Russia Forgives $172 Million of Mongolian Debt

In late January, Russia wrote off 97 percent of Mongolia’s Soviet-era debt of around $172 million, according to Russia’s state-run Tass news agency. President Vladimir Putin signed the deal early in 2010, which allowed Mongolia to repay its debt of 163.7 million convertible rubles and USD $10.5 million with a lump sum payment of $3.8 million. Half a decade later, the upper house of Russia’s parliament has finally ratified this deal. Negotiations toward a debt agreement became more complicated after the collapse of the Soviet Union and the conversion of the ruble in 2006. The Russian deputy finance minister expressed that there was opportunity for the debtor to default on the loans because the debt was denominated in the non-existing currency of the former Soviet Union. With this deal, however, an agreement was made to convert the amount into existing currency units.

Mongolia’s heavy debt was mainly comprised of loans provided by the former Soviet Union for the charter capital of the Mongolian-Russian joint venture, MongolRosTsvetmet, a fluorspar mining and production company ranked as the fifth leading producer in the world. Mongolia’s economy relied heavily on Soviet aid for more than 700 projects that were implemented during the Soviet era. Major joint ventures between Mongolia and Russia in mining and infrastructure development account for a large portion of Mongolia’s current GDP. Likewise, Putin has shown interest in developing Mongolian uranium deposits, leading to an agreement between Russian and Mongolian nuclear agencies on bilateral cooperation in 2009.

Russia’s forgiveness of Mongolian debt is a significant move in the strategic and economic relationship between the two neighboring countries. Mongolia’s rich mineral resources and lack of infrastructure provide a ripe opportunity for further development and economic growth.