Tag Archives: Politics

Political Unrest in Mongolia Threatens IMF Review of Funding

The Executive Board of the International Monetary Fund (IMF) on May 24, 2017 approved a three-year extended arrangement under Extended Fund Facility (EFF) for Mongolia to support the country’s economic reform program. Other financing partners, including the Asian Development Bank, the World Bank, Japan, and Korea, have also committed to provide budgetary and project support, and the People’s Bank of China has agreed to extend its swap line with the Bank of Mongolia. In sum, the total financing package amounts to about $5.5 billion. The Board’s approval of the arrangement enabled the immediate disbursement of about $38.6 million. Addition of these funds to reserve currency of Bank of Mongolia had positive impact on the country’s economy and improves outlook for foreign investment.

Prior to each quarterly disbursement, IMF staff monitors and reviews if the country’s progress in meeting the conditions under the program justifies the continuation of disbursement. By this standard IMF staff team visited Ulaanbaatar from July 19 to August 2, 2017 to conduct discussions on the first review of the EFF arrangement. At the end of the visit the IMF staff team concluded that performance under the program has been good, with all quantitative targets on track. According to Bank of Mongolia’s report, the IMF staff’s positive conclusion enabled subsequent funding from above mentioned financing partners within the EFF arrangement. The IMF staff conclusion is subject to review by the management and Executive Board of the IMF. The Board is expected to consider the first review in late September, and this could lead to a disbursement of about $37.82 million.

In the midst of this positive news, Mongolian politics remains unwieldy. On August 23, 2017 thirty members of Mongolian People’s Party (MPP) group in the parliament signed and submitted a petition to dismiss the Prime Minister J.Erdenebat, and consequently, the Government. This is likely to cause some level of political destabilization. History of some countries (e.g. Argentina, Greece) shows that political destabilization may cause IMF to suspend or even cancel its financial aid altogether. Though we have high hopes that these political issues will not escalate to that point in Mongolia.

It is critical that this happens not long after the stir occurred during the Presidential election, in connection with payout of children’s money by the Government. The IMF staff team disapproved such action by the Government. Therefore the Government committed itself to target the Children’s Money Program to less affluent families, which partially led to overall positive preliminary findings of the IMF staff team. Thus any kind of political destabilization may not only affect the further implementation of EFF arrangement, as well as country’s further economic well-being.

According to the Constitution of Mongolia, the petition to dismiss Prime Minister should be discussed and resolved by the parliament within 15 days. We will keep you informed here of the outcome, and potential consequences.

Mongolia is in the Middle of a Constitutional Amendment Process

Mongolian Constitution has been in force for the last 25 years, dating from its adoption in 1992. It has been amended once in 1999 and again in 2001. It is the fourth Constitution of Mongolia since the first was adopted in 1924. Subsequent constitutions were put into place in 1940 and in 1960.

Mongolians today pay close attention to issues connected with the recent constitutional reform. A series of public consultations for Constitutional reform have been held in the Ulaanbaatar and in local aimags.

Several recommendations have been put forward for public discussion:

  • maintaining the current balance of power between the legislature and the executive branches of government;
  • strengthening the unity of the country;
  • consolidating how local administration is structured;
  • developing a professional, independent civil service;
  • strengthening the judiciary to improve the legal structure; and
  • creating a bicameral legislature that would include the State Great Hural and the State Congress. (Mongolians Discuss Constitutional Reform, supra.)

Taking the outcome of the public consultations into consideration, a consolidated proposal will be finalized and submitted to the parliament during the upcoming autumn session this year. However, the Democratic Party disagreed with this procedure and issued a statement demanding to hold a public referendum to hear voices of the people rather than organizing public consultations taking place in limited scope.

According to the Constitution, Constitutional amendments may be initiated by the President, members of the Parliament and the Government, as well as being proposed by the Constitutional Court to the parliament. A national referendum on constitutional amendment may be held where it is supported by at least two-thirds of the legislature. An amendment to the Constitution will have the same force as the Constitution when adopted by not less than three fourths of votes of all members of the parliament.

 At the moment, the general public is encouraged to provide inputs to the proposed amendments. More information may be found at the following website:  http://forum.parliament.mn/projects/171.

