The media continues to publish stories backed up by evidence on how high-ranking politicians, including MPs and cabinet members, have been abusing their power to obtain soft loans from the Small and Medium Enterprises (SME) Development Fund for companies they own.
The Minister of Food, Agriculture, and Light Industry, B. Batzorig is the person who is responsible for and looks after the fund, but he granted 1.4 billion MNT to his wife’s company Teever Achlal. Furthermore, The Minister of Road and Transport Development, Ya. Sodbaatar obtained 1.2 billion MNT for his own company Epato Anarvaan, while MP Kh. Bolorchuluun acquired 950 million MNT for his own company Dornod Guril and MP G.Soltan received another 950 million MNT for his own company Mongol Shaazan as well. The Democratic Party (DP) reminded people that 65 out of 76 MPs are from the Mongolian People’s Party (MPP) and stated that more than half of them received loans from the SME fund.
The SME Development Fund was founded in 2000 with the purpose of centralising funds needed for SME owners to develop their businesses, making soft loans available for them, and boosting employment by providing support to business owners and strengthening SMEs in the wider economy. The fund’s objectives include granting loans, allowing SME owners to exchange experiences and learn from each other, promote SMEs in the public domain, and support them in attending expos and other relevant events. Their loans are MNT loans that have a repayment term of five years, an annual interest rate of 3 per cent, and a start date for repayment set at 12 months.
If you look at the funding structure chronologically, 30 billion MNT was put into the SME fund from the public budget in 2009, 30.4 billion in 2010, 290 billion in 2011, 48.9 billion from the Development Bank bonds in 2013, 99.9 billion from the Development Bank bonds in 2014, 56.7 billion (from the state budget) in 2016, 50.6 billion in 2017, and 65 billion in 2018. Also, the total capital available for this fund was supposed to organically grow as the previous loans were repaid. However, no report has ever been made available on how the fund was going. It has now been revealed why it had been kept secret all these years.
A report of this type is supposed to be reviewed and checked by the state audit institution of the Mongolian government and made available to SME owners. But it has been discovered that D. Khurelbaatar, the Auditor General of Mongolia, obtained a soft loan himself for Tsen Style, a company he owns. B. Khurts, Former Head of Intelligence, also acquired a loan for his own company Grand Steppe.
The network that makes billionaires out of the state
When the news broke in the past about how the authorities were embezzling money out of the SME fund at national level as well as in Ulaanbaatar, it did not take long for the stories to gradually disappear without much follow up. What is making billionaires out of the state is not only the SME fund, but also dozens of other funds differing in their scale and reach, including the Price Stabilization Programme and the Crop Farming Support Fund. In addition, the government-issued bonds are a key instrument in growing the number of billionaires.
The Crop Farming Support Fund provided interest-free loans totalling 40 billion MNT in order to import 51,000 tonnes of animal fodder and distribute it to aimags who require this support to overcome harsh periods in winter and spring. It is now being highlighted how this fund was also misused by state officials. The same story is in play here with no audits reports whatsoever having been published on how these funds were allocated, who received the financial support, and what the outcome was.
You can cross-reference from the income and asset statements of those state and government officials that almost everyone who managed this type of fund has become one of the wealthiest people in Mongolia. The underlying reason why the authorities who milk these funds are getting richer and the people are becoming poorer is corruption.
The source of this corruption is still being fed because the financing of MPP and DP, who have had political power in Mongolia for the last 30 years, is still kept secret and non-transparent. This is clearly illustrated by the leaked recording of the MPP leaders talking about getting 60 billion MNT in advance from certain individuals who would be appointed to government posts later on. The fact that the Independent Authority Against Corruption (IAAC) is not following up on this, claiming the tape is fake, shows that this agency has already become dependent on those corrupt politicians.
The practice of donations to parties being repaid by civil service jobs, tenders, appointments overseas and discounted loans severely undermines the credibility of Mongolian politics and contributes to the disgust of the public. Misappropriation of taxpayer money through various funds that “ultimately end up lining the pockets of a select few” is an affront to the ideals of democracy and a major constraint to economic development.
While commercial banks are offering loans at an interest rate of 22 per cent per year, these soft loans that have an interest rate of 3-5 per cent (500 per cent lower than the commercial rates) are being granted to a small group of people with political power. It is prompting private companies, who can no longer compete with the companies owned by MPs and government officials, to let their employees go. As a result, our workforce is forced to flee to Korea to do any job they can find.
As such, while the authorities are putting their own interests above those of the public, they have lost direction on the policy to bring equal development to urban and rural areas. Today half of our population reside in the capital city – stuck in traffic and poisoned by the air we breathe.
Corruption is the underlying reason why bank interest rates keep growing
When the authorities put hundreds of millions, even billions, of MNT in the companies they own by abusing their power and misusing these various funds run by the government, commercial banks start competing more fiercely in attracting savings. For example, when small banks begin promising higher rates than publicized to their biggest savings account holders, larger banks are forced to increase their rates as well.
The problem deepens when loan interest rates increase because the savings rate has been growing. It forces our private sector to obtain loans that have an astronomically high interest rate. Bank loans are not sufficient for everyone and require collateral. This is where the non-banking financial institutions come in and offer interest rates that are 50 per cent higher than already very high bank rates.
The people and companies who are associated with the politicians who acquired billions in soft loans receive the money and put them into those banks and non-banking financial institutions. This way they also grow the money that came to them through misuse of political power. There are many MPs who own banks and non-banking financial institutions.
Every society has a degree of corruption. The reason why these crimes have developed in Mongolia is that we have a parliamentary system. These funds did not just happen in one day – it is the outcome of an intended, long-term collusion by people in power. In order to stop them colluding once and for all, we need to hold them accountable, not let them continue in their positions, and make them repay the damage. We should follow the money, check their bank accounts, and ensure everything is paid pack, especially if they have been using their banks and non-banking financial institutions in their embezzlement of funds and misuse of power.
The likelihood of facing a crisis in our state keeps growing unless the Prime Minister decides to do something about it and starts taking measures. In eighteen months, Mongolians will have an opportunity to make an important choice and renew the authorities. Otherwise, we cannot burn the house down to get red of rodents by trying to disband the government before then.
2018.10.31
Trans. by B.Amar