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Ideologies of mortgage financing in Mongolia

By Rebekah Plueckhahn, on 16 March 2018

Rebekah Plueckhahn is a Research Associate on the Emerging Subjects Team at UCL – Anthropology. This post draws from research that forms part of her book Shaping Urban Futures in Ulaanbaatar forthcoming with UCL Press.

Visiting Mongolia in November-December 2017, many people I spoke to were preoccupied with the topic of the current influence of the recently implemented oversight by the International Monetary Fund (IMF) and their influence in numerous sectors of Mongolian economic governance as they prepared to make sizable loans to the country. The influence of the IMF is currently extending into a vast number of areas, including macroeconomics, national ministries, as well as Ulaanbaatar municipal budgets. One area that had implications across these areas was the IMF’s current recommendations for the systems of financialisation that have made Mongolia’s 8% mortgage (ipotek) program possible through Mongolia’s secondary mortgage market.

As part of their recommendations, the management of Mongolia’s secondary mortgage market is being transferred away from Mongol Bank (the Central Bank of Mongolia), to the government, in particular, the Ministry of Finance (IMF 2017, 15 and 67). This has come as part of redefinitions and restructurings of the role of Mongol Bank vis a vis the Mongolian government, that has been cemented through the recently passed amendments to the töv bankny tuhai huul’ or the Law on the Central Bank of Mongolia. Part of these restructurings has been attempts to increase the central bank’s independence from government, including limiting its influence in state budgets, and putting measures in place so that it can better act as an agent of government, more involved in price stability rather than inflation and exchange rates (IMF 2017, 44). Talking with people and reading about these types of restructurings brought into view different anticipatory conceptual ideals of what an economy or financial arrangements should look like or become. The IMF recommendations followed their Safeguards Assessment of 2017, an initiative that encourages standardisation of central banks internationally. This forms part of a much longer history of central banks worldwide becoming institutions that adhere to the ‘rules and rhythms of the market’ rather than political influence (Bear 2015, 190-193). Mongolian parliament member D. Damba-Ochir, quoted in news outlet montsame.mn, stated that the amendments to the law on the central bank will encourage togtvortoi baidal or stability in times of financial crisis (ediin zasgiin hyamral). Another person I spoke to said the move to transfer the ipotek program to the Ministry of Finance was done to encourage sustainability.

Expanding monetary circulations

Hearing these updates at the end of 2017 gave me an opportunity to reflect upon other perceptions on the roles and make-up of Mongolia’s secondary mortgage market and the ethics of mortgage provision. It also gave me a chance to reconsider the links between these factors and the ways this scheme has unfolded and manifested throughout areas of Mongolia’s systems of financialisation, built environments and personal spheres. During the course of my research from 2015-2017, different manifestations of economic ideologies have proliferated throughout the entangled assemblage of actors that comprise Mongolia’s banking and construction sectors. Through following different, interlinked forms of monetary circulation (möngönii ergelt) that allow people to access apartment mortgage financing, what I was alerted to were the different and sometimes (but not always) competing perceptions of how things should be and how the housing ‘market’ should be formed.

Out of the multiple influences of a slowly emerging housing finance program during the 2000s, initiated partly through assistance from the Asian Development Bank and USAID, as well as a hugely increased housing stock brought on by Mongolia’s speculative boom in foreign direct investment from 2009-2012, Mongolia’s mortgage ipotek system was launched in 2013 as an attempt to reconcile the huge demand for housing and the lack of affordable mortgage financing then available. This mortgage system, run by the Mongolian Mortgage Corporation (Mongolyn Ipotekiin Korporatsi) (MIK), provided an interlinked secondary mortgage market through funds issued by the Central Bank of Mongolia to participating commercial banks, allowing them to issue 8% interest ipotek (mortgages).

The 8% interest ipotek is the only kind of more affordable form of housing finance available on the market in Mongolia. It is also quite new. The alternative, for apartments bigger than 80sqm, is to take out a oron suutsnii bankny zeel (apartment bank loan), a loan drawn from savings within commercial banks themselves (savings-based loan), which is often offered at 17-20% interest and a shorter time frame in which to pay it back. For the 8% interest ipotek mortgage, the 30% deposit and the considerable employment history required in order to qualify for it means that this option often does not meet the intended market of low-middle income buyers, nor has it allowed a great deal of people from the peri-urban ger areas of Ulaanbaatar to access apartments. However, among people who can afford it, the demand has been, and remains, extremely high. However, due to a depreciation of the Mongolian tögrög and a lack of funds to inject in the system, the issuance of the 8% ipotek loan from the central system has been varying, including it being paused at the end of 2015, and resumed in varying ways at different points since.

