A Constitutional reform was proposed on Saturday by Mongolian Prime Minister Oyun-Erdene Luvsannamsrai. The proposed reform would transition Mongolia from a semi-presidential republic to a traditional parliamentary republic.

The current 1992 constitution established a multi-party political system in Mongolia's semi-presidential republic. That meant that the executive power is divided equally between the people-elected President and the Parliament-elected Prime Minister.

In a public conference, the PM said "The 1992 constitution has fulfilled its historic role of a peaceful social transition. Achievements and mistakes over the past 30 years are connected with the constitution," adding, "Now we have to objectively assess the past 30 years and determine how we will live the next 30 years."

In that context, Oyun-Erdene advocated exploring constitutional reform and a transition to a parliamentary republic, as he argued that such a transition is integral to improve the policy-making process which has been impeded by periodic disagreements between the President and the PM.

The PM emphasized that there are alternative methods to effect changes without a total constitutional revision, such as amending certain provisions of the country's fundamental legislation.

At the Cabinet meeting held yesterday, Minister of Finance B. Javkhlan informed that a new five-year USD bond was successfully issued and traded to refinance the “Gerege” and “Khuraldai” bonds.

“Thanks to the many months of efforts and preparations, we received orders worth USD 4 billion from 138 investors within one day. As a result, we managed to decrease the 11-12 percent interest rates of “Gerege” and “Khuraldai” bonds, which amounted to USD 650 million, to 8 percent.” continued Finance Minister B. Javkhlan.

When the interest rate of the U.S. Federal Reserve was 1 percent, the Gerege and Khuraldai bonds were issued with interest rates of 5.7 percent and 8.75 percent, respectively. Whereas today, the interest rate of the Federal Reserve is 4.3 percent, and we have issued our bond with an interest rate of 8.65%.

“We have managed to issue our bonds at adequate interest rates amid the trend of Asian capital flowing into the U.S. market. It demonstrated the positive evaluation, attitude, and trust of foreign investors toward our government’s performance”, he added.

The Finance Minister continued “As a result of the foreign debt management measures, accountability and market capacity of the local commercial banks have improved due to the economic expansion. Local banks hold 10-15 percent of our total foreign bonds. For this time, local banks also made significant contributions to successful trading by purchasing the bond with equal amounts to the bond they have already held. Alongside the improved indicators of our government’s bonds, some local companies’, such as MIK and Energy resources, foreign debt indicators improved significantly within this one day of trading. Moreover, the joint efforts of the Bank of Mongolia and the Ministry of Economy and Development successfully resulted in the achievement of the foreign exchange reserves of Mongolia at USD 3.4 billion.”

Mongolia exported 16,100 tons of meat and meat products in 2022, the country's Ministry of Food, Agriculture and Light Industry said Wednesday.

The majority of the exports were meats of horse, sheep and goat, it said in a statement.

Mongolia currently exports meat and meat products to 11 countries, including China, Russia, Kazakhstan, Uzbekistan, Qatar and Vietnam.

The Asian country resumed the export of live livestock in October 2022. By the end of last year, the country exported a total of 28,503 heads of live livestock, mainly sheep, according to the ministry.

According to its National Statistics Office, Mongolia, one of the last nomadic countries in the world, had 71.1 million livestock animals at the end of 2022.

Promoting livestock husbandry is one of the most viable solutions to diversify the landlocked country's mining-dependent economy.

Economists and researchers say that by opening the doors of investment banks in Mongolia, enterprises will be able to get low-cost and long-term financing from the public without taking high-interest, short-term loans from commercial banks. They believe that the capital market will develop only if investment or foreign banks actively operate in Mongolia. However, it is doubtful whether the bill on investment banking includes regulations that will create many positive consequences.

On December 28, 2016, 18 members of Parliament, including Minister of Finance B.Javkhlan, D.Khayankhyarvaa, B.Batzorig, Z.Narantuya and B.Undarmaa, initiated the bill on investment banking, which is now being discussed by Parliament.

The draft law has five chapters and 21 articles. Chapter 1 of the bill covers the general basis or legal objectives, scope of application of the law and definition of investment bank, while the second chapter stipulates the direction of operation of investment banks. Chapter 3 provides for the establishment of an investment bank, the requirements for its founder and documents to be prepared, as well as the granting, refusal, registration and cancellation of special licenses. Chapters 4 and 5 include restrictions on banking activities and provide for the system of responsibility.

