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Emerging Subjects of the New Economy: Tracing Economic Growth in Mongolia


Archive for the 'Loans and Debt Series' Category

Land, Building Supplies and Repair-People: Differing Visions of Urban Futures in Ulaanbaatar

By ucsarpl, on 8 February 2016

 This is the fourth blog post in a series about debt and loans.


As part of our series on debt, this post discusses some emerging subjects appearing in a context where there is a severe lack of cash flow. It describes a section of Mongolia’s construction industry where forms of indebtedness leave people surrounded by commodities (land, labour and building supplies) but unable to make money.

The Ulaanbaatar district of Zuun Ail, just north-east of the city core, has long been a place where one can buy building materials. The main street of Tsagdaagiin Gudamj that stretches northwards, is a crowded and bustling street lined with many shops and large centres housing sellers of all kinds of fixtures, paints, wood, and many other types of building supplies.

Mongolia’s period of intense economic growth during 2009-2012 saw a simultaneous boom in construction occurring throughout Ulaanbaatar. Since this time however, Mongolia has seen an equally rapid economic downturn, including a drastic reduction in foreign direct investment. Due to a number of factors, the construction sector has felt this overall economic slowdown harshly and there is currently a severe lack of cash flow in the industry. Bank loans often come with high interest rates, making it difficult to make a profit when buildings are completed (if enough financing is acquired to complete them at all). In the current economic climate, many major construction companies commonly operate through large-scale forms of bartering to acquire materials to finish projects. For example, a construction company can barter a $100,000USD jeep to obtain $100,000USD worth of concrete blocks.

During this economic slowdown, fuelled by a government plan to redevelop areas of Ulaanbaatar’s sprawling ger areas with affordable apartment housing, land from several ger areas have been acquired by construction companies where some people choose to swap their land for either compensation or apartments. Due to some of these processes Zuun Ail has become a place were competing visions of urban futures have begun to materialise in sometimes conflicting and contrasting ways.

Spheres of Anticipation

In Zuun Ail, several areas of hashaa (fenced blocks of land usually containing a small house or ger (tent)) were signalled for redevelopment into apartment housing. However, due to the economic slowdown, several plans for construction have, as yet, failed to materialise. When I visited Zuun Ail in October and November 2015 some construction sites were lying dormant.

Image 1 Construction

Image 1: Zuun ail redevelopment. An apartment complex lies half-built alongside many occupied hashaa.


Some land owners in the area preferred to hedge their bets. Instead of choosing to receive compensation from construction companies wanting to acquire their land, they preferred to sell the land privately, hoping to let their land increase in value so they can obtain a better deal at a later date. In this uncertain economic climate, for many the value of an apartment is viewed as more unstable and less reliable than the value of land beneath peoples’ feet. Attention shown by construction companies keen to acquire land for redevelopment can increase a land owner’s attachment to their land, where land is viewed as the main value-holder.

Image 2

Image 2: A hashaa owner advertises their land for sale hoping for a better deal, while construction work has been completed around them.


Additionally, along the perimeter of Zuun Ail, several key infrastructures – sewerage pipes and underground electrical cables – were in the process of being laid through funding sourced by the Ulaanbaatar municipality. These key infrastructures are severely lacking in the ger areas of Ulaanbaatar overall.  These infrastructures were designated for future apartment buildings in areas further away from the city core and wouldn’t be available to nearby hashaa residents per se. However, some residents of these blocks of land anticipated that the close presence of such infrastructures would only increase the value of their land.

Image 3 Sewer system in hashaa

Image 3: Sewerage systems are laid down in late October 2015, the installation cutting through a person’s hashaa.


The Zasvarchin (repair-person)

Within the ebb and flow of anticipation and stalling wrought by construction companies and the installation of infrastructure in the larger areas of Zuun Ail, sit a number of people who are deeply affected by the fluctuations occurring in the construction industry. These people could be considered emblematic of some of the emerging subjects arising out of Mongolia’s rapid economic change. Motivated by a desire to better understand the construction material supply areas of Zuun Ail, I went one cold afternoon to visit some of the construction material vendor centres (barilgyn material hudaldaany töv) that run through the main street in this district.

It was a cold day, grey clouds hung low in the sky and there was a bitterly cold wind. I felt the cold start to bite into my clothing and limbs the longer I stayed outside. This was in the middle of November, never a flourishing time for Mongolia’s construction activity in the best of economic circumstances. However, I was curious about how sellers in this area perceived the current state of the industry given Mongolia’s economic downturn.

Image 4 Tsagdaagiin street

Image 4: Tsagdaagiin street in Zuun Ail.


