THE 'GOLD-3' PROGRAM MUST LEARN FROM PREVIOUS EXPERIENCES

By Ts. Elbegsaikhan

FINDING LIGHT IN THE DEPTHS OF THE CRISIS: THE 'GOLD-1' PROGRAM

In the early 1990s, Mongolia's economy had completely collapsed. In 1991, aid from the Soviet Union - which had accounted for roughly one-third of the country's GDP - was abruptly halted, plunging the economy into a rapid downturn. Losing its main trading partner, which had made up over 80% of foreign trade, factories faced severe shortages of raw materials and spare parts, and many were forced to close. By 1992, annual inflation had skyrocketed to 325.5%, sharply reducing citizens' purchasing power, and basic goods such as bread and flour were distributed via ration cards. With state foreign currency reserves depleted and external debt rising, the newly established democratic government faced the urgent task of stabilizing the economy and preventing further decline.

Under these difficult circumstances, the "Gold-1" program was launched in 1992 at the initiative of then-President P. Ochirbat, seen as a key pathway out of the crisis. Its main goal was to increase gold production in order to boost foreign currency reserves, generate cash flow within the economy, and support the private sector.

The government granted private businesses the right to operate in gold placer deposits, introduced favorable tax policies, and provided support through banking credit mechanisms, opening the door for domestic enterprises to enter the gold sector.

ECONOMIC GAINS AND INDUSTRY GROWTH

The "Gold-1" program proved to be a timely and effective economic policy, as the numbers clearly showed. Before the program, Mongolia produced an average of around 700 kg of gold per year. With the program in place, production surged dramatically, reaching 11.4 tons annually by 2000 - a sixteen-fold increase. Over this period, a total of 53.4 tons of gold was extracted, and with purchases made by the Mongol Bank, the country's foreign currency reserves began to take shape.

Under the program, the gold industry contributed roughly 10% of state budget revenues and about 20% of GDP, generating a total of $107.6 million for the budget.

This provided a crucial boost to an economy that had previously relied heavily on subsidies and foreign aid, enabling it to recover by utilizing its internal resources. In addition, dozens of domestic companies began operating in the mining sector, strengthening the industry and creating thousands of new jobs, which contributed positively to social stability.

THE ENVIRONMENTAL AND SOCIAL TOLL OF "GOLD-1" PROGRAM

Nevertheless, the "Gold-1" program had significant negative consequences for both the environment and society. At the start of the program, environmental protection and rehabilitation laws were weak, and oversight was insufficient. As a result, gold-mining companies exploited the land irresponsibly and polluted rivers and waterways. This led to environmental degradation - often referred to as a "silent plague" - which began to adversely affect the lives of local residents and herders.

Meanwhile, the deep economic crisis and widespread unemployment drove thousands of people, left without a means of livelihood, to gold deposits, where they engaged in small-scale illegal mining - giving rise to the term "ninja" mines. Working conditions were harsh, labor safety was largely neglected, and the use of toxic substances such as mercury caused serious harm to both human health and the environment. This became a major social and economic challenge for the country.

ECONOMIC CHALLENGES AND THE "GOLD-2" PROGRAM

From the mid-2000s, Mongolia's mining sector - particularly copper - benefited from rising global prices, and mega-projects such as Oyu Tolgoi and Tavan Tolgoi began moving forward, drawing attention away from the gold sector. However, by the mid-2010s, falling commodity prices and a decline in foreign direct investment once again put the economy to the test. At this time, the gold sector's role in increasing foreign currency reserves and stabilizing the MNT exchange rate became critical, prompting the government to adopt and begin implementing the national "Gold-2" program in 2017.

The main goal of the "Gold-2" program was to support gold exploration and production, improve the legal and regulatory framework, and provide financial assistance to gold-mining enterprises in order to steadily increase the amount of gold delivered to the Mongol Bank.

Under the program, the Mongol Bank and the government jointly established mechanisms to provide low-interest loans to gold producers through commercial banks and, previously, through the Development Bank.

