Mongolia's recession


Senior member
Jan 11, 2011
Chiang Mai, Thailand
2007 KTM 990 Adventure Suzuki DRZ 400
Mongolia's recession:

- 8 out of 10 non-skilled workers have lost their jobs

- Lack of long-term planning and investment behind the trouble in the ger districts is reflected in the country's economic structure

- 1/5th of the 3.1 million population has no plumbing or sewage


Battered Mongolia faces make-or-break moment

Government reforms, commodity upswing set stage for an economic resurgence

The roller-coaster ride that was the commodity supercycle sent Mongolia's resource-driven economy pinwheeling from 17% growth in 2011 to an external debt crisis just a few years later. But with commodity prices rebounding and the IMF swooping in for an imminent bailout, many feel the worst may be over. Can the country -- so ripe with potential -- transform this moment into the lasting stability its people and businesses have waited so long for?
ULAANBAATAR At about 4 o'clock on a mid-January afternoon, the temperature in the Mongolian capital was lower than minus 30 C. In spite of the cold, people could be seen lugging containers of water from a roadside water station to their homes in one of the many ger districts on the outskirts of the city.

These districts are home to more than 700,000 residents, most living in poverty. The districts lack water supply systems, leaving residents no choice but to buy well water at nearby stations for 1 tugrik (0.04 cents) per liter.
BUILT-IN PROBLEMS Ger districts sprang up in post-communist Mongolia when new land laws automatically entitled each citizen to a free 700-sq.-meter plot of land in designated urban areas. This prompted massive urban migration starting in the late 1990s by former nomadic herders looking for better education for their children and a more modern lifestyle. They brought their traditional tents, or gers, onto their plots, and settled down.
The land policy, however, was not accompanied by an urban development policy. Neither the national nor the city government has provided any infrastructure in ger districts other than electric power. Consequently, most of the people living in these neighborhoods -- more than one-fifth of the country's total population of 3.1 million -- have no plumbing, sewage, paved streets or schools.

The current recession is hitting these districts particularly hard.
At the edge of one ger district is a small supermarket. The 53-year-old store manager, who calls herself Tugszaya, said 8 out of 10 of the adults she knows have lost their low-skill jobs, such as load handling or truck driving, during the last few years.
"Most people have stopped eating luxury stuff like cakes even for the year-end holidays," she said. "They are cutting [back] on even basic foods to buy fuel for their stoves. Look how few shoppers we have."
One reason for this is the lack of education needed to secure better, more stable jobs. For ger districts lacking even schools for children, adult training centers for former herders remain a distant dream.
BIGGER PICTURE The lack of long-term planning and investment behind the trouble in the ger districts is reflected in the country's economic structure.


The mining sector accounted for as much as 25% of gross domestic product in 2015, coming in at $11.7 billion, while manufacturing accounted for just 9%. Copper, gold, iron ore and other metals made up 67% of exports that year, while coal and crude oil made up 23%.
Diversification is the obvious answer to Mongolia's economic woes, but this also requires broad-based, long-term efforts, such as promoting foreign investment, investing in education, and providing research funding.
Another clear risk to the country's economy is its extreme dependence on China as a trade partner. China took in 83% of Mongolia's exports in 2015 and accounted for 36% of imports to the country. A slight slowdown in demand or supply in this neighboring giant could easily play havoc with the Mongolian economy.
To diversify its trade partners, Mongolia needs to not only diversify its industry, but to also invest more in logistics infrastructure to improve connectivity with other countries.
The first freight train from China to the U.K. departed on New Year's Day from the eastern city of Yiwu and arrived in London later in January without having passed through Mongolia. Such a route would only have been an option if the country had an adequate rail system in place.
The obvious lack of social investment does not, however, mean that the Mongolian government has been short of funds.

WASTED OPPORTUNITIES Of the last 17 years, the country has achieved double-digit real annual GDP growth in five years and above-5% growth in six others, buoyed by commodity price upcycles. GDP per capita grew eightfold from 2000 to $3,967 in 2015, though this was down from a peak of $4,400 in 2013.
General government revenue grew from less than 500 billion tugrik in the early 2000s to over 5 trillion tugrik in recent years.
On top of that, the government and government-affiliated entities raised billions of dollars through foreign-currency bond issuances and international loans, especially starting from 2011, even though the country had just turned to the International Monetary Fund to rescue it from the 2008 financial crisis. Public external debt mushroomed from about $2.5 billion, or 31% of GDP, at the end of 2010 to $8.5 billion, roughly 85% of estimated GDP, in 2016.
So where has all the money gone? In a word, corruption.
For 70 years, Mongolia was a Soviet satellite ruled as a single-party state by the Mongolian People's Revolutionary Party. This communist leadership was toppled, and the country held its first democratic election in 1990.
Mongolia, in other words, is still a young democracy, and elections have revolved largely around factional power struggles. Politicians eager to get elected are quick to promise voters direct, short-term economic benefits.

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