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This Alliance Is Brought to You by the Letter ‘M’


Introducing the world's most unlikely political grouping.

Letter M.png

ULAANBAATAR, MONGOLIA — As a basis for an international alliance, a common first letter might not seem as natural as a common language, religion, or geography. But Mongolia needs all the friends it can get. 

After all, it’s not easy being a landlocked country with global ambitions. This land of a — widely spaced — 2.8 million people is undergoing one of the world’s great economic booms, recording annual double-digit growth rates over the last two years, thanks largely to a mining windfall. 

As fine a circumstance as that may be, it crystallizes the fact that a single economic partner wields tremendous influence over domestic affairs. The Chinese dragon has coiled its tail around Mongolia, accounting for more than 80 percent of Mongolia’s exports. Additionally, to the north is Russia, an old but complicated friend with motives of its own. Mongolia imports near all its oil and petroleum from Russia over a domestic railway network still controlled by the Federal Agency for Railway Transport in Moscow — more than 3,000 miles away. 

You can’t blame Mongolia for looking farther afield. As the country begins to monetize the trillions of dollars in mineral wealth beneath its soil, the stakes have risen. How can Mongolia leverage the mineral boom while safeguarding against the undue influence of its hungry superpower neighbors? Mongolian leaders are fixated on the limits of their geographical position, China and Russia’s stranglehold on trade, and a desire to make lasting economic strides. 

Purevsuren Lundeg, the foreign-policy advisor to Mongolian President Tsakhiagiin Elbegdorj, was brooding over this displeasure one day last August when across his desk came a news release issued by Silk Road Management, an Ulan Bator-based investment company specializing in public equities, money markets, and bonds in out-of-the-way markets. The notice announced the creation of something called the M3 Fund, "the first ever investment fund to be focused on Myanmar, Mongolia and Mozambique, three resource-rich countries which we term as M3." The news release noted that the countries have more in common than the letter M. All three are undergoing post-socialist democratic reforms. Each is experiencing a natural resources boom that will extend for decades. And most importantly, each borders at least one of the BRICS countries (in the cases of Mongolia and Myanmar, two), which are hungry for control of these natural resources. Alisher Ali, Silk Road’s managing partner, told me that he thinks, "All three nations will be among the top five fastest-growing economies in the next decade." Mongolia’s superheated economy already ranks No. 4. 

Purevsuren’s interest was piqued. It was the first time he had thought of these three countries in a single grouping, and Mongolia is eager to form new political and economic alliances. "We want to have less dependence on our two neighbors," Purevsuren told me. Could Mongolia, Mozambique, and Myanmar cooperate to the benefit of each individual country, massaging diplomatic, social, and economic growing pains? 

This was the beginning of Ulan Bator’s attempts to form the M3 cluster, a fledgling political alliance. The goal, vaguely sketched, is to join these three countries in a loose confederation of information, exchange, and advice, with groupings such as the G-20 and the Arab League serving as models. Mongolia is attempting to construct a union of allies that can protect it against the ravenous economies of its BRICS neighbors. "We’re looking at the similarities, to bring to the forefront what we have in common and coordinate common goals and interests," Purevsuren says. "This idea is brand-new. Mongolia is going to show leadership on this." 

Purevsuren drew up a proposal on President Elbegdorj’s stationery. He sent one copy to colleagues in Naypyidaw, Myanmar’s capital, which he had recently visited for bilateral talks on democracy. He dispatched another copy to the belly of the beast itself, Beijing, where the Mongolian ambassador to China handed the note to his Mozambican counterpart. 

Mongolia is now initiating trilateral talks to be held this June at the World Economic Forum’s East Asia summit in Naypyidaw. There are also preliminary plans for the presidents of the three countries to convene for talks in Ulan Bator. "We have a number of issues in common," says Victorino Xavier, the national director of economics at Mozambique’s Ministry of Industry and Trade. "That process is welcome in Mozambique. For us, that would be a good initiative. We have a lot to gain from each other." 

Thura Ko Ko, the managing director of YGA Capital Limited, a Naypyidaw-based firm investing in regional and international funds, also sees potential. "One of the interesting things that we could learn is if Mongolia takes control of its natural resources, instead of handing out concessions left, right, and center to the Chinese or the Russians," he said. "Maybe that’s part of the reform process you’ll see in Myanmar, whereby we no longer want to have to turn to our neighboring markets. We would like to have a wider frame in terms of our natural resources and reach out to the West, perhaps." 

