BUSINESS COUNCIL of MONGOLIA NewsWire

www.bcmmongolia.org info@bcmmongolia.org

Issue 60, March 13, 2009

NEWS HIGHLIGHTS:

Business: Investment draft unlikely to be debated in present session of Parliament; Rio keen to

„ramp up‟ Oyu Tolgoi, not considering delay; PM‟s Economic Advisor indicates rethink on gold windfall tax; TDB CEO calls for comprehensive program to help gold miners; Boroo Gold refutes allegations; Khan Resources ready for talks, Government not; Copper prices drop on renewed recession concerns; Mongolia invites Canadian investment in mining; Russian Railways wants joint venture with Moscow on Tavan Tolgoi proposal; EBRD to take stake in Energy Resources; Polo completes resource estimates for Union mine; MCA holds workshop to brief local suppliers; Dutch financial support for XacBank housing and energy schemes; Global financial assets lost USD50 trillion last year, ADB says; Special US visas for business visitors; Veerhuis to discuss use of EPS technology in Mongolia; Small explorers backed by miners best bet, says Faber; Initial estimate for SouthGobi‟s Indonesian project “very encouraging”.

Economy: IMF announces staff-level agreement on USD224 million loan; IMF justifies “exceptional

decision” by citing Government program; Central Bank raises interest rate from 9.5 to 14 percent; Committee under Bayar to oversee Action Plan; Poor countries to hurt most from shrinking global economy, World Bank says; Budget shows deficit as tax earnings fall; Drop in both industrial output, productivity; MNT keeps falling against major currencies; Foreign currency deposits rise; Rise in number of jobless, also of new jobs; External trade turnover and surplus fall; Average household income rises 22.9% yoy; Chinese traders buy up cashmere cheap; People waiting for prices to decrease, companies for loans; Mongolia resumes import of dairy cows from China.

Politics: Bayar to visit Russia next week; DP threatens boycott if child allowance is cut; Former

Filipino Ombudsman and Hong Kong expert helping Mongolia fight corruption; Special review of labor safety measures after rise in accidents; More seeds needed for spring plantation; Marginal rise in nationwide crime rate; One vote majority for move to bail out road companies; Suggestion to provide heating for one month less; General Tax Authority to register NGOs.

NOTE TO BCM MEMBERS

We are pleased to inform you that from March 13, 2009, the Business Council of Mongolia will collaborate with Mongolian National Broadcasting (MNB) and provide the BCM Newswire for use on Friday "MN Today" programs. As many of you know, MNB is a leader among nationwide TV broadcast stations. Please tune on Fridays from 9.25 PM to 9:35 PM and enjoy this breaking news about Mongolia. Happy viewing!

BUSINESS

INVESTMENT DRAFT UNLIKELY TO BE DEBATED IN PRESENT SESSION OF PARLIAMENT Hopes that the draft investment agreement on Oyu Tolgoi will be approved by Parliament in its present special session received a setback on Wednesday when both big parties and partners in the coalition Government announced that their MPs had reservations about certain provisions in the draft and favored more time for deliberation. Both groups of MPs have separately and independently discussed the draft three times.

Mr. D.Lundeejantsan and Mr. G.Zandanshatar, leader and deputy leader respectively of the MPRP group in Parliament, have said that members of the group feel discussion of the draft should be postponed to the regular spring session of the legislature. The present special session was summoned to discuss only economic issues and the agreement, but the MPs feel they want more information on several provisions in the draft before they are ready to decide on it. They realize its approval is urgent for the country, but they also think the matter is too important to be given less than the most careful consideration. This is the opinion of the DP group, too. It has not said discussion should be postponed but, after discussing the draft for the third time, members of the group have sought clarifications before finally deciding on whether to support it or not. The group feels the matter must be reviewed with the utmost care as the Oyu Tolgoi operations will largely determine the development of Mongolia in the coming decades. The MPRP is expecting the money from Oyu Tolgoi to pay for the party’s campaign promise to give MNT1.5 million to every Mongolian citizen as his share in the country’s natural resources. The MPRP group is believed to have raised about a dozen objections. It thinks the draft is not clear in its exposition of the feasibility study, estimate of reserves and the likely benefits to Mongolia. It also believes that revenue from the operations must compensate for the loss resulting from the withdrawal of the windfall tax and VAT. The MPs also object to the provision “… investors will schedule the project implementation procedure and in this they will keep the Minister for Mineral Resource and Energy informed…” as limiting the right of the Mongolian side. Briefing newsmen after the DP group meeting, MP D.Odkhuu said members wanted to have more information on how the draft can be reconciled with five references in Clause 30.1.1 of the Mineral Law. They also sought more detailed information on several technical and economic aspects before the draft is discussed in Parliament. A clearer work plan for first five years of operation also needs be prepared. MPRP members also want a clearer and unambiguous translation of the agreement so that the investors do not get any advantage in the event of any later disagreement. They are studying and reviewing the Mongolian version of the text of the agreement, but only the English version will be valid in any dispute.

Source: business-mongolia.com, www.news.mn

RIO KEEN TO „RAMP UP‟ OYU TOLGOI, NOT CONSIDERING DELAY Rio Tinto Group has denied a report in the Sydney Morning Herald that it was planning to slow development of the USD3 billion Oyu Tolgoi copper-gold deposit in Mongolia. “We’re keen to ramp up the project,” Rio Tinto Chief Executive Officer Tom Albanese said in e-mailed comments. “I welcome the fact that the Mongolian Government is moving ahead with the investment agreement process right now.” London-based Rio Tinto and Ivanhoe Mines Ltd., jointly developing Oyu Tolgoi, may proceed at a slower pace than planned, the newspaper had reported, citing Mr. Albanese. He was reported as saying that it was likely the company might take more time in the construction phase given the current economic environment. In his later comments, Mr. Albanese said Rio Tinto and Ivanhoe have spent more than USD1 billion on the project to date, and, “Clearly, we have to plan additional construction stages carefully, including reviewing costs in the current economic conditions. The project will be developed in stages as provided” in the investment agreement. Ivanhoe has been trying for more than five years to win an investment agreement with Mongolia to benefit from demand in China, the biggest metals buyer. Rio called Oyu Tolgoi “the world’s largest undeveloped copper-gold resource” when it agreed to buy 10 percent of Vancouver-based Ivanhoe in October 2007.

