Source: The Guardian                                   Date: 28 July, 2010

A catastrophic winter has killed millions of animals and left thousands of rural families in Mongolia struggling to survive. It has also exacerbated the country's financial woes, increasing the pressure to exploit its vast but largely untapped mineral resources. Two decades after the collapse of communism, the country may be at another turning point. Only the ravens are fat here, gorged on carrion. For many households, their only recent income has been UN payments for burying carcasses.

But beneath the soil could lie a fresh start for the country: gold, copper, uranium, lead, fluorspar and coal. Analysts at one investment bank have predicted it could unleash an unstoppable transformation and create a "Mongolian wolf" economy. For its citizens, such prospects are long overdue. The former Soviet satellite has been hailed as a success story of post-communist political transition, moving with relative smoothness to democracy. But its economy has taken it close to disaster in the last two decades. The country lost almost its sole source of aid and trade. Poverty rates soared in the 90s and rationing was in place during the early years of capitalism. Even after recent annual growth rates of around 8%, the proportion living below the poverty line appears stubbornly unchanged at more than a third.

Many are clustered in the unlovely capital of this strikingly beautiful country. Most long-term migrants are stuck in the crowded ger settlements around the capital, where 46% live in poverty. Stray goats pick their way through the mud and children kick at corrugated steel fences separating each plot. Sanitation and services are poor. Many lack the documents to claim benefits – though a registration drive should help – and the skills to find work. Some scrabble over rubbish dumps for plastic or glass to sell to recyclers.

Cheerleaders of the move to exploit the country's natural resources believe it can tackle such entrenched poverty, creating jobs and growth. But many observers are concerned that the prospects are being oversold. "Expectations have gone, in my view, way ahead of reality," said Mr. Arshad Sayed, country representative of the World Bank. "There is a big danger society faces, because when people's expectations are not met, at some point they will get very upset."

Oyu Tolgoi will create 3,000 jobs, but the real question is how the government spends the revenues and whether the mine will kickstart the wider economy. The deal was stalled for years by concerns that foreign firms would not give Mongolia a fair deal and anxiety about the geopolitical implications. Negotiations on the development of Tavan Tolgoi, a massive coal seam, are mired in similar debates.

"Of course you [may be] a nomad – but you are a nomad in the 21st century, and you have to adapt to the market to survive," said Mr. Ulambayar, who believes herders need training in risk management and new livestock practices.

"[Oyu Tolgoi] may not be the best agreement but I don't think it's the worst either," said Mrs. S. Oyun, a trained geologist, former foreign minister and one of only three opposition MPs, thanks to Mongolia's grand coalition. "Time is also of the essence. After 20 years of transition, many people's lives are economically no better off than under communism." Boost health and education spending and Mongolia can diversify its economy and see real development, she said. That is all the more necessary because the winter blizzards precipitated a rural crisis that has been long in the making.

"Forty-four million animals was far beyond [Mongolia's] natural capacity," said Mr. T. Ulambayar of the UNDP, who believes even the surviving livestock population pushes the limits of sustainability. Tens of thousands of families moved to the countryside in the 90s, when the economic crisis led to food shortages in cities. Some say that contributed to the increase in herd sizes, with new herders unaware of the dangers of overgrazing.

But challenging herders is "very political", Mr. Ulambayar added, not only because they form a powerful constituency, but because nomadism is identified with the country's very spirit. You can drive for hours across Mongolia without seeing a fence, and permanent buildings are few and far between. On the horizon, dotted about, are the gers of herders. The scene appears timeless. But its inhabitants have been buffeted not only by the weather but by man-made forces arising far beyond the steppes: desertification partly caused by global warming, bad loans and rising interest rates, and volatile commodity prices. When cashmere prices soared, they bought more goats, which damaged more pastures. Then the financial crisis hit. Wealthy westerners reined in their spending, cashmere prices halved and incomes plummeted.