Mongolia: Steppe Change or Double Dutch?

Via The Financial Times, a report on Mongolia’s continued evolution and risk of “Dutch Disease”:

“…Ulan Bator doesn’t have a McDonald’s, but it does have a Louis Vuitton. So intense has been the rush to dig up its coal, gold and base metals that Mongolia has skipped a few stages of modernisation.

Prime Minister Sukhbaatar Batbold is smart to call for restraint, as he did on Tuesday. The recent convulsions in this landlocked republic are consistent with an outbreak of Dutch disease, in which a country’s resources sector booms at the expense of almost everything else. Mongolia’s gross domestic product growth of 9.5 per cent this year is perhaps Asia’s fastest. It also has surging consumer price inflation: 12 per cent last year, and Standard & Poor’s estimates perhaps 20 per cent in 2011. The current account deficit may top 10 per cent of GDP, beaten only by mineral-rich Papua New Guinea. Mongolia even has the world’s best-performing stock market – up 138 per cent last year, it has almost doubled again already this year – and some of the most expensive rentals in Asia.

Diagnosing the symptoms is the easy part, though; achieving a better balance of growth is a lot harder. Rival export industries such as cashmere, leather goods and metal processing will be damaged by the strength of the tugrik, which is up 16 per cent against the dollar since the beginning of 2010. China’s panda-hug, meanwhile, looks irresistible. Last year 36 per cent of its coking coal imports came from Mongolia, more than double the share of 2009.

More exploitation surely awaits: just 27 per cent of Mongolia’s 1.6m sq km – the size of Western Europe – has been geologically mapped. For investors, it’s the “ultimate resource play,” as Macquarie puts it. But for people who actually live there, it’s far from fun and games.

This entry was posted on Wednesday, March 9th, 2011 at 1:59 pm and is filed under Mongolia.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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