Source: Bloomberg.com

PM‟S ECONOMIC ADVISOR INDICATES RETHINK ON GOLD WINDFALL TAX Mr. N.Enkhbayar, Economic Advisor to the Prime Minister, has said the Government agrees with the suggestion of some MPs that increasing gold holdings should be a priority in the efforts to raise foreign currency reserves. Both the Central Bank and the Mineral Resources Authority report that the volume of gold traded to the Bank has dramatically decreased since imposition of the windfall profits tax, progressively dropping from 24 tons in 2005 to 15.2 tons in 2008. The gold trade has shifted to the “shadow economy” causing a huge loss. Both Government economists and gold miners are confident that the total repeal of the windfall tax, or at least lowering its percentage,

would return the trade from the shadow economy into the open. The Central Bank estimates it will be sold 20 tons a year. The Government wants more gold to be extracted and then to be sold to the Central Bank and is seriously reviewing a revision of the tax, even though its annulment is unlikely. Asked how one could be sure that now gold was part of the so-called shadow economy, Mr. Enkhbayar said while the volume of gold traded to the Central Bank decreases, border and customs organizations keep reporting that cases of gold smuggling are on the rise. The amount of gold seized before it could be smuggled out rose from 27 kg in 2005 to some 80 kg last year.

Source: Montsame

TDB CEO CALLS FOR COMPREHENSIVE PROGRAM TO HELP GOLD MINERS Mr. Balbariin Medree, CEO of The Trade and Development Bank and President of Mongolian Banking Association, has said that with foreign currency reserve depleted and the exchange rate unstable, it is imperative for the national economy that there is adequate financing for gold miners to substantially increase production. Eliminating the windfall tax on gold will lead to more gold being sold to the Central Bank and commercial banks, putting more money in the State budget and attracting more investment in the mining industry. Many participants at a recent conference of the Government, miners and bankers suggested all gold mining companies should have the same rights. Gold extraction increased 7.5 times between 1990 and 1996, and kept growing until the imposition of the windfall tax in 2006 reversed the process. Banks had always tried to meet the financial needs of gold miners but now that they have little credit to offer, the Government should step in to finance the gold mining sector and also constitute an equitable legal environment. A comprehensive program has to be adopted to lift the sector from its present doldrums. It has become less competitive, exploration activities have been delayed too long, placer deposits are used up. It will require considerable investment on advanced equipment and technology, skilled manpower and prudent management. Maybe, said Mr. Medree, small companies would be better off by forming a consortium, or by being managed by intermediate-operator companies.

Source: www.tdbm.mn

BOROO GOLD REFUTES ALLEGATIONS Troubled by the “many slanderous and completely false statements” about it “recently publicized in the mass media”, Boroo Gold Company has prepared a newsletter to set the record straight. “The Mines Eye” nails the lie about allegations made in “this campaign of misinformation”. It shows how misconceived and ill-founded the charges are that the company “forced an unprofitable contract on Mongolia, robbing the country of its mineral riches”, and that it “has prejudiced the national interest of Mongolia”.

Source: www.miningmongolia.mn The entire text of the repudiation, as it appears in the Mongolian National Mining Association Newsletter of March 10, 2009, can be read under the title “The Mines Eye, March, 2009“ on the BCM Website, Articles/Reports on Mongolia. KHAN RESOURCES READY FOR TALKS, GOVERNMENT NOT While officials from Khan Resources have said they hope to begin negotiating with Mongolian authorities "at the earliest possible date" on an investment agreement for the company's USD333 million Dornod uranium project, the Government has indicated that it will first finalize the long-awaited agreements on the Oyu Tolgoi and Tavan Tolgoi projects before taking up other mining agreements. Once that is done, “we hope to be able to sit down with the Government and map out a timetable for the investment agreement,” President and CEO Martin Quick has said. A recently completed feasibility study has confirmed expectations of mining three million lbs of uranium annually over a 15-year period. Khan is currently in talks with possible partners in the project. It owns 58% of the main property while the balance is held in equal parts by the Mongolian and Russian Governments. In December, Khan signed a letter of intent on cooperation with Japan's Marubeni Corporation, and the firm is in talks with another two potential partners, Mr. Quick said in an interview. He declined to provide any further details beyond saying, “We want to get those discussions finalized quickly, because we feel that with a large partner by our side we will have a lot more sway with the Government.”

Khan will also need to establish which authority it will be talking to, as it is unclear whether responsibility for uranium mining will fall under the Mongolian Nuclear Energy Commission or the new Minerals and Energy Ministry. “But, I am hoping that by the summer we will be able to be in a position to sit down with the Government and start negotiations," Mr. Quick said. Once an investment agreement is in place, the company believes it can start up production within three years. Assuming the negotiations with the Government run smoothly, detailed engineering work on the mine and processing plant will be completed during the last quarter of this year.