Lessons learned from the "Gold-1" period were applied as well, with greater attention given to environmental protection and the promotion of responsible mining practices.

As a result, the amount of gold purchased by the Mongol Bank increased significantly. In 2017, the bank bought 20 tons of gold, reaching a historic high, and in 2024, it purchased 16.5 tons. By the first seven months of 2025, over 7 tons had already been acquired. This contributed directly to increasing the country's foreign currency reserves and improving the balance of payments. Once considered to have a negative balance, Mongolia's foreign currency reserves reached a historic high of $5.5 billion by the end of 2024, thanks largely to the "Gold-2" program.

The program also aimed to create transparency and stability in the gold sector and reduce the circulation of illegal gold. Incentives to increase gold deliveries, along with favorable tax policies, encouraged enterprises to officially hand over their mined gold to the Mongol Bank rather than conceal or smuggle it across the border.

WHY GOLD-3 MATTERS

Today, Mongolia's economy faces several challenges and vulnerabilities similar to those encountered during the implementation of the "Gold-1" and "Gold-2" programs. This is why the term "Gold-3" campaign has emerged. For example, during the "Gold-1" program, the loss of Mongolia's main foreign trade partner, the Soviet Union, created an urgent need for foreign currency to trade with other countries, and the most valuable resource that could be readily converted was gold. During the "Gold-2" program, falling commodity prices and a sharp decline in foreign direct investment led to balance-of-payments deficits and depleted foreign currency reserves, ultimately bringing Mongolia to the brink of joining the IMF's Extended Fund Facility.

Today, although the country's foreign currency reserves are sufficient, the MNT continues to weaken against the US dollar, reflecting ongoing economic pressure. In simple terms, the domestic market still lacks goods, creating strong demand for imports. However, the country has exhausted most channels for foreign currency inflow. With foreign trade running at a deficit, foreign direct investment sharply declining, and national external debt rising, policymakers are reluctant to tap into the country's reserves.

The foreign exchange rate alone indicates that conditions similar to those during the previous two programs - when the market struggled to find balance and remained unstable - are emerging once again.

From the perspective of policymakers, however, this is a secondary concern. Gold programs - or appeals to the IMF - come into play when budgetary discipline breaks down, government operations and productivity falter, and the state lacks the capacity to fund its budget. When the "Gold-1" program was implemented, Mongolia had yet to learn how a budget is formed in a free-market system; the "Gold-2" program was implemented when coal prices plummeted, cutting government revenues.

The "Gold-3" campaign is essentially a response to the fact that Mongolia has been unable to diversify its economy over the past 35 years.

AS TIME PASSES, NOTHING REMAINS THE SAME

While there are reasons to draw comparisons, it is more appropriate to view the "Gold" programs not as a vicious cycle but as a pathway forward. A country whose social system - shaping the hopes, confidence, and livelihoods of two to three generations - had collapsed and wandered without direction has today become a nation engaged in regular trade with over 160 countries, with an established market system. During this period, GDP per capita rose from around $500 to $5,600, improving living standards and eliminating the need for people to risk their lives digging underground for gold.

During this period, the government has also matured, strengthening its capacity, improving the legal and regulatory framework, tightening oversight, and enforcing environmental standards. At the same time, the mining industry has aligned itself with global practices, striving to adopt more efficient and sustainable models.

However, this does not mean the "Gold-3" campaign is unimportant. Even as exports grow, investment improves, and debt pressure eases, Mongolia should aspire to become a major global player in gold. Especially at a time when the value of gold continues to rise, it is important to strengthen the country's gold reserves. Despite some presidential vetoes and policy setbacks, outdated practices - digging by hand with shovels and pans and evaporating mercury over small furnaces - are now largely gone. Today, the gold sector should be developed according to careful planning and scientific principles, generating large-scale employment, contributing tax revenue to both the state and local communities, supporting regional businesses, and adhering to responsible mining practices. Only then will the bitter experiences and emotional trauma of a whole generation be healed, and the mining sector take on a renewed, vibrant identity.