IMF Agrees to Discuss Support for Mongolia as Economy Slows

(Bloomberg) -- Mongolia requested cooperation from the International Monetary Fund, as slowing growth and plunging foreign investment raise pressure on a government that’s asked its citizens to vote on how to rescue the economy.
“The IMF has received a request from the Mongolian authorities to begin discussions of possible IMF support to Mongolia,” Yuko Kinoshita, the fund’s representative for the nation, said in an e-mail Tuesday. “The IMF will be sending a team to Ulaanbaatar soon to initiate these discussions.”
Mongolia received an IMF bailout loan as recently as 2009 after “teetering on the verge of economic collapse” from the impact of the global financial crisis, the fund said at the time. The commodity-rich country recovered by riding the wave of rising coal and copper prices to post economic growth of 17 percent in 2011 before slowing with a slump in foreign investment.
“Economically, Mongolia sits on the razor’s edge: Proceed with mega projects and resume rapid growth, or enter an economic ice age,” said Nick Cousyn, chief operating officer for BDSec, Mongolia’s largest brokerage. “It’s unclear to us what the IMF can do until they know what will happen” with developments such as Tavan Tolgoi and phase 2 of the Oyu Tolgoi project, he said.
Growth was 7 percent in the nine months through September from a year earlier, according to the National Statistical Office. Foreign direct investment fell 70 percent last year from 2013, the central bank said.

Stand-by Program

The talks with the IMF will discuss any kind of cooperation that could benefit Mongolia, including a “stand-by program,” the prime minister’s adviser, Chuluunbat Ochirbat, told Bloomberg Television in Ulaanbaatar. The IMF made $229 million available in a stand-by arrangement in 2009.
The IMF mission will begin next week, according to Kinoshita.
As the nation sought funds for new infrastructure to expand mines by adding power sources and roads, the state-run Development Bank of Mongolia LLC and government sold more than $2 billion in bonds to foreign investors denominated in U.S. dollars and in yen.
The nation’s bonds and currency sank to record lows last month as a slide in commodity prices and the dispute with Rio Tinto Plc over developing one of the world’s largest copper and gold mines kept foreign investors away.
Mongolia’s sovereign dollar bonds rose after the report of discussions with the IMF, pushing the yield down 30 basis points to 7.92%, according to data complied by Bloomberg.
The tugrik has fallen almost 43 percent against the dollar in the past three years and was at 1,944.24 to the dollar on Feb. 2, according to the Bank of Mongolia website.
To contact the reporters on this story: Michael Kohn in Ulaanbaatar atmkohn5@bloomberg.net; Yuriy Humber in Tokyo at yhumber@bloomberg.net
To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.netJames Mayger
Source:Bloomberg
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