Source: http://www.miningweekly.com

COPPER PRICES DROP ON RENEWED RECESSION CONCERNS Copper futures dropped for the second time in three sessions on Monday on renewed concern that recession may cut demand for the metal used in homes, cars and appliances. Before that, copper had plunged 60 percent from a record in May as recessions in the U.S., Europe and Japan sapped demand. “Copper finds itself testing the low bounds of what we estimate to be the new range as renewed economic doom and gloom takes over sentiment,” Mr. Alex Heath, the head of industrial metals trading at RBC Capital Markets in London, has said in a report. “Given the economy, there is a limit as to how far copper can go on the upside,” said Mr. Donald Selkin, the chief market strategist at National Securities Corp. in New York. Still, declining metal stockpiles will “give copper some support”, Mr. Selkin said. “The fact that warehouse stocks keep declining is a positive for copper and gives people some hope that demand is coming back in,” Mr. Selkin said. “It’s helping to push copper to a higher trading range.” Last week, copper surged 9.8 percent on speculation government spending will boost consumption in China and the U.S., the world’s two biggest buyers of the metal. In the 94 developing countries that have experienced a slowdown in economic growth, the “most affected sectors” include mining, manufacturing and construction, the Washington-based World Bank has said.

Source: www.bloomberg.com MONGOLIA INVITES CANADIAN INVESTMENT IN MINING Some 70 individuals representing potential Canadian investors attended a Round Table meeting organized by the Mongolian Embassy in Canada and the Mongolian Mineral Resources and Petroleum Authority in cooperation with the Department of Foreign Relations and International Trade of Canada during the annual PDAC (Prospectors and Developers Association of Canada) convention held in Toronto earlier this month. Vice Minister for Minerals and Energy B.Ariunsan presented the present state policy on the mining sector and briefed participants on the views and actions of the Mongolian Government with regard to the Oyu Tolgoi and the Tavan Tolgoi project investment issues. Emphasizing the importance of developing mining in Mongolia as a key towards achieving economic progress and prosperity, Ambassador to Canada D.Gotov called upon investors to come to Mongolia to take advantage of the Government’s commitment to promoting foreign investment based on balanced interests.

Source: www.mfat.gov.mn

RUSSIAN RAILWAYS WANTS JOINT VENTURE WITH MOSCOW ON TAVAN TOLGOI PROPOSAL Russian Railways (RZD) plans to propose to the Russian Government they should form a joint venture to mine the Tavan Tolgoi coal field. The Railways now owns half the shares in Ulaanbaatar Railway, the other half being controlled by the Mongolian Government. Mr. Igor Levitin, the Russian Transport Minister and also co- chairman of the Russian-Mongolian inter-governmental commission, said at a recent meeting of the commission, "RZD is due to submit its proposals by April 1. The details are being finalized."

Source: Steelguru, Interfax

EBRD TO TAKE STAKE IN ENERGY RESOURCES The European Bank on Reconstruction and Development (EBRD) is taking an equity stake in a privately-held Mongolian mining operation, in an investment that will strengthen the role of the private sector in this crucial industry, boost competition and set a new benchmark in environmental and health and safety standards.

According to EBRD, the investment of up to €30 million in Energy Resources LLC (ER) will support the production of high-quality coking coal from the Ukhaa Hudag deposit in southern Mongolia, some 200 km north of the border with China, a major importer of Mongolian coal. The EBRD’s backing for the project will also help bring sustainable economic growth to this region at the foot of the Gobi desert, stimulating new enterprise in an otherwise depressed area. Energy Resources is an entirely Mongolian consortium, comprising three large domestic groups. This project, at a mine which has an expected production life of over 100 years, will allow ER to compete with the Mongolian state mining industry and with larger foreign investors. By working initially with Leighton Holdings, one of the world’s foremost international contract mining operators, ER will also ensure that the mine is operated according to the highest industrial standards. The EBRD’s investment also reflects the company’s commitment to high governance and transparency as well as environmental and health and safety standards. Energy Resources Chairman J.Odjargal said, “ER is very pleased that EBRD is joining the UHG project that would create 450 jobs immediately, especially during these times of crisis when business opportunities are limited and the country’s foreign currency reserves are scarce.” While developing the main mining project, ER will also work with the EBRD’s TurnAround Management and Business Advisory Services Programs that help enterprises adapt to the demands of a market economy. The EBRD started investing in Mongolia in October 2006 and has made provision of finance to support the mining and mining services sector a priority. However, its total investments to date of around USD120 million have stretched across a wide range of sectors, also including the financial, the retail and the beverage industries.

Source: Finchannel.com

POLO COMPLETES RESOURCE ESTIMATES FOR UNION MINE South Africa based mining group Polo Resources has received a completed NI 43-101 technical report on its Union coal mine in Mongolia. Work has now begun on a detailed environmental and social impact assessment (DESIA) and an advanced scoping study in preparation for resuming production at the mine. The technical report from Micromine of Australia demonstrates measured and indicated coal resources of 44.5 and 50.2 million tons (Mt) respectively, for a total of 94.7 Mt. An additional 38.4 Mt are classified as inferred. Micromine based the report on results from a 40 diamond borehole program which was carried out last year. A total of 25 coal seams were identified at Union with a cumulative coal thickness of up to 130m. The coal is believed to be of a suitable grade for producing a good quality energy coal product for the Mongolian and Chinese power generation markets. The Union project consists of two mining licenses and three exploration licenses covering a total of 14.6 sq km. The mine is situated 95 km south east of Ulaanbaatar. In January this year, Polo reached an agreement with US listed coal producer Peabody Energy giving Peabody the option to buy a 50% stake in a joint venture formed to hold all of Polo's coal and mineral interests in Mongolia.

Source: SmallCapNews.co.uk

MCA HOLDS WORKSHOP TO BRIEF LOCAL SUPPLIERS MCA-Mongolia last week organized a procurement information workshop to enhance local suppliers' knowledge of its procurement procedures and regulations, and to stimulate discussion regarding the private sector's goals and aspirations with respect to MCA procurement and the role that the Millennium Challenge Compact can play in private businesses. The overall procurement volume of MCA-Mongolia would reach USD40-50 million in 2009, giving an opportunity for the private sector to submit proposals for various tenders. However, local companies do not always use their full potential because of a variety of factors, such as unfamiliarity with the MCC system and its opportunities, lack of capacity and experience in developing sound proposals using MCA-Mongolia's procurement information. Participation in the workshop was open to all interested companies, and about 150 representatives of service providers, consultant companies and suppliers turned up. The information package distributed to these participants included a summary of tenders planned for 2009.

