- The Washington Times - Sunday, August 2, 2009

ULAN BATOR, Mongolia — It is late June, but a biting north wind has swept in from the Siberian steppe, driving temperatures down by 40 degrees and bringing an icy drizzle that chills the skin.

Bundled in an inadequate cloth coat, Khavdal Khurman stoops behind a makeshift mine piling with a small sack, sifting through the detritus for a few lumps of coal to heat his tent against the unseasonal chill. Around him lies a coal-blackened Mad Max landscape of abandoned mining equipment and derelict buildings, the windows long since stripped of glass.

Life has been tough for Mr. Khavdal, who worked for 11 years in the coal mine a few miles outside of the capital until it was closed because of safety concerns in 1990 — the same year Mongolia rejected socialism in favor of democracy and a market economy.

Aged somewhere “over 40,” he receives a small pension from the government because of a mining-related ailment, but “it is not enough to survive. I run out of tea and salt,” he says. Yet like almost all Mongolians, he still has faith in the country’s new commitment to democracy.

“Eventually life will get better,” he says.

U.S. officials, who would like to hold up Mongolia as a role model for other countries poised on the cusp between democracy and authoritarianism, sincerely hope he is right.

During a visit to Washington in early June, Foreign Minister Sukhbaatar Batbold received access far beyond what might be expected for a country with a population of just 2.7 million and a gross national product roughly equal to Buffalo, N.Y., including meetings with Secretary of State Hillary Rodham Clinton, Commerce Secretary Gary Locke and senior members of Congress.

“The United States has no greater foreign policy goal than to expand the number of democratic countries in the world,” said Ambassador Mark Minton, who lauded Mongolia as a country that, almost entirely through its own efforts, has done just that.

“That is useful in and of itself,” he said. But it also “gives hope to other countries that … are geographically isolated and under pressure that they can in fact develop democratic institutions for the benefit of their own people.”

For that to happen, however, Mongolia must demonstrate that free markets can improve the lot of its people, and in that respect it has hit a bump in the road. After several years of rapid economic growth, the country has been hard hit by the global recession, which knocked the bottom out from under prices for its main exports — copper, other minerals and to a lesser extent the cashmere that goes into the fine suits of New York and London stockbrokers.

Coupled with that have been several years of droughts and harsh winter storms that have decimated the herds of Mongolia’s traditional nomadic herders. As a result, close to half the population is now clustered in Ulan Bator, the majority living in vast tent and shanty communities that sprawl across the hillsides overlooking an increasingly shabby city center.

At the city’s core, a few soaring glass-and-steel towers, initiated amid high hopes and soaring commodities prices of a few years ago, stand vacant on streets with gaping potholes surrounding a modernist new parliament building with an imposing statue of Genghis Khan.

Hopes for a turnaround are focused almost entirely on some enormous mineral deposits in the southern Gobi Desert that, in the words of Mr. Minton, have the potential, if properly developed, to turn Mongolia into “a prosperous middle-class country” within 20 years.

More than five years of bickering over how to develop the first of those deposits, a mine site called Oyu Tolgoi with copper and gold reserves estimated in excess of $200 billion, appears to be coming to a conclusion and could be settled within days or weeks.

Mongolians say the deal that is being negotiated with a Canadian company that holds licenses on the property will serve as a model for negotiations to develop nearby Tavan Tolgoi, billed as the world’s largest undeveloped deposit of coking coal with estimated reserves of more than 6 million metric tons.

“With the minerals that we know about, on a per capita basis [Mongolia] is one of the 10 most wealthy nations,” President Elbegdorj Tsakhia told al Jazeera in perhaps his only interview with a foreign news organization since he took office on June 18. “Yet the average living standard is 150th in the world.”

Mongolia’s potential wealth has not escaped the notice of its only immediate neighbors — Russia and China.

Moscow, after nearly two decades of virtually ignoring its former Cold War client, is suddenly showing great interest in Mongolia, demonstrated by a personal visit to Ulan Bator by Prime Minister Vladimir Putin in June and plans for a follow-up visit by President Dmitry Medvedev later this year.

After years in which there was no military cooperation between the countries, Mongolia has also received visits from Russian Defense Minister Anatoly Serdyukov and armed forces Chief of Staff Nikolai Makarov. The two countries recently held their first joint military exercises since the end of the Cold War.

Russia’s interest extends beyond gold and copper, though it has suggested the proceeds from the Oyu Tolgoi and Tavan Tolgoi mines might be shipped to market through its Pacific coast ports. While in Ulan Bator, Mr. Putin said he expected within “several weeks” to announce a deal for the “joint extraction and processing” of some of Mongolia’s estimated 60,000 metric tons of uranium ore.

