Private Investment Funds in Mongolia: Legal Framework

Abstract

As of spring 2017, Mongolia needs foreign and domestic investments more than ever. This is because Mongolia is on the verge of a severe economic crisis. Since 2012, Mongolian economic growth has decreased from 17.8% to 0.8%. The main causes of this economic crisis were fiscal indiscipline, weak rule of law, unnecessary and wrong political promises to gain or retain political powers. Furthermore, outside factors, such as falling commodity prices and China’s economic slowdown, accelerated the impact. Mongolia is a land-locked country between two powerful neighbors, Russia and China, with an extraordinary potential on account of its untapped resource wealth. For the past twenty-five years, Mongolia has embraced the forms of a democratic polity that promised to provide a better life for its people. However, corruption and crony capitalism has caused a widening of wealth inequity and increased suffering among the common people. In addition, the Mongolian economy is still hugely dependent upon its two-giant neighbors and international commodity prices, as mining (coal, gold, copper, etc.) is the leading and largest economic sector. Therefore, foreign direct investment, economic diversification, industrialization, fair competition and promotion of business activities have always been the country’s main objective. These goals may not able to be reached without developing the capital market and, therefore, the policy-makers are committed to supporting the securities and capital market. Private investment funds could be the best way to attract or increase foreign and domestic direct investments during this crisis period. In addition, private investment funds could be the most efficient starting point to developing the capital markets sector in Mongolia.