolia support, and are demanding the authorities also support, a proposal to bring foreign auditing into state-run big companies, into the State Property Committee and into the Ulaanbaatar City Administration.

Translated By P.Shinebayar

Netted Inflation

UB Post

December 17, 2010

The improvement of capacity to buy a foreign currency by a national currency means the national currency had strengthened. If we bought US$1 for MNT1470 as of January 12, 2010, and after eleven months exactly we buy it for MNT1211, it means the Mongolian tugrug has strengthened by 20 percent during this period.

However, inflation jumped by 11% as of first eleven months or the quantity of goods to buy for a certain amount of money has reduced and therefore money lost value by 11%. In a country where the currency is freely convertible, price changes to buy a foreign currency and to buy goods both should move in the same direction and more goods should be bought for a certain amount of money. For instance in Japan, the stronger the currency, then deflation is higher or prices goes down.

But how is it in Mongolia that prices are growing when the tugrug is getting stronger? The reason is that the national currency is not able to stop the price growth, despite the currency getting stronger and stronger. Then why the price is getting so high?

The inflation is enormous. Basically there are four types of inflation in the world, including demand-pull inflation, cost-push inflation, administered price inflation and industrial inflation. In Mongolia these four types are simultaneously taking place at different rates, netting whole inflation.

In Mongolia, economic volume per capita is low, one third of the population is poor and almost one third of consumer goods consists of only five kinds of foods, including meat, flour, rice, sugar and potato. In addition to these goods, the price of energy and petroleum has a remarkable impact on inflation and the population is very sensitive to price changes of these few types of goods. Fundamental inflation is the one that is computed excluding price changes of these goods.

In order not to allow the price of these few goods to grow, the Mongolian government takes every possible action. For instance, in order to prevent inflation it regulates the petroleum price by changing the import excise tax rate, regulates the meat price by stocking it in winter time for spring release when it is scarce, holds down the wheat price by purchasing wheat from growers by paying a subsidy and holds down the price of electricity by paying subsidy to cover the energy cost.

These costs are covered from the government budget by taxing a particular group and paying to other groups to reduce the price. The government regulates the price based on goods’ supply in an attempt to keep the price fluctuation stable. Basically, on a long-term basis the Government cannot keep the price stable anyhow.

Unfortunately, prices started to get higher because politicians began to distribute cash to everyone knowing its negative impact, in order to fulfill their election promises. According to the budget approved by the Parliament, the Government will distribute more MNT1 trillion in cash, which surely will increase the demand for consumer goods, meaning the government hardly keeps the price stable by one hand if it pulls the price up it by the other hand.

It is obvious that the supply cannot chase the increasing demand at the same speed and the reason for price growth is that they distribute it during the Naadam Holiday to make a PR as if they give it from own pocket. That is called demand-pull inflation.

This is the most common type of inflation. Another reason causing the price growth is the Government’s decision to raise the salary of public servants by 30% last month, which forced other private business sectors to follow suit and increase their salary. When salaries surpass productivity, it causes an increase in production and service costs leading to price growth.

Besides, health and social insurance tax burden is so high upon Mongolian companies and all these high taxes and levies, instead of supporting the supply through financial market as investment, boosts luxurious consumption in open or hidden ways thus increasing the demand. Cost-push inflation means the one which is caused by substantial increases in the cost of important goods or services where no suitable alternative is available.

The third type is administered price inflation. It is when a certain business can make more profit by raising the price and usually it occurs in an oligopoly-like business or in an industry whose market is completely occupied by just a few companies.

The press informs us that this is observed in the supply of oil products and meat. Basically this type of inflation occurs when there is an economic growth, but it is still observable in our country. The fourth type is the inflation of a particular industry.

Our country is still attempting to recover from the crisis in the construction industry. Though the price of many apartments has fallen because they remain unsold, the inflation forces the price to grow. There is no significant decrease of the price of apartments and in some cases it is getting higher. It should be noted here that people began to transfer their dollar savings into fixed capital, as the dollar exchange rate goes down.

This is the reason why the inflation continues to grow though the tugrug is getting stronger because of pressure of all types of inflation. If the tugrug did not get stronger, this growth could be almost two times higher. Anyway we have a low inflation thanks to an inflow of foreign currency.

Thus, with such politicians and government above us, Mongolia can maintain its speed of growth speed only if there is more foreign investment coming to Mongolia.

Translated by P.Shinebayar

The Armey’s Curve

UB Post

December 10, 2010

The 2011 Budget of Mongolia has been approved, setting three records in its modern or capital development history. First record is that it became the biggest budget in the history of Mongolia (MNT4.0 trillion). The second one is that the 2011 budget is the most cumbersome budget or more than the half GDP.

