Tuesday, May 24, 2011

A Step Towards a Healthy State

Recent events in Mongolia’s political life have given opportunities to seal democratic principles deep into the root of government and further strengthen public governance. The conflict in the management level of the political party, who have ruled the country for more than ninety years, has been brought to light and the party has started to crumble as a political force. It is the beginning of a natural act of disintegration that was always going to happen.

A political party can carry out its duties for a long period of time only when they are based on a definite doctrine, a set of unambiguous principles and an ideology which reflects both of these.

It is natural law that a political force founded on personal interests or individual property interests will crumble and breaks apart sooner or later. After around two decades the only political party in the country failed to achieve its goal to build a successful communist state and left Mongolia without a political ideology.

Out of the remnants of this old party, a group of people united to fulfill their personal interests and desire for power, and since then they have been misusing their offices to cheat the people out of their own property. As they failed to build a new, well-ordered and stalwart ideology and existed only to control, the remains of the old doctrine have conflicted with current actions and leading the party to change its name and form.

Since there is no limit for human avarice and resources are limited, the group which united through their personal interests grew weaker due to those who misappropriated, distributed and benefited from public properties for their own personal wealth in a re-distribution of properties and powers.

A battle between the groups to destroy each other has begun, thanks to which great crimes of public property misappropriation have been revealed. At the same time, others are attempting to halt the flow of information making its way into public knowledge and to prevent the good decisions which were being made, since they know all guilty players will be laid bare in the end.

By this logic, opposing parties who have become implacable enemies are forced to reconcile and rejoin. Otherwise, thousands of the young people who joined their political parties may lose their party loyalty, negatively affecting the forthcoming parliamentary elections.

Because it was the fundamental structure which collapsed they can never be reunited again. But, the time might come forcing opposing parties to pretend that they are re-united for a common purpose.

Such re-union would not last longer than one or two elections. As for the second most dominant political party, it has been building its own doctrines based on the beliefs of “democracy” in a short period of time, but they have failed to realize these values so that this party too is more based on personal interest and property demands.

The fact that there is no difference between either of the weak ideologies of the two biggest political forces in Mongolia has led to the formation of a trembling government without an opposition and to the formation of today’s coalition. Efforts by incumbent MPs and cabinet members are pushing the government to amend elections law so that they can ensure their re-election in the next bout of votes.

In reality, the only amendments should be the creation of a direct vote from the people for the head of executive governance or the Cabinet. Then it will no longer be possible to form coalition governments, thereby eliminating a faulty system allowing lawmakers to become Cabinet members.

The fundamental principle of democracy is becoming firmer in Mongolia and politicians’ actions are growing more transparent day by day. Decisive steps must be taken to ensure that political parties are a unified group sharing a strong ideology in the interests of the country.

Translation by P.Shinebayar

Ub Post
May 24, 2011

Tuesday, May 17, 2011

Belated Law

Ub Post
May 17, 2011

A fundamental condition for the normal and efficient function of a democratic society is the high-quality control over the government and the community. Countries with well-established democracies have certain legislations and standards on good governance, which have become the basic guidelines for all people in public institutions. Out of four of the basic principles of good governance; transparency, openness, honesty and impartiality, the principle of impartiality has been disregarded and openly ignored by the authorities.

Firstly, MPs who own private universities or have seats in the top management of private universities, lately lobbied a recent decision to enable the allocation of MNT500,000 to go from the government budget to public and private universities and colleges as a tuition fee from individual students for each academic year.

Last week, the same lawmakers submitted a bill to Parliament to grant a MNT70,000 stipend to each student every month from the government budget.

They claimed that the stipend for students is the right investment to education, which would help solve many problems simultaneously. This law too has been lobbied.

Their dual roles as members of Parliament and of university institutions have caused a crucial conflict of interests.