Mr. Bayarbaatar, CEO MCA-Mongolia, focused on country ownership, while Mr. Robert Reid, Millennium Challenge Corporation (MCC) Resident Country Director, showed how MCC was implementing a new model in foreign aid. He stressed the commitment of MCC to reduce poverty and elaborated the governing principles of the program as being promotion of competition, openness and transparency. Source: Montsame

DUTCH FINANCIAL SUPPORT FOR XACBANK HOUSING AND ENERGY SCHEMES The Netherlands Development Finance Company (FMO) has signed three agreements with XacBank. The first concerns a USD7 million loan for a project focused on providing affordable housing to young and low income families in Ulaanbaatar, and the second a USD5 million loan for two energy projects. Around 700,000 people or 65 percent of the total residents of Ulaanbaatar live in Gers, many of them below the poverty line. Bad public infrastructure and a lack of clean water and proper sanitation characterize the living circumstances in these Ger districts. The FMO financing will support XacBank in addressing housing problems and providing reasonably priced housing. The two energy projects enhance access to energy efficient products in these Ger districts and provide nomadic herdsmen in rural areas with 10,000 solar panels.

Source: xacbank_fmo.jpg

GLOBAL FINANCIAL ASSETS LOST USD50 TRILLION LAST YEAR, ADB SAYS The value of global financial assets including stocks, bonds and currencies probably fell by more than USD50 trillion in 2008, equivalent to a year of world gross domestic product, according to an Asian Development Bank report. Asia, excluding Japan, probably lost about USD9.6 trillion, said Mr. Claudio Loser, a former International Monetary Fund director and the author of the report that was commissioned by the ADB. “The loss of financial wealth is enormous, and the consequences for the economies of the world will unfortunately commensurate,” said Mr. Loser. “There are serious economic and political stumbling blocks that may well cause the recovery to be costly and slow to consolidate.” According to him, “Poor macroeconomic and regulatory policies allowed the global economy to exceed its capacity to grow and contributed to a buildup in imbalances across asset and commodity markets. The previous sense of strength and invulnerability is now gone.” Developing nations, which mostly escaped the earlier effects of the credit crisis, are facing more problems as the downturn worsens, Mr. Loser’s report said. Net capital flows to emerging markets may fall to USD165 billion this year, from USD470 billion in 2008 and a record USD930 billion in 2007. “There is no room for denial or populist policies,” Mr. Loser said. “Otherwise the crisis will become even deeper and harder to reverse.”

Source: Bloomberg.com

SPECIAL US VISAS FOR BUSINESS VISITORS Mongolians, mainly from the mining sector, are now able to apply for a special business visa to visit the USA. Applications meeting certain requirements like evidence of intention to return to Mongolia after the visit, professional career, bank statement and family status are received every Wednesday afternoon. Mr. Robert Pope, Consular Officer, recently told media eight applications have already been submitted. The main criteria for grant of a visa are that the companies employing the applicant should have operated for a length of time in the mining sector and have ties with foreign companies.

Source: www.gogo.mn, www.mining.mn

VEERHUIS TO DISCUSS USE OF EPS TECHNOLOGY IN MONGOLIA A four-member high-level team from Veerhuis B.V. in the Netherlands will arrive in Mongolia on March 16 to finalize arrangements for introducing the EPS (Expanded Polystyrene) construction system here. A local construction company has been recently selected for transfer of the technology and Ganymedes LLC will be responsible for the general management of the work. Veerhuis has hopes the technology will be used in a program to build houses for government officials as part of the 100,000 Apartments program and also by Habitat for Humanity in its projects

in Mongolia. The team plans to meet senior Ministry and banking officials and the Mayor of Ulaanbaatar.

Source: www.ganymedes.mn

SMALL EXPLORERS BACKED BY MINERS BEST BET, SAYS FABER Mr. Marc Faber, the investor who advised buying gold in 2001 before it tripled, said he owns Ivanhoe Mines Ltd., NovaGold Resources Inc. and Gabriel Resources Ltd. because explorers will gain the most as bullion rallies. Commodities will be the first assets to rally when growth returns after the credit collapse that has led to the worldwide recession, Mr. Faber said. Small explorers backed by larger miners are less expensive than the bigger firms themselves and have the financial support to stay in business should the economy worsen, he added. Precious metals will climb as other assets decline, Mr. Faber said. The 82-company Bloomberg World Mining Index last week advanced 31 percent since falling to a four-year low on November 20 and prices for the metal climbed 21 percent, compared with a 6.4 percent decline in the MSCI World Index of stocks.

Source: Bloomberg.com

INITIAL ESTIMATE FOR SOUTHGOBI‟S INDONESIAN PROJECT “VERY ENCOURAGING” SouthGobi Energy Resources has received an initial independent NI43-101 compliant resource estimate of 17.4 million tons for its Mamahak coal project in East Kalimantan, Indonesia. The Mamahak Joint Venture comprises four concessions totaling about 22,976 hectares. Reconnaissance and initial field mapping have started over the larger project area. The company believes the area has the potential to host significant metallurgical coal resources. SouthGobi’s chief operating officer Gene Wusaty says, “Our first drilling program has been a resounding success. This initial resource estimate is very encouraging as it’s based on only a fraction of the total land area of our concessions. The resource is wide open for significant expansion.” Ivanhoe Mines is SouthGobi Energy Resources’ largest shareholder and owns about 80.2% of issued and outstanding shares.

