Courtesy of The Financial Times, a look at Mongolia:

Over the past five years, few other countries have experienced the highs and lows of the global economy as acutely as Mongolia. In 2011 the country was on the radar of virtually every investor interested in Asian emerging markets.

The International Monetary Fund (IMF) estimated that Mongolia’s GDP would grow by 17.5 per cent that year – largely on the back of the Oyu Tolgoi (OT) project, a gigantic copper and gold mine operated by Rio Tinto – and continue at 14 per cent through 2016.

The mining boom spurred growth in several other sectors, including financial services and construction. By 2012 Ulaanbaatar was a booming town with rapidly rising skyscrapers and a growing expat community. The atmosphere was intoxicating.But a massive hangover has stretched into 2016. The sharp fall in global commodity prices and a decline in demand from China, which had bought more than 90 per cent of Mongolia’s exports, took its toll.

Making matters worse, Mongolia’s leaders called into question the validity of various investment agreements and mining rights, prompting several foreign companies to exit the market and discouraging others from entering. In 2012 foreign direct investment (FDI) in Mongolia amounted to $4.45bn, but by last year it had declined to just $121.5m. In January 2016 the World Bank cut its annual growth forecast for Mongolia to 0.8 per cent.

When the expected windfall from mining projects failed to materialise, the government turned to borrowing. Initially, when growth forecasts were still strong, borrowing was easy.

In 2012 the government sold $1.5bn worth of sovereign debt known as Chinggis bonds. The offering was ten times oversubscribed and the government earmarked the proceeds for ambitious infrastructure projects, adding to the excitement about the pace of the country’s development.

But as government revenues began to tumble and interest payments shot up, the country had to keep borrowing to manage expenditures. Mongolia’s public and private debt doubled from $11.7bn in 2012 to more than $22.6bn in 2015. Hitherto muted speculation about the possibility of a sovereign default or an IMF bailout has gone mainstream.

The public loss of confidence in the government resulted in the crushing defeat of the ruling Democratic Party (DP) at the hands of the Mongolian People’s Party (MPP) in the July 8 parliamentary elections.

And for now, the election outcome and the new leadership is instilling some optimism among investors. Jargaltulga Erdenebat, who served as minister of finance between 2014 and 2015, became prime minister and vowed to stabilise the economy and introduce fiscal discipline.

Erdenebat is credited with settling a long-running dispute with Rio Tinto, which led to the suspension of work on the OT project. If the mine becomes operational by 2019, as is now planned, it will account for more than 30 per cent of Mongolia’s GDP.

But while the new government has boosted investor confidence, there are signs of challenges ahead, both internally and externally. Erdenebat has already clashed with president Tsakhia Elbegdorj over cabinet appointments.

The dispute stems from the appointment of Tsedev Dashdorj to oversee the mining industry and of Battogtokh Choijlsuren to manage Mongolia’s debt. The president has long argued that members of parliament should not hold ministerial posts, but the there are no legal provisions against it. These early signs of tension are troubling, because for Mongolia to find a path to recovery, it needs a strong and unified leadership and coherent policies.

Apart from internal challenges, Mongolia is confronted by momentous changes sweeping through the region and its future will depend on relations with its chief economic partners: Russia and China.

The three countries are bound by strategic agreements to promote cross-border trade and jointly develop transport infrastructure, the most recent one signed in Tashkent on 23 June by Mr Elbegdorj, Vladimir Putin, the Russian president, and Xi Jinping, China’s president. Mongolia will host the next round of talks, on the implementation of a trade corridor between the three countries, in the autumn.

So far, the tripartite co-operation is in line with the individual policies of the three countries: China’s One Belt, One Road initiative, Russia’s Trans-Eurasian Belt Development, and Mongolia’s Steppe Road project.

But Mongolia is by far the weakest partner and it might not have the weight to resist pressure from its more powerful neighbours. A first sign of tension was evident at the 23 June meeting, when Mr Putin asked Mongolia to abandon construction of the $1bn Egiin Gol hydropower project. The Egiin Gol plant would include a dam on the Eg River, a tributary of Mongolia’s Selenge River, which flows into Russia’s Lake Baikal, the world’s deepest freshwater lake.

The Egiin Gol project is temporarily on hold because the China Export Import Bank is withholding funds until a compromise with Russia can be found. Moscow claims its chief concerns with the project are its environmental impact, but Ulaanbaatar fears Russia’s motivations are political and economic, as it supplies the bulk of Mongolia’s electricity.

Whatever the solution to the stand-off, it will be important because it may well set the tone of Mongolia’s future co-operation with its powerful partners.

After years of turbulence, Mongolia is once again a tantalising investment frontier. Short of cash and desperate for investment, the government appears determined to nurture relations with key foreign partners and repair its image among investors.

Mongolia’s economic recovery will depend on the government’s ability to negotiate delicate agreements. Many of the government’s past failures stemmed from making rash decisions and an inability y to accurately assess its bargaining power.

The new government needs to develop a long-term strategy and implement rational, measured policies. It has the benefit of hindsight and experience of past mistakes – hopefully Mongolia’s leaders have learnt from them.