1 MONGOLIA-CHINA AGREE TO COLLABORATE IN INCREASING MEAT EXPORT WWW.MONTSAME.MN PUBLISHED:2018/09/21      2 U.S. AND MONGOLIA SEEK TO STRENGTHEN ECONOMIC RELATIONSHIP WWW.STRTRADE.COM PUBLISHED:2018/09/21      3 MONGOLIA, U.S. LEADERS DISCUSS BILATERAL TIES WWW.XINHUANET.COM PUBLISHED:2018/09/21      4 BELT AND ROAD SIGNIFICANT TO MONGOLIA, PEOPLE AROUND WORLD -- ACADEMIC WWW.ENG.YIDAIYILU.GOV.CN PUBLISHED:2018/09/21      5 PETRO MATAD UPDATES MONGOLIA EXPLORATION WWW.OGJ.COM PUBLISHED:2018/09/21      6 RIO TINTO’S EXIT FROM COAL PAYS OFF, TO RETURN $3.2B FROM SALES PROCEEDS TO SHAREHOLDERS WWW.MINING.COM PUBLISHED:2018/09/21      7 OPENING CEREMONY OF SAINSHAND SALKHIN PARK HELD WWW.MONTSAME.MN PUBLISHED:2018/09/21      8 ALIBABA’S MA SAYS TRUMP’S TRADE WAR ‘DESTROYED’ HIS PROMISE TO CREATE JOBS FOR 1MN AMERICANS WWW.RT.COM  PUBLISHED:2018/09/21      9 LEGAL DISPUTE OVER EMC OWNERSHIP COMES TO AN END WWW.ZGM.MN PUBLISHED:2018/09/20      10 ERDENES TAVAN TOLGOI REVENUE SURGES DUE TO HIGHER COAL PRICES WWW.NEWS.MN PUBLISHED:2018/09/20      НУРАХ ДӨХСӨН БАЙРУУДЫГ ШИНЭЧЛЭХ КОМПАНИ ОЛДОХГҮЙ БАЙНА WWW.ZGM.MN НИЙТЭЛСЭН:2018/09/21     МОНГОЛ УЛС ВАШИНГТОН, ПЁНЬЯНЫ ХЭЛЭЛЦЭЭРТ ЗУУЧЛАХАД БЭЛЭН ГЭДГЭЭ ЗАРЛАЛАА WWW.EAGLE.MN НИЙТЭЛСЭН:2018/09/21     УЛСЫН ХЭМЖЭЭНД 85.3 МЯНГАН ТОНН ТӨМС ХУРААН АВААД БАЙНА WWW.MONTSAME.MN НИЙТЭЛСЭН:2018/09/21     ЗГ: БУЦАЛТГҮЙ ТУСЛАМЖИЙГ УСНЫ НӨӨЦИЙГ САЙЖРУУЛАХ, ХЭРЭГЛЭСЭН УСЫГ БУЦААН АШИГЛАХАД ЗАРЦУУЛНА WWW.BLOOMBERGTV.MN НИЙТЭЛСЭН:2018/09/21     ҮСХ: УЛААНБААТАРТ АЖИЛЛАГЧДЫН САРЫН ДУНДАЖ ЦАЛИН УЛСЫН ДУНДЖААС 121.7 МЯНГАН ТӨГРӨГӨӨР ИХ БАЙНА WWW.BLOOMBERGTV.MN НИЙТЭЛСЭН:2018/09/21     МОНГОЛ УЛСЫН ИХ ХУРАЛ, ЕВРОПЫН ПАРЛАМЕНТ ХООРОНДЫН XII УУЛЗАЛТААР ХАМТАРСАН МЭДЭГДЭЛ ГАРГАЛАА WWW.DNN.MN НИЙТЭЛСЭН:2018/09/21     ТӨРИЙН АЛБАНЫ УДИРДАХ АЖИЛТНЫ УЛСЫН ЗӨВЛӨГӨӨН БОЛЖ БАЙНА WWW.UNUUDUR.MN НИЙТЭЛСЭН:2018/09/21     2019 ОНЫГ МОНГОЛ, АМЕРИКИЙН ЗАЛУУЧУУДЫН ЖИЛ БОЛГОНО WWW.EAGLE.MN НИЙТЭЛСЭН:2018/09/21     УУРХАЙЧДЫН АЖЛЫН БАЙР НЭМЭГДЭЖ, ЦАЛИН ӨСЧ БАЙНА WWW.GOGO.MN НИЙТЭЛСЭН:2018/09/20     “ЭРДЭНЭТ”-ИЙН 49 ХУВИЙН ӨМЧЛӨЛ ТОЙРСОН ХУУЛЬ ЗҮЙН МАРГААН ЭЦЭС БОЛЛОО WWW.ZGM.MN НИЙТЭЛСЭН:2018/09/20    