The bill initiators previously reported that out of 14 operating banks, eight banks have foreign investments, and three of them have foreign bank shareholders, and explained, “Relations regarding the establishment of a foreign bank and the conduct of banking activities in Mongolia are regulated by the Banking Law, Law on Investment, Company Law and Mongol Bank’s license regulations. In accordance with the regulations of Mongol Bank, if financial institutions have been operating for at least one year, they have the right to apply to Mongol Bank and other authorized institutions for conducting banking activities. There are currently no detailed provisions on foreign banks, other than these regulations.”

Therefore, they highlighted the need to allow foreign banks to enter the domestic market for investment purposes only, grant loans necessary for the financing of large projects and programs to legal entities only, execute foreign and domestic settlements, issue loan guarantees, sell and buy securities, and create a legal regulation that prohibits other activities, especially taking deposits from citizens.

The approval of the bill is expected to have the following positive effects on society and economy:

• To introduce new technology. Increasing foreign investment in developing countries will bring human capital and new technologies to the market, and improve the knowledge and skills of personnel.

• To increase competition in the market. An increase in the number of foreign-invested banks will raise the competition in the banking system, thereby growing bank productivity and reducing interest rates.

• To increase the efficiency of loan distribution. When a foreign-invested bank enters the market, the amount of loans granted to related parties will decrease, and loans will be made in the domestic market in accordance with appropriate procedures.

• To promote the development of the domestic financial market. A foreign-invested bank has more experience than domestic banks in using financial derivative instruments and stocks, which will allow them to introduce new financial products to the market.

• To increase the stability of the domestic market. In the long run, as the risk management system of domestic and foreign banks reaches the same level, the amount of non-performing loans will decrease.

• To improve the infrastructure of the financial system. The good practices, know-how, registration, transparency, financial regulation and advisory capabilities of the banking system of developed countries will be localized in the domestic market.

• To increase access to financial products and services. Access to financial services will improve if foreign banks establish more branches and introduce modern online and mobile banking services.

• It has a positive effect in the short term by improving the flow of foreign exchange and increasing capital resources.

Some experts and economists note that if domestic banks only provide consumer loans, interest rates may decrease, and they warn that a country with a small economy like our country should be cautious when establishing an investment bank.

In accordance with the bill, investment banks can provide long-term loans for financing large projects and programs, make external and internal settlements related to borrowers’ current accounts, issue loan guarantees, sell and buy securities, and perform other investment works and services on behalf of clients.

The draft law states that banks that will operate in Mongolia for the purpose of investment cannot operate in the domestic market in any form other than in the direction of investment.

The bill also prohibits attracting financial resources through the savings of citizens and relations with domestic enterprises. It stipulates that “the minimum amount of the authorized capital of the investment bank should not be less than 500 billion MNT”, while “the amount of loans and guarantees provided by investment bank must be at least 100 billion MNT”. However, during the discussion of the bill, the relevant standing committee removed the provision. In particular, former Member of Parliament Z.Narantuya said, “The first proposed bill stipulates that the minimum capital of foreign banks must be at least 100 billion MNT. However, the lawmakers removed the minimum amount of equity capital from the bill. In other words, it eliminated the legal guarantee to bring cheap and large resources to the Mongolian market.”

At the time when the bill was first submitted or in 2016, there were five banks that expressed their desire to operate in Mongolia, despite economic difficulties and credit rating downgrades.

The Parliamentary Standing Committee on Economy discussed whether to postpone the IPO of “influential” domestic banks last May. During its meeting, some members of Parliament said that Mongolia’s banking environment will not improve without the entry of foreign banks. “Except for North Korea and Mongolia, there are hardly any countries without foreign banks. We should use every opportunity to bring in foreign banks,” they expressed.

Many people say that with the introduction of foreign banks into Mongolia, the interest rates will decrease and the competitiveness of domestic banks will raise. On the other hand, there are quite a few people who believe that the introduction of foreign banks will affect the Mongolian economy, finance and national security. Branches of well-capitalized foreign banks provide policy loans. In addition, some people are warning that there is a risk of increasing unemployment in the country and negatively affecting the exchange rate.

