Tuesday, June 7, 2011

Thank you for visiting my blog.
From now on please visit my personal web site: www.jargaldefacto.com

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

Friday, April 22, 2011

Common and Preferred

Underground mineral of Mongolia is the property of Mongolian people and all citizens must equally benefit from it. Our country has become one of the world leaders in minerals with its underground resources. Certain companies are making enormous profits by extracting and importing gold, copper and coal only to the southern neighbor.

Their extraction is likely to increase in geometric progression in coming years. Besides, more and more new deposits of rare earth elements such as silver, iron and zinc are being discovered one after the other.

These fabulous natural resources must be used for improving livelihood of all citizens, not of a group of people. Otherwise, the gap between rich and poor will grow leading to social and political conflicts.

History of many countries, whose natural resource is damned, evidence that it can evoke disorder and unrest and destroy everything created and built.

Anyway, Mongolian government launched a new project to distribute shares of state-owned new companies to every citizen. Such a distribution of shares is a golden chance for two ruling parties to be seen as if fulfilling their promise of last elections to give a cash of $2,000 to each person.

Some foreign countries had implemented similar methods to dish out natural resources to their citizens. Oil rich countries like the Gulf states, Lybia, Nigeria and Alyaska implemented a method so-called “Resource Share”. Mongolia is trying to apply this method by deepening its concept.

Authorities already made a decision to turn the resource into shares and to distribute them to each person, after which to distribute dividends and to allows people to trade their shares at capital market after a certain period. Though the Government announced the number of shares to be distributed, it is yet to announce nominal price of shares.

The Government established a corporation called “Erdenes Mongol” as the owner of the strategic deposits of coal in the country. 10 per cent of “Erdenes Tavan Tolgoi” Ltd, one of fifteen subsidiaries of Erdenes Mongol Company, will be distributed in 565 shares for each citizen. This was a major political show of Mongolian politicians.

Their next show for April will be the release of preferred shares of Erdenes Mongol Company to be distributed one share per person and give the remaining shares to every new-born child. What is the difference between common and preferred shares? An owner of common share can turn his share into cash by selling it at the market price of that day or receiving dividend from shares.

If everything would go in the way we expect or dream of, the first option would mean give golden-egg-laying duck in return for three or four eggs.

The second option would mean golden eggs each year. But the time for egg-laying or dividend distribution is too far. Dividend from shares are distributed from the money left after the companies pay off all operational costs, including cost of credit taken and income tax, after many years.

Besides, it is not obligatory to allocate dividends despite the operation is in surplus. There will be no dividend to distribute if incomes are spent for expansion of business activities and injecting investments. For this simple reason, shareholders seek to have own physical representative in the Governing Board of the company.

Because the Government is aware of this, it is regularly reminding the citizens that they will make cash if they sell their shares. If citizens would sell their shares to those with money to make one-time cash, then the poor will spend this cash in a single day and remain poor forever. Preferred share usually carries no voting rights which common share carries.

Preferred share is often likened to bonds because fixed amount of dividend must be given every year from such shares. Bond holders receive certain amount of payment (coupon) every year regardless of the fact that the company is profitable or not. Another advantage is preferred shares have priority over common shares in the payment of dividends and upon liquidation.

That’s why it is called Preferred stock. Erdenes Mongol Company is believed to issue 100,000 common shares and 3,000,000 preferred shares.

Common share will make money. But in case of three million preferred shares, money will be given in dividend. In both cases, the company can liquidize the value of shares of preceding shareholders by issuing additional shares. The silence of the Government about issuing new shares or not means they don’t deny it. Another point should be noted here that company shares are issued for the purpose of raising money but not for distributing money like being done in Mongolia.

It should be considered that such a distribution can evoke multilateral conflicts within the company governance. Executive administration of the company must assume extraordinary responsibility for their actions and deeds and their activities must be kept transparent.

One thing obvious is that Mongolian people who got shares without paying a cent will compete with investors who bought shares to trade their shares, which will relatively reduce share prices.