Mongolia Presidential Election Maintains Divide Between Presidency and Parliament

The people of Mongolia have just completed the election of the President of Mongolia. Battulga Khaltmaa, of the Democratic Party, is the victor. Mr. Khaltmaa follows Ts. Elbegdorj, also of the Democratic Party in serving as President. This will continue the previous dynamic of a Democratic Party President serving concurrently with a parliament dominated by the Mongolian People’s Party (MPP).

Mr. Khaltmaa achieved his win with 50.6% of votes cast, with a voter turn-out estimated at 60%. The MPP candidate received 41.2% of the vote, while 8.2% of ballots were returned in protest with no selection, a practice expressly allowed by the Election Law of 2015.

The MPP continues to hold a supermajority in parliament. Therefore, they will retain the capability to override any potential veto by Mr. Khaltmaa of proposed legislation. Still, his presence at the top is expected to force some concessions on the part of the parliament. Mr. Khaltmaa will be primarily responsible for foreign policy, and negotiations of treaties with foreign governments.

During the campaign, Mr. Khaltmaa advocated for state involvement in the economy, and management of natural resources. He has framed his pending presidency as a necessary balance against the MPP dominated parliament. It is expected that a period of adjustment will follow the election in which the parliament and Mr. Khaltmaa learn to work together and set boundaries.

Mr. Khaltmaa is called a Nationalist by Bloomberg. His campaign has promised to increase public access to wealth from Mongolia’s large resource mining projects. He has also promised to reduce trade imbalances Mongolia has with Russia China, a task which may be easier said than done. Even so, the rhetoric has not been overly hostile to foreign investment and the election is not expected to derail Mongolia’s recent efforts to revitalize its mining boom, or efforts to diversify its economy in the agricultural sector.

Draft Law Seeks to Define Liabilities for Mongolian Government Officials

A new draft law has been submitted to the Mongolian parliament. Named the Law on Imposing Liability on Selected and Appointed High Ranking Government Officials, the proposed law seeks to define liability for certain high ranking government officials. The draft will first be reviewed and discussed by Parliament before a vote. We are very excited at the current draft and our Mongolian lawyers consider the proposed law, if adopted, to be hugely important to Mongolian public policy and society. The need for the law stems from a feeling among many in the Mongolian public that politicians in the country often to act “Above the Law.” The effects of this official lawlessness are seen and felt by the public through displays of misbehavior and misconduct. In the past, there has not been adequate legislation to clearly identify inappropriate actions by public officials, and impose liability. The new draft is an important attempt to remedy this through new legislation.

To give readers a better idea of the problems facing Mongolia and the provisions in the law which will address these issues, the following are several weak points, or grey areas which the draft law will address.

The disciplinary sanctions set forth in the current Law on Public Service address only the executive branch government hierarchy, while not mentioning Members of Parliament, or those officers directly appointed by and responsible to the Parliament (the Legislative Branch and auxiliaries). Legal grounds for imposing liability on politicians within (the Legislative Branch and auxiliaries) have been absent or unclear at best. However, even grounds for imposing liabilities to the politicians within the government hierarchy carries uncertainty.

While each of the Law on Public Service, the Law on Anti-Corruption, and the Law on Regulation of Public and Private Interests and Prevention of Conflict of Interest in Public Service outline legal grounds to impose liability on officials, these each function as separate stand alone laws without a unified or common approach.  For example, liability under the Law on Public Service only targets administrative, executive, and public service professionals, and specified public officials. Political officers are not included.

Because of these limitations there is no clear body of law to assist in establishing or imposing liability on high ranking “selected” and “appointed” (as opposed to Elected) government officials. Currently, wrongdoing by such officials may only be determined on a case by case basis through a decision of a court, which does not allow for regular and effective enforcement.

In practice there is no regulation providing for the recall of elected officials such as Members of Parliament. The President, the Parliament Speaker, and Members of Parliament may be dismissed or recalled, only where the Constitutional Court of Mongolian issues a ruling that that they have violated the Constitution of Mongolia and must be removed. This is exceptionally difficult as there is no clear standard for establishing such violations in the legal system.

