Not a Political SMEar Campaign

By Mendee J and Julian Dierkes

A massive corruption scandal is brewing in Mongolia. Alhtough the scandal was skillfully picked up by President Battulga and Democratic Party MPs for partisan politicking, now it literally opened a pandora’s box of corruption.

Authorities have been scrambling since the factual evidence of abusing their authorities and misusing the state fund for Small and Medium Enterprises (SME) is hard one to hide. The public would probably give a few months to see how those, who won offices on the anti-corruption tickets, would cope with this. However, any attempts to fool the public or to suppress would eventually lead to massive civil disobedience – maybe at the level of 1990 as implied in this tweet by former PM M Enkhsaikhan.

This could be the last test for current political leaders, law-enforcement agencies (esp., IAAC and police), and judiciary (eps., Chief Prosecutor) to demonstrate some real actions by penalizing corruption ones and deepening investigations of many other unresolved corruption allegations. The SME Fund is just one of 29 state funds.

The current agitation seems to be shifting debates around corruption from insinuation and allegations to investigative fact-finding and pointing to $0.5b lost to grubby political hands. The president even wants to go on hunger strike over the issue!

The SME Fund

In the early 1990s, the SME fund was created to support small and medium-sized enterprises as a key element in economic development through cheap access to loans. It was initially funded by donors in 1990s – and from the state budget since 2000. The fund office has transferred between ministries following any major governmental reshuffling and now it operates at the Ministry of Food, Agriculture, and Light Industry. The fund has a fancy website, and is known as Жижиг, Дунд Үйлдвэрийг Хөгжүүлэх Сан, abbreviated as Ждүхс, or just ЖДҮ. The SME Fund provides loans up to 2 billion tugrug for 5 years at a 3 percent interest rate. From 2011, substantial amounts from the bonds were used to finance the loans.

Since 2009, the fund dispersed over 680 billion tugrug, an amount of over US$400m.

2009 – 30 billion tugrug (US$21m)
2010 – 30.4 billion tugrug (US$22)
2011 – 290 billion tugrug (US$235m)
2013 – 48.9 billion tugrug (US34m)
2014 – 99.9 billion tugrug (US$55m)
2016-56.7 billion tugrug (US$28m)
2017 – 50.6 billion tugrug (US$21m)
2018 – 65 billion tugrug (US$28m)
[Conversion to US$ at rate on June 1 of given year and rounded]

Even though the Fund is subject to Mongolian transparency legislation so that its dispersals have been available for investigations, the fund’s operations have been secretive. Up till now, the authorities have been reluctant to report or to discuss the auditing reports on the funds.

Loans Coming to Light

The fund list was disclosed by investigative journalists, namely IKON News and the video news site, The list was followed up by other news media, for example, Udriin Sonin, De Facto, and investigative journalists, but many, for example, MNB have remained neutral or silent. However, the leak led many journalists to corner politicians to comment on these allegations and to dig the income reports of these politicians to reveal the connections with those SMEs received funds. At the same time, the leak instigated more critical and heated discourses on social media and obviously in streets. It provided opportunities for third parties, but only two of them, namely, HUN (National Labour Party) and Republican Party, which was one of the personalized party of B Jargalsaikhan, actively engaged. Interestingly, the MPRP (N Enkhbayar) and Civil Will and Green Party have been silent.

Implicated Politicians

In 2016, 1,034 business entities applied for SME funds and 134 entities received loans. However, 122 of 134 entities had clear connections (mostly familial) to parliament members, cabinet members, and senior officials in all branches of the government.

Initially, the media disclosed loans related to four MPs (MPP): B Batzorig, Minister of Food, Agriculture and Light Industry, allocated 1.4 billion tugrug for his spouse’s company; newly appointed Minister for Road and Transportation, Ya Sodbaatar, received 1.2 billion tugrug; MP Kh Bolorchuluun for his flour company 950 million tugrug; and MP G Soltan 950 million tugrug. Then, names of other MPs have been released: N Tserenbat , Minister for Environment and Tourism – with 1 billion tugrug; N Uchral, A Sukhbat, J Enkhbayar, D Sarangerel, L Oyun Erdene, and N Oyundari – 950 million tugrug (each), and B Undarmaa – 700 million tugrug.

