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While June elections were inconclusive, the one clear issue driving votes was corruption

While Mongolian legislative elections held on June 28 produced no definitive winner with an outright majority, the polarization of the results reflects widespread popular discontent with the status quo in a country that has been heaved onto the international map because of the vast range of natural resources that are coveted by multinational extraction companies.

The opposition Democratic Party won 31 seats in the election, ahead of the ruling MOngolian People’s Party, with 25 seats in the 76-member body. A coalition government is expected to be formed.

The overriding issue was corruption, mostly as a result of mining concessions that appear to have been granted primarily to put money in the pockets of the elite. That can be expected to carry into the next months. Foreign miners and Chinese interests should expect a departure from the laissez-faire approach of the past, and the results could imply a partial revision of old purchasing or equity contracts. It is possible that the price of coal sold to China will be revised upward, or the 66 percent holding by the Ivanhoe-Rio Tinto joint venture in Oyu Tolgoi, one of the world’s largest undeveloped copper-gold projects, could be modified.

Still, an extreme form of resource nationalism or Chinese discrimination is highly unlikely despite the fact that anti-Chinese and anti-mining sentiments have a long and well-documented history in Mongolia. The results are less reflective of xenophobia than the perceived failings of the previous coalition government, seen as a giant corruption machine that has done little to improve society. Apathy to the system was reinforced by a low voter turnout of only 65 percent, versus 74 percent in 2008 and 82 percent in 2004.

The previous government was a coalition between the Mongolian People’s Party (MPP), the former Communist Party and traditional elite, and the opposition Democratic Party (DP). However, the MPP had the majority and controlled the council of Ulan Bator, the only real city in this country of 3 million. In the capital, the Democrats won a resounding victory, emphatically throwing out the People’s Party, which won no seats in any districts.

This is because little has been done to address chronic urban living problems. Inflation is at 16 percent and prices of meat have doubled in the past year. Unemployment is estimated at 25 percent and worsening, as is alcoholism due to the migration of herders from the steppes who are unable to find jobs. Traffic, pollution, sewerage and infrastructure problems are all worsening despite a recent +50 percent year-on-year increases in government spending and a fiscal deficit now at 4.7 percent of gross domestic product.

By contrast, the Mongolian People’s Party fared relatively well in the country’s 20 hinterland constituencies. This is due to widespread nostalgia for the Soviet era and the party’s association with that period. Mongolia was never part of the USSR, but Stalin’s defense of the country at the Yalta Conference effectively saved it from being absorbed into China. It became an agrarian Soviet satellite state, providing meat, wheat, and commodity exports to Russia, in return for access to education, industrial equipment.

Herders retain fond memories of a time associated with much lower corruption, the preservation of traditional ways of life, and when even small villages had their own airports. The agrarian economy was organized along cooperatives (not collectives) lines, where the organization of animal husbandry, milk, meat and wool production was much better coordinated.

Just as telling of the apathy towards the MPP-DP nexus was the number of people who voted for a third group, known as the Justice Coalition, which currently has 20 percent of the vote. This coalition is made up of former MPP and DP members, and includes ex-President Enkhbayar, who was arrested on corruption charges. Interestingly, despite the detailed press accounts of Enkhbayar’s corruption, he won much sympathy for his strong nationalist streak and due due to the timing and triviality of the charges— implying that his rivals were in cahoots.

This highlights public anger not at corruption per se but at the government’s incompetence and willingness to “sell out” to foreign interests. Examples abound; there are an estimated 100,000 illegal mines in the country and as many as 75 percent of them are effectively controlled by the Chinese in practice, if not in name.

Also unpopular is the perception that the government is rushing the commencement of the massive copper and gold Oyu Tolgoi project for its own financial benefit, by flouting its own rules and importing large amounts of Chinese labor despite a law requiring 90 percent of employees at such projects to be Mongolian. The Chinese, who account for 90 percent of Mongolian exports, have also secured bargains on a number of major resource agreements, at prices much lower than the international market, and there is a perception that the Mongolian elite are pocketing the difference.

The election results, while not yet fully confirmed, now stand at 32 percent for the DP, 28 percent for the MPP, and 20 percent for the Justice Coalition. Thus no party has enough votes to hold a majority. The country is currently in a frenetic process of jockeying between politicians, with much speculation but little clarity on how or who will form the coalition (mostly predict either a DP-MPP or DP-Justice Coalition though).

Whatever the eventual outcome, (i) the next government will campaign a strong social democratic agenda but (ii) will unlikely resort to any extreme form of resource nationalism. The country is in sore need of strategic investments in infrastructure, power and technology, and the government no longer has the budget to finance this.

While foreign sentiment has waned in the face of political uncertainty, it does also appear increasingly evident that foreign interests, both Chinese and global, have responded to the new circumstances with at least a partial willingness to engage it. The bigger uncertainty is how the domestic political environment evolves from here; while most do not believe we will see a repeat of the violence in the 2008 elections, the potential for new corruption exposes and political scandals remains significant, which could slow progress on major foreign-invested projects.