Under current legislation, political liability and means to impose it has not been addressed. Such liability will increase overall levels of responsibility for public officials who may be forced to resign, face recall, or be restricted from nominations for future public office in the event clear guidelines of liability are established. By establishing real legal consequences, the draft law is expected to help promote a culture of greater responsibility for public officials, bringing greater prestige and international respect to Mongolia’s political institutions and public officers.

Political liability is intended to increase the level of responsibility for individual officers by setting clear provisions and requires for resignations, dismissals, recalls and restrictions on rights to be nominated as candidate for specific period for the elected and appointed high ranking officials. In this way the new draft law seeks to establish a culture of self-responsibility and accountability for politicians as an integral part of public service regulation in the well-developed democracy in other countries. To this end the draft law will help to established procedures and a foundation for imposing liability on politicians within (the Legislative Branch and auxiliaries).

By doing so it is hoped that government influence and interference in public society and operations of private companies will be greatly reduced or eliminated.  Come back for our next post which will have an overview of some important provisions in the new draft law.

Mongolia Anti-Corruption Law: Overview of Restricted Activity (Part II)

We have previously written about certain activities prohibited by Mongolian public officials according by Mongolia’s anti-corruption law. In this post we will summarize the activities which Mongolian officials may engage in, but which are subject to specific legal restrictions.

Mongolian public officials are generally prohibited from accepting or requesting from individuals or legal entity’s donations or other financial aid to address public needs, which may include funding assistance for their specific governmental department. However, officials and government organizations may accept donations and other financial aid for purposes such as improvement of staff training, organizational operations and structure, or in providing technical support, which will provide public benefits by increasing the capacity of that government organization to perform its responsibilities. When this is done, care must be taken to ensure it will not present a conflict of interest for officials. Officials must obtain permission from their management or the relevant government authority before accepting even an allowed donation or financial aid. In the event a donor provides such aid as described above for an official purpose, the government officials involved are legally prohibited from making any decision which concerns the donor for a period of two years following the receipt of the donation. This means a private donor may make a donation to a public agency, but the individuals at that agency which benefit from such donation will not be allowed to make regulatory decisions or approvals as regards the donor for at least two years.

 Public officials are restricted from concurrently holding any private employment or public office other than as specifically allowed by the law. The following are expressly allowed:

A member of the Parliament or Government of Mongolia may concurrently have or hold the following occupations or offices:

  • offices allowed by law and/or international treaties;
  • offices directed at public benefit activities;
  • occupations of a teacher, researcher or creative work;
  • if allowed by law, other offices in the Parliament or the Government;
  • if allowed by law, offices in international organizations.

Members of the Constitutional Court, judges of all levels, prosecutors, investigative officers are prohibited from holding concurrent offices or occupations except for a professor or a researcher.

An officer of the armed forces may perform work or exercise authority under a labour or work-performance contract concluded on the basis of a written permission by that officer’s superior officer.

Officials are restricted from certain actions which are considered fraught with conflict of interest, for at least two years after they leave public office:

  • take up employment with an legal entity or organization which close relationship to their former official duties;
  • conclude agreement or contract with former government employer or seeking/requesting a license issued by the former government employer;
  • lobby for any individual or a legal entity before the former government employer.

This restriction will not apply to an agreement, contract that had been concluded or extended prior to the official’s election or appointment to public office, or will it apply to an agreement or contract that has been awarded through public tender or that has a value with an annual income less than the amount equal to 12 million MNT (~$5,000).

Mongolian Government Introduces Positive Amendments to 2017 Budget

Mongolia Minister of Finance B. Choijilsuren presented to the Speaker of Parliament M. Enkhbold a set of planned amendments to the 2017 state budget. These amendments have been designed to better ensure the government’s ability to meet its obligations under the International Monetary Fund’s extended fund facility program from which the government will receive substantial loans.

The amendments are intended to stabilize the national budget and the fiscal outlook financial environment, by reductions in budget deficits, and imposing discipline.