The list continues with more names – B Khurts, former Chief of the GIA and Deputy Director of the IAAC, D Khurelbaatar, General Auditor, D Amarbayasgalan, General Secretary of the MPP, former Prime Minister Ch Saikhanbileg, and the brother of the President. Even though MPs from the DP began vociferous criticisms and boycotting the parliament sessions, facts about un-tendered loans of MP Erdenebat, when he was serving as Minister of Industry, and names of DP politicians – who were responsible for unaccounted and misused funds for the ASEM according to the state auditing reports.

This is the third fund (after MIAT’s War Risk Insurance Fund and Clean Air Fund), which was disclosed and requires criminal investigation. But, according to economists, this fund would explain the sudden rise of the funds of Non-Banking Financial Institutions, which provides quick, high-interest loans, and hidden economy – which feeds the politicians, affiliated businesses, and political parties.

Speculation, Assessment

The SME Fund scandal creates a complicated scenario for the coming months. It forces politicians, law enforcement officials (esp., the IAAC), and those in the judiciary (esp., Prosecutors’ Offices) to take a side on this scandal. As public frustrations grow and pressures from those benefitted increases, it becomes harder for these people to remain neutral since it would effect their political careers (as the election nears) and professional merits (esp., those at the IAAC and Prosecutors’ Offices).

As noted, a few members of parliament and a few outside the parliament have begun to stand on the side of anti-corruption discourses. This number will increase incoming days.

For the Prime Minister, as many remember his speech on fighting against corruption putting his life at risk, he needs to make a decision EITHER supporting his Finance Minister and firing cabinet members, who benefitted from the funds OR avoiding to get into conflicts with those benefitted from these funds. By now, the Prime Minister directed more auditing and investigations on other funds and demanded alleged MPs to return the loans.

For the President, as many voted for him in the hope of getting some solutions on their loans, the situation creates quite a complicated situation, but he needs to make a choice of doing nothing OR doing something. But, doing something (EITHER trying to use this scandal to upset his own party opponents and MPP leaders OR attempting to close the pandora’s box of corruption) is more challenging for him. He should let investigators look into some cases – he/his collaborators might have been involved.

For the Speaker, he simply has one choice – not losing his current post and seeking ways to maintain his influence within the party and parliament. This could lead to a major blow for M Enkhbold’s “city” faction.

This seems the right moment for third parties, especially HUN (National Labour Party), MPRP, and Civil Will, as well as some DP members – who have been critical about the party’s current leadership. For DP members, it even might serve a momentum to weaken current party leaders – especially, the Falcon and Mongolian Democratic Union factions or building up a faction of their own.

If the government, especially PM Khurelsukh, who is in charge of cabinet and party, as well as the IAAC and Chief Prosecutor’s Office can not capitalize on this momentum, this will eventually build up massive civil disobedience in coming months. The public, especially those in the public services, have been frustrated with low pay and high-interests loans, would suffer more if the petroleum price rises. The increase of the petroleum along with price hike (esp., holiday months – New Year and Lunar Celebration) would add more anger and frustration. So, if these officials and organizations neglect the deep-seated public frustration over corruption, we might expect massive protests for calling changes.

These all correspond to scenarios that we have outlined in recent weeks (Triggers of Upheaval | Yes, Triggers, But It Depends | Protests… and then?).

About Julian Dierkes

Julian Dierkes is a sociologist by training (PhD Princeton Univ) and a Mongolist by choice and passion since around 2005. He teaches in the Master of Public Policy and Global Affairs at the University of British Columbia in Vancouver, Canada. He toots
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