The main street was busy. It was lined with stores and vendors selling all sorts of construction and building materials, from windows to wooden beams and pipes. The street was littered with signs directing customers to stores off the street. There were many cars and a lot of people weaving through traffic and on the footpath – people coming and going buying this or that small goods for some construction or hardware project or another. Small pick-up trucks waited with the sign ‘achaa awna’ in the window – you can rent them to transport your materials. Overall, on the surface it seemed that this area was where people bought items for small-scale projects, or for supplies for completing the interior of buildings. I came across a hudaldaany töv (sellers centre). It had a number of concrete steps reaching steeply up to a large two story building.

Image 5 Adverts

Image 5: Various advertisements on the steps leading up to a construction materials market. Some are advertising sales.


On the steps were some older and middle aged people milling around, each standing on their own. Quite a few of them men. On a little roadway that services the front entrance stood a stocky security guard. She wandered slowly in this space not looking at anyone in particular, but often faced the front of the building standing away from the main road. In this small, dispersed crowd on the steps an older man and a woman several years younger than him carried small signs around their necks displayed on their chests. These were people available for hire to do small handy-work, interior construction tasks – painting and decorating, installing kitchen cabinets or fixing the interiors of apartments. They stood in the cold waiting for someone to hire them. They were all silent, standing a few feet away from each other gazing solemnly out towards the road.

I decided to see what was taking place inside the building. It was crowded at the entrance, with people milling around organising packages in their arms before leaving. Once inside, I turned left and immediately saw two women in front of us with similar signs around their necks. The women would have been roughly in their mid-fifties. They were both looking for work. The signs around their necks explained they were available to do painting and interior decorating. I introduced myself to them and asked how they were, how work was going and how the year had been. They said that that work had been extremely bad, that they were lucky to get work every 14-15 days or so. One lady commented that it was common for such itinerant workers to be from the countryside, and that they often head back home after the construction season ends. The two of them, she said, were doing this work to support their children, that private construction companies only pay very low salaries. She personally lives in Zuun Ail and a lot of her relatives do the same work that she does. These people, I learnt, are described as ‘zasvarchin’ – ‘repair person’ or handyman.

Later, upon leaving this centre (which I will describe further below), we saw that a woman standing on the front steps was possibly being hired. A man arrived with a toolbox and was discussing something with her. I was told that it is a common way for people to be hired in this industry. To the left of the entrance, a series of workbags were hung up on some grates covering a window. As we left, the older man in his late fifties or early sixties was still waiting in the cold with a sign around his neck.

The Materiality of Debt

Going into the centre, I saw several rows of closely packed stalls lined with goods from floor to ceiling. Some vendors were selling linoleum and other kinds of flooring, while others were catered for lighting. Others sold all sorts of safety equipment and others still were selling anything from brooms to nails or rope and hardhats. There were several stalls with people sitting alone unattended by customers.

Two men in one corner of the store were playing cards. At first I just assumed that these sellers simply had more free time during the slow-down of the industry in mid-November as winter approaches. However, as my day progressed, I noticed more and more card-games, which prompted my thinking about the current levels of business for these sellers, the state of Mongolia’s construction industry, and some of the financial positions these vendors are in.

I stopped to talk to people for a few minutes each time as I walked around. Introducing myself and my research, I asked everyone generally the same questions – how has the year been for their business, if bad, when did it start, what do they think it will be like later, do they allow barter. At the first stall I visited, a stall of mixed supplies, from nails to tape measures, to rope, the vendor said business this year had been bad, muu, and that it started getting bad around spring of 2015. She said that the industry won’t start up again until after the winter, not until May 2016.

I went upstairs to a floor that was much quieter. On this floor were a lot more stalls that were direct supply outlets for companies selling only one or two items. I found a woman texting on her phone in a stall selling bathroom sinks as well as long, thin, green pipes used for supplying drinking water. Happy to talk but without looking up much from her phone, she too said that since spring 2015 business had become pretty bad. I asked about whether they barter as a form of transaction. She said that people come in and propose bartering arrangements and that it is possible to do so. She said that the supply company she works for is also happy to barter sales items in lieu of rent money to keep hiring this shop space, but that it hadn’t yet come to that.

Walking along this floor, several shop spaces were left vacant. I waited outside a store that sold power tools. This store had several customers and also sold quite high end brand equipment of saws, drills and several other specialised power tool equipment. I thought that maybe she might have had better business, or at least engage with more instances of bartering, given the high prices of her goods. This vendor said that since August 2015 business has become really bad. She said that a few people try to offer a proposal (sanal) to barter an item in exchange for power tools, but that she refuses to do so. She said that some people offer to give her an apartment in exchange for goods, but that because the apartment price is very low, she doesn’t want to do it.