Discussing 8% ipotek mortgage issuance with loan officers at different banks in November 2017, I was informed about the high demand for these mortgages and the fact that some customers are still waiting for money to appear even though their mortgages had been approved a year ago. Attempts to meet this high demand have given rise to different kinds of monetary circulation in order to make this possible. Expanding beyond the secondary mortgage market, within Mongolia the systems of financialisation and monetary links comprise of an ever-expanding set of circulations, arrangements, exchanges and connections. While the economy has stalled, the 8% interest mortgage has remained a kind of idealised form of housing finance regardless of the changing nature of the systems that support it or the fluctuating levels of funding different economic institutions receive.

One such way to meet this demand has been the cooperation between banks and construction companies in an attempt to maintain the 8% ipotek mortgage as an option. Speaking with a loan officer in a bank in Ulaanbaatar, they told me how customers can qualify for 8% interest house loan through their bank if they buy an apartment in buildings built by particular construction companies. This circulation of money between a bank, an individual and a construction company allows construction companies a better chance of attracting customers in order to recoup construction costs through attempting to meet the high demand that the system will no longer support. These ‘circulations’ sometimes consist of the conversion of other forms of capital into an expanded type of circulatory network. As seen in the following advertisement posted in January 2017, this construction company at that time received land (including compensating for self-built buildings or baishin) and cars in lieu of a 30% down payment (urd’chilgaa tölbör):

Figure 1: In January 2017, a construction company advertises a variety of different and flexible conditions on acquiring an 8% interest mortgage through their partner bank, including items that can be accepted in lieu of a deposit. They promise a ‘quick decision’ on apartment loan applications.

Considering the construction company’s role in promoting arrangements like this expands our understandings of how Mongolia’s secondary mortgage market can be conceptualised and redefined. During fieldwork in 2015 and 2016, construction companies were often engaging in forms of bartering of cars and building materials in order to complete projects and sell apartments. Collaborating with banks forms another aspect of doing business.

Expanding ideologies

Such a collaboration between a bank and construction company that provides a different way of financing of a singular (relatively) affordable option allows banks to continue to participate in a form of mortgage financing in the hope that the secondary mortgage market will become increasingly reliable. The idealisation of 8% interest ipotek mortgage extends not only for its ability for a wider group of non-elite people to buy apartments, but also an idealisation of the system itself and what it can bring to the Mongolian economy. Echoing in a different way the IMF stance outlined above, one loan officer told me the secondary mortgage market could ‘ediin zasagiin zöv goldrild oruulah,’ or ‘turn the economy onto the proper course.’ While people are also skeptical of the different arrangements making mortgage financing possible, in the minds of many people the system initiated by the Central Bank exists in its potentiality as much as its practice. Mongolia’s secondary mortgage system is quite new, and like other arrangements and entanglements that make up the mortgage market, it is still in the making. In the meantime, people rely on other connections (Narantuya and Empson, forthcoming), that support this system from within (Maurer 2012, 414). Its proposed transfer to the Ministry of Finance in September 2018 (IMF 2017, 47), will form another substantiation of this network’s financialisation that will undoubtedly give rise to new political and economic relationships, connections and circulations. These, like other forms of financialisation, will further shape this nascent but important network and continue to expand and give rise to different economic ideologies within Mongolia.

I’d like to sincerely thank Batbayaryn Erdenezayaa for her assistance with this research.

References:

Bear, Laura. 2015. Navigating Austerity: Currents of Debt Along a South Asian River. Stanford, California: Stanford University Press.

Bumochir Dulam. 2016. “The Politics of the Mortgage Market in Mongolia.” Emerging Subjects Blog, 29th January 2016. https://blogs.ucl.ac.uk/mongolian-economy/2016/01/29/the-politics-of-the-mortgage-market-in-mongolia/. Accessed 5th February 2018.

International Monetary Fund. 2017. “Mongolia – First and Second Reviews under the Extended Fund Facility – Press Release; Staff Report; and Statement by the Executive Director for Mongolia.” Washington DC. December 2017. https://www.imf.org/en/Publications/CR/Issues/2017/12/21/Mongolia-First-and-Second-Reviews-Under-the-Extended-Fund-Facility-Press-Release-Staff-45505

Maurer, Bill. 2012. “The Disunity of Finance: Alternative Practices to Western Finance.” In The Oxford Handbook of the Sociology of Finance, 413–30. Oxford: Oxford University Press.

Narantuya, C. and Empson, R. (Forthcoming) ‘Networks and the Negotiation of Risk: Making Business Deals and People among Mongolian Small and Medium Businesses’ Central Asian Survey.

