Reuters International

By Terrence Edwards

ULAANBAATAR (Reuters) - An electoral pact between the two main opposition parties in Mongolia collapsed this week, weakening the odds of victory for the Mongolian People's Party (MPP), which oversaw the world's highest economic growth five years ago, in crucial polls set to take place in June.

The ruling Mongolian Democratic Party was expected to come under intense pressure at this year's elections, scheduled for June 29, after four straight years of slowing growth and declining foreign investment, but it remains unclear if the MPP now can take advantage.

The MPP oversaw the country's highest-ever growth in 2011 and the strongest in the world that year at 17.5 percent. It was also in power for the signing of the investment agreement for the giant Oyu Tolgoi copper-gold mine in 2009, which spearheaded a three-year mining boom as world coal prices rallied.

Since then, the country's mining sector has taken a hit as a result of a dispute with Anglo-Australian miner Rio Tinto over Oyu Tolgoi, which has recently been resolved.

Mineral-dependent Mongolia is also one of the countries worst affected by slowing growth in China, which buys up nearly all of its northern neighbour's copper, gold and coal.

Negotiations fell through on Wednesday between the MPP, which ruled when Mongolia was a one-party state under Soviet hegemony before 1990, and the breakaway Mongolian People's Revolutionary Party (MPRP). The two sides disagreed over how seats would be divided in an electoral pact, according to a statement from the MPP.

"It would have been a hit with the electorate because they're splitting each other's votes," said Dale Choi, analyst and head of the Mongolian Metals & Mining research group, about the proposed campaign pact. "It absolutely would have given the MPP the upper hand."

The MPRP first ran for elections in 2012 under the leadership of former president Nambaryn Enkhbayar, who was convicted on corruption charges in 2012 and pardoned the following year.

The MPP currently has a small lead over the Democrats, according to poll published this month from the Sant Maral Foundation.

The poll gives the MPP a 14.6 percent approval rating from voters, higher than the 11.1 percent scored by the incumbent Democratic Party. The MPRP was the third most popular party, with a 6.8 percent approval rate.

Government under the Democrats has been dogged by party infighting, with one dispute derailing a deal that would have brought $4 billion (£2.7 billion) of investment into the country's enormous Tavan Tolgoi coal mine.

The government of the current prime minister, Chimed Saikhanbileg, negotiated the deal in 2015 but it was blocked by Zandaakhuu Enkhbold, the parliamentary speaker, on the day when investors were due to sign the final agreement in Ulaanbaatar.

(Reporting by Terrence Edwards; Editing by David Stanway and Nick Macfie)

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