New Thinking

It is almost impossible not to highlight three important statements made last week that suggest that we are living in a truly democratic country with a market economy.

“The three heights of the state,” that Mongolians incorrectly refer to; i.e., the state power: include the Speaker of the Ikh Khural (Parliament), the Prime Minister, (who is the head of the government), and the President. In a real democracy, these “heights” are part of a state power that makes laws, executes the power to implement those laws, and adjudicates the power that makes sure that the other two do what they are supposed to do. It is not a big surprise for us that our judiciary “height” is not at its own proper level because our legislative power replaces the executive power. Our “parliamentarians” are also the Ministers of executive Government. But heights and levels aside, let us focus on the three statements.

First, Prime Minister S.Batbold introduced his plan of action for further development of the economy by leveraging the future large mining resources of the country, and handed-over related legal drafts to the Ikh Khural to consider, bearing in mind the expected boom in the local economy during the next decade. The government is going to create three public companies: “Mongol Ded Butets” (in the infrastructure sector); “Mongol Erchim” (in the energy sector) and “Mongol Erdes” (in the mining sector), in order to operate state-owned enterprises in those industries. This time, however, these state companies will be publicly listed on international and domestic stock exchanges in order to raise capital needed for development of relevant big projects. He also suggested that the state should invite foreign professional companies to manage the Mongolian Stock Exchange operation. Already existing large state-owned enterprises will be sold thru international capital markets at fair-market values, and thus will not repeat the previous mistakes of selling everything to one individual.

Mongolia must use a new method for this new stage of economic development. The famous A. Einstein once said something like, “A problem can be solved by using only one degree higher in approach, compared to the method used at the time of its creation.” We can successfully manage the rapidly growing economic development with the methods that make international capital market operations possible. As of now, if we keep going on with our old ways of economic management, there will still be only a very select group of people who will benefit from all the mining wealth (exactly mimicking the ills that afflicted other developing countries with bountiful resources and greedy leaders in the past, like Iraq, and long ago, Bolivia). The remaining majority will be a victim of “caring and distributing” political propaganda. Then 20 years from now, all Mongolians will be artisan miners (we call them Ninjas) digging in the remaining empty holes of the previous mines dug all around the country.

For the open “public companies”, certain parts of shares are initially sold on the international stock markets (IPO’s), and the initial start-up funding is raised to start up new businesses. Then the rest of the shares are only first offered after the company is already doing well (flushed with plenty of operating capital) and is subsequently more valuable. Then that way, the state earns more profit. The basic conditions of the capital market’s existence and its normal functioning, is the belief of the shareholders in the degree of truth regarding the public financial information published about the company. Consequently, if the people do not trust the information, they will then sell (dump) their shares, prices of the shares will subsequently plummet, and the company’s overall value will decrease. If there is no trust in listed companies, neither foreign bosses, nor domestic management can help much.

The three new proposed companies we discussed above, once they’re listed on international stock markets, will have to provide the public with complete and transparent financial reports on their operation. If the classical method of political parties placing their own members in the top executive positions of state-owned enterprises prevails, and they nominate their own people (friends) to the board, hence taking away the real assets from those companies, either directly or indirectly, the market will immediately react to such attempts, and it will be reflected in share prices. This capital market approach is exactly the one and only way of management needed for Mongolian society today. Then there is more of a chance of getting all the financial documents with true information, if board members of public companies are independently appointed and truly represent the shareholders.

The current crisis of (a lack of) infrastructure in Mongolia is mainly due to the secretive operations of related companies, and that no reliable information has been made available to the public. This is because top executives, who are also political nominees, never are required to take responsibility for their own actions. This mismanagement is further propagated by a chain reaction of not paying debts between state-owned companies: coal is received but not paid for by power stations; electricity and heat is produced and supplied but not paid for by state owned large enterprises and the companies are directly tied to the political powers for many years.

If there was someone inside the infrastructure companies monitoring their operations, administration costs, revenue accounts and managing the interest at which balances are kept, or those who receive the interests, the picture would change dramatically. This is exactly what S.Ganbaatar of “Trade Union” demands the government to report on before acquiescing to another increase in utility prices.

One of the many reasons why the Mongolian Stock Exchange is not operating properly is that citizens do not trust the financial information of their listed companies. This is linked to the Securities Coordinating Committee, who is unable to confirm any of the information. And as well as the confirmation of truth, public listed companies’ operations and products should meet technical and quality standards as well as not harming either consumers, or the environment. These standards should be verified by independent professional inspection agencies. This is another job that we do not perform well in Mongolia.

The second important statement in the last week was regarding the views of the Mongolian society regarding the state. The Speaker of the Parliament, D.Demberel, correctly said on the Day of the Constitution: “Unethical behavior of public executives fueled by a conflict of interests, corruption, moral descent and government bureaucracy, are making the public angry.” This accurate statement from the highest head of the state gives us hope that the situation will change.

The third important statement was made by President Ts. Elbegdorj who suggested imposing a moratorium on the death penalty. A country that follows the civilized world in terms of protecting human rights, will certainly follow (in theory) the same standard in terms of protecting foreign properties. It was a positive message to foreign ministers and possible future shareholders of Mongolian state-owned publicly listed companies.

The idea of shareholders and their true transparent representation via the board in the state-owned public companies for better control is truly a new way of economic thinking in Mongolia.

Only under such controls will there be no chance to plunder common properties in the interests of those who take over other people’s properties. Once that happens, political parties will be freed from exploiters of political positions and material gain.

Then the formation of political parties will reflect a certain real progress, and Mongolia will become a country whose citizens will not run away, but rather, settle in.