Third record is that the deficit in this budget will be equivalent to 1/10 of the economy for the first time. Let us analyze each of them in more understandable way. The biggest budget never seen in the history of Mongolia on one hand shows the beginning of rapid economic development of the country. On the other hand, it will be a huge challenge for the governance to pass MNT4.0 billion through the Government. The corruption will get even bigger, leading to expansion of black economy.

The queue of applicants wishing to get a job in government system will get longer and longer and the bureaucracy of government officials will get stronger and stronger. The consumption of government will get more luxurious. Budget of any country is compared to its economy or GDP to measure government’s portion in the economy. This proportion cannot be zero or if there is no government, then chaos will spread and economic creative actions will not create any accumulation or there will be no wealth.

This proportion cannot be 100 percent too. We had experienced it in our recent history. There has been continuing debate about what can be a proper proportion rate in order to make the economy more fruitful and U.S Congressman Richard Keith “Dick” Armey first applied graphics of such proportion and it is called the Armey’s Curve. It is believed that the highest possible proportion of government is that it should not exceed the half of economy. If it does, then it will negatively impact economic growth.

In other words, the government is just like meal. If you undereat or overeat a meal, both diets are bad for your health. Our budget of next year “overeat” by 2 percent reaching 52 percent. Economists claim that 15-17 percent is the most appropriate and proper rate. Does anyone remember that two years ago IMF had rescued our country from real bankrupt by granting a US$290 million credit and that Mongolian Government had pledged to keep budget deficit below 5 percent in order to receive this credit?

Though the European Union demands its member states to keep the budget deficit at 3 percent, Greece and Ireland was about to get bankrupt because their deficit reached to 13 percent and 16 percent respectively. They had to ask credit from abroad to rescue their countries. Mongolia plans to spend MNT4.0 trillion next year, which is more than total budget income by some MNT700 billion, which means budget deficit is about to reach 10 percent of the economy in 2011.

Since the country is going to spend more than it earns, somehow this gap must be financed from a source. There are only two options for the country in budget deficit: Print paper money or take credit from abroad or home sources. The former will directly create inflation.

The latter is to get loan and next generations will pay this loan. It will depend on expenditure purposes of the budget if the second option will create inflation or not. If the budget is spent to create value, there will be more job places and bring other resources into circulation and there will be no risk of inflation.

The inflation will get high if the final consumption grows. Mongolia is now at the risk of inflation because one third of that big budget spending is the cash of political promise to be distributed in the form of social allowance. If such a big money is spent for energy and infrastructure development, it would create more job places, improve economic productivity and exert positive impact to inflation.

This year’s government investment for energy and infrastructure hardly approximates with half of cash handout or with last year’s amount. As World Bank Country Economist for Mongolia Roger van den Brink said, there is a high probability that inflation rate reach up to 25 percent after one year. In that case, it means one fourth of social care will just disappear. It is also said that the inflation is a theft committed by the government.

In Mongolia, budget spending must be low and stable. We should not forget that the budget growth is caused by the growth of price of some minerals at international market, which means we did not create this growth ourselves.

Translated by P.Shinebayar

“Travelers”

UB Post

December 03, 2010

The most precious quality of an administration is its just deed and people’s confidence in its match of words said and actions done.

Unfortunately, such kind of confidence is an endangered thing in Mongolia. In a country like ours where the law pertains not to those who has power and money but only to ordinary citizens, who will believe in government?

Will you be surprised if a list of the biggest lawbreakers of Mongolian laws includes law-making parliament members, law-implementing Cabinet members and its agency heads, law-enforcing court and police officials of all generation? Just go to and look at Zaisan, Nukht and other valleys in the National Park of Bogd Khan Mountain. You will see disorderly and unplanned built luxurious houses, cottages and apartments, in which our lawmakers, law implementers and law enforcers mostly live.

We see how the press makes it public who and where lives taking their definite names and positions and we see how the number is increasing. The highest place to appeal lawmakers and the principal fundament for Mongolian legislation must be the Constitutional Court of Mongolia.

Unfortunately, our Constitutional Court itself settled in a new palace built right on the Zaisan Valley, a part of the Bogd Khan National Park, thereby calling the others for breaking the law. How should we understand that? Does it mean that we, the citizens, have got nothing left to address not to the Constitutional Court but to blue sky which is the only available option above the Constitutional Court, to ask how in all government administration levels the Article 12, Law of Mongolia on Specially Protected Area is insistently infringed by lawmakers, law implementers and law enforcers themselves. It is good that the number of shamans is on increase. Or are our authorities “the travelers”, who have permits to camp on the National Park stated in the above-mentioned law? If they are, then it appears that our “home” is ruled by some passers-by?!

Like Mongolians say “Don’t let someone, who will stay, load the cargo. Most of people who are in power in Mongolia, their puppets altogether machinate lands of Ulaanbaatar City for personal interest only in an open and hidden way, being a part of dirty land business directly and indirectly. These bad guys, who became masters in acquiring a land in the territory of the Bogd Khan National Park behind the name of license to run a tourism business, in order to build their luxurious houses and cottages jointly with their accomplices, have bought and subjugated leaders of political parties.