Alternatives to the IMF and China? Anti-offshore Movements and Debt Restructuring Possibilities

By Guest Contributor , on 6 June 2017

Mongol

 

 

Sanchir is a political scientist and activist broadly concerned with economic and political development in Mongolia and in the Global South.  His main area of research focuses on, but not limited to problems of late and uneven development, democratization process in post-socialist countries, issues of trade, and investment, extractivism, poverty and debt in the developing world.  He has an interdisciplinary research agenda that combines political theory, global political economy, and Central Asian and Russian studies.  This blog post originated in email conversations between Sanchir, members of the Emerging Subjects project, and Mongolia-focused scholars about the role of the IMF and China in addressing Mongolia’s economic crisis.

 

On May 24th, 2017 The Executive Board of the International Monetary Fund (IMF) approved a three-year extended arrangement under the Extended Fund Facility (EFF) for Mongolia to support an approximately $5.5 billion total financing package.  Along with obtaining financing from the IMF to address Mongolia’s sovereign debt crisis, there was also the possibility of Mongolia receiving a straight loan from China; however, the Chinese side ultimately cancelled the deal.  Many politicians, political commentators, and media outlets have promoted the arrangement with the IMF as a lesser of these two evils.

I have argued that presenting a bailout from the IMF or loans from China as the only options for Mongolia to address its economic situation is a false binary propagated by official discourse and a monopolized media.  Notwithstanding the question of plausibility, different civil society organizations and individuals (including myself) have been invoking other possibilities.  This includes alternatives such as returning embezzled money from offshore accounts[1]; auditing the use, distribution, and repayment of sovereign bond sourced credits; cutting unnecessary budget expenses and other measures of similar ilk.

The most prominent movement in Mongolia promoting theses aforementioned views has been the People’s Anti-Offshore Committee (‘The Committee’). Their biggest activity has been the protest of March 31st where several hundred people protested at Sukhbaatar Square over the alleged theft of public funds now held in offshore accounts. Politicians and activists at the protest demanded the return of $17 billion lying in these accounts. Even though some people have speculated that these protests were funded by some members of the ruling class in order pressure their opponents, the birth of different anti-offshore Mongolian groups abroad, as well as a large interest in the People’s Anti-Offshore Committee itself, indicates that the movement has serious opposition potential and popular legitimacy.

The Facebook group for ATOZ, one of the main anti-offshore movements, reached 172,426 members (not an insignificant number for Mongolia's small population).

The Facebook group, ATOZ, one of the main anti-offshore movements, reached 172,426 members (not an insignificant number given Mongolia’s small population).

 

According to the Extended Fund Facility arrangement with the IMF, Mongolia has agreed to “cut spending, raise taxes and the retirement age, while pledging to maintain a flexible exchange rate and build a stronger regulatory environment for banking and finance.” This is in line with the standard IMF austerity package that has in other countries led to the shrinking of the national economy, which makes future debt repayments an even greater burden (Toussaint, 2010; Varoufakis, 2016; Weisbrot & Sandoval, 2007).  For this reason, I have personally been involved in advocating that Mongolia carry out a debt restructuring process consistent with the United Nation’s principles along with a new Debt Sustainability Analysis, the partial writing-off of debt to manageable proportions, and a citizen debt audit to differentiate between odious and legitimate debt [2].

In my opinion, one of the reasons why getting assistance from either the IMF or China have become the normalized options for Mongolia is because neither would necessarily shake-up the whole system as it currently exists. These two options maintain the position of the dominant class while the current administration will not have to tackle the existing debt problem. They can just pass the buck onto the next government by extending and refinancing the loans. In short, it allows for a position that maintains the status quo rather than holding anyone to account for the current position Mongolia finds itself in.

 

 

[1]Leaks of offshore information from Mossack Fonseca, a law firm in Panama, exposed a lengthy list of potential tax evasion, money laundering, and illegal transactions, which involved top level government officials from a number of countries, including Mongolia. Among the 49 Mongolian individuals and business entities named in the Panama Papers, there were accounts related to two former prime ministers of Mongolia, S. Bayar and S. Batbold; parliament member S. Bayartsogt; and other government officials.

[2] For example, during my speeches at the Left Forum organized by Rosa Luxembourg Stiftung in March 2016, Asia Europe People’s Forum held in Ulaanbaatar in July 2016, and the Peoples Research Training in Mongolia organized by Asia Pacific Research Network (APRN), People’s Coalition on Food Sovereignty (PCFS) and Centre for Human Rights and Development (CHRD).

 

References:

Toussaint, Eric. Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers. New York: Monthly Review Press, 2010.

Varoufakis, Yanis. And the Weak Suffer What They Must?: Europe’s Crisis and America’s Economic Future. Washington, DC: Nation Books, 2016.

Weisbrot, Mark, and Sandoval, Luis. Argentina’s Economic Recovery: Policy Choices and Implications. New York: Center for Economic and Policy Research, October 2007, #2.