Mongolia Concerned ‘Hot Money’ Heats Economy, Central Bank Deputy Governor says

Mongolia is concerned about the destabilizing effect of “hot money” inflows on the economy as it begins to develop large coal and copper mines, said Bold Javkhlan, the first deputy governor of the central bank.

The country spent an equivalent 180 billion tugrik ($140 million) last year to stabilize the exchange rate and will keep the policy this year as expected commodity price gains and the start of operations at new mines pressure the currency, Javkhlan told a forum in Ulan Bator, Mongolia’s capital. About 40 percent of money inflows into Mongolia are short-term, he said.

“One issue I’d like you all to be concerned with is hot money,” Javkhlan said. “The real exchange rate has quite a gap with the nominal. The more this grows, the more speculative money will come in.”

The tugrik has gained 15.4 percent against the dollar since Jan. 1 last year and 19.2 percent versus the euro as the country’s second-largest export, copper, hit a record $10,190 a metric ton on Feb. 15, and coal prices advanced on supply disruptions from Australia. Mongolian banks hold about 1.5 trillion tugrik of “extra” liquidity, Vice Minister of Finance Ganhuyag Chuluun Hutagt said March 2.
Oyu Tolgoi

Oyu Tolgoi, a copper and gold mine being developed by Rio Tinto Group with Ivanhoe Mines Ltd. and the Mongolian government, is due to start operating in 2012. The mine will account for 30 percent of Mongolia’s gross domestic product when fully operational in 2020, according to the venture.

Erdenes Tavan Tolgoi, operator of the eastern part of the coal field which is estimated to hold some 6.4 billion tons of the fuel, will start mining and exporting within two months. It may produce about 1 million metric tons this year, Lkhagva Ganbat, a company board member, said March 2. Annual output may reach 15 million tons in three years, he said.

“From 2014, when most of the mining projects are up and running we don’t need to be scared of this money flows coming in, because it will be real money going into the economy,” Javkhlan said. “The main goal now is stability of the fiscal system.”

To contact the reporter on this story: Yuriy Humber in Tokyo at yhumber@bloomberg.net

To contact the editor responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net


Source:Bloomberg news wire service