A pyramid of lobbies who buys the choice of citizens at high price and finance election expenses of particular politicians to make the decision making profitable for them only or of politicians who are pledged as debt security, has erected in Mongolia. Valleys in Bogd Khan National Park is the clear examples of how officials who was elected only serve its people, put their personal interests before the peoples’ interests and how such trend has “developed” into a day-to-day function standard of all recent administrations

The only method and chance to change such system is next elections. It is obvious that in next elections the people have no reason to believe in those “valley residents”, who took the law into their own hands and makes a mock of their people. We can do nothing with those who already settled in the Bogd Khan valleys. We just need to make this area a special zone of Ulaanbaatar City to charge relevant tax or fee and use this money to finance projects to turn ger districts into apartment blocks.

Even a goat understands that Ulaanbaatar City can be free from air pollution only after the ger districts turn into apartment blocks. Generally, it is already time to make political parties publicize their separate reports on origin and amount of election donations and their expenditure, on each of candidates. We can live a healthy and energetic life only if we will be reminding the politicians continuously and constantly that they are servants of the people. Today’s politicians are not able to do all these changes and reforms.

As they hostage each other, they can talk rhetorically, but are not able to do anything. Let them live in harmony. Otherwise, they might beat each other and tear down our home.

Anyway, next election is approaching. Very soon, a new young generation, who has sagacity, who loves their homeland, who are free from machinations and various dirty things and who are intelligent, will come to power as a new political force. But for today, Mongolia is ruled not by the governance of justice but by the law of governance.

Translated by P.Shinebayar

Samurai

UB Post

November 30, 2010

President Elbegdorj has paid a visit to Japan. Japan and Mongolia has been expanding their ties in government level and Japan has been rendering development assistances to Mongolia for many years.

They repaired our power plant when it was almost about to stop, provided circulating capital when we had no money to extract coal, presented fifty buses when city’s public transport was on the verge of stopping that winter, and built dozen of secondary schools nationwide. Soon they are going to build an airport on long-term credit.

All these are bringing a new consumption culture to Mongolia. However, Japanese business is not in hurry to enter Mongolia. Main reason is that we, Mongolians, are not predictable or it is still hard to trust us. Business representatives I met say that there is still high risk in business trust in Mongolia. Exactly the same talk developed a decade ago. There is a huge gap between Mongolian and Japanese person regarding the understanding of social relationships.

The fundamental ideology of Japanese people is Samurai rules. The Japanese worship to the rules, which include many characters such as mastering own deed perfectly, courage, patience, modesty, finish what started or what promised and bear responsibility for all words said, and teach them to their children. The quality of goods and products created by the Japanese is a clear demonstration of this. Though not all 130 million Japanese obey to these rules, the dominant culture in Japan is the culture of Samurai.

Everytime I go to Japan, I feel this culture more and more and I get more eager to find and restore own rules and culture we had once. Even Japanese say that they are connected with Mongolians and that there are many similar qualities between Mongolian warriors and Japanese samurai. In 1192, Yoritomo Minamoto left Kyoto to build an administration of his own, centered on his military headquarters in Kamakura and soon he managed to unite other cities and clans under his rule. He established the supremacy of the warrior samurai caste and the first bakufu (shogunate) at Kamakura, which lasted until the mid-19th century.

He established a harsh military (samurai) regime under which he stopped luxuriated use of lords (then-lords usually used to wear twelve-layered kimono until the Yoritomo rules) criticizing the fact that ordinary people got poor due to high tax rate. The new regime ruled to use the foods and goods enough only for staying alive, not to collect properties for private use and to commit to physical development.

His younger brother Yositsune Minomoto was the most popular and courageous samurai of his era and two brothers clashed with each other with respect to their ideology of how to rule the state. The younger brother disappeared without a trace and even there is a gossip that he joined with Mongolians. Khubilai Khaan of Mongolia attacked Japan twice in 1274 and 1281, but major typhoons dispersed Mongolian fleets. The Japanese named this typhoon “kamikaze” /divine wind/ and later the name was used to glorify Japanese suicide pilots during World War II.

Japan’s samurai culture has become ideological principle in their everyday life, making them responsible, disciplined and competitive. Where is a historical fundament of courage, patience and intelligence of our Mongolians?

If we manage to find the answer to this question, then it might be a big step towards bringing closer the difference between Mongolian and Japanese people regarding the understanding of social relationships. Only when this difference gets lesser, the business cooperation between the two nations would develop in real sense.

Translated by P.Shinebayar

Democratized Corruption

UB Post

November 23, 2010

The capital accumulation, an economic basis for capitalist system, is taking place in Mongolia. Only when a huge capital is centralized in hands of particular companies, it is possible to make remarkable investment to develop projects.

