Is Mongolia institutionally strong enough to manage its mineral resources and sovereign debt?

Dec 20 • Featured, News, Opinion • 6244 Views • 1 Comment on Is Mongolia institutionally strong enough to manage its mineral resources and sovereign debt?

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Mongolian economic problems are often due to internal conflicts of political powers racing for populist promises by the expense of the nation’s future. Back in 2008 elections, both MPP and DP talked about cash promises and share distributions to the whole population believing that its booming coal mine industry would generate enough to feast and transfer itself to a  path of rapid economic development. In the times when technology and value added goods and services generate 10-1000 times more than the commodity itself, merely exporting a copper and gold through a barely functioning port and infrastructure is not enough.

Geopolitically, Mongolia served as a buffer state between China and Russia, currently economic and military superpowers. Now, it seems even our friendly two neighbours avoid dealing with Mongolia in economic and infrastructure projects. Besides the Trans-Siberian Railway China announced a Trans-Asian Railway network which excludes Mongolia. In terms of having our own foreign policy such as third neighbour or attracting more western investments in the country, we are definitely stubborn and try to take advantage of the current international order. While politically it makes sense, economically we are distancing ourselves from the regional economic integration. One example being the quarrel between politicians over gauge sizes of railways to be built (Russia and China have a different gauge sizes and currently, Mongolian railway system is aligned with Russian standard. However, it makes sense to build Chinese gauge size, because all the commodity export is toward China and there will be no wheel changing or re-loading time delays or costs.)

Also, in terms of air carrier its flag carrier state-owned MIAT failed to improve and upgrade itself despite the geographic advantages. For the last 3-4 years Mongolian government talked of new upgraded airport near the capital in order to increase air traffic and transit capabilities which hasn’t been materialized yet. Mismanagement of MIAT is widely known to the population. However, it is one of the sources that few in the political sphere plunder upon. Just a few days ago, the cabinet decided to introduce a new international management team to improve its competency. Business-Mongolia Research Team assume the management team is likely to be hired from Lufthansa. Often, when the political elites invite a foreign agent to operate it puts pressure to share the assigned budget for a promise of non-interference.

Power has been centralized to the cabinet and SGK as we chose a parliamentary system 22 years ago. However, now it seems assumption of distributing power equally to the parts of the society and having equal opportunities have been fading away. Political elites and huge business entities wield both powers. State’s meddling with business sector and its own attempt to manage and operate strategically important deposits will make the policy-makers wealthy and more keen to stay in power in order to extract economic benefits for themselves. Also, in order to stay in power it will weaken the state-institutions to serve for their interests and it is creating what is called a “political resource curse”.

Few days ago, it became apparent that the new electronic traffic penalty system that cost MNT1.8 billion was 3-4 times greater than the actual cost of the devices. A bidder in the tender announced on facebook that his/her company offered a better device with a lower price. However, the bidding committee accepted a cheaper and lower quality devices with a higher price. This is an example of how politicians announce a bid and make their own relatives or affiliated win the bid.

As Mongolian state-institutions start serving their elected politicians, will the state be able to manage its both politically and economically extractive institutions for the benefit of the people through sovereign debt and mineral exports when it cannot even be fair on merely a million dollar bid?


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One Response to Is Mongolia institutionally strong enough to manage its mineral resources and sovereign debt?

  1. Ooray says:

    ”it makes sense to build Chinese gauge size, -> ”We were talking about it with the family and my husband said ‘How about Mongolian gauze size’, not ignoring both neighbors but this is the equal decision for Mongolian fighters, 🙂

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