(Bloomberg Businessweek) -- One morning in July, Mongolia’s president, Battulga Khaltmaa, prepared to take the podium at the National Sports Stadium in Ulaanbaatar. He was there to officially open the traditional summer festival of Naadam, during which virtually everyone in the country of 3 million celebrates feats of archery, wrestling, and especially horsemanship. Riding has been central to the national culture since the 13th century, when a tribal leader named Genghis Khan united a disparate group of steppe clans and conquered much of Eurasia.
A champion martial artist in his youth, Battulga is squat and powerful, with a thickly muscled neck and ears slightly squashed from years of grappling. He wore a dark fedora, leather riding boots, and a wine-colored deel—a fancy version of a traditional herder’s robe—cinched at the waist with a broad sash. As he awaited his turn to speak, two teams of riders in red-and-blue uniforms performed an impressive display of coordinated dismounts. After remounting their steeds in one swift movement, they tore away for a lap around the stadium, a rushing eddy of pointed helmets and bouncing tails.
Battulga stepped to the mic. “Genghis Khan, the great lord and our beloved forefather,” he said, “your horses are agile, the strapping wrestlers are adept, and the archers are well-aimed.” Naadam, he proclaimed, “is an occasion that makes each and every one of us understand the essence of being a true Mongol.”
The great Khan, Mongolia’s official national hero and a man Battulga so reveres that he constructed a 130-foot-tall statue of him, was the most feared leader of his era. His forces killed millions, many in mass beheadings, as they tore across the continent. Hardly a model democrat, in other words. Yet for most of the past three decades the country that glorifies him has been considered a star pupil of the West. European and U.S. leaders praise Mongolia as an oasis of liberty and capitalism, blessed with abundant mineral reserves, a young, worldly population, and a fervent desire to chart a path apart from its powerful neighbors, Russia and China.
“Mongolians are very loyal to the decision to have a democratic political system”
This perception has elevated Mongolia in the minds of foreign investors, notably Rio Tinto Plc, which is counting on the giant Oyu Tolgoi copper and gold project in the far reaches of the Gobi Desert, one of the world’s most ambitious mining developments, for much of its future growth. But though Mongolians have undoubtedly benefited from capitalism—gross domestic product per head has risen tenfold since 1994—polls indicate that many are deeply frustrated, believing their country’s mineral wealth has been stolen by outsiders. This sentiment fueled an explosion of anti-establishment anger that brought Battulga, a populist businessman, to power in 2017.
Under him, Mongolia’s trajectory has shifted. Battulga has cozied up to Russian President Vladimir Putin, and earlier this year he ignited a political crisis by getting legislation passed that gives him the effective power to fire judges and top law enforcement figures. He promptly used it to remove a range of judicial officials—a move he cast as necessary to fight corruption and preserve the long-term health of the country’s democracy. “Mongolians are very loyal to the decision to have a democratic political system,” he told Bloomberg Businessweek.
Although Mongolia’s reserves of copper, gold, iron ore, and rare earths make it an attractive partner for the U.S. and its allies, it’s been arguably more important to them as an example. Situated in an otherwise unbroken arc of authoritarianism extending from the South China Sea to Central Europe, the country rebuts the notion that some parts of the world aren’t suited to liberal values. As Battulga consolidates his position, though, some Mongolians are asking whether they can remain an exception. Oases do, after all, have a way of drying up.
The immediate forebear of modern Mongolia, the Mongolian People’s Republic, was nominally independent, but in practice it was a Soviet client state. It began collapsing in early 1990, after student protesters thronged the center of Ulaanbaatar. Within months there were multiparty elections, some of the first in the former communist bloc. An economic backwater even by Soviet standards, Mongolia switched to market capitalism virtually overnight, leaving many people disoriented but creating enormous opportunities for those with the instincts or connections to take advantage.
Battulga was among the latter. Raised in a tough neighborhood on the capital’s outskirts, he distinguished himself in the 1980s as a competitor in sambo, a martial art favored by the Soviet Red Army. Competing abroad gave him opportunities to import luxuries such as denim and VHS cassettes, and when the Iron Curtain fell he parlayed that experience into a thriving business called Genco, after Vito Corleone’s olive oil front company in The Godfather. Battulga’s enterprises gradually grew to include a hotel, a meat plant, a fleet of taxis, and a tour agency, all in Ulaanbaatar.
His most ambitious business project was the statue of Genghis, an hour from the city on a plain nestled between two chains of bald mountains. Banned from public display under Communism, Genghis afterward regained his status as Mongolia’s most venerated leader, his name or likeness appearing on its main airport, a popular vodka, and several denominations of its currency, the tugrik. The statue, depicting him on horseback, required 250 tons of stainless steel and became a statement of national pride and an offbeat tourist destination. The museum inside the base features a 30-foot-high riding boot, constructed with leather and 79 gallons of glue.
