Mongolia strengthens independent policy despite debt and corruption

Authors: Mendee Jargalsaikhan and Enkhbayar Namjildorj, Institute for Strategic Studies of Mongolia

Mongolia is successfully navigating great power geopolitical rivalry, the dynamics of electoral democracy and the challenges that face small, resource-based economies. But current political and economic trends, if not managed cautiously, could trigger more challenges for Mongolia ahead of its 2024 parliamentary election.

Despite attempts by Beijing and Moscow to influence Ulaanbaatar, Mongolia continues to maintain an independent foreign policy. For example, Beijing’s authority was undermined when Mongolia’s religious leaders officially announced the reincarnation of the tenth Jebtsundamba Khutughtu, one of the key leaders of Tibetan Buddhism. Russian officials have similarly voiced discontent over the alleged rise of Western influence in Mongolia. These concerns may have formed the rationale behind Beijing and Moscow’s decision to invite the Secretary of Mongolia’s National Security Council to a trilateral meeting with Russian Security Council Secretary Nikolai Patrushev and Chinese Foreign Minister Wang Yi in September 2023.

While maintaining balanced relations with China and Russia, Mongolia has also strengthened ties with France, the United States, Poland and South Korea — countries in direct geopolitical competition with Mongolia’s two neighbours. In 2023, the United States and South Korea strengthened their strategic partnerships with Mongolia and inaugurated a trilateral dialogue mechanism with an emphasis on critical minerals. French companies also began negotiations to develop a uranium mine in Mongolia, aiming to export to the Chinese market.

Mongolia’s leaders have prioritised multilateral diplomacy, strengthening its ties with countries operating in a similar geopolitical context. Mongolia hosted the Eighth ‘Ulaanbaatar Dialogue’ in June 2023, a regional security dialogue that provides a neutral platform for international diplomats and academics to strengthen regional understanding. In the same month, Mongolia launched the annual Khaan Quest peacekeeping exercise, along with Chinese, Indian, US, Japanese and South Korean counterparts.

Building on its socialist legacy, Mongolia has also conducted high-level talks with Vietnam, Laos, Kazakhstan and the Kyrgyz Republic, while deepening its trade and economic ties with Southeast and Central Asia. Mongolia also maintained its observer status in the Shanghai Cooperation Organization despite Chinese and Russian pressure to join. Mongolia’s open, multi-pillared, neutral and peaceful diplomacy has increased the resilience of its independent foreign policy.

Compared to its authoritarian neighbours, Mongolia’s democracy remains durable, upholding human rights and pluralism. In 2023, Mongolia hosted Pope Francis, who attended an interfaith dialogue with shamans, Buddhists, Christians and Muslims. Mongolia’s civil society space remains open, allowing Western and local non-governmental organisations to engage in discussions about issues concerning political and civic rights. The failure of several attempts by populist interest groups and some government officials to change this legal environment demonstrates the strength of Mongolian civil society organisations.

Political leaders and parties have generally played by the rules of electoral democracy. In May 2023, the Parliament aimed to increase Mongolia’s democratic governance by introducing a mixed electoral system and approved a constitutional amendment to increase the number of parliamentary seats from 76 to 126, which will take effect in the 2024 parliamentary election

But Mongolia is still at the crossroads of becoming a crony democracy or a democracy with a strong rule of law. Corruption poses a major challenge to Mongolia’s democratic resilience. In response to public anti-corruption demonstrations, the ruling Mongolian People’s Party declared 2023 as the year of fighting against corruption. The cabinet announced a set of five measures towards this goal — to protect whistle-blowers, eliminate cronyism within the public service, extradite those accused of corruption, expropriate stolen funds and assets, and strengthen transparency.

But party leaders have struggled to implement these measures. For one, all disclosed corruption cases in 2023 — such as the Tavan Tolgoi coal case as well as scandals over the Educational Loan Fund and the Agricultural Support Fund — have involved members of the ruling party. Criminal investigation and judicial processes also remain slow. As the parliamentary election nears, these cases could threaten the nature of Mongolia’s electoral democracy.

Mongolia’s economy similarly underwent a resilience test in 2023. The ruling party-led parliament and cabinet have responded to rising inflation and costs of living by increasing salaries in August and September. A further ten per cent salary and pension increase has been approved for April 2024.

While the outgoing parliamentarians passed a very optimistic budget in hopes that coal exports to China would continue to increase, the economy is on a risky trajectory. Mongolia is struggling to pay off its debts and has extended its currency swap agreement with China until 2025. The remaining balance of this currency swap is 15 billion yuan (US$2 billion). The ongoing war in Ukraine might bring about a fuel supply crisis, which would present enormous challenges for the government and the public.

Mongolia’s economy also remains overly dependent on Chinese markets, investment and infrastructure. China holds a 91.5 per cent share of Mongolia’s total exports and 62.3 per cent of total export revenues came from coal exports alone. In the short-term, Mongolia will struggle to attract foreign investors due to its vulnerability to geopolitical shocks, high regulatory burdens and underdeveloped infrastructure.

Mongolia has shown resilience within its independent foreign policy, democracy and economy. But competitive domestic politics and inefficient populist economic policies will likely present the biggest challenges in 2024. If not carefully managed, Mongolia might struggle to cope with political instability while searching for ways to manage its debt-ridden economy.

Mendee Jargalsaikhan is Dean of Research at the Institute for Strategic Studies of Mongolia.

Enkhbayar Namjildorj is Senior Expert at the Institute for Strategic Studies of Mongolia and has served as an Economic Advisor to Mongolian Prime Ministers Jargaltulgyn Erdenebat, Ukhnaagiin Khurelsukh and Luvsannamsrain Oyun-Erdene.

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