Backlash over Development Bank of Mongolia Exposes Social and Political Tensions

Around $800 million international bond repayment of the state-owned Development Bank (DB) is due at the end of 2023. However, since early 2022 it witnessed a political witch hunt against major businesses that borrowed long-term project loans from the DB since 2012.

The photo of the main office building of the Development Bank of Mongolia

DB was set up a decade ago to finance large “development” projects with low rates to support the economy. DB raised bonds internationally in external currencies (US dollars and yen). Some of the loans went to controversial businesses linked to well-known politicians and lawmakers.

Allegedly, a total of 69 companies fell behind on repayments due to the recent economic slowdown and over-optimistic projections.

Bad loans on DB’s book ballooned to USD 500 million.

A corruption probe was initiated by the government a couple of years ago and the criminal investigation has targeted a dozen of borrowers, including high profile politicians.

Former DB chief executives and board directors are either persecuted or detained awaiting their trials. A prominent opposition leader and former economic development minister who oversaw DB during the Democratic Party rule in 2012-2016 was already tried.

The main opposition views the DB backlash as just a political fallout from the intra-factional tension within the ruling Mongolian People’s Party (MPP) over the imminent cabinet reshuffle. The MPP Secretary General promised to expel any party member who doesn’t repay DB loans.

“Woke” media and social media activists took on it and started exposing politicians and businessmen who owed DB prompting nationwide backlash. Small business owners called for their loan deferment and/or non-payment until the DB borrowers payback.

An online petition to persecute DB borrowers-politicians garnered around 2,500 signatures. A parliamentary task force has been set up and examined the DB decisions on bad loans.

The DB scandal also prompted waves of anti-corruption street protests while post-COVID economic recovery has been delayed. The risk of social unrest motivated by high inflation and currency exchange rate drop has elevated.