Events

Name organizer Where
Frontier's "Invest Mongolia Tokyo 2018" Frontier Securities Tokyo Japan
"Open to Export" ICC WTO International business award ICC WTO London

NEWS

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NSO reports on socio-economic conditions in January and February 2018 www.gogo.mn

According to a report from the National Statistics Office (NSO) on socio-economic data for the first two months of 2018, the total balanced income of the state budget and foreign aid was 1.2 trillion MNT; expenditure and debt were a combined 1.1 trillion MNT; and the state's balance of payments saw a surplus of 73.1 billion MNT.

Commodity turnover increased by 248.1 million USD. Mongolia had commercial relationships with 109 countries in the first two months of the year, and foreign trade turnover reached 1.6 billion USD, with exports at 838.4 million USD and imports at 726 million USD.

Exports increased by 13.1 million USD compared to the same period in 2017, impacted by the increased export of 41.4 million USD in unprocessed and half-processed gold. The cost of consumer goods and services increased by 6.9 percent compared to the same period in the previous year.

Production in the industrial sector increased by 14.2 percent to reach 2 trillion MNT. Production in mining and exploration reached 163.2 billion MNT, an increase of 12.5 percent. This was affected by increased coal extraction, which reached 82.1 billion MNT, and increased metal ore extraction, which reached 361.3 billion MNT.

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Mongolia’s coal exports drop a third in February www.brecorder.com

ULAANBAATAR: Mongolian coal exports fell by a third in February, the country’s statistics bureau said on Tuesday, with bottlenecks at the border with China continuing to drag on trade.

Export volumes declined 33 percent to 3.25 million tonnes, while the value of coal exports dropped 25 percent to $245.4 million in the first two months of the year, according to the National Statistics Office.

“The reason is obvious: the bottleneck at the border is causing exports to drop,” said Mogi Badral Bontoi, chief executive and analyst for Cover Mongolia.

Bonto said the number of trucks passing through the border is now a “fraction” of what it was last year.

“From the Chinese side, the customs clearing process has trucks spend more time at the border trying to get cleared,” he said.

Coal exports have helped shore up Mongolia’s struggling economy, but they have been hit by Chinese border restrictions. Trade slowed after customs authorities cracked down on the smuggling of meat and other goods into China last year.

Truck queues stretched as far back as 130 km on one border road for more than a week in October 2017, forcing Mongolia to close it down to clear traffic. Authorities plan to build a new route to cut down on congestion.

China is Mongolia’s number-one trade partner, and bought 87 percent of its northern neighbour’s total exports in the first two months of the year, including nearly all of its coal. Mongolia’s exports to China fell 3.9 percent compared with a year earlier.

Commodities other than coal fared better. Gold trading value more than doubled to $72 million while copper concentrate exports rose 11.5 percent.

Mongolia’s trade surplus reached $225.4 million during the first two months, the statistics office said.

Copyright Reuters, 2018

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Stock trading increased by 59.3 percent in 2017 www.gogo.mn

Mongolian stock liquidity was at 3.2 percent as of the end of 2017, a decrease of 0.1 percent compared to 2016.

By the end of 2017, the value of the Mongolian securities market reached 2.4 trillion MNT, an increase of 65.5 percent (one trillion MNT) compared to 2016. Stock trading was assessed at 49.1 billion MNT in 2016, rising by 59.3 percent in 2017 to 78.1 billion MNT.

According to the Financial Regulatory Commission, although positive changes have been observed, the fact that the market's value is higher than sales and as liquidity has declined, there is a need to strengthen the primary and secondary markets, and to decelerate stock centralization.

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Supporting local money and capital markets in Mongolia www.finchannel.com

The FINANCIAL -- The European Bank for Reconstruction and Development (EBRD) has supported the Mongolian Ministry of Finance (MoF) in developing a money and capital markets strategy and implementation road map, which form part of the MoF`s Financial Sector Strategy 2025.

The project identified the barriers to money and capital market development in Mongolia and provided a set of recommendations, along with a roadmap for their implementation. The project ended with a final workshop in Ulaanbaatar in December 2017 that was attended by representatives from the MoF, Bank of Mongolia (BoM), Mongolian Stock Exchange, Mongolian Securities Clearing and Settlement Corporation, International Finance Corporation and local commercial banks.

