The research, completed by Ch. Khashchuluun, Doctor of Economics at the School of Economy, National University of Mongolia, was initiated by the Open Society Forum and named Mongolian Freedom of Economy. The research’s presentation was done recently in the meeting hall of the Open Society Forum.

Mongolia was listed on last report of the Freedom Economic Index of Fraizer Institute at 74th place out of 130 countries included. Mongolia was listed almost at the latest place at 123rd from 130 countries under the criteria named Legal Structure and Security of Property Rights which shows the position of the freedom of the economy in different countries.

Transaction cost is one criteria of this index and this cost is not the direct cost of production or produce. It is a cost originated from state regulation rules and state management.

According to the research of Khashchuluun this cost equaled \ 22 percent of GDP in 1995 at the lowest rates and it is increasing year by year. Last year this cost equaled nearly 35 percent of GDP of Mongolia, the study said.    

“There is no function of the state institutions that are independent and balanced to each other. At present time the function of legislative and executive branches are mixes and led by each other. The constitution’s principle and even the state law is under the commercialized minority power of oligarchy. I think that as for all those things the results of the transaction cost will continue to increase more in the future,” said E. Batuul, Parliament member of the Democratic Party, at the presentation.

Under the research in Mongolia the five various steps took 11 days and 2.3 percent of the price of the property in order to register the same property. Mongolia placed 83rd out of 100 countries involved in this research for this criteria, and was thus illustrated that it is very difficult to register property in Mongolia.

Also in Mongolia it is more difficult to implement the contract fulfillment and the cost of it is high, according to the report of the World bank named Doing Business.

In New Zealand contract fulfillment spent 4.8 percent of cost from the total amount of expenditures of the contract while the 19 steps were done in 50 days. In the USA this number is 1.5 percent and time spent 250 days; done in 17 steps.

But in Mongolia more than 350 days and 22.6 percent of the price of the expenditure of a contract is used over 26 steps in order to implement the contract fulfillment.   

According to the result of the research the cost of the state regulation pressure is very high for small and medium companies. The total amount of unofficial expenditures of the small business unite is in average MNT 200,000 to 1 million and is 10-30 percent of the total amount of the price of the property. Yet this number is MNT 2 million to 100 million and covers 0.3-12.5 percent for big companies.    

The small and medium companies replied to the researcher that state pressure, regulation of the law and legislation heavy for them. But the big companies replied that the state participation is not intrusive to their business and they meet some pressure related to laws and legislation rule. 

“Politics and businesses have united and they are in one grouping. The big companies which have small costs of transaction are under the authority of the high ranking people in Mongolia. They take tax discounts and take investment from high ranking people. But this cost brings small companies, which are covering 99 percent of the income of private entities, to their knees. Thus I think that we should make the innovation of state regulations in Mongolia,” Ch. Nergui, officer of the Mongolian National Chamber of Commerce and Industry said.  

“The small companies give bribes to the state in order to get out of pressure and big companies make lobbies to the state. If the state can be responsible and if the laws and rules implemented well those people’s business would be better,” said Khashchuluun   

He added,” Mongolian laws are relatively good. There are mechanisms to implement those laws. But there is no just control for the implementation of laws.”      

Three sectors are controlling Mongolian economic growth and economic growth raised by 31.8 percent between 1995 and 2005 while 27.1 percent of it was done by the private sector, according to the research results.