This is the final blog post in our series about loans and debt.

 

“Did you read the news about Oyu Tolgoi?”, asked Ganzorig between sips of green tea.  Assuming that his question referred to the news announced the previous day that the Mongolian government signed a major financing agreement to begin development of the underground section of the Oyu Tolgoi copper-gold deposit in Omnogobi province, I replied, “Yes, it’s big news for Mongolia.”

Ganzorig exhaled sharply and shook his head, remarking in a dispirited tone, “It’s not so good for us.”  His negative response took me by surprise.  In the twelve years Ganzorig and I have been friends, he has had a consistently optimistic attitude towards Oyu Tolgoi and its contribution to his country’s development.  When I asked Ganzorig why the deal was not good, he clarified his sentiments:

It’s another loan.  It’s like 4 billion American dollars, right?  How can we repay this?  Uh, there are too many loans!

Later that day, I met with a former colleague working in the tourism industry who, like Ganzorig, brought up the news about Oyu Tolgoi and was quick to criticize it.  She lamented, “My country will pay more for loans than become rich from Oyu Tolgoi!”

These were offhand comments made by friends in casual conversations, yet I think they reveal something significant that is forming in the minds of many Mongolians around the rising indebtedness of their country.

A New Debt Landscape

In 2011 and 2012, when I conducted research on the growth of the mining industry, I heard little public discussion about debt and loans in relation to the mining industry and the national economy more broadly.  Of course, mining companies at the time were engaged in a wide range of official and unofficial lending practices to finance operations, and there were important discussions between companies (both foreign and domestic) and the government about who should bear the responsibility of financing mining projects and ancillary infrastructures.[1]  However, in interviews with a number of diverse Mongolians living in different regions of the country, I found that people were more interested in the then hot-topic of national equity ownership in mining projects like Oyu Tolgoi than about the loans required to make such projects possible.

When I returned to Mongolia in the fall, I observed how discussion about national-level debts filled evening news programs, came up in crowded jeep rides across the countryside, and figured into intimate conversations among family and friends.  Far from being an abstract issue for government and economic policy, ‘foreign debt’ (gadaad ör) and ‘national/state debt’ (ulsyn/töriin ör) appears to be becoming internalized in people’s lives as a new economic reality and a subject of collective concern.[2]

The Chinggis Bond Effect

Rising public awareness of national-level debts reveals how Mongolia’s relationship with debt has changed in recent years.  In 2012, the Mongolian government acquired its first sovereign bond, nicknamed the ‘Chinggis Bond’.  Sold as a five- and ten-year bond, it garnered US$1.5 billion, far more than was initially anticipated.  A year later, the Development Bank of Mongolia issued a ¥30 billion 10-year ‘Samurai Bond’ in Japan.  The word ‘bond’ has since become normalized in colloquial Mongolian, referring specifically to a loan financed by investors on international markets.  More generally, and perhaps significantly, bond is also used to refer to debt that Mongolia, as a nation, owes to foreigners.

The debts raised by the two sovereign bonds are small in comparison to the national debts of other nations – a point Mongolian politicians and economists commonly make.  Their significance, though, is compounded by other external debts acquired by the government and companies, especially miners.  The timing of this debt accumulation is significant, as it has occurred not in a period of growth but amid the slowdown of the Chinese economy and the global commodity cycle, two interrelated dynamics to which Mongolia is exceptionally exposed.  According to a report published in November by Fitch, Mongolia now has the second highest external debt to GDP ratio in the world at 129.8%, representing some $22 billion.[3]

Personal as National Debt

This amount of debt could feel distant to an individual, like how, as an American, the US national debt of $16.3 trillion feels to me.  However, I think that many Mongolians can relate to this debt because it reflects the indebtedness they feel in their own life, albeit on a much larger scale.

When Ganzorig expressed to me that there are “too many loans,” he was directly commenting on the large amount of foreign debt his country was accumulating.  Knowing Ganzorig well, I could also hear the words reflecting his frustration with living a life where he is constantly swapping one loan for the next, slowly building more and more debts in the process.

Ganzorig struggles to operate a small electrical business in Ulaanbaatar, often relying on small loans, barter, and gifts from friends to get projects done.  He could not get a business loan from a bank because he had no office property to serve as collateral.  He could not acquire an office because he is already plagued with stress and sleepless nights about how to pay a hefty monthly mortgage on an apartment he bought a couple years ago through the 8% mortgage scheme.  Additionally, following the government’s adoption of a new tax law last August to get tax revenues from businesses, Ganzorig has been under pressure to pay taxes he did not know he owed to a local municipality.