The government duty is to build a favorable fair-competition environment for private companies and on the other hand to make infrastructure investment through taxes and other levies.

Unfortunately, in today’s Mongolia, the government serves as a tool to make some group of people get richer and richer instead of fulfilling the above duties, further deviating the business principles and its normal operation instead of building favorable conditions for businesses, which led to disappearance of fair and free competition. Finally, ordinary businessmen “buy” their favorable business conditions by corruption. Though the corruption has been spreading in Mongolia and in our northern neighbor, it is different in terms of their concept.

In Russia, the corruption is feudalizing. There, a few number oligarchs has built close links with authorities and became an extraordinary social class, who machinates with authorities to sell Russia’s rich natural resources and who outbids to buy the world’s most expensive real estates. Meanwhile, ordinary citizens of Russia remain poor. However, because Russians can see and sort out who creates and spreads corruption, they have possibilities to clear out and get rid of them under a certain historical conditions.

In case of Mongolia, the corruption is democratizing. The corruption has penetrated deep into every branch of our social life, becoming a basic survival condition for ordinary citizens. All businesses, no matter big or small, are being fed by corruption.

In order to win a tender bid, which is machinated by decision makers, citizens and individuals race with each other to give bribe in each decision making levels. Ordinary citizens fight each other to have even little connection to any part of mineral resources development. A main reason why the corruption is democratizing in Mongolia faster than its society is that every person began to see the corruption as an only opportunity or only approach available to get or acquire what he wants. As the corruption serves as basic conditions for the existence of society in Mongolia, chances to clear out and get rid of corruption system have been disappearing.

If it continues at current speed, we will soon be among the countries, where the corruption is more democratized than society, where authorities in power get richer and richer while ordinary citizens get poorer and poorer. Economic branches are politically and economically controlled by leaders of machinated political parties in power, under such fancy names as coalition or consensus. Meantime, most of population is gradually getting poorer, increasing the number of people isolated from the society.

So far, one generation that only the minority benefit from quality or international standard education is behind us and the power of government is now passing to inherits of those who ruled the country for the past two decades. In a normally developing country, the income of population grows at relatively same speeds and order to ensure it there must be a real political opposition party in the government. In Mongolia, only few people rule and control the whole country and do whatever they want, under the name of coalition or consensus.

On the name of the state, they threat, rob and shoot to death its citizens. It is getting more likely that soon there will be no one left to say against the words ordered by them. Those who are believed to be smart, intelligent, just and wealthy, go abroad in exodus for various reasons and started to purchase real estates in the country, to which they go. In order to stop this sorrowful trend, first we need a strong political opposition party.

Secondly, we need the involvement of well-informed and intellectual citizens capable to affect decision making. In other words, we lack a strong civil society. These two factors are major guarantees for democratizing the society faster than the corruption.

Translated by P.Shinebayar

Healthy Building

Ub Post

November 12, 2010

It has been many years since special inspection is carried to determine if building materials used in buildings are friendly to health of people or not and decisive actions are taken if hazardous materials were used, including demolition and building a new one.

Law provisions are in place to forbid the use of certain type of materials for building and any infringement of them is fined at the rate that would be never forgotten. Unfortunately this is the practice happening not in Mongolia but beyond our country. In Mongolia, the issue concerning the health impact of building is discussed now and again.

The authorities pass one or two regulations, but these regulations last effective for “three days” only like other regulations do.

There should be a mechanism to keep this problem under regular control to ensure that health and interest of citizens are protected continuously. It can be considered for the following example.

Many countries require that all materials should be filled with casting in order to apply polystyrol. In some countries, polystyrol is forbidden for use in building.

Few years ago in Russia, a fire in a night club left many young people died. Main reason was the roofing of this night club was made of polystyrol. Though the roofing was covered with inflammable material, the polystyrol that easily ignites to fire has melted and leaked through roofing.

This type of material is extremely hazardous and burns generating black thick smoke, which leads to instant death. Even in its normal condition, this material generates poisonous gas, affecting the kidney and even a fresh embryo in abdomen. Currently, all building insulations made of this material have been removed from buildings in Moscow.

On the contrary, this material is widely used for insulation in new buildings in Ulaanbaatar City and no one talks about if it meets health requirements. If there would be a fire, it is almost not possible to extinguish and it melts instantly and generates asphyxiants. The application of asbestos for construction caused the death of many people after suffering from lung and laws forbidding the use of all materials containing this material have been passed in many countries.

But we still use this and in recent years boards containing asbestos is beiong sold in local markets. In addition, slate or roofing material is made of asbestos and is being imported from Russia and China.

Generally as building requirements got stronger in our two neighbors, it tends that ready-to-use materials pushed out of markets of China and Russia are being brought to Mongolia at cheap price. Though the flooring of new buildings is made of parquet wood, the polish used to protect the parquet wood is in the list of hazardous materials.

