Mongol Bank, Mongolia Economy

by B.Ooluun

Parliament commenced a discussion of basic directions to be pursued by the State in its monetary policy during 2009.

At the Plenary meeting on October 30, 2008 Parliament Members agreed to discuss a monetary policy refined by the Mongol bank. The rapidly growing inflation issue being given considerable attention whilst discussing the proposed monetary policy. The Mongol bank had estimated that inflation, measured according to the consumer price index, would have been approximately 9.5 percent by 2009-2011, or 12 percent by the end of 2009; 10 percent by 2010; and 6.5 percent by 2011. Since 2007 the State had agreed to follow a basic direction in its monetary policy for three years and had changed to a principle of providing for proposed objectives by conducting annual estimates for clarification. During the discussion, Parliament Members asked the administration of the Mongol bank over and over again to give a reason for inflation having escalated to 34 percent, although it had been planned to keep it at 6 percent during this current year. A.Batsukh, President of the Mongol bank explained that increased food and fuel prices had mainly influenced inflation and mentioned that families spend 41 percent of their income on food.

Most consumer products in Mongolia's economic market are provided from imports, and price increases occurring on world markets, rising inflation in trade partner countries, and other factors, such as, the increasing rates of exchange of those countries against the Mongolian Togrog, had essentially caused increased imported consumer goods prices. The Mongol bank President emphasized further that price increases had been created by a rapid growth in the supply of money during the last five years, and also by the noticeable increase in social welfare expenditure and salary increases since the beginning of 2007. "Although inflation has risen to 34 percent, it is likely to be reduced by the end of this year due to some positive changes, especially a fuel price decrease and the Mongol bank will take measures required to reduce inflation by half during the next year," said the Bank's President.

By the end of 2008, recurrent expenses in the State Budget are likely to equal 12.5 percent of Gross Domestic Product due to the following factors: a policy to expand the State Budget had been continued in 2008; State servants' salaries had been increased by 90 percent during the second half of2008 compared to the same period in the previous year; and a rise in social welfare expenditure and State investments. The Parliament Members blamed the Mongol bank for: not stabilizing inflation; Mongolia being placed second in Asia in its inflation growth after Vietnam's 40 percent; as well as the lower volumes of credit available from commercial banks: and increased credit interest rates due to the Mongol bank's tight monetary policy.


Within the scope of its monetary policy, the central bank of Mongolia (Mongol bank) plans to strengthen the correlation between money and the financial policy to reduce inflation and protect social living standards: employ the principle of transparency as stipulated in the monetary policy issued by the International Monetary Fund, so as to imbue a principle of transparency, predictability and efficiency for the public in its policy measures. In an effort to increase the financial Sector's efficiency, the Bank will support both credit and interest policies to increase labor productivity and create job opportunities. It will also pursue a policy to continue legal reforms in the Banking Sector and follow directions, such as: providing transparent and safe conditions within the Banking Sector: deepening investors' and customers" trust; taking measures to prevent financial crimes: create possibilities to start investment bank activities; and introducing an insurance system for savings.

Responding to a Parliament Members' question, A. Batsukh mentioned that issuing Government bonds to create extra sources of money would not be effective and the Mongol bank has, therefore, researched other ways, but it would be necessary to encourage entities to support full utilization of whatever additional source became available. Parliament Members were informed that the amount of gold bought by the Mongol bank had been increased this year in response to their inquiry as to whether the amount of gold held by the Mongol bank had been reduced or not in attempts to avoid windfall tax. However, the Government had concluded a stability agreement with the Boroo Gold Company in both English and Mongolian. As per the Mongolian agreement, the Company was to sell 15 tonne of gold to the Mongol bank but. as this clause had not been reflected in the English copy, the Company had therefore exported the extracted gold instead of selling it to the Mongol bank. The reason for this was a note in the agreement stating that "The agreement in the English language is valid".

The Ministry of finance had received all information regarding gold mining and sales from the relevant organizations and would issue conclusions on implementation of the windfall taxation, its future influence on State income situations, and whether or not such tax needs to be paid in gold.

THE MONGOL MESSENGER