He described to me how any money coming to him feels like it goes “undigested” (shingeegüi): it runs right through him like his stomach was upset, thereby providing him no nutritional gain.  Any “profit” (ashig) goes “to the bank” through interest payments, allowing a small group of elites to “keep money in their pockets.”[4]

Moreover, for someone like Ganzorig whose everyday life is already shaped by chains of debt, national debt might feel like yet another link that weighs the chain down.  Yet it is a link that is not necessarily of one’s choosing, given that debt like the Chinggis Bond is classified as ‘public property‘ (ard tümnii ömch) to be repaid through taxes and the state budget.

Undigested Debt

Given the public ownership of bond monies, how the monies have been spent since 2012 has been a topic of controversy.  Originally, the bonds were meant to finance national development projects, like the construction of roads and bridges, the building of factories, the improvement in energy and electrical infrastructures, and the financing of small enterprises.  The government stated that it planned to use the Chinggis Bond to fund 888 projects, a number that my research partner, G. Munkherdene, explained to me, “Was chosen because of its spiritual importance…it was seen as lucky.”

Rumors and conspiracy theories abound about how the allocation of bond monies was based on political and business alliances and secret deals instead of transparent and egalitarian tender processes.  Indeed, when the majority of politicians are also involved in private businesses – a phenomenon Bum-Ochir Dulam explored in his post on the mortgage market – any government-backed economic project appears suspicious.

 

In Ulaanbaatar, my friends point out features of the urban landscape that they associate with the bonds: smiling faces painted on sewer covers, empty apartment buildings, new roads and bridges, and pedestrian cross walks.  In rural western Mongolia, people also pointed out similar new features in their district center that they thought were built with government-backed ‘projects’ (tösöl) funded by the Chinggis bond.  While these improvements seemed welcomed, people wondered about where the rest of the bond monies have disappeared and why long-term things that would make Mongolia more productive in the future (heregtei yum) – like better hospitals and schools, and more domestic industry and jobs – have not been developed.  A smiling face on a sewer cover does little to help someone pay their own debts, let alone the nation’s.

 

‘#Hyamral #Hyamdral #Hyatad’

In November, Khongorzul Bat-Ireedui, a rising public figure in Mongolia, posted the following message to her many followers on Facebook and Twitter:

 

The message about GDP growth and the clever alliteration of words at the bottom, which can be translated as #crisis #sale #China, reflects the kind of grim expectations Mongolians have for 2016.

The IMF/World Bank warns that Mongolia is at risk of ‘debt distress’ because of its mounting external debts, declining foreign investment and revenues from mining, and looming debt repayments.  In 2017, $500 million from the Chinggis bond and a $580 million government-guaranteed bond through the Development Bank of Mongolia are owed to creditors. US$2.4 billion from a three-year currency swap with the People’s Bank of China is also due, though this is anticipated to be extended into the future.[5]  Given the widely discussed lack of liquidity in Mongolia, how these debt are to be repaid is contested and uncertain (see here and here).

Since Ch. Saihanbileg became Prime Minister in November 2014, the government has declared that there is now an ‘economic crisis’ (ediin zasgiin hyamral) in Mongolia that must be managed.  ‘Debt distress’ is part of the crisis, but there are also wider economic challenges that Mongolians are feeling in very tangible ways.  The value of the Mongolian tögrög is regularly hitting new historic lows, herders are selling animal meat and skins at the worst prices in memory, salaries have been cut or suspended across a number of sectors, and people have lost jobs amid the retreat of foreign investors.  If you get into a taxi cab in Ulaanbaatar and ask the driver about the economy – he or she will very likely describe it to you as hyamral, a crisis.

It seems, too, that the language of crisis has as much to do with future expectations as about the current condition.  Khongorzul may be suggesting this by flagging the words “discount” and “China”, given that there is widespread anticipation – and outright fear – that the Mongolian government will address its debt distress by giving away its mineral wealth to China for little or nothing in return for financial assistance.

National ‘Bonding’

These dynamics paint quite a negative picture for 2016.  Mongolian astrologers are calling this new lunar year of the fire monkey ‘evil faced’ (muu nüürt or nüür muut) because it is expected to bring low precipitation and poor forage for livestock, and an increase in political struggles and poverty, among other things.  The upcoming parliamentary election this summer also adds weight to the year, as election seasons are often times when much happens and is promised.

It will be important to watch how Mongolian politicians address the issue of debt this year.  There are some individuals who seek to make the looming debt repayments seem less severe and manageable, whereas others seek to increase public awareness about their size and significance.  Either way, it is a highly politicized field.