In March, Purevsuren and Mongolia’s deputy minister of foreign affairs, Damba Gankhuyag, made an official visit to Myanmar. They discussed cooperative initiatives with the head of Myanmar’s presidential administration, the deputy speaker of the parliament, and the chief of the committee on foreign affairs. The government of Myanmar announced that several of its representatives, along with Aung San Suu Kyi, Nobel Peace Prize laureate and chair of the opposition National League for Democracy, would take part in the ministerial conference of the Community of Democracies, which was held at the end of April in Ulan Bator. 

Gunaajav Batjargal, director of the Mongolian Foreign Ministry’s department of policy planning and research, discussed his hopes for the alliance with me. "We have similarities. Why not get together and share our experiences?" he said. "We are close to the demand houses of the world. We have to prevent the complete rip-off of our natural resources. We’d like to cooperate to achieve a possibly unified position. It’s a very ambitious task, and daunting. It’s game-theory stuff." (One U.S. Embassy official was less charitable, quipping that the new collective would be the "mortar between the BRICS.") 

So what are these countries actually going to work on? One convenient starting point might be the new mining law that officials in Myanmar are drafting, scheduled for a final debate in early 2014. In December, Mongolia published draft revisions to its own mining law. The changes would appear to steer Mongolia away from the free market practices that have underpinned its recent economic growth by granting the government free stakes in numerous mining developments. This sort of resource nationalism may not win Mongolia plaudits at Davos, but it’s the kind of measure that the guardians of small, yet growing economies like those of the M3 believe may be necessary to avert domination at the hands of their stronger neighbors. Of the more than 4,000 mining licenses in Mongolia, more than half are already in Chinese hands. 

As for Mozambique, though it may neighbor South Africa, the most relevant BRICS country for its future may be Brazil, with which it shares a language, colonial history, and deepening economic ties. The Brazilian mining company Vale plans to mine 4.5 million tons of Mozambican coal this year. Eletrobras, Latin America’s largest utility, is considering building a $6 billion project in the capital, Maputo. In addition, India and China are among the potential developers of the recently discovered gas off its coast, which promises to make Mozambique the world’s third-largest exporter of liquefied natural gas in the coming years. 

Myanmar is looking to diversify its partners as well. Due to lengthy Western sanctions against the military junta running the country, China long ago established its primacy in Myanmar, taking strong positions in jade, timber, teak, real estate, and other industries. In the 2011-2012 fiscal year, trade between the two countries totaled $3.6 billion. China is Myanmar’s No. 1 trading partner. However, domestic frustrations over perceived Chinese environmental indiscretions, underlined by a protest that halted the development of a multibillion-dollar hydroelectric dam in Myanmar, have boiled over. 

The concern over Chinese dominance was likely one major factor behind Myanmar’s recent moves to liberalize the country’s political system, including allowing Aung San Suu Kyi to run for office. But though its emergence from pariah status may one day lead to fully normalized relations with the United States and Europe, Myanmar’s leaders are also interested in friends closer to their own situation. 

"Myanmar is very sensitive," says Murray Hiebert, Sumitro chair for Southeast Asia studies at the Center for Strategic and International Studies. "There’s certainly a concern. The goal is to open up the economy. They are strenuously looking for alternatives to China. They want to create models for good business practices." 

While the governments move to formalize the alliance, the concept’s originator, Silk Road, continues with plans of its own. The M3 fund is currently valued at $25 million. Ali, Silk Road’s managing partner, recently established an NGO in Ulan Bator, the Mongolia-Myanmar Business Council, that fosters connections between those in the financial sectors in the two countries, though the organization has broader goals. "We would like to encourage political links," Ali says. "These countries should definitely get together and form policy. Hopefully, this will result in an effective response to the dark side of physical proximity to these BRICS countries." 

The concept got a further vote of confidence recently when Supachai Panitchpakdi, secretary-general of the U.N. Conference on Trade and Development said in a speech in Ulan Bator, "The 3Ms — Mozambique, Myanmar, and Mongolia — are on the map and are raising investors’ interest worldwide. There are many obstacles to climb, but they are in your hands." Less than a year old, the M3 idea is on the global agenda. 

It may seem ironic that a political union dedicated to protecting against dangers of foreign investment was inspired by a foreign investor. Then again, the BRICS, now a formal political grouping with regular summit meetings, started out as a cheeky acronym in a Goldman Sachs report. And Mongolia, eager for solutions to its geographical challenges, will take inspiration where it can find it.

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