Mongolia’s Presidential Election Could Be Pivotal for Balancing Future Growth

On June 26, Mongolians will go to the polls to elect their next president, with incumbent Tsakhia Elbegdorj predicted to return to office with a renewed mandate. His principal challenge comes from B. Bat-Erdene, who maintains a strong base of populist support in Mongolia’s rural areas. The third candidate, Natsag Udval, is a staunch supporter of former President Nambar Enkybayar, currently serving a two-and-a-half year jail term on corruption charges. According to Julian Dierkes, a Mongolia expert at the University of British Colombia, Udval is unlikely to gain more than 5 percent of the vote, but her candidacy is noteworthy for her being the first woman to run for president in Mongolia. Elbegdorj, who has heralded Mongolia’s successful transition to democracy as a model for a region flush with corrupt kleptocrats, is likely to secure much of the urban vote in Ulan Bator as well as garnering support from the business community.

The election's outcome will have significant international implications. In 2011, Mongolia became the fastest-growing economy in the world, with 17.3 percent GDP growth as estimated by the World Bank. Mongolia’s mining and resource sectors, which are the main drivers of the boom, have attracted foreign investors to Ulan Bator with hopes of securing lucrative development contracts. However, this growth remains uncertain due to Mongolia’s overdependence on the global commodity market. Mongolia has not yet managed to mature its financial investments to diversify and spread its risk across markets. Moreover, the government in Ulan Bator still has a considerable amount of work to do before it sufficiently assuages the concerns of Western investors about rampant corruption and pegged contracts.

Thus far, Elbegdorj has been able to balance Mongolia’s desire to woo investors with legitimate concerns about the possibility of Mongolia’s becoming a mineral state. During his first term, he guided Ulan Bator’s diplomatic push to enhance ties with both of Mongolia’s immediate neighbors, China and Russia, as well as with foreign markets in Europe and North America. And he has taken steps over the past few months to ease rigid rules that restricted foreign companies’ ability to develop Mongolia’s mining assets.

But his foreign policy vision seems to be increasingly about diversity, both thematically and regionally, in order to shake Mongolia’s reputation as a “mineral state in Asia.” Last year, during an interview with the Mongolian press, he noted that "the Mongolian economy mostly has one color, and we would like to make this a rainbow economy. I have a message to our investors: Don't see Mongolia as only mines. There are great opportunities in investing in other sectors.”

Elbegdorj’s efforts to open Mongolia’s mining sector have not gone unopposed. Erdene was active in promoting legislation that prohibited mining activities in Mongolia’s water basins and green areas. Dierkes has noted that the legislation, “while clearly important and well-intentioned, has caused controversy for the implied expropriation of previously granted licenses . . . and for the risk or perceived reality of an uneven application of restrictions that gives rise to corruption.” Mongolia will have to do more to align its laws and regulations with the expectations of foreign investors in order to safeguard investments, even as the government seeks to protect the country from the environmental consequences of mining. While Elbegdorj also argues that Mongolia should not allow foreign firms to wrest away national resources, he has cautioned against “resource nationalism” and taken a strong stance on corruption.

June’s election could go a long way toward deciding these political battles. One litmus test for the next president will be the Tavan Tolgoi coal mine in Mongolia’s southern Gobi desert. Tavan Tolgoi represents one of Mongolia’s most important enticements to foreign investors, as it is believed to contain the world’s largest undeveloped coking-coal deposit. A trilateral consortium of Chinese, Russian-Mongolian and American companies was awarded the license to jointly develop the mine in July 2011, but government officials in Ulan Bator stalled on implementing their decision after Japanese and South Korean companies protested that the bidding process had been unfair.

The election may be a game-changer for this project. The urgency has never been greater for Mongolia to root out the kind of corruption that marred the Tavan Tolgoi tender. But Ulan Bator is also under considerable pressure to boost revenue from its mining sector and faces the looming threat of a credit downgrade if it continues to stall the development of Tavan Tolgoi. According to Reuters, Standard & Poor's downgraded its appraisal of Mongolia to “negative” from “stable” in April, and forecast potential for a worse rating if current trends continued. International investors have also become increasingly concerned that the Mongolian economy is at risk of overheating and overexposed to the commodities market, especially in light of the World Bank’s updated 2013 GDP forecast, which trimmed Mongolia’s growth from 16.2 percent to 13 percent.

Despite his desire to keep Mongolia from becoming a mining vassal, it is likely that Elbegdorj, if re-elected, will push for a quick resolution of the Tavan Tolgoi mine issue by pressing for an endgame to the long-stalled and reopened bidding process. While the trilateral consortium deal may get a facelift, Elbegdorj will likely be careful not to exclude any of the main parties in any newly approved bid. His challengers may have different agendas in mind. B. Bat-Erdene has repeatedly campaigned on Mongolian ownership and maintenance of its own resources. Udval would likely maintain Enkybayar’s previous line that the mines should stay in local hands.

As a result, June 26 will be another pivotal day in the history of Mongolia’s young democracy. While the Central Asian country continues to be a growth engine in Central Asia, it risks overplaying its hand through cronyism and seeping nationalism on its mining resources. Amid a cooling economic climate, the next leader will need to focus his or her efforts on re-establishing the trust of foreign investors.

Jonathan Berkshire Miller is a Sasakawa Peace Foundation fellow on Japan for the Center for Strategic and International Studies Pacific Forum.

Photo: Oyu Tolgoi copper and gold mine, South Gobi Desert, Mongolia (photo by Brücke-Osteuropa).