The New Cold War
America, China, and the Echoes of History
Given how unhappy Mongolians are with their current government, which they consider inept and corrupt, it would seem that there would be more excitement surrounding the country’s parliamentary elections on June 29. After all, there are 11 competing parties to choose from. But according to a poll conducted by the Sant Maral Foundation, Mongolia’s major polling organization, respondents expressed little confidence in any of them. Barely 14 percent said they would support the Mongolian People’s Party, the leading opposition party, and only 11 percent backed the ruling Democratic Party. Meanwhile, over one-third reported that they did not trust any of the parties to properly lead the country, and 77 percent stated that none of the parties accurately represented public opinion. Part of the problem is that Mongolia is in the middle of a steep recession due, in large part, to China’s declining demand for Mongolian minerals, and none of the political parties seems to know what to do about the economic downturn.
Foreign advisers and visiting dignitaries often tout Mongolia as a democracy. But the country is less a successful transition story and more a lesson in the failure of Western economic policies. The story begins with the collapse of Mongolian communism in 1990s, after which the country continued to regard Russia more highly than the United States. This was due to a certain nostalgia about better conditions during the Soviet era. According to Sant Maral, roughly 61 percent of Mongolians still believe the country should make Russia its primary economic and diplomatic partner, while only seven percent think the United States should take that role. The United States is, in any event, too far away to play as much of a role as Mongolia’s two close neighbors, Russia and China.
Much of the disenchantment stems from the country’s tumultuous transition to democracy. In the early 1990s, after the fall of the Soviet Union, which had been Mongolia’s most important trade partner, investor, and adviser, Ulan Bator sought help in transitioning to a democratic capitalist system from the Asian Development Bank, the International Monetary Fund, as well as individual countries, including Germany, Japan, South Korea, and the United States. The West prescribed “shock therapy,” a popular course at the time, which involved immediate privatization, minimizing the government, prohibiting subsidies, balancing the budget, and liberalizing prices and trade, alongside cutbacks on social, educational, and medical expenditures. Many “shock therapy” advocates, including the International Money Fund, have since partly renounced this practice, which was later deemed “shock without therapy.” Although the stringent policies did work for a few post-communist countries, such as Poland and the Czech Republic, for Mongolia, they were a disaster.
The sudden and immediate implementation of the program initially triggered massive inflation, unemployment, and poverty. The health system collapsed, and today, at least 30,0000 Mongolians travel each year to South Korea and Thailand for medical treatment. More would if they could afford the trip. The Human Development Index, a gauge of the population’s welfare, ranks Mongolia 110 of 185 countries.
At the time of the transition, most Mongolians were in the dark about how a market economy works. Some Mongolians who did have some knowledge of capitalism gained an upper hand by seizing property—animals, grazing land, and water supplies—that had once belonged to collectives known as negdels. In Ulan Bator and other towns, individual Mongolians received coupons that entitled them to shares in their work places. Entrepreneurs who understood the worth of these coupons purchased them at way below their value or bought actual public assets at fire sale prices. The elites, and those connected to officials, also benefited, setting the stage for extreme income inequality.
Corruption exacerbated the country’s difficulties. Despite the establishment of an Anti-Corruption Agency in 2006, bribery, graft, and nepotism have been pervasive. In 2015, Transparency International ranked Mongolia 72 out of 179 countries in its Corruption Perception Index, and the country’s Judicial Index, as of 2012, Mongolia ranked at an appalling 122 out of 142 countries. The same organization offered Mongolia a rating of only 28 percent in its effectiveness in combating corruption. In 2012, Mongolia’s former President, Nambaryn Eknhbayar, was found guilty of graft and sentenced to four years in prison. Leaked documents from the Panamanian firm Mossack Fonseca, which helped wealthy individuals set up off-shore accounts, revealed that a number of high-profile Mongolian officials’ family members have such accounts: the son of the mayor of Ulan Bator, two daughters of a former prime minister, and the principal adviser to the current prime minister. To be sure, offshore accounts are not illegal. But they do raise questions about how young progeny of state officials came into so much money.
