AKIPRESS.COM - The resounding defeat of the Democratic Party in Mongolia's election came down to two key issues: the economy and unemployment, according to Nikkei Asian Review.
The left-wing Mongolian People's Party has capitalized on this to return to power after a four-year absence. Upon taking office on July 5 as speaker of the State Great Hural, the country's unicameral parliament, MPP Chairman Miyegombo Enkhbold said that with the country's outlook at its darkest since the global financial crisis, the first task of the incoming government will be to formulate an economic stability program.
Mongolia's new government could be in for a short honeymoon
By Mogi Badral Bontoi, the founder and CEO of market intelligence company Cover Mongolia in Ulaanbaatar.The MPP governed the country for most of the 20th century but lost power in 2012 when Mongolia was declared the world's fastest-growing economy. The former communist party won 65 out of 76 parliamentary seats on June 29, as well as all but one provincial election. The MPP's victory echoes the 2000 election, which saw the party sweep the Democrats out of power by capturing 72 out of 76 seats in parliament.
Opinion polls ahead of the election showed the MPP to be the clear favorite, but many analysts were surprised by the size of its victory. Not even outgoing Prime Minister Chimed Saikhanbileg nor Speaker Zandaakhuu Enkhbold managed to keep their parliamentary seats as voters appeared to blame them for the deteriorating economy and growing unemployment. The Democrats' minority coalition government had been mired in an internal power struggle, resulting in Saikhanbileg replacing Norov Altankhuyag as prime minister in late 2014.
What perhaps was the tipping point was the government's admission, just a day before the election, that it had approved the sale of Russia's 49% stake in the Erdenet copper mine to an affiliate of Trade and Development Bank of Mongolia, a private commercial bank. Erdenet was for decades Mongolia's largest taxpayer until the Oyu Tolgoi copper mine claimed that honor last year.
Despite having significantly improved the legal framework for foreign investors in the last four years, it was too little, too late for the Democrats. The government had also been engaged in a dispute over cost overruns with Rio Tinto, Mongolia's largest foreign investor, which halted the expansion of Oyu Tolgoi.
In many ways this election demonstrated the growing maturity of Mongolian voters. Most of the more "populist" and "resource nationalist" politicians lost their seats despite being ranked highly in polls as recently as March.
The ruling government had rolled out several subsidy programs aimed at reversing falling confidence among voters, such as a buyback of shares owned by citizens in Tavan Tolgoi, Mongolia's largest coal mine.
The World Bank, the International Monetary Fund and the Asian Development Bank have all forecast that Mongolia's economic growth this year will be near zero, the worst since the 2008 global financial crisis, but will pick up slightly in 2017.
Although prices of Mongolia's major exports, copper and coal, are not expected to recover for some time, the $5.3 billion underground expansion of Oyu Tolgoi is expected to help revive growth. Oyu Tolgoi began open-pit operations in 2013 and is projected to become the world's third-largest copper producer when it reaches peak production by 2030.
Despite this, the MPP, which oversaw Mongolia's earlier mining boom, will have to struggle with low single-digit growth over the next few years.
In addition to turning around the $12 billion economy of 3 million people, the new government will also have to deal with growing government debt, a depreciating currency and a record budget deficit, all while finding ways to repay more than $1 billion in sovereign bonds over the next 18 months.
Other challenges include reviving foreign direct investment and improving the country's sovereign credit rating. The new government must also move forward with stalled major projects, including Tavan Tolgoi, several power plants and railways to improve access to key mining areas.
The MPP has a lot on its plate and is hoping that its image of "stability" will convince investors to return. It is also committed to Mongolia's long-standing "Third Neighbor Policy" of maintaining balanced ties with neighbors China and Russia while fostering closer relations with Japan and other regional powers.
Mongolia is also preparing to host its largest-ever international event, the 11th Asia-Europe Meeting leaders' summit, on July 15-16. Prime Ministers Shinzo Abe of Japan and Dmitry Medvedev of Russia are expected to attend, along with 5,000 delegates from 53 Asian and European countries.