On this dimly lit floor towards the back of the building, there was one store that had a table in it selling electrical fittings. A lot of the other stalls containing goods were open but unmanned and the hallways were empty of customers. In the electrical fittings store, away from the gaze of customers walking up the stairs, there were several people playing a big card game amongst each other. Leaving to go back outside, I walked along the street to a similar sized hudaldaany töv. Walking along similar rows of light shops and multipurpose electrical stores I saw another card game taking place between two vendors who were gambling money on the outcome.

I began wondering at this point that perhaps these middle-sellers, located in a larger supply chain of building materials, would have a very limited ability to barter. People hired by suppliers as sales clerks to sell their goods would probably need to provide to their employers cash for the items sold. Any decision of bartering would have to be made by the company, not them. Similarly however, if they are working for themselves they would need to receive cash in order to purchase future sales items or, most likely, pay off loans. They were surrounded in suspense by a packed stall of goods lining the wall from top to bottom, but with an absence of customers. These goods formed unmovable, material representations of someone’s financial debt, where the unseen money is stuck in these objects that cannot be sold. These vendors are caught in a position of requiring cash in an increasingly cashless environment and lack the leverage to make bartering properly profitable for themselves.

I went to one more hudaldaany töv that day. This one had all kinds of supplier stores often adorned with brand named signs and often selling singular items. There was one store selling fire hydrants and another store sold speciality bathroom fixtures. In one store there was a poster stuck on the wall displaying a picture of piles of American dollar bills with the words “First Billion” written in a big heading at the top – an attempt to causally evoke future wealth and fortune.


Image 6 Inactive spaces

Image 6: Inactive spaces – A shop space formerly selling toilet fixtures lies vacant and open for rent.


Going upstairs to the second floor of this building, there were several store sites left vacant with the words “for rent” on the door. Walking along this corridor I found the manager of the building sitting in their office and was able to speak to them for a few minutes. They informed me that some distributors have two or three shops and that lately they have often been combining them into one, as they can’t make a profit with multiple stores. The manager said that the hired sales assistants working in the additional stores lost their jobs and that sales overall have been decreasing since 2013. The big companies setting up the small shops can’t pay salaries and rents on all of them. Only seasoned veterans, this person explained, with established older businesses can do this sales-work, not newcomers. In this climate of debt and an inability to secure cash, new businesses do not thrive and quickly close.

As I walked out I found another sign saying “for rent” on an empty shop space, and went to take a photo. However, I quickly realised that behind shadowed glass was a whole vacant shop space full of men engaged in another big card game. I left to go down the stairs. Following the number of card games during this day in the several hudaldaany töv gives an example of action, of sociality that has arisen out of a lack of business activity. It also reveals the social connections between these vendors that inhabit these sale spaces, people who are also in competition with each other. How much of this slowness is due to the bad state of the industry? Or how much is due to the fact that it was November and too cold for the construction industry to be booming at this time? Considering peoples accounts of the state of their business, perhaps it is both.[i]


All photos © Rebekah Plueckhahn.


[i] I would like to thank G. Delgermaa for helping me source information and Doljinsuren for assisting me with this research.

The Politics of the Mortgage Market in Mongolia

By ucsadul, on 29 January 2016

This is the third blog post in a series about debt and loans.


In the beginning of December 2015, news headlines declared that commercial banks would stop providing housing mortgages at a favourable 8 % interest rate. The “8 % interest housing mortgage” (8 huviin oron suutsny zeel) is a nation-wide programme initiated and implemented by the government through commercial banks.  The government started the programme in 2013 as a means to increase the affordability and accessibility of apartments for urban residents, particularly young families and those living in the ger districts.  The news of the repeal was shocking for many because it froze people’s ability to acquire apartments while also signalling a wider crisis in the national financial system.

Social demand for housing

A friend of mine, B, was planning to sell his flat to his friend in order to buy a larger flat from a different friend. The friend who was planning to buy B’s flat was about to receive a bank-approved mortgage.  Because he was very certain to get a loan from the bank, and since the selling and buying arrangements were between friends, they decided to exchange apartments before getting all the paperwork finalised.  B moved into his friend’s flat while his friend who had the mortgage approved moved into his former flat. A few days afterwards they all heard the news  that banks would no longer be offering mortgages with 8% interest rates. All of them went into a panic and they sought advice from friend who works in the banking industry to find out whether the repeal was a temporary or a permanent policy decision.  They asked two friends, one working  in the Khan Bank and another working in the State Bank (Toriin Bank), and both assured based on internal bank information that the repeal would not last long.

