The state-owned Development Bank of Mongolia (DBM) is facing a significant bond repayment of around $800 million by the end of 2023. However, the bank has been subject to a political witch hunt that has targeted large businesses that have taken out long-term project loans from the DBM since 2012.
This situation has raised concerns about the bank's ability to collect the loans and fulfill its repayment obligations. Learn more about the challenges facing the DBM in this article.
The photo of the main office building of the Development Bank of Mongolia
Development Bank of Mongolia (DBM) was established a decade ago to finance important projects at low-interest rates in order to bolster the economy. DBM issued bonds in foreign currencies on a global scale (US dollars and yen) and granted loans domestically under the supervision of the Ministry of Finance.
But some of the loans were allegedly made to businesses associated with well-known politicians and lawmakers without proper scrutiny.
Due to the recent economic recession and overly optimistic expectations, 69 companies reportedly fell behind on repayments.
The bad debts on Development Bank of Mongolia's books had risen to USD 500 million by early 2022.
The government launched a corruption inquiry a few years ago, and the criminal investigation has targeted a dozen debtors, including high-profile lawmakers.
Former DB CEOs and board directors are being prosecuted or incarcerated pending their prosecutions. A major opposition leader and former economic development minister who managed DB from 2012 to 2016 during the Democratic Party administration was already tried.
The main opposition sees the DB probe as a political byproduct of intra-party strife within the ruling Mongolian People's Party (MPP) over the impending cabinet change. The Secretary General of the MPP has pledged to dismiss any party member who fails to repay DB loans.
Woke media and social media activists seized the opportunity and began exposing politicians and companies who owed DBM, resulting in a countrywide outcry. Small company owners requested that their loans be deferred and/or not paid until the DB borrowers paid back.
Around 2,500 people signed an internet petition to prosecute DB borrowers-politicians. A parliamentary task group was formed to investigate the DB's improper loan decisions.
The DBM scandal also sparked anti-corruption street protests, and the post-COVID economic recovery has been slowed.
It also demonstrated that the risk of social unrest remains due to rising inflation and currency exchange rate drops.
Author
Amar Adiya is editor-in-chief of Mongolia Weekly newsletter and regional director at Washington-based strategic advisory firm BowerGroupAsia.