It is not an economic crisis, but an institutional one

Having been inflated by mining mania, Mongolia’s economy has landed on the ground. It has been 25 days since the government commenced the implementation of their 100-day action plan to invigorate the economy. The measures being taken by the government include creating business conditions conducive to raising capital, a plan to “favorably arrange” the repayment of bank loans, providing financing for 579 projects from the fund to develop small and medium industries, and holding an economic summit in June to allow Mongolian companies to introduce their projects to foreign companies.
In addition to taking these measures, we need to correctly determine the real reason behind this economic decline, define its root cause, and fix the problem fully. Otherwise, it will not be possible to invigorate the economy for the long term.
The underlying reason for Mongolia’s current economic decline relates to the institutional capacity of political institutions where the authorities exercise their powers, more than it relates to the economy itself. It is because individuals and businesses have to engage many government institutions in order to fully utilize their resources. Their final economic output is dependent on the quality, efficiency, and clarity of those institutions. A good institution must be transparent and accountable, at the very least.
From this point of view, let us look at the parliament, our most powerful political institution, which is supposed to play an essential role in the development of Mongolia, as well as political parties that acquire the ruling power of this institution by winning elections.


The Constitution of Mongolia bestows the State Great Khural of Mongolia (the parliament) with the supreme legislative power to enact laws and make amendments to them. However, it does not mean that they are supposed to pass a law and make changes to that law every single year. Nevertheless, the members of parliament that have been elected by us seem to think that way. For instance, the value added tax was amended 30 times in 16 years, the law on health insurance was changed 10 times in 20 years, and the customs law of Mongolia has been amended almost every quarter. Furthermore, it has become habit for the public budget to be amended every year. A very abstract public budget that reflects populism is first approved and gets amended afterwards, which expends a great amount of time and money. If you calculate the cost of every one-hour parliament session on budget efficiency, the point of the sessions becomes moot .
The principles, content, and orientation of our laws are changing so abruptly that it is harming not only foreign but also domestic businesses. It can be clearly seen from the amendments to laws that regulate foreign investment. It is also related to the ever-changing views and political stances of our parliament members and their huge differences in education and knowledge. A total of 10 members of parliament who promoted themselves by supporting the “double deel” bill (prohibiting simultaneous holding of offices as a minister and a member of parliament) voted against this belief of theirs.
Failing to recognize the main purpose of the value-added tax law to register all those who are running businesses, members of parliament are only talking about increasing the registration threshold rather than imposing the tax on all economic entities, by reducing the tax rate to one percent. A statement from the Mongolian National Chamber of Commerce and Industry states that only 1.25 percent of total operating companies actually pay VAT, which comprises most of the budget revenue.
Making the income reports of members of parliament publicly available was an important step towards ensuring transparency at the parliamentary level. The next step should be allowing voters to send a request to see how the parliament members they elected are getting and using funds to fulfill their duties. The people need to know which organizations or companies are providing funds to which members of parliament, which lobbies are active, and how this influences their votes.


The Law on Political Parties states, “A party is considered as a union of Mongolian citizens who have consolidated voluntarily with the purpose of organizing social, personal and political activities, as it is stated in the Constitution of Mongolia.” A political party is an institution that has the authority to exercise the right to enact laws and establish a government if it gets an absolute majority of votes in a democratic, general election.
Therefore, only when political parties, especially the ruling party, become transparent in their operations and make their expenditure reports publicly available (sources of income, expenses, campaign financing, funding terms and conditions) can there can be justice and fairness in public governance.
Unfortunately, Mongolia has not made any significant steps towards making political party funding and campaign financing transparent. Owing to the ongoing secrecy of political party funding as well as the lack of expenditure reports, a culture has been set where many political party factions negotiate and trade with each other. Likewise, political parties now have a tradition to have their own negotiations with each other.
The financing of political parties has always been undisclosed. Due to conflicts of interest, members of parliament were pressuring cabinet members to the point where they became unable to perform their functions. Consequently, they made an amendment to the constitution in 2000 to allow themselves to “wear two deels” and become a minister despite serving as a member of parliament at the same time. As the sources of political party funding are still undisclosed, it has become impossible to appoint even one or two people outside of the parliament as ministers. It demonstrates how powerful money is in the current parliament and government. Unless there is transparency in the financing of political parties, the double wallets that go with those double deels will never be separated.
It looks like those who are wearing double deels do not seem to care how and when the nation’s debt will be repaid as long as they can use the huge foreign loans they’ve acquired by wagering future mining income to make up for their past expenditures.
It can be said that the current economic decline is a continuation of the 2008 crisis, because the root cause is still the inefficiency of political institutions. The only difference is that the current decline is bringing about much larger negative consequences.
In order to improve the capacity of political institutions, starting with the parliament and political parties, it must be ensured that those institutions are transparent and regularly report to the public. Otherwise, our economy will always be in decline while commodity prices increase and tugrug rates weaken. As a consequence, ordinary people will still be forced to carry the financial burden.

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Posted by on Jun 15 2014. Filed under Opinion. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

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