Battulga was elected to parliament in 2004 and became minister for transportation and construction four years later. The country was about to need both enormously. Chinese demand for copper, coal, and other commodities—Mongolia’s only meaningful exports—was soaring, creating a dramatic mining boom. In 2009, Rio Tinto struck a 30-year deal with the government to develop Oyu Tolgoi’s vast deposits, becoming Mongolia’s largest foreign investor and driving competitors to scour the country for their own finds. The money spent to develop the site helped GDP grow by 17% in 2011, the fastest pace in the world. As investment bankers and mining engineers poured into Ulaanbaatar, the dusty capital began acquiring the trappings of luxury: sushi, Porsches, a Louis Vuitton store. Officials tore down the last Lenin statue and erected one nearby to honor that accomplished Eurasian capitalist Marco Polo.
Then, almost as quickly as it began, the boom was over. Commodity prices collapsed in 2014, and the tugrik plunged, making the imports to which people had grown accustomed unaffordable. Construction jobs, the livelihood for thousands of rural migrants to the capital, disappeared. The Mongolian government had to slash civil servants’ pay, cancel infrastructure projects, and seek a bailout from the International Monetary Fund. The Louis Vuitton boutique closed.
Public fury mounted—against allegedly corrupt politicians, the wealthy, Rio Tinto. Battulga, still in parliament, was effective at stoking the mood even though he was one of the country’s most successful people and was himself being investigated over suspicions that he’d helped embezzle money from a railway project. (He denied wrongdoing and was never charged.) In 2016 he spoke at a rally called to protest economic injustice. “Our wealth is shipped outside of the country,” Battulga complained. “Where is that money going?”
The next year, he ran for president. Although he avoided direct comparisons, there were clear parallels with Donald Trump’s presidential campaign. Battulga portrayed himself as an outsider and an aspirational example, packaging his governing program in the MAGA-esque slogan “Mongolia Will Win.” Thanks largely to support from the poor, he surprised pollsters by finishing ahead of his main rival in the first-round vote and winning the runoff comfortably.
For the first part of Battulga’s term, Mongolia’s prime minister, Khurelsukh Ukhnaa, tended to occupy center stage. The prime minister runs day-to-day parliamentary business, while the president handles foreign affairs, oversees judicial appointments, and introduces legislation. The two men were from opposing parties, but that didn’t prevent them from co-operating. Mongolia’s main factions aren’t really split on ideological lines, and Battulga draws much of his parliamentary support from Khurelsukh’s party.
Battulga seized the spotlight early this year, when he started publicly pressuring Mongolia’s prosecutor general to open a corruption investigation into the previous president, Elbegdorj Tsakhia, a Harvard-educated liberal, claiming Elbegdorj had improperly tried to sell a vast coal deposit to foreign interests. (A spokesman for Elbegdorj denied the allegations.) The prosecutor refused, saying he needed a valid legal justification to open an inquiry. On March 26, Battulga introduced “urgent” legislation to give the National Security Council—consisting of the president, the prime minister, and the speaker of parliament—the power to fire a range of judicial officials. Legislators from Battulga’s own party boycotted the vote, criticizing the law as unconstitutional. But it passed in around 24 hours, thanks to support from Khurelsukh-aligned legislators, many of whom were themselves under investigation for graft.
Activists and other critics were apoplectic, but Battulga was unmoved, arguing the changes were needed to break a deep-state cabal protecting “political-economic interest groups.” Judges, police, and even spies were all part of a “conspiracy system that shields the illegal activities of these groups,” he told parliament.
The day after the law passed, Battulga removed the chief prosecutor who’d resisted him, as well as the chief justice of the Supreme Court. In May, the director and second-in-command of Mongolia’s anticorruption agency—the body that had investigated Battulga over the railway project—were also removed. The next month, 17 judges, several of them on the Supreme Court, were stripped of their powers.
Battulga works in the State Palace, a leaden edifice that would seem straight from a Soviet drafting table were it not for a new facade and a statue of Genghis. A huge map of Mongolia dominates the formal meeting room where the president greets visitors, with thumbtacks to represent mineral deposits: yellow for uranium, black for iron ore, and so on.
Battulga is 56, but age has barely diminished his physical presence, and he leaned far forward in his chair while being interviewed, elbows perched on his knees like a coach watching his athletes compete. (Battulga is a past president of the national judo federation, which won Mongolia’s first-ever Olympic gold medal during his tenure.) His manner was anything but Trumpian, marked by quiet and careful speech in a gravelly voice.
