The Mongolian Steppe Gears Up for an Economic Liftoff

Mongolians are getting ready to elect their representatives to parliament for the third time since the fall of the Communist regime. With democratic principles firmly in place, Mongolia is focusing on tapping its economic potential. While it has vast mineral resources, the country must overcome the special challenges presented by its hemmed-in location, as described for us by H.E. Altangerel Radnaabazar, the Ambassador of Mongolia to France.

The Diplomatic Letter: Mr. Ambassador, Mongolia has traditionally maintained very friendly ties with France, as illustrated by Mongolian President Nambaryn Enkhbayar’s state visit to France on 21-15 February 2007. Do you see our two countries developing an even stronger relationship, bolstered by Mongolia’s “third partner” policy?

H.E. Altangerel Radnaabazar: Our two countries are united by a close friendship and strong ties that have become a long-standing and very pleasant tradition, carefully preserved by the Mongolian and French peoples. Looking back over the years, we see a great number of interactions and events that have helped cement these ties. To begin with, we have only to mention the letters exchanged between the royal courts of the Mongolian and French empires in the 13th century. In a letter sent to King Louis IX, through the intermediary of William of Rubruck, Mongke Khan wrote: «Our lands are so distant, the mountains so high, the oceans so vast..(…)..and yet we must know your intentions, as to coming in peace or waging war..(…)..which eternal Heaven will decide, as it does all things.» More recently, H.E. Nambaryn Enkhbayar’s state visit to France, in February 2007, helped secure the launching of a variety of projects that have further strengthened our ties. This visit was a strong sign of the Mongolian government’s determination to enhance its relations with France.
As a landlocked country wedged between two emerging powers, Mongolia naturally feels the need to break out of this hemmed-in position and the constraints it imposes. It has consequently added a new concept to its foreign policy doctrine: the “third neighbor” policy. This is more of a geopolitical notion than a geographic one. It concerns a wide group of developed and democratic countries that support Mongolia, including the EU-27. In fact, during his trip to Paris, H.E. Nambaryn Enkhbayar said very clearly that Mongolia considered France a strategic partner as well as a “third neighbor.”

T.D.L.: This coming June, Mongolians will go to the polls for the country’s third legislative elections since 1992. Are you pleased with way the multiparty system has taken root in your country in recent years? Do you think the Mongolian People’s Revolutionary Party (MPRP) will tap into its strong electoral base and come out of the upcoming vote even more powerful?

H.E.A.R.: Democracy has become a reality in the day-to-day functioning of Mongolian society. Democratic principles were inscribed in the Constitution adopted in 1992, which states that the ultimate objective of the people of Mongolia is to build a humanistic and democratic civil society in our country.
Mongolia’s political landscape now includes eighteen different political parties. This diversity alone shows that pluralism and multipartyism are deeply entrenched in our political life. All these parties consequently carry on their activities with total freedom, in a perfectly legal manner. In fact, a brand-new party, the Democratic Movement Party, was officially registered this past February 4th, with an eye to the coming election. This legislative election should be a pivotal event in Mongolia’s political life, as it will give voters a chance to judge all the different political parties on their platforms as well as their actions.
The upcoming legislative elections will be held on 29 June 2008. The Parliament will confirm this date in an official announcement, scheduled for mid-May. These elections are taking place within the scope of the new law on parliamentary elections, passed on 25 December 2005 and amended on 26 December 2007. This new law shortened the election campaign, limited the number of mandates that can be held concurrently, and required the publication of the voter list three months ahead of the election.
In addition, representatives of foreign countries, international organizations and non-governmental organizations will be allowed to freely observe these elections, which will be organized by the General Election Committee.
It is absolutely true that the Mongolian People’s Revolutionary Party (MPRP) has a strong electoral base. The MPRP is one of our country’s oldest and strongest political parties. Reinforcing its already strong electoral base within Mongolian society is, no doubt, its primary objective.

T.D.L.: Bolstered by a booming mining industry, fast growing construction and service sector, and a newly invigorated agriculture industry, the Mongolian economy has grown between 7% to 9% a year for the past five years. Do you think it can keep growing at this pace, given the global economic situation and the current price of minerals such as copper and gold? Could you give us the growth figures for 2007, and the projected numbers for the current year?

