It is not too late to steer Mongolia away from the disastrous consequences of the resource curse and begin the feat of curing the economic disease, Toby Warden writes.
On the 7th of July Mongolia elected a new president: Khlatmaaglin Battulga. Like his northern counterpart, Battulga is a martial arts champion and one of the architectural masterminds behind the colossal 40 metre Genghis Khan statue in Erdene, Töv. However, his electoral campaign and policy portfolio hints at worrying change in direction within Ulaanbaatar.
His economic development agenda emphasised greater power to the state and less geopolitical and economic dependence on China. His “Mongol Ylna,” (a Mongol will triumph) campaign utilised a populist architecture as he promised more prosperity for the domestic population by taking a tougher stance on deal-making with corporate and state actors: concocting a Trumpian “Win-win situation” for the whole population. While receiving 50.6% of the national vote, a Battulga government, that remains faithful to its election agenda, will ultimately deliver unsustainable developmental outcomes.
Dubbed by some as “Minegolia”, Mongolia is abundant in three main resources: coal, copper and gold. The exploitation of these key resources facilitated the economy’s 18% growth rate in 2011. The poverty rate fell in concert by 17% in four years, bringing optimism about national development. However, the economy has begun to slow-down. It has been weakened by a set of factors including: widespread institutional failure, changes in global market conditions and arrangements of fiscal sources. This is all a part of the country’s contraction of the dreaded resource curse, which a Battulga government, without plans for sustainable development, provides no hope of curing.
Battulga’s populist agenda certainly addresses the demands of the Mongolian people to see more of the fruits of foreign mining reach their doorsteps in the form of vital public infrastructure. He aims to collect a greater share of these mining projects, funnelling revenue into the government. Battulga summed it up neatly, on a Facebook post on 6th June, by saying that “”The government should hire experts and take control of everything, including Oyu Tolgoi and Tavan Tolgoi [two of Mongolia’s largest mines]”
This may seem like an optimal solution to an economic and developmental crisis, and it would be if it wasn’t for Mongolia’s problematic institutions that are in dire need of deep reform.
Firstly, Mongolia’s national institutions are riddled with corruption, rendering it unreliable for effective fiscal management. A 2015 OECD report, titled ‘Anti-Corruption Reforms in Mongolia’, detailed severe and widespread repression of investigative journalism. This cloud of opacity that is placed on the government increases the risk of less accountability and increases corrupt political influences and monetary flows. While this institutional flaw requires immediate address, as Charles Byrant highlights, other factors such as the immunity and nepotism that riddles the Mongolian justice system, requires urgent elimination. The OECD report found immunities and privileges being given to those prosecuted for corruption offences. As Byrant expertly puts it, when operating under the backdrop of impunity, good governance mutates into corrupt politics.
This is extremely relevant to Battulga. He is already marred in corruption scandals of his own, including those from his involvement in an infrastructure project which built up such a debt crisis that an IMF bailout was required. Battulga fails to address the institutional failures, including kleptocracy and political repression, that are likely to slow down poverty reduction rates, and make people more vulnerable.
Secondly, by mobilising Mongolia’s natural resources as a source of funding for economic development, Battulga would be mistakenly overlooking Mongolia’s recent history which has crippled the country. This will only extend Mongolia’s dependence on a volatile global commodities market. Recently, Mongolia’s decrease in poverty rates from 38.8% in 2010 to 21.6% in 2014 was undoubtedly a product of the economic growth from new mines in the country. They provided the revenue needed to develop urban centers and provide national infrastructure and services. However, the fruits of this are counterbalanced by the uncertainty that arises from this market dependency. Coal for example, fell in price by 46% between 2013 and 2016. It then boomed again in November 2016. Gold also lost 35% of its value between 2011 and 2016. Evidently, relying on an exorbitantly resource-backed GDP for economic development is unsustainable.
Lastly, Battulga has made limited mention of other sources of revenue for promoting national development and poverty reduction policies, other than foreign mining. If this observation manifests into official policy, Mongolia risks further contracting the resource curse which has already taken the country away from increasing poverty reduction rates. His campaign mobilised anti-Chinese nationalist sentiments, running a message of decreasing economic dependence on China, with a ‘Mongolia First’ mindset. Instead, Battulga wants to pivot Northwards to Russia, hoping to increase economic and geopolitical connections between the two countries. This decision will be detrimental to Mongolia’s hopes of increasing development. Currently, China is Mongolia’s largest export market. In 2016 approximately 80% of Mongolia’s exports were destined to China. This financial dependency is also replicated in Mongolia’s import mix which sees 30% of goods and services setting off from China. By cutting, or even decreasing, economic ties with Beijing, Mongolia runs the risk of not being able to source the finances required for much-needed development. At worst, this would increase the resource dependency that the country is by no means ready to manage.
So where to from here? The best chances Battulga has of ensuring Mongolian prosperity is to avoid taking a tougher stance on regional partners, but be more sceptical of Mongolia itself. There must be an attempt to release the democratic process from corruption and repressed journalism, and further institutional reforms. Battulga must also pursue a policy of diversification of sources of national revenue. While this is a long-term project, it may help in the immediate to cooperate internationally with significant regional partners. This will address the financial gap and maintain the economic and social stability that Mongolia yearns for. While Battulga hasn’t been showing signs of championing sustainable development, it is certainly not too late to steer Mongolia away from the disastrous consequences of the resource curse and begin the feat of curing the economic disease.