Mongolia: The Hidden Welfare Champion?

In parliamentary elections on 29 June 2016, Mongolians delivered a scathing indictment of their government, giving power to the opposition Mongolian People’s Party (MPP) with an 85 percent majority. Four years of economic downturn caused Mongolians to reject the Democratic Party (DP), who took office at the beginning of the slump in 2012, and have been held responsible for its worst effects. The governing party lost 28 of its 37 seats, including that of the Prime Minister, Chimed Saikhanbileg. 

But despite the electoral rout and the economic chaos that preceded it, Mongolian democracy and social policy have continued to move forward in the past decade – and although there is work to be done, the small nation still represents a rare example of a functioning social democracy in a region more used to autocracy and turbulence.

The Bertelsmann Stiftung’s Transformation Index (BTI) 2016 cites Mongolia as one of only a few countries in which the “justice gap has perceptibly diminished over the last 10 years.” Between 2010 and 2012, Mongolia experienced an economic boom, driven by its rich mineral resources and the influx of foreign investment that sought to capitalize on them – in 2011, the International Monetary Fund put growth at 17.5 percent.

Public sentiment has been very much in favor of ensuring that Mongolia’s mineral wealth is made to benefit the people, and successive governments have sought to ensure that this is so: In 2009, the MPP government established the Human Development Fund, which handed out cash to every citizen monthly, until it was replaced in 2012 with the Child Money Program, which still gives each child in the country a monthly payment.

Overall, the country does better than most similar economies on providing welfare. In 2013, according to the World Bank, Mongolia gave 2.78 percent of GDP to cash transfers for social welfare, as compared to an average of 1.6 percent of GDP in most emerging and developing economies.

But declining global prices for copper and coal hit the economy hard, in a country in which the mining sector made up 19 percent of GDP in 2013, and accounted for 70 percent of tax revenues. Mongolia is hugely reliant on the Chinese market as an export destination, so China’s slowing growth caused problems. The DP’s unpredictable way of dealing with international mining companies, although aimed at fulfilling the public desire to see the mining companies pay their fair share, proved counterproductive.

For instance, a May 2012 law restricting foreign ownership in sectors including mining caused foreign investment to plummet by 43 percent in the first half of 2013, before the law was abolished. And a dispute with international mining conglomerate Rio Tinto over the Oyu Tolgoi copper and gold mine has held up a promised expansion – although the company approved a $5.3 billion extension program in May. With Mongolia yet to see the revenues from many of the country’s international mining operations, the government met the shortfall by borrowing heavily, which meant that debt rose massively. By 2015, Mongolia’s growth had slowed to 2.3 percent, and the IMF projects growth of only 0.4 percent for 2016.

The slowdown led to high inflation and increases in food prices, which hit the poor and middle classes worst, and private debt has risen alongside public debt. Even so, Mongolia has managed to reduce poverty throughout its economic difficulties: the percentage of people living below the national poverty line declined from 38.8 percent in 2010 to 21.6 percent in 2014.

The public hopes that the new MPP government will improve the country’s economy, and indeed, the global markets seemed to think it would, since Mongolian bonds rosesteeply after the election result came in – but with the government promising to tighten fiscal management, it remains to be seen whether it will commit the same much-needed resources to welfare programs, given its aim of scaling back borrowing and addressing budget imbalances.

Turnout in the June elections was up to more than 75 percent, from a 65 percent turnout in 2012, which bodes well for the continuing development of Mongolian democracy. In a country that, as the BTI report notes, lacked “most of the conditions commonly identified by political scientists as necessary for a successful democratic transition” when democracy came in 1990, it is impressive that Mongolia has sustained its democracy ever since, throughout good times and bad.

However, recent polls show some troubling findings on the state of Mongolian democracy: Despite the resounding win for the MPP in June, 76.8 percent of Mongolians surveyed in March did not believe that political parties represent public opinion. The 85-percent landslide certainly suggests that the public viewed the MPP, which presided over solid economic performance between 2008 and 2012, as the lesser of two evils. But the size of the victory is partly accounted for by the fact that controversial changes to the electoral process in April shifted the country to a first-past-the-post system, making wider margins for established parties more likely.

However, the size of the win will guarantee the MPP can provide a stable government for the next four years – and if it can successfully turn around Mongolia’s economic fortunes without rolling back the progress made on building public welfare, that may well go a long way toward restoring public confidence in the political sphere.