The composition of polish includes toloul and ksylol and these substances causes skin irritation and affects central nervous system of humanbeing. It also needs to check what type of polish and paint is used for internal covering of building wall.

Moreover, all building materials made of ashes from power plant contains radioactive substances and may cause cancer if penetrates into lung. Thus, certain criterion is put against the production of building plates using ashes from power plant.

Originally, all building materials must have three licenses including of building, of fire and of hygiene. Both purchaser and contractor must be firstly responsible for making sure that all materials meet minimum health requirements and standards of the country. In Mongolia, every building company is responsible for whole process of ordering, selling and controlling the building, on its own. The government or professional inspection body is responsible for protecting the interest of consumers, but they don’t have technical capability to provide regular control over all building projects.

As result, buyers or owners of the building have not choice but dealing with the building company in the process of utilization if there is any problem with the quality as there is no institution solely responsible for any defects and quality-related problems. After all, buyers will have no individual or no organization to deal with their problem because the building company would also disappear as if never existed.

Some apartment owners cannot even get a certificate to verify that they are real owners indeed. Originally, purchaser and executor of the building must be separate organizations, which should enable complete and efficient control over the quality of building during whole process of construction work and which will force the purchaser to take care of the quality seriously.

According to a survey, more than 80 percent of all building materials use home is imported only from China, which demonstrates that it is time to focus on hygienic safety of buildings. In Japan, each room of a building is thoroughly inspected against air composition after the completion of building work and dwelling is only allowed after ensuring that there is no hazard or threat to human health.

Japanese people must dwell only in those buildings certified as “healthy building”. In Mongolia, it seems like is does not make any difference for the government if Mongolian man lives in healthy building or not. What if we begin to issue a certificate “healthy building” in Ulaanbaatar City?

Translated by P.Shinebayar

Fever-Affected Economy

UB Post

November , 2010

Because banks’ loan interest rates had decreased almost two percents a year by year while savings interest rates keep standing at same rate to loan’s rate for the past decade, the difference between these rates gets closer leading to increasing imbalance of monetary circulation in the economy and the economy fever-affected.

In a normal and healthy economy, changes to these two rates should be made simultaneously and proportionally. The banking sector standing on the floor of a firm savings rate, while being pushed down by the roof of a falling loan interest rate and which living space is getting tighter and tighter, suffers the most fever heat and shaking. Though official number says that there are 65 thousand registered companies in Mongolia, only half of them are active and 80% of this half employs the staff up to twenty persons, according to the National Chamber of Commerce and Industry.

According to a sample survey conducted by the National University of Mongolia, only 40% of active business entities got loan from banks. They don’t want to take loans as interest rate offered by banks is too high. It is indeed not easy to repay the loan with monthly interest rate of 2% and with maturity of one year only. Because the money is very expensive in Mongolia, all big companies capable to bear risk now take loans from abroad. Because of high interest rate business gets into money shortage and grey economy is growing, which are demonstrated by the fact that non-banking financial service has expanded and their monthly loan interest rates have even reached 5-8 percents in recent times. There is no chance for small and medium enterprises, a major composition in Mongolia’s economy, to expand and grow. A number economic reasons support the interest rate to stand high.

The most important three factors are: first fundamental reason is the pressure by ongoing savings interest rate; the second is inflation; and the third is the Bank of Mongolia itself. A main reason for high savings interest rate is that depositors place their money in those commercial banks that offer higher rates.

In other words, the market supply cost is high. These commercial banks, who collected main funds thank to high savings rate, issue loans with high interest to the entities in need of capital, by adding operation costs, risk costs and profit. The other party in excess cash or the depositors place their money for a high but risky profit. As there is almost no capital market in Mongolia, savings interest rate is not expected to go down for a long period.

A key reason why the capital market cannot develop in Mongolia is the lack of credit in Mongolian companies that issued shares and the lack of a mechanism to guarantee the trustworthiness of all information the companies provide. This is beyond the business scope of Bank of Mongolia. Savings’ interest rate must be higher than the inflation rate for the reason that purchasing power can be kept stable provided only that the money saved in bank would be growing higher than real inflation rate at least.

Another key reason for savings’ interest rate remains high is going-up inflation rate. Bank of Mongolia reported that average increase of inflation rate was 6.5% between 2000 and 2004 and 11.5% in following five years. A major factor which makes the inflation rate go high is the Government which is getting more cumbersome.

They recover cumbersome budget expenditures by means of hiking tax on private sector in various ways or forcing mining companies to pay down-payment. Our authorities have converted state budget, which is supposed to be used to manage macro economic policy of the country, into their means of implementing their pre-elections promises and raising their political image. The budget expenditure has been increasing at astronomic speed, while the accountability related to budget spending has been vanishing at higher speed.