For instance, then-Deputy Minister of Finance Kh.Bulgantuya once expressed, “In accordance with the draft law on investment banking, foreign banks will start operating in our country. In this case, we do not rule out that large enterprises will take loans by pledging the licenses of their mining deposits. If they cannot pay the loan, there is a risk that Mongolia’s territory will be taken over by foreigners. It is necessary to calculate and consider all these issues and provide detailed regulations in the bill. Mongolia’s large deposits and land may be put as collateral, and the banking and financial sector may be put at risk. Fund raising through the stock exchange may decrease.”

Former lawmaker Z.Narantuya also commented, “Politicians make many ‘false promises’. An example of this is the investment banking bill. It creates the illusion that if a foreign bank operates in Mongolia, anyone can get a loan with a low interest rate. Six out of 12 commercial banks operating today have foreign investments. For example, Japanese investors own about 56 percent of Khan Bank shares. The average interest rate for consumer loans in the bank is about 22.8 percent. Banks do not provide loans with 35 percent annual interest rate that citizens want. This is because capital invested by individual owners constitutes only about 10 percent of the total capital circulating in banks. The other 90 percent of the financial source is money deposited by domestic depositors and customer institutions. In order to avoid losses, banks set interest rates by adding interest and operational costs, as well as the country’s and the borrower’s business risk. Therefore, the real possibility of providing low-interest loans to citizens has decreased, and domestic banks have a bad reputation.”

She added, “I do not believe that the adoption of the bill on investment banking, which is being discussed by Parliament, will directly reduce the cost of funds for domestic banks. The draft law stipulates that foreign-invested banks will finance projects with a duration of more than two years in the same market as domestic banks. However, the average loan period of banks for production loans is three to five years.”

Previously, our country granted operating licenses to the representative offices of six foreign banks that met legal requirements: Standard Chartered, ING, Bank of China, ICBC, MUFG and SMBC. As of today, the representative offices of Standard Chartered and ING Bank have reportedly ceased operations.

Some economists warn that there is insufficient preparation for foreign banks in Mongolia. Therefore, it is necessary to thoroughly revise the legal regulations based on experts’ opinions and research.

The Ministry of Food, Agriculture and Light Industry informed that twelve new cashmere dehairing plants were under construction. Thus, Mongolia will have 43 plants in total once they start operating.

Mongolia produces 48 percent of the total raw cashmere in the world. But only 10% of processed cashmere is dehaired and exported. Even though the capacity to produce 6,017 tons of dehaired cashmere is installed in 40 plants, only 25% is being used.

According to the Government’s adjustment that requires hair content in goat cashmere which is crossed the border for export and import must not exceed 0.3%, only dehaired cashmere is allowed to export. As a result of that, the export volume increased and Mongolian companies started to cooperate with global TOP brands. For instance, 90% of dehaired cashmere is exported to Italy and about 20 Mongolian enterprises launched cooperation with TOP brands, such as "Loro Piana", "Falconeri", "Chanel", and "Schneider".

As of November 2022, the export volume of dehaired cashmere has reached 809.1 tons, up 2.2 times compared with the same period of the previous year. In addition, the average price for dehaired cashmere was USD 91.1 per kg in 2021, while in 2022, it raised to USD 108.3.

Minister of Finance B. Javkhlan and the World Bank Country Manager Andrei Mikhnev signed the Financing Agreement for the Smart Government II Project today. The project is funded with a USD 40.7 million credit from the World Bank.

The project objectives include strengthening policies and regulations for digital transformation, upgrading the common infrastructure, and enhancing the usability and efficiency of digital public services.

The Smart Government I Project ensured the continuity and security of digital public services while digitalizing 112 services of 12 organizations and helping citizens and businesses save MNT 48.4 billion.

Smart Government I Project: https://www.smart.gov.mn/en/

“Mongolian Stock Exchange” JSC commenced secondary market trading of shares with the alphabet code of “MSE” yesterday.

The Financial Regulatory Commission (FRC) considered the primary market trading of “Mongolian Stock Exchange” shares successful following its official letter No. 1/61, dated January 5, 2023, and approved the commencement of secondary market trading of shares of the company on January 9. FRC informed allowing investors to receive the remaining balance for their unallocated orders through their brokerage firms starting today.

The “Mongolian Stock Exchange” JSC raised MNT 57.8 Billion through 7.417 orders, which exceeded its initial target of MNT 11.9 billion by 4.8 times during its primary market trading. FRC reviewed the subscriptions according to 7.13 of the Regulation on Security Registration and issued a final report.