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Will Mongolia Ever Escape the Shadow of Its Soviet Past?

[Нийтэлсэн: 18:45 14.09.2017 ]

www.worldpoliticsreview.com

A leading pollster called it “the worst election in Mongolian history.” Last June, Mongolian voters went to the polls to choose a new president, though many of them were likely just looking forward to getting the process over with. During several weeks of campaigning, the three candidates had deployed appalling smear tactics, accusing each other of money laundering and graft based on scant evidence. On voting day, only 60.9 percent of the electorate turned out in a country that was once accustomed to over 90 percent participation. Almost 100,000 voters, or slightly more than 8 percent of the electorate, submitted blank ballots to protest the poor choices available.

Each of the three presidential candidates was flawed. Miyegombyn Enkhbold, the choice of the Mongolian People’s Party, which came in first in parliamentary elections in 2016, had previously served as mayor of Ulaanbaatar, the capital, as well as prime minister. Enkhbold’s record, especially his perceived endorsement of austerity measures mandated by the International Monetary Fund, left him with considerable baggage. He was also behind an unpopular agreement doubling the amount of Mongolian territory open to exploration by mining companies, putting him at the center of divisive debates over the backbone of the country’s economy.

Meanwhile, Sainkhuu Ganbaatar, the candidate of the Mongolian People’s Revolutionary Party (MPRP)—the reformed successor to the Communist Party—had been critical of mining agreements with Rio Tinto, the Australian-British mining company. But many Mongolians viewed him as a self-promoter and publicity hound.

And then there was Khaltmaa Battulga, the Democratic Party candidate. A former wrestler who became a highly successful businessman, he argued that Mongolia’s mineral resources belonged to the people, while warning about overdependence on China as a trading partner. However, Battulga was also tarnished by charges of corruption dating back to when he served as minister of industry and agriculture from 2012 to 2014. Some of his close associates had been arrested, and it was unclear whether the case could extend to him.

In the first round, none of the candidates received the 50 percent required for an outright win. The lowest vote-getter, Ganbaatar, was eliminated. Less than two weeks later, in the runoff, Battulga, who drew attention from Western journalists in part for his Trump-like “Mongolia First” campaign slogan, emerged victorious. Yet almost immediately there was talk that his alleged links to corruption would weaken his mandate, and that Mongolia’s bleak economic outlook would compromise his agenda.

How did Mongolia arrive at this difficult state of affairs? The answer is partly rooted in the country’s severe recession, a product of its overreliance on the export of copper, coal and gold to China—which left the economy especially vulnerable to the drop in commodity prices and weakening Chinese demand for minerals. But any explanation also has to take into account Mongolia’s chaotic political transition following the collapse of socialism 27 years ago.

The world conceives of Mongolia, a landlocked country with a population of approximately 3 million people, as the birthplace of Chinggis Khan, or Genghis Khan, and his sons and grandsons. In the 13th century, they carved out the largest contiguous land empire in world history, conquering territories stretching from Korea to Russia in the north and from South China to Iraq in the south.

By 1400, however, the Mongolians had been forced to withdraw from this vast empire, and many of them returned to what is now Mongolia. Mongolians have exercised little control over their fate since then. An inglorious period after the empire’s collapse gave way to occupation by the Qing dynasty of China, which lasted from 1691 to 1911. The Soviet Union then dominated an ostensibly independent and socialist Mongolia from 1921 to 1990.

Any explanation of Mongolia’s problems has to take into account the chaotic political transition following the collapse of socialism 27 years ago.

Only with the collapse of socialism in 1990 were Mongolians given a real opportunity to reclaim their independence. However, hopes for a smooth, prosperous new era were quickly thwarted by a number of factors, including corruption, the one-note nature of the economy and an abrupt, disorienting switch to a market-based system. All of these have made for a turbulent quarter century, fueling the discontent that was on display in the election that brought Battulga to power.