Irina Kravchenko, Head of the EBRD Resident Office in Mongolia, said during her welcome speech: “We are very pleased to assist the government in developing their strategy for the money and capital markets, which is essential for establishing a well-functioning financial system, strengthening investors’ confidence and supporting economic growth.”

Hannes Takacs, EBRD Associate Director, Local Currency and Capital Markets Development, noted during the workshop that the EBRD is welcoming Mongolia’s efforts to develop sound money and capital markets: “The EBRD is ready to further support Mongolia in attracting foreign investors to the local capital market by improving market transparency, market operations and investor protection.”

Aude Pacatte, Head of Local Currency Portfolio Management at the EBRD Treasury, said: “The roadmap for the development of money and capital markets is an important milestone, which we very much hope will be followed up with pragmatic implementation of necessary reforms. The EBRD is looking forward to continuing to work with the authorities and market participants to support and participate in the next phase of market development.”

The Financial Stability Council of Mongolia met on 9 February 2018 and discussed the final deliverables, which should be approved jointly by the BoM, MoF and Financial Regulatory Commission, according to the EBRD.

Mongolia has been an important partner of the EBRD and the Bank has invested €1,389 million there since EBRD operations began in Mongolia. With regard to technical cooperation for the capital market, the EBRD’s Local Currency and Capital Markets Development team has deepened its partnership with the MoF over the past several years and has worked on various topics including initial public offerings of state-owned enterprises.

Improving access to finance through the development of money and capital markets is one of the priorities of the Bank’s strategy for Mongolia. The Bank is currently discussing several follow-up projects with the Mongolian authorities to continue the fruitful cooperation in developing the overall financial markets.

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Inflation to stay under single digits in 2018 www.gogo.mn

The experts of Bloomberg economist club predict the inflation rate to be near the Bank of Mongolia’s 8 percent target this year. Majority of the experts estimate the inflation to be 7 percent in the first quarter of 2017 and under single digits throughout the year.

Although Mongolia’s inflation hiked to the Bank of Mongolia's (BoM) target level in 2017, the BoM expects that the inflation will be stable in line with the objectives of the monetary policy. As reported by the National Statistics Office, the national inflation rate reached 6.9 percent and 8 percent in Ulaanbaatar city as of January 2018, due to increase in excise taxes on some products, such as tobacco and fuels.

This was mainly resulted by the 16.7 percent price increase of housing, water, electricity and fuel groups, 24.3 percent of vehicle sales price and 9.1 percent increase of tobacco price. In January, a total of 31.1 percent of consumer goods and services of 344 market basket prices increased compared to the previous month and the prices of 51 goods selected out of 100 food products was raised.

The BoM views that the metal components in copper concentration will increase and the increased investment in the non-mining sector will boost the economic growth. It is also expected that FDI, which has been slowing down in recent years, is likely to increase this year. For instance, the Governor of BoM disclosed that around USD 1 billion is expected to be brought into the economy in 2018.

Oyunbayar.N

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Taxes collected from SMEs to be refunded www.gogo.mn

Amendments to 24 tax-related laws are currently under public discussion until March 23. Prime Minister Khurelsukh Ukhnaa previously assured that 90 percent of Corporate Income Tax collected from SMEs will be refunded regardless of the field of operation. SMEs who have an annual sales revenue of less than MNT1.5 billion will be entitled to receive the refund.

The draft amendments also dictate to cut 20 percent dividend distribution tax of non-residents to 5 percent.

According to MarketIntel, the biggest factors hindering Mongolia’s competitiveness were its foreign currency regulations, corruption, political instability, and inefficient government bureaucracy. Furthermore, laws in recent years have set high capital contribution requirements for foreign- owned companies and the Government of Mongolia’s 2013 attempt to renegotiate Rio Tinto’s Oyu Tolgoi mining contract set a dangerous precedent in the eyes of foreign companies and slowed FDI.

MarketIntel views that the tax bill is likely to be passed with some minor changes. The MPP government is obliged to bring an attractive plan to the table as soon as possible to garner public and business support. The government is already under public pressure due to its increasing unpopularity over recent fuel price increases, the failed attempt to raise the personal income tax rate in January 2018, and scandals surrounding the Erdenet Mine.

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Rio Tinto subsidiary Turquoise Hill Resources in Mongolia corruption inquiry www.thetimes.co.uk

Rio Tinto’s troubles in Mongolia worsened last night, after the mining giant’s subsidiary received a request for information from the country’s anti-corruption agency.