Moreover, how ordinary Mongolians negotiate national debt is perhaps an even more interesting question.  As my colleague, Bum-Ochir Dulam, put it while we chatted about this topic in our office at UCL:

We [Mongolians] are all socially bonded by the Chinggis Bond.  I have debt, our nation has debt, we all have debt.

It is not only that so many Mongolians carry personal debts, but that individuals feel that they share in the responsibility of repaying national debts.  This responsibility may take the form of austerity measures, like increased taxation, budget cuts, and job losses.  Or it may be more direct, such as the government calculating the amount of national debt to be allocated to every Mongolian, even newborn children – a scheme that is reputedly underway.  Mongolians are also concerned that they will be implicated in governmental actions that  they personally oppose and which might affect the fortune and future of their nation.  For instance, subsoil wealth, like the gold deposits near Noyon Uul, may be extracted not for development purposes, but to pay off debts to foreigners.

A Space for New Citizen Politics?

Our blog series has documented the pervasiveness of loans and debt in Mongolia.  While lending practices and debts are not necessarily seen as negative, and can even help build new forms of sociality and economic possibility, the cumulative impact of personal, business, and national debts is uncertain.

As seen in other places where rising national and personal debts have become touchstone issues, debt can be a galvanizing societal force that can lead to popular uprisings, movements, and regime changes.  In Mongolia, where the government has never had to be dependent on nor be accountable to citizens through public taxation, given its access to other revenue streams, the shared experience of being ‘collective owners’ of national debt may open the space for new forms of citizen politics.  Mongolians may question their entanglement in their nation’s debts – which they never asked for in the first place – and why they and perhaps future generations should bear the debt burden.

Conversations about debt with my research partners, Sh. Tuya and G. Munkherdene, contributed to this post.  

 

[1] Domestic and foreign companies commonly viewed the government as seeking to bear as little debt as possible.

[2] ‘Foreign debt’ and ‘national/state debt’ are sometimes used interchangeably in Mongolia.  Foreign debt can include both public and private debts obtained abroad.  National/state debt refers to monies which the government has borrowed (which, in the case of Mongolia, is primarily sourced abroad).  When the government borrows money externally through a bond, the debt is known as sovereign debt.  For simplicity and to reflect how Mongolians themselves commonly talk about national-level debts, I use ‘national debt’ in this blog post.

[3] It is difficult to find consistent figures of Mongolia’s total external debt.  Different entities in Mongolia like the Ministry of Finance, researchers, politicians, and the IMF/World Bank classify national debt using different metrics.  For instance, some calculate currency swaps as part of state debt, whereas others do not.  Mongolia revised its Debt Management Plan in 2015 in an attempt to clarify the issue.

[4] Someone who “keeps money in their pocket” is often seen in a negative light as ‘stingy’ (haramch).  Someone who redistributes personal monies through loans or gifts to friends and relatives is a characteristic of a ‘good person’ (sain hün).

[5] Data on the amount of this currency swap varies.  In a parliamentary meeting, the value was put at $1.9 billion.

 

This post was written by Byambabaatar Ichinkhorloo, a member of the Emerging Subjects project and a doctoral candidate in anthropology at the National University of Mongolia.

This year, ‘Discover Mongolia’, the 13th Annual International Mining Investors Forum, was held on September 3-4, in Ulaanbaatar. The conference was organized under the sub-theme, ‘Mining Without Populism’. The keynote speakers of the conference claimed that the fundamental issues that have hindered the development of mining in Mongolia are populism, investment decline, and state intervention in business freedom. The conference is organized annually by ‘Prime Info’, a subsidiary company of Mongolian Investment Holding Group, and the Mongolian National Mining Association since 2002 and has become the platform for mining companies to attract investment and discuss urgent issues with the government of Mongolia.

The conference, as highlighted by former president P. Ochirbat in his opening remarks, collected more participants than the previous year. Over 70 different organizations registered in the conference and the conference hall was full in the morning half, especially during the first three sessions, which included sessions entitled: ‘keynote speeches’, ‘government hour’, and ‘business freedom in the mining sector’.  However, the number of participants decreased significantly in the following sessions and on the second day. Many of the participants, it seemed, expected the Prime Minister and other high officials to speak during the morning half, especially during the government hour. But two cabinet members Mr. Jigjid, Minister of Mining gave short opening remarks, and Mr. Enkhsaikhan, Minister in charge for mega projects, attended the first session, while during the government hour people from the department and division heads level presented.

Before discussing the conference and the investor and mining company’s perceptions about the current conditions of Mongolian mining, let me briefly discuss what has happened in Mongolia and the extractive sector in the past few years.