But Battulga presented himself, like Trump, as a man whose success taught him how things really work. “I know all the phases of the Mongolian economic transition well,” he said. “I also know that the Mongolian judiciary, prosecution system, and anticorruption agency have become bodies that cover and work for certain people.” If their influence isn’t disrupted to allow ordinary citizens to be heard and prosperity to be shared more broadly, he said, “Mongolia may go backwards, to a point where there would be many years of chaos.” He defended his law enforcement purge, arguing the three-person security council is an adequate safeguard: “I don’t hesitate to say that I made the right decision, and I will always stand by it.”
The corruption Battulga argues is rife stems from only one real source: mining. Starting in the 1990s, he said, “parliament members and ministers who had access to information on natural resources and legislation pocketed the money from big mining projects.” In an implicit rebuttal to critics who accuse him of dismantling institutional guardrails, he cited one of the world’s strongest democracies as a model for Mongolia, saying his government is studying how countries such as Norway “have managed resources for the public good.”
Discussions about managing Mongolia’s resources tend to turn rapidly to Rio Tinto. The 2009 Oyu Tolgoi deal gave the state a 34% stake in the project, paid for by a loan from its developers. The interest Mongolia must return is substantial, and it won’t receive dividends until the debt is covered—currently expected around 2040. Oyu Tolgoi is nevertheless already crucial to the economy, with more workers than any other private employer.
“Mongolians are very loyal to the decision to have a democratic political system”
To many Mongolians, foreign ownership of a key national asset is unacceptable. A 2019 survey by the Sant Maral Foundation, the country’s most prominent polling outfit, found that 89.9% of respondents wanted “strategic” mines to be majority-owned by Mongolians. Only 0.5% said they should be foreign-controlled. But the costs and challenges of operating such a large and complex mine, in such a remote area, mean Oyu Tolgoi is only viable in the hands of a company such as Rio Tinto. The mine is currently an open pit; a planned underground expansion, necessary to tap the richest deposits, will be even more difficult to execute.
Although Battulga has no formal power over Mongolia’s relationship with Rio Tinto, he wields enormous political influence, and he’s pushed to revisit the deal. He complained during the interview that Mongolia hadn’t fully understood its implications, calling it a “mistake made by an inexperienced country, relatively new to democracy.” He favors a partial renegotiation. “If circumstances change, or we realize new things, companies renegotiate,” he said. “It’s international practice.”
Battulga is more measured than lawmakers who want to scrap the agreement and start over, insisting Mongolia must honor its commitments. Revisiting the arrangement would be risky. Oyu Tolgoi is already expected to take longer and cost more than planned, and trying to overhaul the underlying agreements “would threaten the future of the project,” Rio Tinto wrote in a statement. The company said that the negotiations were conducted “fairly and in good faith” and that it’s working with the government to maximize the mine’s benefits.
Battulga and other Mongolian leaders will have to strike a balance between popular sentiment and Rio Tinto’s interests if they’re to deliver prosperity to the masses. Already, the turmoil has deterred other international miners from investing. The country badly needs their money and expertise; huge swaths of its territory have never been comprehensively surveyed. The first condition for becoming Norway on the steppe is pulling many more resources out of the ground.
Some of Battulga’s affinities, however, have Mongolian liberals and foreign observers worrying that his preferred future looks less Scandinavian and more Russian. Chief among their concerns is his bond with Putin. Economic ties between Russia and Mongolia have been limited since the Cold War—Ulaanbaatar is five time zones away from Moscow, and Russian companies have been far less active in Mongolia than their Chinese counterparts. But during his first two years in office, Battulga made a point of reaching out to Putin, meeting with him several times. In early September the Russian leader received a lavish welcome in Ulaanbaatar, where the pair discussed trade deals and having a large Mongolian delegation attend the key event on Moscow’s 2020 calendar, a Red Square parade celebrating the 75th anniversary of the Soviet Union’s victory in World War II.
Asked if he was tilting Mongolia toward Moscow, Battulga described the countries’ connections as both practical and emotional. “We’re almost fully dependent on Russia for oil and electricity, so we have to cooperate closely,” he said. There’s also longstanding affection for Russia among Mongolians of Battulga’s generation, for whom elite education generally meant studying in the USSR. “Russia and Mongolia,” Battulga said, “are closely bonded.”
Previous Mongolian leaders concentrated on wooing the U.S., notably by sending troops to Afghanistan and Iraq. (The country’s first armed foray to those lands, incidentally, was the 1258 sacking of Baghdad by Genghis’s grandson Hulagu Khan, whose horde rolled the city’s ruler in a carpet and trampled him to death.) Ties with Washington are the linchpin of the “third neighbor policy,” a long-running Mongolian effort to guarantee autonomy by cultivating relationships beyond Russia and China.