H.E.A.R.: The economic and social policies pursued so far in Mongolia have been very systematic, progressive and pragmatic. Eighteen years after heading down the path to political transition, my country, bolstered by a market economy, continues to be a democratic and pluralist State that defends human rights and fundamental freedoms. The positive changes seen in Mongolia in recent years show that the Mongolian government is able to implement even the most difficult reforms, for the good of our country and society.
The big challenge right now for our government is ensuring that we make good use of the opportunities that are opening up as we tap into our mineral resources, in order to find an effective answer to our country’s social and environmental problems.
After growing 8.4% in 2006, the Mongolian economy grew 8.5% in 2007, according to World Bank figures. Exports of mineral products account for a good part of this growth. It is true that the current global economic situation and rising minerals prices have given our economy a boost. But there are also clear signs of growth in the booming real-estate and hotel industries, as witnessed by the construction of new banking establishments and the growing number of Western restaurants in Ulaanbaatar. 2007 was, once again, a year of strong economic growth in Mongolia. And the mining sector was once again the driving force behind this expansion. Our per capita GDP rose to US$ 1,750. Foreign trade volume increased 32.3% in 2007, hitting US$ four billion. It must, however, be underscored that Mongolia still has a US$ 228.3 million trade deficit, along with an inflation rate that continues to hover at a high 15.1%. Unfortunately, constantly skyrocketing oil and cereal prices on the international market are starting to have a negative impact on the Mongolian economy. Despite its relatively small size, our economy is not immune to the shock waves caused by the U.S. economic crisis.

T.D.L.: The growth seen in the Mongolian economy has gone hand-in-hand with steadily rising budget expenditures, causing your external account balance to fall. Do you think your country will have to realign its tax policies? Will it be focusing, first and foremost, on developing its infrastructures and fighting poverty?

H.E.A.R.: Our economic growth has, in fact, gone hand-in-hand with steadily rising public expenditures, which now represent 38.4% of GDP. This is due, first of all, to significant public investments in projects that are essential to ensure our country’s economic development and improve its infrastructures. Developing countries like Mongolia face numerous economic problems, and the State must take the lead in trying to resolve them. Secondly, the Mongolian government is making great efforts in the social arena. It has increased the salaries of civil servants, for instance, along with retirement pensions and welfare benefits.
This steady economic growth has allowed us to maintain an expansionary fiscal policy. Let me also say that while public expenditures have no doubt been affected by the high inflation rate, household spending has continued to climb sharply in recent years.

T.D.L.: World Bank and IMF experts have said that in order to firmly anchor your economy to the globalization process, Mongolia will have to modernize its labor market, energize its financial sector, improve its tax system and fight corruption. Are Mongolian authorities taking specific measures to this end? What type of assistance are you hoping to receive from the international financial community?

H.E.A.R.: The World Bank and the International Monetary Fund (IMF) are long-standing partners of our country. Mongolia pays close attention to the recommendations of these international financial institutions, taking care to put them into practice so they can help us overcome, as quickly as possible, all the socioeconomic obstacles and problems that have arisen during our transition to a democratic society and a market economy. In fact, we are already starting to see the first positive results of our cooperation with the IMF and the World Bank.
You mentioned our fiscal policy. We have one of the most advantageous tax systems in all Asia. The new tax law adopted in 2007 introduced new corporate tax brackets that vary from 25% to 10%, depending on the actual income earned.
Moreover, I want to stress that eradicating poverty has proved to be one of the most difficult problems for Mongolian society to solve. The successive government teams that have led this battle have focused their efforts on reaching this objective, primarily by fostering the creation of new jobs and increasing government spending in this arena. Bilateral and international sponsors have also been of great help, as well as NGOs.
Fighting poverty remains a top priority for our current Prime Minister Sanj Bayar. As it pushes forward with its efforts in this arena, the government’s main objectives are: tapping strategic natural resource deposits; expanding the agricultural sector so that it can meet the country’s food needs; more effective management of domestic and foreign investments aimed at improving our infrastructures; fostering new production sectors with high added value; and building housing for the destitute.

T.D.L.: Russia is Mongolia’s leading foreign investor and energy supplier, while China supplies the better part of your country’s imports. How is Mongolia going to establish balanced trade ties with these two powerful neighbors?