Secondly, a draft resolution to re-set the boundary of specially protected areas, masterminded and submitted by another group of legislators, attempted to release lands on which MPs private tour camps are situated, when they are outside the boundaries of natural parks.

In this way, authorities in Bogd Khan National Park are renewing national park boundaries in their favor and interest.

Thirdly, the Government has decided to issue MNT110 billion worth of sovereign bonds to a new cooperative called “Mongol Cashmere” – which is a merging of private companies owned mostly by MPs and Cabinet members.

This means the government will finance the bond, as well as its interest. But the repayment deadline and methods have been silently forgotten.

In Mongolia, the private interests of government officials are ever present in large road and construction projects financed by the government budget.

Soon, they will pass a law allowing budget-financed projects to occur without tender bids or selections.

Finally, the authorities purposefully ensure a tender will fail to gain any share of the profits by intentionally muddying or failing to manage the tender bids.

Parliament and cabinet members with conflicts of interest should hesitate to participate in decision-making process in their respective issues. Unfortunately, they are trying shamelessly and resolutely to influence the decision making in their own interest.

The activities of seventeen members who have their own universities show the true magnitude of the vast conflict of interest in Mongolia.

If these 17 members were prohibited from making decisions related to higher education (for one can only hope the Parliament’s Office will soon check and announce their names), it might intimidate others in a Parliament whose daily attendance rate is already quite low.

There are also several members who should stand back from decision making associated to construction. Therefore a list of members with conflicting interests must be made by each industry involved.

In cases of city and provinces’ administrations and local parliaments, the conflict of interest happens in much more open ways. It won’t be an exaggeration if I say that there is no former members of the city parliament who misused their competency and authority to get a piece of land in the most favorable areas of the city or to take the slice of privatization.

The city administration office should make a statement on this matter. A mechanism to deal with such problems is the adoption and enforcement of a law on conflict of interest.

In developed countries with strong democracy, such a law is passed to define who is a person with conflict of interest and not to allow such persons to partake or influence the decision making.

In case they commit the conflict of interest, such law clearly states what kind of punishment is appropriate for the case concerned.

It should be separately clear what exactly is the conflicts of interest with minor impact emerging in the form of ethical conflict, what exactly is the conflicts of interest with middle impact emerging in the form of interest and what exactly is the one with serious impact emerging in the form of corruption, and forms of punishment must be clearly defined.

Two or three years ago, few MPs initiated and drafted a bill on conflict of interest, but the bill is yet to get adopted.

The bill envisage indicates principles, code and values of behavior by parliament and cabinet members and other high-level officials and establishes which decision makings they must not partake in.

A good news is relevant standing committees of the Parliament is expected to consider the bill in few days.

Regardless of delay, the immediate adoption of the bill is vital for “purifying” the public service and further strengthening the good governance of the community. I am just wondering if the legislators are eager to pass the bill or not.

Friday, May 6, 2011

Bond-Access to the Sea

UB Post
May 06, 2011

Mongolia is a geographically landlocked country but financially it has access to the sea. In order to freely sail in the international sea of finance, one should follow principles that the other countries set.
Today, we make preparations in our little pond with our little boat to travel in big waters. The government’s launch of its bonds at international market means that the country launches its ship to the great sea. Bonds issued by national governments in foreign currencies for the term of 10-30 years are referred to as sovereign bonds.

Because the sovereign bonds are issued not by individuals or private companies but by the Government that can raise taxes, the investors buy the bond and take back the invested money with its interests at maturity.

These investors are major financial market players such as individuals, companies, funds and national governments. If the government manages to issue such bonds and penetrate into international sea of finance, then it opens door to local private companies to follow this route.

The government’s bond issuing creates information and a system that can be used to measure the economy of that country, the efficiency of its public management and its governance of discipline. So national governments and their private companies raise a good deal of capital in this way.

Prior to releasing the bond, an internationally-recognized independent firm gives assessment of the credit worthiness of that country and provides a rating as compared to other countries.