Mongolia Under Socialism

Following Mongolia’s declaration of independence in 1911, three decades elapsed before the socialist government started to transform the economy. In the late 1930s, the state followed the Soviet Union’s lead in initiating devastating purges, often directed at Buddhist monks. A minimum of 25,000—and possibly more—Mongolians were killed, out of a total population of about 600,000. The onset of World War II ended the purges, but it was only after the war that economic and social reforms intended to create a modern, industrial economy became a priority.

In 1954, the government promoted the establishment of negdels, or herder collectives. Within a few years, these negdels were managing more than 90 percent of the country’s animals. They founded schools, offered rudimentary medical care, developed light industry and provided consumer goods and entertainment. At the same time, the government fostered processing and heavy industries. It also began, with technical assistance from the Soviet Union, to capitalize on Mongolia’s mineral resources, extracting copper and molybdenum from a huge mining complex in Erdenet, in the north.

Construction boomed in the capital city, Ulaanbaatar, which soon featured new apartment complexes, stores, office buildings, several museums and a government center similar to Red Square in Moscow or Tiananmen Square in Beijing. Russian technical advisers and Chinese laborers played important roles in this boom.

The government had a good relationship with both Moscow and Beijing until the Sino-Soviet split, which originated around 1957 and reverberated throughout the communist world until the mid-1980s. Mongolia sided with Moscow and, in 1964, sent Chinese laborers and advisers back to China, ushering in a long period of tension with Beijing.

The Soviet Union, already Mongolia’s most important trading partner, rewarded Mongolia for its choice by providing additional economic and technical assistance. Many of the economic changes reflected Soviet influence. Mongolian diplomats, engineers and veterinarians often received their training and graduate degrees in the Soviet Union, and Russian was the second language taught in urban schools. The ruling MPRP also followed the Soviet example of a one-party state, including by carrying out human rights abuses and impeding the development of democracy.

The Soviet Union also stationed about 100,000 troops in Mongolia. This was purportedly to deter Chinese incursions, though many Mongolians considered the large military presence to be a provocation and believed that Soviet training exercises would damage the environment.

Despite the support of the Soviet Union and the Eastern European communist states, by the 1980s the Mongolian economy was stagnating, partly because of a lack of incentives to produce more. Consumer goods had not been a priority for the government, to the dissatisfaction of many Mongolians. This helps to explain why Mongolians were receptive when then-Soviet leader Mikhail Gorbachev began speaking of perestroika and glasnost. Gorbachev’s efforts to repair relations with China also bore fruit, and in July 1986, proclaiming that tensions in Northeast Asia had been reduced, he committed the Soviet Union to withdrawing troops from Mongolia.

Building a Standalone State

It did not take long for the breakdown of communism in Eastern Europe in 1989 to spill over into Mongolia. Peaceful demonstrations against the government—coupled with demands for a multiparty political system, greater democracy and the loosening of the command economy—started in December 1989. Originally led by intellectuals and students in Ulaanbaatar, the protests spread rapidly throughout the country. Not wishing to repeat the violence that unfolded at Tiananmen Square in Beijing, government leaders did not disperse the demonstrators and, in fact, negotiated with them. Secondhand reports indicate that Gorbachev advised Mongolian leaders not to use force.

The standoff ended in March 1990, when 10 demonstrators started a hunger strike. The government, unwilling to be held responsible for the death of any strikers, resigned and called for multiparty elections in July of that year.

Lacking unity, the dissidents started three major political parties and about half a dozen others. They were also at a disadvantage because they did not have a network in the countryside. The result was predictable, as the MPRP won a smashing victory and retained control of the parliament, known as the Khural. Yet the dissenters had proved effective in overthrowing a government and in attracting some of the brightest of the younger generation of potential leaders. Older politicians took notice and, seeking to soothe the dissenters, offered the position of deputy premier to Davaadorjiin Ganbold, one of the up-and-comers.

