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Mongolia is an East Asian country located between Russia in the North and China in the South. The country is rich in minerals and they represent more than 80% of Mongolia’s exports. Since 2004 the government has been experimenting with a basic income for children. In 2009 the Human Development Fund (HDF) was established and financed from mining dividends. It provided monthly cash transfers to every citizen between 2010 and 2012. It was described as a citizen ownership democracy where citizens get a direct and equal share of their country’s wealth as co-owners of their country. However expenditure vastly exceeded mining revenues and led to a vast deficit of the HDF. Therefore the general cash transfers were stopped in 2012 after an election and the government returned to transfers to children only.
In 2016 a law established a new sovereign wealth fund which was named the Future Heritage Fund. It inherited the huge debts from the HDF and only started to accumulate savings since 2019. Since then it has returned to universal cash transfers for children. In May 2020 the government increased the ‘child money’ from 30,000 to 100,000 Tögrög (MNT) (equivalent to 34 US Dollars) as a response to mitigate the impact of the COVID19 pandemic in the country.
Another scheme gave 1,072 shares of the Erdenes Tavan Tolgoi coal mining company to every citizen in 2011. These shares could be used for various purposes including tuition fees for students, health insurance coverage or cash through a stock repurchase program by the government. About a third of Mongolians (about 1.08 million people) have kept all their shares and are eligible for a full dividend payout of MNT 96,480 (USD 34). The dividend scheme has had an important positive side-effect that citizens’ share-owners demanded the company hold open shareholder meetings and provide detailed information on company performance. Moreover it has been proposed that similar schemes should be applied to other state-owned enterprises.
We can learn from the challenges of the Mongolian approach. It also raises some interesting questions:
- There is a lack of financial and economic literacy of most citizens.
- Citizens cannot sell their shares except to the state under specific circumstances. Should this be seen as a positive or negative constraint?
- Cash transfers proved unsustainable when commodity prices fell.
- The promise of cash transfers was used by political parties in past election campaigns and has been prohibited in a new Election Law of 2019. However dividend shares of companies remain legal and may be the future.
- There is widespread dissatisfaction among citizens about the mining sector which has failed to deliver benefits to the whole population. Citizens’ shares are seen as one way to make every citizen a beneficiary of the country’s mineral endowment.
- Is it important that these shares cannot be inherited and instead be given as an endowment to every person born in Mongolia?