Populists’ vote-poaching promise of cash bait revenue

2020  |  January   |  026
  • There’s an issue of over one trillion MNT in cash that needs to be addressed
  • Around 464 million USD intervention was made within these two months


Political parties made a sudden announcement to hand out one million, one and a half million tugrugs to each citizen right before the 2008 election. As a result, the years 2008-2012 went down in history as the racing ground for keeping cash promises by political parties. Within those years, the Government allocated a whopping 3 trillion MNT for cash handouts only. This was the onset of a pernicious populism to squander mining revenues in Mongolia. Since then, around five trillion MNT earned from the mining sector has been handed out to the public in various forms. This is an amount equivalent to five years of tax revenues collected from Erdenet Mining Corporation and Erdenes Tavan Tolgoi combined. Let’s refresh our memories on how this money was spent.      

The Parliamentary session of December 30, 2009, passed a decision to hand out subsidies of 120 thousand tugrugs to each citizen in two installments. Thus, 70 thousand tugrugs were to be given out on February 15, 2010, in the first phase and gradually increased at each opportunity in the future. Parties committed to this promise and started distributing 50 and 70 thousand tugrugs to each citizen on a one-off condition from the Human Development Fund beginning April 2010. This resulted in a jump in meat prices above 7000 tugrugs creating inflation within a mere three months.  

From January 20, 2011, to mitigate the impacts of cash promises, the Government began giving out 21 thousand tugrugs each month instead of one-off cash distributions. Within the only month of this distribution, inflation hiked three percent. In the end, 849 billion tugrugs were spent in total for this and other welfare benefits constituting almost a 500 billion tugrug increase from 2010.   

At the irregular session of the Cabinet on April 2, 2010, Su. Batbold’s Government decided to allocate 1.5 million tugrugs per each Mongolian citizen in 2010-2012 in the form of pension and health insurance, education, health, housing certificates, and cash. One million tugrugs were to be provided in the form of pension and health insurance, health, education services, and housing payment, while the remaining 500 thousand tugrugs were to be given out in phases in 2011 and 2012. To execute this decision, Erdenes Tavan Tolgoi’s’1072 shares were transferred to each Mongolian citizen in 2011.   

Unfortunately, mining companies were sacrificed at the altar to achieve these promises. Erdenes Tavan Tolgoi signed a coal sales and purchase agreement with Chalco on July 26, 2011. With 250 million USD, the company planned to expand its operation and purchase equipment at the time. Instead, the money was given away as 500 thousand tugrugs to each citizen. As a result, Erdenes Tavan Tolgoi was left with 800 billion tugrugs in debt which it failed to recover from in the subsequent years. 

After draining out the money brought in by Erdenes Tavan Tolgoi, the remaining universal resources-to-cash scheme (“Ekh ornii khishig/Motherland benefit”) was completed using the 80 billion tugrug tax prepayment by Erdenet industry. N. Altankhuyag, Head of the Cabinet assembled after the 2016 election, made a statement at the Parliament session that “the entire budget money was distributed as cash payments” at the time. 

In 2012 or ahead of the Parliamentary election, the state budget spent 911 billion tugrugs as a benefit. This cash transfer had placed an enormous burden on the national currency rate. The years surrounding the event saw an unprecedented rise in commodities export and an increase in foreign investment through issuing of the bond by domestic banks, which made an important impact on the increase in foreign exchange reserves and stable tugrug rates.

While the tugrug rate was 1433 against the U.S. dollar at the beginning of 2012, it went down by 9.2 percent to 1316 by early June that year, right before the election. The Bank of Mongolia (BoM) decided to intervene 663 million USD at this time. However, the cash handouts after the election negatively impacted the currency rate, strengthening the USD by 6.1 percent to 1400 tugrugs within just three months. Again, the BoM intervened 289 million USD during this period. It barely managed to keep the USD rate at 1400 tugrugs by injecting 521 million USD to the banking system in the second half of the year and 435 million USD in the first half.    


Before the Parliamentary election of 2016, cash handouts returned yet again through purchasing the public’s Erdenes Tavan Tolgoi shares. Few days before the election, Ch. Saikhanbileg’s Cabinet initiated the Good Stock program. The selling of shares began three weeks before the election and transfers of 100 thousand tugrugs were being made on every first day of the week to citizens who sold their shares. In other words, 300 thousand tugrugs which constitute 30 percent of the 1072 shares were transferred to citizens in three installments according to the Government’s decision. Of the one million and 650 thousand citizens who owned their full 1072 shares, 650 thousand sold their shares and the Government spent over 490 billion tugrugs for this purchase as mentioned in the BoM’s report.