The miner, which is developing a copper and gold project in the Gobi desert, confirmed that its Mongolian subsidiary, Turquoise Hill Resources, had received an “information request” from the Mongolian Anti-Corruption Authority (ACA).

The London-listed global mining company digs up metals and ores including iron, aluminium, copper, gold and uranium, plus diamonds, coal, salt and other minerals. It employs 55,000 people in 40 countries on six continents.

The request to Turquoise Hill Resources was linked to preliminary discussions held nine years ago over the Oyu Tolgoi mining project, one of Rio Tinto’s global growth projects.

“The request relates to an investigation about possible abuse of power by authorised officials during negotiation of the 2009 Oyu Tolgoi Investment Agreement. There is no indication in the information request to suggest that Oyu Tolgoi is a subject of the investigation,” the company said.

Rio Tinto has a 50.8 per cent stake in Turquoise Hill, which in turn controls a 66 per cent stake in Oyu Toglu. Mongolia’s government owns the other 34 per cent.

Rio Tinto, which aims to invest $5 billion in an expansion of the mine, has experienced a series of problems in Mongolia amid increasing tension with the government.

Relations deteriorated in 2013, when a dispute arose over costs and taxes linked to the project. That was settled in 2015 but further problems surfaced in January when Rio had to suspend shipments of copper and gold after a dispute at the border with China.

Turquoise Hill, which is listed in Canada, was also hit with a $155 million tax claim. The company has disputed the claim.

Since 2010 Rio has ploughed more than $7 billion of investment into Mongolia, which has abundant reserves of minerals, especially copper.

The country’s proximity to China, the world’s biggest copper consumer, has attracted investors hopeful of brisk growth in demand for the metal, which is widely used in the manufacture of everything from electric cars to electronics and pipes.

Recently, however, shareholders have begun to question the wisdom of the project, amid criticism of Rio’s disclosures on the risks associated with the Oyu Tolgoi mine.

The Anglo-Australian mining group is also embroiled in a row with the government in Ulaanbaatar, the capital of Mongolia, over power for the mine, after it scuppered a deal to take its electricity from China.

The group is now pursuing an alternative plan to build a power station at the site, which is expected to drive up costs significantly .

In January Jean-Sébastien Jacques, Rio Tinto’s chief executive, said: “Mongolia is one of Rio Tinto’s most strategically important markets and we are here to stay. We are proud to partner with Mongolia to build one of the best copper and gold mines in the world, supplying the essential materials used in everyday life.”

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Mongolia president appeals to US for trade to protect democracy www.channelnewsasia.com

 

ULAANBAATAR: Mongolia's president has appealed to U.S. President Donald Trump for more trade between their countries, saying an economic downturn has threatened to destabilise the young Asian democracy sandwiched between China and Russia.

Mongolia's role as an "oasis of democracy" in a region where authoritarianism in on the rise "does not contribute to economic development", Mongolian President Khaltmaa Battulga said in a letter to Trump dated March 12 and published on his website.

Battulga said prosperity was coming too slowly.

"Ordinary Mongolian citizens have become discouraged by democracy and have begun to doubt our choice," he said.

Mongolia is emerging from an economic crisis after agreeing to a US$5.5 billion (£3.9 billion) economic bailout from the International Monetary Fund last year, which helped stabilise its currency and relieve debt pressures.

A resurgence in the coal trade in the region also helped boost growth to 5.1 percent last year compared with just 1 percent in 2016.

But Mongolia exported just US$8.3 million worth of goods to the United States last year, according to Mongolia's National Statistics Office. Its total exports stood at US$6.2 billion, with the bulk going south to China.

Trade with the United States was less than 2 percent of its total last year, and a U.S. decision to allow imports of Mongolian clothing would help ensure economic stability, Battulga said.

He also called for easier visa conditions for Mongolian citizens.

The United States is one of Mongolia's so-called Third Neighbours, which Mongolia uses to balance relations with heavyweight neighbours China and Russia.

Battulga told Trump that U.S. trade and investment could help prevent Mongolia from moving in a more authoritarian direction.

"I am confident that supporting Mongolia's economic security will play a prominent role in your country's foreign policy," he wrote.

(Reporting by Terrence Edwards; Editing by David Stanway, Robert Birsel)

Source: Reuters

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As copper booms, miners take hunt to Mongolian dunes www.reuters.com

LONDON (Reuters) - When temperatures rise and winds drop in the coming weeks, a band of explorers will hunt for copper riches in Mongolia’s Gobi Desert.