This year budget expense got higher than loans to be issued to businesses and the Government is becoming bigger than all businesses combined. The events like elites of two ruling parties amended the Constitution in the way only beneficial to them and parliamentarians obliged to pass law became members of executive governance or the Cabinet, have created favorable conditions for making the Government more cumbersome and for constant increase of inflation rate. Because legislative, executive and all controlling systems are mixed together, the subject to bear responsibility has lost somewhere and few irresponsible bastards have been doing what they want. As result, the price is now fixed not through market ratio of demand and supply but by political decision, leading to failure to control the inflation anyhow. Inflation is the robbery that authorities do from its citizens.

Third reason responsible for high savings interest rate is opportunistic or timeserving policy of Bank of Mongolia. In a country like Mongolia, which has two banking systems or where the central bank is not engaged in business but controls monetary policy, while commercial banks issue loans to businesses, the management of the central bank must pursue an independent policy free from the Government. However, the management of Bank of Mongolia has become representation of an attempt to balance political power of two ruling parties and therefore cannot take independent and proper actions as soon as it gets alert from market.

Authorities of the Bank of Mongolia are the ones who surely know about who is the biggest borrower of all commercial banks and about how the loan repayment is being made. They are the ones who must inspect operation of commercial banks at any time to reveal deficiencies and violations and who must take necessary steps promptly. Because commercial banks are owned by top officials of political parties, who became principal decision maker of the Parliament and the Cabinet, the Bank of Mongolia do not dear to speak out though they are the only one who is well aware of about why the banking sector which is the most affected by politics, still cannot change interest rates. They also have been silent for many years though they first felt the consequences of a cheap political play to distribute cash. But it is good that they started to speak out past few months.
The policy rate of Bank of Mongolia yet cannot affect savings interest rate of a country like us, whose economy is fever-affected. Monetary policy of central bank only influence minor any impact to money supply into real economy. The above three challenges must be addressed in order to reduce loan interest rate and each of three reasons urge Bank of Mongolia and competent government agencies function intelligently and fairly. Above all they remind ruling parties to be responsible.

Do you remember A.Einstein said once that “We can’t solve problems by using the same kind of thinking we used when we created them”?

Translated by P.Shinebayar

Right to Sleep

UB Post

October 29, 2010

This is one of many things that were lost for residents of Ulaanbaatar City. Conspired government officials have stolen from us not only our lands of kindergarten, playground and other properties of public ownership, pure air and sidewalks but also our right to sleep.

We all no longer talk about how the city is noisy in day times and almost got used to it.

Noises of construction and repair works in every street and every building, of car signals and of hammers smashing down the concrete walls has been increasing day by day, raising the question about how many people cannot sleep because of such noises. Construction of a building almost inches close to your building will continue all night long. Thousands of residents who went to beds after long working day, particularly elders and infants cannot sleep well till the morning. Many of them just call to police because there is nothing they can do. The police line 102 will answer we cannot do anything if there is no direct threat to human safety, please call to 310005. The person on duty, who is on this number, would say: “What can I do on my own, but I will forward to management”. Such scene repeats every night and the days are going by. Unfortunately, there is no mechanism to stop activities responsible for all noises in Ulaanbaatar City, which don’t allow residents sleep well. Don’t hope that the group of people called ‘city parliamentarians’ would care if you sleep or not. They are too busy with their “job” to get an estate or catch up a profitable business while in office. In civilized and democratic countries, there is a special law or regulations regulating the noise in the city.

Noise is classified into the classification of pollution like air and some special requirements are put against it. In most of megacities of the world, car horn is prohibited at night and the trespasser is subject to penalty. It is also restricted to use loud speaker at railway station. Any construction work between 06.00pm and 07.00am hours is totally forbidden. Any and all men who infringes it, is levied high fines so that it never repeats again. The United States Law of Noise Pollution says that any infringement of standard herein is fined US$25,000 per day or is imprisoned up to one year. In civilized countries, early it is legalized to fine for example if loudspeaker’s volume is high audible to neighboring house or street, or audible beyond hundreds of steps.

But today noise standards are expressed in decibel (dB). For instance, human whisper generates 20 dB, normal dialogue between two people in 1 or 2 meters - 60dB, sound of truck - 90dB, gas hammer – 100dB, rock music - 110, take-off by B747 aircraft – 120dB respectively. If it is higher than 130 dB, the ear will pain, further drumhead will be damaged seriously. A WHO research indicated that 3.0% of people dying because of heart diseases due to noise-related stress. A man feels uncomfortable in the sound higher than 45 dB and cannot sleep in the noise higher than 40dB.

Kid’s learning capacity is completely lost in noises above 55 dB, and they even get into stress. Metropolitan residents must take care of such impact of noise and demand city authorities and central government take efficient actions. They are obliged to serve the people. Instead of serving the people, they indirectly support seizure of all of citizens’ rights and properties and are even involved in. Look at these numerous buildings built and being built between two buildings in Ulaanbaatar City.

