Defaulting is defined as the “failure to fulfill an obligation, especially to repay a loan or appear in a court of law” and there are growing concerns that Mongolia is going to do so in the very immediate future due to its current currency crisis. Why, though? According to the same economic supranational organizations and foreign investors who are now bracing for impact, the country was one of the safest bets you could make when it came to making money only a few short years ago so what changed?
Much like Venezuela’s economy during the late 2000s, Mongolia’s biggest asset is natural resources, though in the case of the Central Asian country, the resources are minerals or precious metals like gold instead of oil, and in the late 2000s, the prices on these kinds of natural commodities went through the roof which meant many an investor funded the set up of mining operations in the country of barely 3 million inhabitants.
However, commodities like gold, copper, and oil are very vulnerable to market swings and as of this moment, those prices are on their way down which means that the money Mongolia was rolling in has now dried up and the Mongolian tugrik has dropped by an unsightly eleven percent since the start of 2016. Exacerbating the problem is that the country who purchased many of Mongolia’s goods, it’s southern neighbor China, is experiencing its own economic slowdown which means they are buying less. Mongolia is also short on vital foreign cash flows which could help mitigate the turmoil. There are plans to build more mines but that might not stop the bleeding because that still doesn’t address the lack of diversity in Mongolia’s economy. Fortunately for them, at least in comparison to Venezuela is that while they undergo these economic struggles their government is not simultaneously collapsing even as their economy continues to do so.