For years Rio Tinto has been the sole international copper mine operator in Mongolia, bound closely to a country where it has bet billions of dollars on the giant Oyu Tolgoi project. Others have steered clear due to the risks of operating in a nation with an unpredictable and young democracy and judiciary, a frail economy and extreme weather.

Now rising global demand for a metal used in electric cars and renewable energy, at a time of increased costs and depleted deposits in the world’s biggest copper producer Chile, is driving miners to riskier locations.

Some are looking to Mongolia.

Geologists say deposits like Oyu Tolgoi - meaning Turquoise Hill because of the staining of the rocks by oxidized copper - rarely occur in isolation. That means, for some miners, the chances of finding another make the east Asian nation worth a calculated gamble, especially given its proximity to the world’s biggest copper consumer, China.

The new charge is led by a group of about half a dozen smaller players, including Australia’s Xanadu Mines (XAM.AX), Canada’s Kincora Copper (KCC.V) and U.S. company Wood Capital Partners, which have higher risk appetites and are seeking to steal a march on competitors.

Wood Capital Partners, set up by two former Citigroup bankers and specialized in acquiring distressed assets, told Reuters it had invested“several million dollars” in exploration territory in the Southern Gobi.

Co-CEO and Managing Partner Stephen Dizard said the firm bought the concession - which is 364 square km, or about six times the size of Manhattan - from a frontier markets fund which was in liquidation.

He wanted to get into Mongolia ahead of a rush driven by the global hunt for new copper. He said miners would become increasingly confident in buying assets in the country because the economy was slowly improving, aided by an International Monetary Fund bailout.

“It (Mongolia) was distressed financially and distressed across the sector,” Dizard added.“We took the view, the situation had to improve. It has.”

Beginning in March and April, he said the company’s drilling budget would be“a minimum of a seven-figure number”.

Sam Spring, CEO of Kincora, said it raised about $4.5 million last year to fund its Mongolian exploration. The company, which has licenses for more than 1,400 square km of land, drilled 6,000 meters last year and results were promising, and that it would step up activity in late March or early April.

“We’ve started to see a change of investor sentiment. There is increasing infrastructure and hopefully we are seeing tailwinds rather than headwinds,” added Spring, who describes Mongolia as one of the last frontiers for top-quality copper assets.

Andrew Stewart, CEO of Xanadu, thinks he will be able to gather enough information over the coming months to determine whether he can justify establishing a mine in the country.

He is planning drilling using four rigs compared with two last year.“Mongolia is very good because it has the prospectivity,” he said.

DESERT LABYRINTH
The dream is another discovery on the scale of Rio Tinto’s Oyu Tolgoi - a chain of deposits in the southern Gobi, about 550 km south of the capital Ulaanbaatar and 80 km north of the border with China.

But even Rio Tinto (RIO.L) (RIO.AX), which is relying on Mongolia to drive growth after committing about $12 billion to the project, only resumed exploration there last year after a five-year hiatus during the copper market downturn.

The Anglo-Australian miner says it has still to make any return on its investment, but in January it announced an exploration office in Ulaanbaatar, its first formal office in the capital.

This was a symbolic move intended to underline to the government its commitment to the country, according to industry sources. Rio Tinto says the office will employ 80 staff and cover technology as well as exploration.

To make up for dwindling output at the open pit mine Rio Tinto is building a labyrinth of underground tunnels that will increase annual output to 560,000 tonnes, about three times current production from the open pit. Ramping up the underground operations will begin around the start of the next decade.

As well as the market downturn, Rio Tinto has had to contend with wrangles with the Mongolian government over taxes and power supply. The mine is jointly owned by the government, with 34 percent, and Turquoise Hill Resources (TRQ.TO) with 66 percent. Turquoise Hill is in turn 51 percent-owned by Rio Tinto.

Rio Tinto CEO Jean-Sebastien Jacques said problems were inevitable but his company was there for the long haul.

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“My personal experience over the last five years is, that you know, lots of issues as you would expect, but each time we have been able to work through them,” he said last month.

“I’m not saying it’s going to be easy.”

-40C TO 40C

Miners and political analysts say that, while the economy in Mongolia is gradually improving, the legal system is opaque and frequent changes in government since the country became a democracy three decades ago have created policy uncertainty, making investors wary.

The Mongolian mining ministry did not respond to Reuters requests for comment.

Miners must also deal with temperatures that can swing from -40C to 40C, and ferocious winds that can last for days. As a result, they tend to limit drilling programs in the Gobi to between late March and November.

