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Mongolia's Promise of Growth and Democracy - a Lesson for America?

February 14, 2012 by Erica Libby

In Mongolia, GDP grew by 25.3% in 2010, to approximately $2,257 per person. In the same period, GDP grew by a mere 3% in the United States. According to the USAID report “Mongolian Economic Growth Assessment,” the rapid economic growth in the Steppe of Asia has been supported by “peaceful democracy in a region known for political unrest” — and of course by large gold and copper reserves. Over the last 16 years Mongolia has had successful presidential and parliamentary elections with limited violence. The presence of democracy places Mongolia in a category of its own, distinct from the resource-rich monarchies of the Middle East or the authoritarian regimes of Africa. The recent explosion in commodity growth has signaled both boom and bust in many developing countries. Over the course of 2011 worldwide commodity prices began to fall from their peak in 2010. Non-energy prices declined 11%, while energy prices rose 14%. Despite this trend, copper sales continue to drive growth in Mongolia. Copper is a main input in construction, and prices have gained 450% between September 2002 and February 2011. More recently, copper gained 14% in December 2011 alone. In an attempt to ride the wave of commodity growth, the U.S. has also begun to tap into more of its natural resources, particularly natural gas.  However, natural gas prices, as of January 20, had fallen 51% over the last year, to their lowest level in 10 years. With production exceeding demand, the U.S. is facing a glut of natural gas. The likelihood that the U.S. will be able to capitalize on this natural resource in the manner of Mongolia will require greater awareness of demand. Mongolia is able to take advantage of the massive demands of its neighbor, China, which is expected to spur economic growth averaging 14% per year from 2012-2016 (according to the IMF). The major contributor to this growth has been a foreign investment project known as “Turquoise Hill” between the Mongolian government (34%) and Mines of Canada (66%), which is expected to account for nearly one third of Mongolian GDP. The disproportionate role of mining in the Mongolian economy has invited comparisons to places like Qatar or Kuwait, which are dependent on oil. But there is a hope the Mongolian economy will develop and grow beyond its natural resource wealth, and that hope is democracy. Mongolia is at a major crossroads in its economic development, with its vast source of wealth but a limited population and the potential for “Dutch Disease” (in which increased exploitation of natural resources is accompanied by decreased manufacturing). Will the presence of democracy and pledges by politicians not to give handouts force private sector growth beyond the mining industry? China will be there to buy for a long time, but will Mongolia grow beyond the 50-year life of the Turquoise Hill mine? http://mongolia.usaid.gov/wp-content/uploads/Mongolia_EGA.pdf http://www.economist.com/node/21543113 http://www.state.gov/r/pa/ei/bgn/2779.htm

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