The Flag of the Times

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Sükhbaatar Square: Ulaanbaatar, Mongolia  08/22/2014

President Xi JinPing visited Mongolia yesterday, the first visit by a Chinese President since 2003. Although the two countries share a common border, their relationship has been anything but communal. The tumultuous history between China and Mongolia dates back hundreds of years to the construction of the Great Wall erected to ward of Mongolian attacks. While this relationship is improving to some degree, there is still trepidation between these two nations.

It is no secret that Mongolia is literally sitting on a gold mine, and a copper mine, and a coal mine. Development of the mines and extraction of the resources was at an all time high in 2012 until the Mongolian government passed legislative measures that scared off foreign investors. Since then the Mongolian currency, the Tugrik has depreciated 25%, the GDP, once growing at a faster pace than China’s, has cooled, and much of the economy has stalled.

Facing financial instability a weak current account, a highly criticized monetary policy, and a depletion of foreign reserves, the near future of Mongolia is precarious, to say the least. The International Monetary Fund (IMF), once the bailout bank for struggling economies, is not receiving a red carpet welcome to assist Mongolia in putting its financial house in order. The IMF doesn’t have the greatest track record for taking a dire situation and turning it into positive so it is somewhat understandable that Mongolia would choose to explore other avenues to get back to its blistering economic expansion.

IMF or not there is a need for austerity measures especially because the maturity date for the Mongolian Chinggis Bond is right around the corner in 2017. It’s anyone’s guess how or if these payments can or will be made. In 2005 Argentina had a similar problem trying to restructure their debts that were in default. Flash-forward to the present day and Argentina is still trying to maneuver their way through the mess. The short term prognosis for Mongolia is equally as bleak unless a sound, sustainable economic strategy is put into place.

Otherwise the alternative “When there’s nothing left, when you can’t borrow another buck from the bank or buy another case of booze, you bust the joint out. You light a match.”

Or you can look to your rivals from the North and from the South, let bygones be bygones, accept their help today for an incalculable cost tomorrow.

It certainly is a flag of the times.

2 COMMENTS

  1. The IMF should not help. These folks have lots of resources in the ground. They passed laws unfriendly to foreign investors and shot themselves in the foot. Had they treated foreign capital somewhat fairly, they’d be on track to catch Australia soon!

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