Source: www.southgobi.com

ECONOMY

IMF ANNOUNCES STAFF-LEVEL AGREEMENT ON USD224 MILLION LOAN The International Monetary Fund has announced an agreement in principle on a USD224 million loan package to help Mongolia come out of the global financial crisis. "An IMF staff mission and the Mongolian authorities today reached the agreement, subject to approval by the IMF Executive board, of an economic program supported by Fund resources (of USD224 million) under an 18-month stand-by arrangement," IMF Managing Director Dominique Strauss-Kahn said in a statement issued in Washington late on Friday. Mr. Strauss-Kahn said the executive board was expected to discuss the program shortly after international donors met in Ulaanbaatar. Finance Minister S.Bayartsogt has since said this meeting will be on March 14. "Mongolia has been hard hit by the global financial crisis through a sudden and precipitous drop in the price of the country's main export commodities, notably copper. This has had a negative impact on both the fiscal and external accounts;" Mr. Strauss-Kahn said. Mongolia's mineral revenue has fallen, export proceeds are expected to decline "markedly" this year and foreign direct investment flows have been cut. "With more than one-third of the population living below the poverty line, it is imperative that steps are urgently taken to address the economic downturn and protect Mongolia's most vulnerable citizens." Mr. Strauss-Kahn said the Mongolian Government has put together a macroeconomic program aimed at restoring economic stability. In January, Mongolia's President said his country was in talks with the IMF over a loan package of USD60 million to USD70 million to attract investment in its mining sector. The country is also

negotiating with China, Russia, Japan and several Gulf countries on USD300 million to USD3 billion in loans that would be linked to large mining projects.

Source: en.News.mn, Reuters.com

IMF JUSTIFIES “EXCEPTIONAL” DECISION BY CITING GOVERNMENT PROGRAM The formal statement issued in the name of Mr. Dominique Strauss-Kahn, Managing Director of the International Monetary Fund announcing the USD224 million loan to Mongolia says the decision was taken after the Government, in collaboration with an IMF mission, had put together a strong and ambitious macroeconomic program with two key objectives: (i) to restore economic stability through fiscal and monetary policies; and (ii) to protect the poor and preserve social stability through improving the social safety net. The statement says the program is built on four main planks: 1. The centerpiece is a budget adjustment for this year and next that will put in order Mongolia’s fiscal finances and restore the deficit to a sustainable range. The Government also intends to strengthen the institutional framework for fiscal policy to prevent the repeat of the boom and bust cycles of recent years and ensure the long-term sustainability of its policies. 2. This fiscal program will be supported by a proactive monetary policy that will seek to safeguard international reserves. 3. Improving the social safety net is a key element of the program to ensure that the poorest segments of the society are protected adequately. To this end the Government will begin a comprehensive overhaul of its social transfer programs, improving targeting and raising the level of social support to the very poor. 4. The Government will further strengthen the banking system by improving the current framework for deposit guarantees and enhancing bank supervision. The proposed “exceptional access to IMF resources (of 300 percent of quota)” is justified by the Mongolian "authorities’ strong commitment to macroeconomic stability and a return to robust and equitable growth, and merits the backing of the broader international community”, Mr. Strauss-Kahn said and appealed to donors “to support Mongolia in its impressive efforts”.

Source: www.imf.org

CENTRAL BANK RAISES INTEREST RATE FROM 9.5 TO 14 PERCENT The Central Bank has raised the interest rate to 14 percent from 9.5 percent. Announcing this at a press conference on Tuesday, the Bank President, Mr. L.Purevdorj, said the move was aimed at stabilizing the value of the MNT against foreign currencies. This follows the Bank’s earlier decision to raise the risk adjusted capital requirement from 10% to 12%, with the same aim. Asked why the rate was being raised when elsewhere in the world Central Banks were lowering, Mr. Purevdorj explained that the Mongolian economic structure is different and has to follow its own way. Defending the Central Bank’s policy of persisting with a tight credit policy, Mr. Purevdorj said pouring more money into the market would lead to a further fall of the MNT. He said the monetary policy would continue to be rigid and cash supply would not be increased this year. “The USD is gaining because there is a shortage of dollars. Similarly, MNT value will also go up only when there is a shortage,” he said. About the foreign currency reserve situation, Mr. Purevdorj said the deal with the IMF would lead to some USD600 million being available from foreign sources. USD200 million of this will be added to the reserve before the end of 2009. At present, Mongolia has about USD541.7 million which is enough to meet import needs for three months.

Source: en.News.mn COMMITTEE UNDER BAYAR TO OVERSEE ACTION PLAN The Government decided on Monday to set up a special committee under the Prime Minister to direct and oversee the implementation of the Action Plan to tackle the economic crisis. The plan was approved last week by Parliament. The committee has been given unspecified extraordinary authority. It will seek funding sources to implement the MNT1.5-trillion (around USD1 billion) economic rescue plan, and will take measures to ensure stability in the finance sector, increase job opportunities and promote the development of agriculture.

Source: www.chinaview.cn, Montsame

POOR COUNTRIES TO HURT MOST FROM SHRINKING GLOBAL ECONOMY, WORLD BANK SAYS The global economy is likely to shrink for the first time since World War II, and trade will decline by the most in 80 years, the World Bank has said in a paper prepared for meetings of the G20 group of countries in London in April. World growth will be 5 percent below its potential. Developing nations will bear the brunt of the contraction. They will face a shortfall of between USD270 billion and USD700 billion to pay for imports and service debts. They will be hurt by tighter credit, withdrawals of foreign direct investment, and a decline in the amount of money sent home by workers overseas. World Bank President Robert Zoellick said in a statement action is needed by governments and multilateral lenders “to avoid social and political unrest”. A surge of debt issuance by rich nations risks “crowding out many developing country borrowers, both private and public”. Emerging nations that can access capital markets will be forced to pay higher rates of interest. The report said that 94 out of 116 developing countries had experienced a slowdown in economic growth, with poverty increasing in 43. The economic crisis will swell the ranks of the poor by 46 million this year. The result would be growing dependence on foreign aid. The dire prediction underscored what many are calling a mounting crisis within a crisis, as the downturn that started in the wealthy nations of the West washes over developing countries through a pullback in investment, trade and credit. Despite America’s position as the epicenter of the crisis, investors are flocking to US treasury bills and the dollar, squeezing developing nations out of global credit markets. The World Bank called on developed nations struggling with their own economic routs to dedicate 0.7 per cent of the money they spend on stimulus programs towards a new Vulnerability Fund to help developing countries. Mr. Justin Lin, the bank’s chief economist, said the spending would be more effective in poorer countries in boosting demand. Channeling infrastructure investment to the developing world can have a “bigger bang for the buck”, he said. "The challenge facing developing countries is how, with fewer resources, to pursue policies that can protect or expand critical expenditures, including on social safety nets, human development and critical infrastructure," the World Bank paper said. Source: www.bloomberg.com, www.reuters.com, Los Angeles Times-Washington Post News Service