At that time, the Government lacked the funds to implement this program which wasn’t even established in the budget. The 500 billion tugrug bond issued by the Government was eventually purchased by the BoM. This was a time when the state budget was in deficits and the economy slumped with no mining revenues for the Government to milk. With coal and copper prices in plummet, major mines such as Erdenes Tavan Tolgoi and Erdenet did not have money to spare for the Government as in 2012 for example. In the first half of the year, coal exports barely reached 300 million USD and exports by Oyu Tolgoi and Erdent scraped by 900 million USD. 

Desperate, the Government even took credit from the Credit Suesse on a 10+ percent interest. In addition to the Good Stock program, the BoM financed other forms of cash handouts which led to scrutiny to this day and several officials are under criminal investigation for accountability.

2016 was the year MNT depreciated the most. USD was 1996 MNT earlier in the year but depreciated 2.9 percent to 1938.7 on June 24 or during the election. Strong depreciation, especially during February, was a direct result of the BoM’s intervention. Of the 427 million USD auction made by the BoM in the first half of the year, and injected 2.1 billion USD through swap deals to the banking system.    

Soon after the election, the currency saw a sudden surge in strength. Within only two months or by August 18, the USD strengthened 16.8 percent to 2265 MNT and eventually by 28.4 percent to 2489 MNT at year-end. Despite supplying 829 million USD in the market in the second half of the year, the currency thus strengthened by 28 percent. Meanwhile, foreign exchange reserves stayed at 1.3 billion USD or in other words, went closer to mandatory levels.  


President Kh. Battulga announced an unexpected plan to “write off pensioners’ loans” right before the new year and gave directives to the Government, prompting a widespread search to find the money. The original plan was to use profits from the Salkhit silver deposit as collateral to finance this initiative. However, it soon became clear that the mine didn’t have the financial means to dispense the required 800 billion tugrugs. As the National Security Council already made its decision and the Parliament passed the bill, it fell on Erdenes Mongol to issue bonds and raise the required fund. Thus, Erdenes Mongol LLC signed the “Agreement on the repayment of citizens’ pension-backed loans through bonds” with commercial banks on February 21, 2020. With backing from the Development Bank, the Erdenes bond was issued ready for trading with commercial banks. Erdenes Silver Resources settled all court matters related to Salkhit deposit and drafted the deposit’s revised Feasibility Study. According to their preliminary calculations, the deposit’s net profit is estimated at 569.0 billion MNT including taxes. Hence, the Development Bank and Erdenes Mongol LLC were tasked with an enormous duty to write off pensions.   

In the history since 2008, Erdenes Tavan Tolgoi and Erdenet mines were consistent “sacrificial lambs” for cash handout promises made by politicians. This year, the Development Bank and Erdenes Mongol LLC are joining in. 

Another major decision that came out this year was the payment of dividends from 1072 shares which had been frozen for 4 years. Specifically, the Board of Directors of Erdenes Tavan Tolgoi passed a decision to distribute dividends to its shareholders. This marks the first time in the country’s history when each Mongolian citizen will be receiving a share from the country’s natural resource profits through stock ownership. The decision will be discussed at the shareholders’ meeting on May 1. In other words, 90 tugrugs will be paid for each unit stock which means 96480 tugrugs are allocated for citizens holding their full 1072 shares. In total, 200 billion MNT worth of dividends will be paid out. 

Therefore, there’s an issue of over one trillion MNT in cash through dividends and pension forgiveness that needs to be addressed this election year. The same old mining companies are expected to provide this amount of money which hasn’t reduced between 2012 and 2016.  

The impact from these decisions which would come into effect before the election will undoubtedly cause drastic consequences for the tugrug rate and the economy in general, as clearly shown by history. According to the BoM’s reports, the MNT rate has depreciated by one percent as of February 28 this year. Meanwhile, around 464 million USD intervention was made within these two months. The past has taught us that it’s both hard and easy to predict the currency rate as well as post-election “surprises”.   

Mongolian politicians constantly hurl overt criticisms and blackmail to the mining sector. Ironically, the source of their cash promises to the public comes from the very same industry. The purpose of this article was to remind everyone how the mining sector had always been the target of populist promises from authorities, especially before the elections of 2008, 2012, 2016 and 2020.  


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