China has been less active diplomatically, but it can afford to be. With its major industrial and population centers much closer to Mongolia than Russia’s, it already accounts for more than 50 percent of the country’s trade and investment and provides the bulk of its produce and consumer goods. When it closed the main border crossing for two days to protest a visit to Mongolia by the Dalai Lama in August 2006, food shortages in Ulan Bator quickly drove home the message.

Chinese business interests are among the 10 current bidders to develop the Tavan Tolgoi deposits, but Beijing does not seem particularly worried about the outcome. Economic and geographic considerations suggest that whoever develops the mines, most of the coal and copper will travel south to feed the voracious appetite of China’s growing industrial sector.

Public sympathies are much more with Moscow, thanks largely to the Russian troops who helped Mongolia to free itself from Chinese rule and achieve its independence in 1921. Most of the infrastructure that Mongolians now depend on — roads, railways, power plants, schools, hospitals — was built by the Soviet Union.

Nineteen years after the rejection of socialism, a statue still stands in front of the national university to Choibalsan — sometimes called the Mongolian Stalin — who as interior minister in 1937 oversaw a purge in which some 30,000 people were executed, including 17,000 Buddhist monks.

At a shabby, paint-peeled and seldom-visited museum honoring the victims of that period, an exhibit case holds about two dozen skulls, each with a bullet hole in the forehead, taken from the mass grave of about 600 monks that was accidentally discovered in 2003.

Yet, “We still like the Russian people,” said Shinee Dampimparev, the only staffer at the museum one recent afternoon. “It was not the Russian people who killed Mongolians, it was one person — Stalin. The Russians … are more welcoming, more warm-hearted than Chinese.”

While public opinion is decisively with Russia, government officials are more pragmatic and work hard to treat the two countries with equal respect. That extends to military cooperation; a few dozen Mongolian soldiers visited Beijing for their first joint exercise with Chinese troops over the July 4 weekend.

Prime Minister Sanjaa Bayar was quoted in the English-language Ulan Bator Post in April saying economic and trade cooperation with China is going through its best period in history “and will continue to progress in the future.”

The United States is also in the game, along with Japan, South Korea, Australia and a few others. While democracy is America’s “overarching” interest in Mongolia, Mr. Minton said, “there are other interests, economic interests.”

U.S.-based Peabody Energy Corp., the world’s largest coal-mining company, “has a very strong interest in helping Mongolia develop its coal deposits in the Gobi Desert.”

U.S. influence is expected to be boosted by the election of Mr. Elbegdorj, who holds degrees from the University of Colorado and Harvard’s John F. Kennedy School of Government. Balancing that is the Russian-educated prime minister, Mr. Bayar, who maintains close ties to Kremlin leaders.

Like Russia and China, the United States is backing its diplomatic overtures with economic aid, notably a grant of $285 million from the Millennium Challenge Account, most of which was earmarked for a badly needed upgrading of Mongolia’s aging rail system.

That deal, approved in 2007 after several years in which Mongolia struggled to meet the good governance requirements of the Millennium Challenge program, was stymied this year when Russia — a 50 percent partner in the Mongolian rail system — declared that it, not the United States, would take care of the upgrade. Washington is now considering a request from Mongolia for permission to divert the $188 million that would have gone to the rail system to another purpose.

Mongolians, long accustomed to being what one described as “the meat between two large buns,” have become expert at balancing their two large neighbors against one another. As insurance, they have developed what they call the “Third Neighbor” policy aimed at establishing close ties with virtually anyone else.

“The United States, the European Union, Japan, Korea, [Southeast Asia], these are all Third Neighbors,” said Mr. Batbold during an interview at his offices in Ulan Bator. “As a small country sandwiched between Russia and China, we need to be proactive rather than just sitting here. We like to talk to all other countries and balance their interests.”

Even if Mongolia manages to navigate the diplomatic maze, it faces other challenges in exploiting its mineral bonanza. Among the most demanding are a penchant for corruption and a long-running argument over how to distribute the spoils.

In the early part of this decade, when commodity prices were low and Mongolia was desperate to attract foreign investment, “the government offered too many incentives, too many tax holidays,” explained Oyun Sanjaasurn, an independent member of parliament and sister to a deceased hero of the protests that brought down socialism in Mongolia.

As a result, foreign companies were able to mine out some gold reserves with little or nothing accruing to the Mongolians. Then, when commodity prices shot up, “there was a natural reaction,” she said. “Now we are turning the pendulum to very left policies in parliament.”