There is a widespread belief that mortgages allow people who live in ger districts to purchase apartments with low-interest loans, thereby decreasing air pollution in the whole city. However, this does not seem to be the main trigger.  The economist Batsuuri, for example, has claimed that people living in ger areas are not the major purchasers of apartments. So while such programmes appear to address social problems, they are also a business opportunity for others.

Monopoly of mortgage market

According to the employee at the State Bank, the bank is the most important, largest, and dominant bank constituting part of Mongolia’s financial system. There are no other major institutions that compete with banks in the whole financial system in Mongolia. Moreover, in the bank, the major financial activity is mortgage loans. According to him, banks cannot function without mortgages. Consequently, stopping the 8% mortgage program might further cause collapse in the ‘financial system’ (sankhuugiin togtoltsoo), because people would not be able to afford to purchase apartments at higher interest rates. Not only him, but many other professionals working in Mongolian banks were very certain that the repeal would not last long for the sake of the sustainability of the financial system.

As I am not an expert on banking and financial systems, I am not in a position to comment in detail here. However this repeal creates an impression that commercial banks profit from mortgage loans and are protected by the existing financial system and high social demand for housing. It is in fact a consequence of the capitalist system brought up in Mongolia since the 1990s that exploits debtors and protect creditors.  Bank monopoly was one of the two major arguments the constitution court developed and it became a trigger for the association of banks to decide to repeal the 8% mortgage loan scheme.

In fact the repeal of the 8% mortgage was not an immediate decision. Before it was publicly revealed in the news there was a discussion that occurred in the constitutional court. Civilians D. Yanjinkhorloo and B. Enkhbayar made complaints against some articles in the law regarding bank and non-bank financial service centres (NBFS) mortgage agreements. The complaints address how contracts based on the existing law regulates real estate (flat, house and land) mortgage does not permit civilians to go to court in the case when they are not able to pay loans and dispossesses mortgage property without having judicial decision.

The constitutional court discussed the case, concluding that some articles in the law of real estate mortgage violated a clause in the constitution regarding rights to possess real estate. According to the constitution, any cases of dispossession of real estate property should go through a court decision. Therefore, the constitutional court meeting announced that the law of real estate mortgage violates basic human rights, as declared in the constitution. The constitutional court asked parliament to amend the law and fix the violation. This decision was made on the 9th of December. It required the Association of Commercial Banks to react quickly, indefinitely stopping such mortgages. The constitutional court also raised other issues why the law around mortgages needed to be amended. The court considered that bank and NBFS loans and mortgages violated articles in the law against unfair competition. 17 commercial banks and NBFS dominate loan and mortgage services in Mongolia, by occupying more than the 1/3rd of the mortgage market. According to the law against unfair competition, article 5.1., defines any case of sales and services of more than 1/3rd of the market to be dominating it and, therefore, should be stopped.

For example, commercial banks gain profit from the interest gained on mortgages. As MP S. Ganbaatar puts it in his numerous public talks and parliament speeches: ‘dogs get fat when zud comes’ (zud bolohod nohoi zoolno), – i.e. dogs get fat when there has been a severely cold winter from feeding on the carcasses of dead livestock.  This alludes to the profits banks are making when normal people are suffering, and is a reason why he comments that all banks should be called ‘pawn shops’ (lombard).[1]  It is indeed noticeable that many Mongolian and foreign business people, including some politicians, have opened banks or NBFS in Mongolia.

Political immunity of mortgage business

The above-mentioned friend who works in a bank further explained that a well-known national company, Bodi International, owns a certain percentage of shares of Golomt Bank. Lu. Bold who is the founder and owner of this company is also an MP and a minister. A news article from 2010 revealed some of the owners of this bank, but many are not known.

The banker further revealed that a very large national company, the Tavan Bogd Group, and other foreign companies, such as ‘Savada Holdings’ from Japan, are owners of the Khan Bank (the latter owns the largest portion at 53%).  Another article from 2014 refers to bank owners as usurers (mongo huulegchi). The same term was used in the early 20th century to identify Chinese and Manchu high-interest money-lenders. The article reveals that ‘Global Investment and Development’ owns the largest share of 65 % of the Trade and Development Bank. The article speculates that the ex-President N. Enkhbayar and MP J.Battulga, who owns the ‘Jenko’ company, also have shares in the bank. These are the largest three banks in Mongolia.