By 1992, with the help of foreign advisers, a new constitution had been written and approved. It provided for a 76-member Khural, a prime minister, a Cabinet to implement policies, and a president. Under this system, the president has veto power over legislation and, in theory, nominates the prime minister, though the prime minister is more powerful on a day-to-basis as the chief executive in a parliamentary system. The Khural and the president would be elected every four years on an alternating schedule, with the Khural elected two years before a presidential election. Foreign poll observers have generally been satisfied with the subsequent elections, although rumors of payments to voters have repeatedly surfaced.

Shocked by the Washington Consensus

Yet the most important reforms in the immediate aftermath of the collapse of the communist system were economic. Starting in 1990, the Soviet Union began to withdraw its technical advisers and reduce investments and loans, losing its position as Mongolia’s largest trading partner.

The government had two potential alternatives for partners to help reorient its economy. One was China, which had experienced an extraordinary rate of growth after the ascendance of Deng Xiaoping as the successor to Mao Zedong in the late 1970s. Yet China’s oppression of Mongolians from 1689 to 1911, resulting in a legacy of distrust and even antipathy toward the Chinese, precluded such dependence.

Instead, Mongolia turned to the Western financial agencies, including the World Bank, the Asian Development Bank and the International Monetary Fund, for the loans and assistance it required. In August 1990, then-U.S. Secretary of State James Baker visited Mongolia and pledged to support its admission to the multilateral institutions. Within a year, Mongolia was admitted, and advisers from these agencies began to arrive, as did representatives from national development agencies such as the U.S. Agency for International Development (AID) and the Japanese International Cooperation Agency (JICA).

All of these institutions were characterized by their common faith in neoliberalism and a standard reform package known as the Washington Consensus. In the case of the formerly communist countries, this involved “shock therapy”: a rapid move to a market economy intended to preclude a return to a command or communist economy. State enterprises found to be inefficient or unproductive were abandoned, while others were privatized. Subsidies were eliminated, and prices and trade were liberalized. Austerity required reduced spending on medical care, education, culture and environmental protection.

Except for a slight reduction during a mining boom, Mongolia’s poverty rate has remained at around 36 percent for the past two decades.

In Mongolia, as in other countries, shock therapy resulted in a host of unintended consequences. The privatization of industry started with the distribution of coupons, which represented partial ownership of an enterprise, to workers. Most coupon-holders had no experience with capitalism and did not understand the coupons’ value. A few savvy and sometimes unscrupulous individuals offered minimal amounts of cash for the coupons and ended up acquiring substantial enterprises for a pittance.

In addition, some of the inefficient enterprises that had been subsidized by the state were closed, leading to a spike in unemployment. Similarly, the immediate and chaotic privatization of the negdels created considerable disparities, as some administrators and herders obtained a larger share of the collectives’ animals, trucks and other valued items.

These disparities contributed to a considerable uptick in the rate of poverty. In 1994, a World Bank survey found that 26.8 percent of the population lived below the poverty line. Social problems including alcoholism, domestic abuse, crime, sex work and homeless children increased appreciably. The government and international financial agencies initiated a Poverty Alleviation Program, but it was underfunded and relied, to an extent, on trickle-down economics, which entailed providing subsidies for employers to hire additional workers.

By 1998, the World Bank and the United Nations Development Program concluded that the poverty rate had increased further, to 35.6 percent. Other economists claimed that this figure only accounted for those living in abject poverty, and that another 24 percent of the population was also poor. Since then, the rate of poverty has remained at around 36 percent, except for a slight reduction during a mining boom early in the second decade of the 21st century.

Wooing, and Disappointing, the Mongolian Voter

Although eight parliamentary elections and seven presidential elections have been held mostly without incident since 1990, political turbulence persists. From 1990 to 1996, the MPRP, which began a gradual transformation from advocacy of an authoritarian and command economy to promoting semi-democracy and a modified market economy, won two parliamentary elections. Yet the party’s record from 1992 to 1996 was tarnished by corruption, inflation, unemployment and a banking crisis in which favoritism in the granting of loans created havoc. Eventually, the proliferation of nonperforming loans led to the closing of several banks.

