Home News RAINER MICHAEL PREISS -- BOTTOM NEARS FOR MONGOLIA RAINER MICHAEL PREISS -- BOTTOM NEARS FOR MONGOLIA Most investors know about Mongolia in the context of Genghis Khan and the startling history of how one extraordinary man from a remote corner of the world created an empire that led the world into the modern age. More recently, Mongolia was the darling of the global mining industry and a frontier market investors loved. In 2011, Mongolia reported the highest economic growth in the world, was home to the world’s best performing stock market and had a currency that rose over 35% in value against the U.S. dollar. Since then, the boom has turned to bust and international discussion about the country has turned from exuberance about opportunities to despair over a chronic economic crisis and a potential sovereign debt default. The Mongolian tugrik is trading at record lows, having given up more than three-fourths of its peak value. The country’s vast natural resources have been a blessing and a curse as politicians, blinkered by greed, made wrong decisions just when the commodity cycle turned. Mongolia borrowed heavily close to the top of the cycle and its debts are coming due just as the sector starts to come out of a prolonged global bear market. The long and unnecessary dispute between the government and metals producer Rio Tinto over the Oyu Tolgoi mine, which contains the world’s largest untapped copper and gold deposits, has severely damaged investor confidence and delayed the country’s economic development. Also stalled is the Tavan Tolgoi mine, considered by geologists to hold the world’s largest untapped coking coal deposit. Original estimates were for Mongolia’s economy to grow 30-35% per year after the Oyu Tolgoi mine started full production. Mongolia’s mining sector contributed 28% of gross domestic product in 2011; a number of industries including construction, retail and transport are closely linked to the mining sector’s fortunes. Mongolia’s turmoil reflects the broader impact of "ultra-loose" monetary policies adopted by central banks around the world which led to a debt binge in developing countries. However, it is too early to conclude that the game is over for Mongolia. The new Mongolian People’s Party government that took office in July after a landslide election victory has an acute sense of crisis and seems determined to make a clear break with its predecessor’s policies and mistakes. The country is also strategically too important for external parties, particularly China, not to intervene if the government’s funding situation worsens. The rebound in commodity prices this year is also potentially good news for the resource-rich country and could see investor valuations of projects in the country start to recover. Source:http://asia.nikkei.com/Viewpoints/Viewpoints/Rainer-Michael-Preiss-Bottom-nears-for-Mongolia