The sharp divide between the rich and the poor is most apparent in the capital. The central square, which houses the parliament (known as the Khural in Mongolian), also rents space to Louis Vuitton, Burberry, and Emporio Armani in a towering, modern building that clashes with the surrounding Soviet-style architecture. A few miles away lies the ger (or tent) district, composed principally of hundreds of thousands of rural migrants who live in the capital with scant access to running water, electricity, or sanitation. Most of them abandoned the countryside after the government ended communist-era socialist programs. Some were also forced out by mining companies that took over their grasslands and water supplies.
In the late 1990s, the liberalization of trade also led to a suspension of many tariffs, which spurred a flood of cheap Chinese imports (from food to textiles to machinery). The resulting decline of Mongolia’s indigenous industries has made the country ever more dependent on selling its relatively abundant mineral resources. Several international financial agencies advised the Mongolian government to move forward on mining agreements with foreign countries and did not sufficiently emphasize mining’s impact on herding and the environment, not to mention that it would increase Mongolia’s reliance on China, its main customer and now its largest trading partner and investor. But in recent years, China’s stagnating economy has led to fewer purchases of Mongolian gold, copper, and coal. This, in turn, has contributed significantly to Mongolia’s recession. Minerals accounted for 89 percent of exports in 2012, while exports of coal declined about 40 percent from 2012 to 2015. GDP growth has spiraled downward from 11.6 percent in 2013 to 2.3 percent in 2015.
Some Mongolians have been critical of the government for negotiating a deal in 2009 with Canada’s Ivanhoe Mines of Canada and Australia’s Rio Tinto, which are developing the Oyu Tolgoi deposits of gold and copper in the country’s south. In March of 2016, several thousand people demonstrated in Freedom Square against Rio Tinto’s call for a joint $4.5 billion loan to develop a large underground mine at Oyu Tolgoi. A standoff ensued for more than two years. In November of 2014, Chimed Saikhanbileg became prime minister and vowed to renegotiate the agreement. He has kept his promise, but the terms of the resulting agreement are not transparent and the benefits for Mongolia are still unclear. Criticisms of the deal persist, and accusations of bribes and payoffs abound.
Although the ruling Democratic Party has been unable to improve the economy, no other party has put forth a better plan in the lead up to the election. For example, the Democratic Party touts the recent agreement with Rio Tinto as the harbinger of economic growth, while the Mongolian People's Party and the Mongolian People’s Revolutionary Party say it’s not enough and are pushing for a better agreement with the company. However, both of these parties are plagued by internal disputes and corruption and have failed to capture the people’s support. The Mongolian People’s Party and the Mongolian People’s Revolutionary Party, the old Communist Party, have not captured the people’s imagination either. The Civil Will Party, led by the charismatic Sanjaasuren Oyun, has been unable to elect more than one or two members to the Khural despite its progressive anti-corruption, transparency, and social welfare agendas. They haven’t been able to gain traction because the Party centers around Oyun and has been unable to recruit many politicians to join its cause. The National Labor Party and other smaller parties are not well known and have little chance of sending more than a few members to the Khural.
The lack of enthusiasm for any political party has unnerved many patriotic Mongolians and foreign observers. Although recent surveys indicate that Mongolians still have faith in democracy—roughly 63 percent supported democracy, 17 percent opposed democracy, and the rest did not have an opinion, according to Sant Maral—there is no guarantee that such a commitment will persist. The issues that would excite the country to vote in June include a reduction in income inequality and corruption; improvements in social welfare, education, healthcare, housing, and infrastructure; and a plan to minimize the impact of mining on herding and the environment. And yet, none of the 11 parties so far have built a cohesive or effective campaign to address Mongolia’s persistent ills. This will no doubt result in a rather uninspiring election come June.