They build buildings blocking windows of families and sidewalks. Residents first will react with strong protest. They go to all competent organizations, including the government, courts, khoroos and apartment owners associations, and make sensations, in the hope that they will serve for the people’s sake. All organizations will pledge to take necessary actions. Very soon, all parties will get silent because all got what they wanted – the money. Since the money is paid to make residents silent, the owner of building will do whatever he or she wants, but the residents, who sold their comfort for small money, will stay awake whole night saying no complaints no matter how the noise is.

Exactly like this way, your right to sleep is sold and conspired at the end. City authorities, government officials and building owners cannot choke back laughter looking at that residents cannot get asleep at all. Because, they all live comfortably in big houses in mountainsides which they acquired by means of conspiracy by lying the people that mountainsides are part of national park, far from big city’s noise and polluted air. My metropolitans, have a good sleep … if you can!

Translated by P.Shinebayar

Counterfiet Medications

UB Post

October 22, 2010

“Mongolians used to be poisoned with foods, but now we are poisoned with drugs” said the Health Minister S.Lambaa (Unuudur Newspaper. 2010.09.27. Page C3)

You are right, Mr. Minister. We, the citizens, already know that we use counterfeit drugs poisonous for our health. Those who lost their loved ones because of using poisonous counterfeit drugs, knows even better.

Citizens of Mongolia want to know only about why your drugstores are not stopping to sell counterfeit drugs and what you, Mr. Minister, are doing to stop this kind of crime as the highest competent one in charge of population health. You said “Drug control is carried by the State Professional Inspection Agency, but originally the Health Ministry must take control of drugs”. Can Mongolian Government and state-run agencies control themselves? State controlling agencies are all already in entrenchment.

In principal, we, the citizens, don’t care about where is your Government’s controlling and inspection body. The only thing we want and demand is You, as a cabinet member, put a control, no matter professional or devil’s, as soon as possible and stop exploiting your people by counterfeit drugs. If you cannot find out who is the importer of counterfeit drugs, punish such importers and stop this crime immediately, then it would not be useful even if you take control of drugs and set up that new agency as you said.

New seedlings can be planted only after weeds are pulled up by the roots. Even innocent young kids die on hospital beds because hospitals inject counterfeit injections. Wondering if You are in power to stop your subordinate who force patients to buy counterfeit drugs or not?

As Minister for Health, can you publicly announce how many companies are licensed to import medications in Mongolia, when did they get such licenses, on what grounds the licenses are suspended and how many of these licensed companies are linked to current and previous ministers, deputies and to those authorized to issue licenses? The citizens doubt that You can announce all these publicly.

Generally, such kind of information is always open for public in any democratic state. Besides, You are the Minister from the Democratic. If you can, publicize it and the citizens will judge your right and wrong very soon. Carry sudden inspection in drugstores to find out how much of all drugs are counterfeit products and publicly announce by each drugstore. Then expose how these counterfeit drugs came here. There won’t be any trouble to find out it because there is no doubt that the money from counterfeit business always goes to its counterfeit dealers. After that, find out who gave licenses. If it is difficult to know where they came from, talk with customs.

Ask why individuals bring foreign drugs in their hand luggage. Then reveal if they pay taxes or not. Also ask why drugstores do not use price tags on drugs they sell. Ask why drug price is fixed by a drug selling lady, who is able to easily define your purchasing power instantly due to your appearance and look, better than Statistics Office of Mongolia. Deal with all foreign and domestic hospitals and all drugstores, who make superb income from selling the drugs in retail like tobacco.

You, Mr. Minister, and your “colleagues” must have noticed the following while undergoing expensive medical treatment abroad. In a civilized country, it is recommended to refuse from the drug if its package is opened or damaged and, in case of using such drug, the people are warned that the manufacturer will not be responsible for the quality of its drug. Do the authorities care that everything is vice versa in Mоngolia?

If not, please tell us who must care of it. This is not all about medications. The same situation exists for all products, tools, apparatus related to health and everything associated with hospital is counterfeit. Are all these food supplements and herbals are real?

The most of natural supplements and herbals come from Russia. All television channels in this country are discussing that Russia leads in the world by its imports of such counterfeit products. Do we only bring original ones? The only official, who has the competence and authority to expose, publicize and deal with all these, is You.

It is your basic duty to do so. Your previous ministers have not done this and they have not been punished for not doing this. Because political parties in power never charge each other with responsibility. It is always like that “one feudal is replaced by another feudal”. Though you, the politicians, were excited to pass a national program so-called “Healthy Mongolian”, finally it appears that there is no healthy Mongolian. Don’t You and your ministry staff really know that there are a number of successful practices about how to stop counterfeit drugs and medical equipment? Ask the citizens if you cannot find out such best practices.

