Mongolia Forms ‘Grand Coalition’ in Bid to Lift Flagging Economy

December 02 01:26 2014 Print This Article

Mongolia’s opposition agreed to join the ruling Democratic Party in a “grand coalition” government, a move that may ease political tensions and help boost the country’s flagging economy.

The Mongolian People’s Party agreed at the weekend to accept an offer by new Prime Minister Chimed Saikhanbileg to join a coalition, MPP Secretary Bulgantuya Khurelbaatar said by text message. Saikhanbileg took over last month after his predecessor was ousted in a no-confidence vote.

Resource-rich Mongolia is seeking to get its economy back on track, three years after posting record growth of 17.5 percent. The pace of expansion slowed to about 7 percent this year with foreign investment sinking amid a protracted dispute between the government and Rio Tinto Group over financing for an expansion of the Oyu Tolgoi copper and gold mine.

The DP has 35 lawmakers in the Great Hural, while the MPP has 26. Other parties in the 76-seat parliament have yet to respond to invitations to join the coalition.

Saikhanbileg has vowed to revive the economy and has urged all parties to end political divisions. A consensus between the two largest parties could ease pressure on the new prime minister to finalize talks with Rio Tinto over the mine.

At the center of the dispute is the $4.2 billion project finance package to expand the mine’s underground section. Mongolia, which has a 34 percent stake, has raised concerns over issues from tax payments to cost overruns. The open pit, in operation since July 2013, has been used by nationalist backbenchers seeking to core points with voters.

Similar Coalitions

Mongolia has seen similar coalitions before. On several occasions between 2004 and 2012 the MPP and the DP formed unity governments after tight elections left the MPP with narrow majorities in parliament.

“I think it’s a major plus because if you look at the recent past the only government to strike a major deal was the grand coalition government back in 2009 when they did the Oyu Tolgoi investment agreement,” said Bilguun Ankhbayar, chief executive of Ulaanbaatar-based Mongolia Investment Banking Group LLC.

“It’s likely we’ll see more milestone deals while this coalition government is in place,” Bilguun said.

Foreign investment plunged 82 percent in the first nine months compared to the same period in 2012. The tugrik is trading close to a record low in August, having declined 25 percent against the dollar over the past two years.

Turning the economy around requires a change in investor sentiment which can only be achieved by settling the Oyu Tolgoi dispute, said Bilguun.

“If both parties are together it will give them move confidence to go ahead and finalize the deal,” he said.

To contact the reporter on this story: Michael Kohn in Ulaanbaatar at mkohn5@bloomberg.net

To contact the editors responsible for this story: Rosalind Mathieson at rmathieson3@bloomberg.net Andy Sharp, Andrew Davis

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