Mongolia’s flagging economy stalls political progress

Author: Julian Dierkes, UBC

2015 marked the 25th anniversary of Mongolia’s democratic revolution. So after 25 years of democracy, where does Mongolia stand? And, what role does Asia’s only post-state socialist democracy play internationally?

The main shaft hoist area at the Oyu Tolgoi copper mine in the South Gobi desert in Mongolia. (Photo: AAP).

Politically, it was a quiet year. The Mongolian economy remains moribund largely due to domestic policy decisions, exacerbated by international commodity prices. Yet Mongolia has continued to be active in the international arena.

The political year began with the replacement of the former Democratic Party (DP) prime minister N Altankhuyag by Ch Saikhanbileg, also of the DP, following a motion of no confidence in November 2014.

Saikhanbileg made a mark early in his tenure by conducting an SMS poll asking Mongolians to choose between austerity or large mining projects. Saikhanbileg was seeking a popular mandate for action on the giant Oyu Tolgoi (gold and copper) and Tavan Tolgoi (coal) projects. Unfortunately for the new leader, the poll delivered a tepid response: only 350,000 votes were cast from over three million cell phones. Mongolians were apparently not persuaded that an SMS poll was an appropriate method to gauge their views. Of those who did respond, 56 per cent preferred large projects over austerity.

Then in August the DP decided to remove all Mongolian People’s Party (MPP) members from cabinet and return to its coalition with the Mongolian People’s Revolutionary Party (MPRP) and the Mongolian National Democratic Party only. Alongside the dissolution of the super-coalition, which was forged only nine months earlier, the government introduced an amnesty law to parliament. Traditionally, parliament has marked the anniversary of democracy with a general amnesty, but this summer’s variant covered a number of criminals that had been involved in political activities and corruption. This led to the general perception that it was law forced on the DP by its coalition partner, the MPRP, and its leader, N Enkhbayar, former president but also pardoned money laundering convict. Debates around this law have persisted, especially after the arrest of the MPRP Minister of Health, G Shiilegdamba, on corruption charges in November.

Ongoing proposals to reconfigure the institutional underpinnings of Mongolian democracy have received particular attention this year. Constitutional reforms centred on rebalancing the division of power between the president, prime minister and parliament were floated in November, but the push for such reforms seems to have stalled.

A more pressing issue is the timing of the upcoming 2016 parliamentary election. In recent years elections have been held at the end of June, but that will put the election just before Mongolia is set to host the Asia–Europe Meeting (ASEM) in mid-July.

On the international front, Mongolia’s foreign relations continue to be rooted in its ‘Third Neighbour Policy’ of cultivating virtual neighbours beyond the bounds of geography. This policy aims to balance the overwhelming and sometimes overbearing influence of Russia and China. The most significant steps taken this year towards diversifying Mongolia’s foreign relations were the negotiation of an Economic Partnership Agreement with Japan and Indian Prime Minister Narendra Modi’s visit.

In multinational matters, Mongolia continued to enjoy relative international prominence despite its small population, modest economy and limited geopolitical significance. In May, Mongolia served as the first Asia Pacific host for the Freedom Online Coalition, an organisation of like-minded democracies dedicated to preserving human rights online.

At the UN General Assembly in September, President Ts Elbegdorj declared his intention to pursue a state of permanent neutrality for Mongolia. Presumably, this would be used to fend off Chinese and Russian pressure for Mongolia to join the Shanghai Cooperation Organization. But the concept of permanent neutrality is now being debated actively in Mongolia with more opposition than the president might have anticipated.

In October 2015, Mongolia was elected as one of five representatives of the Asia Pacific region in the UN Human Rights Council, with the highest support in its region. It is the first time that Mongolia has been elected onto the Human Rights Council. And it might pave the way for its declared 2022 candidacy for the UN Security Council.

Since taking over the government in 2012, the DP has pushed Mongolia’s economy into a largely self-made crisis, initiated by legislation that restricted sales of stakes in Mongolian mining companies. This legislation was primarily aimed at preventing further dependence on Chinese investments, but the foreign investment community saw it as an unacceptable restriction. The economic fallout from this legislative blunder has been exacerbated by a fall in the price of Mongolia’s primary exports.

In March 2015, Canadian uranium miner, Khan Resources, was awarded US$100 million in an arbitration case against the Mongolian government stemming from the loss of its mining license. This seemed to confirm that the Mongolian government had made arbitrary decisions that hurt foreign investors. This idea has been exacerbated by contradictory government statements on the giant Oyu Tolgoi mining project.

Even a commitment in May by both the government and investor Rio Tinto to underground expansion of the Oyu Tolgoi project could not halt this slide in investment.

Foreign debt has put Mongolia in a fiscally precarious position and a default has only been prevented by lines of credit from China, India and international organisations. In the middle of this economic malaise, Mongolia has been promoted to ‘upper middle income’ status by the World Bank, as it has had a per-capita GDP of above US$4,000 since 2012.

Mongolians will be voting for a new parliament in 2016. The government that will result from this will continue to enjoy an international visibility rooted in Mongolia’s democracy. But that same democracy will also give voice to increasing expectations in the population that Mongolia meet more of its economic potential.

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 2015 in review and the year ahead.

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