Mongolia: The pits

Nguồn tin: nguontinviet.com

A capital boom

NOT long ago Mongolia seemed a blessed land, with growth rates—over 17% in 2011 and around 12% in each of 2012 and 2013—that were the envy of the world. Mining was the promise in a country with annual GDP per person of less than $2,000 just five years ago and $4,000 today. Some $3 trillion of get-at-able minerals are thought to lie under a country bigger than France, Germany and Spain combined, equivalent roughly to $1m for each of nearly 3m Mongolians. For many, the despoiling of a pristine landscape and a capital, Ulaanbaatar, with the second-worst air pollution in the world, seemed a price worth paying for a boom that made politicians rich and filled the streets with snazzy new cars and apartment towers.

But now the shine has come off. Mongolia faces a balance-of-payments crisis in which its hard-currency reserves have fallen by two-thirds; the currency, the togrog, is also sharply lower. At home, a credit crunch has brought Ulaanbaatar’s building frenzy to a near-halt. One factor is coal, Mongolia’s chief mineral export before a vast new copper mine, Oyu Tolgoi (OT) in the Gobi desert, comes properly on-stream. Its price has fallen as demand from China has slumped. The second factor is a fight among the foreign investors who fuelled the boom; and for that, the Democratic Party government is squarely to blame.

The importance to Mongolia of OT, controlled by Rio Tinto, a British-Australian giant, is hard to overstate. When it is fully up and running, sending ore across the border to China, it could account for one-third of GDP. The $6 billion spent to date accounts for most of the recent foreign direct investment.

Yet the project is stuck in bitter disputes between Rio and a meddling Mongolian government, which owns 34% of the project, over the scale of management fees, the kinds of cost overruns that are inevitable when developing such a large mine, and demands for tax. Mongolia’s raucous democracy has amplified the disputes.

Until they are resolved, Rio refuses to start spending the $5 billion or so needed for the second, and harder, phase of OT’s development, when the mine will start to dig deep. Mongolia’s finance minister, Ch. Ulaan, admits that it would have been better had the government not insisted on being a shareholder in OT but had merely pocketed the royalties. Too late. Other foreign miners have taken fright, further alarmed by the suspension of over 100 other licences pending a government review over corruption. Foreign direct investment has fallen by three-fifths this year. Thankfully, signs suggest the government and Rio are narrowing their differences. Rio says it has finished a feasibility study of the second phase at OT. The government seems to have backed down over huge tax demands.

That is welcome, but meanwhile the government also faces the consequences of ill-advised domestic measures implemented last year to counter a slump in growth. One was a “price-stabilisation programme” designed to reverse a fast rise in the prices of basic foodstuffs and construction materials. Another was to subsidise mortgages, bringing down the rates Mongolians paid from roughly 18% to 8%. Both measures involved huge central-bank injections of money into the banking system and the alarming growth of the government’s off-budget financing. The session of the State Khural (parliament) that opened this month is supposed to consider emergency measures to rein back spending, but cutting the mortgage subsidy, in particular, will prove politically tricky. Meanwhile, the level of non-performing loans at banks, currently under 5%, is certain to rise.

Even without progress on OT’s second phase, Mongolia should be able to avert a full-blown crisis, thanks largely to offers of help from its southern neighbour, China. Hard-currency reserves inched up in August, due in part to a loan from China’s development bank. Moreover, China has offered a lifeline in terms of extensive swap arrangements to Mongolia’s central bank. President Xi Jinping of China recently called on his Mongolian counterpart, Tsakhiagiin Elbegdorj.

So too did Vladimir Putin of Russia, which was Mongolia’s overlord until a democratic revolution in 1990—led by a young Mr Elbegdorj. What Russia can now offer is unclear; one analyst in Ulanbaatar says that Mr Putin’s chief motive was to “bare his arse to the West”.

Mongolia has long been a staunch friend of the West as it has tried to keep from falling into either Russia’s or, expecially, China’s orbit. Now, both want their pound of flesh. There is talk of Sino-Russian gas pipelines and railways crossing Mongolia. China’s state mining companies, which Mongolia has long sought to keep out, may muscle in. And that may be only the beginning of the Chinese influence. The price of the Democrats screwing up has been the loss of some of Mongolia’s treasured autonomy.

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