It would be more efficient from the point of distribution if 10 per cent of Erdenes Tavan Tolgoi is distributed to all citizens instead of selling it to Mongolian domestic business entities at nominal price. It would be also efficient for increasing share price of secondary market.

A certain group of people benefit from underground resources of Mongolia, while ordinary citizens are panicking in an attempt to find their space. If there is no new jobs created, no significant improvement in livelihood of citizens and no immediate change in the country’s infrastructure quality in the process of exploring and processing underground resources, our resource for sure will not be a blessing, but yield serious consequences instead.

Translated by P.Shinebayar

UB Post
April 22, 2011

Tuesday, April 19, 2011

Intelligent City

Ub Post
April 19, 2011

Great cities of the world have already taken their first steps towards a new era of development. Since 1990s when information and communication technology underwent a revolutionary boom, ordinary cities were turning into smart ones, but from 2010 onwards the smart cities are becoming intelligent ones.

Residents of any city must live in an apartment with access to water, sewage and electricity, public transport service of the city must be adequate and prompt, its green areas must be able to clean the city’s air and the city must have adequate infrastructure to support all these conditions for the secure and comfortable living and working of its population and this is called a solid infrastructure.

The people from rural provinces can move to the city and become a resident of the city easily. It is getting more problematic and troublesome to provide downtown ger districts of Ulaanbaatar City with proper facilities.

If you look at UB city with a focus on its infrastructure, Ulaanbaatar is not yet an ordinary city. The quality of living and productivity of the city’s residents depends not only on solid (tangible property) infrastructure but also on infrastructure of information and communications technology.

A city that managed to computerize all data related to the city, its business and services are called a smart city.
In a smart city, the people receive most of the services and make all payments by means of gadgets such as a phone or a computer). Residents of Seoul City pay all their fees and charges and purchase payments just using their mobile phones.

In such cities, payments such as road fees and public transport charges are made using electronic gadgets, which saves much time and paperwork. It is enough to sit in a taxi with a GPS device to know how all the information is computerized in a smart city.

After entering your destination, the device will tell you how to reach the destination, your time of arrival at the destination and services available nearby.

Over recent period, smart cities are developing into intelligent cities, which mean that they develop into a specific area relying on their most competitive knowledge and advantages.

For instance, since Singapore City draws its drinking water from neighbors through piping, it is creating and building a unique infrastructure to catch, store and treat rain water for domestic use, which attracts great interest from many big cities around the world.

In order to become an intelligent city, Singapore seeks to become an specialized city to be an important node point in the global monetary and media systems.

As this country is nicknamed as ‘Asian Switzerland’ since they keep personal bank accounts in strict confidentiality and its banking and financial institutions strictly comply with all international principles and rules related, it has started to draw global offshore capitals like a magnet.

In February, Singapore opened a Mega polis Center and numerous firms are racing with each other to rent rooms equipped with the state of the art equipments and devices to create and transfer electronic products. It is emerging as world’s specialized cluster of animation industry.

Nearby this, two separate clusters of engineering and bio-treatment, Fusionpolis and Biopolis, are established and “Procter & Gamble” Corporation is injecting US$250 million to create its own World Center for New Initiative.

Ulaanbaatar City can start creating its infrastructure as an ordinary city in compliance with up to date requirements of modern city considering the above trends of urban development. For example, we could save considerable expenses and costs of we plan all new roads not with a drainage system only but with a system to collect and treat rainwater.

We should plan a totally new Ulaanbaatar, not for the interest of someone or some people, but for the welfare of all the city population and their coming generations, to join the world family of smart and intelligent cities.

Obviously, a lot of efforts and resources will be required in order to make Ulaanbaatar an intelligent city. We can use mineral income for this purpose, which would mean that we are managing to shift irrecoverable natural resources into the form of recoverable human resources.

This task should be carried out in coordination with the city’s taxation policy. All costs of cleaning the waste and treating sewage must be paid not by the government but by city residents. Only intelligent management can create and build an intelligent city. We, residents of Ulaanbaatar, want the city authorities to be smart if not intelligent.