U.S. officials have lately been working to keep Mongolia in the West’s tent. Then-National Security Adviser John Bolton traveled there in late June, quickly followed by Secretary of Defense Mark Esper. Trump has also welcomed Battulga to the White House, a visit the Mongolian president commemorated by symbolically gifting a horse named Victory to Trump’s teenage son Barron. (The horse remained in Mongolia.) Battulga and others lament, however, that Congress hasn’t passed the Mongolia Third Neighbor Trade Act, a bill that would remove duties on some Mongolian imports.
To the people responsible for selling international businesses on Mongolia, democracy remains a key competitive advantage. Sumiyabazar Dolgorsuren, the minister of mining, says that for foreign investors, “I think it’s better to reach an agreement with a system that can actually clean itself up and right its wrongs.”
“Mongolians are very loyal to the decision to have a democratic political system”
Many of the people Battulga says he wants to help live in the ger districts, home to more than half of Ulaanbaatar’s roughly 1.5 million residents. The districts’ existence owes to two peculiarities, one cultural and the other legal. Mongolians were largely nomadic well into the 20th century, and property ownership wasn’t really relevant; there was plenty of land to go around. Eager to build a more modern market, post-Communist lawmakers created a system allowing every Mongolian to get a plot of land for free—700 square meters in Ulaanbaatar or as much as 5,000 in rural areas. Since most property nominally belonged to the state, there were few private landowners to object. One unintended consequence of the provision was that, with economic opportunity concentrated in the largest city, many nomadic families claimed a patch of land on its outskirts and never left. Few made enough money to move up the housing ladder, leaving Ulaanbaatar ringed with thousands of gers—traditional tentlike shelters used by nomads for centuries.
On a gray afternoon in a ger district that ascends the foothills north of the city center, it wasn’t hard to see why many residents supported a leader claiming he could break the dominance of the wealthy. White gers lined both sides of a rutted dirt track, separated from one another by short wooden stockades. Next to each residence was a tiny outhouse, a particular inconvenience in a country where temperatures can plunge below –30C. Peeking out above the tents were small chimneys for venting smoke from coal stoves. The average ger burns between three and four tons every winter for warmth, the main reason Ulaanbaatar has some of the world’s worst air pollution.
To the lee side of a small hill was an angular one-story structure, constructed with a skeleton of blond wood and clad in translucent polycarbonate panels. The building is a makeshift community center, one of several attempts made by a local nonprofit called GerHub, with help from designers at the University of Hong Kong, to improve the districts. Despite promises by successive generations of politicians, no one else has done it. “The government has sort of frozen,” said Badruun Gardi, GerHub’s founder. Even at the height of the mining boom, “there was this large portion of the country that wasn’t benefiting, and in some ways people’s lives were getting worse.”
You don’t have to go far in Ulaanbaatar, though, to find people whose lives have improved dramatically under market democracy. A large cohort of young, tech-savvy Mongolians, many of whom have studied or worked in the West, now form a genuine middle class. The mainstream media is vibrant, with dozens of papers and TV channels, while Twitter and Facebook buzz with passionate political debate. And when Mongolians are dissatisfied with their leaders, they can and do take to the streets, filling the central square no matter the weather.
Even people who helped bring about Mongolia’s transition to capitalism express amazement at how far the country has come. Jargalsaikhan Dambadarjaa and Bold Luvsanvandan were pro-democracy activists in 1990, narrowly escaping arrest after they postered Ulaanbaatar’s main drag. Now they’re part of the establishment: Jargalsaikhan runs a respected think tank, while Bold sits in parliament and leads a political party.
Sitting in the restaurant of the Communist-era Ulaanbaatar Hotel, they remarked on Mongolia’s uniquely independent path. Both men share Battulga’s stated interest in seeing prosperity shared broadly within the current system. “When a very few people become truly rich,” Jargalsaikhan said, “and the masses get pennies, not even toilets, that makes people unhappy.” They were nonetheless deeply concerned about Mongolia’s direction. “What’s happening in Hungary and Poland, similar things are trying to be happening here,” Jargalsaikhan said.
“Nobody wants Mongolia to keep democracy,” Bold chimed in, alluding to the country’s neighbors. “I’m not even sure about Western countries. Dealing with a dictator is much easier.”
To contact the authors of this story: Matthew Campbell in Singapore at mcampbell39@bloomberg.netTerrence Edwards in Ulaanbaatar at tedwards100@bloomberg.net
To contact the editor responsible for this story: Jeremy Keehn at jkeehn3@bloomberg.net
©2019 Bloomberg L.P.
