Wednesday, August 8, 2012

NEWS: Mongolia Seeks to Contain Rising Popular Anger Over Resource Boom

Originally posted on World Politics Review July 25, 2012
By Geoff Bell

A remarkable transformation is underway in a country where most people were nomadic herders a generation ago.

Mongolia has the fastest-growing economy in the world, with GDP increasing by more than 17 percent last year. It sits on vast precious metal and mineral resources: The 10 biggest deposits alone are estimated to be worth almost $1.5 trillion. Given all this wealth in a country of only 3 million people, Mongolia has the potential to become an Asian version of Norway.

However, popular anger is growing as fast as the economy.

Despite the “gold rush,” the poverty rate increased between 2008 and 2010 from 35 percent to 40 percent. And although the capital, Ulan Bator, has become a typical Asian boom city, complete with luxury stores and gleaming skyscrapers, one only has to look to the hills that surround the city to see those who have been left behind.

Many of these hills are packed with “Ger Districts” -- entire neighborhoods of traditional felt tents. Row after row, more than half the population of Ulan Bator lives in these tent cities without water or roads, relying on coal-burning stoves for cooking and heating.

Against that backdrop, voters warily turned to the business-friendly Democratic Party (DP) in last month’s parliamentary elections. But though the party won the most seats in the 76-member legislature, it fell 8 seats short of a majority, forcing it to look for partners in order to govern.

It was expected the DP would form a coalition with a few breakaway members of the Mongolian People’s Party. Heirs to the old Soviet regime, the MPP has ruled Mongolia for most of the past 90 years.

Instead, the DP joined forces with the Justice Coalition, a new faction made up of members of two smaller parties. But there’s a catch: The Justice Coalition is committed to reversing policies it believes are too generous to foreign mining investors.

Landlocked between Russia and China, Mongolians often say their country is a pony between two elephants. Russia provides all of Mongolia’s oil and has not been shy about leveraging Ulan Bator’s dependence to advance Moscow’s interests. China takes 90 percent of Mongolia’s exports, and for that Beijing wants a large role in developing Mongolia’s resources.

Indeed, Mongolia began to develop its resources in earnest about a decade ago, when Chinese demand for minerals exploded. However, Ulan Bator also sought to attract Western expertise rather than relying on its two giant neighbors.

This is consistent with a longtime Mongolian foreign policy goal of finding a “third neighbor.” With business interests to protect, the reasoning went, Western governments would have an economic incentive to be concerned about Mongolia more generally. The move seems to have paid off, as highlighted by U.S. Secretary of State Hillary Clinton’s recent visit, in which she vaunted the democratic opening that has accompanied the nation’s economic growth.

But to attract private foreign investment into a country with little infrastructure and poor rule of law, Mongolia had to give Western firms sweetheart deals. And many Mongolians are now outraged by the terms.

Take Oyu Tolgoi, which when it becomes fully operational in 2018 will be the world’s largest gold mine and third-largest copper mine, generating an estimated 33 percent of Mongolia’s GDP: The project is two-thirds foreign-owned.

Critics also charge that many foreign mining companies are paying effectively no tax.

Mongolians’ sense they have been ripped off is exacerbated by the perception that pervasive corruption was a major factor in awarding these contracts. Transparency International ranks Mongolia 120th out of 183 nations for corruption.

That explains why corruption has become the hot-button issue in Mongolian politics. When the parliamentary campaign started, few believed the DP would be committed to cleaning up the government. But in April, with the DP and MPP running neck-and-neck in polls, former MPP leader Nambar Enkhbayar was arrested by agents of Mongolia’s Independent Authority Against Corruption (IAAC). Because the IAAC is not considered entirely independent, some observers called Enkhbayar’s arrest dirty politics and pointed the finger at Mongolian President Tsakhia Elbegdorj, himself a DP member. Nevertheless, the DP surged in the polls.

“This is a democracy,” said a DP insider who spoke with World Politics Review on condition of anonymity. “And the people tell us corruption, dubious mining deals and the wealth gap are all connected.”

Many in the DP also recognize that getting more for the country’s resources is not just about populism and winning elections. The Trade and Development Bank of Mongolia says the country must invest about $68 billion in infrastructure and social services by 2015. Simply put, the government needs to increase its revenues.

During the campaign, the MPP-led parliament tried to capitalize on popular anger by passing a bill that would do so by restricting foreign ownership of strategic industries -- including mining -- to 49 percent, unless parliament grants an exemption, with the rest going to Mongolian state-owned enterprises.

The DP argued that abrogating already signed contracts in this manner would damage Mongolia’s international reputation and risk driving out Western investors, essentially leaving Mongolia at the mercy of the Chinese. But the need to find a coalition partner to govern will now force the DP to accept some of the Justice Coalition’s reform agenda. The DP hopes the reaction of foreign investors will be mitigated by the knowledge that their plight would be much worse under another government. It helps that, given the anticipated returns on investment in the country, even restructured deals will remain lucrative.

Stopping official corruption and spreading prosperity while finding a balanced economic model with China is a regional challenge, from the Philippines to Pakistan. In Mongolia, voters have instructed the new government to tackle these issues head-on. If Ulan Bator gets even some of it right, there’s a chance that often-overlooked Mongolia will become a model for the rest of Asia.

Word List:
  • "against that backdrop": the situation or place in which something happens
  • warily: careful or nervous about someone or something because you think they might cause a problem
  • heir: the next person to have a particular job or to continue someone's work or ideas
  • faction: a small group within a larger group, consisting of people with different opinions from the rest
  • "pony between two elephants": a small/weak country which is positioned geographically between two giant/powerful countries
  • vaunted: generally praised, or described as very important or successful
  • "sweetheart deals": a private agreement reached between a public agency or government official and a private company that includes illicit payments or special favors.
  • outrage: a strong feeling of anger and shock at something that you feel is wrong or unfair
  • to rip off: to cheat someone, especially by charging them too much money for something
  • to exacerbate: to make a problem worse
  • pervasive:
  • "hot-button issue": a controversial subject or issue that is likely to arouse strong emotions
  • "dirty politics": unfair politics
  • to surge: to increase a lot very quickly
  • dubious: 1not sure about the truth or quality of something, or whether you should do something
  • exemption: permission to ignore something such as a rule, obligation, or payment
  • to abrogate: to officially get rid of a law or political arrangement, often without the agreement of the other people, groups, etc. involved
  • lucrative: bringing a lot of money
  • "tackle these issues head-on": deal with these issues quickly and strongly