H.E.A.R.: I would like to stress, first of all, that the Mongolian Parliament has approved a list of natural resource deposits considered to be of strategic importance. This has enabled the government to begin working on large-scale industrial projects such as Tavan Tolgoi, Oyu Tolgoi, Tsaidam, Tumurtei, etc. The launching of this vast plan to exploit our most important deposits is the fruit of lengthy consultations and dialogue with all of our political parties as well as civil society. As we worked to reach a consensus, we also considered the negative effects this could possibly have, especially on the environment. With that in mind, Mongolia has taken great pains to learn from the experiences of other countries.
On a broader level, the underlying goal of Mongolia’s major project plan is guaranteeing that our country’s political and economic interests take precedence. This policy also gives our two neighboring partners, Russia and China, a balanced economic foothold, while putting Mongolia at the juncture of international trade interests.
The Mongolian government is looking to tap into our natural resources as part of a short-term economic development strategy. But in order to ensure the country’s sustainable development, we will have to bolster sectors with high added value. These goals are laid out in the national development plan recently approved by the Mongolian parliament.
Working to bolster cooperation and friendship, as well as a strategic partnership and neighborly ties with our two neighbors, Russia and China, is a top diplomatic priority for Mongolia. In 2007, our bilateral trade volume with China was US$ 2 billion, and US$ 8 billion with Russia. China is still the leading investor in Mongolia, with investment inflows of US$ 9 million in 2007.
We are also taking steps to make our country more closely integrated in regional economic trade structures, in particular in East and Northeast Asia. This is prompted by the need to open up our economy, not only at the geographic level but also in terms of making it more competitive. To that end, Mongolia has opened negotiations with Russia and China with the aim of signing a three-country transit traffic agreement, which is a vital necessity for the Mongolian economy.

T.D.L.: Mongolia is looking to enhance its ties with nations it calls its “third partners,” starting with the United States, Japan, South Korea and Europe. Are there still wide opportunities for expanding your country’s trade and cooperation with these nations? Are you hoping to build new partnerships in Asia or other parts of the world, for instance with countries like India?

H.E.A.R.: The doctrine identifying Mongolia’s main foreign policy goals was adopted in 1994. It seeks, above all, to safeguard our national interests as laid out in our Constitution. These interests are an outgrowth of Mongolia’s unique geographic location, which has determined the country’s objectives, principles and priorities in this arena. Generally speaking, our foreign policy seeks to guarantee the independence and sovereignty of our country, foster social progress, strengthen our position within the international community, and forge a network of ties based on political and economic interdependence with influential countries in the region and around the world.
Mongolia has friendly ties as well as a strategic partnership with the Russian Federation and the People’s Republic of China. It is, in the meantime, working to expand its cooperation with outside partners, which has led to the «third partner » concept we spoke of earlier. All developed, democratic countries that support Mongolia should be included in this concept. Our country has forged a partnership and cooperative ties with the United States, Japan and South Korea. We have established a permanent political dialogue with the countries of the European Union. Our economic and commercial exchanges have risen sharply, and things look very promising for the inter-university cooperation programs and cultural exchanges we have set up. We are also trying to build a spiritual partnership with India. Mongolia is laying even greater importance on enhancing its cooperation with other countries as well, such as Canada, Turkey, Australia, etc.

T.D.L.: The vast copper and gold deposits at Oyu Tolgoi hold some of the world’s greatest undeveloped potential. Tapping these resources is another key development project for your country. Has it made concrete headway in this area?

H.E.A.R.: The rising demand for energy sources and raw materials has forced most of the planet’s countries to start looking for new resources and new sources of energy supply. In recent years, Mongolia has begun to attract the interest of countries with sizable raw material needs. It currently produces 2% of the world’s copper and 4% of its molybdenum, making it one of the top ten molybdenum producing countries. In fact, Mongolia has several world-class deposits of raw materials. Both public and private actors, from our country and abroad, are making huge investments in the Mongolian mining industry. The development of major deposits such as Oyu Tolgoi and Tavan Tolgoi will increase production in this activity sector threefold. The Oyu Tolgoi deposit, for instance, is included on the list of strategic raw material reserves identified by the Parliament in 2006. Our Mineral Law, which was revised on 8 July 2006, now gives the Mongolian State the right to hold a stake in strategic mineral deposits, limited to a 34% share when the explorations were privately funded and a 50% share when they were publicly funded. The government recently proposed a new amendment to this law that would increase the State’s share to 51%. This proposal has sparked heated debate in the business community and civil society. Once it has been approved, the government will immediately open negotiations with foreign investors, in order to respect its commitments to the foreign companies that are already involved in tapping the deposits in question.

