Itn a wood-paneled office Mongolia’s prime minister, Luvsannamsrain Oyun-Erdene, sits in front of a gilt framed painting that depicts a warrior and fawn. “It’s called War is on for Hero, by the Mongolian painter Otgontuvden Badam,” explains the chief of staff. Mongolia, which is located between China and Russia has no need for war, or any heroics.
Oyun-Erdene seems acutely aware as he sits down in a leather chair for the July video interview. “We are located geopolitically between two superpowers,” says the Harvard Kennedy School alum, who became prime minister in January last year after serving two years as chief cabinet secretary. The nation—while twice the size of Turkey—is home to just 3.3 million people. “We are very sensitive to global economic fluctuations,” he says, “which is a blessing and a curse at the same time.”
The blessings are straightforward: Mongolia has the world’s biggest known coal reserves, second largest reserves of uranium, and one of the largest of silver. Throw in significant deposits of gold, copper, iron ore, phosphorus and zinc, and it’s clear why spiking commodity prices are a boon for its coffers.
Continue reading: How Mongolia Typifies the Problems Posed to Small Countries by China’s Rise
Inflation is the immediate problem. The price of fuel—especially the diesel vital to nomadic communities scattered across the steppes—is soaring. Russian President Vladimir Putin’s Feb. 24 invasion of Ukraine, and ensuing Western sanctions, have also led to spikes in the cost of Russian chemicals (used for mining explosives, fertilizer, and agricultural feed) and food, of which the Russian Federation is one of Mongolia’s biggest suppliers.
Tourism, which made up 7.2% of GDP and accounted for 7.6% of employment in 2019 has now collapsed—costing the national economy some $470 million from the start of the pandemic until March, according to government figures—and not just because of COVID-19. The European embargo of Russian air space, as a result of the war in Ukraine, has led to a slashing of flights to Mongolia’s capital Ulaanbaatar. Oyun-Erdene laments the “instability of the international community” and its effects on his country.
The situation threatens his bid to transform Mongolia from an impoverished agricultural economy—about a third of the population lives in some form of poverty—into a modern minerals exporter with a startup-friendly environment, plenty of international investment, and a thriving financial services sector. Vision 2050 is his ambitious plan that will almost tenfold the country’s GDP, increasing it from $4.009 to $38,359 in the second decade. “We have done our homework and now we have to put these developments into real life,” Oyun-Erdene says.
Oyun-Erdene was conceived in Ulaanbaatar, in 1980. He grew up on the Eastern Mongolian Steppes at Berkh. The village is known for its fluorspar mine—a mineral ore mix of calcium and fluorine—and has 10 times as many heads of livestock as people. He had a severe speech impediment until he was 5 years old, but overcame it with the patient coaxing of his grandfather—a renowned Buddhist abbot, chess master and instructor of mathematics and Mongolian language—from whom he adopted the patronymic Luvsannamsrai.
Oyun-Erdene was a good student, earning journalism, law and Harvard public policy degrees. He is distinguished from previous leaders who had been educated mostly in the Soviet bloc by his Ivy League training. At the age of 21, Oyun-Erdene ran the governor’s office in Berkh. He later worked for NGO World Vision overseas. His forays into international development made him aware of the challenges his own country was facing. He later wrote of being “saddened to see how bureaucratic, corrupt, and politically divided” Mongolia had become by comparison with much of the world.
On Oct. 16, 2021, trucks loaded with coal waited near Gants Mod port, at Gashuun Sukhait’s Chinese border.
Uugansukh Byamba—AFP/Getty Images
The country’s reliance on commodities was also problematic. As prices soared in the early 2000s, Mongolia briefly became the world’s fastest-growing economy, earning the nickname “Minegolia.” Prospectors from North America and Europe quaffed expensive Scotch in Ulaanbaatar nightclubs. However, the boom in mineral resources was only temporary. Mongolia received a $5.5 million bailout from the International Monetary Fund by 2017.