Meanwhile, the Konrad Adenauer Foundation, a German government agency that promotes democracy, and the U.S.-based International Republican Institute, another democracy promoter, groomed new Mongolian political leaders. Copying the U.S. Republicans’ “Contract with the American Voter,” the IRI helped these newcomers develop a “Contract with the Mongolian Voter” and initiate U.S.-style campaigning, which entailed more expenses than had traditionally been the case. The Democratic Union, the political party of the new leaders, defeated the MPRP in the 1996 elections, and some observers believed the IRI’s involvement was decisive. Indeed, Tsakhiagiin Elbegdorj, co-chair of the Democratic Union who later became the prime minister and president, said shortly thereafter, “The victory is as much IRI’s victory as it is ours.”

The various governments and Cabinets that followed tended to be unstable. Infighting, corruption and low pay for bureaucrats were recurring problems. In the case of the Democratic Union, naivete, inexperience and, as Fortune magazine described it, the “wild ride to capitalism” caused by the Washington Consensus reforms undermined the government. Three prime ministers and Cabinets were replaced during the Democratic Union’s tenure.

In 2000, the MPRP returned to power, as voters appeared to be exhausted by the chaos of Democratic Union rule. Yet this change in power did not make elected officials more representative of the population they served. Because of the influence of money in politics that is a legacy of the 1996 campaign, wealthy individuals and business leaders have constituted a majority of candidates. Since 1990, only one herder has ever served in the Khural, despite the fact that herders make up one-fourth to one-third of the population.

Mismanaging the Mines

One of the most serious dilemmas facing the MPRP when it regained power centered on the Oyu Tolgoi mines in the Gobi Desert.

Geological surveys in the Gobi Desert had indicated that the region possessed substantial quantities of minerals. In the first decade of the 21st century, Robert Friedland, an owner and investor in mines in Colorado and Myanmar, arrived in Mongolia. Known as “Toxic Bob” due to the environmental damage his mines had caused, Friedland learned about the potential of a great lode in the Gobi Desert and lobbied the Mongolian government to obtain leases to explore the region. Under somewhat murky circumstances, Ivanhoe Mines, his company, received leases for the Oyu Tolgoi region, which was believed to have one of the world’s greatest supplies of copper and gold in addition to substantial coal reserves.

Friedland subsequently undermined his standing and credibility when a speech he made to investors in 2005 was leaked. In it, he described the Oyu Tolgoi mine as a “cash machine” due to the paltry 5 to 6 percent tax rate he expected to negotiate with Ulaanbaatar, bragged about the “robust” profit margin the mine would generate, and admitted that the environment would be damaged while he earned 95 percent of the profits. His comments raised hackles when the speech became public. In the spring of 2006, demonstrators in Ulaanbaatar protested against Ivanhoe and even burned an effigy of Friedland.

As it turned out, Friedland did not have the capital needed to exploit the mine. He was forced to sell part of Ivanhoe’s interest in it in 2007. In 2012, he apparently sold his entire interest in Oyu Tolgoi to Rio Tinto, the large Australian-British mining company.

 

After considerable negotiations, Rio Tinto and the Mongolian government came to their own agreement in 2009. Under the new terms, Rio Tinto would own 66 percent of Oyu Tolgoi while Mongolia would be granted 34 percent. However, since Mongolia could not provide the 34 percent required investment, it obtained a loan from Rio Tinto at a high rate of interest. Rumors of payoffs, bribes and favoritism related to these negotiations spread throughout Mongolia. Rio Tinto did not work through Mongolian banks, limiting the government’s ability to know the prices and profits accruing to the company. In the end, the actual costs of developing the mine exceeded the original estimates by a substantial amount, and automation in the mines resulted in fewer jobs than had originally been promised.

These days, as the public focuses on contemporary crises, enthusiasm for recalling Mongolia’s past greatness has faded.

Nonetheless, the mine’s proximity to China, which was hungry for minerals, led to an astonishing 17.3 percent increase in Mongolia’s GDP in 2011, largely on the strength of mining exports. Still, most of the profits from the mines went to foreigners.

