Mongolia made the headlines this month over its economic issues. "We have come to a situation where we may not be able to afford to pay salaries and the operating costs of government departments," Mongolian Finance Minister Choijilsuren Battogtokh said in a televised address to the nation Tuesday, attempting to introduce a task force to deal with the current economic plight.
In fact, an economic crisis has been brewing in Ulan Bator for a long time. Unlike other Central Asian countries, Mongolia's heavy dependence on the export of coal and other mineral resources makes its economic situation closely linked to commodity prices and its economy is therefore easily put at risk. The ongoing economic crisis was directly triggered by the decline in the prices of minerals in the international market. With a small population, Mongolia is more prone to be subject to international economic risks than other bigger ones.
Mongolia's permanent neutrality has brought both positive and negative effects to its economy. Generally speaking, small states like Mongolia can hardly stand on their own feet and need exterior support for domestic development. Neutrality eliminates the likelihood of Mongolia being sandwiched between China and Russia and it tilts toward neither China nor Russia, but as a result it will affect its economic assistance from both countries. This doesn't benefit Mongolia's economy.
In fact, Mongolia could have had better economic performance if it hitchhiked on China's rise. While Russia needs to rely on other countries for development due to its disrupted economic structure and is hence unable to boost others' economic growth, the Chinese economy runs the other way around.
Japan and South Korea, unhappy to see China developing natural resources in Mongolia, have attempted to obstruct Beijing-Ulan Bator resource-related pacts. Despite the fact that many Chinese enterprises are eager to invest in Mongolia, a number of Chinese projects there have been halted, which had inflicted heavy damages to Mongolia's economy.
The current economic crisis is the combined result of Mongolia's unbalanced economic structure and exterior factors. Mongolia should have taken advantage of China's rise to make up for deficiencies in its economic structural, but it missed the opportunity.
At present, the Mongolian government is confronted with a number of challenges that need urgent solutions. Apart from inflation, unaffordable governmental expenses and debt problems, Ulan Bator has to fundamentally transform its economic structure.
However, the nation is not financially capable to address the current difficulties and will have to turn to other states for help. Urgent economic aid from other countries may save Ulan Bator from its temporary plight, but cannot offer a fundamental solution to the nation's crisis.
Mongolia has to readjust and improve its ties with China for its future development. Being neutral politically does not necessarily mean complete economic neutrality. It also needs to transform its economic structure. Being a member of World Trade Organization, Mongolia needs to enhance domestic investment and environmental protection, and encourage foreign investment to develop a diversified economy.
What Mongolia is undergoing can happen to countries that have a similar economic structure to Mongolia and rely heavily on the export of resources. It can draw upon more experiences in its neighbors and other countries to help it walk through the crisis.
The author is a senior research fellow at the National Institute of International Strategy, Chinese Academy of Social Sciences. email@example.com Follow us on Twitter @GTopinion