Page | 67Other Issues Affecting Stability
Mineral Wealth, “Dutch Disease,” and Corruption
Mongolia sits on vast mineral wealth that is just
beginning to be exploited to its full potential. How
the nation manages the expected influx of wealth
generated by these resources may have important
ramifications on its political stability. In several
resource-rich countries such as Nigeria and
Venezuela, new wealth has not translated into a
growing gross domestic product (GDP) per
capita.^365 In some such cases, the so-called
“Dutch Disease” has been part of the problem.
Foreign currency flowing into the country causes local currency to appreciate. This
appreciation damages the competiveness of other local economic sectors in the world
economy. To some extent, Mongolia’s cashmere industry has already felt the effects of
such a currency appreciation.366,^367
The Mongolian government has proposed several measures to address these issues. One
such measure is a stability fund, consisting of surplus revenues set aside when mineral
prices are high. This fund will make up for shortfalls when mineral prices decline. While
there is significant political pressure to disperse much of the government’s mineral
windfalls into cash payments to Mongolia’s many poor citizens, some legislators are also
pushing for a development fund that will promote improvements in infrastructure and
other areas that will help spur job growth.
Another problem Mongolia faces is the highly volatile
nature of mineral prices When world demand slackens, as it did in the recession of 2008–
2009, prices may drop sharply, leading to significant budget shortfalls.
368Corruption is a persistent problem in Mongolia. The degree to which the government
negotiates its mineral licensing agreements and allocates its newly obtained wealth in an
open and transparent manner will strongly influence how the Mongolian public reacts to
the ultimate choices that are made. Mining has traditionally been viewed as one of the
most corrupt sectors of the Mongolian economy in annual surveys about corruption, a
(^365) Michael Forsythe, “Mongolian Harvard Elites Aim for Wealth Without ‘Dutch Disease,’” 15 February
2010, http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aONmVLraqtO8
(^366) Bloomburg, “Mongolia Seeks Balanced Growth to Avoid ‘Dutch Disease’ From Mining Boom,”
Business-Mongolia.com, 8 March 2011, http://www.business-
mongolia.com/mongolia/2011/03/08/mongolia-seeks-balanced-growth-to-avoid-%E2%80%98dutch-
disease%E2%80%99-from-mining-boom
(^367) Chris Devonshire-Ellis, “What if the Wolf Snarls? Mongolia’s Macro-Economic Risks,” 7 March 2011,
http://www.2point6billion.com/news/2011/03/07/what-if-the-wolf-snarls-mongolias-macro-economic-
risks-8767.html
(^368) Michael Forsythe, “Mongolian Harvard Elites Aim for Wealth Without ‘Dutch Disease,’” 15 February
2010, http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aONmVLraqtO8