Oyun Erdene, who was previously elected an MP in 2011, rose in stature by organizing protests against corruption. Today, commodity prices are high again and Oyun-Erdene hopes to avoid another cycle of boom and bust by modernizing Mongolia’s economy through infrastructural developments—there are dozens of projects underway, from hydroelectric dams to railways and power plants.
Renegotiating the deal with Rio Tinto to expand the Oyu Tolgoi gold and copper mines in the Gobi Desert, worth $6.75B has given him tremendous political capital. In December, the Australian firm agreed to write off more than $2 billion in loans that Mongolia’s government was using to fund its share of the development. Renegotiating the deal included assurances to protect water resources essential to local herder communities, and ensure proper social infrastructure for miners. Rio Tinto hopes that the move will “deliver greater economic value to Mongolia.” Oyun-Erdene says he wants such cooperation to be applied to “other mining locations.”
Modernization of the economy is essential. China accounts for over 90% of Mongolia’s exports—and they mostly travel by road. Thousands of rumbling, sooty trucks—loaded with minerals, coal or ore—make their way to the Chinese frontier, where tailbacks regularly span 15 miles. It can take drivers up to one week to get across. Because of these basic infrastructure restrictions, Mongolia has a very low export capability.
Complicating the issue, Beijing’s draconian zero-COVID policy means that it sporadically seals the border, blocking trade. A Chinese official said that the country’s pandemic prevention measures could last five years. Oyun-Erdene expresses concern for the “negative consequences” this has for his country, adding that “the zero-COVID policy of China is, of course, not only Mongolia’s issue, but a global economic issue.”
Landlocked Mongolia’s exports to other nations must also use Chinese ports. In a bid to ensure that “railway exportation will not depend on the COVID-19 situation,” Oyun-Erdene hopes to open five new rail crossings with China by the end of 2022.
Mongolia’s foreign policy requires similar agility. “If Mongolia is not engaged, then we are truly landlocked and geopolitically really challenged,” says Bolor Lkhaajav, an analyst on Mongolian foreign relations.
The country’s “third neighbor policy”—a long-running strategy of cultivating relationships beyond China and Russia—was born out of such concern. Since then, Western countries have responded to the concern by sensing commonality with democratic nations in an anti-region. In late June, Germany announcedAfter a two-year hiatus, Australia announced it would be resuming bilateral aid to Mongolia. From July 1, Mongolians became eligible for Australia’s coveted holiday visa program.
“Broadly speaking, the West is reawakening to values diplomacy, energizing democracy promotion,” says Prof. Julian Dierkes, a Mongolia expert at the University of British Columbia. “This is, of course, where Mongolia triumphs.”
Oyun-Erdene Luvsannamsrai, Mongolia’s Prime Minister, signed the guestbook at the National Orchid Garden on his visit of four days to Singapore. This was July 8, 2022.
Singapore Press/AP
Oyun-Erdene is keen to emphasize his country’s openness to the world. He’s just returned from Singapore, where he discussed listing Mongolian mining firms on its bourse. He was speaking before about digital transformation in Estonia, and South Korean human resources. U.N. SecretaryGeneral Antonio Guterres was in Mongolia from Aug. 8 to 8. “We have full confidence in our cooperation with our third neighbors,” the prime minister says.
The current geopolitical environment makes it difficult to determine the best approach. Mongolia abstained from the U.N. General Assembly motion to condemn Russia’s invasion of Ukraine and voted against expelling Moscow from the U.N. Human Rights Council.
With regard to “the Ukraine and Russia war, we are truly regretful, and we have sent humanitarian assistance to Ukraine” Oyun-Erdene says. “But the foreign policy of Mongolia must remain independent. We believe that countries on the U.N. Security Council—major, big economic powerhouses—must come to decisions free from emotional distractions and be pragmatic, because every decision hugely affects the global economy and lives of millions.”
Bottom line: “Relations with our two neighbors is the priority.” The painted warrior on his office wall may be going to battle, but Oyun-Erdene’s fight will be to stay nonaligned.
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