Mongolia: corruption arrests and new investment laws as elections loom

Authors: Julian Dierkes, UBC and Bill Rafoss, University of Saskatchewan

Politics is heating up in Mongolia as the country moves toward a parliamentary election scheduled for 28 June 2012.

In April, former president Nambaryn Enkhbayar, the current leader of the Mongolian People’s Revolutionary Party (MPRP), was arrested on corruption charges. He was subsequently released on bail after prominent members of the international community, including UN Secretary-General Ban Ki-moon, intervened. The MPRP, along with eleven other political parties and two coalitions, are vying for control of the Ulsyn Ikh Khural, Mongolia’s parliament. In related developments, Mongolia has unveiled new foreign investment laws that will undoubtedly become a central topic in the election campaign.

Enkhbayar was arrested due to his refusal to participate in an investigation into corruption during his time in office, which ended in 2009. While in detention, he went on a hunger strike, which his supporters say became life-threatening. But after Enkhbayar was released on bail, recordings emerged that showed clearly that his arrest was not a surprise at all, and that he was quite healthy during a relatively comfortable detention period. Perhaps some of the prominent North Americans that campaigned on his behalf, like US Senator Dianne Feinstein and Pulitzer-prize winning author Nicholas Kristof, were taken in by letters from Enkhbayar’s family and supporters spuriously comparing the plight of the Mongolian politician with Ukraine’s Yulia Tymoshenko. Enkhbayar’s trial on three corruption charges was set to begin 24 May, but has now been postponed.

The MPRP had been so negatively affected by the persistent corruption allegations that last year party members under the leadership of current Prime Minister Sukhbaatar Batbold dropped the ‘Revolutionary’ from their party name and became the Mongolian People’s Party (MPP) instead. In response, Enkhbayar re-registered the former party name and rallied his supporters. His arrest may cause him — or may have been designed — to attain an aura of martyrdom, especially among voters in rural Mongolia. Fearing a split vote, the MPP has signed a formal coalition agreement with the MPRP to stop their main rivals, the Democratic Party, from taking control of the parliament — a very concrete possibility since the Democratic Party won the presidency in 2009 under Tsakhiagiin Elbegdorj. A showdown is in the making.

Two further issues will influence the election outcome. First, Mongolia amended its election laws last December to ensure proportionality and gender equality in the election campaign. This has given smaller parties, like the Civil Will–Green Party, new hopes of an electoral breakthrough and has presented a challenge to incumbents as they jockey for a high position on the party list. Second, the extent to which Mongolians should benefit from recent mineral development in the country continues to be a central issue.

A new foreign investment law identifies various ‘strategic’ sectors, including mining. The law establishes a maximum ownership threshold of 49 per cent for deals with transaction volumes over 100 billion tugriks (US$76 million). Investment valued over that sum will be subject to review by the government. The law has a much lower threshold for foreign investment by state-owned entities.

It is no coincidence that this law was introduced less than three weeks before the election campaign officially began on 7 June. The new law tightens Mongolia’s very liberal foreign-investment laws (established in the 1990s on advice from international organisations such as the World Bank), which were designed to encourage just such mineral development. But some Mongolian politicians believe the incentives have served their purpose and are no longer needed, given the attractiveness of Mongolia as a mineral exploration and production location. Others believe that a higher royalty structure will help pull many Mongolians out of poverty.

These political developments have made Mongolia the subject of significant international attention, especially given its strategic location between China and Russia. The 2012 election promises to be an exciting race, from start to finish.

Julian Dierkes is Associate Professor at the Institute of Asian Research, University of British Columbia.

Bill Rafoss is a Sessional Instructor at the University of Saskatchewan.