As I suspect others with a professional interest in Mongolia's transition to democracy and capitalism have found, the country seems to attract attention in a predictable cycle. On the up side, some peripatetic journalist based in Beijing with time to kill discovers the miraculous changes wrought in only two decades after effectively being a Russian colony (complete with mandatory mention of its fabulous blue skies). Then comes the corrective: A jeremiad on Mongolia's incipient slide into self-destructive nationalism and dysfunctional economic policies (with mandatory mention that the skies over the capital, Ulaanbaatar, are the world's most polluted). Publish, forget and repeat.
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In the latter half of 2012, the cycle entered the downside. The Economist found the mood "bitter" in Mongolia, while The New York Times warned that "the underlying fundamentals of the country look increasingly shaky," noting that "foreign direct investment plunged" in the closing months of 2012. The Times was echoing complaints from the IMF, the World Bank and foreign embassies. Standard & Poor's was apparently listening, too: in October, it lowered its rating outlook for Mongolia's debt quality.
Growth did fall in 2012, but only to 11 percent, which is the stuff of dreams of most political leaders and talking heads. Moreover, in those apparently foreboding last months of 2012, Mongolia floated its first international bond issue, surprising many analysts by easily selling $1.5 billion of five- and ten-year bonds at rates of 4.125 percent and 5.125 percent respectively (rates below those being offered by Spain at the time). Many countries at Mongolia's level of development could not hope to enter world capital markets -- certainly not with a bond issue so large relative to the size of the economy.
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What accounts for the cycles of boom and gloom in media coverage? My own guess is that it's just not very interesting to write about Mongolia's ups and downs as par for the course for a poor democracy struggling to make its way in a very difficult world. Far better to delve into the soap-opera of Mongolian politics, which can be fascinating in a tiny (population three million) country on the verge of a mammoth hard-rock mining boom with China, its resource-guzzling leviathan neighbor, looking hungrily on.
Two events precipitated last year's apprehensions. First, in May 2012, the Mongolian parliament passed the "Strategic Entities Foreign Investment Law," which opens the door to ill-defined political interference in foreign projects. Nevertheless, the law does address a legitimate problem: The fear of the political, economic, and diplomatic spillover effects of vast mining projects -- a fear most relevant when the mining companies are Chinese state-owned enterprises.
This issue is hardly unique to Mongolia. Other countries -- think Canada -- have reacted warily to the prospect of dominance by the global power next door. But Mongolia does not have Canada's soothing track record of pragmatic political decision-making. Nor does it have the institutional capacity and technical expertise to write and enforce mining regulations that are clear and reasonable. Hence those who care about Mongolia worry that the mining rush is a recipe for exploitation, corruption, or populist excess that retards economic development.
Adding to such concerns, the June 2012 election brought to power a government whose members included "resource nationalists" aiming to maintain government ownership and control of natural resources. The mining minister, Davaajav Ganhuyag, made vague statements about wanting to renegotiate the agreement with foreigners investors in the Oyu Tolgoi (or simply OT) copper and gold mine project. He has the unqualified support of only a vocal minority of members of the State Great Hural, Mongolia's parliament. Nevertheless, a more moderate version of his views has found favor across the Mongolian political spectrum. Indeed, the 2013 government budget depends on revenue increases from a successful renegotiation of the OT agreement.
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