By contrast, drilling can take place all year round in Chile and other Latin American countries.

Such considerations have deterred most miners for many years. BHP Chief Executive Andrew Mackenzie, for example, told Reuters his preference was for safe jurisdictions, namely the Americas. He described Mongolia as“potentially very prospective but not without security and geopolitical challenges”.

Xanadu Mines Ltd
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But copper market conditions are slowly driving change.

Rio Tinto’s renewed activity and the exploration of rivals comes as demand increases for a metal needed in large quantities for the electric-vehicle and renewable energy industries.

Copper prices CMCU3 have rebounded to nearly $7,000 a tonne from lows around $4,300 a tonne hit in early 2016, which was their weakest since 2009.

At the same time, Chile’s long-exploited ore bodies are ageing and challenged by arsenic concentrations and proximity to large populations. Mine workers there have also been demanding higher wages, adding to costs.

Such is the draw of Mongolia - which has the same type of“porphyry” rock formations - that even Chile’s giant state copper company Codelco has said it is considering investing in the Asian nation.

An advantage of the porphyry formations is that the copper is often accompanied by gold, which can effectively subsidies the copper production.

“Mongolia represents a very prospective region for copper deposits of the porphyry type,” said Jamie Wilkinson, research leader in mineral deposits at London’s Natural History Museum.

“Oyu Tolgoi was found in 2001. There have been some small discoveries since then but nothing on the same scale. There is lots of potential for future discoveries.”

‘NOT FOR FAINT-HEARTED’

However, while there may be geological potential, there is no guarantee of unearthing commercial volumes of copper, and luck is always a significant factor.

The interest from overseas explorers, if sustained, could nonetheless prove crucial for Mongolia itself, which is heavily dependent on commodities and had to turn to the IMF last year following a collapse in foreign investment.

About 30 percent of its 3 million people live in poverty, according to 2016 figures from the World Bank and Mongolia’s national statistical office.

Moody’s raised the country’s sovereign debt rating by a notch in January, following the IMF bailout deal, but it is still deep in junk territory.

The deal has helped the country pay off its sovereign debt and stabilized the local currency, the tugrik, but required Ulaanbaatar to introduce measures such as higher taxes and cuts to social welfare.

Iain Watt, CEO of mining business IGI’s UK operations, said it too was exploring possibilities in Mongolia, as well as central Asia, and that there was clear potential for investors.

“Mongolia is definitely on the up - but it’s not for the faint-hearted.”

Reporting by Barbara Lewis in London; Additional reporting by Terrence Edwards in Ulaanbaatar and Karin Strohecker in London; Editing by Pravin Char

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Ch.Khashchuluun: We must increase tax payers not tax rates www.theubpost.mn

The UB Post recently sat down with Dr. Ch.Khashchuluun to discuss in-depth Mongolia’s IMF program, woes in the taxation system, and the mining sector. Ch.Khashchuluun is a professor at the Department of Economics, a member of the Academic Council and the board of the National University of Mongolia. In addition to his teaching, Dr. Ch.Khashchuluun serves as an executive director of the Mongolia Oil Shale Association and is managing a number of non-governmental organizations and research consulting activities. From 2010 to 2011, he was appointed as the inaugural chairman of the board of directors to lead the establishment of Development Bank of Mongolia, and from 2006 to 2012, he was a member of the board of directors of the Central Bank of Mongolia.

It has been almost a year since Mongolia entered into the extended fund facility with the International Monetary Fund. There were a lot of expectations at first. Do you believe that those expectations were met and what is your evaluation of the program so far?

The extended fund facility is a program that is usually undertaken in countries that are in a very difficult place economically. The purpose of the program is not only to address the short-term problems but to implement long-term reform to treat the systematic issues that plague an economy. In late 2016, our economy was in a very difficult position and international confidence in Mongolia’s economy was very low. At that time, the balance of payments was in a deficit, the foreign exchange reserves were depleted with some reports even indicating that the reserve was in a deficit. To top it all off, the fiscal deficit was at a very high level. As a result of all this, confidence in Mongolia’s economy and its direction was at an all time low.

Therefore, my personal view is that the IMF program has had very good results in the one year it has been implemented. Firstly, the fiscal deficit was decreased significantly. Second, the reform of the taxation system has begun to be undertaken. Third, the foreign exchange reserve reached its highest levels in the past five years, surpassing three billion USD.

