Whoah there: Mongolia is not yet the next Qatar

Discussion in 'Indo Pacific & East Asia' started by amoy, Nov 8, 2012.

  1. amoy

    amoy Senior Member Senior Member

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    source: FT.com

    Kuwait 1950. Abu Dhabi 1970. Qatar 1995. Mongolia 2012?

    Mongolia, endowed with vast resources and growing at 17 per cent, has a gold-rush atmosphere. The miners, bankers and lawyers who have descended on Ulan Bator like to believe it is the next El Dorado. Those who wish the country well hope it can be more than that: a well-run democracy in which opportunity is equitably spread.

    John Finigan, an über-optimist who runs Mongolia’s Golomt Bank, thinks of Qatar, which had a $7bn economy in 1995. Today, it has a gross domestic product of $174bn and the world’s second-highest per capita income of $98,000. Why, asks Mr Finigan, shouldn’t Mongolia do the same? Its top 10 mines alone contain minerals worth $2.75tn, which would make every Mongolian – all 2.7m of them – a millionaire.

    Mongolia, which sits on China’s doorstep, has decades worth of coal, copper, gold, rare earths and uranium. Its president calls it a global epicentre. The best response to such euphoria is, to put it in technical terms: “Whoah there.”

    The aspiration to turn Mongolia into a Qatar is admirable, the likelihood of it becoming Nigeria not negligible. Certainly, Mongolia’s tiny population – in an area three times that of France – should help. But think about it. A country with fragile institutions and a GDP per capita of $3,000 is about to be hosed with billions of dollars. What could possibly go wrong?

    There are at least four things Mongolia must get right: governance, equity, economic management and geopolitical strategy. Governance is key. Here Mongolia has strengths along with obvious weaknesses. Since Mongolia broke loose of Russia in 1992, it has been, against all odds, a fairly functioning democracy. It has had regular presidential and parliamentary elections, only one mired by violence. Mongolians are 95 per cent literate. What about the leaders themselves? Mongolia has a surprisingly large cohort of technocrats trained abroad, either in Russia or eastern Europe, or in the US, UK and Japan. Present leaders have gone on missions abroad reminiscent of Japan’s post-Meiji forays to learn from the west. Warding off the “resource curse” is a priority: regular study trips include the Gulf, Chile, Norway and Canada.

    There are plenty of negatives, too. It costs an estimated $2m to get a seat in the 76-member parliament. With MPs wages at $800 a month, that suggests they see rich rent-seeking opportunities once they get there. As the money starts to trickle in – $5bn in foreign investment last year – corruption has risen. Mongolia has slipped in Transparency International’s rankings to 120. The previous president has been arrested on suspicion of corruption, though he insists the charges are fabricated.

    Assuming politicians don’t steal the spoils, how should they be divided?

    First, Mongolia must decide how to split the booty between itself and foreigners, who have capital and knowhow. Rules for foreign investment are in flux. Tsakhia Elbegdorj, the president, says Mongolia used to be an ugly bride. Now that she is “highly educated and beautiful” foreigners are flocking to woo her. The challenge is to raise the dowry without being greedy. If the riches in the ground are as claimed, foreigners will probably come anyway.

    Trickier is how to divide the cash among Mongolians. Direct transfers have been tried, a dispersal of a few hundred dollars to every Mongolian – usually before elections. That is not the way to go.

    Politicians talk sensibly about investing in education, infrastructure and training. They intend to put money away in a stabilisation fund and a sovereign wealth fund. They will have to do all this and more. In the past few years, Ulan Bator’s population has boomed to 1.2m. Herders have been driven by killer winters and lured by money. Only a few have found it. About 500,000 live in gers, nomad tents, most without sanitation or proper heating.

    Macroeconomic management is tricky. Educated Mongolians know all about “Dutch disease”, the strangling of third industries in resource-rich countries. Even before the cash is truly gushing, inflation is at 20 per cent. In 2010, Mongolia’s togrog was the world’s best-performing currency, not good for exporters. Other industries, such as farming, will need support. Finally comes geopolitics. It usually does. Mongolia is wedged between Russia and China, the latter a ravenous market. Yet Mongolians dislike China and suspect it of having inappropriate territorial intentions. These fears have already impeded the construction of a railway needed to export coal and triggered an ill-thought out foreign investment law.

    Undoubtedly, Mongolia has a golden opportunity. But it also has a heady brew of mammoth problems. One must wish it the best – and fear for the worst.
     
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  3. uvbar

    uvbar Regular Member

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    half of the real mongolia is in china so LOL
     
  4. mikhail

    mikhail Senior Member Senior Member

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    yeah and its even called Inner Mongolia by the CCP govt.!:laugh:
     
  5. amoy

    amoy Senior Member Senior Member

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    China state visit to Mongolia sees raft of rail, resource deals | Reuters

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  6. amoy

    amoy Senior Member Senior Member

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    'We are in a deep state of economic crisis'

    All is not well with Mongolia's finances.

    "We are in a deep state of economic crisis," Choijilsuren Battogtokh, the finance minister in Mongolia, said in a nationally televised address on Tuesday, according to Bloomberg.

    "We came into a situation where we may not be able to afford to finance salaries and operational costs of government departments, such as the Mongolian military who protect our borders and national security, the social and health employees who are in charge public health, as well as individuals in culture and sport."

    He noted that the projected budget deficit is $2.6 billion - or 21% of GDP - and that the country's ratio of government-debt-to-GDP will reach 78% this year, above the target of 55%. Additionally, Mongolia's central bank's foreign reserves are net -$429 million.

    The government's "critical goal" is to avoid default, added Battogtokh.

    In the aftermath of the finance minister's televised announcement, Mongolian bonds, which are rated five steps below investment grade, fell the most on record, according to Bloomberg's Nick Edwards.

    Moreover, the Mongolian tugrik has now weakened against the US dollar for 19 days in a row, which Edwards reported is the longest streak since 1993. The currency is down by 0.4% at 2,147.50 a dollar as of 1:27 p.m. ET.

    All of this comes at a time when the country has been dealing with weaker commodity prices and slower growth amid the slump in China, which is one of Mongolia's major export partners.

    The economic slowdown is particularly noticeable given that country saw double-digit growth rates in the early 2010s.

    As the Globe and Mail's Nathan VanderKlippe described it back in May: "... in a few short years, Mongolia has gone from Asia's golden child to its binge-drinking adolescent, with government borrowing to make payroll, cash-short consumers reduced to bartering for goods, and observers openly talking about the possibility of either a sovereign default - national bankruptcy - or a massive bailout."

    http://www.businessinsider.com/mongolia-finance-minister-calls-for-crisis-plan-2016-8


    ~~Still waters run deep. ~~
     

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