Coalition takes over at crucial time in Mongolia's development

By bne IntelliNews July 24, 2012

Oliver Belfitt-Nash in Ulaanbaatar -

Three weeks after winning 31 out of 76 seats in the Mongolian parliamentary elections on June 28, the Democratic Party (DP) said it has formed a coalition with a number of smaller parties in order to secure a majority. This untested party will oversee a crucial period in Mongolia's post-communist history as large resource projects come onstream.

The DP is known for its progressive pro-business stance, but has historically been the weaker of the two major parties, originally formed as a unification of many pro-democracy factions after the fall of socialism in the early 1990s.

The next biggest party in the coalition is the controversial Mongolian People's Revolutionary Party (MPRP), a splinter group from the old communist party. This is led by Nambaryn Enkhbayar, who was arrested before the election on corruption charges and is to be tried at the end of July. The MPRP's aggressive policies on national ownership of the country's coal, copper, uranium, gold, zinc and lead mines has worried some investors that the new government may further lean away from luring foreign investment. They are due to take four or five of the 18 ministries on offer, and analysts predict that a member of this party could take the finance minister position, key to the country's investment agenda.

These two may seem like an unlikely pair for a coalition, but both can agree that the old communist party, the Mongolian People's Party or MPP, has had its turn and must now make way. While there promises to be some heated debates over the plan for the next four years, the DP have stated that any coalition partners must follow their lead. The DP are clearly pushing to make this government their own, and this will be their chance to shine.

Money & mining

Over the next four years, the country's vast mineral wealth will be exploited and the state coffers will begin to fill, putting the new government in a strong but testing position.

"The importance of this next term cannot be overstated," says Travis Hamilton, founder of the Khan Mongolia Equities Fund. "The stakes are a lot higher now, and the actions over the next four years will determine the coming decades. Mongolia is still heavily dependent on foreign investment, but when they run at capacity they will be able to go on their own. The country is on the precipice of financial independence."

The issues of natural resources, investment and wealth distribution are some of the most important campaign issues for the public, and now the DP must prove they can spend the mining revenues responsibly.

The new prime minister, Norov Altanhuyag, is an ex-physics professor-turned-revolutionary in 1989, and has been fighting as an underdog ever since. He speaks calmly and confidently, his words well-rehearsed. "In the last four years we have just started to use our mining resources, but the coming four years is a tipping point," says Altankhuyag. "We have huge discussions on how to use the mining wealth."

There is already a mechanism being developed that allows the government to dish out shares of major mining projects to every member of the public. The country's largest coking coal mine, Tavan Tolgoi, is due to be listed next year in Hong Kong and London with potentially over 2m shareholders ready to trade. This ambitious scheme has caught the attention of many investors watching for the next opportunity, and will be a pillar event for the coalition. Unfortunately, the deal came to a halt last year over an international dispute on who should partner with Mongolia to develop the mine. China's Shenhua, a Russian consortium, US' Peabody, South Korean and Japanese players are all in the bidding war for this huge deposit. "There is still a question on how we will collaborate with foreign investors in all sectors," says Altankhuyag. "Some we can do ourselves, some we can cooperate with investors."

Standing firm

As with all coalitions, there is a threat that the decision-making process will be fragmented. The DP itself is comprised of many different factions, some more radical than others, and the coalition partners could pose problems for Altanhuyag and his party. The opposition MPP, on the other hand, enjoys a consolidated, experienced group of political veterans ready to pounce on the DP should they falter over the next four years.

As a response to this, Altanhuyag has stated that the others must follow his lead if they are to participate in the coalition - a welcome remark for analysts who feared an indecisive leadership. The DP pledges to focus on education and infrastructure, while nurturing the cash flows from the mining sector. It will be a hard test for the newcomers, but one that Altanhuyag is willing to take.

"I am a team player," he says with a chuckle. Presumably, though, he's the captain.

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