In addition, the tugrug has began appreciating for the first time in a few years, stopping a period where the tugrug depreciated consistently. Another positive has been the balance of payments, which has recovered significantly from a deficit to a surplus. Exports have also surged notably, helping to drive GDP growth above expectations. While it is true that the global and foreign market forces were a large factor to GDP growth, the Mongolian government was able to correct many aspects of the economy through policy, including the financial sector and the fiscal deficit.

Another positive change is the growth of the Mongolian securities market and most notably the twofold growth of the Top 20 Index on the Mongolian Stock Exchange.

Based on this, I think many would say that Mongolia was able to exceed the expectations that were there when the program began.

When the Mongolian government was in discussion to enroll into an IMF program, there was no shortage of criticism. Whether it was criticism of the IMF’s past experience in countries such as Greece or its role in the Asian Financial Crisis or the supposed neoliberal ideology of the organization. Would you say this criticism was or is warranted?

IMF’s policy nowadays is very different from its policy in the 1990’s. This is evident through IMF’s full-fledged support of the United Nation’s Sustainable Development Goals.

In fact, the countries that adopted the Sustainable Development Goals were provided a new credit line by IMF.

In the past, there was this notion that the foundational goals and policy of IMF and the UN were inherently different. On one hand, IMF touted a neo-liberalist policy while the UN prioritized economic growth and reducing poverty. This disconnect has essentially been eliminated and the policy of the UN and IMF is much more intertwined.

Now the UN, IMF, and most of the world has found common ground with three principals that include maintaining a low fiscal deficit for a country, creating or sustaining economic freedom, and reducing poverty through economic growth.

When criticizing IMF, many people like to bring up the example of Greece. But in reality, Greece did not fulfill its obligations to IMF. Another criticism of IMF is the Asian Financial Crisis, where supposedly several economies including the South Korean economy were hit significantly. Many fail to point out that because of this crisis, South Korea was able to undergo major economic reform and modernize its economy, becoming the economic power we know today. South Korea was able to become a global leader in the production of crystal LED screens and some of this can be attributed to IMF.

The aim of IMF is not to sabotage the economies of developing countries. The harsh truth is that countries must know their limits, meaning they cannot borrow too much and must keep their fiscal deficits low. This is not received well by many people, including politicians who want free reign to spend public money but are limited by an IMF program, this results in criticism that IMF is “dictating” Mongolia’s economy. Those who prioritize sustainable economic and financial growth understand that working together with IMF is crucial.

The results of the asset quality review that was undertaken on 14 commercial banks in Mongolia as part of the extended fund facility was recently revealed. The central bank reported that banks had a cumulative capital shortfall equivalent to two percent of GDP. This has been noted as relatively high but in line with Mongol Bank’s forecast before the review. How do you see the results of the review?

When taking into account the Mongolian economy, IMF had to focus a lot on the banking sector. This is because the banking system dominates the nation’s financial market with a 95 percent market share. The recent asset quality review went very in-depth compared to previous studies. The result of the review was considered in general to be satisfactory.

Of course, there are issues that need to be addressed and they will be in due time.

Mongolia has a lot of smaller banks and in some ways this has held back the development of the banking sector as a whole. I believe there will be mergers of banks to a certain extent in the near future. There is no need for a bank that is too small. Moving forward, the role of non-banking financial institutions will likely increase. In fact, some large non-banking financial institutions have outgrown some smaller banks.

Overall, the asset quality review was a very good thing for the banking sector. It helped clear up a lot of uncertainties including the effect of previous policies by the central bank. Moving forward, it is looking like the central bank will be maintaining a traditional monetary policy. The review revealed that the banking sector was stable overall, this allows Mongol Bank to set high standards such as requiring banks to implement the Basel III framework instead of the Basel II.

In addition, the size of banks will likely be increased in the future as the sector requires bigger players.

Cabinet recently introduced a tax reform bill that intends to offset the pressure on businesses and attract foreign investment. You have been a notable critic of Mongolia’s current tax system, specifically the uneven collection of taxes. How do you see the most recent proposed changes? Is it a step in the right direction?

Mongolia’s tax system has been reformed and changed a lot over the years. The current one in place is what has been dubbed the four tens system, which has been in place since 2006. This system has been successful in its own right, helping to increase tax revenue beyond expectations and contributing to the decrease of the fiscal deficit.

The VAT reform also helped reveal a lot of the hidden economy.

With all of that being said, the tax system must inevitably be reformed in the future. That reform needs to be based on several principals. The first is to be more business friendly and that is being discussed to a certain extent in the most recent bill by Cabinet. The prime minister and finance minister have done a good job to get feedback from businesses and making appropriate changes based upon that feedback. Previous negotiations with IMF resulted in changes to taxes that put a lot of tax pressure on an individual. This was corrected and it is a good thing that it was corrected.

