Tuesday, November 30, 2010


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

Tuesday, November 23, 2010

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

Friday, November 12, 2010

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

Friday, November 5, 2010

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