Chimgee remembers the days people crowded in front of her meat market stall, waiting to buy from her storage locker jammed to the ceiling with beef, goat, sheep, camel and horse carcasses.
“It was full, and people would line up here to buy from me,” she said. “People would say, ‘Buy from Chimgee! Buy from Chimgee!’”
After they finished buying meat, they might head downtown to pick up a condo, or a new Rolls-Royce. After all, they lived in “Minegolia,” a country about the size of Quebec and so jammed with mineral resources that respectable people talked about a future as the next Qatar or Brunei, with fabulous wealth shared among a population of just three million.
Theirs was a Canadian story, too: Canadian miners made up a large percentage of the foreign investors prepared to pour in capital.
Growth of 17.5 per cent in 2011 made a gilded future look inevitable. The International Monetary Fund expected the country’s gross domestic product growth to keep roaring at 14 per cent through 2016. It wasn’t hard to find people who thought it could double that performance.
But in a few short years, Mongolia has gone from Asia’s golden child to its binge-drinking adolescent, with government borrowing to make payroll, cash-short consumers reduced to bartering for goods, and observers openly talking about the possibility of either a sovereign default – national bankruptcy – or a massive bailout.
Hurt by China’s teetering economy and nationalistic domestic policies that scared off foreign investment, today’s Mongolia is epitomized by the idle construction crane, which has become a monument to an economy stalled by the unrealized dreams of just a few years ago.
It’s all visible from Chimgee’s shop, on a hill overlooking Ulan Bator, a city that now boasts a Porsche dealership even as shoppers struggle to buy meat.
“This is the hardest it has been in 20 years,” said Chimgee, who like most Mongolians goes by one name. Her storage locker stands virtually empty as she shows a handwritten ledger. The tally one recent morning noted nine sales, only two paid in full. The remainder pleaded to settle up later.
“They don’t have cash, so they ask for credit and have a hard time paying back,” Chimgee said. “When will this crisis end?”
For millenniums, Mongolia’s wealth and power came from its grasslands, and the throngs of horses and livestock they fed. But its ticket to modern wealth lies beneath the steppe. Of the 90 naturally occurring elements on the periodic table, “Mongolia has commercially exploitable quantities of 85. It’s a shopping centre for minerals,” said Steve Saunders, an international public policy consultant who first travelled to Mongolia in 1994, and has been the long-standing president of the North America - Mongolia Business Council.
It is perched on the border with China, which buys just under 90 per cent of Mongolian exports. It was in a privileged position when China itself was still growing.
But as China’s growth has faded, taking commodity prices with it, Mongolia has offered one of the most vivid examples of the broader reckoning under way.
After plummeting by 87 per cent in 2014, foreign investment in Mongolia fell a further 39 per cent last year.
Trade in February fell 20 per cent from the year before, with coal exports tumbling by a third and iron ore by two-thirds.
From August, 2015, to February, 2016, foreign reserves contracted by more than 30 per cent. Several recent long-term government bond offerings have failed; investors have instead piled into 39- and 52-week bonds with interest rates above 14 per cent.
Public sector debt reached more than 80 per cent of GDP by the end of 2015, and has only increased since then.
“The good news is, it seems like we are at rock bottom. There is no way that we can go down from here,” said Ganhuyag Chuluun Hutagt, a Mongolian banker and businessman who is chief executive officer at Ard Financial Group.
But next year could be even tougher, with roughly $2-billion (U.S.) in maturing public and private sector debt, in addition to a $2.3-billion currency swap agreement with the People’s Bank of China that also comes due in 2017.
At banks, the publicly disclosed non-performing loan ratio has reached 8 per cent (a further 8 per cent of loans are in arrears).
Christopher de Gruben, a real estate investor who founded Ulan Bator-based M.A.D. Investment Solutions, recently conducted an audit of a local bank. He found it held much of its collateral in real estate – where prices are nosediving after a massive overbuild.
In Ulan Bator, a city with roughly 200,000 housing units, about 37,000 units stand empty. One local investor estimates that space equal to 120 per cent of current demand has opened in the past 18 months, at a time when companies are so mired in debt that executives are deferring payments of their own salaries.
At some lenders, people are trying to settle debts with offers of livestock or apartments.
None of it bodes well.