The primary changes in the new budget include:

  1. Increasing taxes on alcoholic beverages and imposing tariffs on imported cigarettes;
  2. Increasing taxes on gasoline and diesel fuel;
  3. Increasing taxes on imported vehicles, in accordance with engine capacity;
  4. Dividing personal income taxes into three brackets and increasing personal income tax for people with higher incomes;
  5. Charging a ten percent tax on interest earned from savings accounts;
  6. Raising social insurance fees;

Of these, the biggest and the one that caught the attention of our China lawyers is the changes proposed for the personal income tax. The exact income levels which will be cut off points between the three tax tiers is not yet known, however it is likely that many expatriate employees in Mongolia may be affected by higher taxes on their income.

In addition to the above, the amended budget will impose several new measures intended to reduce the government’s overall operational sending levels and bring expenditures in line with government revenues.

  1. Increase the efficiency of tenders being carried out in the medical sector;
  2. Raise the retirement age every two years;
  3. Promote the Meat and Milk Campaign to develop Mongolian meat and dairy industry;
  4. Provide the state’s monthly welfare allowance of 20,000 MNT for children and other state assistance only to targeted groups;
  5. Repeal existing laws that put pressure on the state budget.

The government will aim to limit deficit spending to 10.6% of overall GDP, with revenue expected to be 23.1 percent of GDP, and overall spending to be 33.7% of GDP.

Of the above measures, LehmanLaw Mongolia is pleased to see efforts to promote the Mongolia meat and dairy industry included. Mongolia’s large expanse of green pasture land, clean water and fresh air should provide excellent opportunities for entrepreneurs and foreign investors seeking to establish meat and dairy production operations in the country. Exports of such products to China should find a willing market, as Chinese meat and dairy consumption is expected to continue rising trends.

The other good news is the general commitment to eliminate old laws that cause unnecessary financial strain on the government. This review process is necessary and is expected to help the government identify new areas where spending can be reduced by smart changes to the law. This is the kind of reform needed to stabilize the Mongolian economy and prepare for long term growth.

Mongolia Anti-Corruption Law: Overview of Prohibited Activity

Mongolian law prohibits certain activities by public officials, while other activities are restricted. These prohibitions and restrictions are intended to prevent conflicts of interest in public service and to eliminate opportunities for bribery and other forms of corruption. However, even in the face of legal prohibitions and restrictions, sometimes officials will in communications with our clients suggest “options” or “solutions” that amount to barely disguised violations of these laws. Foreign invested enterprises in Mongolia should “keep an eye out” for these kinds of activities so they are not caught up in an illegal scheme.

Mongolian public officials are prohibited from disclosing in a manner not related to their official duties, information that has been acquired via official capacity. Unfortunately, violations of this prohibition are widespread as politicians and unelected officers will often seek to share or trade in private information gained through their position of privilege. Officials will seek to use this information to further their own interests, or to spread damaging propaganda about opponents.

Public officials are also prohibited from utilizing their official position to issue a decision, or to control, supervise, inquire or impose liability on another for the private purposes of themselves or their friends and family. They are also prohibited from using their official position to put pressure or influence on others. While this is not as common as the information sharing described above, one would not be surprised when encountering an official who seeks to wield their power in this way.

An official is prohibited from using the power of public office in any kind of advertising, except in connection with their official duties, and where participation is in favor of activities in benefit of the society.

Public officials are further prohibited from utilizing public service to represent their own private interests, or those of other individuals, organizations, or companies they are directly or indirectly associated with. Even so, many members of parliament are successful in business and continue ot be involved with a private business. For many a primary reason to become a member of parliament is to enhance or extend to their business opportunities and income. Parliamentarians have been known to introduce new laws and regulations which are beneficial to their private business or their personal interests.

Officials are prohibited from accepting any payment or supplementary payment, or gifts in connection with the performance of their official duties, however, this is another common violation which is often performed discretely.

With regard to an official’s accepting a gift, there is a legal obligation for an official to file a written report within 30 days in the event the value of a one-time gift or service received exceeds the equivalent of that official’s salary for one month, or where the value of gifts received from a single source in the course of one year exceeds the equivalent of that official’s salary over three months. If the value of a gift or service received by an official is in excess of that official’s salary over 6 months, the gifted items shall become the property of the State. The official can accept or redeem these gifts only by way of paying the government the value in excess of the official’s six month total salary.