BUDGET SHOWS DEFICIT AS TAX EARNINGS FALL The general government budget showed an overall deficit of MNT112.2 billion in the first two months of 2009. The current balance deficit was MNT90.6 billion. Compared with the same period last year, tax revenue decreased 39.8 percent. Taxes earned from foreign trade dropped 13.9 percent, and from corporate income tax by 56.0 percent. Non-tax revenue decreased by 70.0 percent from the same period in 2008.

Source: www.nso.mn

DROP IN BOTH INDUSTRIAL OUTPUT, PRODUCTIVITY Total industrial output in February 2009 was MNT290.4 billion at current prices, 26.5 per cent less than in February last year and 24.5 per cent less than in January 2009. Output in the mining and quarrying sector has fallen 41.8 per cent from February 2008 and 17.0 per cent from January 2009. At the end of February 2009, the industrial production index was down 4.7 points from the previous month. Figures for February show industrial productivity (at current prices) has decreased by 21.6 per cent from the same month last year. Industrial products worth MNT278.4 billion (at current prices) were sold at domestic and foreign markets.

Source: www.nso.mn

MNT KEEPS FALLING AGAINST MAJOR CURRENCIES The Central Bank's nominal rate of MNT against USD was 1,471.45 at the end of February 2009, weakening 25.6 percent from 12 months ago. The MNT fell 6.5 percent in a month. The corresponding rates against EUR were 1,906.41, 7.8 percent, and 5.5 percent respectively. Against CNY these stood at 215.21, 30.7 percent, and 6.5 percent, respectively, while the corresponding rates against RUB were 41.15, 15.3 percent, and 3.5 percent respectively.

Source: www.mongolbank.mn

FOREIGN CURRENCY DEPOSITS RISE Money supply (broad money or M2) at the end of February, 2009 was MNT117.2 billion or 5.2 percent more than in January, 2009, but 1.7 percent less than in February, 2008. Currency issued in circulation increased by 14.6 percent over the previous month, and 28.2 percent more than in February, 2008. MNT deposits increased by 2.0 percent over January, but were 18.1 percent less than in February, 2008. Foreign currency deposits increased by 9.8 percent over January and by 30.4 percent over February, 2008. The amount of outstanding loans rose by 0.5 percent over January, and by 20.4 percent over February, 2008. Compared with February, 2008, loans to individuals fell by 8.4 percent, but those to the private sector rose by 31.1 percent. Loans to the public sector and to other financial corporations decreased by 20.1 percent and 17.9 percent respectively. Principals in arrear increased by 14.3 percent over January and 2.9 times over February, 2008. Quantum of doubtful loans rose 1.2 percent over January, and 2.9 points over February, 2008. Non-performing loans were 7.4 percent of the total loans outstanding, an increase by 4.3 points over February, 2008.

Source: www.mongolbank.mn

RISE IN NUMBER OF JOBLESS, ALSO OF NEW JOBS The number of the registered unemployed stood at 32,200 at the end of February, an increase of 6.9 per cent over the figure for the corresponding period in 2008. Women accounted for 57.4 per cent of them. The number of newly registered unemployed people rose 43.1 per cent when compared to figures a year ago. People getting jobs also rose, by 20.1 per cent from February, 2008. There were 2,039 new jobs in February 2009. This is 233 more than in January and 295 more than in February, 2008. Of the total 3,800 people who got new jobs in the first two months of 2009, 16.4 per cent entered service in government- or state-owned enterprises and the remaining 83.6 per cent were absorbed in companies, cooperatives or small-scale private businesses. So far the Employment Support Fund has distributed, through banks and non-banking financial institutions, MNT4.4 billion to 530 self-employed people, 698 unemployed people, 326 herders and 63 establishments.

Source: Montsame

EXTERNAL TRADE TURNOVER AND SURPLUS FALL Total external trade turnover in the first two months of 2009 equaled USD438.2 million, of which exports accounted for USD232.4 million and imports USD205.8 million. The resultant surplus of USD26.5 million was USD30.8 million less than what it was in the same period last year. The total external trade turnover decreased by 45.9 percent in this period, exports by 46.4 percent and imports by 45.3 percent. Much of the decrease is attributed to the fall in the value of copper concentrate by 57.0 percent, of zinc concentrate by 90.9 percent, and of gold, in unwrought or semi-manufactured forms, by 41.2 percent. The volume of export of copper decreased by 6.0 percent, of zinc by 79.2 percent, and of gold by 39.7 percent. Petroleum import went down 32,700 tons or USD38.2 million, flour imports by 23,500 tons or USD9.6 million, car imports by 1,900 pieces or USD4.7 million. Electricity imports increased by 4.7 mgWt or USD243,300.

Source: National Statistics Office

AVERAGE HOUSEHOLD INCOME RISES 22.9% YOY A survey of 2,808 households in Ulaanbaatar city and 21 aimags has revealed that the average household monthly income in the 4th quarter of 2008 was MNT 343,500, a 22.9 per cent increase over the corresponding period in 2007. The average monthly expenditure was MNT 365,000, or 15.7 per cent more than in the same period the previous year.

