Mongolia’s unexpected 2014

Author: Julian Dierkes, UBC

It was meant to be a relatively quiet year for Mongolia. There were no parliamentary or presidential elections and most observers expected that some of the economic troubles Mongolia has been facing would be resolved. But the year brought foreign policy turmoil and a continuing economic crisis, and is now ending amidst domestic political chaos.

In February, at the Sochi Winter Olympics, Mongolia occupied the spot of most-supported team on the official website for several days due to concerted efforts to use a certain hashtag referring to the Mongolian team. It is unclear whether Mongolia’s two athletes, both cross-country skiers, were particularly buoyed by this support, but they both finished their races in a respectable manner.

In March Mongolia’s Foreign Minister Lusanvandan Bold travelled to Australia for a series of events that included the announcement of a five-year, AUS$25 million aid program targeting vocational education and other areas related to the mining sector.

But in late March, Mongolia’s neighbourhood and foreign relations was transformed very suddenly. Shortly after the hoopla of the Sochi Games, Russia annexed Crimea and began making noises about the Ukraine. Initially it appeared that the only impact on Mongolia would be a brief debate about whether there were any parallels between the Ukraine and Mongolia. The answer seemed to be ‘not really’, largely due to the absence of a Russian diaspora.

Yet as OECD countries began to ostracise Russian President Vladimir Putin, Russia’s leader began looking for other friends and customers for the country’s resources. This search quickly led him to China and Putin has been tilting towards Asia ever since. From his attendance at the Conference on Interaction and Confidence Building Measures in Asia meeting in Shanghai in May, to interactions with Chinese President Xi Jinping at the Shanghai Cooperation Organization meeting in Dushanbe in September, to the APEC summit near Beijing in November, Putin has been eager to build business ties with China.

With Putin cosying up to the Chinese government, Mongolia is in danger of being squeezed between its two powerful neighbours. So far, these neighbours have largely showered Mongolia with gifts, particularly at state visits by Xi in August and Putin in September.

But ‘suggestions’ by China and Russia on Mongolian foreign policy initiatives indicate that Mongolia’s future manoeuvring may be curtailed by this kind of embrace. While little is to be gained for Mongolia from a customs union with Russia, this suggestion accompanied Putin on his visit. In turn, Xi seemed to trade his invitation of President Tsakhiagiin Elbegdorj to the APEC summit and potential APEC membership in exchange for the expectation that Mongolia would join the Shanghai Cooperation Organization.

Throughout 2014, Mongolia continued to slide deeper into an economic crisis that was only temporarily alleviated by debt-financed investments in construction and populist measures like a mortgage subsidy. The tugrik has lost about a fifth of its value against the US dollar. Debt continues to mount. And Rio Tinto — the Australian mining giant — seems to be in no particular hurry to take on the US$5 billion investment needed for further construction on the Oyu Tolgoi project.

While the Mongolian government has signalled its agreement to a feasibility study of the second construction phase for the project, there has been noise about the investment agreement and 34 per cent stake held by the Mongolian government. The global mining industry is also struggling. But without the economic boost that this giant project would provide, there is relatively little hope for the economy to recover the world-leading growth rates that prevailed just a few years ago.

Finally, the year ended on a note of political chaos. Just as the economic crisis had largely been created by short-sighted policy decisions, so the government of Prime Minister Norovyn Altankhuyag fell over political games more than policy differences. Altankhuyag lost a vote of no-confidence in early-November with eight members of his own Democratic Party (DP) voting against him and seven others abstaining.

After some to-and-fro between the DP caucus in parliament — and the election of the speaker, Zandaakhuugiin Enkhbold, as DP party leader — Chimed Saikhanbileg was elected prime minister on 21 November and has assembled a ‘super coalition’ with all parties in the Great State Khural (Mongolia’s unicameral parliament).

Saikhanbileg will enjoy a brief honeymoon but there is work to be done. With 73 of 76 parliamentarians supporting the super coalition, urgent policy decisions on fiscal, economic, and mining matters could be taken by the new government. But continuities between the new cabinet and previous governments make this far from certain.

Julian Dierkes is an Associate Professor at the University of British Columbia’s Institute of Asian Research. He writes on Mongolian affairs at his blog, Mongolia Focus, and on Twitter.

This article is part of an EAF special feature series on 2014 in review and the year ahead.