It is not only professionals working in the banking sector and journalists who try to find out who are the owners of these large banks  and accuse them of being usurers. Many others in fact have the same opinion. Around the time when I was conducting field research in Dundgovi aimag, Batbayar, a young man who worked in Turkey, told me about Islamic Banks that allow loans with no interest. Batbayar, suggested that this is what Mongolia currently needs if the state is truly attempting to support housing and small- and middle-range enterprises, rather than allowing commercial banks to ‘spin money’.

As we can see mortgages are highly politicised and are not simply economic or social, especially at the moment when Mongolia is only a few months away from the next parliamentary elections in June. As Kh. Batsuuri states: ‘mortgage problem is becoming an advantage for rulers near the election’.  Alongside amendments to the Mortgage Law, ruling Democratic Party leaders have decreased mortgage interest rates from 8 % to 5 %. Not long after, in the start of January 2016, this news received favourable comments from the public in the media. Some even openly declared that they would now vote for the Democratic Party, while others commented that this is rather a temporary ‘electioneering show’ (songuuliin show).


Source: http://www.hunnu.mn/content/75214.htm


Absence of long-term policy making

On the 19th of January 2016, after about a month since the 8% mortgage loan was stopped, the Parliament of Mongolia approved an amendment to the Mortgage Law (Ul khodlokh ed khorongiin baritsaany tukhai khuuli). The amendment in article 27.1 now enables owners to have the right to issue permission to the mortgagee in cases when the mortgagees change ownership. This is not the only amendment. Interest rates have also decreased from 8 to 5 %, bringing possible future risk to the economy at large. As some economists, such as  Kh. Batsuuri and J. Ganbaatar (PhD candidate at the American University)[2] explain, the mortgage loan should have financially supported itself without becoming a burden to the national economy if it had worked according to the original plan. Indeed, considering the current weak economic situation in Mongolia, Kh. Batsuuri questions whether the 3 % decrease in mortgage interest rates actually puts more pressure on Mongolia’s economy. According to his elaboration, the 8 % interest rate influenced the current economic crisis. For instance, the Mongolian government had to print more national currency in order to supply mortgage loans, which brought 13 % inflation, plus the price of flats dramatically increased.

The same critique has also been made by another economist, de Facto Jargalsaikhan. In his latest post he comments that ‘the technology to print more currency to develop the country is vigorously increasing in Mongolia’. Maybe there are many more economist who consider the 5 % interest mortgage a serious threat to the already weak national economy. It will possibly bring with it more currency printing, more inflation, more cheap mining deals, and more external debt, in addition to the existing more than 20 billion USD debt.


Speaker of Parliament Z. Enkhbold explains “why mortgage was stopped and what should be done”. Speaker of Parliament Z. Enkhbold explains “why mortgage was stopped and what should be done”. Source: http://economy.news.mn/content/232023.shtml


Enkhbold 2

Speaker of Parliament Z. Enkhbold explains “why mortgage is crucial”. Source: http://sodon.mn/news/16035


According to the media, the decreasing interest rate of mortgages and their availability again, serves to satisfy those wanting to purchase an apartment, construction companies struggling to sell apartments, and commercial banks who make massive profits from mortgage interest rates. Passing this policy does not serve the potential damages that it might incur on the national economy. The only agent that consistently profits and is safely protected, by society, politics and the economy, are the commercial banks, owned by foreign investors and Mongolia’s oligarchs. They are indeed safely protected, firstly by the social demand for housing, and secondly by political decisions that meet public demands in order to receive more votes for the up-coming election, and thirdly the unstoppable financial system dominated and monopolized with loans.

The question that remains is; what was the politics behind changes to mortgages? Why were they stopped? Was it because of the constitutional court decision regarding the violation of basic human rights and monopolisation in the national economy? Or, was it actually the outcome of a genuine fight against the politically-empowered dominant business for the sake of fair competition? Or, further, was it in fact due to the political conflicts between large business owners and their political allies? Is the 5 % interest mortgage another short-term political play to gain support prior to elections? In this fractious political climate, who is actually taking care of  the long-term interests of the national economy?

5 and 8 percent

Mongolian banks teetering on the edge, with 5 and 8% mortgages crashing.  Source: http://www.trends.mn/n/4709 (Original source: Modkraft)



[1] See also: https://www.facebook.com/ganbaatar.sainkhuu/videos/1089739141060523/?theater


For soyoljson lombard “culturalised pawn shops” also see http://www.fact.mn/204265.html


[2] Rebecca Empson and D. Bumochir’s skype interview with Ganbaatar Jambal, January 2016.