Feeling (Politically) Pessimistic for Coming Year

By Julian Dierkes

It is Tsagaan Sar, so happy new year to all of Mongolia and to Mongolians! Сар шинэдээ сайхан шинэлээрэй

What will the year of the sheep bring? The sheep Gestalt (зурхай) seems to expect a windy Spring and windy early parts to seasons, good pasture this summer, and lots of snow in winter (but no dzud). This year’s cowboy is an older person suggesting a peaceful year for the elderly, wives and cattle, but tough times for younger Mongolians, especially infants, and poor people. The Khaan will be issuing strict decrees.

While I have been perpetually optimistic about Mongolia’s development and future (and still remain optimistic on the long-term prospects), I’m feeling more and more depressed about the current situation, and some worries about democracy and the 2016 parliamentary election are beginning to creep into my thoughts.

Current Crisis

After a brief moment of hopefulness (“maybe Saikhanbileg will be able to rally this super-coalition around real change”, “maybe Saikhanbileg will turn out to be a different kind of leader”), things currently look pretty dismal.

The proposal to swap strategic deposit equity for a special royalty rate looked like an initially hopeful sign, at last a step that is a departure from previous policy, but has some constructive/positive potential. Now, that hope is fading.

Why?

• On Oyu Tolgoi, it doesn’t look like Rio Tinto is likely to be interested in this offer. They appear to be in a wait-and-see mode on Phase II especially given the high up-front investment required for the underground development and current commodity prices.
• Is there someone else who would want to take over the government’s 34% stake? Quite possibly since the resource is obviously still very attractive, but one would imagine that any bidder would require a significant risk discount. Ch(in)alco would seem like an obvious candidate. Would Friedland be tempted to stage a “comeback”?
• Even if there was a buyer for the government stake, what would this “special royalty” be? It seems like this would lead to yet another round of interminable negotiations with the government working at a very significant information/experience deficit so the setting of this rate would be very difficult.
• Tavan Tologi has an even greater potential to produce some cash flow for the government quickly, but its governance has been so mired in government interference, competition between private and government businesses, foreign interests, etc. that it remains hard to think that a solution is imminent, esp. when Saikhanbileg’s honeymoon has come to a quick end, and the DP continues its current self-destructive tendencies.
• Even Boroo’s Gatsuurt project (of obvious interest from a Canadian perspective) continues its roller coaster ride through regulation.

In the meantime, the fiscal crisis and looming debt repayments will make it difficult to continue to replace private investment with state programs like the mortgage subsidy, etc., but demands for such spending might increase from the population as growth from private investment will be limited. This seems like a situation rife to be exploited by populism, esp. as the 2016 parliamentary election draws nearer. That temptation in turn raises the spectre of a vicious inflation-debt-spending spiral that is likely to only be broken by significant private investment, most likely Phase II at OT.

Party Politics

It sure seems like the DP has made a real mess of its opportunity in government. Not all this is the government’s fault of course, commodity prices, for example, are out of its control. The government also continues to operate with a significant information deficit vis-a-vis mining and global capacity markets. Capacity has declined, if anything, due to the DP’s massive personnel shifts towards its own people in virtually all positions.

At the same time, the DP has clearly been hamstrung by its factionalism which has prevented real action even in areas that may seem ripe or attractive for action. There’s not much optimism in me in terms of hoping that Saikhanbileg or any of the other crew of DP leaders would be very likely to be able to combat this factionalism in any effective manner.

The MPP also offers no particular policy proposals or direction that would make any difference, so its participation in the super-coalition seems to be more out of a sense of obligation to the country (obviously a very attractive trait in politicians) and some willingness to address some concrete challenges. However, the MPP will obviously leave the coalition before the beginning of the election campaign (the DP left a grand coalition six months before the election in 2012 so the same seems likely a year from now), if the current coalition even lasts that long. If the MPP emerges as the winner of the parliamentary election in 2016 (though perhaps falling short of a majority), at least its party discipline allows more decisive action than the DP’s factionalism.

Democracy

The current situation then raises some worries about democracy. I have been a great admirer of the achievements of Mongolian democracy, in part on the basis of my experience as an election monitor in the last four elections.

The strength of Mongolian democracy has been rooted in two factors (not exclusively, but I do think these are very important) and it will be good to remember these when the 25th anniversary of the resignation of the MPRP Politburo comes next month:

1. The 1990 revolution was home-made. Yes, some of the revolutionaries at the time (including people like Pres Elbegdorj, Ulaanbaatar mayor and likely next president Bat-Uul) clearly brought some reformist ideas back with them from studying abroad, but ultimately and with the Soviet Union/Russia’s hands-off stance at the time, the change was orchestrated by Mongolians for Mongolians. There was some interest in these changes in Europe and N America, of course, but very little involvement in the design of the constitution and democratic institutions throughout the 1990s.
2. The institutionalization of democracy preceded the mining boom. Of course, Erdenet and other projects had been operating for decades, but the sense that natural resources might be an avenue to real development and prosperity did not arrive until the Oyu Tolgoi discovery, I would argue.

And now? No one would be surprised to hear of voters’ frustration with political parties in Mongolia. Lots of promises, but mostly chaos for the past 10 years. Some real improvements (economic growth, etc.), of course, but not nearly to the level promised or to Mongolia’s potential.

For now, there are no real arguments for a “strong hand”, i.e. some kind of benevolent authoritarian figure, nor a suitable candidate, but it seems like the conditions for such an argument are developing.

My main concern and worry at the moment is thus for the 2016 parliamentary election. There are a variety of proposals floating around for the “reform” of the electoral system. Ditching electronic counting, moving away from the mixed PR-first-past-the-post system, etc.

If the experience of previous elections is anything to go by, any reform proposals will be considered more seriously “at the last minute”, i.e. at the end of 2015. Changes will thus be administratively very difficult to implement and produce a certain amount of chaos.

Another concern is that the DP might well be fairly desperate. If nothing really changes in the next year, it will look likely that the DP will be trounced in the election. Will they resist temptation to try to prevent such a thumping through fiddling with the election?

The Electoral Commission is no more independent now than it had been in the past. The DP has clearly “taken over” the security apparatus with various agencies and has been accused of using agencies like the Anti-Corruption Agency (АТГ) as a political tool.

All in all then, I think there’s enough reason to be concerned about the current situation that I certainly hope that international election observers will be involved again, ideally in a well-organized efforts like the OSCE’s, but that that observation might focus a bit less on polling stations, and instead more on the general regulatory framework to the parliamentary election.

Solutions

There are no easy solutions and I wouldn’t pretend that I could change things overnight if given the opportunity either (this just to dampen speculation that I’ll be running in the 2016 election).

However, I am fairly convinced that education of all kinds is the solution.

Education to build capacity in parliament, in the government, among policy-analysts. Education has to be a tool to overcome the information deficit vis-a-vis global capitalism.

Education of the people also seems like an important antidote to populism. Until today, there still hasn’t been any concerted attempt through the education system or other channels to raise the general level of awareness of the choices that mineral resources offer. How does the mining industry operate? How does a country benefit from development of the extractive sector? What are the possible revenue streams? What are the environmental and other risks? How can investment make revenue streams sustainable?

These are all questions that Mongolians have been asking themselves and others, but the level of basic understanding of industry and policy dynamics makes it easy for critics and populists to pretend like there are easy solutions and doesn’t allow the debate to reach a level of quality where agreement on the options that present themselves (much less on solutions) is possible.

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