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Layoffs in financial hubs such as London and New York are rippling deep into the grasslands of Mongolia, where herders are suffering as the price of cashmere, a wool used in luxury suits, has plunged.

A drop in demand for cashmere clothing as investment bankers, lawyers and other high-flyers have either lost their jobs or faced salary cuts has led to a 50-per-cent fall in cashmere prices, sapping the income of goat herders on the Mongolian steppes.

That is just the tip of the iceberg of the impact the global financial crisis is having on the people of this vast, landlocked country wedged between Russia and China.

Aside from plunging wool prices, the economic slowdown in countries such as South Korea means that the tens of thousands of Mongolians working there are sending less money back home to their families - or even returning home after losing jobs.

And with prices for the country's main export, copper, and other metals down relative to last year, construction and other spending have slowed, taking a toll on the government's coffers and its ability to help the poor.

Sereeter Damba, who like much of the population is a nomadic herder, is looking for new ways to support his wife and 11 children now that his 200 sheep and goats are no longer worth what they used to be.

"I'm trying to find a way to plant crops, some vegetables, because I'm not making enough from my herd. But it's hard to get land to do so," Mr. Damba, 52, said at a settlement at Bayanchandman, 70 kilometres northwest of the capital, Ulan Bator.

In the meantime, a loan of 500,000 tugriks (about $390) is helping his family to get by at a time when inflation in Mongolia is still more than 12 per cent, after peaking at 34 per cent last summer.

He is determined to hold onto his herd, which serves as collateral on the loan. "Of course I'll pay it back," he said.

Many others have not been so lucky. Pinched between double-digit interest rates and low meat and cashmere prices, more and more herders have been driven into default on their loans, forcing them to give up some or all of their flocks.

That downward spiral in turn affects people like Sambuugiin Saruul, a 43-year-old carpenter in Bayanchandman who has seen demand shrivel for his wood fences and other building materials.

"Last year, by this time, I had lots of orders and people even paid in advance," Mr. Saruul said. "This year, it's nothing like that. I've had one or two orders but no money, they want it on credit."

He and his family have had to cut back on food as a result, reduced to just one full meal a day. Like many others before him, he is considering moving to the city to find work.

Nearly half of landlocked Mongolia's roughly three million people now live in Ulan Bator, according to some estimates. Many are concentrated in the capital's outlying districts, where running water and sewerage are rare.

Sarunl Sambuu and her husband were forced to move there in 2000 when a fierce winter storm, known as a zud, killed their herd of 200 goats and sheep. They have resigned themselves to life in the city. "If we had livestock, we'd definitely go back to the countryside. But if you don't have any, there's no life there," Ms. Sambuu said.

Most people like Ms. Sambuu and her husband face bleak prospects, said Luvsandendev Sumati, director of the Sant Maral Foundation, an organization that does surveys on economic and social issues. "The problem is that their labour skills are very low. They require a lot of retraining, vocational training," he said.

The construction industry, which experienced a boom on the back of high copper and other mineral prices of 2006-2008, has effectively ground to a halt, cutting job opportunities. The retail and service industries have also suffered.

With jobs scarce and inflation high, the real effective wages of day labourers in Ulan Bator fell by about 60 per cent between April, 2008, and April this year, the World Bank said in a recent report.

Once protected by a socialist safety net during Mongolia's days as a Soviet satellite, the poor are increasingly unable to rely on state handouts as the government's revenues have dropped by more than 30 per cent over the past year in the wake of tumbling metals prices relative to the historic highs reached last year.

That forced it to agree to a $229-million (U.S.) loan package with the International Monetary Fund in April, a program the IMF said is proceeding smoothly.

Pivotal for turning the Mongolian economy around will be an agreement with foreign miners on developing the massive Oyu Tolgoi copper and gold mine and the Tavan Tolgoi coal deposit, said Arshad Sayed, the World Bank's country manager for Mongolia.

Negotiations for the Oyu Tolgoi project in particular, set to be developed by Ivanhoe Mines Ltd. and Rio Tinto PLC, have dragged on for years as the government has sought better terms to help pull its people out of poverty.

Gross domestic product per capita was about $1,600 in 2008. The Oyu Tolgoi project alone could increase GDP by about a third, according to some estimates.

"Mongolians are looking forward to the developments as a way to, in many ways, jump start the economy," Mr. Sayed said.

But whatever happens with the mining deals or the economy, Demchigiin Dorjdavga, a herder in the countryside near Ulan Bator, expects to continue the only way of life he knows, moving with his wife from place to place with their herd.

"As long as we have some flour and rice, we are not so interested in spending on other things," the 50-year-old said. "I was born and grew up in the grasslands. I've spent all my life here, so I'll probably die here too."

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The numbers

$4.9-billion

Mongolia's 2008 GDP, in U.S. dollars

8.9 per cent

Mongolia's estimated growth rate in 2008

34 per cent

Portion of Mongolia's labour force involved in agriculture

5 per cent

Portion of Mongolia's labour force involved in industry

Source: CIA World Factbook

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 19/04/24 1:47pm EDT.

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IVN-T
Ivanhoe Mines Ltd
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RIO-N
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+0.3%66.88

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