In what Ms. Oyun described as a wave of populism, the two main parties both promised during a close-fought parliamentary election last year to pay every Mongolian a sum in the neighborhood of $1,000 once the Oyu Tolgoi deal is signed.

“We had a federal budget of $2.5 billion last year; this proposal would roughly equal the whole budget; there would be no money left for anything else. This will be almost impossible to deliver,” she said.

Difficult or not, the country’s youthful and sophisticated mining minister, Dashdorj Zorigt, said in an interview that the government has an obligation to keep its campaign promises. “That is the whole thrust of the democratic system. Trust between the government and the people is based on it.”

In the tent camps overlooking the capital, people are already planning how they will spend their share of the handout.

“We need the money so badly,” said Narantuya Duln, a 50-year-old widow who lives with 12 children, grandchildren, in-laws and two dogs in three tents, or “gers,” in a bare-earth compound with a stunning view of the more prosperous city center. Surrounding it is an utterly unplanned hodgepodge of gers — called “yurts” in Russian — and simple frame or brick homes, separated by steep, rutted dirt roadways on which children wrestle large canisters of water from public pumps.

Mrs. Narantuya said she worked for Mr. Elbegdorj in the presidential campaign, helping him to carry her neighborhood by a two-to-one margin, and that she has faith that he will keep his promises. “I hope he will really do something for this district,” she said.

But asked whether the windfall from the Oyu Tolgoi might better be spent to upgrade the country’s infrastructure or do something to spur long-term economic growth, she was adamant. “He should hand out the money. There are so many poor people around — lots of families who cannot even buy bread. So we need the money. Then we can build a house here.”

On another hillside half a mile away, Magnai Migid, 40, moved to block the drizzle and icy wind from a 5-year-old neighbor whose face bears the scars of a fire that destroyed her tent home and killed her parents. Mrs. Magnai longs to live in an apartment in the city below, she said, “but that takes money, and to have money you need a good job. It is very hard to get a good job, especially at my age.”

Like Mrs. Narantuya, she said she is looking for the new president “to fulfill his promises.” If he does not do that, “he will not be elected again.”

There is more skepticism about the proposed handout among better educated Mongolians, people like Sandagdorj Bayanbaatar who was able, because of the nation’s transformation in 1990, to go to Japan for schooling and now runs a Mongolian-Japanese joint venture computer services company in Ulan Bator.

The payout “will be like a small rain in the Gobi Desert,” said the 37-year-old entrepreneur. “It will soon be gone. We need to invest the money in a big infrastructure project.”

The Oyu Tolgoi proposal approved by parliament calls for an upfront payment to the country of about $125 million, which would be essentially a loan against future revenues. But that is just 5 percent of what it would take to fulfill the campaign promise, and it will have to be repaid from future profits at 9.9 percent interest.

Ms. Oyun said the parliament is now beginning to talk about alternatives to a cash payment, perhaps vouchers to purchase education and health care or even a general distribution of shares from what is expected to be a 34 percent government stake in the mine.

Another recurring theme, heard both in city offices and in the tent camps, or Ger District, as it is known, is a fervent hope that the new president will bring a greater level of honesty to government.

“There is corruption in every country, but in Mongolia it is everywhere, from the lowest levels all the way up to the [Cabinet] ministers,” said Garigtsatsralt Chuluunkhuu, the 26-year-old head of the marketing research department at the Transportation and Development Bank of Mongolia.

“To start a business, you need hundreds of licenses; at every ministry you need to get a lot of licenses,” opening the door to bribes, said Miss Garigtsatsralt, who added that her bank has seen many of its small business customers go bankrupt since the start of the global downturn.

The pattern extends also onto the hillsides, where a herder moving in from the countryside must pay bribes to get a license for a plot of land on which to pitch his ger — the more desirable the lot, the higher the payment.

Ms. Oyun readily acknowledged the problem. “Corruption is a problem and it has been all during the transition as in other post-communist countries. Mongolia is not an exception,” she said. But she noted that Mr. Elbegdorj had earned something of a reputation for fighting corruption during a previous stint as prime minister and had made it a central issue in his campaign.

Mr. Minton, the U.S. ambassador, also was hopeful that progress is being made. “Surveys are taken regularly. The trend lines are a small but steady decrease in citizen concerns about corruption. This is becoming a more open society,” he said.

A great deal is riding on the shoulders of Mr. Elbegdorj, but perhaps nothing is more important than the faith of people like Mrs. Narantuya, who despite the hardships in her life believes Mongolia will never turn back from its commitment to democracy.

Asked what democracy means to her, she said it “means being honest. No corruption. Everybody has their workplace and everybody lives in comfort. I hope one day we will reach that.”

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