M. Enkhsaikhan: The Mongol Bank "borrows from Peter to pay Paul"

One wouldn’t expect China’s Prime Minister to pronounce these words until something really serious was going on. We’ve started hearing messages that tens of thousands of industries are being closed in China and that it is now threatened by social instability. The ruling party has publicly declared that China encountered a tough challenge, and is about to convene the party congress only to address the crisis. Our northern neighbor has dared to admit the crisis after its production fell by 7-8 percent for 2 quarters in a row.

Yet Mongolia keeps mum. The greatest danger we have is the tremendous difference between what the real life looks like and the perceptions and imaginations of our leaders about these realities. 

It’s true that our foreign exchange reserves are being depleted quickly. My estimates show that only Koreans have withdrawn 200 million USD from Mongolia in the last two months. However, the Korean government doesn’t allow a Korean to transfer just one million dollars from his personal saving to Mongolia. Let alone the fact that Mongolia’s economy is a part of the global economy, but the simplest fact that Mongolia is an open economy cannot be realized by Mongolians. They even didn’t understand a reminder. And they remain the same even now.

It looks like only the management of Anod bank is being blamed for its recent debacle. But apart of bad management resulting in bad loans, weren’t there any mistakes made by the monetary policymakers? Can the Anod case be read as the first sign of problems in our banking system? Or was it the failure of the 4 directors only?

If we look into the issue at a broader scale then the Anod directors are no different from those of other large banks. If only the Anod directors are blamed for the bank’s failure, it would be as absurd as pleading them guilty for the whole global crisis. It’s important to understand two points here. First, in the last 10 years, no bank, not a single one, went bankrupt. One might presume that there was a policy not to let a bank go bankrupt. In fact, there was no policy at all, we were just lucky that the conditions were favorable. Second, in the past 10 years, the Mongolbank failed to hone its mechanism to supervise commercial banks. The Mongolbank didn’t use the opportune time and conditions and “didn’t make the hay while the sun was shining”. Now the conditions have abruptly changed. Now it runs a policy to “borrow from Peter to pay Paul”. This policy is being explicitly demonstrated by its work on Anod bank. Then, even after having paid Paul, Mongolia will still have debts.

The Government’s move to guarantee all deposits is an attempt to pacify peoples minds and does not really mean that the government assumes the responsibility to cover 1.3 trillion tugriks. The budget has close to 400 billion Tgs deficit. The Government’s pledge to guarantee the deposits is one of the many measures. Simply speaking, the Government has a right to print money. Does the Mongolbank have a possibility to regulate the issues with monetary policy tools instead of mobilizing the taxpayers’ funds?

The Parliament has made a mistake by deciding for the state to guarantee savings deposits. While the government thus assumes responsibility in fronts of deposit holders of private banks, it’s not clear what responsibility do these banks assume in front of the state. A wrong signal might have been given by the Parliament’s decision to back up the deposits, because in such a case the bankers wouldn’t care much about prudence.

Does the Mongolbank cope with its duty, are its actions consistent? Has the Parliament been exercising its exclusive rights for the country’s monetary policy?

First and foremost, the Mongolbank has to realize that it has to enhance its performance to respond and fit in the new emerging conditions. Just one or two ad hoc, irregular measures against crisis won’t help.
To overcome the crisis within a short period of time with least losses, we need a state, governmental structure to develop and run consistently and persistently a set of ordered, neat measures. The time is ripe for the President, Parliament and Government address this issue.

Countries which moved fast and which had enjoyed internal harmony and coordination managed to get IMF help. Are we late now? There are some talks about securing 1 billion dollars credit line from outside.

Mongolians are good at begging from others, so the policy is to beg from all. It’s doubtful whether we can succeed on that as now almost every country is hit by the crisis and perhaps no one can spare money to Mongolia. Finding the one to beg money from would mean finding the one who to sell yourself. There are many tricky moments here, yet I am not in a position to discuss foreign policy matters in detail today.