T.D.L.: Mongolia has strong ties with United States, recently holding joint military maneuvers with its American partner. It also has a contingent of 130 troops in Iraq and 20 military trainers in Afghanistan. In light of the current situation on the ground and the upcoming elections in the U.S. and Mongolia, will these forces be enhanced in the coming months?

H.E.A.R.: Mongolia and the United States share friendly relations and strong ties that are built around a strategic partnership in the political, economic, cultural and military arenas. We have included the United States in our «third neighbor» concept. The excellent nature of these ties is illustrated by the high-level exchanges between the two countries. President George W. Bush made an official visit to Ulaanbaatar in November 2005. In 2007, President Nambaryn Enkhbayar made a state visit to Washington, where the two leaders signed a «Declaration of Principle for Closer Cooperation.» The U.S. government also granted Mongolia $US 285 million in assistance through the Millennium Challenge Account» (MCA).
With regard to bilateral military cooperation, a training center for peacekeeping operations has been opened in Mongolia, with support from the Americans. This center will be a training base for multinational peacekeeping forces, and military and police officers from a variety of countries will be involved in its activities.
You emphasized our work in Iraq and Afghanistan in your question. Mongolia would like to see peace and security restored in Iraq as quickly as possible. Indeed, it is the international community’s duty to help the Iraqi people. Mongolia sent its first contingent into Iraq, composed of hundreds of troops, as early 2003. It wanted to help quickly restore stability and assist the international community in its battle against terrorism. Mongolian military trainers have also been helping train Afghan soldiers since 2003. Our country is very proud of the excellent work our soldiers are doing far from their homeland. Finally, let me add that our involvement in peacekeeping operations is tied to the changing situation in these countries and to the international community’s commitment to the peace processes unfolding there.

T.D.L.: Your country also has 240 troops in Sierra Leone and a smaller contingent of 40 soldiers in Kosovo. Mongolia’s active participation in peacekeeping operations around the globe is widely appreciated by the international community. Does it intend to remain actively involved this arena?

H.E.A.R.: Mongolia is eager to become even more active on the international stage and establish itself as a «responsible citizen» of the global community. Our involvement in United Nations peacekeeping operations bears testimony this desire. It is our way of helping bolster stability, peace and international security.
Mongolia has, indeed, been an active participant in operations carried out under the aegis of the United Nations in recent years. Mongolian military officers are also at work in the western Sahara, the Democratic Republic of Congo, Sudan, Georgia, Ethiopia and Eritrea. Two hundred fifty Mongolian troops are ensuring the security of the mission and staff of the United Nations Special Court for Sierra Leone. Our peacekeeping efforts are not limited, however, to actions conducted under the UN banner. Twenty-four Mongolian soldiers are also helping with the operations in Kosovo.
Mongolia’s involvement in the peacekeeping and security operations in the various regions of the world is a perfect illustration of my country’s dynamic foreign policy efforts. This work is also helping improve the quality and professionalism of the Mongolian Army. In fact, the government would like to intensify our involvement in this kind of UN operation, and strengthen our own military capacities in this arena at the same time. What is more, the master plan for developing Mongolia’s military forces until 2015 calls for the creation of a new military police contingent, an international training center for peacekeeping operations, and a mobile military hospital unit. A permanent contingent of 2,500 troops would thus be operational by the year 2015. Finally, to meet these objectives, Mongolia would like to cooperate closely with partners who have strong experience and capabilities in this arena.

T.D.L.: Mongolia joined the Non-Aligned Movement in 1991, has been a member of the ASEAN Regional Forum since 1996, and became an Observer State at the Shanghai Cooperation Organization in 2004. What do you think of the broad cooperation movements taking shape on the Asian continent? Is Mongolia hoping they will spur economic development, help attract more foreign investors, and foster wider human and cultural exchanges? Is it focusing on strengthening its ties with specific partners, such as Kazakhstan, a key oil and wheat supplier?