Beginning in 2014, a slowdown in the Chinese economy caused China to drastically reduce its demand for natural resources. The resulting drop in orders devastated Mongolia’s economy and triggered a severe recession. At the same time, Rio Tinto proposed a transition from open-pit to underground mining at Oyu Tolgoi—a costly endeavor to which Mongolia would need to contribute. When the Mongolian government demurred, some foreign companies and governments accused Mongolia of “resource nationalism.” Pressure from international financial agencies and the weak Mongolian economy, together with possible payoffs, prompted the government to acquiesce to the Rio Tinto demand.

The results of this year’s presidential election can be seen as a rebuke by Mongolian voters of this move, but also of the resource-driven development model that underpinned it. Battulga, the new president, has stressed that the mining agreements have been unfavorable to Mongolia while voicing concerns about dependence on China as a trading partner. Other Mongolians have questioned Mongolia’s dependence on mineral resources as the basis of its economy, pointing to the vacillation of world demand and prices for minerals that inevitably make Mongolia vulnerable to events beyond its control.

Mongolia’s Future

At present, Mongolia faces serious but resolvable problems. Solutions will require sacrifices by the elites who have profited since 1990, as well as pragmatic politics and an abandonment of the ideological fixation on the neoliberal model of limited government involvement in the market economy. Instead, the government needs to play an active role in dealing with social and economic problems that have plagued Mongolia for almost three decades.

The principal economic problem is the increasing disparity in incomes, with a small elite capturing profits. Anti-poverty programs, which have been rooted in trickle-down philosophies involving subsidies to employers to hire workers, have not reduced unemployment and poverty. Today, 60 percent of the capital city’s inhabitants live in so-called ger, or tent, districts, with scarce access to running water, sanitation facilities or electricity.

The government could adopt a more interventionist approach by becoming the employer of last resort. It could initiate public works such as the construction of essential schools and hospitals, as well as provide public services to treat alcohol addiction, expand HIV/AIDS education, and make child care more accessible. These undertakings require additional revenues, which could be obtained by setting up a regular progressive income tax and enforcing it. This new stream of funds could also be used to protect Mongolia’s environment and to promote arts and culture, which flourished during the communist period but have since stagnated.

Mining, too, has to be more closely regulated. Mongolia has scarcely profited from its abundant natural and mineral resources. The government should consult with the Extractive Industries Transparency Initiative, which was sharply critical of the original 2009 agreement between the government and Rio Tinto.

Moreover, because Rio Tinto has been criticized for labor abuses and environmental damage, the government needs to supervise its activities at Oyu Tolgoi and to ensure a proper cleanup after the closure of the mine. It also must have an effective approach to prevent illegal mining. Finally, the government must encourage diversification of the economy beyond mining.

Traditionally, when faced with difficult circumstances and formidable challenges, some Mongolians have sought consolation in the past, focusing in particular on alleged Mongol greatness during the era of Genghis Khan. Attempting to turn attention away from its own inadequacies, governments since 1990 have abetted the deification of the Mongol conqueror. Theatrical productions and books portray him not only as a great military figure, but also, very misleadingly, as a supporter of the rule of law and women’s rights. Officials have placed his image on paper money and named the principal airport in his honor. However, 27 years after the revolution of 1990, public enthusiasm for such deification has faded, as most Mongolians focus on the crises they face today.

As Battulga is bound to find out, navigating these crises will require undoing some of the damage wrought by the post-Soviet era, in particular the unregulated rush into capitalism. Clean governance and economic diversification would help, as would pushing for tighter Mongolian control of the lucrative minerals sector. If the government succeeds, Mongolians may see reductions in income disparities, unemployment, poverty and other social problems that have persisted for decades. If it fails, these problems could worsen, as could public doubts that officials are capable of doing anything to fix them.

Morris Rossabi is Distinguished Professor at the City University of New York and Adjunct Professor of Mongolian History at Columbia University. He has written or edited 24 books, including “Khubilai Khan: His Life and Times” and “Modern Mongolia: From Khans to Commissars to Capitalists.”

 



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