One of the most important aspects of tax reform that must be taken into account is the issue of even distribution of taxes. We must look to not increase the rates of tax but to increase the number of taxpayers.

There are three groups of people whose income is not being taxed adequately. The first group of people are merchants who mainly resell goods. There is a perception in Mongolia that merchants are just an individual selling goods but in reality those merchants have operations on the same levels as some companies.

There are several official automobile distributors such as Munkhada operating in Mongolia. On the other hand, there are merchants that are able to sell 300 Toyota Priuses in a year, which is probably not much less than Munkhada’s sales. The difference is that Munkhada is paying all of its taxes including its employee’s social insurance fee, its income tax, and a variety of other taxes.

Meanwhile, the merchant is only subject to customs tax and the government is not able to get much else from them tax wise. This system has to change and I would imagine it is not too difficult to bring that change. Unfortunately, this issue does not only pertain to automobiles.

The second issue in the tax system is the Immovable Property Tax. Currently, a lot of land and immovable property is not in circulation or being maximized to its potential as people are keeping hold of it in hopes to sell it at a high price in the future.

Third and finally, we must talk about livestock. It is said that livestock is Mongolia’s wealth. All livestock is privately owned by herders. These herders can be classified into two groups, the poor herders and the herders with high income.

Since 2008, herders that have less than 200 livestock are considered poor. As the number of livestock increases, the income of the herders increase. Those who own more than a thousand livestock, called “myangat malchin” in Mongolian, now tend to have a higher annual revenue than an average Mongolian company, this is the reality. This is a big error that needs to be corrected in the system.

For example, let’s say a doctor makes 800,000 MNT per month, they probably will only receive 70 percent of that after various taxes. A household of a myangat malchin makes probably around 10 times more than that, but the difference is that it is not taxed.

In addition to not having to pay taxes, many myangat malchin receive subsidies and tax breaks while also receiving pension. This is an unfair system. In terms of poor herders, it is right for the government to support and aid them.

However, regarding herders that own more than one thousand livestock are using state-owned pasture, roads, and water to profit. It is only right that the government receives a portion of that profit.

All mining companies pay royalties to the government. Do you propose that herders have one as well?

Yes, much like the royalty in the mining sector. Herders should have to pay a certain percentage to the government for using state-owned resources for profit.

Through reforms in the tax we could correct this error in the system and help to monetize land better in addition to helping slow down desertification. Studies show that 99 percent of the environmental damage in Mongolia is caused by livestock. The number of goats in the country has increased significantly and goats cause a lot of desertification through overgrazing. The current agricultural sector prioritizes quantity over quality when it comes to livestock.

But we saw how susceptible Mongolian livestock is to diseases such as foot and mouth disease. This cannot be left alone as a herders’ issue. If left alone, herders are not incentivized to vaccinate or install chips in their livestock. This in turn makes Mongolian meat impossible to export as international standards require the genealogy of animals to ensure that livestock is disease-free.

Livestock products are Mongolia’s second largest export but let’s shift topics and discuss Mongolia’s biggest export, mining products. For the most part, Mongolia exports raw natural resources that have not been processed and as a result are relatively cheap. How do you think this issue can be addressed? What is the government’s role in changing this?

The mining sector is in many ways similar to a lot of other sectors. One unique aspect is that it is a sector based on natural resources that are extracted. The issue is simple, Mongolia has two choices, either export those extracted resources immediately without processing or to refine the products and sell them at an added value.

Looking at Mongolia’s current tax and export policy, there is nothing to support refinement over exporting raw resources.

Since there is no measure that requires or supports refining mining products, it is both easier and cheaper to export raw resources. The value-added production is then left to China, who gets the profit of the value added after refining the product. There are only a few mining companies that refine their products before export, that is Oyu Tolgoi and Erdenet for copper and Energy Resources LLC for coal.

In terms of coal, Mongolia has the capacity to refine the extracted product before export, but beginning from the state-owned coal companies to the private coal companies, none of them process their coal.

In order to address this issue, an export tax could be imposed to economically incentivize value-added production. For instance, a 10 USD export tax could be imposed on every ton of raw coal exported.

Currently, only 1,000 MNT is imposed for every ton of coal exported. This will make refining the product more profitable than just exporting raw coal. Moving forward, an export tax will need to be imposed on iron ore, coal, and possibly even petroleum.

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