Mongolia suffered a sharp decline in foreign direct investment  (FDI) in the extractive sector from MNT 5.2 trillion in 2011 to MNT 0.8 trillion in 2014 (due to Oyu Tolgoi mine start up in 2010 and suspension of OT underground mine in 2013), according to Mongolian Statistical Office. The World Bank estimates that foreign direct investment in Mongolia declined from US$ 4.7 billion in 2011 to US$ 2.1 billion in 2013.

So investment in-flow has declined, and its effects on the Mongolian economy and politics have fueled many economic and political debates in Mongolia, with some suggesting Mongolia should receive IMF Stand-By arrangements, while others, including Ts. Elbegdorj, President of Mongolia, have urged an increase in debt to GDP ratio up to 80% and to reach an agreement with Consortiums of Investors on Tavan Tolgoi coking coal mine and Rio Tinto on Oyu Tolgoi mine. Mongolian authorities have not been unanimous on raising necessary funds for development of mining infrastructure while arguing about railway track gauge and other mega projects through additional loan and bonds that might fill the investment shortages.

Even the government foreign debt issues have affected public opinion  and created fear among the population, producing lively debates among social media based movements. So after months of debate, the parliament passed the government’s submitted laws related to debt management and fiscal stability and agreed to keep a debt to GDP ratio of up to 58.3% in 2015, 55% in 2016 and 50% in 2017 and 40% in 2018 and beyond.

As investment declines and the economy slows in Mongolia, there has been a rush to place blame on environmental movements that lobbied and supported the law with long name since 2009 (Law on Prohibiting Mineral Exploration and Extraction Near Water Sources, Protected Areas and Forests), which abandoned 488 mining licenses in water sources, protected area, and forests. Gold mining companies claimed compensation of MNT 202 billion from the government and later on moved against environmental movements especially targeting Ongi river movements through mass media while promising to increase foreign investments and Mongolia’s gold reserves.

After suspending the provision of new licenses for 5 years, the government began to issue exploration licenses through an online application system, based on priority rights in eastern and western Mongolia, from January 2015. This was one of the urgent issues that attracted the interest of many of the participants during the ‘government hour’ at the conference. According to the Ministry of Mining, the government is planning to provide 3000 exploration licenses in 30 million hectare lands and will keep all licensed area within 30% of Mongolian territory.

At the end of the conference, it became increasingly clear to us that many foreign mining companies and service providers are still positive about the future of the Mongolian extractive sector.  Chris MacDougall, from Mongolian Investment Banking Group, presented some of what he saw as the positive changes taking place in Mongolia, including the Foreign Investment Law, New Securities Law, Minerals law amendment, Tax Amnesty, OT Underground mining investment resolution and arrival of new Prime Minister Saikhanbileg in the past two years. “These changes made in the past two years are tremendous success of Mongolian government compared to previous ten years” stressed by Erdenes Mongol LLC.

Many participants also agreed that the failure to attract investors in mining projects has arisen due to the propagation of a  bad image of Mongolia by outsiders that has scared new investors away from Mongolia.  Panelists of the ‘business freedom’ session discussed how much Mongolia-related media is not transparent or clear or even true, and relevant institutions and agencies need to check for clarity. These insights were also reiterated in the presentations by Rio Tinto, Xanadu Mines, Aspire Mining, Erdenes Mongol companies. They asserted that Mongolia is open for business even though there are minor issues to be resolved, such as improving the business environment, transparency, and attracting Mongolia-specific investors.

Many participants expected more investment opportunity in the mining and mining subsidiary services, thanks to larger mining developments including OT underground agreement between Rio Tinto and Government of Mongolia and the soon-to-be expected Tavan Tolgoi agreement. As Minister Enkhsaikhan said at the conference, ‘the success of Tavan Tolgoi approval is around 10% even though it was 50% : 50% when it was submitted to the parliamentary approval’.

Enkhsaikhan and two other presenters highlighted the lost opportunities in relation to global commodity price cycles, and focused on how the Mongolian political cycles lost opportunities derived from global commodity cycles. It is true that many mining companies and development agencies are aware of the election-driven idle political period and try to reach agreements before election years. Many politicians and decision-makers became hesitant during election years and are slow to make any firm decisions that might affect his or her political reputations or election campaign. This in-activity reduces the number of new investments or or projects starting in election years.

In sum, there were two major tendencies among participants in the Discover Mongolia conference. One was to be cautious and pessimistic about the future of extractive industries in Mongolia and encourage laissez-faire or less government intervention in the mining sector, while securing more business freedom without any populism. Others, and often strongly  expressed by private companies,  saw the future of the Mongolian extractive sector in a more positive light, while seeking more secure investment and recommending the government of Mongolia to sell its bright news to the world, rather than focus on internal populist disputes.