How to steer Mongolia's economy?  Photo: Peter Langan
How to steer Mongolia's economy? Photo: Peter Langan

On a recent visit to Ulaanbaatar, China’s Assistant Foreign Minister again voiced “great concern” over Mongolia’s hosting of the Dalai Lama last November.

From the Mongolian point of view, this marked another occasion of Chinese interference in their domestic affairs.

The then presidential candidate Khaltmaa Battulga cleverly played on the public’s frustrations with the economy and foreign relations through upping the nationalist rhetoric — frequently aimed at China.

As a candidate, the ex-businessman and star wrestler promised fairer distribution of Mongolia’s mineral wealth and less economic dependence on China, which used the Dalai Lama visit as a means to punish Mongolia over trade.

The latter did not go down well with Mongolians, so Battulga’s strategy seem to work. Now, more than a month into the presidency, what changes has he brought?

Battulga began a diplomatic blitz as soon as he assumed office. So far he has met with dozens of international organization officials and ambassadors from “third neighbor” countries, i.e. nations other than China and Russia.

India has expressed the most interest in working with Mongolia, given the two countries’ common fear of China.

India has expressed the most interest in working with Mongolia, given the two countries’ common fear of China.

India is the first country to invite Battulga for a state visit. In a July conference with the Mongolian president, India’s ambassador T. Suresh Babu expressed his country’s interest in collaboration on all fronts, ranging from defense to commerce.

However, credibility remains India’s greatest impediment. At the same meeting, Battulga promptly reminded Babu that India has yet to release a US$20 million loan promised eight years ago.

The President also pitched for an Ulaanbaatar branch of the famed Indian Institute of Technology, for he wishes to expand the landlocked nation’s IT sector.

But India has rejected similar requests from Singapore and the United Arab Emirates, citing faculty and resource shortage. Despite enthusiasm from both sides, the meeting failed to produce any concrete results.

Battulga presented himself as a Mongolian Putin during the campaign. The Russian president is apparently quite popular in Mongolia for his decisive and swashbuckling style. A survey indicated 68.6% of Mongolians view Russia as Mongolia’s best partner.

Besides promises for deeper military cooperation, Russia’s outreach to the new administration mostly revolves around energy.

There are plans to restart an environmental assessment for the Egiin Gol hydropower project.

Intended to increase Mongolian energy independence, the Egiin Gol project secured a US$1 billion loan from China, until Beijing withdrew the package in July 2016 due to Russian protests over the hydropower plant’s potential in polluting Lake Baikal.

However, the speculation remains that the real reason behind Russia’s objection was about keeping Mongolia as an energy client.

Refined petroleum accounts for two-thirds of Russian exports to Mongolia. Recently, with Putin’s endorsement, Russia’s Buryat Republic proposed electricity sales to Mongolia, in exchange for the latter’s abandonment of the hydropower project.

China, the IMF and Western investors, although unpopular among some Mongolian voters, have been working to assist the recovery of Mongolia’s economy, currently growing at 1% while the country confronts its worst drought in 56 years.

Mongolia’s trade is heavily dependent on Beijing. About 80% of the country’s exports head across the border to China, with mining output accounting for more than 90% of those shipment.

Mongolian coal profits rebounded this year to US$1.28 billion, almost entirely as a reaction to the China’s ban on North Korean coal imports.

Mongolian coal profits rebounded this year to US$1.28 billion, almost entirely as a reaction to the China’s ban on North Korean coal imports.

Mongolia imports mostly manufactured goods from China.

Currently, China is Mongolia’s second-largest investor. Although 70% of China’s investment is in the mining sector, it is looking to branch out into infrastructure, health and tourism, in line with Beijing’s One Belt-One Road and China-Mongolia-Russia Economic Corridor objectives.

As a result, it looks like Battulga has taken a pragmatic approach and refrained from any inflammatory statements on China since becoming president.

When Mongolia’s economy entered its slump, it was the IMF that led a US$5.5 billion rescue package this year.

Again, Battulga seems to be taking a pragmatic approach to working with the IMF, though the president has expressed his differences over austerity measures, especially cuts in child benefits, citing the need for population growth.

Western investors, after fleeing Mongolia a couple of years ago due to declining commodities prices and the rise of resource nationalism, remain cautious. They recall how Mongolian authorities barred employees of some foreign corporations from leaving the country on trumped-up charges.

The recent election revealed resource nationalism remains strong, with a March 2017 poll showing 83.9% of respondents believe Mongolia’s mine deposits should be wholly or majority Mongolian-owned.

While the IMF and the World Bank are building mechanisms to restore investor confidence, the concern will remain at the back of Western investors’ minds about the policies of populist politicians when the economy recovers.

In spite of his campaign rhetoric, Battulga has so far proven himself a pragmatist willing to collaborate with various parties to resuscitate Mongolia’s economy.

The challenge for the ex-wrestler and Mongolia’s future is how he strikes a balance between the public’s resource nationalism, foreign investors and an opposition-controlled parliament.

Follow the author on Twitter @MrZiYang.

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