This is a strange arrangement per western standards as a gift of 6 months total salary may still be a substantial amount. Keep in mind that while a gift of this nature may be legal in Mongolia, foreign companies and individuals may still be subject to anti-corruption laws in their home country, such as FCPA in USA.

Public officials are further prohibited from participating in the business of a company or serving in a management role of a company. Additionally, officials are subject to a two year prohibition on being a shareholder, stockholder or a partner in a legal entity for which the official had been involved decision making on awarding such company government procurement contracts, allocation of central government, provincial or municipal funding, or where the public official had exercised official supervision or control over such company in connection with the official’s public duties.

This is only an introduction to official prohibitions on actions of public office holders. Future blogs will continue our review.

Mongolia Investment Promotion Agreement With Canada

Canadian Minister of International Trade Francois-Philippe Champagne met March 12, 2017 with Mongolia Mining Minister Ts.Dashdorj, to issue a joint announcement that the Mongolia-Canada Foreign Investment Promotion and Protection Agreement (FIPA) has entered into force.

The Global Affairs Department of the Canadian government is quoated as saying, “This agreement sets out a framework of legally binding rights and obligations that will protect Canadian investors in Mongolia. The strong reciprocal protections in the FIPA will help Canadian and Mongolian companies deepen commercial ties with confidence and spur job creation.”

Canada is estimated to have invested over 6.4 billion USD in Mongolia in 2015, one of the larest individual country contributions. Most of this Canadia investment in Mongolia is in Mining and related sectors. It is hoped that FIPA will encourage diversification in investments in areas such as agriculture and infrastructure.

According to the agreement each nation will accord the other “Most Favored Nation” status.

We are happy to see Canada double down on economic engagement with Mongolia. Canada’s efforts include working with Mongolia to develop capacity in natural resources management, official transparency and accountability, and environmental sustainability.

The benefits Mongolia gains from these policy improvements will be felt not only by Canadian investors, but for all foreign investors in Mongolia, along with local Mongolian companies and individuals.

New Budget means Mongolia is Open for Business

A draft of the 2017 budget for Mongolia is approved including a budget framework and an overview of policy through 2019.  The budget projects a 9.1% deficit for 2017.

The budget expects economic growth of 3% in 2017. In the interests of maintaining a stable tax environment for companies, taxes are not expected to increase. The government aims to improve infrastructure in the mining sector, move forward in large mining projects and generate budget revenue by increasing construction and investment.

The government’s operating expenses are set to be cut by 1% over 2017.  At the same time, money has been set aside for loans and scholarships for top students, as well as funding for private and public colleges.

There are also steps included to minimize the deficit, for example, operating expenses for state organizations will be cut. Each organization will receive a cut of 10% to 100%, depending on the organizations function. Expenditures for a number of state funded programs and events will be reduced by 410 billion MNT.

Mongolian parliament has approved the reduction of the number of domestic bonds issued and will promote economic growth by taking steps to ensure proper spending of funds received from foreign loans.

These measures, to limit the deficit, to promote large mining and infrastructure projects, and investing in Mongolia’s schools and students, are all positive steps for the country at a time when the overall economy has slowed due to global economic forces. If the increase in mining and infrastructure projects proceeds as expected, Mongolia could return to double digit growth in the coming years.

55 Years of Cooperation with the United Nations

Mongolia became the 101st member of the United Nations on October 27, 1961. Thursday, October 27 marks the 55th anniversary. A ceremony was held October 1st at the Mongolia Ministry of Foreign Affairs in celebration of Mongolia’s long participation in the global body.

The Mongolian Vice Minister of Foreign Affairs, and the UN Resident Representative both spoke at the event, discussing the contributions Mongolia has made to the United Nations, and the benefits Mongolia has received in return. Both look forward to a strong future for Mongolia and increased participation of the country in the international community.

The Ceremony comes a month after The President of Mongolia, Tsakhiagiin Elbegdorj presented a speech on principles of sustainable development to the 71st Session of the UN General Assembly. Mr. Elbegdorj’s speech discussed the rapid economic changes in Mongolia, and emphasized the principles of accountability, democracy, human rights, and international cooperation as vital to ensure the path of global sustainable development.