Genghis Bond Renegotiation

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.

Published by kflenz

Professor at Aoyama Gakuin University, Tokyo. Author of Lenz Blog (since 2003,

2 thoughts on “Genghis Bond Renegotiation

  1. I would claim that I DO know something about Mongolia.

    While I agree with some of what you write here, there are also parts that I see somewhat differently.

    Yes, lots of noise in parliament and civil society about the desire to re-negotiate the Oyu Tolgoi Investment Agreement is not building investor trust in Mongolia as a destination for foreign investment. While this may be unclear to some – including some policy makers – in Mongolia, the link is very clear to others and explains the prompt reaction of the executive against noises in parliament (though this reaction was less strident from the current DP-led government than it had been under the MPP-DP coalition last year).

    On the other hand, I also have a lot of sympathy for the very difficult situation that Mongolian decision-makers find themselves in.

    If handled right, Oyu Tolgoi – virtually by itself – could be the foundation for a materially prosperous Mongolia where current levels of poverty will (hopefully) be a thing of the past.

    If handled poorly, however, Mongolia will end up with environmental destruction, increasing inequality, and a collapsing state despite its robust democracy.

    How to strike a balance between competing intentions – long-term growth vs. short-term profits, maximizing benefits to future generations vs. appealing to today’s electorate – is not entirely obvious.

    Yes, the process is not unfolding in an ideal fashion in Mongolia and there’s much to worry about – including corruption and the frequent impression that Mongolian policy-makers are not always motivated by the common good of the people, but it is a necessary process and it is a (largely) democratic process, warts and all.


  2. Of course no one can object to “handling Oyu Tolgoi right”. I disagree on many things the project does as well.

    For example, they should build some massive solar and wind capacity instead of pulling in electricity from China, and planning yet another coal power plant.

    They should use some of that water they are pulling from the Gunii Holoi aquifer to plant tomatoes in a greenhouse with the Sundrop Farm technology, and hand out some more to local herders over newly constructed water outlets. They should aim for a positive environmental impact.

    But in the post above I am not talking about what they are doing or how much of the profit the Mongolians should get, as opposed to the shareholders of Rio Tinto. I am talking about the simple fact that if you agree to something, you need to actually follow through, or live with the consequence that no one will trust you any more.

    That fact is obvious when talking about bonds. It seems to be not obvious to everybody when talking about Oyu Tolgoi.


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