December 2009
Thank you, Mongolbank for your efficient work. Poor corporate management has taken Zoos Bank to bankruptcy. One good thing about the economic crisis in Mongolia has been that it has shown that only the fittest can survive. The policy of the Central Bank regarding Zoos Bank was right and its prompt action was commendable. Exactly a year ago, when doubts began to surface about Anod Bank’s continued solvency, Mongolbank did not act as quickly and as decisively. It could not assert its independent authority and followed politically motivated directions in appointing a plenipotentiary representative to Anod bank and imprisoning its directors in Gants Hudag.
Today, on the other hand, it has been too quick to announce bankruptcy and has been trying hard to identify a bogey-man. It is a matter of regret that Mongolbank is creating confusion in society through this attempt to find someone to blame for this clear evidence of chronic sickness and tragedy of the financial sector, the of which has been blown off by the winds of crisis. It could not have been easy for Mongolbank to decide that Zoos would be declared bankrupt. The reason again is that the Mongolbank does not get an opportunity to work independently. It is meant to work under the supervision of the State Great Hural (SGH), but in fact it is an organization subject to pressure from all political parties and chafes under their yoke. It was the same in 1990s and nothing has changed today. It declares time and again its monetary policy to control inflation, only to see the Government happily increase State expenditure. Finally, when the monetary policy fails to deliver, directors of the Mongolbank are called to the SGH for a grilling where they sit before MPs unable to speak the truth.
It seems easy to find a bogey-man, thanks to the poor supervisory and inspection work of the Mongolbank. In the existing system, almost everything is protected as bank privacy. Banks do not have to disclose the identity of their major shareholders, the accountability of the CEO is not enforced, and they bear no legal responsibility for the loans they issue as they like – this is how our commercial banks aremanaged. This is not corporate governance but is the management of bankruptcy. Zoos collapsed as a natural corollary of the way it worked. Mongolbank had to wait for several days to get the permission of politicians, since it has no power to exercise its full authority to implement its decision immediately. That environment of independence has not yet been created in our country.
The need for a change was strongly felt in October last year, when account holders began withdrawing money from banks. The Central Bank hoped that its request for amendments to the Law on the Central Bank and the Banking Law would be met during the Fall session but the discussions were postponed till the Spring session. Legal lapses thus continue to exist, but issues related to Zoos Bank and the situationof commercial banks in general was discussed at a high-level meeting in Government House on 17 November. The political decision taken during that meeting provided the Central bank with the confidence to act. Tax payers have not yet forgotten the days of searching for ways to improve the solvency potential of the three commercial banks, scraping the bottom of the Development Fund of Mongolia to get 65 billion tugriks. One of those three banks was Zoos Bank which received assistance from Mongolbank on three occasions. Almost a hundred billion tugriks were spent on reimbursing losses suffered because of mistakes made by the major shareholders and executive directors. If you are looking for a bogey-man behind the Zoos collapse, you don’t have to go beyond the major shareholders themselves. They also wore the mask of major borrowers. This is how one commercial bank after another has been bankrupted. The state must deal with these people and let them face liability for their action in accordance to law.
With the developments in banking sector, several corrective ideas are being floated. The President of the Mongolbank told the economic standing committee of the SGH on 19 August that it was planned to audit the loan packages of commercial banks in the third quarter of 2009. The audit has not started yet. The reason might be technical one. Anyway, our Government has approached the World Bank to help in the audit. Following the auditing and when the major indexes of our banks become healthy, then the international development banks will start financing them. Investors are to be the International Financial Corporation and the European Bank for Reconstruction and Development. These are the institutions to finance many important projects to be implemented in Mongolia. Then, suddenly they are being called bogey-men. Fear has been spread among the people as if they are going to take possession of the huge capital expected to come to our mining sector and to be engaged in laundering it. Something terrifying is going to happen. Mysterious warnings are around that this terrifying thing is coming from outside. But, in fact the real danger is gnawing at us and dividing us from inside. Government institutions and international development organizations which helped us at a time of crisis are being slandered and disgraced without any ground. Unless there is an end to this, no international investment will come to Mongolia. Who will trust and put his money in the bank, whose owner is unknown? During the last one year, the majority of banks have extended credit service period. If this measure was not implemented, then the number of non performance loans would have increased considerably. And today, those loans of extended period are falling under the category of non performance. Exactly the same thing is happening now to Russian commercial banks. Our poor President of the Central Bank has said that if we fail to cure our banks, we will miss a huge amount of money, which has added fuel to the hysteria for investigation to trace where the mining sector financing might be going.
The campaign to expose spies and enemies has been expanded, targeting our national companies. Any smart Mongolian will understand that Mongolia could come closer to the world, if it has multiple passageways of development. Three passageways of railway have been unanimously supported at the National Security Council level. Mining products in enriched, processed forms should reach markets in the north and south, and through them third neighbors. Lately there has been a very strong pressure that only one railway line, from Tavan Tolgoi to Zuun bayan-Sainshand, would bring development to Mongolia. Mongolians will welcome if the railway runs from Tavan Tolgoi to Sainshand and further to Nakhodka, but a 1000-km railway is very costly. Thank you, Russian railway workers, for taking up this tremendous construction. Would you please construct the railway immediately? If we take into consideration that there is no feasibility study and no financing resource, and the independent multi pillar policy of Mongolia, the two other options of the railway toward the major coal markets have to be built. Mongolians do not have the desire to sacrifice one project for another. It will be a great mistake if one country, which determined our railway policy in the past, wants to continue the same through centuries. There will be not a single Mongolian, who would oppose a project which is going to be implemented by a Mongolian company independently and to compete with Australia in the world market. When the Australian exporters of enriched coal are afraid of Mongolian competitors, we are here holding back each other, fighting for profit. The real bogey-men are the Mongolians, who are dragging each other down. The big companies, leading the other national entities and national cadre policy and the local development, in bigger sense, are the vanguard to carry the prestige of Mongolia in the international arena. Therefore, I sincerely support our national big companies. We should not disgrace them but congratulate them and support them, when they are capable of competing in the international market and introducing management of international level.
The mining sector has blessed Mongolia with huge opportunities. As far as geo economy is concerned, the days of creating a favorable external condition are very close. It is time for a centuries-old dream to come true. There are very few who will oppose bitter medicines for our banking system. I haveconfidence in the wisdom of the Mongolian people at this critical time.