After the Mongolian government successfully placed $1.5 billion of “Genghis Bonds” at the market, are they going to call for a renegotiation to that as well?
I mean, 5.15% interest for the ten year bonds is rather high, considering the excellent prospects for growth the country has. Clearly investors are unreasonable if they except to actually get paid that much, or get paid back their capital.
I bring this up not because there are rumors on the Internet that the Mongolian government is considering anything like that, or to start such a rumor myself. As far as I know (I know close to nothing about Mongolia), the Mongolian government does not propose to renegotiate their debt at this point.
Doing so would have the obvious unfortunate consequence of lowering the already low credit rating even further. Basically, anybody buying those bonds makes a bet on the ability and the willingness of the Mongolian government to pay those debts at exactly the conditions that were agreed on in the first place.
So what is the point of this post?
I would like to respectfully explain to the Mongolian government that what they are doing right now is just as short-sighted, indefensible, and damaging to the country as asking for a new deal on the Genghis Bonds would be.
By asking for a new deal on Oyu Tolgoi, they are damaging the trust of their own country. Besides, what would be the point of a new agreement if that could be unilaterally declared invalid by any later government? Having an agreement only makes sense in the first place if one can trust the other party to follow through on whatever was agreed.
This policy of damaging Mongolia’s trust needs to stop. If it doesn’t, the rapid GDP growth of the past years most certainly will, as will production at Oyu Tolgoi. With no production at Oyu Tolgoi, a higher tax rate on basically nothing will bring much less tax revenue than the agreed rate on normal progress would bring.
And the possible project of using the Gobi for large scale renewable energy will be over before it even reaches the first stages.