Source: Montsame

CHINESE TRADERS BUY UP CASHMERE CHEAP Herders had a bad time last year as the price of a kilogram of cashmere dropped from MNT40, 000 to MNT16,000, and much remained unsold. This year, things are not much better. Traders at wholesale markets in Ulaanbaatar note that very little has been coming there from rural areas.

They think this is so because Chinese traders have already bought up all the cashmere with the herders. The price they pay is around MNT18,000 for a kilo. Chinese traders were largely absent last year, for several reasons. New cashmere should sell for more, around MNT25,000, but the Chinese traders buy for cash, and buy in quantity, usually taking all that a herder has. This persuades the producer to sell for a lower price. The Chinese have this advantage because they come with adequate loans from their banks and fan out all over Mongolia. Local buyers have always complained that they cannot match the Chinese offer because they do not have so much ready cash. This year, chances of getting credit from banks are even less and so local cashmere manufacturers fear they will have to be content with poor grade leftovers.

Source: Ardiin Erkh

MONGOLIA RESUMES IMPORT OF DAIRY COWS FROM CHINA Mongolia has resumed import of dairy cows from China, which were suspended for about two months following an outbreak of foot-and-mouth disease. The General Administration of Quality Supervision, Inspection and Quarantine in China recently announced that 50 Holstein cows had tested safe and entered Mongolia via an Inner Mongolia city, Erenhot. The Mongolian Government suspended imports at the end of 2008, after foot-and-mouth disease type Asia-1 was detected in China's northwestern Gansu Province.

Source: Xinhua

POLITICS

BAYAR TO VISIT RUSSIA NEXT WEEK Prime Minister S. Bayar will pay an official visit to Russia next week at the invitation of his Russian counterpart Vladimir Putin, the Mongolian Ministry of Foreign Affairs and Trade has announced. The two prime ministers will hold talks on bilateral relations and economic and trade cooperation.

Source: www.xinhuanet.com

DP THREATENS BOYCOTT IF CHILD ALLOWANCE IS CUT The DP group in Parliament has come out against any reduction in the quantum of the child allowance, let alone its withdrawal. Its opposition does not extend to the proposed cut in the allowance to the newly married. MP D.Odkhuu told newsmen, “The DP is 100 percent against the proposal to cut or eliminate the child money, and if it is included in the third discussion of the revised budget provisions, the party will boycott Parliament and the debate.” The party’s MPs feel that with household incomes considerably reduced, the child allowances must be maintained at their current level.

Source: www.news.mn

FORMER FILIPINO OMBUDSMAN AND HONK KONG EXPERT HELPING MONGOLIA FIGHT CORRUPTION

Former Filipino Ombudsman Simeon Marcelo is in Mongolia with Hong Kong graft buster Tony Kwok to take part in international efforts to help the country with its renewed anti-corruption campaign. Mr. Marcelo and Mr. Kwok were invited by the Asia Foundation to attend meetings aiming to strengthen the investigation, prosecution, and adjudication of corruption cases in the country. They plan to meet with Mongolia’s Attorney General’s Office, members of the Judiciary, Parliament and Government, and officials from the Independent Authority Against Corruption (IAAC). Mr. Kwok has 36 years of law enforcement experience. Since his retirement, he has been providing anti-corruption consultancy services to more than 15 countries. In the 2002 Hong Kong Honors List, Mr. Kwok was awarded the Silver Bauhinia Star in recognition of his contribution to the success of the fight against corruption in Hong Kong. Mr. Marcelo led the prosecution team that obtained the conviction of former President Joseph Estrada. After resigning as Ombudsman in 2005 because of health reasons, Mr. Marcelo was last year inducted into the World Bank’s Independent Advisory Board where he advises on the institution’s anti-corruption measures.

Aside from sharing their experiences in fighting corruption, the two graft fighters will help with capacity building efforts to support the renewed anti-corruption campaign in Mongolia. In 2006, Mongolia passed its Anti-Corruption Law and established the IAAC, which is now in the process of developing strategy and operating procedures while recruiting and training its staff. The IAAC launched its first investigations in 2007. Since then, more than 200 cases have been investigated. At present, a sizable number of Mongolian government officials are under prosecution, including a former Central Bank Governor and a member of Parliament. The anti-corruption campaign in Mongolia has also led to jail terms for more than 20 senior and mid-ranking officials from various political parties.

Source: http://www.abs-cbnnews.com

SPECIAL REVIEW OF LABOR SAFETY MEASURES AFTER RISE IN ACCIDENTS The number of industrial accidents increased by 43.1 percent last year and that of casualties by 81.8 percent. There were 123 accidents in the construction sector, killing 63 and injuring 84 others. The number of mining accidents reached 95 involving 123 people. The number of deaths was seven times more than in 2007. Judging this to be an alarming trend, the State Professional Monitoring Agency plans to run a special review of labor safety arrangements in the construction sector from April 1 through June 1 and in the mining sector between July 1 and September 1. The review will cover labor relations, labor safety, labor hygiene, employment of foreign citizens, social insurance etc.

Source: Montsame

MORE SEEDS NEEDED FOR SPRING PLANTATION Following the bountiful harvest last year, agricultural companies are preparing in a big way for the spring plantation. The availability of quality seeds is one of the main problems. Companies and farmers stocked 17,000 tons of seed last year and there are 11,000 tons more in the national reserve, but another 10,000 tons are required. The Ministry for Food, Agriculture and Light Industry has announced a tender for supply of 5,000 tons of wheat seed appropriate for the Mongolian soil. A tender has been issued for purchase of 100 high-capacity tractors. Once they come, they will be sold to farmers on easy terms. The Ministry is trying to get a Russian loan of MNT300 million for various equipment that can be paid for in 5-7 years.