There are two or three firms specialized in this field, one of which is Standard and Poor’s (S&P). In January, 2010, this credit rating agency rated Mongolia as BB which means not investment grade and assessed Mongolia’s debt issues as junk bonds.

For this reason, Mongolian government still cannot issue its bonds at international market. Mongolia needs to establish why it is in this rating and what should be done to raise its rating.

International and local experts claim that a number of target actions should be taken in Mongolia with respect to stability of politics and macro economy, transparent environment for business, fighting of corruption and open governance.

Some noticeable steps were taken last week by authorities to issue long-term sovereign bonds for domestic market and provide guarantee to bonds to be issued by the Development Bank.

The finance minister asked the Parliament to permit the Government to issue two packs of bonds for domestic market. Of the income from first MNT127 billion bond, 55,5 billion will be spent for compensating the state budget deficit and remaining 72 billion for issuing housing soft loans for public servants and other citizens.

The income from second MNT110 billion worth of bonds will be granted to “Mongol Cashmere” Corporation – an association of twelve wool and cashmere companies – for its efforts to improve competitiveness, penetration to international market and creating jobs.

It means the total debt will be paid from subsequent state budgets. The question is if the corporation will redeem the debt.

Next significant event related to bonds was the government’s decision to issue guarantee to the bonds of the state-run Development Bank for the first time in the country’s history. The soon-to-operate Development Bank first will issue MNT300 billion worth of bonds for the period of five years, MNT250 billion worth of bonds for ten years and MNT300 billion worth of bonds for 15 years, to raise funds from domestic market.
In case if the Development Bank cannot pay off principal debt and interests of own bonds, then the Government will pay for the Bank. Taking a credit equivalent to almost 10% of GDP in order to invest in infrastructure projects for construction, energy, road and heavy industry and paying principal loan and interests for 15 years by placing it in the state budget means that the investment is made through credits in principal.

Officials say that construction of massive infrastructure facilities in a short period and creating business environment in rural areas exerts positive affect to the development of private sector and improvement of their competitiveness and creates more taxpayers. On the other hand, because the government cannot afford to finance ambitious projects from the budget, it intends to implement these projects on credit and pay back in installments.
Annual interest rate of the Development Bank’s bond is 4, 75-7, 0 percent. But annual deposit interest rate of commercial banks is two times higher that it. For this reason, this bond will not directly attract the interests of individuals, commercial banks and companies.

Initial market or bond’s first trading will not be as active as expected. But already-traded bond holders will trade with each other or commercial banks will be active in secondary market, helping to build proper ratio of capital composition.

Or if it is permitted to take the above bonds from compulsory reserve of commercial banks, then it is possible to grant housing loans with annual interest rate of 6, 0 percent to citizens, which is equivalent to the rate applied to buy bonds. It means the half of real market interest will be compensated by bonds’ interest.

It can attract foreign banks, as well financial and investment banks interested in operating in Mongolia. US$700 million is not a big deal for big foreign banks. Fund raising through issuing bonds at international market means credit taking and it can yield more profits than trading shares at capital market. Fundraising through share issuance means the selling the ownership and sharing of profits always.

But in a country like Mongolia, where there is a big conflict of interest between the public and the private, we should make perfect contract and make all the process open and transparent in order to make these ambitious construction projects by credit. Otherwise, it is highly possible that it would expand and enlarge “the corruption fund”.

On the other hand, if we fail to implement the ambitious projects in a timely and efficient manner as to plan, then the credit worthiness of our Government would be even worse, which could delay Mongolia issue its bonds in international market.

Mongolian government needs to take immediate actions to reduce the budget deficit, stop compensating the deficit by foreign loans and aids, and cease co-exercising the authority to dispose of the budget by the Government and the Parliament, in order to issue its bonds abroad.

Issuing sovereign bonds is vital for financial infrastructure of the country.

Translated by P.Shinebayar