Mongolia should enhance ties with China to push forward its economic reforms

By Hu Weijia

Forecasts by some observers that emergency aid from the IMF is likely to help Mongolia pull through its economic crisis might appear to be overly optimistic. The country's current crisis is the combined result of both external factors and an unbalanced economic structure, which is an incentive for Mongolia to speed up its domestic reforms. China will most likely be willing to provide more assistance to help the neighboring country push its economic reform forward, but it remains uncertain whether Mongolia will accept.

The IMF package may be accompanied by additional support from China as the country's central bank is expected to extend a currency swap line to Mongolia worth 15 billion yuan ($2.18 billion), easing concerns that Mongolia might default on sovereign-guaranteed debt in March. The IMF package would buy time for the debt-ridden nation to take a breath, but an international bailout cannot solve the fundamental problems that have caused Mongolia's current economic crisis.

The nation is expected to slash its budget deficit and adopt a set of fiscal reforms after receiving the IMF package, but such efforts might not be enough to restore debt sustainability. Mongolia's heavy dependence on the export of mineral resources makes the nation sensitive to commodity price fluctuations and at risk economically. In light of these problems, Mongolia has to carry out reforms to optimize its industrial structure, of which a key step will be improving economic efficiency.

China is willing to share its experience on how to promote economic diversification and investment efficiency it has had in resource-rich areas such as North China's Inner Mongolia Autonomous Region. Hopefully Mongolia will follow China's advice. It may even be worth considering setting up a mechanism to invite Mongolian grassroots officials to visit China in a bid to learn from the country.

Mongolia would benefit if its economy were more closely tied to China's rise. Lying between China and Russia, Mongolia has strived to remain politically and economically independent. It is understandable that Mongolia may have some concerns of getting too close to China, but the overall development of Sino-Russian relations creates a sound atmosphere for enhancing China-Mongolia cooperation and the crisis-hit nation should seize this opportunity.

China's aid to Mongolia is unlikely to be limited to emergency financial assistance but would include deep economic cooperation based on mutual political trust. Mongolia needs to show its sincerity for enhancing bilateral ties and pushing forward reforms.

Source:Global Times


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