Mongolia in 2012: A Steady Path Toward Democracy and Development

 
Mongolia has remained on the radar in 2012 for international audiences, especially foreign investors who see the country either as either a land of opportunity or uncertainty. Events ranging from the parliamentary elections, to judicial procedures concerning the former president, and to restrictions on exchanging mining licenses between foreign companies have triggered unsubstantiated criticisms from various experts. However, the year marks neither the collapse of democracy nor the triumph of resource nationalism.

Mongolians still stand firm on commitments to uphold democratic values and economic development as well as integration with the global market. The absence of armed conflicts or violence in Mongolia, its close proximity to resource hungry Northeast Asian markets, along with the country?s political and economic focus around the mining sector, attracts investors from Mongolia?s two neighbors and beyond. Meanwhile, the sustained pressures from the public, business community as well as foreign investors leave Mongolian politicians with only one option?to institutionalize greater transparency, accountability and sustainability in the mining sector.

Despite last year?s uncertainties of coalition government formation and the upcoming presidential election in July 2013, Mongolian politics are now entering a relatively peaceful period until 2016. The 2012 parliamentary and local elections ended in favor of the Mongolian Democratic Party (MDP), which now leads the coalition government and has increased its clout in local politics. Following its electoral losses, the former ruling Mongolian People?s Party (MPP), has undergone numerous changes (e.g., leadership, organization) and has begun its preparation for this year?s presidential contest and the next parliamentary and local elections in 2016.

A few political developments need to be highlighted. For one, electoral institutions have been consolidated in Mongolia, and the political system is clearly dominated by two leading parties (i.e., MDP and MPP), while other smaller parties play marginal roles. Furthermore, victories in the presidential elections of 2009, as well as last year?s parliamentary and local elections, demonstrate that the MDP reached the organizational capacity to challenge the former ruling party, MPP. Second, reforms of the judicial institutions as well as law enforcement organizations (i.e., police, marshal service) are increasing their levels of professionalism as well as autonomy from politics. However, they still remain vulnerable to being swept up in the competition between the two major political parties. Third, Mongolia has shown significant improvements in electoral procedures (i.e., use of computation, biometric IDs, and diaspora voting) and gender representation (i.e., increased female politicians) in government.


These highlights indicate Mongolia?s continued commitment to adhere to democratic values by strengthening the democratic institutions set by the 1992 constitution. But at the same time, these efforts are observably hindered by competing political and economic interest groups that desire to protect their interests, to increase their involvement in major economic development projects, and even to seek a safe haven from criminal investigation.

The Mongolian economy, particularly the mining sector, has remained attractive to foreign investors and domestic entrepreneurs, but public outrage over corruption and environmental damage related to the mining sector, spurred several measures in 2012. First, the parliament extended its previous temporary ban on the issuance of new mining licenses until the national mining law is revised. The decision, initiated by President Tsakhiagiin Elbegdorj in 2011, was favored by environmental activists. Second, criminal investigations of officials of the Mongolian Mineral Resource Authority continued throughout the year. Some investigations even extended to questioning foreign mining companies, including Chinese and Anglo-Australian ones. Third, the Mongolian parliament passed a new law that limits the ability of foreign state-owned companies to acquire stakes in key strategic assets. Although the bill had been drafted and debated earlier, the passage of the law was triggered by the Chinese state-owned aluminum corporation?s (CHALCO) plan to buy a substantial share from South Gobi Resources, Ltd.

Finally, Mongolia?s investment agreement with the United Kingdom?s Rio Tinto and Canada?s Ivanhoe Mines (renamed Turquoise Hill Resources in August 2012) to develop the Oyu Tolgoi mine came under pressure from Mongolian politicians and the public. The controversy over the investment agreement resulted in the first-ever televised debate on the issue. Public concern over the environmental impact (especially the Gobi water reservoir level) from the mining operation, lower wages paid to Mongolian workers than foreigners, as well as the lack of attention given to local development will remain in the headlines and be used by populist politicians.

Measures to improve the accountability, transparency and sustainability of extractive industries put pressure on Mongolian mining companies as well as foreign investors. At the same time, politicians in the parliament and the government are in a complicated position whereby they need to balance responding to public outrage over corruption and the environmental impact of mining as well as accommodate demands of the domestic and foreign business communities for more transparent, stable policies and regulations. Illustratively, in November 2012, the government again postponed selecting foreign operating companies to develop the Tavan Tolgoi coal mine, Mongolia?s largest coal deposit, until mid-2013 (Bloomberg, November 26, 2012). The main bidders are China?s Shenhua Group, a Russian-led consortium and the US Peabody Energy Corporation; the choice, therefore, also requires Ulaanbaatar to accommodate the geopolitical interests of major global powers.

A few events from the end of 2012 may hint at political and economic developments in the upcoming year. To begin with, the MDP and MPP have seemingly reached a consensus over the debated seats in the parliament. However, the political agreement came after major decisions on electoral laws, state budgets, and other financial matters had been decided without the MPP parliamentary group?s ability to affect the political process.

Second, the MDP-led government sold $1.5 billion in debt, nicknamed the Genghis Bond, Mongolia?s first ever successful attempt to raise money on the international financial markets (mongolianeconomy.mn, December 18, 2012). The money, to be repaid in five years, with the remainder of owed interest due in ten years, will be invested in major developmental projects such as expanding Mongolia?s railroad networks, increasing transportation capacity, and building domestic mineral resource processing capacity?not to mention provide the government with extra funds to implement its action plan.

Finally, the December 21 inter-governmental committee meeting of Mongolia and Russia indicated increasing Russian business interests in Mongolia especially in infrastructure development, the expansion of existing joint ventures (e.g., Erdenet Copper Mining Corporation, MonRosTsvetment mining, and Ulaanbaatar railway), and Russian petroleum fuel sales (Government Press, December 21). Given Ulaanbaatar?s desire to reduce its economic dependency on China, Russia appears to be stepping in as a dominant investor in Mongolia?s key strategic sectors?railroads and uranium mining?while maintaining its leverage via fuel exports to Mongolia.

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