The Jenga Economy

JengaThe domestic economy is more complex than it was just a few years ago. It is more integrated with international markets and more layered with wealth generating opportunities. It has broadened substantially, and as a result, it has taken longer than in the past for problems to be widely felt in the economy. It has also taken longer for a sense of urgency to take hold at the political and policy-making level about the need to fix the problems. Still, the signs have been there, and for those watching the indicators closely, it has been like watching an economic game of Jenga.

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The Tugrik is Following Its Own Path

Speaker of Parliament Z. Enkhbold recently tweeted an observation (see original tweet below) that seemed like an attempt to put the continuing depreciation of the Tugrik against the US Dollar in perspective. He posted a link to a Wall Street Journal article (here) about the Chinese Yuan experiencing a 0.9 percent decline in value against the Dollar since the beginning of the year. He then noted that "the Tugrik is not alone in its fall." The subtext of the tweet seemed to be that recent, sustained declines in the value of the Tugrik have been due to outside economic forces, which are also affecting the Chinese currency, rather than the result of domestic politics or economic policy over the last 12-18 months. But, there is a significant problem with his observation: magnitude.

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'Samurai' Bonds Lack Clarity

According to local news reports, the Development Bank of Mongolia (DBM) received just over JY24 billion (USD230 million) in "Samurai" Bond proceeds from the Japanese Bank for International Cooperation (JBIC) in the first week of January.1 The face value of the 10 year bonds was JY30 billion with an annual interest rate of 1.52 percent.2,3 The "Samurai" Bond has been a topic of conversation in Mongolia since the Prime Minister announced an agreement between the Mongolian and Japanese governments to issue the bonds back in September.4 Although there has been a lot of conversation, it has been difficult to get clarity about the terms and conditions of the agreement between the DBM and JBIC and how the proceeds from the bonds will actually be used.

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Depreciating Tugrik: Is It Deja Vu All Over Again?

Last week the Tugrik to US Dollar exchange rate crept back above 1,700. Unlike when it happened earlier in the autumn, this time around it hardly made the news. It is a great example of how quickly extremes can become the new normal in the public mind. But, the continuing slide of the Tugrik is a troubling sign that the Prime Minister's "Reform" government has thus far failed to reverse Mongolia's mounting economic woes. A striking illustration of this is the following time series graph plotting the monthly rate of the Tugrik against the US Dollar through October 2013.

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The Weak Power of Factional Politics

Prime Minister AltankhuyagThere is growing speculation that it is only a matter of time before the Democratic Party (DP) calls for Prime Minister Altankhuyag's ouster. It is a reasonable prediction given the many missteps of the current government over the last year and the dire economic consequences its policies have produced, but I am not completely convinced it is the most probable outcome for the PM. The current government is a factious coalition that would have to be replaced with another factious coalition, and the million dollar question is whether another faction leader within the DP has the ability to cobble a ruling coalition together without the support of the PM's own faction the "Altangadas." Moreover, any rival for the Prime Minister-ship would have to contend with the fact that even if he could get all the DP members on board with his leadership, he still would fall short of the 39 seat threshold to form a government. It would be more than just a challenge of getting party votes. It would also be a challenge of inter-party coalition building.

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