“We could be heading to a trifecta crisis,” said Mr. de Gruben: a currency crisis, banking crisis and a “sovereign crisis when the government is not able to repay its debts.” Maybe it’s best, he said, if the country declares bankruptcy.
“We need a proper crash to reset the clocks at zero and start again.”
Or can Mongolia pull through?
The answer lies partly in the Gobi Desert, an 800-kilometre drive south of Ulan Bator, where a cluster of sky-blue buildings marks the biggest economic project to ever descend on the country.
The Oyu Tolgoi copper-gold mine, once promoted by Canadian Robert Friedland and now owned by Rio Tinto PLC, has brought Mongolia promise and trepidation in equal measure. It could one day account for a third of the country’s economy.
But for years, it was the subject of bitter fights between Mongolian leaders and industry as they tussled over who should receive the mining spoils.
The process frightened away the foreign investors once eager to pour money into the country. The number of expats in Mongolia dropped from 12,000 in December, 2012, to 6,800 in December, 2015.
But now with its economy faltering, Mongolia has sought to reverse its course. The country has a new investor-friendly prime minister, who last year settled matters with Rio Tinto, clearing the way to build the underground phase at Oyu Tolgoi, which is expected to constitute 80 per cent of the mine’s value. Project financing was concluded in December.
In March, the country settled a legal dispute with Khan Resources Inc., a Canadian company whose uranium mining licence the government revoked in 2009, before transferring it to Russian interests.
And now, the country is approaching an economic pivot point. On Friday, Rio Tinto and Vancouver-headquartered minority partner Turquoise Hill Resources Ltd. gave the green light to proceed with the $5.3-billion underground construction at Oyu Tolgoi.
In Ulan Bator, it’s been a barely kept secret.
“The preparatory works are under way,” and contracts will be awarded in coming weeks, said Byambasaikhan, chief executive officer of Erdenes Mongol, a state-owned investment holding company that manages the Mongolian interest in Oyu Tolgoi.
“In a few weeks’ time, you will see contacts being awarded.”
On May 15, the Mongolian government will face a deadline to pay a $70-million settlement to Toronto-based Khan Resources. The country already offered to give back Khan its mine, according to a source with knowledge of negotiations, who said Khan refused. Grant Edey, Khan’s chief executive officer, declined to comment, citing a confidentiality agreement.
But, he said, if the settlement comes through as promised, “it’s a tremendous step forward for them to say that we’re a good regime, we’re back, we’ve got good laws and we want to attract investment.”
First, however, Mongolia will have to find ways to solve its money woes, a task that will fall largely on leaders not yet known, as Mongolians prepare for a June election.
Many believe “they will do an IMF deal after these elections,” a bailout of several billion dollars to right the ship, albeit with conditions, said Peter Morrow, the well-connected former CEO at Mongolia’s Khan Bank, who is now a partner at advisory firm NovaTerra Consulting.
Mr. Morrow believes “the last four years will turn out to be a very good thing for Mongolia, in terms of the learning curve.”
Mr. Ganhuyag, meanwhile, isn’t backing away from the term he coined to describe Mongolia: the “wolf economy,” a place with its own particular ferocity in a continent populated with tigers and dragons.
“We need to be really dumb to not make this the richest economy on the planet,” he said. “With trillions of dollars in mineral resources underground, I just can’t think of a way for us to stay poor.”
For now, though, Mongolia is struggling to dig out even the least valuable of those resources, like the coal left beneath Nalaikh, a Soviet-era town next to the remnants of a once-prosperous mine. Today, thin cattle scrounge for grass between mounds of mine tailings.
On a recent day, nearly two dozen men were midway through an 18-hour shift, lowering a coffin-like sledge 120 metres into the earth, and pulling it back full of dripping black coal.
Wet product isn’t worth much – but neither, these days, is the dry stuff. The coal is burned for heat in Ulan Bator, the coldest capital city on earth. But in some homes, even coal has grown unaffordable.
With falling demand, prices have been cut in half. This past winter, Nergui, a local coal boss, cut production, too, by more than 40 per cent at his operations.
Workers could once make more than $50 a day. Now they’re lucky to make $15.
Things aren’t much better for their boss.
“There are days I barely break even,” Nergui said.
“If the economy was doing well, people would have money to spend and they would probably choose electric heat for their homes. But at the moment, people don’t have cash to buy coal. So they are staying in cold gers.”