* IMF bailout delayed by clause aimed at boosting forex
* Ruling Mongolian People's Party to support ditching clause
* Final deal likely to take two-three weeks - analyst
(Adds detail, background)
ULAANBAATAR, May 2 The International Monetary
Fund (IMF) has postponed a $5.5 billion bailout for Mongolia
because of a measure included in the country's 2017 budget that
forces foreign firms to bank with domestic institutions, the
IMF's country representative said.
Mongolia's economy has slid into a crisis caused by heavy
foreign debt, a collapse in its currency and a slowdown in
growth in its biggest trading partner, China. The IMF board had
been expected to approve a rescue package at a meeting on April
"The Board discussion was postponed," said Neil Saker, the
IMF's Mongolia country representative, in emailed comments,
adding that they needed to examine the details of a new measure
covering foreign exchange transactions by investors.
The IMF announced in February a $440 million Extended Fund
Facility that Mongolia can draw on for three years, in addition
to $3 billion from Japan and South Korea and a three-year
extension to a 15 billion yuan ($2.18 billion) swap agreement
with the People's Bank of China.
In the 2017 budget approved in the early hours of the
morning on April 14, legislators introduced tax changes that
would allow it to meet conditions set by the IMF.
But it also included a clause seeking to "improve"
investment agreements with foreign partners, forcing firms such
as miner Oyu Tolgoi LLC, jointly owned by Mongolia and Rio Tinto
, to do all their banking with Mongolian
institutions in a bid to bolster foreign currency reserves.
"We need a bit more time to understand the nature and the
specifics of the measure, and whether the macroeconomic
framework of the program remains valid," said Saker.
Mongolia's Ministry of Finance and Ministry of Foreign
Affairs did not immediately respond for comment.
According to a report in local news portal News.mn on
Tuesday, the ruling Mongolian People's Party (MPP) will support
the removal of the controversial clause. A spokesman for the
party declined to comment, but any move would require the
consent of parliament.
"The parliament must now approve the agreement without that
clause and have the programme discussed again by the IMF
executive board," said Dale Choi, analyst with the Altan Bumba
Financial Group based in Ulaanbaatar. "It could take another two
to three weeks."
The MPP has been anxious to show it is ready to reach deals
with foreign firms following a catastrophic collapse of inward
investment, caused in part by disputes with overseas partners
like Rio Tinto.
The previous government became embroiled in a dispute with
Rio Tinto over rising development costs and allegations of
unpaid tax at Oyu Tolgoi, delaying the expansion of one of the
world's biggest copper mines for two years.
Mongolian bonds have not so far been affected by the delay,
traders said. Bonds due 2024 were trading
steadily at 111/111.75 cents on the dollar. This $600 million
bond was issued at 101.243 in March in an exchange offer.
($1 = 6.8937 yuan)
(Reporting by Terrence Edwards; Additional reporting by Umesh
Desai in HONG KONG; Editing by Simon Cameron-Moore and Sam