Translated by

Friday, April 1, 2011

The Government and Actions

Ub Post
April 1, 2011

Mongolian government proclaimed 2011 the Employment Support Year. The question is which country’s employment they are supporting indeed.

Today, approximately 150,000 Mongolian citizens work and study abroad. 30 thousand Mongolians work in Europe, 25 thousand in South Korea, 15 thousand in the United States and 4 thousand in Japan, while 35 thousand studies in above and other countries around the world.

Since 2004, thousands of Mongolians were exported to South Korea to do jobs the Koreans refuse to do because of work conditions and low pay, under a contract between Mongolian Government and a Korean NGO.

Last week, during the visit by Mongolian premier to South Korea, they renewed the contract to send more Mongolians to Korea, to which our Labor minister looked very happy on a TV broadcast. There is no doubt that Mongolians working abroad are making considerable contribution to the country’s economy.

The annual income from labor export or the amount of money Mongolians abroad transfer to their families is approximately US$200 million.

However, there is no calculation yet about how much damage with this money cause to their health and how many families break apart because of this money. Meanwhile, the number of foreigners coming to Mongolia for employment has been increasing rapidly. In 2009, there were over 31 thousand foreign workers in Mongolia, 85% of which were the Chinese, and 4.0% the Russians.

This figure increased 2.2 times in 2010, reaching 68,500. 74% of them were from China, 5.3% from Russia and 4.0% from South Korea.

These foreign workers transfer money to their families, growing our import size. Half of foreign nationalities are employed here in mining industry.

If 30% of foreign workers in Mongolia engaged in construction, it reduced down to 13% in 2010. According to this trend, the number of inbound foreign workers is likely to surpass the number of Mongolian workers to go abroad, at the end of 2011, the Year to support employment.

There is a paradox in Mongolia that the country hires so many foreigners when 15% of the country’s one-million labor reserve has gone abroad and another 15% is unemployed home.

Why such paradox exists in Mongolia? To this question, we, the citizens, should demand answer only from the Government of Mongolia, not anyone else.

Competent authorities are supposed to mobilize their minds and skills towards developing a policy intended to employ Mongolians at home, increase productivity and value of Mongolian man and raise their salary based on thorough studies, and dealing with everything hindering to achieve these tasks.

The biggest obstacle that hinders a Mongolian man to work home is that recruiting a person has become a profitable business in Mongolia.

Monthly spending of an employer recruiting a man is equivalent to 110% of salary payable to a worker. Meanwhile, a worker brings only 2/3 of his salary to home because the rest is forcefully deducted by the State as tax. But yet there no service equivalent to the money the citizens pay as pension and health insurances. On the contrary, there is also a problem with individuals.

A big part of population lives on regardless they have no job. It is because another party of population supports or ‘feeds’ the other party.

Politicians encourage parasite lifestyle among the population by distributing various cash allowances, which make the population believe that they can live on without working at all.

The most people do not recognize that their relatives work beyond normal loads and conditions to transfer few dollars for families. Such people misbelieve that working abroad is so easy and have no idea about how it is hard to work in abroad.

For this reason, the line of visa applicants spending days outside the foreign embassies in the city remains for many years. There is emerging deformation in labor relations of Mongolians and we now judge the labor not from the view of demand but punishment.

Our growing economy brings workers from abroad because current human resource preparation and vocational training cannot meet increasing market demand.

We are about to pass this life only talking about reforming training and education system rapidly.

We have an opportunity in hand to increase the participation of Mongolian people in rapidly-growing mining industry, particularly the contribution of Mongolian specialists in every mining-related field, at first instance.

If we grant tax incentives to those investors training and employing Mongolians, then it would be a real support that enable Mongolians get employed in own homeland.

In developing the mining industry and preparing required personnel, we need to look beyond the task to meet current labor demand and prepare Mongolian specialists capable of working on the latest technology in line with environment friendly and safe standard.

Only then, Mongolian specialists will be invited abroad for employment and our Government will not need to ask foreigners employ Mongolians for jobs which they refuse to do at all.

Translated by Shinebayar