Minister Lambaa, you are the first person to become a health minister despite the fact you’re you are not a doctor. Minister is not required to be a doctor, it is enough to be a good manager.

Therefore, deal with the half of things written here if you have a desire and willingness to be a good manager. At least start it. Just set a standard.

Maybe the counterfeit drug businessmen altogether would unite their wealth and influence to change you somehow in order to defend their dirty business. But if you manage to do half of this at least, You will easily win next elections again.

Translated by P.Shinebayar

The Lost in Storm

UB Post

October 15, 2010

Our government is always with events and acts just only to ‘extinguish the fire’. It is obvious that the man, who always goes downwind and is lost in storm, is not able to think and plan something. Probably the government had suddenly noticed last week that almost 40% or 1.1 million people of total population is able-bodied, 140 thousand of them had gone abroad and 200 thousand is unemployed, only 1/5 of all able-bodied population are active job seekers and the rest just rely on their monthly incomes. As their reaction, they said they are going to do two things: first is to pass a law on export of own citizens abroad and import of foreign workers to Mongolia and the second is to create a national integrated information network of labor market registration and information.

The government lost in storm seems like just following its nose. The problem of labor force in Mongolia is that job seekers do not have satisfactory skills to meet requirements of vacancies and that their professional diplomas and certificates do not guarantee its concepts.

By creating a giant registration and information system, you cannot just make the labor force skilled and qualified. Our government acts in a way of “racketeering” of foreign investors and is overdosing that some 3,300 specialists are to be prepared in three years with the investment of Oyu Tolgoi as if they have managed it. The health minister and his deputy made a mountain out of a molehill by laying a foundation stone for the building extension of Maternity Hospital No.1. Indeed the money for the extension was “donated” by Boroo Gold Company.

Foreign companies have not entered Mongolia to build a school or a hospital. They are forced to finance all these. It is obvious that they will deduct such costs from the tax they will pay later. It is legitimacy that foreign companies must run operations and pay taxes as the others do and the Government must collect the tax to make necessary investments according to a certain plan.

Don’t you think it is a good idea to order each foreign investor entering Mongolia to build a particular facility, without the need of ministries in charge or parliamentarians? If the government could act in far-sighted and planned way, then the development benefits would be sufficient for all citizens and would provide equal opportunity for education and employment. An industrialized country means the one, whose citizens have job and are paid enough to have sufficient livelihood. There are two basic reasons why the minimum wage rate is so low in Mongolia. Firstly, social and health premiums and income taxes imposed on wage are high. Secondly, the labor productivity is low.

Labor productivity of Mongolians is low in Mongolia while it is high abroad, which means there is no fair competition in any business field. Let us have a look at labor force problem in case of mining industry. The mining industry creates fewer jobs compared to the investment made to the industry. However, we must use existing opportunities in a proper and beneficial way since this industry is only sector that makes big money for Mongolia. Though Chile and Peru both allowed huge investment to their mining industries like we are doing now, the results were relatively different. The poverty rate has significantly reduced in Chile, but it did not change in Peru. If 44% of Chilean population was below the poverty line (US$1 income per day, or less) in 1987, after two decades it has reduced to 18%.

Today, the average salary rate is US$800 in Chile. Chile has taken a number of significant actions to diversify its economy and improve the population livelihood; the most attractive one is how it solved its labor force. Three keystones of Chilean reform strategy were to make its human resource high quality, carry out business reform capable to create value and to develop basic science on strategy.

Out of several steps towards building the quality human resource, the most noticeable step was rational and efficient solution of issues concerning jobs and employment. First of all, they had a thorough investigation into functions and requirements of jobs in each mining company and summarized results according to each sector. Afterwards, they had defined which training framework, practice and skills are in demand and had prepared teachers and instructors at first.

They involved all concerned parties to this mission to establish standards of skills for every worker and work out training schedule meeting this standard. Workers are trained and evaluated under this standard and training schedule, to get their professional certificates. Because the latest standards of training, examinations and evaluation from the beginning were prepared not under own standard but under the standard approved by the Organization for Economic Cooperation and Development (OECD), the worker is capable to work in any mine in any country once he got that professional certificate.

Generally, it is quite better and more effective to directly copy best standards in the world for local application and use knowledge and experience of specialists efficiently, than preparing or correcting them on your own. It has been many years since Chile has used a translated version of French civil and criminal laws, without making any corrections or alterations. In Chile, the Cabinet selects ministers from technocrats, not according to political membership but to their skills and knowledge.

There was a time when thirteen ministers out of 15-cabinet member of Mongolia had been doctors of sciences. Anyway, the time has come to adopt a strategic policy intended to replace nonrenewable mining resources with renewable knowledge resource and implement it in all fields step by step.

Translated by P.Shinebayar