A Second Chance for Mongolia’s President

from Business-Mongolia.com..

July 4, 2013

Mongolia’s incumbent President Elbegdorj Tsakhia won a second and final term in office in a very close race on June 26, becoming the second president to be re-elected in the country’s democratic history. The result signals stability and offers hope for new investments and improved citizen welfare in a country that has recently captured the attention of investors and analysts around the world.

According to a preliminary count announced by the General Election Commission on June 27, Mr. Elbegdorj of the Democratic Party (DP) gathered 50.23% of the vote, narrowly winning a majority and thus avoiding a run-off election. It has been an economically unstable year for Mongolia, so many saw the stability of Mr. Elbegdorj’s re-election as a better alternative to the stasis and further confusion that his closest challenger, B Bat-Erdene of the Mongolian People’s Party (MPP), would have brought .

Over the past three years, Mongolia has developed rapidly, taking the title of the world’s fastest-growing economy in 2011, thanks to its growing mineral industry. Mr. Elbegdorj can take some credit for this growth, which largely occurred after he won the presidency in 2009. While presidential powers do not extend to economic policy or mining regulation, Mr. Elbegdorj has contributed to nurturing an investment environment that has been positive at times, but also challenging at others.

During President Elbegdorj’s last term, the giant Oyu Tolgoi gold and copper mining project, in which the government holds a minority stake, has moved rapidly toward production. The project contributes greatly to Mongolia’s growth. The president is likely to continue discussions regarding the specifics of the country’s relationship with the multinational mining company Rio Tinto, who controls the Oyu Tolgoi project.

Over the past 12 months, foreign investor interest in Mongolia remained strong outside the country, but much more muted inside. Financial advisors around the world have added Mongolia to their watch list because of its strong economic growth and its successful sale of a $1.5 billion Chinggis Bond in November 2012.

By contrast, many investors who are directly involved in Mongolia have been scared away by iterations of foreign investment law, new mining law, and other related legislations. In addition to triggering objections, this succession of laws has created significant uncertainty for medium-term foreign investment.

The perception among foreign investors of increasing risks in Mongolian investments has caused many projects to be scaled back or rethought. Junior mining companies especially have curtailed exploration activities as the local chill in Mongolia exacerbates global challenges the sector is facing. This has led to lower investments and the loss of jobs and other opportunities for Mongolian citizens.

President Elbegdorj may have been disappointed to score such a narrow victory in his re-election, but he is likely to attack necessary tasks with vigor. The last thing Mr. Elbegdorj wants to see during his first term after re-election is a serious economic decline after years of growth. So, he is likely to push DP parliamentary members to revise and pass new laws on investments. Just this week following the election, a draft of a new oil law has been submitted to parliament. A new mining law has been under discussion since late last year.

Beside economic growth, President Elbegdorj has also focused on judicial reform and the battle against corruption. Together with Minister of Justice Temuujin Khishigdemberel, he has pursued reforms through legislative initiatives, such as assigning more specific definitions of conflict of interest. He has also pushed for procedural reforms in the justice system.

In an effort to combat corruption, Mr. Elbegdorj has actively used his presidential powers to appoint trusted DP members to positions of power in the judicial system. But this does not necessarily guarantee a clean government. Proof of the president and his party’s determination to deliver on promises of clean government is whether they will examine the records of their fellow party members as well as those of political opponents.

Such measures will improve the welfare of Mongolian citizens through better governance. This could boost voter support outside cities, something the president and his party still lacks. Mr. Elbegdorj won 55% of the votes in combined city districts, but only 47% in areas outside the capital. While the absence of exit polls and detailed social statistics relating to the election hampers analysis, this suggests that much of the countryside answered the MPP’s call to vote for its candidate, Mr. Bat-Erdene, in order to challenge DP’s stronghold in cities.

Difficulties lie ahead, but there are signs that a re-elected and reinvigorated president will help bring about positive changes for Mongolian citizens and foreign investors alike.

Source: Wall Street Journal

Link to the article: http://www.business-mongolia.com/mongolia/2013/07/04/13151/

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