Source: Ardiin Erkh

MARGINAL RISE IN NATIONWIDE CRIME RATE The number of recorded cases of crime in the first two months of 2009 rose by 0.7 per cent over the same period last year. The rate of the rise in Ulaanbaatar was, however, higher - 6.0 per cent. Nationwide there were fewer muggings, traffic violations, acts of violence against children, and thefts. Increases were recorded in crimes against environmental protection, against human freedoms, rights and reputation, robbery, forgery, fraud, attempted murder, violent attacks, and violating administrative rules. Altogether crimes caused damage worth MNT9.8 billion of which MNT0.9 billion was restituted by the offenders.

Source: www.nso.mn

ONE VOTE MAJORITY FOR MOVE TO BAIL OUT ROAD COMPANIES At a time when drastic cuts are being made in State expenses to plug the budget deficit, Parliament last week passed a proposal to reimburse several road construction companies the MNT11.1 billion they say they spent above their contracted costs because of the unexpected rise in petroleum prices during the work. Several MPs cutting across party lines strongly criticized the move, and the motion was passed by a majority of just one vote. This being a budget issue, it will be discussed again. Among the severest critics of the pay-out were the head of the Standing Committee on Budget, Mr. Ch.Khurelbaatar (MPRP), and Mr. Z.Enkhbold (DP). “Companies implementing tendered work in all sectors have suffered because of the fall in the value of the MNT. What will happen if they now demand such reimbursement? We cannot set a precedent like this,” said Mr. Enkhbold. Mr. Khurelbaatar said that to win tenders companies kept their expenses low, and it was usual that once work started, they asked for more money on many pretexts. “The contracts do not provide for

any help to them in meeting these later problems and the practice has to stop. I ask all of you not to support the bail-out,” he said. Mr. R.Bud (MPRP) supported the payment by saying that in the case of the road companies, 60 percent of their approved expenses were on petroleum. “They worked 1,700-1,800 kilometers away from Ulaanbaatar where prices were even higher. Most of them had taken up to MNT20 billion in bank loans. If we don’t want to stop road construction in the western regions, this money should be paid,” he said.

Source: www.news.mn

SUGGESTION TO PROVIDE HEATING FOR ONE MONTH LESS The Standing Committee discussing the revised budget is reviewing every amendment with great care. Last week it approved two proposals. The first will save MNT14 billion by reducing the annual heating period by one month. The second will limit the use of fuel by State organization vehicles to 30 km per day, instead of the 70 km at present. Another MNT7.6 billion will be saved from the expenses for medicine. However there was no support for a plan to save MNT7 billion from the budgeted outlay for military and police uniform. Mr. Ts.Nyamdorj, Minister of Justice and Interior, reminded members that the saving might end up in “people finding police personnel in torn uniforms and border soldiers without shoes”.

Source: Ardiin Erkh

GENERAL TAX AUTHORITY TO REGISTER NGOs Under a new law that took effect last December, the registration of NGOs is now the responsibility of the General Tax Authority, and not the Internal Affairs Ministry. Registration work has been held up for some time, but the Authority now says that it will soon begin registering unions, foundations, religious organizations, and press associations.

Source: en.News.mn

NEW MONGOLIAN LAWS

The following new amendments to current Mongolian laws were published in the latest weekly Government Bulletin. Unless decided otherwise by Parliament, the laws take effect ten (10) days after publication. Bulletin Date Law 02.13.2009 Amendments to “Law on social welfare to elderly people” Amendments to “Law on Presidential elections in Mongolia” Please visit BCM website, Legislative Committee, for a weekly listing summary of new Mongolian laws. BCM members who wish complete versions of the laws in Mongolian language are welcome to call or email the BCM office (11-332345; info@bcmmongolia.org) to arrange for a convenient pickup.

SPONSORS

ECONOMIC INDICATORS

MSE WEEKLY REVIEW

For the week ended March 06, 2009, trading activity on the Mongolian Stock Exchange (MSE) totaled

279,700 shares with 22 companies traded. Total market value of transactions was MNT 32.8 million.

Total market capitalization of the 358 stock companies listed on the MSE was MNT 448.1 billion,

and increased by MNT 13.8 billion or 3.1 % from the previous week.

The Top-20 Index increased by 127.48 points or 2.7% compared to the previous week, closing at

4,938.92 points. The MSE Composite Index increased by 75.38 points or 3.1% compared to the

previous week, closing at 2,518.56 points.

Most active stocks traded were: Olloo (154,500 shares), Genco Tur Buro (61,500 shares), UID

(32,500 shares), Khuh Gan (20,900 shares), and APU (5,900 shares).

Major share price percentage gainers were: NIC (59.0%), Suu (49.8%), Erdenet Khivs (22.2%),

Baganuur (20.5%), and Gobi (16.3%). Major share price percentage losers were: Eermel (13.0%),

Khorinkhoyordugaar (9.9%), Auto Impex (7.1%), Mon.Tsakh.Kholboo (5.1%), and Tuul Songino Usnii

Nuuts (4.0%).

INFLATION

Year 2006 6.0% [source: National Statistical Office of Mongolia (NSOM)] Year 2007 *15.1% [source: NSOM] Year 2008 *22.1% [source: NSOM] February 28, 2009 *18.2% [source: NSOM] * year over year (yoy)

CURRENCY RATES – March 12, 2009

Currency name Currency Rate

US dollars US 1574.10

Euro EUR 1993.44

Japanese yen JPY 15.99

British pound GBP 2161.08

Hong Kong dollar HKD 202.96

Chinese yuan CNY 230.04

Russian ruble RUB 44.78

South Korean won KRW 1.07

Disclaimer: Except for reporting on BCM’s activities, all information in the BCM NewsWire is selected from various news sources. Opinions are those of the respective news sources.