Mongolia has been rocked in recent months by a series of corruption scandals that have prompted large-scale demonstrations in the capital, Ulaanbaatar. The government of Prime Minister Ukhnaagiin Khurelsukh has been paralyzed by revelations that senior government officials, including members of his Cabinet, misused funds that were intended to assist small and medium-sized enterprises. In an interview with WPR, Morris Rossabi, a professor of East Asian history at Columbia University, explains why corruption is so widespread in Mongolia and why the current wave of scandals comes at a particularly bad time for its economy.

World Politics Review: Why is corruption such a pervasive issue in Mongolia, and how did it motivate so many people to take to the streets last month?

Rossabi: Corruption has accelerated dramatically in Mongolia’s “wild ride to capitalism” since 1990. The country was plagued by minor levels of bribery and graft from its empire stage in the 13th and 14th centuries to its communist period from 1921 to 1990, but corruption was not a pervasive part of Mongolian political culture. The post-communist era, however, has witnessed an increase in corruption in politics, business and the educational and medical systems.

To be sure, corruption existed in the communist period, but there were checks on such illegal activities. In an ostensibly egalitarian state with a population as small as Mongolia’s, displays of ill-gotten wealth—in the forms of big houses, fancy clothing and elaborate parties—were both readily noticeable and perilous. The authorities were capricious but had the power to inflict severe punishments for malfeasance. Fear of such reprisals would frequently prevent overt, large-scale corruption.

That changed in the post-communist era, as officials emerged relatively unscathed from accusations and even convictions of accepting bribes or kickbacks. Nambaryn Enkhbayar, a prominent politician who served as both prime minister and president of Mongolia during the 2000s, was found guilty of corruption in 2012 but was pardoned after serving one year in prison. He is now active in politics again, as leader of the small Mongolian People’s Revolutionary Party.

In another well-known case, former Prime Minister Sanjaagiin Bayar was repeatedly accused of accepting bribes in exchange for his signature on a 2009 agreement with a foreign company to extract gold and copper from Mongolia’s largest mine. He and several other officials were finally arrested in 2018, but further legal action has yet to be taken.

The recent street demonstrations, in protest of a Cabinet minister and other senior officials illegally obtaining low-interest loans from a fund allocated for small and medium-sized enterprises, follow in a long line of such efforts. Mongolians took to the streets in 2005 to protest the leasing of land with valuable mineral deposits to Robert Friedland, an American-Canadian financier whose record on environmental protection is so abhorrent that he earned the nickname “Toxic Bob.” In 2008, demonstrations over alleged improprieties in that year’s legislative elections resulted in a number of deaths and in damage to buildings in the center of Ulaanbaatar. These efforts, however, did not lead to significant reforms, and it remains to be seen whether the current protests will be more effective.

WPR: What actions have been taken by the government so far in response to the current loan scandal, and what further measures could officials take to restore public confidence?

Rossabi: The government has been compelled to act in light of the seriousness of the accusations. Twenty-one members of parliament and several Cabinet ministers are confirmed to have profited from low-interest loans designed to assist small and medium-sized enterprises. The Economist Intelligence Unit, citing local press reports, notes that 124 out of 134 firms that received loans from the fund in 2016 were connected to government officials or their families. For example, the roads and transport minister requested and received a loan of $371,000 for his wife’s high-end postoperative medical center. Meanwhile, small business owners with no political connections frequently reported that they had received no responses or were denied loans.

In response to the scandal, the head of the fund in question has been arrested and a Cabinet vice minister, as well as at least two other officials, have been detained. The minister for food, agriculture and light industry, Batjargal Batzorig, resigned over the revelation that members of his family had received a loan for a transport company they owned. Khurelsukh appears to not have been involved, but many lawmakers thought he should accept some of the blame. Nonetheless, he survived a vote of no confidence in November. Mongolian media outlets speculated about the deals he made with other members of parliament to retain his post, but no evidence of such backroom dealing has emerged.

The government will require significant reforms to restore public confidence. First, it is notable that this widespread corruption scandal was revealed by local investigative journalists and not by the government’s own anti-corruption agency. This is a sign that the agency needs more personnel, resources and authority. Second, the accused government officials must be prosecuted and, if found guilty, must serve significant prison sentences. Finally, in the future, international aid funds should be overseen by a special agency, shielded from interference by senior politicians. Without these measures, corruption in government will persist.

WPR: How is the ongoing furor over corruption and the related political dysfunction likely to affect Khurelsukh’s policy agenda?

Rossabi: Khurelsukh was elected in 2017 after his predecessor was caught on tape requesting payment for an appointment to a position in government. It is a sad irony that someone who took office partially as a response to corruption now finds himself mired in a corruption scandal.

The current president, Khaltmaa Battulga, is a political rival of Kurelsukh’s and has called for his resignation, but Battulga’s criticisms were seen as lacking credibility due to his own history of profiting from the poorly administered sale of state assets during the 1990s. Still, the scandal-ridden Cabinet and the power struggle with Battulga has crippled Khurelsukh’s ability to govern effectively.

This plague of scandal and dysfunction comes at a particularly bad time for Mongolia’s economy. In 2017, the International Monetary Fund provided a $5.5 billion guarantee for unpaid Mongolian loans, rescuing the country from a sovereign debt default. But the current scandal has no doubt undermined confidence in the Mongolian government on the part of the IMF and other international financial institutions, potentially affecting their future approach toward Ulaanbaatar.

More broadly, the government needs new economic policies to diversify away from mining. Mongolia’s reliance on the extraction of metals and minerals to power its economic growth subjects it to the vagaries of world commodity prices. A drop in these prices over the past four years has dealt a devastating economic blow. Reformers in government, as well as international financial institutions and development banks, had plans to promote other sectors, such as manufacturing and eco-tourism. But corruption scandals have diverted attention from these efforts. As if that wasn’t bad enough, the National Chamber of Commerce and Industry, fed up with pervasive graft, has urged its members not to pay taxes until corruption is rooted out and the government has stabilized.

Clearly, a full recovery from these scandals will require considerable time and persistent effort. It may even require drastic reforms to Mongolia’s political and economic systems.

Published Date:2019-01-09