H.E.A.R.: Mongolia became a full participant in the ASEAN Regional Forum (Association of South-East Asian Nations) in 1998, has been a member of the PECC since 2000, and was welcomed into the Asia Cooperation Dialogue in 2004. Mongolia has also been a member of ASEM (Asia-Europe Meeting) since 2006. Joining these intergovernmental bodies has strengthened our country’s position within the region. It has opened up new cooperation opportunities with our regional partners in a variety of important areas, starting with economic and commercial exchanges, research and education. Furthermore, there are numerous opportunities for joining many other major projects in the region.
When the process to create the East Asian Community was first launched, Mongolia voiced its desire to be involved in these efforts. We received key support from ASEAN member countries in this respect. Mongolia signed a treaty of friendship and cooperation with this organization in July 2005. On a broader level, reinforcing our cooperation with APEC is one of our key objectives in Asia. Joining this regional organization in the future is a top priority for us. Mongolia is also taking part in the work of various working groups, with special focus on the issues of foreign trade, energy, tourism and transportation.
For reasons that are obvious, the regional integration process has not yet come together in Northeast Asia, a region that lies right next to Mongolia. Our country hopes to be a driving force in the integration and economic expansion of this zone.

T.D.L.: Mongolia was accepted as an EBRD country of operations in June 2006. That same year the EU opened an office in Ulaanbaatar, leading to the first ever EU-Troika mission to your country, which became the first Asian country to sign a memorandum of understanding with the EU. Europe will give your country nearly 100 million euros in grant aid in 2008-09, most of it targeting rural development. Could you talk a little about Mongolia’s cooperation with the EU, and some of the specific projects that are being funded?

H.E.A.R.: We first started working with the EBRD in 1996, in the form of technical assistance and training for Mongolian financial experts. Mongolia has been an EBRD country of operations since 2006. EBRD invested US$ 75 million in our private sector in 2006-2007. A US$ 150 million credit line has been set aside for our country for 2008-2009. These loans are designed to foster the development of private companies, especially small- and medium-sized enterprises (SMEs).
The European Union is one of Mongolia’s leading financial backers. Mongolia and the European Union have worked together to carry out several economic and humanitarian projects over the years, with very satisfying results. The latest project involves an investment of US$ 14 million to help develop rural areas, and is scheduled to be carried out in 2008-2010.
The enlarged European Union has become our third trading partner. European trade with Mongolia tripled in 2007, with European investments climbing to $US 100 million.
Moreover, EU-Mongolia ties are a top priority for us. Mongolia sees the EU-27 as an important partner for ensuring its sustainable development and making democratic principles a firm fixture in the daily life of Mongolian society.

T.D.L.: France is Mongolia’s second trading partner in Europe. What could be done to help expand bilateral trade? What is Mongolia doing to entice more French companies to invest in your country, following in the footsteps of firms like Michelin, pharmaceutical leader Beaufour Ipsen and food processors France Tech and GNIS? Is your cooperation with Areva especially important, with Mongolia looking to tap its mineral potential and eventually build its own nuclear power station?

H.E.A.R.: The volume of trade between Mongolia and France nearly doubled in 2007, climbing to US$ 29 million. Our textile exports tripled, posting a 22.4% increase. Mongolia, for its part, imported wine, pharmaceutical products and mining industry machine tools from France.
Mongolia is interested in French investments as a general rule. All kinds of events are being held to help bring together the two countries’ business leaders. French entrepreneurs can, for instance, attend special forums, exhibitions and fairs organized in Ulaanbaatar by the Mongolian Chamber of Commerce and Industry. French firms are also invited to respond to the international calls for tenders issued for our major economic projects. The Paris Chamber of Commerce and Industry organized a special « Mongolia-France Day» during the Mongolian President’s official visit to France in February 2007, enabling several French and Mongolian firms to make contact and share information on the commercial opportunities open to them.
I, personally, would like to see France expand its economic and industrial foothold in Mongolia. France’s big groups are starting to take a growing interest in the Mongolian market. This is a very good sign, and should be encouraged. Our country offers extremely advantageous conditions for making investments in key economic sectors. By way of example, the major French group Areva is now solidly established in Mongolia. Moreover, the Mongolian government considers it very important to have French industries working in our country, and encourages wider cooperation to help train our experts and lay out the judicial framework for tapping sensitive raw materials.